[Federal Register Volume 74, Number 232 (Friday, December 4, 2009)]
[Rules and Regulations]
[Pages 63544-63560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28883]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
10 CFR Part 609
RIN 1901-AB27
Loan Guarantees for Projects That Employ Innovative Technologies
AGENCY: Office of the Chief Financial Officer, Department of Energy.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On August 7, 2009, the Department of Energy (DOE or the
Department) published a Notice of Proposed Rulemaking and Opportunity
for Comment (NOPR) to make certain changes to the existing regulations
for the loan guarantee program authorized by Section 1703 of Title XVII
of the Energy Policy Act of 2005 (Title XVII or the Act). Section 1703
of Title XVII authorizes the Secretary of Energy (Secretary) to make
loan guarantees for projects that ``avoid, reduce, or sequester air
pollutants or anthropogenic emissions of greenhouse gases; and employ
new or significantly improved technologies as compared to commercial
technologies in service in the United States at the time the guarantee
is issued.'' Section 1703 of Title XVII also identifies ten categories
of technologies and projects that are potentially eligible for loan
guarantees. The two principal goals of section 1703 of Title XVII are
to encourage commercial use in the United States of new or
significantly improved energy-related technologies and to achieve
substantial environmental benefits. DOE believes that commercial use of
these technologies will help sustain and promote economic growth,
produce a more stable and secure energy supply and economy for the
United States, and improve the environment.
Through experience gained implementing the loan guarantee program
authorized by section 1703 of Title XVII, and information received from
industry indicating the wide variety of ownership and financing
structures which participants would like to employ in implementing
projects seeking loan guarantees, DOE believes it is appropriate to
make certain changes to the existing regulations to provide flexibility
in the determination of an appropriate collateral package to secure
guaranteed loan obligations, facilitate collateral sharing and related
intercreditor arrangements with other project lenders, and to provide a
more workable interpretation of certain statutory provisions regarding
DOE's treatment of collateral, consistent with the intent and purposes
of Title XVII. Having considered all of the comments submitted to DOE
in response to the NOPR, the Department today is issuing this final
rule.
DATES: This rule is effective December 4, 2009.
FOR FURTHER INFORMATION CONTACT: David G. Frantz, Director, Loan
Guarantee Program Office, 1000 Independence Avenue, SW., Washington, DC
20585-0121, e-mail: [email protected]; or Susan S. Richardson, Chief
Counsel for the Loan Guarantee Program, Office of the General Counsel,
1000 Independence Avenue, SW., Washington, DC 20585-0121, e-mail:
[email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction and Background
II. Public Comments on the NOPR and DOE's Responses
A. Definition of Eligible Project
B. Definition of Intercreditor Agreement
C. Shorter Amortization for Non-Guaranteed Obligations
D. Opposition to the Rule Change
III. Regulatory Review
A. Executive Order 12866
B. National Environmental Policy Act of 1969
C. Regulatory Flexibility Act
D. Paperwork Reduction Act
E. Unfunded Mandates Reform Act of 1995
F. Treasury and General Government Appropriations Act, 1999
G. Executive Order 13132
H. Executive Order 12988
I. Treasury and General Government Appropriations Act, 2001
J. Executive Order 13211
K. Congressional Notification
L. Approval by the Office of the Secretary of Energy
I. Introduction and Background
Today's final rule amends the regulations implementing the loan
[[Page 63545]]
guarantee program authorized by section 1703 of Title XVII of the
Energy Policy Act of 2005 (42 U.S.C. 16511-16514) (referred to as Title
XVII). Section 1703 of Title XVII authorizes the Secretary of Energy
(Secretary), after consultation with the Secretary of the Treasury, to
make loan guarantees for projects that ``(1) avoid, reduce, or
sequester air pollutants or anthropogenic emissions of greenhouse
gases; and (2) employ new or significantly improved technologies as
compared to commercial technologies in service in the United States at
the time the guarantee is issued.'' (42 U.S.C. 16513(a))
On August 7, 2009, the Department published a Notice of Proposed
Rulemaking and Opportunity for Comment (NOPR, 74 FR 39569) to make
certain changes to the regulations for the Title XVII loan guarantee
program.
Section 1702 of Title XVII outlines general terms and conditions
for loan guarantee agreements and directs the Secretary to include in
loan guarantee agreements ``such detailed terms and conditions as the
Secretary determines appropriate to (i) protect the interests of the
United States in case of a default; and (ii) have available all the
patents and technology necessary for any person selected, including the
Secretary, to complete and operate the project. (42 U.S.C.
16512(g)(2)(c)). Further, section 1702(d) addresses certain threshold
requirements that must be met before the guaranty is made; and section
1702(g) addresses the Secretary's rights in the case of default of the
loan. Specifically, section 1702(d) of Title XVII states, under the
heading ``Repayment'' and addressing ``Subordination,'' that ``[t]he
[guaranteed] obligation shall be subject to the condition that the
obligation is not subordinate to other financing.'' Further, when
addressing the situation of default, section 1702(g)(2) of Title XVII
states, with respect to ``subrogation'' and ``superiority of rights,''
that ``[t]he rights of the Secretary, with respect to any property
acquired pursuant to a guarantee or related agreements, shall be
superior to the rights of any other person with respect to the
property.''
On October 23, 2007, DOE issued a final rule implementing Title
XVII. In that final rule, DOE interpreted the interplay between these
two provisions of section 1702 such that both describe the rights the
Secretary must secure as a condition of making a guarantee. This
understanding is reflected in the text of the regulations which
requires that the Secretary receive a first lien security interest in
all project assets as an incident to making a guarantee. Moreover, this
interpretation of the applicability of the superiority of rights
provision as a required element of the Secretary's making a guarantee
was embedded in the text of the rule and was made explicit in the
preambles to the proposed and final rules implementing section 1703 of
Title XVII.
The Department has critically reexamined the statute, particularly
its text and structure, and now concludes, as described below, that the
interpretation of the statute requiring receipt of a first lien on all
project assets is not one that it was legally compelled to adopt, and
was not correct. A first lien on all project assets is better
understood as one element that the Secretary may require for a
particular project, but is not compelled by the statute to require.
This final rule reflects what the Department has concluded is the
correct interpretation of section 1702.
First, it should be borne in mind that nowhere does section 1702
itself require that the Secretary receive a first lien on all project
assets as a condition of his ability to make a loan guarantee. Instead
the statute requires only that the Secretary's guaranteed obligation
``not be subordinate to other financing.'' In fact, section 1702 does
not require that the lender or the Secretary receive any collateral as
a statutory requirement for making a loan guarantee.
Next, the ``first lien on all project assets'' requirement
contained in the regulations seems traceable only to the ``superiority
of rights'' provision contained in section 1702(g)(2)(B). The structure
and wording of the statute, however, is indicative that section
1702(g)'s provisions are designed to govern post-default rights of the
Secretary, rather than to impose conditions that must be met at the
time the Secretary determines to make a loan guarantee. So understood,
the ``property acquired'' as to which the Secretary's rights ``shall be
superior to the rights of any other person'' relates to property
``acquired'' by the Secretary pursuant to his right of subrogation to
the rights of the lender in any collateral or security interest.
As a structural matter, it is notable that the ``superiority of
rights'' provision appears within and under the heading ``subrogation''
contained in section 1702(g)(2). Consideration of the structure of the
statute is aided by the various captions that introduce its various
substantive provisions. In general, those captions--first
``repayment,'' then ``subordination,'' then ``defaults,'' ``payment by
the Secretary,'' ``subrogation,'' and then ``superiority of rights,''
reinforce the structural understanding of the statute as keying its
particular provisions to the sequence of stages that are foreseeable in
the loan guarantee relationship. So perceived, the topic of
``superiority of rights'' would become germane only as a subset of the
sequence that begins with a ``default'' and after ``payment by the
Secretary.''
It is also notable that the ``superiority of rights'' provision
does not contain terms such as ``lien'', ``security interest'',
``collateral'' or the like, which could lead one to conclude that the
plain meaning of the provision is to require a first lien on all
project assets. Instead, the provision uses the words ``any property
acquired'' with ``acquired'' in the past tense, which would indicate
that the provision is intended to apply to property that has actually
been acquired rather than property that one may or is entitled to
acquire (as in the granting of a lien or security interest in
collateral), which further supports DOE's interpretation.
Moreover, in reviewing applications for projects seeking a loan
guarantee under section 1703 of Title XVII, DOE became aware that its
original reading of the statute was in tension with the financing
structure of many commercial transactions in the energy sector. For
example, the tenancy in common ownership structure proposed for the
next generation of nuclear generating facilities, under which multiple
entities own undivided interests in a single facility, does not lend
itself to the unitary project ownership anticipated by the regulations.
In fact, tenancy in common is the typical form of ownership of utility
grade power plants that are jointly owned by public power agencies,
cooperative power systems and investor-owned utilities. Approximately
one-third of all currently operating nuclear power reactors, and
approximately one-third of all planned nuclear power reactors for which
applications are pending at the Nuclear Regulatory Commission are
jointly owned through tenancies in common. As such, each owner holds an
undivided interest in the physical project assets, and each owner
typically finances its investment in the project separately. In this
scenario, DOE would not be guaranteeing a direct loan to a project
company, and may be guaranteeing the loan obligations of only some but
not all of the project owners. As a result, it may not be commercially
feasible to obtain a lien on all project assets. Moreover, in certain
circumstances, both in large infrastructure projects and in smaller
[[Page 63546]]
projects, creditworthy sponsors may be willing to offer a corporate
lending structure in which DOE would rely on the balance sheet of the
sponsor. In such a case, the credit of the sponsor may be sufficient to
support a more modest pledge of assets.
Additionally, in response to prior solicitations, DOE has received
expressions of interest from Export Credit Agencies (ECAs) concerning
their possible participation in eligible projects as co-lenders, co-
guarantors or insurers of loans. ECAs are governmental, quasi-
governmental, or private institutions supported by and acting on behalf
of their host governments that facilitate financing for home country
exporters doing business in other nations. In addition to ECAs, there
is a variety of other potential sources of financing for power
generation projects, including municipal bond financing. There also
could be interest rate or commodity hedging agreements and, after
completion, working capital facilities for project companies. The ECAs,
and likely the other sources of financing, will expect to share, on a
pari passu basis, in collateral pledged to secure the borrower's debt
obligations.
Thus, the interpretation of the statute contained in the October
23, 2007, final rule effectively disqualifies from participation in
Title XVII programs proposed energy production facilities that employ
innovative technologies that are jointly owned through a tenants in
common structure or where there are appropriate co-lenders or co-
guarantors who require a pari passu structure. DOE does not believe
that a statute intended to encourage commercial use in the United
States of new or significantly improved energy-related technologies
would be written in a way as to make ineligible such industry
participants.
As stated and explained above, DOE has concluded that section 1702
of Title XVII does not mandate that DOE receive a first lien position
on all projects assets. In light of this interpretation of section 1702
of Title XVII, DOE is issuing this final rule which amends the existing
regulations. Specifically, to ensure that the loan guarantee program
has the ability to respond to the kinds of structuring issues discussed
above, this final rule deletes the requirement of a first priority lien
on all project assets (and other pledged collateral) and leaves to the
Secretary the determination of an appropriate collateral package, as
well as intercreditor arrangements. Such a determination by the
Secretary is contemplated by sections 1702(a) and 1702(g)(2)(C), and
remains subject to the requirement of section 1702(d)(3) that the
guaranteed obligation not be subordinate to other financing. The
Department believes that having the flexibility to determine on a
project-by-project basis the scope of the collateral package and
whether pari passu lending is in the best interests of the United
States, will enable the Department to reduce its exposure on individual
projects, diversify its portfolio and maximize the benefits of the
resources available for the loan guarantee program.
II. Public Comments on the NOPR and DOE's Responses
The NOPR provided for the submission of comments through September
8, 2009. DOE received from the public several requests to extend the
comment period. In response to those requests for additional time to
comment on the proposed rule, DOE extended the comment period by two
weeks.
DOE received timely comments on the NOPR from 2,123 interested
parties (excluding requests for the extension of the comment period).
DOE carefully reviewed all comments timely received on the NOPR.
Many of the comments that were received address matters that are
not related to the specific rule changes proposed in the NOPR and are
therefore outside the scope of this rulemaking. While DOE reviewed all
of those comments, DOE will not address in this final rule any comments
that are not within the scope of this rulemaking.
DOE summarizes below public comments received on the NOPR that are
within the scope of this rulemaking, and discusses the Department's
responses to those comments. In three cases, as described below, the
Department made adjustments to the rule text as set forth in the NOPR.
In addition, the Department made technical adjustments to the rule text
in this final rule to implement more effectively the rule change and
also made editorial and other corrections to the rule text that are not
discussed in this preamble.
A. Definition of Eligible Project
Public Comments: Section 609.2 of the regulations defines
``Eligible Project'' to mean ``a project located in the United States
that employs a New or Significantly Improved Technology that is not a
Commercial Technology, and that meets all applicable requirements of
section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation
and this part.'' Several commenters expressed the view that this
definition should be amended to clarify that an ``Eligible Project''
may include an undivided interest (i.e., interest held as a tenant in
common) in a project or facility. As mentioned in the preamble, tenancy
in common is the typical form of ownership of utility grade power
plants that are jointly owned by public power agencies, cooperative
power systems and investor-owned utilities.
DOE Response: DOE notes that the term ``project'', which is used in
the definition of ``Eligible Project'', is not defined in Title XVII.
DOE believes that the term ``project'' should be given its plain
meaning to include any ``planned undertaking'', which would include any
project consisting of an undivided interest (i.e., interest held as a
tenant in common) in project assets or facilities. As such, DOE
believes that it is unnecessary to amend the definition of ``Eligible
Project'' to include any text referring to ``undivided interest'',
``tenancy in common'' or the like. However, DOE has adjusted the rule
text in Sections 609.4(b) and 609.6(b)(5) of the regulations to clarify
that applicants may submit project proposals with respect to their
undivided ownership interests in project assets or facilities.
B. Definition of Intercreditor Agreement
Public Comments: Several commenters proposed technical changes to
the definition of ``Intercreditor Agreement'' based on a concern that
the definition may have been drafted too narrowly to accomplish one of
the stated purposes of the rule change, which is to provide DOE with
flexibility in the determination of appropriate collateral sharing and
related intercreditor arrangements with other project lenders.
DOE Response: DOE has carefully reviewed these proposed technical
changes and, based on these comments as well as DOE's further review,
has made technical adjustments to the definition of ``Intercreditor
Agreement''. DOE believes that the modified definition of
``Intercreditor Agreement'', as reflected in this final rule, provides
the necessary flexibility to DOE while protecting the interests of the
United States by requiring that any such agreement be ``in form and
substance satisfactory to DOE''.
C. Shorter Amortization of Non-Guaranteed Obligations
Public Comments: Section 609.10(d)(6) of the regulations provides
that ``[t]he non-guaranteed portion of any Guaranteed Obligation must
be repaid on a pro-rata basis, and may not be repaid on a shorter
amortization schedule than the guaranteed portion.'' Several commenters
expressed concern that this provision may prevent certain
[[Page 63547]]
credit providers, including Export Credit Agencies (ECAs) and other
financial institutions, from participating in financings of Eligible
Projects if such institutions require repayment on a shorter
amortization schedule than the DOE-guaranteed loan. As indicated in the
preamble, there exists a variety of potential sources of financing for
power generation projects, including, but not limited to, ECAs.
DOE Response: DOE has carefully reviewed this issue and recognizes
that there may be a diversity of appropriate financing arrangements and
circumstances, including but not limited to participation by ECAs and
other financial institutions, for the types of projects potentially
eligible for DOE loan guarantees. DOE also recognizes that increasing
the number of financial institutions that can participate in financings
of Eligible Projects may have the effect of diversifying project-
related risks. Accordingly, DOE has made adjustments to the text of
Section 609.10(d)(6) of the regulations to permit shorter or faster
amortization schedules for project-related financing or other credit
arrangements (other than the Guaranteed Obligation), if DOE determines
that the resulting financing structure of the project (1) allocates to
DOE a reasonably proportionate share of the default risk, in light of
(i) DOE's share of the total project financing, (ii) risk allocation
among the credit providers, and (iii) internal and external credit
enhancements; and (2) is appropriate to assure reasonable prospect of
repayment of the principal of and interest on the DOE Guaranteed
Obligation and to protect the interests of the United States in the
case of default.
D. Opposition to the Rule Change
Public Comments: DOE received comments from a number of commenters
opposed to the development of nuclear energy in general. These
commenters expressed concern that the rule change appears to be
promulgated with only one interest in mind--that of the nuclear power
industry--and are opposed to the rule change. These commenters also
expressed concern that the rule change will add unnecessary risk, such
as the risk that taxpayers' money will be lost by ``waiving'' DOE's
first lien rights to collateral.
DOE received a joint comment from a number of environmental and
civic organizations (collectively, the ``Joint Comment'') that made a
number of assertions, including: (1) That the rule change violates or
is inconsistent with Title XVII of the Act, (2) that DOE has failed to
explain why DOE's interpretations and rationales in the preamble to the
2007 final rule with respect to the first lien issue are incorrect, (3)
that the rule change does not provide DOE with a basis for establishing
terms or conditions of loan guarantee agreements that provide ``a
reasonable prospect of repayment of the principal and interest'' on a
loan, (4) that the rule change unreasonably gives the Secretary
unbridled discretion in establishing substitutions for the protection
of a first lien, and (5) that by the rule change DOE will encourage
risky investments and raise the potential for defaults.
DOE received a comment from a self-described ``budget watchdog''
group expressing concern that the removal of the first lien requirement
will weaken protections for the taxpayers and will jeopardize the
recovery of taxpayer-provided loan guarantee funds.
DOE received a comment from an environmental group that made a
number of assertions, including (1) that the rule change conflicts with
the statute, (2) that DOE's analysis is irrational and does not comport
with the statute's plain language, (3) that there is insufficient
evidence to support DOE's reasoning for the rule change, and (4) that
the rule change will place taxpayer dollars at risk. In particular, the
commenter asserted that the plain meaning of section 1702(d)(3) (which
provides that ``the obligation shall be subject to the condition that
the obligation is not subordinate to other financing'') is to require a
first lien on collateral. This assertion is based on the reasoning that
the word ``subordinate'' means ``inferior'' and therefore the meaning
of the words ``not subordinate'' would be the antonym of
``subordinate'' or ``inferior'' which is ``superior''.
DOE Response: As explained in this preamble, DOE has concluded that
section 1702 of Title XVII does not mandate that DOE receive a first
lien position on all projects assets, and it is in light of this
interpretation of section 1702 of Title XVII that DOE is issuing this
final rule. DOE believes that the rule change, as reflected in this
final rule, is correct as a matter of statutory interpretation and will
facilitate the implementation of section 1703 of Title XVII.
It should be noted that under section 1703(b) of Title XVII,
Congress expressly provided for ten categories of projects that are
eligible for DOE loan guarantees, and one of those categories is
``advanced nuclear energy facilities.'' It should also be noted that
the rule change, as reflected in this final rule, is not limited to any
one particular energy sector or industry. DOE believes that this final
rule will facilitate the financing of a variety of eligible projects,
as authorized by Congress, across different energy sectors and
industries.
With respect to the comments regarding risk, it should be noted
that the rule change, as reflected in this final rule, does not mean
that DOE ``waives'' its right to require first lien rights in
collateral for any project. Rather, it correctly leaves to the
Secretary the determination of an appropriate financing structure,
including a collateral package, credit support and intercreditor
arrangements, for individual projects. DOE believes that this
flexibility is in the best interests of the United States, as it gives
the Department the ability to participate in projects that contain
diversified funding sources. DOE believes that instead of increasing
risk, this approach will likely reduce DOE's risk--by reducing DOE's
exposure (i.e., the amount of the DOE-guaranteed loan) on individual
projects that also receive financing from non DOE-guaranteed sources--
and consequently should help DOE diversify its portfolio.
With respect to the Joint Comment, DOE responds as follows:
(1) DOE believes that its interpretation of the Act, as reflected
in the rule change, is correct as a matter of statutory interpretation
and is consistent with the provisions, intent and purposes of the Act,
for the reasons set forth above;
(2) DOE believes that, in the preamble to the NOPR and above, it
has adequately explained its reasoning behind the rule change,
including why the interpretations and rationales provided in the
preamble to the 2007 final rule were incorrect. Additionally, DOE
believes that its straightforward interpretation of the Act, as
expressed in this final rule, renders unnecessary the convoluted
reasoning in the preamble to the 2007 final rule which concluded that
while pari passu liens on project assets are prohibited by the statute,
DOE may nevertheless agree to share the proceeds of collateral in a
pari passu manner as long as DOE controls the disposition of all
project assets. Under that strained reasoning, DOE may enter into
intercreditor or other arrangements to share proceeds from the sale of
project collateral with lenders or other holders of the non-guaranteed
portion of the DOE-guaranteed loan facility, but without explanation as
to why co-lenders or co-guarantors who provide separate credit
facilities and do not participate in the DOE-guaranteed loan facility
are excluded from making any
[[Page 63548]]
such intercreditor or other arrangements;
(3) DOE does not believe that the rule change will prevent or
hinder DOE from requiring an appropriate financing structure, including
collateral arrangements and credit support, on any individual project
in order to make the determination that there is ``a reasonable
prospect of repayment of the principal and interest'' on the related
loan. This requirement with respect to each loan guarantee will
continue to be in effect. As explained above, the rule change does not
``waive'' DOE's right to require first liens or otherwise require an
appropriate collateral package and credit support for any project. It
should also be noted that this final rule contains numerous criteria
for the programmatic, technical and financial evaluation of loan
guarantee applications;
(4) DOE notes that section 1702(g)(2)(C) of Title XVII provides
that ``a guarantee agreement shall include such detailed terms and
conditions as the Secretary determines appropriate to (i) protect the
interests of the United States in the case of default''. Accordingly,
the Act gives the Secretary the discretion in determining what is
``appropriate'' with respect to the ``detailed terms and conditions''
of a loan guarantee agreement in the case of default. As explained
above, the rule change correctly provides the Secretary with the
flexibility to determine appropriate terms and conditions, including
collateral, credit support and intercreditor terms, for individual
projects; and
(5) DOE does not believe that the rule change itself will result in
increased risk-taking or potential for defaults but rather, as
explained above, the rule change will likely enhance the ability of DOE
to reduce its risks.
With respect to the comments from the ``budget watchdog'' group,
the rule change, as explained above, does not ``waive'' DOE's right to
require first liens or otherwise to require an appropriate collateral
package and credit support on any project. DOE will continue to be
required to determine that there is ``a reasonable prospect of
repayment of the principal and interest'' for each DOE-guaranteed loan.
DOE will also continue to require such terms and conditions for
guarantee agreements as DOE determines appropriate to protect the
interests of the United States in the case of default.
With respect to the comment from the environmental group regarding
the plain meaning of section 1702(d)(3), DOE notes that the plain
meaning of ``not X'' does not necessarily mean the antonym or opposite
of ``X''. For example, the phrase ``not less than'' does not simply
mean ``greater than'' but should more properly be understood to mean
``equal to or greater than.'' DOE believes that a pari passu (a Latin
term meaning ``with equal step'') obligation is not a subordinate or
inferior obligation.
With respect to the other assertions by the environmental group,
DOE reiterates its responses above and believes that they are
adequately responsive to those assertions.
III. Regulatory Review
A. Executive Order 12866
Today's final rule has been determined to be a significant
regulatory action under Executive Order 12866, ``Regulatory Planning
and Review,'' 58 FR 51735 (October 4, 1993). Accordingly, this action
was subject to review under that Executive Order by the Office of
Information and Regulatory Affairs at Office of Management and Budget
(OMB).
B. National Environmental Policy Act of 1969
Through the issuance of this final rule, DOE is making no decision
relative to the approval of a loan guarantee for a particular proposed
project. DOE has, therefore, determined that publication of this final
rule is covered under the Categorical Exclusion found at paragraph A.6
of Appendix A to Subpart D, 10 CFR part 1021, which applies to the
establishment of procedural rulemakings. Accordingly, neither an
environmental assessment nor an environmental impact statement is
required at this time. However, appropriate NEPA project review will be
conducted prior to execution of a Loan Guarantee Agreement.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis for any rule
that by law must be proposed for public comment, unless the agency
certifies that the rule, if promulgated, will not have a significant
economic impact on a substantial number of small entities. As required
by Executive Order 13272, ``Proper Consideration of Small Entities in
Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE published
procedures and policies on February 19, 2003, to ensure that the
potential impacts of its rules on small entities are properly
considered during the rulemaking process (68 FR 7990). DOE has made its
procedures and policies available on the Office of the General
Counsel's Web site: http://www.gc.doe.gov.
DOE is not obliged to prepare a regulatory flexibility analysis for
this rulemaking because there is no requirement to publish a general
notice of proposed rulemaking for rules related to loans under the
Administrative Procedure Act (5 U.S.C. 553(a)(2)).
D. Paperwork Reduction Act
This final rule involves a collection of information previously
approved by OMB under Control Number [1910-5134].
E. Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (Act) (2
U.S.C. 1531 et seq.) requires each Federal agency, to the extent
permitted by law, to prepare a written assessment of the effects of any
Federal mandate in an agency rule that may result in the expenditure by
State, local, and Tribal governments, in the aggregate, or by the
private sector, of $100 million or more (adjusted annually for
inflation) in any one year. The Act also requires a Federal agency to
develop an effective process to permit timely input by elected
officials of State, Tribal, or local governments on a proposed
``significant intergovernmental mandate,'' and requires an agency plan
for giving notice and opportunity to provide timely input to
potentially affected small governments before establishing any
requirements that might significantly or uniquely affect small
governments.
The term ``Federal mandate'' is defined in the Act to mean a
Federal intergovernmental mandate or a Federal private sector mandate
(2 U.S.C. 658(6)). Although the rule will impose certain requirements
on non-Federal governmental and private sector applicants for loan
guarantees, the Act's definitions of the terms ``Federal
intergovernmental mandate'' and ``Federal private sector mandate''
exclude, among other things, any provision in legislation, statute, or
regulation that is a condition of Federal assistance or a duty arising
from participation in a voluntary program (2 U.S.C. 658(5) and (7),
respectively). Today's final rule establishes requirements that persons
voluntarily seeking loan guarantees for projects that would use certain
new and improved energy technologies must satisfy as a condition of a
Federal loan guarantee. Thus, this final rule falls under the
exceptions in the definitions of ``Federal intergovernmental mandate''
and ``Federal private sector mandate'' for requirements that are a
condition of
[[Page 63549]]
Federal assistance or a duty arising from participation in a voluntary
program. The Act does not apply to this rulemaking.
F. Treasury and General Government Appropriations Act, 1999
Section 654 of the Treasury and General Government Appropriations
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family
Policymaking Assessment for any proposed rule that may affect family
well being. This final rule would not have any impact on the autonomy
or integrity of the family as an institution. Accordingly, DOE has
concluded that it is not necessary to prepare a Family Policymaking
Assessment.
G. Executive Order 13132
Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999)
imposes certain requirements on agencies formulating and implementing
policies or regulations that preempt State law or that have federalism
implications. Agencies are required to examine the constitutional and
statutory authority supporting any action that would limit the
policymaking discretion of the States and carefully assess the
necessity for such actions. DOE has examined this rule and has
determined that it would not preempt State law and would not have a
substantial direct effect on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government. No further
action is required by Executive Order 13132.
H. Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on
Executive agencies the general duty to adhere to the following
requirements: (1) Eliminate drafting errors and ambiguity; (2) write
regulations to minimize litigation; and (3) provide a clear legal
standard for affected conduct rather than a general standard and
promote simplification and burden reduction. With regard to the review
required by section 3(a), section 3(b) of Executive Order 12988
specifically requires that Executive agencies make every reasonable
effort to ensure that the regulation: (1) clearly specifies the
preemptive effect, if any; (2) clearly specifies any effect on existing
Federal law or regulation; (3) provides a clear legal standard for
affected conduct while promoting simplification and burden reduction;
(4) specifies the retroactive effect, if any; (5) adequately defines
key terms; and (6) addresses other important issues affecting clarity
and general draftsmanship under any guidelines issued by the Attorney
General. Section 3(c) of Executive Order 12988 requires Executive
agencies to review regulations in light of applicable standards in
section 3(a) and section 3(b) to determine whether they are met or it
is unreasonable to meet one or more of them. DOE has completed the
required review and determined that, to the extent permitted by law,
this final rule meets the relevant standards of Executive Order 12988.
I. Treasury and General Government Appropriations Act, 2001
The Treasury and General Government Appropriations Act, 2001 (44
U.S.C. 3516 note) provides for agencies to review most disseminations
of information to the public under guidelines established by each
agency pursuant to general guidelines issued by OMB.
OMB's guidelines were published at 67 FR 8452 (February 22, 2002),
and DOE's guidelines were published at 67 FR 62446 (October 7, 2002).
DOE has reviewed today's final rule under the OMB and DOE guidelines
and has concluded that it is consistent with applicable policies in
those guidelines.
J. Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001) requires Federal agencies to prepare and submit to the
OMB, a Statement of Energy Effects for any proposed significant energy
action. A ``significant energy action'' is defined as any action by an
agency that promulgated or is expected to lead to promulgation of a
final rule, and that: (1) Is a significant regulatory action under
Executive Order 12866, or any successor order; and (2) is likely to
have a significant adverse effect on the supply, distribution, or use
of energy, or (3) is designated by the Administrator of OIRA as a
significant energy action. For any proposed significant energy action,
the agency must give a detailed statement of any adverse effects on
energy supply, distribution, or use should the proposal be implemented,
and of reasonable alternatives to the action and their expected
benefits on energy supply, distribution, and use. Today's regulatory
action would not have a significant adverse effect on the supply,
distribution, or use of energy and is therefore not a significant
energy action. Accordingly, DOE has not prepared a Statement of Energy
Effects.
K. Congressional Notification
As required by 5 U.S.C. 801, DOE will submit to Congress a report
regarding the issuance of today's final rule prior to the effective
date set forth at the outset of this notice. The report will state that
it has been determined that this rule is a ``major rule'' as defined by
5 U.S.C. 804(2).
L. Approval by the Office of the Secretary of Energy
The Secretary of Energy has approved the issuance of this final
rule.
List of Subjects in 10 CFR Part 609
Administrative practice and procedure, Energy, Loan programs, and
Reporting and recordkeeping requirements.
Issued in Washington, DC, on November 30, 2009.
Steve Isakowitz,
Chief Financial Officer.
0
For the reasons stated in the preamble, chapter II of title 10 of the
Code of Federal Regulations is amended by revising part 609 to read as
follows:
PART 609--LOAN GUARANTEES FOR PROJECTS THAT EMPLOY INNOVATIVE
TECHNOLOGIES
Sec.
609.1 Purpose and scope.
609.2 Definitions.
609.3 Solicitations.
609.4 Submission of Pre-Applications.
609.5 Evaluation of Pre-Applications.
609.6 Submission of Applications.
609.7 Programmatic, technical and financial evaluation of
Applications.
609.8 Term Sheets and Conditional Commitments.
609.9 Closing on the Loan Guarantee Agreement.
609.10 Loan Guarantee Agreement.
609.11 Lender eligibility and servicing requirements.
609.12 Project costs.
609.13 Principal and interest assistance contract.
609.14 Full faith and credit and incontestability.
609.15 Default, demand, payment, and collateral liquidation.
609.16 Perfection of liens and preservation of collateral.
609.17 Audit and access to records.
609.18 Deviations.
Authority: 42 U.S.C. 7254, 16511-16514.
Sec. 609.1 Purpose and scope.
(a) This part sets forth the policies and procedures that DOE uses
for receiving, evaluating, and, after consultation with the Department
of the Treasury, approving applications for
[[Page 63550]]
loan guarantees to support Eligible Projects under Section 1703 of
Title XVII of the Energy Policy Act of 2005, as amended.
(b) Except as set forth in paragraph (c) of this section, this part
applies to all Pre-Applications, Applications, Conditional Commitments
and Loan Guarantee Agreements to support Eligible Projects under
Section 1703 of Title XVII of the Energy Policy Act of 2005, as
amended.
(c) Sections 609.3, 609.4 and 609.5 of this part shall not apply to
any Pre-Applications, Applications, Conditional Commitments or Loan
Guarantee Agreements submitted, or entered into, as applicable, on or
before December 31, 2007; provided, that DOE accepted the Pre-
Application and invited an Application pursuant to such Pre-
Application.
(d) Part 1024 of chapter X of title 10 of the Code of Federal
Regulations shall not apply to actions taken under this part.
Sec. 609.2 Definitions.
Act means Title XVII of the Energy Policy Act of 2005 (42 U.S.C.
16511-16514), as amended.
Administrative Cost of Issuing a Loan Guarantee means the total of
all administrative expenses that DOE incurs during:
(1) The evaluation of a Pre-Application, if a Pre-Application is
requested in a solicitation, and an Application for a loan guarantee;
(2) The offering of a Term Sheet, executing the Conditional
Commitment, negotiation, and closing of a Loan Guarantee Agreement; and
(3) The servicing and monitoring of a Loan Guarantee Agreement,
including during the construction, startup, commissioning, shakedown,
and operational phases of an Eligible Project.
Applicant means any person, firm, corporation, company,
partnership, association, society, trust, joint venture, joint stock
company, or other business entity or governmental non-Federal entity
that has submitted an Application to DOE and has the authority to enter
into a Loan Guarantee Agreement with DOE under the Act.
Application means a comprehensive written submission in response to
a solicitation or a written invitation from DOE to apply for a loan
guarantee pursuant to Sec. 609.6 of this part.
Borrower means any Applicant who enters into a Loan Guarantee
Agreement with DOE and issues Guaranteed Obligations.
Commercial Technology means a technology in general use in the
commercial marketplace in the United States at the time the Term Sheet
is issued by DOE. A technology is in general use if it has been
installed in and is being used in three or more commercial projects in
the United States in the same general application as in the proposed
project, and has been in operation in each such commercial project for
a period of at least five years. The five-year period shall be
measured, for each project, starting on the in service date of the
project or facility employing that particular technology. For purposes
of this section, commercial projects include projects that have been
the recipients of a loan guarantee from DOE under this part.
Conditional Commitment means a Term Sheet offered by DOE and
accepted by the Applicant, with the understanding of the parties that
if the Applicant thereafter satisfies all specified and precedent
funding obligations and all other contractual, statutory and regulatory
requirements, or other requirements, DOE and the Applicant will execute
a Loan Guarantee Agreement: Provided that the Secretary may terminate a
Conditional Commitment for any reason at any time prior to the
execution of the Loan Guarantee Agreement; and Provided further that
the Secretary may not delegate this authority to terminate a
Conditional Commitment.
Contracting Officer means the Secretary of Energy or a DOE official
authorized by the Secretary to enter into, administer and/or terminate
DOE Loan Guarantee Agreements and related contracts on behalf of DOE.
Credit Subsidy Cost has the same meaning as ``cost of a loan
guarantee'' in section 502(5)(C) of the Federal Credit Reform Act of
1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time
the Loan Guarantee Agreement is executed, of the following estimated
cash flows, discounted to the point of disbursement:
(1) Payments by the Government to cover defaults and delinquencies,
interest subsidies, or other payments; less
(2) Payments to the Government including origination and other
fees, penalties, and recoveries; including the effects of changes in
loan or debt terms resulting from the exercise by the Borrower,
Eligible Lender or other Holder of an option included in the Loan
Guarantee Agreement.
DOE means the United States Department of Energy.
Eligible lender means:
(1) Any person or legal entity formed for the purpose of, or
engaged in the business of, lending money, including, but not limited
to, commercial banks, savings and loan institutions, insurance
companies, factoring companies, investment banks, institutional
investors, venture capital investment companies, trusts, or other
entities designated as trustees or agents acting on behalf of
bondholders or other lenders; and
(2) Any person or legal entity that meets the requirements of Sec.
609.11 of this part, as determined by DOE; or
(3) The Federal Financing Bank.
Eligible project means a project located in the United States that
employs a New or Significantly Improved Technology that is not a
Commercial Technology, and that meets all applicable requirements of
section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation
and this part.
Equity means cash contributed by the Borrowers and other
principals. Equity does not include proceeds from the non-guaranteed
portion of Title XVII loans, proceeds from any other non-guaranteed
loans, or the value of any form of government assistance or support.
Federal Financing Bank means an instrumentality of the United
States government created by the Federal Financing Bank Act of 1973 (12
U.S.C. 2281 et seq). The Bank is under the general supervision of the
Secretary of the Treasury.
Guaranteed Obligation means any loan or other debt obligation of
the Borrower for an Eligible Project for which DOE guarantees all or
any part of the payment of principal and interest under a Loan
Guarantee Agreement entered into pursuant to the Act.
Holder means any person or legal entity that owns a Guaranteed
Obligation or has lawfully succeeded in due course to all or part of
the rights, title, and interest in a Guaranteed Obligation, including
any nominee or trustee empowered to act for the Holder or Holders.
Intercreditor Agreement means any agreement or instrument among DOE
and one or more other persons providing financing or other credit
arrangements or that otherwise provides for rights of DOE, in each
case, in form and substance satisfactory to DOE and entered into or
accepted by DOE in connection with a DOE loan guarantee upon a
determination by DOE that such agreement or instrument is reasonable
and necessary to protect the interests of the United States, and
addressing such matters as collateral sharing, priorities (subject
always to Section 1702(d)(3) of Title XVII) and voting rights among
creditors and other intercreditor arrangements, as such agreement or
instrument may be amended or
[[Page 63551]]
modified from time to time with the consent of DOE.
Loan Agreement means a written agreement between a Borrower and an
Eligible Lender or other Holder containing the terms and conditions
under which the Eligible Lender or other Holder will make loans to the
Borrower to start and complete an Eligible Project.
Loan Guarantee Agreement means a written agreement that, when
entered into by DOE and a Borrower, an Eligible Lender or other Holder,
pursuant to the Act, establishes the obligation of DOE to guarantee the
payment of all or a portion of the principal and interest on specified
Guaranteed Obligations of a Borrower to Eligible Lenders or other
Holders subject to the terms and conditions specified in the Loan
Guarantee Agreement.
New or Significantly Improved Technology means a technology
concerned with the production, consumption or transportation of energy
and that is not a Commercial Technology, and that has either:
(1) Only recently been developed, discovered or learned; or
(2) Involves or constitutes one or more meaningful and important
improvements in productivity or value, in comparison to Commercial
Technologies in use in the United States at the time the Term Sheet is
issued.
OMB means the Office of Management and Budget in the Executive
Office of the President.
Pre-Application means a written submission in response to a DOE
solicitation that broadly describes the project proposal, including the
proposed role of a DOE loan guarantee in the project, and the
eligibility of the project to receive a loan guarantee under the
applicable solicitation, the Act and this part.
Project costs means those costs, including escalation and
contingencies, that are to be expended or accrued by Borrower and are
necessary, reasonable, customary and directly related to the design,
engineering, financing, construction, startup, commissioning and
shakedown of an Eligible Project, as specified in Sec. 609.12 of this
part. Project costs do not include costs for the items set forth in
Sec. 609.12(c) of this part.
Project Sponsor means any person, firm, corporation, company,
partnership, association, society, trust, joint venture, joint stock
company or other business entity that assumes substantial
responsibility for the development, financing, and structuring of a
project eligible for a loan guarantee and, if not the Applicant, owns
or controls, by itself and/or through individuals in common or
affiliated business entities, a five percent or greater interest in the
proposed Eligible Project, or the Applicant.
Secretary means the Secretary of Energy or a duly authorized
designee or successor in interest.
Term Sheet means an offering document issued by DOE that specifies
the detailed terms and conditions under which DOE may enter into a
Conditional Commitment with the Applicant. A Term Sheet imposes no
obligation on the Secretary to enter into a Conditional Commitment.
United States means the several States, the District of Columbia,
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American
Samoa or any territory or possession of the United States of America.
Sec. 609.3 Solicitations.
(a) DOE may issue solicitations to invite the submission of Pre-
Applications or Applications for loan guarantees for Eligible Projects.
DOE must issue a solicitation before proceeding with other steps in the
loan guarantee process including issuance of a loan guarantee. A
Project Sponsor or Applicant may only submit one Pre-Application or
Application for one project using a particular technology. A Project
Sponsor or Applicant, in other words, may not submit a Pre-Application
or Application for multiple projects using the same technology.
(b) Each solicitation must include, at a minimum, the following
information:
(1) The dollar amount of loan guarantee authority potentially being
made available by DOE in that solicitation;
(2) The place and time for response submission;
(3) The name and address of the DOE representative whom a potential
Project Sponsor may contact to receive further information and a copy
of the solicitation;
(4) The form, format, and page limits applicable to the response
submission;
(5) The amount of the application fee (First Fee), if any, that
will be required;
(6) The programmatic, technical, financial and other factors the
Secretary will use to evaluate response submissions, including the loan
guarantee percentage requested by the Applicant and the relative
weightings that DOE will use when evaluating those factors; and
(7) Such other information as DOE may deem appropriate.
Sec. 609.4 Submission of Pre-Applications.
In response to a solicitation requesting the submission of Pre-
Applications, either Project Sponsors or Applicants may submit Pre-
Applications to DOE. Pre-Applications must meet all requirements
specified in the solicitation and this part. At a minimum, each Pre-
Application must contain all of the following:
(a) A cover page signed by an individual with full authority to
bind the Project Sponsor or Applicant that attests to the accuracy of
the information in the Pre-Application, and that binds the Project
Sponsor(s) or Applicant to the commitments made in the Pre-Application.
In addition, the information requested in paragraphs (b) and (c) of
this section should be submitted in a volume one and the information
requested in paragraphs (d) through (h) of this section should be
submitted in a volume two, to expedite the DOE review process.
(b) An executive summary briefly encapsulating the key project
features and attributes of the proposed project (for clarity, with
respect to any project in which project assets or facilities are
jointly owned by the Applicant and one or more other persons, each of
whom owns an undivided ownership interest in such project assets or
facilities, the Applicant may submit a project proposal with respect to
its undivided ownership interest in such project assets or facilities);
(c) A business plan which includes an overview of the proposed
project, including:
(1) A description of the Project Sponsor, including all entities
involved, and its experience in project investment, development,
construction, operation and maintenance;
(2) A description of the new or significantly improved technology
to be employed in the project, including:
(i) A report detailing its successes and failures during the pilot
and demonstration phases;
(ii) The technology's commercial applications;
(iii) The significance of the technology to energy use or emission
control;
(iv) How and why the technology is ``new'' or ``significantly
improved'' compared to technology already in general use in the
commercial marketplace in the United States;
(v) Why the technology to be employed in the project is not in
``general use;''
(vi) The owners or controllers of the intellectual property
incorporated in and utilized by such technologies; and
(vii) The manufacturer(s) and licensee(s), if any, authorized to
make the technology available in the United States, the potential for
replication of
[[Page 63552]]
commercial use of the technology in the United States, and whether and
how the technology is or will be made available in the United States
for further commercial use;
(3) The estimated amount, in reasonable detail, of the total
Project Costs;
(4) The timeframe required for construction and commissioning of
the project;
(5) A description of any primary off-take or other revenue-
generating agreements that will provide the primary sources of revenues
for the project, including repayment of the debt obligations for which
a guarantee is sought.
(6) An overview of how the project complies with the eligibility
requirements in section 1703 of the Act (42 U.S.C. 16513);
(7) An outline of the potential environmental impacts of the
project and how these impacts will be mitigated;
(8) A description of the anticipated air pollution and/or
anthropogenic greenhouse gas reduction benefits and how these benefits
will be measured and validated; and
(9) A list of all of the requirements contained in this part and
the solicitation and where in the Pre-Application these requirements
are addressed;
(d) A financing plan overview describing:
(1) The amount of equity to be invested and the sources of such
equity;
(2) The amount of the total debt obligations to be incurred and the
funding sources of all such debt if available;
(3) The amount of the Guaranteed Obligation as a percentage of
total project debt; and as a percentage of total project cost; and
(4) A financial model detailing the investments in and the cash
flows generated and anticipated from the project over the project's
expected life-cycle, including a complete explanation of the facts,
assumptions, and methodologies in the financial model;
(e) An explanation of what estimated impact the loan guarantee will
have on the interest rate, debt term, and overall financial structure
of the project;
(f) Where the Federal Financing Bank is not the lender, a copy of a
letter from an Eligible Lender or other Holder(s) expressing its
commitment to provide, or interest in providing, the required debt
financing necessary to construct and fully commission the project;
(g) A copy of the equity commitment letter(s) from each of the
Project Sponsors and a description of the sources for such equity; and
(h) A commitment to pay the Application fee (First Fee), if invited
to submit an Application.
Sec. 609.5 Evaluation of Pre-Applications.
(a) Where Pre-Applications are requested in a solicitation, DOE
will conduct an initial review of the Pre-Application to determine
whether:
(1) The proposal is for an Eligible Project;
(2) The submission contains the information required by Sec. 609.4
of this part; and
(3) The submission meets all other requirements of the applicable
solicitation.
(b) If a Pre-Application fails to meet the requirements of
paragraph (a) of this section, DOE may deem it non-responsive and
eliminate it from further review.
(c) If DOE deems a Pre-Application responsive, DOE will evaluate:
(1) The commercial viability of the proposed project;
(2) The technology to be employed in the project;
(3) The relevant experience of the principal(s); and
(4) The financial capability of the Project Sponsor (including
personal and/or business credit information of the principal(s)).
(d) After the evaluation described in subsection (c) of this
section, DOE will determine if there is sufficient information in the
Pre-Application to assess the technical and commercial viability of the
proposed project and/or the financial capability of the Project Sponsor
and to assess other aspects of the Pre-Application. DOE may ask for
additional information from the Project Sponsor during the review
process and may request one or more meetings with the Project Sponsor.
(e) After reviewing a Pre-Application and other information
acquired under paragraph (c) of this section, DOE may provide a written
response to the Project Sponsor or Applicant either inviting the
Applicant to submit an Application for a loan guarantee and specifying
the amount of the Application filing fee (First Fee) or advising the
Project Sponsor that the project proposal will not receive further
consideration. Neither the Pre-Application nor any written or other
feedback that DOE may provide in response to the Pre-Application
eliminates the requirement for an Application.
(f) No response by DOE to, or communication by DOE with, a Project
Sponsor, or an Applicant submitting a Pre-Application or subsequent
Application shall impose any obligation on DOE to enter into a Loan
Guarantee Agreement.
Sec. 609.6 Submission of Applications.
(a) In response to a solicitation or written invitation to submit
an Application, an Applicant submitting an Application must meet all
requirements and provide all information specified in the solicitation
and/or invitation and this part.
(b) An Application must include, at a minimum, the following
information and materials:
(1) A completed Application form signed by an individual with full
authority to bind the Applicant and the Project Sponsors;
(2) Payment of the Application filing fee (First Fee) for the Pre-
Application, if any, and Application phase;
(3) A detailed description of all material amendments,
modifications, and additions made to the information and documentation
provided in the Pre-Application, if a Pre-Application was requested in
the solicitation, including any changes in the proposed project's
financing structure or other terms;
(4) A description of how and to what measurable extent the project
avoids, reduces, or sequesters air pollutants and/or anthropogenic
emissions of greenhouse gases, including how to measure and verify
those benefits;
(5) A description of the nature and scope of the proposed project,
including:
(i) Key milestones;
(ii) Location of the project;
(iii) Identification and commercial feasibility of the new or
significantly improved technology(ies) to be employed in the project;
(iv) How the Applicant intends to employ such technology(ies) in
the project; and
(v) How the Applicant intends to assure, to the extent possible,
the further commercial availability of the technology(ies) in the
United States;
(vi) For clarity, with respect to any project in which project
assets or facilities are jointly owned by the Applicant and one or more
other persons, each of whom owns an undivided ownership interest in
such project assets or facilities, the Applicant may submit a project
proposal with respect to its undivided ownership interest in such
project assets or facilities.
(6) A detailed explanation of how the proposed project qualifies as
an Eligible Project;
(7) A detailed estimate of the total Project Costs together with a
description of the methodology and assumptions used;
[[Page 63553]]
(8) A detailed description of the engineering and design
contractor(s), construction contractor(s), equipment supplier(s), and
construction schedules for the project, including major activity and
cost milestones as well as the performance guarantees, performance
bonds, liquidated damages provisions, and equipment warranties to be
provided;
(9) A detailed description of the operations and maintenance
provider(s), the plant operating plan, estimated staffing requirements,
parts inventory, major maintenance schedule, estimated annual downtime,
and performance guarantees and related liquidated damage provisions, if
any;
(10) A description of the management plan of operations to be
employed in carrying out the project, and information concerning the
management experience of each officer or key person associated with the
project;
(11) A detailed description of the project decommissioning,
deconstruction, and disposal plan, and the anticipated costs associated
therewith;
(12) An analysis of the market for any product to be produced by
the project, including relevant economics justifying the analysis, and
copies of any contractual agreements for the sale of these products or
assurance of the revenues to be generated from sale of these products;
(13) A detailed description of the overall financial plan for the
proposed project, including all sources and uses of funding, equity and
debt, and the liability of parties associated with the project over the
term of the Loan Guarantee Agreement;
(14) A copy of all material agreements, whether entered into or
proposed, relevant to the investment, design, engineering, financing,
construction, startup commissioning, shakedown, operations and
maintenance of the project;
(15) A copy of the financial closing checklist for the equity and
debt to the extent available;
(16) Applicant's business plan on which the project is based and
Applicant's financial model presenting project pro forma statements for
the proposed term of the Guaranteed Obligations including income
statements, balance sheets, and cash flows. All such information and
data must include assumptions made in their preparation and the range
of revenue, operating cost, and credit assumptions considered;
(17) Financial statements for the past three years, or less if the
Applicant has been in operation less than three years, that have been
audited by an independent certified public accountant, including all
associated notes, as well as interim financial statements and notes for
the current fiscal year, of Applicant and parties providing Applicant's
financial backing, together with business and financial interests of
controlling or commonly controlled organizations or persons, including
parent, subsidiary and other affiliated corporations or partners of the
Applicant;
(18) A copy of all legal opinions, and other material reports,
analyses, and reviews related to the project;
(19) An independent engineering report prepared by an engineer with
experience in the industry and familiarity with similar projects. The
report should address: the project's siting and permitting, engineering
and design, contractual requirements, environmental compliance, testing
and commissioning and operations and maintenance;
(20) Credit history of the Applicant and, if appropriate, any party
who owns or controls, by itself and/or through individuals in common or
affiliated business entities, a five percent or greater interest in the
project or the Applicant;
(21) A preliminary credit assessment for the project without a loan
guarantee from a nationally recognized rating agency for projects where
the estimated total Project Costs exceed $25 million. For projects
where the total estimated Project Costs are $25 million or less and
where conditions justify, in the sole discretion of the Secretary, DOE
may require such an assessment;
(22) A list showing the status of and estimated completion date of
Applicant's required project-related applications or approvals for
Federal, State, and local permits and authorizations to site,
construct, and operate the project;
(23) A report containing an analysis of the potential environmental
impacts of the project that will enable DOE to assess whether the
project will comply with all applicable environmental requirements, and
that will enable DOE to undertake and complete any necessary reviews
under the National Environmental Policy Act of 1969;
(24) A listing and description of assets associated, or to be
associated, with the project and any other asset that will serve as
collateral for the Guaranteed Obligations, including appropriate data
as to the value of the assets and the useful life of any physical
assets. With respect to real property assets listed, an appraisal that
is consistent with the ``Uniform Standards of Professional Appraisal
Practice,'' promulgated by the Appraisal Standards Board of the
Appraisal Foundation, and performed by licensed or certified
appraisers, is required;
(25) An analysis demonstrating that, at the time of the
Application, there is a reasonable prospect that Borrower will be able
to repay the Guaranteed Obligations (including interest) according to
their terms, and a complete description of the operational and
financial assumptions and methodologies on which this demonstration is
based;
(26) Written affirmation from an officer of the Eligible Lender or
other Holder confirming that it is in good standing with DOE's and
other Federal agencies' loan guarantee programs;
(27) A list of all of the requirements contained in this part and
the solicitation and where in the Application these requirements are
addressed;
(28) A statement from the Applicant that it believes that there is
``reasonable prospect'' that the Guaranteed Obligations will be fully
paid from project revenue; and
(29) Any other information requested in the invitation to submit an
Application or requests from DOE in order to clarify an Application;
(c) DOE will not consider any Application complete unless the
Applicant has paid the First Fee and the Application is signed by the
appropriate entity or entities with the authority to bind the Applicant
to the commitments and representations made in the Application.
Sec. 609.7 Programmatic, technical and financial evaluation of
Applications.
(a) In reviewing completed Applications, and in prioritizing and
selecting those to whom a Term Sheet should be offered, DOE will apply
the criteria set forth in the Act, the applicable solicitation, and
this part. Applications will be considered in a competitive process,
i.e. each Application will be evaluated against other Applications
responsive to the Solicitation. Greater weight will be given to
applications that rely upon a smaller guarantee percentage, all else
being equal. Concurrent with its review process, DOE will consult with
the Secretary of the Treasury regarding the terms and conditions of the
potential loan guarantee. Applications will be denied if:
(1) The project will be built or operated outside the United
States;
(2) The project is not ready to be employed commercially in the
United States, cannot yield a commercially
[[Page 63554]]
viable product or service in the use proposed in the project, does not
have the potential to be employed in other commercial projects in the
United States, and is not or will not be available for further
commercial use in the United States;
(3) The entity or person issuing the loan or other debt obligations
subject to the loan guarantee is not an Eligible Lender or other
Holder, as defined in Sec. 609.11 of this part;
(4) The project is for demonstration, research, or development.
(5) The project does not avoid, reduce or sequester air pollutants
or anthropogenic emissions of greenhouse gases; or
(6) The Applicant will not provide an equity contribution.
(b) In evaluating Applications, DOE will consider the following
factors:
(1) To what measurable extent the project avoids, reduces, or
sequesters air pollutants or anthropogenic emissions of greenhouses
gases;
(2) To what extent the new or significantly improved technology to
be employed in the project, as compared to Commercial Technology in
general use in the United States, is ready to be employed commercially
in the United States, can be replicated, yields a commercially viable
project or service in the use proposed in the project, has potential to
be employed in other commercial projects in the United States, and is
or will be available for further commercial use in the United States;
(3) To what extent the new or significantly improved technology
used in the project constitutes an important improvement in technology,
as compared to Commercial Technology, used to avoid, reduce or
sequester air pollutants or anthropogenic emissions of greenhouse
gases, and the Applicant has a plan to advance or assist in the
advancement of that technology into the commercial marketplace;
(4) The extent to which the requested amount of the loan guarantee,
the requested amount of Guaranteed Obligations and, if applicable, the
expected amount of any other financing or credit arrangements are
reasonable relative to the nature and scope of the project;
(5) The total amount and nature of the Eligible Project Costs and
the extent to which Project Costs are funded by Guaranteed Obligations;
(6) The likelihood that the project will be ready for full
commercial operations in the time frame stated in the Application;
(7) The amount of equity commitment to the project by the Applicant
and other principals involved in the project;
(8) Whether there is sufficient evidence that the Applicant will
diligently pursue the project, including initiating and completing the
project in a timely manner;
(9) Whether and to what extent the Applicant will rely upon other
Federal and non-Federal governmental assistance such as grants, tax
credits, or other loan guarantees to support the financing,
construction, and operation of the project and how such assistance will
impact the project;
(10) The feasibility of the project and likelihood that the project
will produce sufficient revenues to service the project's debt
obligations over the life of the loan guarantee and assure timely
repayment of Guaranteed Obligations;
(11) The levels of safeguards provided to the Federal government in
the event of default through collateral, warranties, and other
assurance of repayment described in the Application, including the
nature of any anticipated intercreditor arrangements;
(12) The Applicant's capacity and expertise to successfully operate
the project, based on factors such as financial soundness, management
organization, and the nature and extent of corporate and personal
experience;
(13) The ability of the applicant to ensure that the project will
comply with all applicable laws and regulations, including all
applicable environmental statutes and regulations;
(14) The levels of market, regulatory, legal, financial,
technological, and other risks associated with the project and their
appropriateness for a loan guarantee provided by DOE;
(15) Whether the Application contains sufficient information,
including a detailed description of the nature and scope of the project
and the nature, scope, and risk coverage of the loan guarantee sought
to enable DOE to perform a thorough assessment of the project; and
(16) Such other criteria that DOE deems relevant in evaluating the
merits of an Application.
(c) During the Application review process DOE may raise issues or
concerns that were not raised during the Pre-Application review process
where a Pre-Application was requested in the applicable solicitation.
(d) If DOE determines that a project may be suitable for a loan
guarantee, DOE will notify the Applicant and Eligible Lender or other
Holder in writing and provide them with a Term Sheet. If DOE reviews an
Application and decides not to proceed further with the issuance of a
Term Sheet, DOE will inform the Applicant in writing of the reason(s)
for denial.
Sec. 609.8 Term sheets and conditional commitments.
(a) DOE, after review and evaluation of the Application, additional
information requested and received by DOE, potentially including a
preliminary credit rating or credit assessment, and information
obtained as the result of meeting with the Applicant and the Eligible
Lender or other Holder, may offer to an Applicant and the Eligible
Lender or other Holder detailed terms and conditions that must be met,
including terms and conditions that must be met by the Applicant and
the Eligible Lender or other Holder.
(b) The terms and conditions required by DOE will be expressed in a
written Term Sheet signed by a Contracting Officer and addressed to the
Applicant and the Eligible Lender or other Holder, where appropriate.
The Term Sheet will request that the Project Sponsor and the Eligible
Lender or other Holder express agreement with the terms and conditions
contained in the Term Sheet by signing the Term Sheet in the designated
place. Each person signing the Term Sheet must be a duly authorized
official or officer of the Applicant and Eligible Lender or other
Holder. The Term Sheet will include an expiration date on which the
terms offered will expire unless the Contracting Officer agrees in
writing to extend the expiration date.
(c) The Applicant and/or the Eligible Lender or other Holder may
respond to the Term Sheet offer in writing or may request discussions
or meetings on the terms and conditions contained in the Term Sheet,
including requests for clarifications or revisions. When DOE, the
Applicant, and the Eligible Lender or other Holder agree on all of the
final terms and conditions and all parties sign the Term Sheet, the
Term Sheet becomes a Conditional Commitment. When and if all of the
terms and conditions specified in the Conditional Commitment have been
met, DOE and the Applicant may enter into a Loan Guarantee Agreement.
(d) DOE's obligations under each Conditional Commitment are
conditional upon statutory authority having been provided in advance of
the execution of the Loan Guarantee Agreement sufficient under FCRA and
Title XVII for DOE to execute the Loan Guarantee Agreement, and either
an appropriation has been made or a borrower has paid into the Treasury
sufficient funds to cover the full Credit Subsidy Cost for the loan
guarantee that
[[Page 63555]]
is the subject of the Conditional Commitment.
(e) The Applicant is required to pay fees to DOE to cover the
Administrative Cost of Issuing a Loan Guarantee for the period of the
Term Sheet through the closing of the Loan Guarantee Agreement (Second
Fee).
Sec. 609.9 Closing on the Loan Guarantee Agreement.
(a) Subsequent to entering into a Conditional Commitment with an
Applicant, DOE, after consultation with the Applicant, will set a
closing date for execution of a Loan Guarantee Agreement.
(b) By the closing date, the Applicant and the Eligible Lender or
other Holder must have satisfied all of the detailed terms and
conditions contained in the Conditional Commitment and other related
documents and all other contractual, statutory, and regulatory
requirements. If the Applicant and the Eligible Lender or other Holder
has not satisfied all such terms and conditions by the closing date,
the Secretary may, in his/her sole discretion, set a new closing date
or terminate the Conditional Commitment.
(c) In order to enter into a Loan Guarantee Agreement at closing:
(1) DOE must have received authority in an appropriations act for
the loan guarantee; and
(2) All other applicable statutory, regulatory, or other
requirements must be fulfilled.
(d) Prior to, or on, the closing date, DOE will ensure that:
(1) Pursuant to section 1702(b) of the Act, DOE has received
payment of the Credit Subsidy Cost of the loan guarantee, as defined in
Sec. 609.2 of this part from either (but not from a combination) of
the following:
(i) A Congressional appropriation of funds; or
(ii) A payment from the Borrower.
(2) Pursuant to section 1702(h) of the Act, DOE has received from
the Borrower the First and Second Fees and, if applicable, the Third
fee, or portions thereof, for the Administrative Cost of Issuing the
Loan Guarantee, as specified in the Loan Guarantee Agreement;
(3) OMB has reviewed and approved DOE's calculation of the Credit
Subsidy Cost of the loan guarantee;
(4) The Department of the Treasury has been consulted as to the
terms and conditions of the Loan Guarantee Agreement;
(5) The Loan Guarantee Agreement and related documents contain all
terms and conditions DOE deems reasonable and necessary to protect the
interest of the United States; and
(6) All conditions precedent specified in the Conditional
Commitment are either satisfied or waived by a Contracting Officer and
all other applicable contractual, statutory, and regulatory
requirements are satisfied.
(e) Not later than the period approved in writing by the
Contracting Officer, which may not be less than 30 days prior to the
closing date, the Applicant must provide in writing updated project
financing information if the terms and conditions of the financing
arrangements changed between execution of the Conditional Commitment
and that date. The Conditional Commitment must be updated to reflect
the revised terms and conditions.
(f) Where the total Project Costs for an Eligible Project are
projected to exceed $25 million, the Applicant must provide a credit
rating from a nationally recognized rating agency reflecting the
revised Conditional Commitment for the project without a Federal
guarantee. Where total Project Costs are projected to be $25 million or
less than $25 million, the Secretary may, on a case-by-case basis,
require a credit rating. If a rating is required, an updated rating
must be provided to the Secretary not later than 30 days prior to
closing.
(g) Changes in the terms and conditions of the financing
arrangements will affect the Credit Subsidy Cost for the Loan Guarantee
Agreement. DOE may postpone the expected closing date pursuant to any
changes submitted under paragraph (e) and (f) of this section. In
addition, DOE may choose to terminate the Conditional Commitment.
Sec. 609.10 Loan Guarantee Agreement.
(a) Only a Loan Guarantee Agreement executed by a duly authorized
DOE Contracting Officer can contractually obligate DOE to guarantee
loans or other debt obligations.
(b) DOE is not bound by oral representations made during the Pre-
Application stage, if Pre-Applications were solicited, or Application
stage, or during any negotiation process.
(c) Except if explicitly authorized by an Act of Congress, no funds
obtained from the Federal Government, or from a loan or other
instrument guaranteed by the Federal Government, may be used to pay for
Credit Subsidy Costs, administrative fees, or other fees charged by or
paid to DOE relating to the Title XVII program or any loan guarantee
there under.
(d) Prior to the execution by DOE of a Loan Guarantee Agreement,
DOE must ensure that the following requirements and conditions are
satisfied:
(1) The project qualifies as an Eligible Project under the Act and
is not a research, development, or demonstration project or a project
that employs Commercial Technologies in service in the United States;
(2) The project will be constructed and operated in the United
States, the employment of the new or significantly improved technology
in the project has the potential to be replicated in other commercial
projects in the United States, and this technology is or is likely to
be available in the United States for further commercial application;
(3) The face value of the debt guaranteed by DOE is limited to no
more than 80 percent of total Project Costs;
(4)(i) Where DOE guarantees 100 percent of the Guaranteed
Obligation, the loan shall be funded by the Federal Financing Bank;
(ii) Where DOE guarantees more than 90 percent of the Guaranteed
Obligation, the guaranteed portion cannot be separated from or
``stripped'' from the non-guaranteed portion of the Guaranteed
Obligation if the loan is participated, syndicated or otherwise resold
in the secondary market;
(iii) Where DOE guarantees 90 percent or less of the Guaranteed
Obligation, the guaranteed portion may be separated from or
``stripped'' from the non-guaranteed portion of the Guaranteed
Obligation, if the loan is participated, syndicated or otherwise resold
in the secondary debt market;
(5) The Borrower and other principals involved in the project have
made or will make a significant equity investment in the project;
(6) The Borrower is obligated to make full repayment of the
principal and interest on the Guaranteed Obligation and other project
debt over a period of up to the lesser of 30 years or 90 percent of the
projected useful life of the project's major physical assets, as
calculated in accordance with generally accepted accounting principles
and practices. The non-guaranteed portion (if any) of any Guaranteed
Obligation must be repaid on a pro-rata basis, and may not be repaid on
a shorter or faster amortization schedule than the guaranteed portion.
Any project-related financing or credit arrangement (other than the
Guaranteed Obligation) may have a shorter or faster amortization
schedule than the Guaranteed Obligation if DOE determines that the
resulting financing structure of the project--
(i) Allocates to DOE a reasonably proportionate share of the
default risk, in light of--
[[Page 63556]]
(A) DOE's share of the total project financing,
(B) Risk allocation among the credit providers, and
(C) Internal and external credit enhancements; and
(ii) Is appropriate to assure reasonable prospect of repayment of
the principal of and interest on the DOE Guaranteed Obligation and to
protect the interests of the United States in the case of default;
(7) The loan guarantee does not finance, either directly or
indirectly, tax-exempt debt obligations, consistent with the
requirements of section 149(b) of the Internal Revenue Code;
(8) The amount of the loan guaranteed, when combined with other
funds committed to the project, will be sufficient to carry out the
project, including adequate contingency funds;
(9) There is a reasonable prospect of repayment by Borrower of the
principal of and interest on the Guaranteed Obligations and other
project debt;
(10) The Borrower has pledged project assets and other collateral
or surety, including non project-related assets, determined by DOE to
be necessary to secure the repayment of the Guaranteed Obligations;
(11) The Loan Guarantee Agreement and related documents include
detailed terms and conditions necessary and appropriate to protect the
interest of the United States in the case of default, including
ensuring availability of all the intellectual property rights,
technical data including software, and technology necessary for any
person or entity selected, including DOE, to complete, operate, convey,
and dispose of the defaulted project;
(12) The interest rate on any Guaranteed Obligation is determined
by DOE, after consultation with the Treasury Department, to be
reasonable, taking into account the range of interest rates prevailing
in the private sector for similar obligations of comparable risk
guaranteed by the Federal government;
(13) Any Guaranteed Obligation is not subordinate to any loan or
other debt obligation;
(14) There is satisfactory evidence that Borrower and Eligible
Lenders or other Holders are willing, competent, and capable of
performing the terms and conditions of the Guaranteed Obligations and
other debt obligation and the Loan Guarantee Agreement, and will
diligently pursue the project;
(15) The Borrower has made the initial (or total) payment of fees
for the Administrative Cost of Issuing a Loan Guarantee for the
construction and operational phases of the project (Third Fee), as
specified in the Conditional Commitment;
(16) The Eligible Lender, other Holder or servicer has taken and is
obligated to continue to take those actions necessary to perfect and
maintain liens on assets which are pledged as collateral for the
Guaranteed Obligation;
(17) If Borrower is to make payment in full for the Credit Subsidy
Cost of the loan guarantee pursuant to section 1702(b)(2) of the Act,
such payment must be received by DOE prior to, or at the time of,
closing;
(18) DOE or its representatives have access to the project site at
all reasonable times in order to monitor the performance of the
project;
(19) DOE, the Eligible Lender, or other Holder and Borrower have
reached an agreement as to the information that will be made available
to DOE and the information that will be made publicly available;
(20) The prospective Borrower has filed applications for or
obtained any required regulatory approvals for the project and is in
compliance, or promptly will be in compliance, where appropriate, with
all Federal, State, and local regulatory requirements;
(21) The Borrower has no delinquent Federal debt, including tax
liabilities, unless the delinquency has been resolved with the
appropriate Federal agency in accordance with the standards of the Debt
Collection Improvement Act of 1996;
(22) The Loan Guarantee Agreement and related agreements contain
such other terms and conditions as DOE deems reasonable and necessary
to protect the interests of the United States, including without
limitation provisions for (i) such collateral and other credit support
for the Guaranteed Obligation, and (ii) such collateral sharing,
priorities (subject always to Section 1702(d)(3) of Title XVII) and
voting rights among creditors and other intercreditor arrangements as,
in each case, DOE deems reasonable and necessary to protect the
interests of the United States; and
(23)(i) The Lender is an Eligible Lender, as defined in Sec. 609.2
of this part, and meets DOE's lender eligibility and performance
requirement contained in Sec. Sec. 609.11 (a) and (b) of this part;
and
(ii) The servicer meets the servicing performance requirements of
Sec. 609.11(c) of this part.
(e) The Loan Guarantee Agreement must provide that, in the event of
a default by the Borrower:
(1) Interest accrues on the Guaranteed Obligations at the rate
stated in the Loan Guarantee Agreement or Loan Agreement, until DOE
makes full payment of the defaulted Guaranteed Obligations and, except
when debt is funded through the Federal Financing Bank, DOE is not
required to pay any premium, default penalties, or prepayment
penalties;
(2) Upon payment of the Guaranteed Obligations by DOE, DOE is
subrogated to the rights of the Holders of the debt, including all
related liens, security, and collateral rights;
(3) The Eligible Lender or other servicer acting on DOE's behalf is
obligated to take those actions necessary to perfect and maintain liens
on assets which are pledged as collateral for the Guaranteed
Obligations;
(4) The holder of pledged collateral is obligated to take such
actions as DOE may reasonably require to provide for the care,
preservation, protection, and maintenance of such collateral so as to
enable the United States to achieve maximum recovery upon default by
the Borrower on the Guaranteed Obligations;
(f) The Loan Guarantee Agreement must contain audit provisions
which provide, in substance, as follows:
(1) The Eligible Lender or other Holder or other party servicing
the Guaranteed Obligations, as applicable, and the Borrower, must keep
such records concerning the project as are necessary to facilitate an
effective and accurate audit and performance evaluation of the project
as required in Sec. 609.17 of this part; and
(2) DOE and the Comptroller General, or their duly authorized
representatives, must have access, for the purpose of audit and
examination, to any pertinent books, documents, papers, and records of
the Borrower, Eligible Lender or other Holder, or other party servicing
the Guaranteed Obligations, as applicable. Examination of records may
be made during the regular business hours of the Borrower, Eligible
Lender or other Holder, or other party servicing the Guaranteed
Obligations, or at any other time mutually convenient as required in
Sec. 609.17 of this part.
(g)(1) An Eligible Lender or other Holder may sell, assign or
transfer a Guaranteed Obligation to another Eligible Lender that meets
the requirements of Sec. 609.11 of this part. Such Eligible Lender to
which a Guaranteed Obligation is assigned or transferred, is required
to fulfill all servicing, monitoring, and reporting requirements
contained in the Loan Guarantee Agreement and these regulations if the
transferring Eligible Lender was performing these functions and
transfer such functions to the new Eligible Lender. Any assignment or
transfer, however, of the servicing, monitoring, and reporting
functions
[[Page 63557]]
must be approved by DOE in writing in advance of such assignment.
(2) The Secretary, or the Secretary's designee or contractual
agent, for the purpose of identifying Holders with the right to receive
payment under the guarantees shall include in the Loan Guarantee
Agreement or related documents a procedure for tracking and identifying
Holders of Guarantee Obligations. These duties usually will be
performed by the servicer. Any contractual agent approved by the
Secretary to perform this function cannot transfer or assign this
responsibility without the prior written consent of the Secretary.
Sec. 609.11 Lender eligibility and servicing requirements.
(a) An Eligible Lender shall meet the following requirements:
(1) Not be debarred or suspended from participation in a Federal
government contract (under 48 CFR part 9.4) or participation in a non-
procurement activity (under a set of uniform regulations implemented
for numerous agencies, such as DOE, at 2 CFR Part 180);
(2) Not be delinquent on any Federal debt or loan;
(3) Be legally authorized to enter into loan guarantee transactions
authorized by the Act and these regulations and is in good standing
with DOE and other Federal agency loan guarantee programs;
(4) Be able to demonstrate, or has access to, experience in
originating and servicing loans for commercial projects similar in size
and scope to the project under consideration; and
(5) Be able to demonstrate experience or capability as the lead
lender or underwriter by presenting evidence of its participation in
large commercial projects or energy-related projects or other relevant
experience; or
(6) Be the Federal Financing Bank.
(b) When performing its duties to review and evaluate a proposed
Eligible Project prior to the submission of a Pre-Application or
Application, as appropriate, by the Project Sponsor through the
execution of a Loan Guarantee Agreement, the Eligible Lender or DOE if
loans are funded by the Federal Financing Bank, shall exercise the
level of care and diligence that a reasonable and prudent lender would
exercise when reviewing, evaluating and disbursing a loan made by it
without a Federal guarantee.
(c) The servicing duties shall be performed by the Eligible Lender,
DOE or other servicer if approved by the Secretary. When performing the
servicing duties the Eligible Lender, DOE or other servicer shall
exercise the level of care and diligence that a reasonable and prudent
lender would exercise when servicing a loan made without a Federal
guarantee, including:
(1) During the construction period, enforcing all of the conditions
precedent to all loan disbursements, as provided in the Loan Guarantee
Agreement, Loan Agreement and related documents;
(2) During the operational phase, monitoring and servicing the Debt
Obligations and collection of the outstanding principal and accrued
interest as well as ensuring that the collateral package securing the
Guaranteed Obligations remains uncompromised; and
(3) As specified by DOE, providing annual or more frequent
financial and other reports on the status and condition of the
Guaranteed Obligations and the Eligible Project, and promptly notifying
DOE if it becomes aware of any problems or irregularities concerning
the Eligible Project or the ability of the Borrower to make payment on
the Guaranteed Obligations or other debt obligations.
(d) With regard to partial guarantees, even though DOE may in part
rely on the Eligible Lender or other servicer to service and monitor
the Guaranteed Obligation, DOE will also conduct its own independent
monitoring and review of the Eligible Project.
Sec. 609.12 Project Costs.
(a) Before entering into a Loan Guarantee Agreement, DOE shall
determine the estimated Project Costs for the project that is the
subject of the agreement. To assist the Department in making that
determination, the Applicant must estimate, calculate and record all
such costs incurred in the design, engineering, financing,
construction, startup, commissioning and shakedown of the project in
accordance with generally accepted accounting principles and practices.
Among other things, the Applicant must calculate the sum of necessary,
reasonable and customary costs that it has paid and expects to pay,
which are directly related to the project, including costs for
escalation and contingencies, to estimate the total Project Costs.
(b) Project Costs include:
(1) Costs of acquisition, lease, or rental of real property,
including engineering fees, surveys, title insurance, recording fees,
and legal fees incurred in connection with land acquisition, lease or
rental, site improvements, site restoration, access roads, and fencing;
(2) Costs of engineering, architectural, legal and bond fees, and
insurance paid in connection with construction of the facility; and
materials, labor, services, travel and transportation for facility
design, construction, startup, commissioning and shakedown;
(3) Costs of equipment purchases;
(4) Costs to provide equipment, facilities, and services related to
safety and environmental protection;
(5) Financial and legal services costs, including other
professional services and fees necessary to obtain required licenses
and permits and to prepare environmental reports and data;
(6) The cost of issuing project debt, such as fees, transaction and
legal costs and other normal charges imposed by Eligible Lenders and
other Holders;
(7) Costs of necessary and appropriate insurance and bonds of all
types;
(8) Costs of design, engineering, startup, commissioning and
shakedown;
(9) Costs of obtaining licenses to intellectual property necessary
to design, construct, and operate the project;
(10) A reasonable contingency reserve for cost overruns during
construction; and
(11) Capitalized interest necessary to meet market requirements,
reasonably required reserve funds and other carrying costs during
construction; and
(12) Other necessary and reasonable costs.
(c) Project Costs do not include:
(1) Fees and commissions charged to Borrower, including finder's
fees, for obtaining Federal or other funds;
(2) Parent corporation or other affiliated entity's general and
administrative expenses, and non-project related parent corporation or
affiliated entity assessments, including organizational expenses;
(3) Goodwill, franchise, trade, or brand name costs;
(4) Dividends and profit sharing to stockholders, employees, and
officers;
(5) Research, development, and demonstration costs of readying the
innovative energy or environmental technology for employment in a
commercial project;
(6) Costs that are excessive or are not directly required to carry
out the project, as determined by DOE, including but not limited to the
cost of hedging instruments;
(7) Expenses incurred after startup, commissioning, and shakedown
before the facility has been placed in service;
(8) Borrower-paid Credit Subsidy Costs and Administrative Costs of
Issuing a Loan Guarantee; and
(9) Operating costs.
[[Page 63558]]
Sec. 609.13 Principal and interest assistance contract.
With respect to the guaranteed portion of any Guaranteed
Obligation, and subject to the availability of appropriations, DOE may
enter into a contract to pay Holders, for and on behalf of Borrower,
from funds appropriated for that purpose, the principal and interest
charges that become due and payable on the unpaid balance of the
guaranteed portion of the Guaranteed Obligation, if DOE finds that:
(a) The Borrower:
(1) Is unable to make the payments and is not in default; and
(2) Will, and is financially able to, continue to make the
scheduled payments on the remaining portion of the principal and
interest due under the non-guaranteed portion of the debt obligation,
if any, and other debt obligations of the project, or an agreement,
approved by DOE, has otherwise been reached in order to avoid a payment
default on non-guaranteed debt.
(b) It is in the public interest to permit Borrower to continue to
pursue the purposes of the project;
(c) In paying the principal and interest, the Federal government
expects a probable net benefit to the Government will be greater than
that which would result in the event of a default;
(d) The payment authorized is no greater than the amount of
principal and interest that Borrower is obligated to pay under the
terms of the Loan Guarantee Agreement; and
(e) Borrower agrees to reimburse DOE for the payment (including
interest) on terms and conditions that are satisfactory to DOE and
executes all written contracts required by DOE for such purpose.
Sec. 609.14 Full faith and credit and incontestability.
The full faith and credit of the United States is pledged to the
payment of all Guaranteed Obligations issued in accordance with this
part with respect to principal and interest. Such guarantee shall be
conclusive evidence that it has been properly obtained; that the
underlying loan qualified for such guarantee; and that, but for fraud
or material misrepresentation by the Holder, such guarantee will be
presumed to be valid, legal, and enforceable.
Sec. 609.15 Default, demand, payment, and collateral liquidation.
(a) In the event that the Borrower has defaulted in the making of
required payments of principal or interest on any portion of a
Guaranteed Obligation, and such default has not been cured within the
period of grace provided in the Loan Guarantee Agreement and/or the
Loan Agreement, the Eligible Lender or other Holder, or nominee or
trustee empowered to act for the Eligible Lender or other Holder
(referred to in this section collectively as ``Holder''), may make
written demand upon the Secretary for payment pursuant to the
provisions of the Loan Guarantee Agreement.
(b) In the event that the Borrower is in default as a result of a
breach of one or more of the terms and conditions of the Loan Guarantee
Agreement, note, mortgage, Loan Agreement, or other contractual
obligations related to the transaction, other than the Borrower's
obligation to pay principal or interest on the Guaranteed Obligation,
as provided in paragraph (a) of this section, the Holder will not be
entitled to make demand for payment pursuant to the Loan Guarantee
Agreement, unless the Secretary agrees in writing that such default has
materially affected the rights of the parties, and finds that the
Holder should be entitled to receive payment pursuant to the Loan
Guarantee Agreement.
(c) In the event that the Borrower has defaulted as described in
paragraph (a) of this section and such default is not cured during the
grace period provided in the Loan Guarantee Agreement, the Secretary
shall notify the U.S. Attorney General and, subject to the terms of any
applicable Intercreditor Agreement, may cause the principal amount of
all Guaranteed Obligations, together with accrued interest thereon, and
all amounts owed to the United States by Borrower pursuant to the Loan
Guarantee Agreement, to become immediately due and payable by giving
the Borrower written notice to such effect (without the need for
consent or other action on the part of the Holders of the Guaranteed
Obligations) and may exercise any other remedies available under the
applicable agreements. In the event the Borrower is in default as
described in paragraph (b) of this section, where the Secretary
determines in writing that such a default has materially affected the
rights of the parties, the Borrower shall be given the period of grace
provided in the Loan Guarantee Agreement to cure such default. If the
default is not cured during the period of grace, the Secretary may,
subject to the terms of any applicable Intercreditor Agreement, cause
the principal amount of all Guaranteed Obligations, together with
accrued interest thereon, and all amounts owed to the United States by
Borrower pursuant to the Loan Guarantee Agreement, to become
immediately due and payable by giving the Borrower written notice to
such effect (without any need for consent or other action on the part
of the Holders of the Guaranteed Obligations) and may exercise any
other remedies available under the applicable agreements.
(d) No provision of this regulation shall be construed to preclude
forbearance by any Holder with the consent of the Secretary for the
benefit of the Borrower.
(e) Upon the making of demand for payment as provided in paragraph
(a) or (b) of this section, the Holder shall provide, in conjunction
with such demand or immediately thereafter, at the request of the
Secretary, the supporting documentation specified in the Loan Guarantee
Agreement and any other supporting documentation as may reasonably be
required to justify such demand.
(f) Payment as required by the Loan Guarantee Agreement of the
Guaranteed Obligation shall be made 60 days after receipt by the
Secretary of written demand for payment, provided that the demand
complies with the terms of the Loan Guarantee Agreement. The Loan
Guarantee Agreement shall provide that interest shall accrue to the
Holder at the rate stated in the Loan Guarantee Agreement until the
Guaranteed Obligation has been fully paid by the Federal government.
(g) The Loan Guarantee Agreement shall provide that, upon payment
of the Guaranteed Obligations, the Secretary shall be subrogated to the
rights of the Holders. The Holder shall transfer and assign to the
Secretary all rights held by the Holder of the Guaranteed Obligation.
Such assignment shall include all related liens, security, and
collateral rights to the extent held by the Holder.
(h) Where the Loan Guarantee Agreement or any applicable
Intercreditor Agreement so provides, the Eligible Lender or other
Holder, or other agent or servicer, as appropriate, and the Secretary
may jointly agree to a work-out strategy and/or a plan of liquidation
of the assets pledged to secure the Guaranteed Obligation and other
applicable debt.
(i) Where payment of the Guaranteed Obligation has been made (or at
any such earlier time as may be permitted by applicable agreements),
the Secretary, acting through the U.S. Attorney General, in accordance
with the rights received through subrogation or other applicable
agreements, subject to any applicable Intercreditor Agreement, may
[[Page 63559]]
seek to foreclose on the collateral assets and/or take such other legal
action as necessary for the protection of the Government.
(j) If the Secretary (or an agent acting for the benefit of the
Secretary) is awarded title to collateral assets pursuant to a
foreclosure proceeding, the Secretary may take action to complete,
maintain, operate, or lease such assets, or otherwise dispose of any
such assets or take any other necessary action which the Secretary
deems appropriate (and consistent with any applicable Intercreditor
Agreement), in order that the original goals and objectives of the
project will, to the extent possible, be realized.
(k) In addition to foreclosure and sale of collateral pursuant
thereto, the U.S. Attorney General shall take appropriate action in
accordance with rights contained in the Loan Guarantee Agreement and
any applicable Intercreditor Agreement to recover costs incurred by,
and other amounts owed to, the Government as a result of the defaulted
loan or other defaulted obligation. Any recovery so received by the
U.S. Attorney General on behalf of the Government shall be applied in
the following manner: First to the expenses incurred by the U.S.
Attorney General, DOE and any agent acting for the benefit of DOE in
effecting such recovery; second, to reimbursement of any amounts paid
by DOE, and to pay any other amounts owed to DOE, as a result of the
defaulted obligation; third, to any amounts owed to DOE under related
principal and interest assistance contracts; and fourth, to any other
lawful claims held by the Government on such process. Any sums
remaining after full payment of the foregoing shall be available for
the benefit of other parties lawfully entitled to claim them.
(l) If there was a partial guarantee by DOE of the Guaranteed
Obligation or if any other creditors are secured by a lien on
collateral pledged to secure the Guaranteed Obligation, the proceeds
received by the collateral agent or other responsible party as a result
of any liquidation or sale of, collection from or other realization on
any such collateral may, if so agreed in advance or unless otherwise
agreed in the applicable agreements, be applied as follows (with any
money distributed to the Federal Government to be further distributed
according to Sec. 609.15(k)):
(1) First, to the payment of reasonable and customary fees and
expenses incurred in the liquidation or sale, collection or other
realization (including without limitation any fees and expenses that
the Attorney General of the United States is lawfully entitled to claim
in connection with such action);
(2) Second, distributed among the Holders of the Guaranteed
Obligation (including DOE, as subrogee) and the other creditors
entitled to share in such proceeds on no greater than a pro rata share
basis; and
(3) Third, as otherwise provided in the applicable agreement or
agreements.
(m) No action taken by the Eligible Lender or other Holder or other
agent or servicer in respect of any pledged assets will affect the
rights of any party, including the Secretary, having an interest in the
loan or other debt obligations, to pursue, jointly or severally, to the
extent provided in the Loan Guarantee Agreement or other applicable
agreement, legal action against the Borrower or other liable parties,
for any deficiencies owing on the balance of the Guaranteed Obligations
or other debt obligations after application of the proceeds received
upon liquidation.
(n) In the event that the Secretary considers it necessary or
desirable to protect or further the interest of the United States in
connection with the liquidation or sale of, collection from or other
realization on the collateral or recovery of deficiencies due under the
loan, the Secretary will take such action as may be appropriate under
the circumstances.
(o) Nothing in this part precludes the Secretary from purchasing
any Holder's or other person's interest in the project upon liquidation
or sale of, collection from or other realization on the collateral.
Sec. 609.16 Perfection of liens and preservation of collateral.
(a) The Loan Guarantee Agreement and other documents related
thereto shall provide that:
(1) The Eligible Lender, or DOE in conjunction with the Federal
Financing Bank where the loan is funded by the Federal Financing Bank,
or other Holder or other agent or servicer will take those actions
necessary or appropriate to perfect and maintain liens, as applicable,
on assets which are pledged as collateral for the Guaranteed
Obligation; and
(2) Upon default by the Borrower, the holder of pledged collateral
shall take such actions as the Secretary (subject to any applicable
Intercreditor Agreement) may reasonably require to provide for the
care, preservation, protection, and maintenance of such collateral so
as to enable the United States to achieve maximum recovery from the
pledged assets. The Secretary shall reimburse the holder of collateral
for reasonable and appropriate expenses incurred in taking actions
required by the Secretary (unless otherwise provided in applicable
agreements). Except as provided in Sec. 609.15, no party may waive or
relinquish, without the consent of the Secretary, any collateral
securing the Guaranteed Obligation to which the United States would be
subrogated upon payment under the Loan Guarantee Agreement.
(b) In the event of a default, the Secretary may enter into such
contracts as the Secretary (subject to any applicable Intercreditor
Agreement) determines are required or appropriate to care for,
preserve, protect or maintain the collateral. The cost of such
contracts may be charged to the Borrower.
Sec. 609.17 Audit and access to records.
(a) The Loan Guarantee Agreement and related documents shall
provide that:
(1) The Eligible Lender, or DOE in conjunction with the Federal
Financing Bank where loans are funded by the Federal Financing Bank or
other Holder or other party servicing the Guaranteed Obligations, as
applicable, and the Borrower, shall keep such records concerning the
project as is necessary, including the Pre-Application, Application,
Term Sheet, Conditional Commitment, Loan Guarantee Agreement, Credit
Agreement, mortgage, note, disbursement requests and supporting
documentation, financial statements, audit reports of independent
accounting firms, lists of all project assets and non-project assets
pledged as security for the Guaranteed Obligations, all off-take and
other revenue producing agreements, documentation for all project
indebtedness, income tax returns, technology agreements, documentation
for all permits and regulatory approvals and all other documents and
records relating to the Eligible Project, as determined by the
Secretary, to facilitate an effective audit and performance evaluation
of the project; and
(2) The Secretary and the Comptroller General, or their duly
authorized representatives, shall have access, for the purpose of audit
and examination, to any pertinent books, documents, papers and records
of the Borrower, Eligible Lender or DOE or other Holder or other party
servicing the Guaranteed Obligation, as applicable. Such inspection may
be made during regular office hours of the Borrower, Eligible Lender or
DOE or other Holder, or other party servicing the Eligible Project and
the Guaranteed Obligations, as applicable, or at any other time
mutually convenient.
[[Page 63560]]
(b) The Secretary may from time to time audit any or all items of
costs included as Project Costs in statements or certificates submitted
to the Secretary or the servicer or otherwise, and may exclude or
reduce the amount of any item which the Secretary determines to be
unnecessary or excessive, or otherwise not to be an item of Project
Costs. The Borrower will make available to the Secretary all books and
records and other data available to the Borrower in order to permit the
Secretary to carry out such audits. The Borrower will represent that it
has within its rights access to all financial and operational records
and data relating to Project Costs, and agrees that it will, upon
request by the Secretary, exercise such rights in order to make such
financial and operational records and data available to the Secretary.
In exercising its rights hereunder, the Secretary may utilize employees
of other Federal agencies, independent accountants, or other persons.
Sec. 609.18 Deviations.
To the extent that such requirements are not specified by the Act
or other applicable statutes, DOE may authorize deviations on an
individual request basis from the requirements of this part upon a
finding that such deviation is essential to program objectives and the
special circumstances stated in the request make such deviation clearly
in the best interest of the Government. DOE will consult with OMB and
the Secretary of the Treasury before DOE grants any deviation that
would constitute a substantial change in the financial terms of the
Loan Guarantee Agreement and related documents. Any deviation, however,
that was not captured in the Credit Subsidy Cost will require either
additional fees or discretionary appropriations. A recommendation for
any deviation shall be submitted in writing to DOE. Such recommendation
must include a supporting statement, which indicates briefly the nature
of the deviation requested and the reasons in support thereof.
[FR Doc. E9-28883 Filed 12-3-09; 8:45 am]
BILLING CODE 6450-01-P