Loan Guarantees for Projects That Employ Innovative Technologies, 60116-60145 [E7-20552]
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9521, e-mail:
lawrence.oliver@hq.doe.gov.
DEPARTMENT OF ENERGY
10 CFR Part 609
SUPPLEMENTARY INFORMATION:
RIN 1901–AB21
Loan Guarantees for Projects That
Employ Innovative Technologies
Office of the Chief Financial
Officer, Department of Energy.
ACTION: Final rule.
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AGENCY:
SUMMARY: On May 16, 2007, the
Department of Energy (DOE or the
Department) published a Notice of
Proposed Rulemaking and opportunity
for comment (NOPR) to establish
regulations for the loan guarantee
program authorized by Title XVII of the
Energy Policy Act of 2005 (Title XVII or
the Act). 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.’’ Title XVII also
identifies ten categories of technologies
and projects that are potentially eligible
for loan guarantees. The two principal
goals of Title XVII are to encourage
commercial use in the United States of
new or significantly improved energyrelated 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. Having
considered all of the comments
submitted to DOE in response to the
NOPR, the Department today is issuing
this final rule.
DATES: Effective Date: This rule is
effective upon October 23, 2007.
FOR FURTHER INFORMATION CONTACT:
David G. Frantz, Director, Loan
Guarantee Program Office, Office of the
Chief Financial Officer, 1000
Independence Avenue, SW.,
Washington, DC 20585–0121, (202) 586–
8336, e-mail: lgprogram@hq.doe.gov; or
Warren Belmar, Deputy General Counsel
for Energy Policy, Office of the General
Counsel, 1000 Independence Avenue,
SW., Washington, DC 20585–0121, (202)
586–6758, e-mail:
warren.belmar@hq.doe.gov; or Lawrence
R. Oliver, Assistant General Counsel for
Fossil Energy and Energy Efficiency,
Office of the General Counsel, 1000
Independence Avenue, SW.,
Washington, DC 20585–0121, (202) 586–
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I. Introduction and Background
II. Public Comments on the Notice of
Proposed Rulemaking and DOE’s
Responses
A. Technologies
1. Definition of New or Significantly
Improved Technologies
2. Definition of Technologies in General
Use
3. Nuclear Generation Projects
B. Financial Structure Issues
1. Lender Risk, Stripping and Pari Passu
2. Equity Requirements for Project
Sponsors
3. Other Governmental Assistance
4. Credit Assessment and Rating
Requirements
C. Project Costs
D. Solicitation
E. Payment of the Credit Subsidy Cost
F. Assessment of Fees
G. Eligible Lenders and Servicing
Requirements
H. Federal Credit Reform Act of 1990
(FCRA)
I. Default and Audit Provisions
J. Tax Exempt Debt
K. Full Faith and Credit
L. Responses to August 2006 Solicitation
M. Other Issues Raised in the Public
Comments
III. Regulatory Review
A. Executive Order 12866
B. National Environmental Policy Act of
1969
C. The 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 establishes policies,
procedures and requirements for the
loan guarantee program authorized by
Title XVII of the Energy Policy Act of
2005 (42 U.S.C. 16511–16514). Title
XVII authorizes the Secretary of Energy,
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 May 16, 2007, the Department
published a Notice of Proposed
Rulemaking and Opportunity for
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Comment (NOPR, 72 FR 27471) to
establish regulations for the Title XVII
loan guarantee program. DOE held a
public meeting on the NOPR in
Washington, DC on June 15, 2007.
Section 20320(a) of Public Law 110–
5, the Revised Continuing
Appropriations Resolution, 2007 (Pub.
L. 110–5) authorized DOE to issue
guarantees under the Title XVII program
for loans in the ‘‘total principal amount,
any part of which is to be guaranteed,
of $4,000,000,000.’’ Section 20320(b) of
Public Law 110–5 further provides that
no loan guarantees may be issued under
the Title XVII program until DOE
promulgates final regulations that
include ‘‘(1) programmatic, technical,
and financial factors the Secretary will
use to select projects for loan
guarantees; (2) policies and procedures
for selecting and monitoring lenders and
loan performance; and (3) any other
policies, procedures, or information
necessary to implement Title XVII of the
Energy Policy Act of 2005.’’ The
regulations being finalized today fulfill
that requirement.
Section 1702 of the Act 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
[as defined in regulations issued by the
Secretary]; 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))
Section 1702(i) requires the Secretary to
prescribe regulations outlining recordkeeping and audit requirements. This
final rule sets forth application
procedures, outlines terms and
conditions for Loan Guarantee
Agreements, and lists records and
documents that project participants
must keep and make available upon
request.
II. Public Comments on the NOPR and
DOE’s Responses
DOE received comments on the NOPR
from 47 interested parties. Twenty
interested parties presented oral
comments and/or submitted written
comments for the record at the public
meeting. DOE summarizes below the
major areas of the NOPR on which it
received public comment, and discusses
the Department’s responses to those
comments. Only major areas of the
NOPR are discussed here, although DOE
carefully reviewed all comments it
received on the NOPR, and in some
cases made adjustments to the rule text
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that are not discussed at length in this
preamble.
so long as the technology is not in
‘‘general use’’ in the United States.
A. Technologies
A principal purpose of the Title XVII
loan guarantee program is to support
‘‘innovative technology’’ projects in the
United States that ‘‘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)(2)) Section 1701(1) (A) of the
Act defines ‘‘commercial technology’’ as
‘‘a technology in general use in the
commercial marketplace.’’ (42 U.S.C.
16511(1)(A))
Title XVII does not require, but on the
other hand does not prohibit, different
treatment for different eligible
technologies or projects in the Title XVII
program. Furthermore, the Act does not
explain or define the phrase ‘‘new or
significantly improved’’ in section
1703(a)(2), nor does it explain or define
the terms ‘‘general use’’ or ‘‘commercial
marketplace.’’ In the NOPR, DOE
proposed to define the term ‘‘new or
significantly improved technology’’ to
mean ‘‘a technology concerned with the
production, consumption, or
transportation of energy, and that has
either only recently been discovered or
learned, or that involves or constitutes
one or more meaningful and important
improvements in the productivity or
value of the technology.’’ (72 FR 27480)
Because Title XVII focuses on
encouraging and incentivizing
innovative technologies not already in
‘‘general use’’ in the U.S. commercial
marketplace, DOE stated in the NOPR
that the Title XVII loan guarantee
program should only be open to projects
that employ a technology that has been
used in a very limited number of U.S.
commercial projects or used in a
commercial project for only a limited
period of time. Therefore, DOE
proposed two possible ways of
interpreting ‘‘general use’’: it could
mean ‘‘ordered for, installed in, or used
in five or more commercial projects in
the United States,’’ or ‘‘in operation in
a commercial project in the United
States for a period of five years, as
measured beginning on the date the
technology was commissioned on a
project.’’ (72 FR 27480) DOE requested
comment on these alternatives, and also
on whether the same definition should
apply to all types of projects and
technologies eligible for loan
guarantees. (72 FR 27474) As DOE
stated in the NOPR, a project may be
eligible for a Title XVII loan guarantee
if it uses technology that has been used
in any number of projects and for any
period of time outside the United States,
1. Definition of New or Significantly
Improved Technology
Public Comments: Section 609.2 of
the proposed regulations defined ‘‘new
or significantly improved technology’’
to mean ‘‘a technology concerned with
the production, consumption or
transportation of energy, and that has
either only recently been discovered or
learned, or that involves or constitutes
one or more meaningful and important
improvements in the productivity or
value of the technology.’’ Several
commenters expressed the view that
this definition is too narrow because it
does not include improvements in ‘‘new
systems or system integration.’’ Other
commenters stated that the definition
should reference or include the term
‘‘commercial use.’’ Some commenters
stated that the definition was
appropriate.
Parson & Whittemore Incorporated
(P&W) and Forest Energy System, LLC
(FES), for example, assert that the
proposed definition of new or
significantly improved fails to capture
the potential value of ‘‘systems’’ rather
than individual technologies. They
recommend expanding the definition to
include improvements from new
systems or systems integration. (P&W at
1; FES at 1).
The Nuclear Energy Institute (NEI)
and Bechtel Corporation (Bechtel)
challenged the NOPR’s proposal to
require that the technology be both new
or significantly improved and not in
general use in the commercial
marketplace in the United States. They
maintain that Title XVII only requires
that a technology be new or significantly
improved ‘‘as compared to’’ commercial
technologies in service in the U.S. at the
time the guarantee is issued. (NEI at 25;
Bechtel at 5).
The Verenium Corporation
(Verenium) stated that it is possible that
a technology has been in existence for
some time but has never been
commercially applied for some reason,
such as a technology that was not viable
when competing with oil at $20 a barrel
but is competitive with oil at $60 a
barrel. Verenium stated that DOE should
focus on technologies ‘‘not yet in’’ use
and therefore should make the
definition of New or Significantly
Improved Technology refer to the
defined term ‘‘Commercial
Technology.’’ (Verenium at 10).
The Union of Concerned Scientists
(UCS), however, stated that ‘‘DOE needs
to develop objective criteria to
demarcate ‘new’ or ‘significantly
improved’ technologies from the
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sprucing up and recycling of current
technologies,’’ and asserted that the
approach of the NOPR relied upon
‘‘subjective judgments concerning the
definition rather than employing more
objective, quantitative measures of
novelty and significant improvement.’’
(UCS at 1). UCS did not, however, offer
any suggestions as to what sort of
‘‘objective, quantitative measures of
novelty and significant improvement’’
would be appropriate for adoption in
the rule. TXU Generation Development
Company LLC (TXU) argued that the
rule should adopt a ‘‘flexible definition’’
with DOE and expert consultants
making decisions on particular
technologies at the preliminary
application stage. (TXU at 7).
Eastman Chemical Company
(Eastman) supported the NOPR’s
proposed disqualification of projects
solely in the research, development, or
demonstration phase as long as the
criteria is applied ‘‘to the overall project
and does not make a project ineligible
just because one subsection of
technology is new.’’ Eastman adds:
‘‘Arguably, a use of proven or
commercial technologies in a new or
novel configuration, combination, or
implementation method, such as
polygeneration should qualify as a ‘new
or significantly improved technology.’ ’’
(Eastman at 3).
Beacon Power Corporation (Beacon)
recommends broadening the definition
by adding the following italicized
phrase so that the definition would
read: ‘‘technologies concerned with the
* * * productivity or value of the
technology or an improvement over an
existing technology that will perform the
same function.’’ (Beacon at 3). Ameren
Services Company (Ameren) supported
the proposed definition of new or
significantly improved technologies,
subject to the addition of the following
phrase: ‘‘in service in the United States
at the time the guarantee is issued,’’
which is part of the statutory definition
in § 1703(a)(2) of the Act. (Ameren at 2).
DOE Response: There is no one
universally accepted or agreed upon
definition of the term ‘‘technology.’’
Generally, technology is thought to be
the practical application of science to
industrial or commercial objectives.
Technology may also include electronic
or digital products and systems
considered as a group. DOE believes
that the term ‘‘technology’’ in Title XVII
was intended to have a very broad
meaning, given the purposes of Title
XVII, and therefore does not believe it
is advisable to set down by rule a
narrow definition of what will be
considered a ‘‘technology’’ for purposes
of this program.
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However, the Department believes it
is important to establish what may
enable a particular technology to be
considered ‘‘new or significantly
improved’’. By its explicit terms, the
Title XVII loan guarantee program is not
open to all technologies and projects,
but only those that are new or
significantly improved in comparison to
commercial technologies in use in the
United States.
Several commenters asserted that the
proposed definition of ‘‘new and
significantly improved technology’’ in
the NOPR mistakenly requires that in
order to be eligible for a loan guarantee,
a project must employ a technology that
is both new and improved and is not in
commercial use in the United States.
They argue that the regulatory definition
should be clarified to make clear that
the test is new or significantly improved
as compared to commercial
technologies in service in the United
States. They correctly quote Title XVII,
but are mistaken as to the import of that
language and the language in the NOPR.
Either a technology is in general use in
the U.S. commercial marketplace or it is
not. If it is in general use, then the same
technology could not possibly be ‘‘new
or significantly improved’’ in
comparison to technology in general use
in the U.S. commercial marketplace,
and it is ineligible for a Title XVII loan
guarantee. Yet a technology does not
automatically become eligible for a Title
XVII loan guarantee merely because it is
not a U.S. commercial technology;
rather, it must be ‘‘new or significantly
improved’’ in comparison to such
commercial technology. If the statute
required only that it be ‘‘new’’ or
‘‘different’’ in comparison to
commercial technologies, then it might
well be that in order to become eligible
for a Title XVII guarantee, all a project
sponsor would need to show is that it
was using a technology currently not in
commercial use in the United States.
But such an interpretation of Title XVII
would render as surplusage the words
‘‘or significantly improved’’ in section
1703(a)(2) of the Act. As a result, the
term ‘‘new or significantly improved’’
cannot simply mean not currently in
commercial use in the United States; it
must mean that the technology itself is
either newly developed, or it must
constitute a significant improvement
over technologies currently in U.S.
commercial use. Notably, in order to be
eligible for a loan guarantee a
technology need not be both new and
significantly improved, but must only
be one or the other.
DOE does believe it is useful to clarify
that while a ‘‘new’’ technology must be
newly developed, discovered or learned,
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a ‘‘significantly improved’’ technology
may in fact be ‘‘old’’ but a significant
improvement over technologies
currently in commercial use in the
United States. Thus, and as noted in the
NOPR, DOE agrees with the assertions
by some commenters that a technology
could be eligible for a loan guarantee
even if it was developed long ago and
even if it is used in the same
commercial application outside the
United States, as long as that technology
is not in general commercial use for that
application in the United States at the
time the loan guarantee is issued.
Consistent with DOE’s interpretation of
section 1703(a)(2) of the Act, section
609.2 of the final rule provides, in part,
as follows:
New or significantly improved technology
means a technology concerned with the
production, consumption or transportation of
energy that is not a Commercial Technology,
and that has either: (i) Only recently been
developed, discovered or learned; or (ii)
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.
2. Definition of Technologies in General
Use
Public Comments: Under section
1703(a)(2) of the Act, projects are
eligible for Title XVII loan guarantees
only if they employ new or significantly
improved technologies as compared to
‘‘commercial technologies’’ that are ‘‘in
service in the United States’’ when
guarantees are issued. Section
1701(1)(A) defines ‘‘commercial
technology’’ to mean ‘‘a technology in
general use in the commercial
marketplace.’’ The NOPR proposed two
alternative definitions of ‘‘general use’’:
A technology would be considered to be
in ‘‘general use’’ if it had been ‘‘ordered
for, installed in, or used in five or more
[commercial] projects in the United
States’’; or alternatively, if it had been
‘‘in operation in a commercial project in
the United States for a period of five or
more years as measured beginning on
the date the technology was
commission[ed] on a project.’’ This
definition is important because, as
noted above, a proposed technology
cannot qualify a project for a Title XVII
loan guarantee if it is in ‘‘general use’’
in the U.S. commercial marketplace.1
1 Notably, the existence of technology in a project
that is in general commercial use in the United
States does not in itself disqualify a project from
eligibility for a Title XVII loan guarantee. Most if
not all projects that are eligible for loan guarantees
will employ some technologies that are in such
general use.
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Several commenters stated that the
first of the alternatives set forth in the
NOPR was acceptable, but the second
alternative definition should not be an
option or should be revised. On the
other hand, several commenters stated
that the second alternative definition
would be appropriate for nuclear
projects because the early operational
phase is more useful in determining
whether a technology is workable and
acceptable. Other commenters stated
that the second alternative should not
be adopted because it likely would lead
to a very large number of nuclear
projects being eligible for loan
guarantees since there is a long period
of time between initiation of work on a
nuclear generation facility and the
completion of five years of operation,
and during this time a large number of
projects using the same technology
could apply for and be granted loan
guarantees. Still other commenters were
of the view that it is impossible to
adequately define ‘‘general use’’ and
asserted that DOE therefore should
approve or disapprove loan guarantee
proposals to use technologies on a caseby-case basis. Commenters also
expressed the view that the two
alternative definitions for ‘‘general use’’
should be combined into one definition.
More specifically, in their joint
comments Constellation Nuclear
Utilities, Inc., Entergy Corporation,
Exelon Corporation, and NRG Energy,
Inc. (Nuclear Utilities) asserted that for
nuclear technologies the definition of a
technology that is in ‘‘general use’’
should be based upon five or more years
of operation of any given new design
(e.g., an advanced reactor design that is
separately certified by the Nuclear
Regulatory Commission (NRC)). They
argued that if DOE were to use the ‘‘five
or more projects’’ alternative for
defining what constituted ‘‘general use,’’
it would be essential that the phrase
‘‘order for, installed in, or used in’’
should be changed to ‘‘ordered for,
installed in, and used in,’’ since for
nuclear plants, ordering would take
place many years before use. (Nuclear
Utilities at 19–20). NEI, Dominion
Resources Services, Inc. (Dominion) and
Excelsior Energy, Inc. (Excelsior)
submitted similar comments. (NEI at 24,
Dominion at 12, Excelsior at 2–3).
Southern Company Services, Inc.,
(Southern) stated that technology
should be considered in ‘‘general use’’
when financing has been established for
five or more projects in the United
States. Southern stated that its proposed
interpretation of ‘‘general use’’ would
assist DOE’s effort in having a broad
portfolio of large and small projects
with a wide variety of technologies
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supported by the Title XVII program,
because it would limit the number of
project participants that employ the
same technology. Southern also asserted
that the successful implementation of
five projects employing a particular
technology should greatly reduce the
concerns of the credit markets, and
stated that not considering a technology
to be in ‘‘general use’’ until it has been
in operation in a commercial project in
the United States for five years could
result in an unlimited number of
projects utilizing the same technology.
(Southern at 1).
Verenium stated that if over a fiveyear period a technology has been used
in fewer than five projects, the
technology is probably not in general
use because it would indicate there is
some barrier to competitiveness. The
restriction to five projects, according to
Verenium, should be stated as only a
‘‘presumption,’’ so that DOE could
deviate from it in appropriate
circumstances. Verenium further argued
that the term ‘‘ordered for’’ may be
ambiguous, and thus suggested the use
of ‘‘in the process of being installed’’ if
DOE adopts an alternative employing
this concept, and thus suggested the
following language for the definition of
Commercial Technology:
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‘‘Commercial Technology means a
technology in general use in the commercial
marketplace in the United States, but does
not include a technology solely by use of
such technology in a demonstration project
funded by DOE. A technology is presumed to
be in general use if it has been installed or
used or is in the process of being installed
in five commercial projects in the United
States.’’
(Verenium at 12–13).
Standard & Poor’s (S&P) stated that
projects involving integrated
gasification combined cycle (IGCC) and
coal-to-liquids (CTL) technologies
currently lack a commercial track record
and therefore would be assigned a risk
premium by that rating agency.
However, S&P said that if there are at
least five operational projects using a
particular technology, and as long as
there was a material track record of
operations, the perceived risk and thus
the risk premium associated with the
technology would be substantially
reduced. (S&P at 2). The Iogen
Corporation (Iogen), believes that the
definition proposed in the NOPR is too
restrictive and notes that the financial
community has displayed great
reticence to providing debt financing at
reasonable commercial rates for new
technologies that have not been widely
demonstrated. Iogen would prefer that
DOE not adopt a single ‘‘bright line’’ test
and that the Department instead rely on
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market forces to determine the need for
a guarantee. However, if the Department
is going to develop a test, Iogen
proposes to combine the two
alternatives into one modified
definition, so that a particular
technology would be considered to be in
general use if it had been installed or
used in five or more projects in the
United States for a period of five years.
(Iogen at 2–3).
The Coal Utilization Research Council
(CURC) stated that the ‘‘proposed
definition of general use is not suitable
as it relates to projects that will use
technologies that have been in
commercial use for other applications,’’
and that ‘‘size, process configurations,
and technology modifications are among
the several general characteristics of
projects that need to be considered
when applying the general use
definition.’’ (CURC at 5). Baard Energy
L.L.C. (Baard) proposed that, with
respect to CTL projects, ‘‘general use’’
should be defined by the first alternative
set forth in the NOPR, i.e., technologies
that have been installed and used in five
or more commercial projects in the
United States. Baard asserts that the
second alternative, five years, is too
short. In order to accommodate
construction schedules for CTL plants
and to allow for innovations and
improvements, Baard maintains that the
second alternative should be extended
to ten years. (Baard at 3).
Bechtel Power Corporation (Bechtel)
recommends combining the two
alternatives for determining ‘‘general
use’’ proposed in the NOPR, as follows:
The technology or combination of
technologies have been ordered for, installed
in, and used in five or more projects in the
U.S., each for a period of five years,
measured from date of commissioning.
Bechtel’s other comments regarding
‘‘general use’’ are focused on new
nuclear technologies that have never
been built in the United States.
According to Bechtel, the technologies
in question (‘‘Gen III’’ and ‘‘Gen III+’’
nuclear designs) should be judged
individually for purposes of
determining whether either of the
alternative meanings of ‘‘general use’’
proposed in the NOPR apply to them.
Bechtel states that the ‘‘general use’’
language in the rule must clearly
distinguish new generations or new
applications of a technology such as
Gen III or Gen III+ in order to assure that
they are not excluded from loan
guarantee eligibility by the fact that over
100 nuclear plants have been built in
the United States, when those plants
used different designs and were
constructed in a much different industry
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and regulatory environment. (Bechtel at
4).
CPS supports the second alternative
definition set forth in the NOPR, and
submits that the five to seven year
construction period for a nuclear project
means that starting the ‘‘clock’’ from the
time the technology is commissioned on
a project, may mean that the project is
disqualified at or prior to the
technology’s in-service date. CPS asserts
that guarantees should be available, to
the extent of appropriations, until each
distinct technology is in full commercial
operation. (CPS at 7). Abengoa
Bioenergy New Technologies (ABNT)
recommends that DOE select the
definition which utilizes time from first
commercialization as the basis for
defining ‘‘general use.’’ ABNT argues
that if the other alternative is selected,
DOE will be discouraging competition
and applications from a number of
projects which are eligible under a given
solicitation or invitation, and that by
determining eligibility on the basis of ‘‘a
fixed window of time,’’ DOE will
provide certainty that a project will
remain eligible for a loan guarantee at
some future time regardless of
intervening events with other projects or
technologies. ABNT does not dispute
the NOPR’s proposal of a five-year time
frame, but suggests that a superior
approach may be to establish a time
frame according to the commercial
technology defined in each solicitation
or invitation. (ABNT at 1).
DOE Response: DOE agrees with
concerns expressed by many
commenters about the ‘‘five project’’
alternative proposed in the NOPR.
These commenters were concerned that
a definition that did not include an
operational component, which lenders
need to develop confidence that a
technology is proven and is viable in
actual commercial operation, may not
be workable for this program, and may
not result in effective reduction of
commercial risk and effective increased
commercial marketplace acceptance
prior to the closing of loan guarantee
program eligibility. DOE believes that
other entities considering incorporation
of a particular technology into their
planning want to see technologies
proven in actual practice before
investing substantial sums on that
technology and incorporating it into
large-scale capital expenditure plans.
Furthermore, operational experience
reduces risk from the standpoint of the
credit and debt markets, and can lead to
increased access to capital markets at
lower rates. We particularly note and
find persuasive S&P’s comment that if
there were at least five operational
projects in a particular technology
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within the United States, the perceived
risk premium associated with the
technology should be substantially
reduced. We also note that adoption of
the ‘‘five projects’’ proposal in the
NOPR but without including an
operational period could result in
technologies or projects involving very
long development and construction
times being disqualified from receiving
additional loan guarantees before even
one project had commenced commercial
operations, or in extreme cases, before
any projects employing the technology
had even commenced construction.
After review and evaluation of the
comments, DOE accordingly has revised
section 609.2 of the NOPR as follows:
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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 loan guarantees
from DOE under this part.
DOE believes this definition reasonably
addresses the concerns that DOE
considers persuasive. By referring to the
‘‘same general application’’ as the
proposed project, the definition
provides that a technology is not
necessarily considered in ‘‘general use’’
if it has been used for completely
different projects or applications than in
the proposed project. For example, the
fact that fuel cells have been used in
some small-scale applications for
flashlights would not disqualify an
application for a project that proposed
to use fuel cells to power a motor
vehicle. The definition also makes clear
that it is only use of a technology in a
project in the United States that can
potentially render it in ‘‘general use’’ for
the purposes of this program. The
definition provides that each of three
projects using a particular technology
must be in service for five years before
the technology is considered to be in
general use. Thus, this definition deals
with the concern expressed by some
commenters that technologies should be
barred from program eligibility only if
there has been substantial actual
operational experience with them.
Finally, the definition clarifies that
projects that have received loan
guarantees will be counted when
determining whether technologies have
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different technologies proposed
represent vastly different scales of new
technology, as compared with other
types of eligible projects. CPS stated that
the cost of new nuclear generating
capability is in the neighborhood of
$2,000 per kilowatt and the capacity of
the plants is in excess of 1,300
megawatts, that five different reactor
technologies are being proposed, and
that none of the technologies currently
are in operation in the United States.
Therefore, CPS asserted that each of the
five technologies should be treated as a
distinct new technology eligible for loan
guarantees. (CPS at 7).
Iogen, however, strongly opposed
DOE making the loan guarantee program
more favorable for larger projects
involving electricity generation from
nuclear power or coal combustion/
gasification than for other types of
projects, such as those that would
advance the President’s ‘‘20 in Ten’’
initiative, which Iogen said depends on
the widespread deployment of advanced
biofuels refineries. (Iogen at 1). The
American Council on Global Nuclear
Competitiveness (ACGNC) stated that
DOE should look beyond nuclear power
plants when defining the term
‘‘advanced nuclear energy facilities’’
that appear in section 1703 of the Act.
ACGNC stated that this language is
broad enough to allow DOE to issue
loan guarantees to projects that will
restore the domestic nuclear energy
design, manufacturing, service and
supply industry, such as uranium
mining and milling operations; uranium
conversion and enrichment facilities;
reactor component fabrication facilities;
and used fuel recycling plants. (ACGNC
at 2–3). Goldman and Sachs & Co.
(Goldman Sachs) recommended that the
3. Nuclear Generation Projects
final rule expressly include nuclear
Public Comments: Comments from the power generating stations and advanced
nuclear industry asserted that
technology low enriched uranium (LEU)
regulations proposed in the NOPR were production facilities in the definition of
not appropriate or workable for
what could constitute an eligible
commercial nuclear power projects
project. Goldman Sachs emphasized
because of the size and unique
that the described facilities are essential
regulatory and litigation-related risks
to fostering the domestic development
surrounding these projects. The
of emissions-free, affordable base-load
industry’s stated primary concern is the nuclear power generation, and that
ability of industry participants to access advanced nuclear energy facilities are
the capital markets at what they view as one of the ten categories of projects
reasonable rates, terms and conditions.
specifically addressed in the Act.
CPS Energy (CPS), on behalf of itself
(Goldman Sachs at 5).
and the Large Public Power Conference,
DOE Response: Nuclear projects were
a group of utility companies with
the only type of projects for which some
nuclear power facilities, recommended
commenters asserted the final rule
that new nuclear technology should be
should accord different treatment than
defined separately and differently from
other technologies. However, most if not
other technologies eligible for Title XVII all of those comments argued that
loan guarantees. CPS cited two principal different treatment was appropriate
factors supporting this recommendation: because of the very large cost and long
construction and permitting/licensing
(1) The capital intensive nature of new
time for such projects. And yet, similar
nuclear development; and (2) the
been used in a sufficient number of
projects to render them no longer
eligible for the program. DOE believes
this is consistent with the overall
purpose of the program in encouraging
the introduction of new and improved
technologies into the commercial
marketplace, but ensuring that
technologies do not remain forever
dependent on loan guarantee support in
order to be commercially viable. The
Title XVII program should help
introduce technologies to the
commercial marketplace, but it should
be up to those technologies and to the
commercial marketplace as to whether
the technologies continue to be
economically and technologically
viable, or not.
DOE notes that even though the
definition of ‘‘commercial technology’’
it is adopting in this rule may permit
multiple projects using the same
technology to be eligible for a Title XVII
guarantee, DOE is under no obligation to
seek authority for, or to issue
solicitations for, all or any particular
technology that may fall within the
outer limits of eligibility for a loan
guarantee, as that eligibility is
prescribed by Title XVII and this rule.
Indeed, it is perfectly possible that DOE
may decide not to issue a solicitation
covering a certain technology, even
though projects using that technology
would be eligible under this rule for a
loan guarantee. Furthermore, this
definition of ‘‘commercial technology’’
in no way limits DOE’s ability to
include within a solicitation a selection
criterion, and assign a weighting for that
criterion, based on the number of
projects already in service using that
technology.
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arguments could be made in support of
some other types of potentially eligible
projects, such as refineries, IGCC
facilities, or CTL projects. No
commenters argued that nuclear
technology per se makes nuclear
projects deserving of different and more
favorable treatment than the final rule
affords to other projects that have large
capital requirements and difficult
regulatory environments. Moreover,
DOE believes it has dealt appropriately
with many if not most of the concerns
expressed by nuclear industry
participants regarding the issues of
‘‘general use’’ and other matters
discussed elsewhere in this preamble
and in the final rule text. Therefore, the
final rule does not differentiate between
nuclear power generation projects and
all other projects.
B. Financial Structure Issues
The Act imposes certain limitations
on the financial structure of proposed
projects, including that a loan guarantee
‘‘shall not exceed an amount equal to 80
percent of the project cost of the facility
that is the subject of the guarantee as
estimated at the time at which the
guarantee is issued.’’ (42 U.S.C.
16512(c)) Section 1702(g)(2)(B) of the
Act further requires that ‘‘with respect
to any property acquired pursuant to a
guarantee or related agreements, [DOE’s
rights] shall be superior to the rights of
any other person with respect to the
property.’’ In the NOPR, the Department
interpreted this statutory provision to
require that DOE possess a first lien
priority in the assets of the project and
other assets pledged as security, and
stated that because DOE believed it is
not permitted by Title XVII to adopt a
pari passu security structure, Holders of
the non-guaranteed portion of a loan or
debt instrument supported by a Title
XVII guarantee would have a
subordinate claim to DOE in the event
of default.
DOE proposed in the NOPR that it
only would issue a guarantee for up to
90 percent of a particular debt
instrument or loan obligation for an
Eligible Project. This limitation was
subject to the overriding statutory
requirement that DOE’s guarantees for a
particular project could not exceed 80
percent of Project Costs. Furthermore, in
connection with any loan guaranteed by
DOE that may be participated,
syndicated, traded, or otherwise sold on
the secondary market, DOE proposed to
require that the guaranteed portion and
the non-guaranteed portion of the debt
instrument or loan be sold on a pro-rata
basis. In the NOPR, DOE proposed not
to allow the guaranteed portion of the
debt to be ‘‘stripped’’ from the non-
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guaranteed portion, i.e., sold separately
as an instrument fully guaranteed by the
Federal government.
The Act does not mandate a specific
equity contribution to a project that
receives a Title XVII loan guarantee, but
DOE proposed in the NOPR that in
order to receive a loan guarantee, Project
Sponsors must have a significant equity
stake in the proposed project. DOE
solicited comments on the merits of
adopting a minimum equity percentage
requirement for projects, and stated that
in evaluating loan guarantee
applications, the Department would
consider whether and to what extent a
Project Sponsor will rely upon other
government assistance (e.g., grants, tax
credits, other loan guarantees, etc.) to
support financing, construction or
operation of a project.
Finally, DOE proposed to require with
submission of an application for a loan
guarantee a ‘‘credit assessment’’ for the
project without a loan guarantee from a
nationally recognized rating agency,
where the size and estimated cost of the
project justify such an assessment.
Additionally, DOE proposed to require
that not later than 30 days prior to
closing, Applicants must provide a
‘‘credit rating’’ from a nationally
recognized rating agency reflecting the
Final Term Sheet for the project without
a Federal guarantee. The Department
requested comments as to whether it
should establish a project size (dollar)
threshold below which DOE could
waive the credit assessment and rating
requirements.
Public Comments:
1. Lender Risk, Stripping and Pari Passu
Commenters that addressed the 90
percent, no stripping, and pari passu
provisions in the NOPR were generally
opposed to these restrictions. S&P
commented on the 90 percent guarantee
limitation in combination with the
stripping prohibition stating that ‘‘[t]his
is the provision [sic] that has the
greatest credit consequence. The rating
associated with a partially guaranteed
obligation will be substantially lower
than the ‘AAA’ rating of a fully
guaranteed instrument . . . [and] will
result in a significantly higher cost of
debt for the project than if it was fully
guaranteed.’’ (S&P at 5). S&P also stated
that ‘‘[t]he disadvantage created by the
partial guarantee can be overcome if the
loan can be ‘stripped’, effectively
creating two tranches of debt, one with
a ‘AAA’ rating and the second rated
much lower.’’ (S&P at 5).
NEI asserted that allowing 90 percent
guaranteed loans, instead of placing the
limit at 80 percent as did the August
2006 Guidelines, did not improve what
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60121
NEI viewed as a limitation adversely
affecting the overall viability of the Title
XVII program for nuclear projects. NEI
stated that the NOPR would create a
financing structure that is not workable.
It would create, according to NEI, a
hybrid loan facility for which there is no
market, a debt instrument with a
guaranteed portion and a nonguaranteed potion which cannot be
stripped, and would render the
unsecured, non-guaranteed portion of
the debt ‘‘quasi-equity.’’ The impact,
according to NEI, would be to
compromise project economics, increase
debt service requirements, and increase
costs to electricity consumers.
NEI further said if DOE’s proposal
were adopted, the Title XVII loan
guarantee program would not operate
like other successful Federal loan
guarantee programs. NEI stated that
those other programs generally provide
for 100 percent Federal guarantee
coverage of the loan amount; allow pari
passu treatment of non-guaranteed
commercial debt; and permit stripping
of guaranteed debt from non-guaranteed
debt and follow standard practice in
determining eligible project costs. NEI
said that DOE’s NOPR was deficient on
all four of these issues. (NEI at 2–3).
In a set of joint comments, Citigroup,
Credit Suisse, Goldman Sachs, Lehman
Brothers, Morgan Stanley and Merrill
Lynch (Investment Bankers) stated that
investors or lenders in the fixed income
markets will be acutely concerned about
a number of political, regulatory and
litigation-related risks surrounding
nuclear power, including the possibility
of delays in commercial operation of a
completed plant. The Investment
Bankers also stated that these risks,
combined with the higher capital costs
and longer construction schedules of
nuclear plants, as compared to other
electric generation facilities, may make
lenders unwilling to make long-term
loans to such projects on commercially
viable terms. (Investment Bankers at 1).
The Nuclear Utilities also stated that
the Title XVII loan guarantee program
must guarantee debt through workable
financing instruments. They asserted
that limiting guarantee coverage to 90
percent, prohibiting pari passu security
structures, and prohibiting ‘‘stripping,’’
would result in a program that would
not support the financing of new
nuclear plants in the United States. The
Nuclear Utilities said that their primary
concern relates to the percentage of a
project’s debt the loan guarantee will
cover. They believe that DOE would be
fully justified in guaranteeing 100
percent of a Guaranteed Obligation, up
to 80 percent of project cost. Moreover,
the Nuclear Utilities stated that
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providing 100 percent guarantee
coverage of a debt instrument is not
only necessary because commercially
viable financing is not available on an
non-guaranteed basis, but also because a
100 percent U.S. government guarantee
will enable lenders and borrowers to
maximize the efficiency of the existing,
well-established marketplace for
government guaranteed debt. The
Nuclear Utilities also believe that the
‘‘no stripping’’ requirement combined
with the prohibition on pari passu
security structures, creates a form of
‘‘hybrid’’ debt for which there is no
natural, existing market. According to
the nuclear industry, the market
participants would incur a significantly
higher average cost of financing, as well
as unnecessary transaction costs to
achieve project structures that would
enable the project’s debt to be placed
with its appropriate constituents in the
existing marketplace. The Nuclear
Utilities stated that such structures
could lead to a form of ‘‘synthetic’’
stripping that undercuts the purpose of
the no stripping requirement. (Nuclear
Utilities at 5–8). They recommended
that any concern about lender due
diligence should be addressed by DOE
retaining outside legal, technical, and
financial experts to supplement its
internal expertise in performing the
necessary project due diligence and
assessing project risks, and that the
reasonable costs and expenses of these
experts should normally be borne by the
sponsors and constitute part of project
costs. (Nuclear Utilities at 10–11).
The Investment Bankers expressed
views that are generally consistent with
those of the Nuclear Utilities. They also
noted that in some cases, investors in
the AAA government-guaranteed market
are restricted, legally or otherwise, from
investing in the sub-debt market. They
said that requiring investors to own
interests through a mandated hybrid
instrument in both AAA paper and
deeply subordinated ‘‘quasi-equity’’
paper removes both of these financing
instruments from their natural market.
(Investment Bankers at 1). The
Investment Bankers stated that ‘‘[t]here
is a deep and highly efficient market for
‘AAA’ government guaranteed paper.
Investors in that market are distinctly
different from those investors who
participate in the sub-debt market.
Requiring investors to own interests
through a mandated hybrid instrument
in both AAA paper and deeply
subordinated ‘quasi-equity’ paper
removes both of these financing
instruments from their natural markets.’’
(Investment Bankers at 1). The 100
percent Government guaranteed debt
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instruments are purchased by investors
who are more risk averse. Investors in
non-guaranteed debt instruments are
willing to take more risk for the
prospect of greater returns on their
investments. Verenium also expressed
concern about the 90 percent guarantee
limitation and the prohibition on
‘‘stripping’’ that are similar to the
concerns expressed by the Investment
Bankers and the Nuclear Utilities.
(Verenium at 4). Verenium suggested
that one alternative to 100 percent
guarantees would be to allow the nonguaranteed loan to be repaid on a
shorter amortization schedule than the
guaranteed loan. (Verenium at 6).
According to JP Morgan Securities,
Inc. (JP Morgan) it is unclear how
lenders would fund the non-guaranteed
portions of a partially guaranteed loan
on which stripping was prohibited since
banks rarely lend for tenures beyond
eight to ten years, particularly when the
debt is subordinated. JP Morgan further
stated that an expectation that lenders
would maintain the non-guaranteed
portions for the life of such loans is
unrealistic, and that by taking a second
lien interest, a lender’s participation is
tantamount to an equity investment. (JP
Morgan at 1).
Bechtel contended that a
commercially viable market does not
exist for a hybrid instrument for which
stripping is barred. Eliminating
stripping, according to Bechtel, is not in
line with other Federal loan guarantee
programs and would increase the cost of
project debt by eliminating a bank’s
ability to utilize various securitization
vehicles, such as the Private Export
Funding Corporation (PEFCO) or Govco,
Inc., the special purpose lending vehicle
of Citigroup, which provide efficient
and cost effective vehicles to fund
federally guaranteed loans. Bechtel
further agreed that the first lien
requirement in the NOPR is inconsistent
with established norms in project
lending and that the Export Import Bank
of the United States, the Overseas
Private Investment Corporation, and the
Transportation Infrastructure Finance
and Innovation Act of 1998 (TIFIA)
program at the Department of
Transportation treat any non-guaranteed
debt as pari passu in terms of both
payment and security. (Bechtel at 2).
Power Holdings of Illinois LLC
(Illinois), however, supported the 90
percent loan guarantee limitation in the
NOPR, and the proposed prohibition on
stripping. (Illinois at 1). Baard also
agreed with the 90 percent limitation.
Baard said that this limit was an
improvement over the 80 percent of
debt instrument guarantee limit set forth
in the August 2006 Guidelines, and that
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it would be an effective mechanism for
ensuring that investors/lenders perform
rigorous due diligence prior to
committing their money for a project.
(Baard at 5).
2. Equity Requirements for Project
Sponsors
Almost all parties that submitted
comments on this issue were opposed to
a fixed numeric minimum equity
requirement. Illinois agreed with the
concept that Project Sponsors should be
required to have a significant equity
stake in a project, but said DOE should
not adopt a fixed, numeric minimum
equity percentage, threshold, or
requirement. Illinois asserted that equity
structure in a given project can vary
with a number of factors, including
technology used and the market for the
project’s products, and that imposing a
fixed, numeric minimum equity
percentage threshold or requirement for
projects that might for good reason fall
below such a threshold could result in
the exclusion of otherwise worthy
projects. (Illinois at 2). NEI also stated
that DOE should not mandate a specific
minimum equity percentage for eligible
projects. The appropriate debt/equity
ratio, according to NEI, will vary across
technologies and sectors and among
projects, and should be determined by
project economics. (NEI at 23). Bechtel
offered similar comments. (Bechtel at 2).
3. Other Governmental Assistance
Most parties commenting on this
issue stated that other governmental
assistance to a project should be
considered beneficial to the project and
to DOE, and should not be used to
exclude projects from consideration for
the Title XVII program or regarded as a
negative factor when evaluating the
merits of particular projects. With
respect to DOE’s consideration of the
‘‘extent the Applicant will rely on other
federal and non-federal governmental
assistance’’ (section 609.7(b)(9) of the
proposed regulations), Iogen agreed that
this factor should be considered, but a
primary consideration should be
whether there was significant private
equity involvement in a proposed
project. Iogen stated that under no
circumstances should Federal
government assistance be counted
toward any equity contribution
requirement. Iogen agreed that DOE
should include Federal government
assistance only as an evaluation factor,
and not as one of the six disqualifying
conditions listed at section 609.7(a) of
the proposed regulations because,
among other things, government
assistance reduces total project costs,
thus reducing the size of any loan
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guarantee, increases the likelihood of
debt repayment, allows DOE to better
leverage its participation in a variety of
projects, and is an indicator of strong
political and community support. Iogen
also stated that presence of Federal
government assistance does not, in
itself, limit the level of private
commitment. For example, Iogen stated
that a project with 20% federal
assistance, a 50% loan guarantee, and
30% equity, could reasonably be
preferred over a project with an 80%
loan guarantee and 20% equity. (Iogen
at 4–5).
Bechtel stated that multiple forms of
governmental assistance should not be a
negative factor because tax and other
incentives are intended to be
complementary, not exclusive, and
multiple forms of governmental
assistance could enhance a project’s
economics and creditworthiness.
Therefore, Bechtel asserted that subsidy
costs should be adjusted to reflect the
reduced risk of default where there are
multiple forms of governmental
assistance. (Bechtel at 6). The Nuclear
Utilities also expressed the view that
other forms of governmental assistance
should be viewed positively. (Nuclear
Utilities at 20–23). CURC stated that if
a project obtains other forms of
governmental assistance, the cost of the
loan guarantee should be adjusted to
reflect the reduced risk of default on the
underlying debt obligation as a result of
the other support. CURC said that DOE
should not limit a project’s ability to
receive more than one form of federal
assistance. (CURC at 5).
4. Credit Assessment and Rating
Requirements
The NOPR proposed that a project
sponsor must obtain a preliminary
credit assessment and subsequent credit
rating for a project without a loan
guarantee from a recognized credit
rating agency. (609.6(b)(21) and
609.9(f)). Most commenters that
expressed a view on this issue stated
that a credit assessment or rating was
not very useful, and too expensive and
that a better value could be obtained
from entities other than established
rating agencies.
USEC Inc. (USEC) stated that it does
not understand the purpose of proposed
§ 609.9(f) which required that applicants
obtain a credit rating from a nationally
recognized rating agency reflecting the
final term sheet without a Federal
guarantee. USEC said that such a
requirement would add to the cost of
the application process with little
benefit since the credit rating agencies
are ill-equipped to evaluate the
technical risks associated with new or
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emerging technologies. USEC stated that
credit rating agencies look to historical
data—not clearly relevant to new or
emerging technologies. On the other
hand, USEC said that DOE is positioned
to conduct such an evaluation on its
own with the other information
provided in the application. (USEC at
5).
S&P stated that the credit assessments
provided at the time of application will
likely have to be limited to a rating
category (with the ‘+’ and ‘¥’ signs that
normally accompany S&P ratings),
because project documentation will
likely be in a very preliminary state at
this point. (S&P at 8). Goldman Sachs
recommended that the requirement for a
credit assessment as part of the
application submission be eliminated
from the final rule although sponsors
should be able to elect to obtain a credit
assessment as part of their application
submission if they wish to do so.
Goldman Sachs stated that obtaining a
credit assessment is a long process that
‘‘frequently consumes valuable time and
resources during the most critical stages
of negotiation.’’ Also, Goldman Sachs
asserted that ‘‘the primary rating
agencies often do not provide a final
rating until all documents have been
negotiated and closing is imminent’’
and that the rating will ‘‘be highly
dependent on the existence of the loan
guarantee, and thus a rating without the
guarantee will be of little substantive
value.’’ (Goldman Sachs at 9).
FES and P&W proposed that DOE set
a project cost threshold of $25 million
for waiving the credit rating
requirement. (FES at 3, P&W at 2).
Illinois also stated that DOE generally
should have authority to waive any
credit rating requirement. However,
according to Illinois, a simple project
size threshold for waiving the
requirement would oversimplify the
circumstances under which DOE would
consider such waivers. Illinois stated
that rather than a simple project size
threshold, DOE should set forth other
criteria, such as a ratio of project debt
to sponsor equity, the duration of the
loan guarantee or the credit subsidy
cost, in addition to the project size.
(Illinois at 2).
DOE Response:
1. Lender Risk, Stripping and Pari Passu
The primary goals of the Title XVII
loan guarantee program are to encourage
and incentivize the commercial use in
the United States of new or significantly
improved energy-related technologies
and to achieve substantial
environmental benefits.
Sections 609.10(d)(3), (4) and (13) of
the NOPR provided, in sum, that (1)
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60123
DOE could guarantee no more than 90
percent of any debt instrument for an
eligible project, (2) the guaranteed
portion of any debt instrument could
not be stripped from the non-guaranteed
portion, and (3) DOE must have a first
lien on all project assets pledged as
collateral for a guaranteed loan. The vast
majority of comments DOE received
were in opposition to those provisions.
DOE is persuaded by the comments it
received that identified a number of
problems and difficulties with proposed
sections 609.10(d)(3) and (4), and
therefore is revising those sections in
the final rule. Because the program
focuses on innovative technologies, for
which there often is not readily
available private market financing at
reasonable terms, and thus there is not
always a readily available commercial
market substitute for debt that does not
receive a Title XVII guarantee, DOE has
determined that an alternative approach
is more appropriate.
Sections 609.10(d)(3) and (4) now
provide that DOE may guarantee up to
100 percent of the amount of a loan for
a project that receives a Title XVII loan
guarantee, so long as all loan guarantees
DOE issues for a particular project do
not exceed 80 percent of Project Costs,
which is a limitation imposed by Title
XVII itself. As provided in the NOPR,
section 609.7, DOE will evaluate the
extent to which the requested amount of
the loan guarantee, and the requested
amount of guaranteed obligations are
reasonable, relative to the nature and
scope of the project.
In accordance with Federal credit
policy, DOE will issue 100 percent loan
guarantees only if the loan is issued and
funded by the Treasury Department’s
Federal Financing Bank. DOE also will
issue loan guarantees for loans from
private lenders where the guarantee
sought is for less than 100 percent of the
loan amount, and the final rule provides
that if DOE guarantees 90 percent or less
of a Guaranteed Obligation, the Eligible
Lenders and other Holders will not be
prohibited from separating the
guaranteed portion from the nonguaranteed portion of the debt
instrument. Thus, in cases where a
lender issues a loan and receives a
guarantee for more than 90 percent of
the loan amount, the non-guaranteed
portion cannot be stripped from the
guaranteed portion.
If a loan is not 100 percent
guaranteed, it can be obtained from an
approved Eligible Lender. Moreover, if
90 percent or less of a loan is guaranteed
by DOE, the Department is allowing
Eligible Lenders and other Holders to
strip the guaranteed portion of a
Guaranteed Obligation from the non-
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guaranteed portion. DOE believes that in
such circumstances, DOE still will gain
the benefit of private sector debt market
underwriting, but at the same time will
ensure that Eligible Projects are able to
obtain necessary financing, and be able
to do so on reasonable terms.
In the unique context of loan
guarantees for innovative energy
projects, DOE believes that the changes
made from the NOPR will assist projects
in obtaining financing on reasonable
terms. DOE recognizes that Federal
credit policy generally encourages
Federal credit programs to require that
guaranteed obligations have a nonguaranteed portion. As noted above, the
program focuses on innovative
technologies for which there is often not
readily available private market
financing at reasonable terms, and thus
there may not always be a readily
available commercial market substitute
for debt that does not receive a Title
XVII guarantee. Therefore, the
Department has concluded that these
terms are necessary and appropriate to
carry out the purposes of this program.
DOE has determined that it should
allow stripping on some partially
guaranteed loans—i.e., only those on
which DOE has guaranteed 90 percent
or less of the Guaranteed Obligation. As
noted above, the Title XVII program
presents a unique situation—one in
which loan guarantees will be issued for
projects that otherwise might have little
or no access to financing on reasonable
terms, primarily because of the
innovative nature of the eligible
technologies and projects.
Where DOE guarantees more than 90
percent of the amount of a Guaranteed
Obligation, the guaranteed portion
cannot be stripped from the nonguaranteed portion of the loan. In such
situations, DOE is concerned that there
may not be a sufficient amount of nonguaranteed debt to cause reasonable and
appropriate debt market due diligence
being performed.
DOE notes that several of the
commenters cited other Federal credit
programs as justification for removing
taxpayer protections proposed in the
NOPR; in several cases Title XVII is
significantly different from the programs
cited. For example, financing under the
TIFIA program is statutorily limited to
33 percent of eligible project costs, and
therefore there is significant equity and
lender participation. The Title XVII
program is likely to be extremely large,
with $4 billion of loan volume already
provided under the 2007 Continuing
Resolution, and $9 billion requested in
the 2008 President’s Budget. DOE
already has pre-applications from the
first solicitation requesting in excess of
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$25 billion in loan guarantees. The Title
XVII program involves advanced
technologies, which by nature are
riskier than technologies already in
commercial operation.
DOE believes its resolution of the
issues addressed above will help ensure
that eligible projects of all sizes can gain
access to credit on reasonable terms.
DOE is concerned about project access
to capital markets at reasonable interest
rates and on reasonable terms and
conditions, and believes that the
modifications it has made to the
regulations in this final rule address the
commenters’ concerns, while reducing
the chance that unnecessary risks and
costs are placed on the Federal
taxpayers.
It is customary and common practice
in project financing for multiple lenders
to enter into a pari passu structure with
respect to assets pledged as collateral to
secure debt. If such a structure were
employed for the Title XVII program,
DOE, pursuant to its Loan Guarantee
Agreement, and lenders that held nonguaranteed debt, could share
proportionately in the proceeds from the
sale of project assets pledged as
collateral if there were a default and the
collateral was sold. In the NOPR, DOE
interpreted Title XVII’s requirement that
DOE have a superior right to project
assets pledged as collateral to prohibit
pari passu structures, and as requiring
all other lenders to be subordinate to
DOE.
In the final rule, DOE has modified its
regulations to provide that DOE and the
Holders of the non-guaranteed portion
of the Guaranteed Obligations may share
the proceeds received from the sale of
project assets. The Department
interprets the Title XVII provision
requiring DOE to have a superior right
to project assets pledged as collateral to
mean that DOE retains superior rights
within the meaning of the statute even
if the Department shares the proceeds
from the sale of project assets with the
Holders of the non-guaranteed debt as
long as DOE controls the disposition of
all project assets. Under this
interpretation, it is solely within DOE’s
authority to determine whether, and
under what terms, the project assets will
be sold at all. For example, DOE
retains—as a superior right—the ability,
even over the objections of other parties,
to decide against the liquidation of
project assets and instead to complete
construction of the project, subject to
appropriations, or to sell an incomplete
project to an entity that will complete
the project.
The Department views this
interpretation as being consistent with
section 1702(g)(2)(A) of the Act, which
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provides that if DOE makes a payment
on the guaranteed debt, the Department
is subrogated to the rights of the Holder,
including the right to ‘‘complete,
maintain, operate, lease, or otherwise
dispose of any property acquired
pursuant to such guaranteed or related
agreements, or permit the borrower
* * * to continue to pursue the
purposes of the project.’’ The Secretary
cannot do any of those things unless the
Secretary owns or controls the entire
project. There is no provision, for
example, for the Secretary to purchase
the interest of the non-guaranteed
lenders or holders of debt that is not
supported by a Title XVII guarantee.
Furthermore, section 1702(g)(2)(B)
provides that the 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, and this provision
limits DOE’s rights to the collateral to
‘‘property acquired pursuant to a
guarantee.’’
Insofar as it is applicable here, the
Department reaffirms the view it
expressed in 1980 in connection with
the loan guarantee program for
alternative fuels, that while DOE is
required under section 1702(g)(2)(B) to
have a first lien on all project assets, the
Department is not prohibited from
negotiating and agreeing with parties
about how the proceeds from the sale of
collateral will be shared. Section 19 of
the Federal Nonnuclear Energy Research
and Development Act of 1974, Loan
Guarantees for Alternative Fuel
Demonstration Facilities, Pub. L. No.
93–577, as amended, (Alternative Fuels
Act), contained provisions similar to
section 1702(g)(2)(B).2 Section 19(g)(2)
of the Alternative Fuels Act provided, in
part, that:
The rights of the Secretary with respect to
any property acquired pursuant to such
guarantee or related agreements shall be
superior to the rights of any other person
with respect to such property.
In the preamble to the final rule
implementing section 19(g)(2) of the
Alternative Fuels Act and in response to
arguments by commenters concerning
the issue of pari passu sharing of the
project collateral, DOE stated as follows:
Subsection 796.11(a)(9) of the proposed
regulation required that the guaranteed loan
not be subordinate to any other loan for the
project and that the guaranteed loan be in a
first lien position with respect to assets of the
project and other collateral which are
pledged as security for repayment of the
2 Section 19 appeared at 42 U.S.C. section 5919
and was repealed by Pub. L. No. 109–58, the Energy
Policy Act of 2005, at section 1009(b)(12).
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guaranteed loan. DOE construes the Act to
require this, and that only with regard to
assets not directly related to the project, but
which may be pledged as collateral, may a
less than first lien position be acceptable to
DOE.
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(45 FR 15468, 15471).
DOE today adopts the same
interpretation of Title XVII as it adopted
in regard to nearly identical language in
section 19(g)(2) of the Alternative Fuels
Act. Thus, DOE interprets the language
in Title XVII as requiring a first lien on
all project assets, but as allowing DOE
to treat assets pledged to secure a
project loan that are not project assets
the same as project assets. Consistent
with the regulations concerning the
disposition of proceeds from the sale of
assets pursuant to the Alternative Fuels
Act (section 796(f) and (k)), section
609.15 of today’s final rule also provides
that where DOE only guarantees a
portion of a Guaranteed Obligation, the
Secretary may enter into inter-creditor
or other arrangements to share the
proceeds from the sale of project
collateral with lenders or other holders
of the non-guaranteed portion of the
Guaranteed Obligation. DOE may, at the
discretion of the Secretary, share the
proceeds from the sale of collateral.
DOE is limited, however, to no greater
than a pro rata share for the nonguaranteed Holder. However, in cases
where DOE guarantees 100 percent of a
loan, the loan must be issued to and
funded by the Federal Financing Bank.
In those circumstances, DOE will have
a first lien priority on project assets
pledged as collateral and all other debt
for the project at issue must be
subordinate to the Guaranteed
Obligation.
2. Equity Requirements for Project
Sponsors
Title XVII does not itself impose any
minimum equity contribution
requirement on projects that receive
Title XVII loan guarantees. Section
1702(c) provides that DOE can
guarantee loans for no more than 80
percent of the cost of a project, but does
not place any requirements on where or
how a Project Sponsor may obtain other
funds for an Eligible Project.
Nonetheless, in the NOPR, the
Department explained that DOE
believed it was prudent to require
Project Sponsors to have a substantial
equity stake in a project before the
project could receive a Title XVII loan
guarantee. Thus, DOE proposed (in
section 609.7(a)(6) of the proposed
regulations) that applications would be
denied if ‘‘[t]he applicant will not
provide a significant equity
contribution.’’
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Most commenters agreed that the
regulations should contain an equity
contribution requirement, and that the
regulations should not set a fixed
numeric minimum equity percentage
threshold or requirement. Commenters
said some projects might have good
reasons for not meeting some numeric
threshold, and that a specific numeric
threshold might result in the rejection of
otherwise meritorious projects. Some
commenters objected even to DOE
requiring by rule that projects have a
‘‘significant’’ equity contribution.
A Title XVII loan guarantee will be
offered only to projects where the
project sponsors make a significant
equity contribution toward the Project
Cost. If private investors or project
sponsors do not see fit to make any
significant equity investment in a
capital project, it is hard to see why
DOE should back loans for the project
with a Federal guarantee. Such projects
might well be appropriate for grant
money or research and development
assistance, but in light of the overall
purposes of Title XVII and the statutory
requirement that DOE can issue loan
guarantees for no more than 80 percent
of project cost, the Department believes
it would not be prudent to eliminate any
equity requirement for the program. It is
in the interest of the Federal
government to ensure that borrowers
have a significant equity interest in the
assets to ensure the financial success of
the project. Eliminating the requirement
might result in project sponsors
financing a project entirely through a
combination of government-backed
loans, and other loans and government
assistance. The Department does not
believe such an approach would be
consistent with the establishment of an
overall sound Title XVII program.
Furthermore, DOE will consider the
type and degree of equity contribution
proposed for an eligible project for a
Title XVII loan guarantee to determine
whether such contribution is significant
and meets the eligibility requirements
for a loan guarantee agreement. In
evaluating whether a borrower or
project sponsor is contributing
significant equity to a project, the
Department will consider ‘‘equity’’ to be
cash contributed by the Borrowers or
other principals. Equity does not
include proceeds from the nonguaranteed portion of any debt
supported by a Title XVII loan guarantee
or from any other non-guaranteed debt.
The value of other forms of government
financial assistance or support also does
not constitute ‘‘equity.’’ The Department
has set forth this definition of ‘‘equity’’
in section 609.2 of the final rule.
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60125
At the same time, DOE agrees with
commenters that the Department should
not by regulation establish a specified
numerical minimum on the equity
contribution to an Eligible Project.
There likely will be a myriad of
financing arrangements and differing
circumstances for the disparate types of
technologies and projects potentially
eligible for Title XVII loan guarantees.
The Department believes, based on the
record before it, that it should not set at
this time a numerical minimum for the
equity contribution to an eligible
project.
The determination of the significance
of the equity contribution cannot
practicably be made at the time that the
loan application is filed. Thus, DOE has
revised section 609.7(a)(6) of the NOPR
which stated that an Application will be
disqualified if ‘‘[t]he applicant will not
provide a significant equity
contribution’’ by deleting the words ‘‘a
significant’’ and inserting the word
‘‘an.’’ DOE has retained section
609.7(b)(7) which provides that DOE
will consider ‘‘[t]he amount of equity
commitment to the project by the
Applicant and other principals involved
in the project’’ when evaluating
Applications for Title XVII loan
guarantees. DOE will evaluate the
amount of equity that will be
contributed to a project when evaluating
a project against other projects. Section
609.10(d)(5) of today’s final rule,
however, provides that the Project
Sponsors must, at a minimum, have a
significant equity investment in a
project.
3. Other Governmental Assistance
Section 609.7(b)(9) of the NOPR
provided that DOE will consider
‘‘whether and to what extent the
Applicant will rely on other
governmental assistance’’ when
evaluating Applications for Title XVII
loan guarantees. In the NOPR preamble,
the Department noted that the receipt of
other government assistance generally
would be viewed negatively. (72 FR
27476).
Several commenters stated that DOE
should consider other governmental
assistance as a positive and not a
negative evaluation factor. As noted
above, those commenters asserted that
the receipt of other assistance from
Federal, state or local governments
should be viewed as indicating support
for a project and thus adding to its
commercial viability, rather than
reflecting financial and commercial
weakness. Most commenters that
expressed a view did believe that it
would be appropriate for DOE to at least
consider the receipt of other government
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assistance in evaluating Applications.
See e.g. Bechtel at 6, Eastman at 3; and
Goldman Sachs at 9.
DOE has retained section 609.7(b)(9)
in the final rule as it was proposed in
the NOPR. As DOE stated in the NOPR,
we recognize that in certain
circumstances, multiple forms of
Federal assistance to the same project
could enhance important national
energy policy priorities. We believe the
current language in section 609.7(b)(9)
is sufficient to address these
circumstances.
4. Credit Assessment and Rating
Requirements
Section 609.6(b)(21) of the NOPR
required the Applicant to submit with
its Application a credit assessment for
the project without a loan guarantee
‘‘where the size and estimated cost of
the project justify such an assessment.’’
Section 609.9(f) of the NOPR proposed
to require that not ‘‘later than 30 days
prior to closing, the applicant must
provide a credit rating from a nationally
recognized rating agency reflecting the
Final Term Sheet for the project without
a Federal guarantee.’’
Most commenters complained that the
rating agency requirements proposed in
the NOPR would impose unnecessary
costs and burdens on project sponsors,
with little corresponding benefit to the
Department. (Bechtel, at p. 2–3) Other
commenters suggested that the
requirement for a credit assessment be
eliminated from the final rule. (e.g.
Goldman Sachs at p. 9) Two
commenters proposed a threshold of
$25 million for waiving the credit rating
requirement. Another expressed the
view that DOE should be able to waive
the requirement where appropriate. Two
commenters thought that a waiver
should not depend on project size, but
rather should depend on other factors as
well such as the ratio of project debt to
sponsor equity.
DOE has retained the credit
assessment and rating requirement
provisions, 609.6(b)(21) and 609.9(f).
DOE believes that these requirements
will be beneficial in aiding the
Department when it determines the
credit subsidy scores for particular
projects, and when it assesses and
evaluates the risks and benefits of
particular projects.
DOE notes the distinction between the
credit rating on the overall project debt
which lenders or project sponsors may
wish to obtain for pricing the debt; and
the credit rating without considering the
benefit of the guarantee, which will
inform DOE’s evaluation of the project
and estimation of the Credit Subsidy
Cost.
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DOE agrees that in some
circumstances, it may be desirable to
waive a credit rating requirement. For
example, projects for which project
costs fall below a certain level may not
warrant the cost of a credit rating,
should the cost prove large in
comparison to the overall cost of the
project. Therefore, in the final rule DOE
has added to section 609.9(f) the
following language: ‘‘where the total
Project Cost for an Eligible Project is
projected to exceed $25 million.’’ The
Department selected this number
because it believes any project that costs
below that amount may find it
uneconomic to obtain a credit rating and
to participate in the Title XVII program.
By putting this threshold in place, DOE
seeks to support smaller projects.
C. Project Costs
Sections 609.2 and 609.12 of the
proposed regulations defined ‘‘Project
Costs’’ as those costs, including
escalation and contingencies, that are
necessary, reasonable, customary, and
directly related to the design,
engineering, financing, construction,
startup, commissioning and shake down
of an Eligible Project. Conversely, costs
excluded from the definition of Project
Costs included initial research and
development costs, the Credit Subsidy
Costs, any administrative fees paid by
the Project Sponsors, and operating
costs after the facility has been placed
in service.
Public Comments: As noted above, the
Department intends to implement Title
XVII through the ‘‘self-pay’’ authority
provided in the Act. Thus, DOE has no
current intention to seek appropriations
to pay for the Credit Subsidy Costs of
any Title XVII loan guarantees, but
rather project sponsors will be required
to pay those costs before DOE enters
into a loan guarantee agreement.
Pursuant to FCRA, the Credit Subsidy
Cost reflects the net present value of the
estimated payments to or from the
Government. It is impossible to tell at
this point what the Credit Subsidy Cost
will be for any particular project.
Most commenters argued that Credit
Subsidy Costs and Title XVII
administrative fees that are paid by a
project sponsor should be treated as
Project Costs. These commenters
maintain that the exclusion of Credit
Subsidy Costs and administrative fees
from Project Cost is inconsistent with
the treatment of similar costs in
commercial project financing and in
other Federal programs. These
commenters also state that there is no
provision in either FCRA or in OMB
Circular No. A–129 that prohibits the
inclusion of these costs in a project’s
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financing package. They contend that
the inclusion of such fees or costs in the
financing package neither increases
project risk, nor diminishes the
reasonable prospect of repayment of the
loan. (See e.g. NEI at pp. 18–19; Nuclear
Utilities, at p. 18; and FES at p. 2)
TXU similarly supported the
inclusion of Credit Subsidy Costs and
administrative fees in total Project Costs
and supported making them eligible, at
least in part, for the federal loan
guarantee. TXU added that total project
costs should include 100 percent of the
costs to bring a plant into commercial
operation, including all financing and
start-up costs. (TXU at 7).
S&P, however, took a different
position from most commenters, and
asserted that DOE’s proposed definition
of the project’s total costs is consistent
with general market practice, except
that, if projects obtain a guarantee from
a monoline insurer, the premium paid
for such a wrap is generally included in
the total cost of the project to be
financed. However, its exclusion here
appears consistent with the intent of
[Title XVII], namely to prevent the
subsidy fee itself from potentially
becoming a taxpayer liability in the
event of default. (S&P at 2).
USEC also asserted that Credit
Subsidy Costs and administrative fees
should be counted as Project Costs.
USEC’s comments also identified other
costs that should be specifically
considered to be Project Costs. These
include: general and administrative
costs; performance incentives paid to
employees or officers working on the
project (because the project is benefiting
from the increased performance);
research, development, and
demonstration costs that are directly
related to the project; and expenses
incurred after start-up. USEC said that
by excluding potentially large, poststart-up costs, DOE would essentially be
requiring an additional equity
investment by the project sponsor.
USEC argued that DOE should allow
these costs as part of Project Costs and
evaluate them on a case by case basis
when reviewing the economics of a
project. (USEC at 6–7).
Beacon recommended that the final
rule allow ‘‘as an option’’ the inclusion
of Credit Subsidy Costs and
administrative fees in the definition of
Project Costs. Beacon said that such
costs could pose a substantial burden on
small businesses and development stage
companies unless they are included in
Project Costs. (Beacon at 1). Goldman
Sachs also recommended that Project
Costs be defined to include Credit
Subsidy Costs and the administrative
cost of issuing a loan guarantee.
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Goldman Sachs further recommended
that Project Costs be defined to include
the costs of administrative services
provided by affiliates; development
expenses; pre-completion operation and
maintenance costs; and costs of
procurement and testing. Project
financings, according to Goldman
Sachs, customarily cover all costs
associated with the construction of the
project, including fees and expenses. To
require the project sponsor to cover
these costs, in Goldman Sachs’ view,
would either eliminate the non-recourse
nature of the financing or mean that the
lenders would have to cover these
amounts with a non-guaranteed loan.
Moreover, whereas the proposed rule
states that the loan guarantee will cover
only principal and interest, Goldman
Sachs asserted that the loan guarantee
should cover all borrower obligations,
including without limitation default
interest and post-petition interest,
reimbursement of letter of credit
drawings, prepayment premiums,
payments under interest rate hedging
agreements, fees, expenses, and
indemnification payments. Goldman
Sachs said this would be consistent
with the definition of ‘‘obligations’’ in
project finance loan agreements.
(Goldman Sachs at 6). Ameren too
opposed the NOPR’s exclusion of
certain categories of costs from the
definition of Project Costs. The NOPR,
in Ameren’s view, does not explain why
the excluded categories are less suitable
for a guarantee and Ameren said that the
exclusions are ‘‘not conducive to
encouraging innovation.’’ (Ameren at 3–
4).
DOE Response: For any project that is
granted a Title XVII loan guarantee, the
Credit Subsidy Cost and administrative
costs charged by DOE, are costs that
must be paid by the borrower and are
necessary terms and conditions of
receiving the guarantee. As stated in the
S&P comments, the DOE position is
consistent with the intent of Congress to
require such costs be paid by the
borrower. Allowing these fees to be
included in the Project Costs would
increase the amount of debt that could
be supported by a Title XVII loan
guarantee. As funding is fungible,
allowing the Credit Subsidy and
Administrative Costs to be financed
with the Title XVII loan guarantee could
in effect transfer these costs to the
taxpayer in the event of default.
Furthermore, consistent with the
requirements of Public Law 110–5 and
as in the NOPR, the final regulations
prohibit a Borrower from paying any
Title XVII Credit Subsidy Cost with
funds obtained from the Federal
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government, or from a federally
guaranteed loan.
While some commenters asserted that
other Federal agencies permit items
such as Credit Subsidy Costs or similar
expenses and administrative fees to be
covered by the Federal guarantee issued
pursuant to their loan guarantee
programs, the Credit Subsidy Cost under
Title XVII reflects the subsidy cost of
the loan guarantee, as defined in FCRA.
It is important to note that this is not
comparable to the fees cited in
comments which may offset, but do not
reflect the explicit subsidy cost for the
individual loan guarantee.
To the extent commenters
recommended other costs that are not
specifically listed in the final
regulations for inclusion in the
definition of eligible Project Costs, the
Department rejects those comments. The
Department sees no adequate basis for
further revising the rule’s definition of
Project Costs except as otherwise
provided in the final rule.
However, DOE again stresses, just as
it did in the NOPR, that the purpose of
the Title XVII Loan Guarantee Program
is to foster the deployment of qualified
innovative technologies that would
reduce or sequester air pollutants or
anthropogenic greenhouse gas
emissions; it is not to assist or support
high-risk research into or development
of new technologies. Nor is it to assist
in the ongoing commercial operations of
successful projects. Therefore, costs
related to the initial research and
development of a new technology or to
operating costs will not be accepted as
Project Costs for purposes of such
guarantees.
D. Solicitation
Section 609.3 of the proposed
regulations required DOE to issue a
solicitation to start the process of
accepting, reviewing, and ultimately
granting applications for Title XVII loan
guarantees. This section also set forth
certain minimum requirements for each
solicitation, including the fees that
would be required of persons invited to
submit Applications and the criteria
that the Department would use to weigh
competing Pre-Applications and
Applications and to make ultimate
selections for loan guarantees. The
proposed regulations set forth
programmatic, technical, and financial
factors, including the percentage of the
loan guarantee requested, to be used by
DOE to select projects for loan
guarantees.
Public Comments: Several
commenters stated that DOE should use
a ‘‘rolling’’ or ‘‘open’’ application
process, as opposed to only accepting
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60127
Applications for a limited time in
response to a particular solicitation.
Commenters from the nuclear industry
supported this recommendation by
pointing to difficulties that may be faced
by nuclear project sponsors with a
project development timetable that does
not match a DOE solicitation. These
commenters also noted that DOE is not
in a position to assess with precision the
market forces that will govern the
number of new projects potentially
eligible for loan guarantees, or when
those projects will need loan guarantees,
and contended that other major federal
loan guarantee programs—including
TIFIA, Ex-Im Bank and OPIC—operate
with an open or ongoing (rolling)
application process. (NEI at pp. 28–29;
Nuclear Utilities at p. 17)
The Nuclear Utilities ask that DOE
adopt a flexible ‘‘open’’ application
process for large multi-year projects
involving more than $2 billion and/or
1,000 MW of generating capacity.
(Nuclear Utilities at p. 17) Citi stated
that ‘‘[b]y accepting applications only in
response to a particular solicitation, the
DOE loan guarantee process would be
unduly prejudicial to projects that
happened to have matured to produce
the required pre-application materials in
the narrow timeframe of a solicitation.’’
Citi requested clarification that DOE
will accept and review applications for
eligible projects at any time when
sponsors believe that the markets are
ready for their investment. This
allegedly would not preclude DOE from
opening or closing the program for
specific technologies at various times.
(Citi at 5). Goldman Sachs, Bechtel and
USEC likewise recommended an open
application process but also supported a
simplified three-step process
(application, followed by a conditional
commitment, followed by negotiation
and execution of a loan guarantee
agreement). (Goldman Sachs at 8,
Bechtel at 7, and USEC at 6) (Bechtel at
6–7). Bechtel indicated that this threestep process is used by other federal
agencies. (Bechtel at 7)
Beacon further recommended that
language in proposed § 609.4 stating
that the Pre-Application must meet all
requirements in the solicitation and in
the final rule should be modified by
changing ‘‘must’’ to ‘‘should’’ or ‘‘is
expected to.’’ This change would
prevent pre-applications from automatic
disqualification if they are missing one
item, and would make § 609.4
consistent with § 609.5. (Beacon at 3)
DOE Response: While DOE agrees that
an ‘‘open’’ or ‘‘rolling’’ process for Title
XVII loan guarantee program
applications would give applicants
greater flexibility in deciding when, or
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if, to submit an application to DOE,
adopting such a structure at this time
would interfere with the Department’s
ability to select which of the
technologies that Title XVII makes
statutorily eligible for loan guarantees
should be the focus of any such
authority made available by Congress. If
DOE were to adopt the ‘‘window is
always open’’ and ‘‘first come first
served’’ approach to Title XVII, as some
commenters appear to advocate, then it
is possible that all loan guarantee
authority provided by Congress at any
particular time could be absorbed by
only one or a few very large projects, to
the exclusion of smaller projects. This
could have the result of the program
focusing heavily on only certain eligible
technologies merely through operation
of the rule itself. Moreover, there is no
certainty that the projects first through
the application door would be in the
areas that either the Department or
Congress wished to promote at the
particular time. DOE should be able to
tailor loan guarantee availability to
particular technologies and particular
projects that are the most promising and
that in the Department’s judgment will
most benefit the Nation. Finally,
adopting the open application approach
could eliminate the Department’s ability
to have projects compete against one
another for the available loan guarantee
authority. Especially in the situation
where available authority is likely to be
insufficient to satisfy all loan guarantee
requests, DOE believes it is desirable for
there to be competition among projects
for the available loan guarantees, rather
than for the authority to be used up on
a first come first served basis regardless
of the relative merits of potentially
eligible projects.
At some future time, after substantial
experience has been gained in the
administration of the Title XVII
program, it may be appropriate and
possible for the Department to
reconsider this position. In the
meantime, however, DOE believes it is
appropriate to implement the program
by requiring the Department to issue a
solicitation for projects, tailored broadly
or narrowly as the Department sees fit
at the time and in light of programmatic
objectives.
The Department thus has decided to
adopt a solicitation-based approach to
the implementation of Title XVII, as was
proposed in the NOPR. The rule
provides that each solicitation must set
forth relative weighting criteria
specifying the factors that will be used
to evaluate applications and the relative
weighting assigned to each criterion.
DOE has considered, but has decided
not to require by rule, competitive
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procedures or requirements to be
employed when the Department
evaluates applications for loan
guarantees. As a practical matter, loan
guarantee applications submitted in
response to solicitations will be
competing against each other for
available loan guarantee authority. This
enables and indeed requires
competition to take place by requiring
that each solicitation set forth relative
weighting criteria by which applications
for loan guarantees will be judged. In
that manner, applications will not
necessarily be ‘‘competed’’ one against
the other, but the evaluation process
nonetheless will result in the
applications being ranked in such a
manner that the applications that best
fulfill statutory and solicitation criteria
from the Department’s perspective will
receive higher scores.
DOE is mindful that certain projects,
e.g. nuclear power plants, require long
lead times prior to the submission of a
loan guarantee application, but believes
that solicitations can be devised and
tailored to particular technologies that
accommodate such long lead time
requirements consistent with the
overarching legislative purpose of
promoting technologies that further
Title XVII policy goals. Additionally,
DOE does not believe it is appropriate
to make the language change requested
by Beacon to section 609.4 of the final
regulations. The listed items to be
included with Pre-Application
submissions are intended to be
mandatory. However, the Department
clarifies that a Pre-Application will not
necessarily be rejected simply because
one or even a few items are not in final
form when they are submitted with the
initial Pre-Application submission. The
Department will exercise reasonable
discretion in giving Applicants an
opportunity to complete their PreApplication submissions in a timely
manner within the open period
provided by a solicitation. DOE, of
course, may reject any Pre-Application
or Application that it considers
incomplete.
E. Payment of the Credit Subsidy Cost
Section 1702(b) of the Act states that:
‘‘No guarantee shall be made unless (1)
an appropriation for the cost has been
made; or (2) the Secretary has received
from the borrower a payment in full for
the cost of the obligation and deposited
the payment into the Treasury.’’ (42
U.S.C. 16512) Section 20320(a) of P.L.
110–5, however, only authorized DOE to
accept Credit Subsidy Cost payments
from Borrowers to pay the full Credit
Subsidy Costs of loan guarantees with
respect to the $4 billion in loan
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guarantee authority authorized by the
CR. Moreover, DOE’s intent continues to
be to implement the Title XVII program
only through the self-pay authority of
section 1702(b)(2). As stated in the
NOPR, DOE interprets section 1702(b)
as authorizing either an appropriation or
payment of the credit subsidy cost in
full by the Borrower, but Title XVII does
not allow and DOE will not allow
partial payment of the Credit Subsidy
Cost by the Borrower with the
remainder covered by a Congressional
appropriation.
Public Comments: Several
commenters recommended a
transparent formula for the calculation
of each project’s Credit Subsidy Cost.
They contend that project sponsors need
a reasonably accurate estimate of the
subsidy cost early in the development
process in order to support multi-billion
dollar investment decisions. Otherwise,
project sponsors will be forced to engage
in lengthy negotiations before they
know the amount of the Credit Subsidy
Costs they will be required to pay, and
before they can properly assess their
interest in the Title XVII program. (e.g.,
Dominion at 9; Southern at 2) For
regulated electric companies in
particular, negotiation with state
regulatory bodies concerning recovery
of project costs arguably will be
impossible without some reasonable
estimate of the Credit Subsidy Cost.
NEI suggested that DOE develop
written guidance providing the specific
considerations that will enter into the
determination of the Credit Subsidy
Cost for a project and modify the
proposed rule to: (1) Provide for early
disclosure to an applicant of how DOE
expects to apply those considerations in
determining the Credit Subsidy Cost for
the applicant’s project; and (2) afford
the applicant an opportunity to respond
in writing for the purpose of allowing
DOE to determine whether additional
considerations and analysis warrant a
re-estimate. (NEI at 17–18).
Other commenters seek clarification
that when determining subsidy costs,
DOE and OMB will evaluate the entire
risk profile of the project, including but
not limited to creditworthiness of the
project and, to the extent of the equity
contribution, the project sponsor; the
Borrower’s exposure to market and
commodity risks; and the Borrower’s
exposure to vendor cost increases or
construction delays. According to these
commenters, the Department should
consider that the more creditworthy the
project is, the lower the subsidy cost
should be. They ask that the final
regulations recognize that greater equity
investment, liquidity, and management
experience reduce default risk and,
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therefore, should result in lower subsidy
cost. (NEI at 17–18; and Southern at 2)
JP Morgan maintained that the
magnitude of the subsidy cost could
have a significant impact on a
borrower’s interest in a loan and a
lender’s willingness to provide the
financing. Given the uncertainty of the
Credit Subsidy Cost calculation, JP
Morgan recommended that DOE provide
borrowers with an option to withdraw
their applications upon DOE’s
notification to the borrower of the
subsidy cost to be charged. Similarly, JP
Morgan asserted that lenders should be
permitted to withdraw any
commitments upon notification of the
subsidy cost, and that DOE’s
interpretation of § 1702(b) in the NOPR
should be reconsidered in order to
permit borrowers to pay part of the
Credit Subsidy Costs where there has
been a congressional appropriation. (JP
Morgan at 2)
USEC asserted that the Credit Subsidy
Cost should be small in order to ensure
repayment (commensurate with other
federal loan guarantees). Apparently in
order to keep the Applicant’s share of
Credit Subsidy Costs small, USEC
recommended that DOE seek
appropriations for credit subsidy costs
because the overall purpose of the Title
XVII program is to foster commercial
deployment of new and innovative
technologies. (USEC at 5). Beacon also
maintained that § 609.9(d)(1) of the
proposed rule should be modified to
permit partial self-funding/partial
appropriation of the Credit Subsidy
Cost. Specifically, Beacon
recommended that DOE should change
the parenthetical ‘‘(but not from a
combination)’’ in § 609.9(d)(1) to
‘‘(including a combination)’’. (Beacon at
6). Ameren, too, contended that the
NOPR should be revised to allow for the
possibility that Congress will
appropriate money for payment of the
Credit Subsidy Cost. Ameren stated that
the regulations should not always
require applicants to pay the Credit
Subsidy Costs for a guaranteed loan, and
encouraged DOE to follow the flexible
approach used by Ex-Im Bank. (Ameren
at 4–5).
DOE Response: The Department has
decided not to alter the proposed
regulation dealing with the calculation
of Credit Subsidy Costs. With respect to
the issue of transparency, the
Department certainly understands the
need for and importance of a
mechanism to allow potential
participants in the Title XVII program to
calculate an approximate Credit Subsidy
Cost for the loan guarantee they are
seeking from DOE. The Department
currently is working to develop a
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methodology that can be used to
calculate the Credit Subsidy Cost for
individual projects under this program.
With respect to the comment indicating
that the credit subsidy cost should be
small, DOE must calculate the Credit
Subsidy Cost in accordance with the
Federal Credit Reform Act. DOE will
calculate the Credit Subsidy Cost of any
loan guarantee on a case-by-case basis in
accordance with FCRA and OMB
Circular A–11. Per the definition in
FCRA, the credit subsidy cost reflects
the net present value of estimated
payments from the government (e.g.
default claim payments) and to the
government (e.g., recoveries),
discounted to the point of disbursement.
For any project, the terms and
conditions of the guaranteed debt, the
risks associated with the project, and
any other factor that affects the amount
and timing of such cash flows will affect
the credit subsidy cost calculation.
Factors that mitigate risks will generally
lower the credit subsidy cost. We note
that the approach used by Ex-Im and
recommended by Ameren does not
apply here because the fees charged by
Ex-Im do not reflect the subsidy cost for
the loan guarantee.
The Department and the Office of
Management and Budget (OMB)
recognize the value to project sponsors
and lenders of knowing the earliest
reasonable time the appropriate credit
subsidy cost for the sponsor’s desired
loan guarantee. The Department and
OMB further recognize that the two
agencies must work together to produce
any preliminary credit subsidy cost
estimate. Accordingly, the Department
and OMB are committed to making
every effort to agree upon and provide
to project sponsors, at the time a Term
Sheet is provided, a preliminary credit
subsidy cost estimate for the desired
loan guarantee, based on information
available to the Department and OMB at
that time. The final credit subsidy cost
determination can only be made at the
time of the Loan Guarantee Agreement,
and may be different from the
preliminary credit subsidy cost
estimate, depending on project-specific
and other relevant factors including
final structure, the terms and conditions
of the debt supported by the Title XVII
guarantee, and risk characteristics of the
project.
We note that Applicants are free to
withdraw their Applications at any time
if they find that the Credit Subsidy Cost
is more than the Applicant is willing to
pay. The right of an Applicant to
withdraw its application does not
relieve the Applicant of any obligations
to DOE at the time of the withdrawal
(including, for example, the payment of
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60129
outstanding or accrued administrative
fees).
On the other hand, we do not agree
that lenders in all circumstances should
similarly be permitted to withdraw their
commitments upon notification of the
Credit Subsidy Cost, as recommended
by some commenters. The rights of
lenders to withdraw will turn on the
nature of the commitment that the
lender has given to the Borrower.
We also reject the recommendation
that Applicants should be able to make
partial payment of the Credit Subsidy
Cost and rely on appropriations for the
remainder of the Credit Subsidy Cost for
a particular project. As indicated in the
NOPR, DOE interprets section
1702(b)(2) of the Act as not permitting
partial payment of the Credit Subsidy
Cost by the Borrower, with the
remainder coming from an
appropriation. DOE believes the
statutory language is clear in that regard,
but even if it were determined to be
ambiguous, DOE would exercise its
policy discretion to interpret the
statutory provision in the manner set
forth herein. Consequently, DOE
adheres to the interpretation of this
provision set forth in the NOPR, and
retains in the final rule the all or none
principle with respect to the payment of
Credit Subsidy Costs, unless otherwise
provided by statute. The Department
notes that the final rule does not
prohibit the use of appropriations to pay
for those Credit Subsidy Costs—indeed,
Title XVII explicitly allows that. But
DOE has no current intention to seek
appropriations to pay Credit Subsidy
Costs for any projects.
F. Assessment of Fees
Section 1702(h) of the Act requires
DOE to ‘‘charge and collect fees for
guarantees’’ to cover the administrative
cost of issuing a Loan Guarantee.
Proposed sections 609.6, 609.8, and
609.10 provided that DOE would collect
fees for administrative expenses
covering all phases of an Eligible
Project. As defined in proposed section
609.2, these fees consist of the
administrative expenses that DOE
incurs during: (1) The evaluation of both
the Pre-Application, if a Pre-Application
is requested in a solicitation, and the
Application for a loan guarantee; (2) the
offering of a Conditional Commitment,
the execution of the Term Sheet, and the
negotiation and closing of a Loan
Guarantee Agreement; and (3) the
servicing and monitoring of the Loan
Guarantee Agreement, including during
construction, start-up, commissioning,
shakedown, and the operational phases
of an Eligible Project.
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Public Comments: Several
commenters stated that administrative
fees should be known, quantified, and/
or fixed at the time an application is
submitted to DOE. Beacon, for example,
recommended that all fees should be
quantified in advance as a percentage of
the loan amount or in a formula based
on the loan amount, and said DOE
should make a conforming change to the
proposed rule. Beacon commented that
knowing the basis of fee amounts
arguably would facilitate the calculation
of project costs and alleviate the burden
of cost uncertainties on small businesses
and development stage companies.
(Beacon at 1). Ameren sought
clarification as to how DOE anticipates
recovering the costs associated with
evaluation of Pre-Applications that
progress no farther in the process.
Ameren asserted that the costs should
be borne by DOE rather than from funds
made available for the issuance of loan
guarantees. Ameren stated that ‘‘[i]t
would be inappropriate to reduce funds
specifically appropriated for loan
guarantees to cover Department
administrative expenses that the
Department has chosen to bear.’’
(Ameren at 5–6).
DOE Response: DOE recognizes the
concern of several commenters on the
advantages of a well-understood
formula for calculating administrative
fees. The Department may at some
future time take action with respect to
administrative fees but is not doing so
now. The fees are intended to recover
only DOE’s administrative costs in
managing the Loan Guarantee Program.
A fee schedule will be published by
DOE in the near future.
We reject Ameren’s recommendation
that the costs of administering the Loan
Guarantee Program should be borne by
DOE. Section 1702(h) of the Act calls for
DOE to ‘‘charge and collect fees * * *
sufficient to cover applicable
administrative expenses’’ of the Title
XVII program. Therefore, while DOE
does have discretion to determine
which administrative expenses should
be properly deemed ‘‘applicable’’ to this
program and/or to particular
applications and thus recovered from
program applicants or participants, the
Department certainly is not free to
determine that it will recover none of its
administrative costs from applicants or
participants and, instead, fund the costs
of the program through appropriations
from Congress.
G. Eligible Lenders and Servicing
Requirements
The NOPR stated that participating
Eligible Lenders or other servicers must
meet certain eligibility, monitoring, and
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performance requirements. These
requirements, which were set forth in
sections 609.2 and 609.11 of the
proposed regulations, were intended to
ensure that the Eligible Lender or other
servicer had the financial wherewithal
and appropriate experience and
expertise to meet its fiduciary
obligations in connection with the debt
guaranteed by DOE. Section 609.10(g) of
the proposed regulations also provided
that a lender must provide written
notification to DOE prior to the
assignment or transfer of any portion of
a Guaranteed Obligation.
Public Comments: TXU stated that
‘‘[a]ny lender providing debt capital to
a project on a limited recourse basis
would be performing an exhaustive duediligence process, using appropriate
expertise to analyze the risks.’’ TXU
asserted, therefore, that the duty of care
specified in the regulations is
unnecessarily duplicative of the process
that the lender will use irrespective of
the Department’s involvement as
guarantor. Additionally, TXU contended
that any specific duties such as notice
requirements should be assigned to an
Administrative Agent or Lending Agent
and that debt held by other lenders
should be freely marketable without
administrative burden on all lenders.
(TXU at 8). WMPI Pty., LLC (WMPI)
recommended that DOE revise the
requirements proposed for lenders to
take into account that eligible projects
are more likely to be financed in capital
markets by a group of bondholders
through a public offering than by a
single lender. Specifically, WMPI
pointed out that a commitment letter
would not be issued where there is a
bond issuance and recommended that
DOE recognize this fact in the final rule.
WMPI also asserted that the final
regulations should be revised to take
account of the fact that interest charges
and repayment schedules are not known
in advance of a bond sale and, therefore,
regulations calling for copies of loan
documents containing all of the terms
and conditions of the loan, including
interest charges and principal
repayment schedules, will be
inapplicable if the financing is done
through a bond public offering. (WMPI
at 11–13).
Beacon recommended that the
language ‘‘including a qualified
retirement plan, or governmental plan’’
be deleted from the definition of Eligible
Lender in proposed section 609.11(a)(1)
because small businesses and
development stage companies may need
to approach financial institutions that
may not have the specified plans.
Beacon also recommended the entirety
of proposed section 609.11(a)(6) be
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deleted. That language would require
eligible lenders to have experience as
the lead lender or underwriter by
presenting evidence of its participation
in other energy-related projects. Beacon
maintains that this requirement is
unduly restrictive because not many
lenders have such experience and it is
also generally irrelevant since the loan
guarantee program is limited to new or
significantly improved technologies.
(Beacon at 7).
Goldman Sachs asserted that, except
for certain critical requirements (e.g.,
eligible lenders are disqualified if they
have been disbarred from participation
in a Federal government contract), the
provisions in the NOPR regarding the
eligible lender should apply only to the
lead lender. This is necessary, Goldman
Sachs argued, because only a small
number of lenders will be able to meet
the standards set forth in the NOPR, e.g.,
will have the experience originating and
servicing loans similar in size and scope
to the projects that will be the subject
of loan guarantee applications; or be
able to demonstrate experience as the
lead lender in other energy-related
projects. Particularly as regards the
expected financing needs of nuclear
power projects, Goldman Sachs
maintained that the potential lending
pool should be kept as large as possible.
(Goldman Sachs at 8).
DOE Response: The Department
endorses the idea of maximizing the
pool of Eligible Lenders and of allowing
the use of loan servicers that may not be
Eligible Lenders but that otherwise meet
all applicable standards.
In addition, in response to comments
that DOE finds persuasive, the
Department has eliminated proposed
section 609.11(a)(1) from the final rule.
Furthermore, while DOE rejects
Beacon’s suggestion that the Department
delete the entirety of section
609.11(a)(6) of the proposed regulations,
we did expand the definition. While it
is arguably true that the pool of
servicers might be increased even
further if section 609.11(a)(6) were
completely eliminated, deletion of this
provision altogether would not be
consistent with DOE’s desire to
establish a program where there was a
reasonable assurance of repayment in
connection with guaranteed loans. We
note, however, that in the final rule,
section 609.11(a) and (b) do not apply
to a loan servicer unless the servicer is
also the Eligible Lender.
In response to WMPI’s comments,
DOE believes that today’s final rule is
flexible enough to support bond
financing. Among other things, the
definition of ‘‘Holder’’ is sufficiently
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broad to cover the issuers of that type
of debt.
H. Federal Credit Reform Act of 1990
(FCRA)
FCRA provides that for any federal
credit program, new direct loans and
loan guarantees may not be made unless
authority has been provided in advance
in appropriations act(s). See 2 U.S.C.
661c(b). Title XVII authorizes the
issuance of loan guarantees where the
credit subsidy cost, calculated in
accordance with FCRA, is paid either
through appropriations or by the
borrower receiving the loan guarantee
from the Department. On February 15,
2007, Public Law 110–5 was enacted.
That statute provides DOE with the
necessary authority, consistent with
FCRA and section 1702, to guarantee in
the aggregate up to $4 billion in loans
for Title XVII projects. The authority to
issue guarantees, however, was limited
to Borrowers who pay the applicable
Credit Subsidy Cost. No general funds
are available to pay Credit Subsidy
Costs.
Public Comments: A number of
commenters questioned DOE’s view that
authority in an appropriations act is
needed for the issuance of Title XVII
loan guarantees. These commenters
pointed to a statement by the
Government Accountability Office
(GAO) that Title XVII itself provides
adequate authority for DOE to issue loan
guarantees without the need for any
additional authority in an
appropriations act, provided DOE
employs the Title XVII ‘‘self-pay’’
authority. Specifically, by letter dated
April 20, 2007, GAO indicated its belief
that because Title XVII allows for Credit
Subsidy Costs to be covered by
appropriations or by a payment from the
borrower, where the recipient of a loan
guarantee fully funds the Credit Subsidy
Cost for its loan guarantee, no
appropriations act authority should be
required. Some commenters added that
if DOE plans to adhere to the view that
appropriations act authority is required
for all Title XVII loan guarantees, it
must seek and obtain an amendment to
Title XVII or sufficient appropriations
act authority to allow the Title XVII loan
guarantee program to succeed.
DOE Response: The Department does
not interpret section 1702(b) of the Act
as providing either budget authority or
other authority to make any individual
loan guarantee, as is required by FCRA.
Instead, DOE reads the Act and FCRA in
harmony, which means that while Title
XVII authorizes DOE to carry out the
loan guarantee program, the Department
may not issue any loan guarantees until
it has received budget authority or is
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otherwise provided authority to make
guarantees in an appropriations act.
While the Act authorizes payment from
a borrower as an alternative source of
funding, any such alternative source of
funding does not relieve DOE from the
necessity of obtaining authority in an
appropriations act for the issuance of
any loan guarantees, even in cases
where the Credit Subsidy Cost will be
paid by the borrower or project sponsor
and no appropriations are used to pay
such costs. Congress acted consistent
with this interpretation of Title XVII
and section 504 of FCRA when, in
section 20320 of Public Law 110–5, it
authorized a $4 billion loan guarantee
limitation and required the use of the
self-pay authority of Title XVII for the
loan guarantee authority provided by
Public Law 110–5.
In the absence of the Title XVII
authorization for DOE to receive
borrower-paid funds to pay for the
Credit Subsidy Cost of a particular loan
guarantee, DOE would not have the
ability to defray the Credit Subsidy
Costs for loan guarantees in that
manner. Title XVII clearly authorizes
those costs to be covered either with
appropriated funds or with borrower
paid funds. Furthermore, Title XVII and
FCRA, read together, require DOE to
obtain authority in an appropriations act
to issue loan guarantees, even when
employing the Title XVII self-pay
authority.
Section 20320 of Public Law 110–5
does three things: (1) It provides a loan
guarantee volume limitation of $4
billion; (2) it requires that borrower selfpay the Credit Subsidy Cost; and (3) it
prohibits the use of general fund
appropriations for such costs. In
enacting Public Law 110–5, Congress
acted consistently with the
Administration’s view that authority in
appropriations acts is required in
advance before a loan guarantee can be
issued. Therefore, for the $4 billion
authorized by Public Law 110–5, DOE
will implement the program with selfpay authority. Furthermore, DOE
intends to continue to implement the
Title XVII program through the self-pay
authority provided by the Act and has
no current intention to seek
appropriations to pay Credit Subsidy
Costs for any project.
I. Default and Audit Provisions
Title XVII, sections 1702(g) and
1702(i), require DOE to promulgate
regulations to address default and audit
requirements (42 U.S.C. 16512(g), (i)).
Sections 609.15 and 609.17 of DOE’s
regulations, respectively, address these
requirements. These provisions will
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apply to all loan guarantees issued
under the Title XVII program.
Public Comments: USEC expressed
concern that the Department’s assertion
of audit authority could be interpreted
as requiring application of the Federal
Acquisition Regulations (FAR). (USEC
at 6) Other parties were concerned that
after-the-fact audits could reduce the
amount of project costs and the extent
of the guarantee coverage. According to
Bechtel, in particular, such a
requirement would make the guarantee
a conditional commitment. (Bechtel at
5–6) These parties pointed out that in
project financing, an independent
engineer is customarily used to review
and certify costs prior to each loan
disbursement and they recommended
this approach be adopted in DOE’s
regulations. In Bechtel’s view, once a
disbursement is made, the guarantee
should be unconditional and not subject
to reduction in a post-disbursement
audit. (Bechtel at 5–6).
Goldman Sachs recommended that
the final rule clearly provide for the
guarantee to be available in the case of
defaults other than non-payment of
principal and interest without the need
for a DOE determination of material
effect. Goldman Sachs maintained that
as proposed, the rule would prevent
lenders from making a demand on the
guarantee in the case of defaults other
than non-payment of principal and
interest unless DOE agrees, and would
potentially decrease the pool of lenders
willing to participate. Goldman Sachs
also recommended the adoption of a
‘‘well-defined, market-based, and courttested’’ mechanism for handling default
and suggested that DOE look to the
monoline insurance market which
provides credit enhancement to capital
markets transactions. (Goldman Sachs at
4–5)
DOE Response: DOE clarifies that the
final rule and the Title XVII loan
guarantee program are not subject to the
FAR. The Department also clarifies that
the audit provisions do not render the
loan guarantees conditional, but that the
need to retain audit authority is
necessary to prevent fraud and abuse
and should in no way be construed as
limiting the enforceability of the Title
XVII Loan Guarantee.
DOE does not accept Goldman Sachs’
recommendation that DOE give up its
right to approve claims on the
guarantees in the event of defaults for
circumstances other than non-payment
of principal and interest. Inasmuch as
DOE likely will be the largest risk taker
in any project receiving a Title XVII
guarantee, the Department is not being
unreasonable in insisting that it have a
say about what event can accelerate
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payments under the Loan Guarantee
Agreement.
However, the Department has revised
section 609.15(e), which requires
lenders to provide supporting
documentation to justify a payment
demand, to specify that requirements
will be provided in the Loan Guarantee
Agreement. Also, DOE clarifies that
proposed section 609.15(b) is not
intended and should not be read to
preclude demands for failure to pay
principal and interest where there has
been a default other than a payment
default. A non-payment default can
become a payment default if such
default is not cured within the time
specified in the Loan Guarantee
Agreement and the debt is accelerated
and thus causes the entire amount of the
loan to become immediately due and
payable. DOE will retain the audit
provision in section 609.17(b) which
permits DOE, in the course of
conducting an audit, to exclude from or
reduce project costs that are determined
to be unnecessary or excessive. As
indicated above, such an audit
provision is necessary in order to
protect the Federal government against
the possibility of fraud or abuse.
J. Tax Exempt Debt
Section 103(a) of the Internal Revenue
Code (IRC), 26 U.S.C. 103(a), provides
that ‘‘gross income’’ does not include
interest on any state or local bond, with
certain exceptions. Section 149(b) of the
IRC, 26 U.S.C. 149(b), provides that the
section 103(a) exclusion from gross
income ‘‘shall not apply to a state or
local bond if such bond is federally
guaranteed.’’ Section 149(b) in effect
converts tax exempt debt to taxable debt
when such debt is guaranteed by the
Federal government. Accordingly, DOE
proposed in section 609.10 of the NOPR
to prohibit the Department from directly
or indirectly guaranteeing tax exempt
obligations.
Public Comments: The Nuclear
Utilities stated that section 609.10’s
prohibition against issuing any loan
guarantees that finance directly or
indirectly any tax exempt debt is
unnecessarily broad, and appears to
establish new policy that negates
provisions of current law on tax exempt
financing. The Nuclear Utilities focused
on several exceptions in 26 U.S.C.
149(b)(3)(A), which permit loan
guarantees to apply to tax exempt debt
obligations under certain conditions,
and request that the final rule provide
that loan guarantees may be issued for
debt obligations if they qualify under
such a statutory exception in existence
at the time of loan guarantee agreement
is executed. Specifically, they request
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that the prohibition in section
609.10(d)(7) of the NOPR should be
amended by adding the proviso, ‘‘unless
such debt obligations fall within one of
the exceptions enumerated in 26 U.S.C.
149(b)(3)(A), or other similar law.’’
(Nuclear Utilities at 15).
Bechtel recommended the deletion of
the proposed requirement that prior to
the execution of the loan, DOE must
ensure that the guarantee does not
finance tax exempt debt because it
might exclude many municipal and
cooperative electric utility companies
that rely heavily on tax exempt
financing. (Bechtel at 6). CPS sought
elimination of the prohibition on
grounds that it is duplicative of IRC
section 149(b). (CPS at 3)
DOE Response: The prohibition on
municipalities issuing tax-exempt
obligations that are also guaranteed by
the Federal government is set forth in
Federal law, and DOE cannot change the
statutory prohibition, regardless of
whether or not a similar prohibition is
expressed in Title XVII regulations. DOE
believes, however, that in the interests
of clarity and completeness, the rule
should contain such a prohibition.
Nonetheless, we are persuaded that the
prohibition in the final rule should be
expressly coextensive with the statutory
prohibition such that any statutory
exceptions in effect at the time that a
guarantee is issued will also be deemed
exceptions from the regulation, because
it is not DOE’s intent to prohibit by rule,
except to the extent prohibited by
statute, loan guarantees from being
issued for projects employing tax
exempt debt. We have modified section
609.10(d)(7) of the final rule
accordingly.
K. Full Faith and Credit
Section 609.14 of the proposed
regulations provided that the full faith
and credit of the United States would be
pledged to the payment of all
Guaranteed Obligations. It further
provided that the guarantee shall be
conclusive evidence that it has been
properly obtained, that the underlying
loan qualified for the guarantee, and
that but for fraud or material
misrepresentation by the Holder, is
presumed to be valid, legal, and
enforceable. DOE stated that it
maintains a strong interest in ensuring
that the debt incurred in order to
finance innovative projects can be
financed and sold in secondary markets.
Public Comments: The commenters
addressing this issue stressed the need
to ensure that the guarantees issued by
the Department are completely
unconditional and obtain a ‘‘AAA’’
credit rating. The Investment Bankers
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focused on several provisions that
appear to weaken the unconditional
nature of the guarantee. For example,
the NOPR sought to impose on Eligible
Lenders a duty of care and other duties
that are arguably more onerous than is
required in commercial markets and in
other Federal loan guarantee programs.
According to the Investment Bankers,
these provisions make the guarantee
conditional and put lenders at risk
disproportionate to any potential
returns, especially in the case of
collateral agents or other agents who
receive minimal fees for such functions.
The Investment Bankers contend that
these provisions will further reduce
interest in the lender community in this
program and, therefore, the availability
of financing. (Investment Bankers at 2).
Citi, in addressing the need for a ‘‘AAA’’
credit rating, argued that the exception
for fraud or material misrepresentation
by the holder of the guarantee, as
proposed in the NOPR, is not necessary.
(Citi at 4).
DOE Response: Subject only to fraud
or material misrepresentation by the
Holder, the guarantee is absolute. For
the reasons discussed elsewhere in this
preamble in connection with the
Department’s authority to conduct
audits, we reject the argument of Citi
and the Investment Bankers that the
right to audit for fraud or abuse is
unnecessary or would compromise the
unconditional nature of Title XVII loan
guarantees. The right to audit is vital to
the Department’s effort to protect
against fraud or abuse and to protect the
government and the taxpayer; in any
event, Title XVII requires the
Department to have regulations
addressing audit requirements. DOE
also does not agree that the duty of care
required of Eligible Lenders is too strict.
These standards and the duty of care
required of Eligible Lenders, as
proposed in the NOPR, do not
compromise the unconditional nature of
the guarantees but are intended to
support the government’s need to assure
a reasonable prospect of repayment. So,
these requirements should not in any
sense restrict or reduce the viability of
the Title XVII program.
L. Responses to August 2006 Solicitation
In the NOPR, DOE proposed that in
order to ensure that the Department
complies with Public Law 110–5 but
does not prejudice Pre-Applicants that
responded to the First Solicitation, the
Title XVII regulations should specify
that they do not apply to the PreApplications, Applications, Conditional
Commitments, and Loan Guarantee
Agreements issued or entered into
pursuant to the First Solicitation. The
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only exceptions would be with respect
to the default, recordkeeping, and audit
requirements in proposed sections
609.15 and 609.17, which Title XVII
requires be established by rule. The
NOPR also proposed to permit DOE and
an Applicant to agree in a Loan
Guarantee Agreement entered into
pursuant to the First Solicitation that
additional provisions of DOE’s
regulations would apply to the
particular project.
Public Comments: Synergistic
Dynamics, Inc. (Synergistic) submits
that DOE’s proposed waiver of
regulatory requirements for the PreApplications received in response to the
First Solicitation will prejudice
subsequent applicants who fully comply
with the final regulations. The only
other comment DOE received on this
aspect of the NOPR was a letter
submitted by two members of Congress,
which asserted that DOE’s proposal was
not consistent with Congress’s intent in
Public Law 110–5, which required that
DOE promulgate final regulations before
issuing any loan guarantees under the
Title XVII program. (Synergistic at 3)
DOE Response: The final rule
generally adopts the approach set forth
in the NOPR, but specifies additional
provisions of the regulations that will be
applicable to all pre-applications,
applications, and loan guarantees,
including those under the First
Solicitation. The Department still
believes it is important not to prejudice
Pre-Applicants who responded to the
First Solicitation. For example, the final
rule establishes requirements for Title
XVII solicitations that are not consistent
with the content of the August 2006
First Solicitation issued by DOE, and if
all provisions of the final rule were
made to apply to the First Solicitation
and the submissions in response to it, it
is difficult to see how DOE could
proceed other than to reject all of the
Pre-Applications that were submitted
and start the program over from scratch.
The Department and the Pre-Applicants
have spent too much time responding to
the First Solicitation to throw that work
away and start over.
At the same time, many portions of
the final rule can be fairly applied to
those entities that responded to the First
Solicitation, and the process of
considering those responses is at a stage
where many of the final rule’s
requirements can and should be made to
apply to them. In fact, the Department
believes that it will benefit both PreApplicants and the Department to make
additional provisions of this rule
applicable to them. Because, as DOE
noted in the NOPR, section 20320 of
Public Law 110–5 does not state
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whether or to what extent the final rules
that Public Law 110–5 requires to be
issued must apply to any matters in
connection with the First Solicitation,
DOE therefore must make a policy
judgment about the extent to which this
final rule should be so applicable.
In section 609.1 of the final rule, DOE
specifies which sections of the
regulations are not applicable to PreApplicants and projects being
considered in response to the First
Solicitation. Except as specified in that
section, these regulations apply to all
projects and loan guarantees pursuant to
Title XVII, including those pursuant to
the First Solicitation.
M. Other Issues Raised in the Public
Comments
1. Non-Recourse Financing.
The NOPR proposed to require the
borrower to pledge all project assets and
other collateral to obtain a loan
guarantee. (609.10(d)(10)). Some
commenters sought clarification that in
the event of default, the loan guarantee
is non-recourse, i.e., liquidation or sale
of assets after default is limited to
project assets pledged as collateral. The
commenters noted that a sponsor may,
at its discretion, offer other collateral to
reduce the cost of the subsidy and that
this is the substance of the collateral
pool that lenders would and will require
in a limited-recourse financing.
However, one commenter observed that
in such a collateral pool, the
government would be in a second lien
position until it paid, in part or in
whole, the project loans—at which time
the government would subrogate to a
first lien position. (TXU at 6).
Pursuant to the final rule and Title
XVII itself, loan guarantees will be
secured by all project assets, including,
contracts, agreements, and other
pledged collateral. Other than pledged
project assets and other pledged
collateral, however, the loan guarantee
is non-recourse as to all persons and
entities. The issue of lien position is
discussed elsewhere in this preamble.
2. Timeline for Processing Application.
P&W recommended that in order for
an Applicant to effectively plan its
project development life cycle, DOE
should clearly define a timeline for
application processing and loan awards.
P&W said there are sensitivities around
time to market that might preclude
engagement with the loan guarantee
program if the timeline moves too
slowly. (P&W at 3). Dominion asked
DOE to consider offering priority
processing to applicants that wish to
enter into loan guarantees of shorter
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60133
terms than the statutorily allowed
maximum, because a reduced loan
guarantee term reduces risk to the
government, and contended that priority
processing of such lower risk projects
would further the President’s Advanced
Energy Initiative. (Dominion at 4).
The Department believes that given
the breadth, diversity, and innovative
nature of the technologies that are
potentially eligible for Title XVII loan
guarantees and for which loan
guarantees will be sought, it is not
feasible at this point to establish by rule
firm timelines for the processing of
applications. This issue may be
revisited at some point in the future,
after DOE and participants have gained
more experience with the program. The
Department may, in the context of a
particular solicitation, establish specific
timelines for various phases of the
application and consideration process
for that solicitation. DOE also is not
persuaded that it should attempt, in
these regulations, to provide a sort of
higher priority in the processing or
granting of loan guarantees for
potentially lower risk or reduced loan
term applications. Such a rule might be
inconsistent with particular
Departmental objectives if DOE wished
to focus a particular solicitation on
high-risk technologies. Moreover, it
likely would be difficult, early in the
process of reviewing an application, to
determine with any certainty which
applications presented lower risk than
others.
As for the issue of shorter-term
loans—for example, loans that only
have a five-year term, or on which the
DOE guarantee expires after five years,
the term may or may not weigh into the
consideration of the application. DOE
does not believe it is appropriate to
provide by rule for priority processing
of requests for shorter-term guarantees.
In individual solicitations, the
Department may set forth priorities for
processing applications, consistent with
the final rule.
3. Conditional Commitment
Section 609.8(c) of the NOPR
provided in part that ‘‘[w]hen 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, but
neither party is legally obligated to do
so.’’ (emphasis added) The Nuclear
Utilities stated that DOE should allow
flexibility in the type of ‘‘commitment’’
provided by the Department in advance
of the planned financial close of
guaranteed debt. (Nuclear Utilities at
18). On the other hand, TXU stated that
once the Sponsor submits the
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Application package, DOE should issue
a Conditional Commitment and, as long
as the sponsor meets all of the
conditions set forth in the Commitment,
the sponsor should be assured that the
federal loan guarantee will be
forthcoming. According to TXU, the
need for assurance that a guarantee will
be issued where all conditions are met
is essential because the costs of securing
a guarantee, providing all the necessary
documents, licenses and permits, etc.,
could cost in the hundreds of millions
of dollars, especially in the case of
nuclear plants or other capital intensive
projects. TXU maintained that following
the preliminary application stage, a
sponsor should not have to be
concerned about making these
expenditures and not receiving a federal
guarantee unless the sponsor fails to
fulfill all the conditions precedent to the
loan program. (TXU at 8–9).
DOE agrees with the concerns
expressed, and therefore has revised
sections 609.2 and 609.8 to indicate that
a Conditional Commitment is an
agreement to pursue the execution of a
Loan Guarantee Agreement. The
Secretary may terminate a Conditional
Commitment for any reason at any time
prior to execution of the Loan Guarantee
Agreement. To ensure that no
Conditional Commitment binds DOE to
enter into a Loan Guarantee Agreement
without both adequate legal authority to
do so and payment into the Treasury of
required fees and costs, the final rule
provides that DOE’s obligations under
each Conditional Commitment are
conditional upon Congress having
provided in advance of the execution of
the loan guarantee sufficient authority
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 is the subject of the
Conditional Commitment. These
conditions are made applicable by rule
to each Conditional Commitment, and
are applicable whether or not they are
specifically stated in the text of a
Conditional Commitment.
4. Restrictions on the Transferability of
Guaranteed Obligations
Goldman Sachs recommended that
the final rule not include restrictions on
transferability of guaranteed loans, and
that DOE clarify that the provisions
regarding the eligible lender apply only
to the lead lender. Goldman Sachs said
that section 609.10(g)(1) of the proposed
rule, which would have required the
eligible lender to provide written
notification of any assignment, transfer,
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pledge, or use of a guaranteed
obligation, renders such actions subject
to DOE consent are not practical
because the lead lender will need to
assign and/or participate the loans to a
large number of institutions very
quickly. This flexibility is particularly
important, according to Goldman Sachs,
given the significant capital needed for
construction of a nuclear power facility
and the need for lenders in the
secondary market for the ability to freely
trade their loans. Bank of America
Securities, LLC (BOA) also objected to
this section. (BOA at 8)
The Department has an interest in
ensuring that any Guaranteed Obligation
presented to it for payment is valid.
Accordingly, revised section 609.10(g)
states that DOE will provide in the Loan
Guarantee Agreement and related
documents, procedures for identifying
Holders of the Guaranteed Obligations,
including for the purpose of payments
pursuant to the guarantee in the event
of default.
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 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 the 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
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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: https://
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).
D. Paperwork Reduction Act
Sections 609.4 and 609.6 of this rule
provide that Pre-Applications and
Applications for loan guarantees
submitted to DOE in response to a
solicitation must contain certain
information. This information will be
used by DOE to determine if a project
sponsor who submits a Pre-Application
will be invited to submit an Application
for a loan guarantee; to determine if a
project is eligible for a loan guarantee;
and to evaluate Applications under
criteria specified in the rule. Section
609.17 provides that borrowers must
submit to DOE annual project
performance reports and audited
financial statements along with other
information. DOE will use this
information to evaluate the progress of
projects for which loan guarantees are
issued. DOE submitted this collection of
information to OMB for approval
pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.) and
the procedures implementing that Act, 5
CFR 1320.1 et seq. OMB approved this
collection of information and assigned it
OMB Control No. 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,
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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 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, the
rule falls under the exceptions in the
definitions of ‘‘federal
intergovernmental mandate’’ and
‘‘federal private sector mandate’’ for
requirements that are a condition of
Federal assistance or a duty arising from
participation in a voluntary program.
The Act does not apply to this
rulemaking.
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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 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
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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 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
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60135
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
the rule is not 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 October 12,
2007.
Steve Isakowitz,
Chief Financial Officer.
For the reasons stated in the Preamble,
chapter II of title 10 of the Code of
Federal Regulations is amended by
I
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adding a new part 609 as set forth
below.
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.
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§ 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
loan guarantees to support Eligible
Projects under Title XVII of the Energy
Policy Act of 2005.
(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 Title XVII of the
Energy Policy Act of 2005.
(c) (1) Sections 609.3, 609.4 and 609.5
of this part shall not apply to any PreApplications, Applications, Conditional
Commitments or Loan Guarantee
Agreements under the Guidelines issued
by DOE on August 8, 2006, which were
published in the Federal Register on
August 14, 2006 (71 FR 46451) and the
solicitation issued on August 8, 2006
under Title XVII of the Energy Policy
Act of 2005, provided the PreApplication is accepted under the
Guidelines and an Application is
invited pursuant to such PreApplication no later than December 31,
2007.
(2) Except as provided in paragraph
(c)(1) of this section, DOE and any
Applicant who submitted an
Application under the August 8, 2006
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solicitation may agree to make
additional provisions of this part
applicable to the particular project.
(d) Part 1024 of chapter X of title 10
of the Code of Federal Regulations shall
not apply to actions taken under this
part.
§ 609.2
Definitions.
Act means Title XVII of the Energy
Policy Act of 2005 (42 U.S.C. 16511–
16514).
Administrative Cost of Issuing a Loan
Guarantee means the total of all
administrative expenses that DOE
incurs during:
(1) The evaluation of a PreApplication, 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 § 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
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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 § 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
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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 nonguaranteed 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.
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 only
recently been developed, discovered or
learned; or 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
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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 § 609.12 of this part. Project
costs do not include costs for the items
set forth in § 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.
§ 609.3
Solicitations.
(a) DOE may issue solicitations to
invite the submission of PreApplications 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 PreApplication or Application for one
project using a particular technology. A
Project Sponsor or Applicant, in other
words, may not submit a PreApplication or Application for multiple
projects using the same technology.
(b) Each solicitation must include, at
a minimum, the following information:
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(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.
§ 609.4
Submission of pre-applications.
In response to a solicitation
requesting the submission of PreApplications, either Project Sponsors or
Applicants may submit PreApplications 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;
(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;
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(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
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 offtake 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 PreApplication 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
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project over the project’s expected lifecycle, 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.
§ 609.5
Evaluation of pre-applications.
(a) Where Pre-Applications are
requested in a solicitation, DOE will
conduct an initial review of the PreApplication to determine whether:
(1) The proposal is for an Eligible
Project;
(2) The submission contains the
information required by § 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 nonresponsive 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
paragraph (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
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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 PreApplication 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.
§ 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 PreApplication, 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;
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(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;
(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
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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 less than $25 million
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
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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.
§ 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
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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
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
§ 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
commercial 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 the extent that 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, and
requested amount of Guaranteed
Obligations 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
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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;
(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
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the issuance of a Term Sheet, DOE will
inform the Applicant in writing of the
reason(s) for denial.
§ 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
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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).
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§ 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 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 § 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
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(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 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.
§ 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 PreApplication 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, which must be specified
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60141
in the Loan Guarantee Agreement, 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 nonguaranteed 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 Obligations
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
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;
(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;
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(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 physical
assets necessary for any person or
entity, 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 and is in a first lien position
on all assets of the project and all
additional collateral pledged as security
for the Guaranteed Obligations and
other project debt;
(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;
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(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) 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
contains such other terms and
conditions as DOE deems reasonable
and necessary to protect the interest of
the United States; and
(23) (i) The Lender is an Eligible
Lender, as defined in § 609.2 of this
part, and meets DOE’s lender eligibility
and performance requirement contained
in §§ 609.11 (a) and (b) of this part; and
(ii) The servicer meets the servicing
performance requirements of § 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 and has superior rights
in and to the property acquired from the
recipient of the payment as provided in
§ 609.15 of this part.
(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
Borrower on the Guaranteed
Obligations.
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(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
§ 609.17 of this part.
(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
§ 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 § 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
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.
§ 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
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9.4) or participation in a nonprocurement 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 PreApplication 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
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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.
§ 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
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60143
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 nonproject 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.
§ 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
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avoid a payment default on nonguaranteed 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.
§ 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.
rfrederick on PROD1PC67 with RULES3
§ 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
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15:20 Oct 22, 2007
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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 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). 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 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).
(d) No provision of this regulation
shall be construed to preclude
forbearance by the 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
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Frm 00030
Fmt 4701
Sfmt 4700
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 and shall have superior rights
in and to the property acquired from 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 so provides, the Eligible
Lender or other Holder, or other
servicer, as appropriate, and the
Secretary may jointly agree to a plan of
liquidation of the assets pledged to
secure the Guaranteed Obligation.
(i) Where payment of the Guaranteed
Obligation has been made and the
Eligible Lender or other Holder or other
servicer has not undertaken a plan of
liquidation, the Secretary, in accordance
with the rights received through
subrogation and acting through the U.S.
Attorney General, may 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 is awarded title to
collateral assets pursuant to a
foreclosure proceeding, the Secretary
may take action to complete, maintain,
operate, or lease the project facilities, or
otherwise dispose of any property
acquired pursuant to the Loan
Guarantee Agreement or take any other
necessary action which the Secretary
deems appropriate, 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 to recover costs incurred by
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
and DOE in effecting such recovery;
second, to reimbursement of any
amounts paid by 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
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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 of
the Guaranteed Obligation by DOE, the
remaining funds received as a result of
the liquidation of project assets may, if
so agreed in advance, be applied as
follows:
(1) First, to the payment of reasonable
and customary fees and expenses
incurred in the liquidation; and
(2) Second, distributed among the
Holders of the debt on no greater than
a pro rata share basis.
(m) No action taken by the Eligible
Lender or other Holder or other servicer
in the liquidation 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, 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 of 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 the Holder’s
interest in the project upon liquidation.
rfrederick on PROD1PC67 with RULES3
§ 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, or DOE in
conjunction with the Federal Financing
Bank where the loan is funded by the
Federal Financing Bank, or other Holder
or other servicer will take those actions
necessary to perfect and maintain liens,
as applicable, on assets which are
pledged as collateral for the guaranteed
portion of the loan; and
(2) Upon default by the Borrower, the
holder of pledged collateral shall take
such actions as the Secretary may
reasonably require to provide for the
care, preservation, protection, and
maintenance of such collateral so as to
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15:20 Oct 22, 2007
Jkt 214001
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.
Except as provided in § 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 determines are required
to preserve the collateral. The cost of
such contracts may be charged to the
Borrower.
§ 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
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Frm 00031
Fmt 4701
Sfmt 4700
60145
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.
(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 should
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.
§ 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. E7–20552 Filed 10–22–07; 8:45 am]
BILLING CODE 6450–01–P
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Agencies
[Federal Register Volume 72, Number 204 (Tuesday, October 23, 2007)]
[Rules and Regulations]
[Pages 60116-60145]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-20552]
[[Page 60115]]
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Part III
Department of Energy
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10 CFR Part 609
Loan Guarantees for Projects That Employ Innovative Technologies; Final
Rule
Federal Register / Vol. 72, No. 204 / Tuesday, October 23, 2007 /
Rules and Regulations
[[Page 60116]]
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DEPARTMENT OF ENERGY
10 CFR Part 609
RIN 1901-AB21
Loan Guarantees for Projects That Employ Innovative Technologies
AGENCY: Office of the Chief Financial Officer, Department of Energy.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On May 16, 2007, the Department of Energy (DOE or the
Department) published a Notice of Proposed Rulemaking and opportunity
for comment (NOPR) to establish regulations for the loan guarantee
program authorized by Title XVII of the Energy Policy Act of 2005
(Title XVII or the Act). 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.'' Title XVII also identifies ten
categories of technologies and projects that are potentially eligible
for loan guarantees. The two principal goals 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. Having considered all of the comments
submitted to DOE in response to the NOPR, the Department today is
issuing this final rule.
DATES: Effective Date: This rule is effective upon October 23, 2007.
FOR FURTHER INFORMATION CONTACT: David G. Frantz, Director, Loan
Guarantee Program Office, Office of the Chief Financial Officer, 1000
Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-8336, e-
mail: lgprogram@hq.doe.gov; or Warren Belmar, Deputy General Counsel
for Energy Policy, Office of the General Counsel, 1000 Independence
Avenue, SW., Washington, DC 20585-0121, (202) 586-6758, e-mail:
warren.belmar@hq.doe.gov; or Lawrence R. Oliver, Assistant General
Counsel for Fossil Energy and Energy Efficiency, Office of the General
Counsel, 1000 Independence Avenue, SW., Washington, DC 20585-0121,
(202) 586-9521, e-mail: lawrence.oliver@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Introduction and Background
II. Public Comments on the Notice of Proposed Rulemaking and DOE's
Responses
A. Technologies
1. Definition of New or Significantly Improved Technologies
2. Definition of Technologies in General Use
3. Nuclear Generation Projects
B. Financial Structure Issues
1. Lender Risk, Stripping and Pari Passu
2. Equity Requirements for Project Sponsors
3. Other Governmental Assistance
4. Credit Assessment and Rating Requirements
C. Project Costs
D. Solicitation
E. Payment of the Credit Subsidy Cost
F. Assessment of Fees
G. Eligible Lenders and Servicing Requirements
H. Federal Credit Reform Act of 1990 (FCRA)
I. Default and Audit Provisions
J. Tax Exempt Debt
K. Full Faith and Credit
L. Responses to August 2006 Solicitation
M. Other Issues Raised in the Public Comments
III. Regulatory Review
A. Executive Order 12866
B. National Environmental Policy Act of 1969
C. The 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 establishes policies, procedures and
requirements for the loan guarantee program authorized by Title XVII of
the Energy Policy Act of 2005 (42 U.S.C. 16511-16514). Title XVII
authorizes the Secretary of Energy, 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 May 16, 2007, the Department published a Notice of Proposed
Rulemaking and Opportunity for Comment (NOPR, 72 FR 27471) to establish
regulations for the Title XVII loan guarantee program. DOE held a
public meeting on the NOPR in Washington, DC on June 15, 2007.
Section 20320(a) of Public Law 110-5, the Revised Continuing
Appropriations Resolution, 2007 (Pub. L. 110-5) authorized DOE to issue
guarantees under the Title XVII program for loans in the ``total
principal amount, any part of which is to be guaranteed, of
$4,000,000,000.'' Section 20320(b) of Public Law 110-5 further provides
that no loan guarantees may be issued under the Title XVII program
until DOE promulgates final regulations that include ``(1)
programmatic, technical, and financial factors the Secretary will use
to select projects for loan guarantees; (2) policies and procedures for
selecting and monitoring lenders and loan performance; and (3) any
other policies, procedures, or information necessary to implement Title
XVII of the Energy Policy Act of 2005.'' The regulations being
finalized today fulfill that requirement.
Section 1702 of the Act 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 [as defined in regulations issued by
the Secretary]; 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)) Section 1702(i)
requires the Secretary to prescribe regulations outlining record-
keeping and audit requirements. This final rule sets forth application
procedures, outlines terms and conditions for Loan Guarantee
Agreements, and lists records and documents that project participants
must keep and make available upon request.
II. Public Comments on the NOPR and DOE's Responses
DOE received comments on the NOPR from 47 interested parties.
Twenty interested parties presented oral comments and/or submitted
written comments for the record at the public meeting. DOE summarizes
below the major areas of the NOPR on which it received public comment,
and discusses the Department's responses to those comments. Only major
areas of the NOPR are discussed here, although DOE carefully reviewed
all comments it received on the NOPR, and in some cases made
adjustments to the rule text
[[Page 60117]]
that are not discussed at length in this preamble.
A. Technologies
A principal purpose of the Title XVII loan guarantee program is to
support ``innovative technology'' projects in the United States that
``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)(2)) Section 1701(1) (A) of
the Act defines ``commercial technology'' as ``a technology in general
use in the commercial marketplace.'' (42 U.S.C. 16511(1)(A))
Title XVII does not require, but on the other hand does not
prohibit, different treatment for different eligible technologies or
projects in the Title XVII program. Furthermore, the Act does not
explain or define the phrase ``new or significantly improved'' in
section 1703(a)(2), nor does it explain or define the terms ``general
use'' or ``commercial marketplace.'' In the NOPR, DOE proposed to
define the term ``new or significantly improved technology'' to mean
``a technology concerned with the production, consumption, or
transportation of energy, and that has either only recently been
discovered or learned, or that involves or constitutes one or more
meaningful and important improvements in the productivity or value of
the technology.'' (72 FR 27480)
Because Title XVII focuses on encouraging and incentivizing
innovative technologies not already in ``general use'' in the U.S.
commercial marketplace, DOE stated in the NOPR that the Title XVII loan
guarantee program should only be open to projects that employ a
technology that has been used in a very limited number of U.S.
commercial projects or used in a commercial project for only a limited
period of time. Therefore, DOE proposed two possible ways of
interpreting ``general use'': it could mean ``ordered for, installed
in, or used in five or more commercial projects in the United States,''
or ``in operation in a commercial project in the United States for a
period of five years, as measured beginning on the date the technology
was commissioned on a project.'' (72 FR 27480) DOE requested comment on
these alternatives, and also on whether the same definition should
apply to all types of projects and technologies eligible for loan
guarantees. (72 FR 27474) As DOE stated in the NOPR, a project may be
eligible for a Title XVII loan guarantee if it uses technology that has
been used in any number of projects and for any period of time outside
the United States, so long as the technology is not in ``general use''
in the United States.
1. Definition of New or Significantly Improved Technology
Public Comments: Section 609.2 of the proposed regulations defined
``new or significantly improved technology'' to mean ``a technology
concerned with the production, consumption or transportation of energy,
and that has either only recently been discovered or learned, or that
involves or constitutes one or more meaningful and important
improvements in the productivity or value of the technology.'' Several
commenters expressed the view that this definition is too narrow
because it does not include improvements in ``new systems or system
integration.'' Other commenters stated that the definition should
reference or include the term ``commercial use.'' Some commenters
stated that the definition was appropriate.
Parson & Whittemore Incorporated (P&W) and Forest Energy System,
LLC (FES), for example, assert that the proposed definition of new or
significantly improved fails to capture the potential value of
``systems'' rather than individual technologies. They recommend
expanding the definition to include improvements from new systems or
systems integration. (P&W at 1; FES at 1).
The Nuclear Energy Institute (NEI) and Bechtel Corporation
(Bechtel) challenged the NOPR's proposal to require that the technology
be both new or significantly improved and not in general use in the
commercial marketplace in the United States. They maintain that Title
XVII only requires that a technology be new or significantly improved
``as compared to'' commercial technologies in service in the U.S. at
the time the guarantee is issued. (NEI at 25; Bechtel at 5).
The Verenium Corporation (Verenium) stated that it is possible that
a technology has been in existence for some time but has never been
commercially applied for some reason, such as a technology that was not
viable when competing with oil at $20 a barrel but is competitive with
oil at $60 a barrel. Verenium stated that DOE should focus on
technologies ``not yet in'' use and therefore should make the
definition of New or Significantly Improved Technology refer to the
defined term ``Commercial Technology.'' (Verenium at 10).
The Union of Concerned Scientists (UCS), however, stated that ``DOE
needs to develop objective criteria to demarcate `new' or
`significantly improved' technologies from the sprucing up and
recycling of current technologies,'' and asserted that the approach of
the NOPR relied upon ``subjective judgments concerning the definition
rather than employing more objective, quantitative measures of novelty
and significant improvement.'' (UCS at 1). UCS did not, however, offer
any suggestions as to what sort of ``objective, quantitative measures
of novelty and significant improvement'' would be appropriate for
adoption in the rule. TXU Generation Development Company LLC (TXU)
argued that the rule should adopt a ``flexible definition'' with DOE
and expert consultants making decisions on particular technologies at
the preliminary application stage. (TXU at 7).
Eastman Chemical Company (Eastman) supported the NOPR's proposed
disqualification of projects solely in the research, development, or
demonstration phase as long as the criteria is applied ``to the overall
project and does not make a project ineligible just because one
subsection of technology is new.'' Eastman adds: ``Arguably, a use of
proven or commercial technologies in a new or novel configuration,
combination, or implementation method, such as polygeneration should
qualify as a `new or significantly improved technology.' '' (Eastman at
3).
Beacon Power Corporation (Beacon) recommends broadening the
definition by adding the following italicized phrase so that the
definition would read: ``technologies concerned with the * * *
productivity or value of the technology or an improvement over an
existing technology that will perform the same function.'' (Beacon at
3). Ameren Services Company (Ameren) supported the proposed definition
of new or significantly improved technologies, subject to the addition
of the following phrase: ``in service in the United States at the time
the guarantee is issued,'' which is part of the statutory definition in
Sec. 1703(a)(2) of the Act. (Ameren at 2).
DOE Response: There is no one universally accepted or agreed upon
definition of the term ``technology.'' Generally, technology is thought
to be the practical application of science to industrial or commercial
objectives. Technology may also include electronic or digital products
and systems considered as a group. DOE believes that the term
``technology'' in Title XVII was intended to have a very broad meaning,
given the purposes of Title XVII, and therefore does not believe it is
advisable to set down by rule a narrow definition of what will be
considered a ``technology'' for purposes of this program.
[[Page 60118]]
However, the Department believes it is important to establish what
may enable a particular technology to be considered ``new or
significantly improved''. By its explicit terms, the Title XVII loan
guarantee program is not open to all technologies and projects, but
only those that are new or significantly improved in comparison to
commercial technologies in use in the United States.
Several commenters asserted that the proposed definition of ``new
and significantly improved technology'' in the NOPR mistakenly requires
that in order to be eligible for a loan guarantee, a project must
employ a technology that is both new and improved and is not in
commercial use in the United States. They argue that the regulatory
definition should be clarified to make clear that the test is new or
significantly improved as compared to commercial technologies in
service in the United States. They correctly quote Title XVII, but are
mistaken as to the import of that language and the language in the
NOPR. Either a technology is in general use in the U.S. commercial
marketplace or it is not. If it is in general use, then the same
technology could not possibly be ``new or significantly improved'' in
comparison to technology in general use in the U.S. commercial
marketplace, and it is ineligible for a Title XVII loan guarantee. Yet
a technology does not automatically become eligible for a Title XVII
loan guarantee merely because it is not a U.S. commercial technology;
rather, it must be ``new or significantly improved'' in comparison to
such commercial technology. If the statute required only that it be
``new'' or ``different'' in comparison to commercial technologies, then
it might well be that in order to become eligible for a Title XVII
guarantee, all a project sponsor would need to show is that it was
using a technology currently not in commercial use in the United
States. But such an interpretation of Title XVII would render as
surplusage the words ``or significantly improved'' in section
1703(a)(2) of the Act. As a result, the term ``new or significantly
improved'' cannot simply mean not currently in commercial use in the
United States; it must mean that the technology itself is either newly
developed, or it must constitute a significant improvement over
technologies currently in U.S. commercial use. Notably, in order to be
eligible for a loan guarantee a technology need not be both new and
significantly improved, but must only be one or the other.
DOE does believe it is useful to clarify that while a ``new''
technology must be newly developed, discovered or learned, a
``significantly improved'' technology may in fact be ``old'' but a
significant improvement over technologies currently in commercial use
in the United States. Thus, and as noted in the NOPR, DOE agrees with
the assertions by some commenters that a technology could be eligible
for a loan guarantee even if it was developed long ago and even if it
is used in the same commercial application outside the United States,
as long as that technology is not in general commercial use for that
application in the United States at the time the loan guarantee is
issued. Consistent with DOE's interpretation of section 1703(a)(2) of
the Act, section 609.2 of the final rule provides, in part, as follows:
New or significantly improved technology means a technology
concerned with the production, consumption or transportation of
energy that is not a Commercial Technology, and that has either: (i)
Only recently been developed, discovered or learned; or (ii)
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.
2. Definition of Technologies in General Use
Public Comments: Under section 1703(a)(2) of the Act, projects are
eligible for Title XVII loan guarantees only if they employ new or
significantly improved technologies as compared to ``commercial
technologies'' that are ``in service in the United States'' when
guarantees are issued. Section 1701(1)(A) defines ``commercial
technology'' to mean ``a technology in general use in the commercial
marketplace.'' The NOPR proposed two alternative definitions of
``general use'': A technology would be considered to be in ``general
use'' if it had been ``ordered for, installed in, or used in five or
more [commercial] projects in the United States''; or alternatively, if
it had been ``in operation in a commercial project in the United States
for a period of five or more years as measured beginning on the date
the technology was commission[ed] on a project.'' This definition is
important because, as noted above, a proposed technology cannot qualify
a project for a Title XVII loan guarantee if it is in ``general use''
in the U.S. commercial marketplace.\1\
---------------------------------------------------------------------------
\1\ Notably, the existence of technology in a project that is in
general commercial use in the United States does not in itself
disqualify a project from eligibility for a Title XVII loan
guarantee. Most if not all projects that are eligible for loan
guarantees will employ some technologies that are in such general
use.
---------------------------------------------------------------------------
Several commenters stated that the first of the alternatives set
forth in the NOPR was acceptable, but the second alternative definition
should not be an option or should be revised. On the other hand,
several commenters stated that the second alternative definition would
be appropriate for nuclear projects because the early operational phase
is more useful in determining whether a technology is workable and
acceptable. Other commenters stated that the second alternative should
not be adopted because it likely would lead to a very large number of
nuclear projects being eligible for loan guarantees since there is a
long period of time between initiation of work on a nuclear generation
facility and the completion of five years of operation, and during this
time a large number of projects using the same technology could apply
for and be granted loan guarantees. Still other commenters were of the
view that it is impossible to adequately define ``general use'' and
asserted that DOE therefore should approve or disapprove loan guarantee
proposals to use technologies on a case-by-case basis. Commenters also
expressed the view that the two alternative definitions for ``general
use'' should be combined into one definition.
More specifically, in their joint comments Constellation Nuclear
Utilities, Inc., Entergy Corporation, Exelon Corporation, and NRG
Energy, Inc. (Nuclear Utilities) asserted that for nuclear technologies
the definition of a technology that is in ``general use'' should be
based upon five or more years of operation of any given new design
(e.g., an advanced reactor design that is separately certified by the
Nuclear Regulatory Commission (NRC)). They argued that if DOE were to
use the ``five or more projects'' alternative for defining what
constituted ``general use,'' it would be essential that the phrase
``order for, installed in, or used in'' should be changed to ``ordered
for, installed in, and used in,'' since for nuclear plants, ordering
would take place many years before use. (Nuclear Utilities at 19-20).
NEI, Dominion Resources Services, Inc. (Dominion) and Excelsior Energy,
Inc. (Excelsior) submitted similar comments. (NEI at 24, Dominion at
12, Excelsior at 2-3).
Southern Company Services, Inc., (Southern) stated that technology
should be considered in ``general use'' when financing has been
established for five or more projects in the United States. Southern
stated that its proposed interpretation of ``general use'' would assist
DOE's effort in having a broad portfolio of large and small projects
with a wide variety of technologies
[[Page 60119]]
supported by the Title XVII program, because it would limit the number
of project participants that employ the same technology. Southern also
asserted that the successful implementation of five projects employing
a particular technology should greatly reduce the concerns of the
credit markets, and stated that not considering a technology to be in
``general use'' until it has been in operation in a commercial project
in the United States for five years could result in an unlimited number
of projects utilizing the same technology. (Southern at 1).
Verenium stated that if over a five-year period a technology has
been used in fewer than five projects, the technology is probably not
in general use because it would indicate there is some barrier to
competitiveness. The restriction to five projects, according to
Verenium, should be stated as only a ``presumption,'' so that DOE could
deviate from it in appropriate circumstances. Verenium further argued
that the term ``ordered for'' may be ambiguous, and thus suggested the
use of ``in the process of being installed'' if DOE adopts an
alternative employing this concept, and thus suggested the following
language for the definition of Commercial Technology:
``Commercial Technology means a technology in general use in the
commercial marketplace in the United States, but does not include a
technology solely by use of such technology in a demonstration
project funded by DOE. A technology is presumed to be in general use
if it has been installed or used or is in the process of being
installed in five commercial projects in the United States.''
(Verenium at 12-13).
Standard & Poor's (S&P) stated that projects involving integrated
gasification combined cycle (IGCC) and coal-to-liquids (CTL)
technologies currently lack a commercial track record and therefore
would be assigned a risk premium by that rating agency. However, S&P
said that if there are at least five operational projects using a
particular technology, and as long as there was a material track record
of operations, the perceived risk and thus the risk premium associated
with the technology would be substantially reduced. (S&P at 2). The
Iogen Corporation (Iogen), believes that the definition proposed in the
NOPR is too restrictive and notes that the financial community has
displayed great reticence to providing debt financing at reasonable
commercial rates for new technologies that have not been widely
demonstrated. Iogen would prefer that DOE not adopt a single ``bright
line'' test and that the Department instead rely on market forces to
determine the need for a guarantee. However, if the Department is going
to develop a test, Iogen proposes to combine the two alternatives into
one modified definition, so that a particular technology would be
considered to be in general use if it had been installed or used in
five or more projects in the United States for a period of five years.
(Iogen at 2-3).
The Coal Utilization Research Council (CURC) stated that the
``proposed definition of general use is not suitable as it relates to
projects that will use technologies that have been in commercial use
for other applications,'' and that ``size, process configurations, and
technology modifications are among the several general characteristics
of projects that need to be considered when applying the general use
definition.'' (CURC at 5). Baard Energy L.L.C. (Baard) proposed that,
with respect to CTL projects, ``general use'' should be defined by the
first alternative set forth in the NOPR, i.e., technologies that have
been installed and used in five or more commercial projects in the
United States. Baard asserts that the second alternative, five years,
is too short. In order to accommodate construction schedules for CTL
plants and to allow for innovations and improvements, Baard maintains
that the second alternative should be extended to ten years. (Baard at
3).
Bechtel Power Corporation (Bechtel) recommends combining the two
alternatives for determining ``general use'' proposed in the NOPR, as
follows:
The technology or combination of technologies have been ordered
for, installed in, and used in five or more projects in the U.S.,
each for a period of five years, measured from date of
commissioning.
Bechtel's other comments regarding ``general use'' are focused on new
nuclear technologies that have never been built in the United States.
According to Bechtel, the technologies in question (``Gen III'' and
``Gen III+'' nuclear designs) should be judged individually for
purposes of determining whether either of the alternative meanings of
``general use'' proposed in the NOPR apply to them. Bechtel states that
the ``general use'' language in the rule must clearly distinguish new
generations or new applications of a technology such as Gen III or Gen
III+ in order to assure that they are not excluded from loan guarantee
eligibility by the fact that over 100 nuclear plants have been built in
the United States, when those plants used different designs and were
constructed in a much different industry and regulatory environment.
(Bechtel at 4).
CPS supports the second alternative definition set forth in the
NOPR, and submits that the five to seven year construction period for a
nuclear project means that starting the ``clock'' from the time the
technology is commissioned on a project, may mean that the project is
disqualified at or prior to the technology's in-service date. CPS
asserts that guarantees should be available, to the extent of
appropriations, until each distinct technology is in full commercial
operation. (CPS at 7). Abengoa Bioenergy New Technologies (ABNT)
recommends that DOE select the definition which utilizes time from
first commercialization as the basis for defining ``general use.'' ABNT
argues that if the other alternative is selected, DOE will be
discouraging competition and applications from a number of projects
which are eligible under a given solicitation or invitation, and that
by determining eligibility on the basis of ``a fixed window of time,''
DOE will provide certainty that a project will remain eligible for a
loan guarantee at some future time regardless of intervening events
with other projects or technologies. ABNT does not dispute the NOPR's
proposal of a five-year time frame, but suggests that a superior
approach may be to establish a time frame according to the commercial
technology defined in each solicitation or invitation. (ABNT at 1).
DOE Response: DOE agrees with concerns expressed by many commenters
about the ``five project'' alternative proposed in the NOPR. These
commenters were concerned that a definition that did not include an
operational component, which lenders need to develop confidence that a
technology is proven and is viable in actual commercial operation, may
not be workable for this program, and may not result in effective
reduction of commercial risk and effective increased commercial
marketplace acceptance prior to the closing of loan guarantee program
eligibility. DOE believes that other entities considering incorporation
of a particular technology into their planning want to see technologies
proven in actual practice before investing substantial sums on that
technology and incorporating it into large-scale capital expenditure
plans. Furthermore, operational experience reduces risk from the
standpoint of the credit and debt markets, and can lead to increased
access to capital markets at lower rates. We particularly note and find
persuasive S&P's comment that if there were at least five operational
projects in a particular technology
[[Page 60120]]
within the United States, the perceived risk premium associated with
the technology should be substantially reduced. We also note that
adoption of the ``five projects'' proposal in the NOPR but without
including an operational period could result in technologies or
projects involving very long development and construction times being
disqualified from receiving additional loan guarantees before even one
project had commenced commercial operations, or in extreme cases,
before any projects employing the technology had even commenced
construction.
After review and evaluation of the comments, DOE accordingly has
revised section 609.2 of the NOPR as follows:
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 loan guarantees
from DOE under this part.
DOE believes this definition reasonably addresses the concerns that DOE
considers persuasive. By referring to the ``same general application''
as the proposed project, the definition provides that a technology is
not necessarily considered in ``general use'' if it has been used for
completely different projects or applications than in the proposed
project. For example, the fact that fuel cells have been used in some
small-scale applications for flashlights would not disqualify an
application for a project that proposed to use fuel cells to power a
motor vehicle. The definition also makes clear that it is only use of a
technology in a project in the United States that can potentially
render it in ``general use'' for the purposes of this program. The
definition provides that each of three projects using a particular
technology must be in service for five years before the technology is
considered to be in general use. Thus, this definition deals with the
concern expressed by some commenters that technologies should be barred
from program eligibility only if there has been substantial actual
operational experience with them. Finally, the definition clarifies
that projects that have received loan guarantees will be counted when
determining whether technologies have been used in a sufficient number
of projects to render them no longer eligible for the program. DOE
believes this is consistent with the overall purpose of the program in
encouraging the introduction of new and improved technologies into the
commercial marketplace, but ensuring that technologies do not remain
forever dependent on loan guarantee support in order to be commercially
viable. The Title XVII program should help introduce technologies to
the commercial marketplace, but it should be up to those technologies
and to the commercial marketplace as to whether the technologies
continue to be economically and technologically viable, or not.
DOE notes that even though the definition of ``commercial
technology'' it is adopting in this rule may permit multiple projects
using the same technology to be eligible for a Title XVII guarantee,
DOE is under no obligation to seek authority for, or to issue
solicitations for, all or any particular technology that may fall
within the outer limits of eligibility for a loan guarantee, as that
eligibility is prescribed by Title XVII and this rule. Indeed, it is
perfectly possible that DOE may decide not to issue a solicitation
covering a certain technology, even though projects using that
technology would be eligible under this rule for a loan guarantee.
Furthermore, this definition of ``commercial technology'' in no way
limits DOE's ability to include within a solicitation a selection
criterion, and assign a weighting for that criterion, based on the
number of projects already in service using that technology.
3. Nuclear Generation Projects
Public Comments: Comments from the nuclear industry asserted that
regulations proposed in the NOPR were not appropriate or workable for
commercial nuclear power projects because of the size and unique
regulatory and litigation-related risks surrounding these projects. The
industry's stated primary concern is the ability of industry
participants to access the capital markets at what they view as
reasonable rates, terms and conditions.
CPS Energy (CPS), on behalf of itself and the Large Public Power
Conference, a group of utility companies with nuclear power facilities,
recommended that new nuclear technology should be defined separately
and differently from other technologies eligible for Title XVII loan
guarantees. CPS cited two principal factors supporting this
recommendation: (1) The capital intensive nature of new nuclear
development; and (2) the different technologies proposed represent
vastly different scales of new technology, as compared with other types
of eligible projects. CPS stated that the cost of new nuclear
generating capability is in the neighborhood of $2,000 per kilowatt and
the capacity of the plants is in excess of 1,300 megawatts, that five
different reactor technologies are being proposed, and that none of the
technologies currently are in operation in the United States.
Therefore, CPS asserted that each of the five technologies should be
treated as a distinct new technology eligible for loan guarantees. (CPS
at 7).
Iogen, however, strongly opposed DOE making the loan guarantee
program more favorable for larger projects involving electricity
generation from nuclear power or coal combustion/gasification than for
other types of projects, such as those that would advance the
President's ``20 in Ten'' initiative, which Iogen said depends on the
widespread deployment of advanced biofuels refineries. (Iogen at 1).
The American Council on Global Nuclear Competitiveness (ACGNC) stated
that DOE should look beyond nuclear power plants when defining the term
``advanced nuclear energy facilities'' that appear in section 1703 of
the Act. ACGNC stated that this language is broad enough to allow DOE
to issue loan guarantees to projects that will restore the domestic
nuclear energy design, manufacturing, service and supply industry, such
as uranium mining and milling operations; uranium conversion and
enrichment facilities; reactor component fabrication facilities; and
used fuel recycling plants. (ACGNC at 2-3). Goldman and Sachs & Co.
(Goldman Sachs) recommended that the final rule expressly include
nuclear power generating stations and advanced technology low enriched
uranium (LEU) production facilities in the definition of what could
constitute an eligible project. Goldman Sachs emphasized that the
described facilities are essential to fostering the domestic
development of emissions-free, affordable base-load nuclear power
generation, and that advanced nuclear energy facilities are one of the
ten categories of projects specifically addressed in the Act. (Goldman
Sachs at 5).
DOE Response: Nuclear projects were the only type of projects for
which some commenters asserted the final rule should accord different
treatment than other technologies. However, most if not all of those
comments argued that different treatment was appropriate because of the
very large cost and long construction and permitting/licensing time for
such projects. And yet, similar
[[Page 60121]]
arguments could be made in support of some other types of potentially
eligible projects, such as refineries, IGCC facilities, or CTL
projects. No commenters argued that nuclear technology per se makes
nuclear projects deserving of different and more favorable treatment
than the final rule affords to other projects that have large capital
requirements and difficult regulatory environments. Moreover, DOE
believes it has dealt appropriately with many if not most of the
concerns expressed by nuclear industry participants regarding the
issues of ``general use'' and other matters discussed elsewhere in this
preamble and in the final rule text. Therefore, the final rule does not
differentiate between nuclear power generation projects and all other
projects.
B. Financial Structure Issues
The Act imposes certain limitations on the financial structure of
proposed projects, including that a loan guarantee ``shall not exceed
an amount equal to 80 percent of the project cost of the facility that
is the subject of the guarantee as estimated at the time at which the
guarantee is issued.'' (42 U.S.C. 16512(c)) Section 1702(g)(2)(B) of
the Act further requires that ``with respect to any property acquired
pursuant to a guarantee or related agreements, [DOE's rights] shall be
superior to the rights of any other person with respect to the
property.'' In the NOPR, the Department interpreted this statutory
provision to require that DOE possess a first lien priority in the
assets of the project and other assets pledged as security, and stated
that because DOE believed it is not permitted by Title XVII to adopt a
pari passu security structure, Holders of the non-guaranteed portion of
a loan or debt instrument supported by a Title XVII guarantee would
have a subordinate claim to DOE in the event of default.
DOE proposed in the NOPR that it only would issue a guarantee for
up to 90 percent of a particular debt instrument or loan obligation for
an Eligible Project. This limitation was subject to the overriding
statutory requirement that DOE's guarantees for a particular project
could not exceed 80 percent of Project Costs. Furthermore, in
connection with any loan guaranteed by DOE that may be participated,
syndicated, traded, or otherwise sold on the secondary market, DOE
proposed to require that the guaranteed portion and the non-guaranteed
portion of the debt instrument or loan be sold on a pro-rata basis. In
the NOPR, DOE proposed not to allow the guaranteed portion of the debt
to be ``stripped'' from the non-guaranteed portion, i.e., sold
separately as an instrument fully guaranteed by the Federal government.
The Act does not mandate a specific equity contribution to a
project that receives a Title XVII loan guarantee, but DOE proposed in
the NOPR that in order to receive a loan guarantee, Project Sponsors
must have a significant equity stake in the proposed project. DOE
solicited comments on the merits of adopting a minimum equity
percentage requirement for projects, and stated that in evaluating loan
guarantee applications, the Department would consider whether and to
what extent a Project Sponsor will rely upon other government
assistance (e.g., grants, tax credits, other loan guarantees, etc.) to
support financing, construction or operation of a project.
Finally, DOE proposed to require with submission of an application
for a loan guarantee a ``credit assessment'' for the project without a
loan guarantee from a nationally recognized rating agency, where the
size and estimated cost of the project justify such an assessment.
Additionally, DOE proposed to require that not later than 30 days prior
to closing, Applicants must provide a ``credit rating'' from a
nationally recognized rating agency reflecting the Final Term Sheet for
the project without a Federal guarantee. The Department requested
comments as to whether it should establish a project size (dollar)
threshold below which DOE could waive the credit assessment and rating
requirements.
Public Comments:
1. Lender Risk, Stripping and Pari Passu
Commenters that addressed the 90 percent, no stripping, and pari
passu provisions in the NOPR were generally opposed to these
restrictions. S&P commented on the 90 percent guarantee limitation in
combination with the stripping prohibition stating that ``[t]his is the
provision [sic] that has the greatest credit consequence. The rating
associated with a partially guaranteed obligation will be substantially
lower than the `AAA' rating of a fully guaranteed instrument . . .
[and] will result in a significantly higher cost of debt for the
project than if it was fully guaranteed.'' (S&P at 5). S&P also stated
that ``[t]he disadvantage created by the partial guarantee can be
overcome if the loan can be `stripped', effectively creating two
tranches of debt, one with a `AAA' rating and the second rated much
lower.'' (S&P at 5).
NEI asserted that allowing 90 percent guaranteed loans, instead of
placing the limit at 80 percent as did the August 2006 Guidelines, did
not improve what NEI viewed as a limitation adversely affecting the
overall viability of the Title XVII program for nuclear projects. NEI
stated that the NOPR would create a financing structure that is not
workable. It would create, according to NEI, a hybrid loan facility for
which there is no market, a debt instrument with a guaranteed portion
and a non-guaranteed potion which cannot be stripped, and would render
the unsecured, non-guaranteed portion of the debt ``quasi-equity.'' The
impact, according to NEI, would be to compromise project economics,
increase debt service requirements, and increase costs to electricity
consumers.
NEI further said if DOE's proposal were adopted, the Title XVII
loan guarantee program would not operate like other successful Federal
loan guarantee programs. NEI stated that those other programs generally
provide for 100 percent Federal guarantee coverage of the loan amount;
allow pari passu treatment of non-guaranteed commercial debt; and
permit stripping of guaranteed debt from non-guaranteed debt and follow
standard practice in determining eligible project costs. NEI said that
DOE's NOPR was deficient on all four of these issues. (NEI at 2-3).
In a set of joint comments, Citigroup, Credit Suisse, Goldman
Sachs, Lehman Brothers, Morgan Stanley and Merrill Lynch (Investment
Bankers) stated that investors or lenders in the fixed income markets
will be acutely concerned about a number of political, regulatory and
litigation-related risks surrounding nuclear power, including the
possibility of delays in commercial operation of a completed plant. The
Investment Bankers also stated that these risks, combined with the
higher capital costs and longer construction schedules of nuclear
plants, as compared to other electric generation facilities, may make
lenders unwilling to make long-term loans to such projects on
commercially viable terms. (Investment Bankers at 1).
The Nuclear Utilities also stated that the Title XVII loan
guarantee program must guarantee debt through workable financing
instruments. They asserted that limiting guarantee coverage to 90
percent, prohibiting pari passu security structures, and prohibiting
``stripping,'' would result in a program that would not support the
financing of new nuclear plants in the United States. The Nuclear
Utilities said that their primary concern relates to the percentage of
a project's debt the loan guarantee will cover. They believe that DOE
would be fully justified in guaranteeing 100 percent of a Guaranteed
Obligation, up to 80 percent of project cost. Moreover, the Nuclear
Utilities stated that
[[Page 60122]]
providing 100 percent guarantee coverage of a debt instrument is not
only necessary because commercially viable financing is not available
on an non-guaranteed basis, but also because a 100 percent U.S.
government guarantee will enable lenders and borrowers to maximize the
efficiency of the existing, well-established marketplace for government
guaranteed debt. The Nuclear Utilities also believe that the ``no
stripping'' requirement combined with the prohibition on pari passu
security structures, creates a form of ``hybrid'' debt for which there
is no natural, existing market. According to the nuclear industry, the
market participants would incur a significantly higher average cost of
financing, as well as unnecessary transaction costs to achieve project
structures that would enable the project's debt to be placed with its
appropriate constituents in the existing marketplace. The Nuclear
Utilities stated that such structures could lead to a form of
``synthetic'' stripping that undercuts the purpose of the no stripping
requirement. (Nuclear Utilities at 5-8). They recommended that any
concern about lender due diligence should be addressed by DOE retaining
outside legal, technical, and financial experts to supplement its
internal expertise in performing the necessary project due diligence
and assessing project risks, and that the reasonable costs and expenses
of these experts should normally be borne by the sponsors and
constitute part of project costs. (Nuclear Utilities at 10-11).
The Investment Bankers expressed views that are generally
consistent with those of the Nuclear Utilities. They also noted that in
some cases, investors in the AAA government-guaranteed market are
restricted, legally or otherwise, from investing in the sub-debt
market. They said that requiring investors to own interests through a
mandated hybrid instrument in both AAA paper and deeply subordinated
``quasi-equity'' paper removes both of these financing instruments from
their natural market. (Investment Bankers at 1). The Investment Bankers
stated that ``[t]here is a deep and highly efficient market for `AAA'
government guaranteed paper. Investors in that market are distinctly
different from those investors who participate in the sub-debt market.
Requiring investors to own interests through a mandated hybrid
instrument in both AAA paper and deeply subordinated `quasi-equity'
paper removes both of these financing instruments from their natural
markets.'' (Investment Bankers at 1). The 100 percent Government
guaranteed debt instruments are purchased by investors who are more
risk averse. Investors in non-guaranteed debt instruments are willing
to take more risk for the prospect of greater returns on their
investments. Verenium also expressed concern about the 90 percent
guarantee limitation and the prohibition on ``stripping'' that are
similar to the concerns expressed by the Investment Bankers and the
Nuclear Utilities. (Verenium at 4). Verenium suggested that one
alternative to 100 percent guarantees would be to allow the non-
guaranteed loan to be repaid on a shorter amortization schedule than
the guaranteed loan. (Verenium at 6).
According to JP Morgan Securities, Inc. (JP Morgan) it is unclear
how lenders would fund the non-guaranteed portions of a partially
guaranteed loan on which stripping was prohibited since banks rarely
lend for tenures beyond eight to ten years, particularly when the debt
is subordinated. JP Morgan further stated that an expectation that
lenders would maintain the non-guaranteed portions for the life of such
loans is unrealistic, and that by taking a second lien interest, a
lender's participation is tantamount to an equity investment. (JP
Morgan at 1).
Bechtel contended that a commercially viable market does not exist
for a hybrid instrument for which stripping is barred. Eliminating
stripping, according to Bechtel, is not in line with other Federal loan
guarantee programs and would increase the cost of project debt by
eliminating a bank's ability to utilize various securitization
vehicles, such as the Private Export Funding Corporation (PEFCO) or
Govco, Inc., the special purpose lending vehicle of Citigroup, which
provide efficient and cost effective vehicles to fund federally
guaranteed loans. Bechtel further agreed that the first lien
requirement in the NOPR is inconsistent with established norms in
project lending and that the Export Import Bank of the United States,
the Overseas Private Investment Corporation, and the Transportation
Infrastructure Finance and Innovation Act of 1998 (TIFIA) program at
the Department of Transportation treat any non-guaranteed debt as pari
passu in terms of both payment and security. (Bechtel at 2).
Power Holdings of Illinois LLC (Illinois), however, supported the
90 percent loan guarantee limitation in the NOPR, and the proposed
prohibition on stripping. (Illinois at 1). Baard also agreed with the
90 percent limitation. Baard said that this limit was an improvement
over the 80 percent of debt instrument guarantee limit set forth in the
August 2006 Guidelines, and that it would be an effective mechanism for
ensuring that investors/lenders perform rigorous due diligence prior to
committing their money for a project. (Baard at 5).
2. Equity Requirements for Project Sponsors
Almost all parties that submitted comments on this issue were
opposed to a fixed numeric minimum equity requirement. Illinois agreed
with the concept that Project Sponsors should be required to have a
significant equity stake in a project, but said DOE should not adopt a
fixed, numeric minimum equity percentage, threshold, or requirement.
Illinois asserted that equity structure in a given project can vary
with a number of factors, including technology used and the market for
the project's products, and that imposing a fixed, numeric minimum
equity percentage threshold or requirement for projects that might for
good reason fall below such a threshold could result in the exclusion
of otherwise worthy projects. (Illinois at 2). NEI also stated that DOE
should not mandate a specific minimum equity percentage for eligible
projects. The appropriate debt/equity ratio, according to NEI, will
vary across technologies and sectors and among projects, and should be
determined by project economics. (NEI at 23). Bechtel offered similar
comments. (Bechtel at 2).
3. Other Governmental Assistance
Most parties commenting on this issue stated that other
governmental assistance to a project should be considered beneficial to
the project and to DOE, and should not be used to exclude projects from
consideration for the Title XVII program or regarded as a negative
factor when evaluating the merits of particular projects. With respect
to DOE's consideration of the ``extent the Applicant will rely on other
federal and non-federal governmental assistance'' (section 609.7(b)(9)
of the proposed regulations), Iogen agreed that this factor should be
considered, but a primary consideration should be whether there was
significant private equity involvement in a proposed project. Iogen
stated that under no circumstances should Federal government assistance
be counted toward any equity contribution requirement. Iogen agreed
that DOE should include Federal government assistance only as an
evaluation factor, and not as one of the six disqualifying conditions
listed at section 609.7(a) of the proposed regulations because, among
other things, government assistance reduces total project costs, thus
reducing the size of any loan
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guarantee, increases the likelihood of debt repayment, allows DOE to
better leverage its participation in a variety of projects, and is an
indicator of strong political and community support. Iogen also stated
that presence of Federal government assistance does not, in itself,
limit the level of private commitment. For example, Iogen stated that a
project with 20% federal assistance, a 50% loan guarantee, and 30%
equity, could reasonably be preferred over a project with an 80% loan
guarantee and 20% equity. (Iogen at 4-5).
Bechtel stated that multiple forms of governmental assistance
should not be a negative factor because tax and other incentives are
intended to be complementary, not exclusive, and multiple forms of
governmental assistance could enhance a project's economics and
creditworthiness. Therefore, Bechtel asserted that subsidy costs should
be adjusted to reflect the reduced risk of default where there are
multiple forms of governmental assistance. (Bechtel at 6). The Nuclear
Utilities also expressed the view that other forms of governmental
assistance should be viewed positively. (Nuclear Utilities at 20-23).
CURC stated that if a project obtains other forms of governmental
assistance, the cost of the loan guarantee should be adjusted to
reflect the reduced risk of default on the underlying debt obligation
as a result of the other support. CURC said that DOE should not limit a
project's ability to receive more than one form of federal assistance.
(CURC at 5).
4. Credit Assessment and Rating Requirements
The NOPR proposed that a project sponsor must obtain a preliminary
credit assessment and subsequent credit rating for a project without a
loan guarantee from a recognized credit rating agency. (609.6(b)(21)
and 609.9(f)). Most commenters that expressed a view on this issue
stated that a credit assessment or rating was not very useful, and too
expensive and that a better value could be obtained from entities other
than established rating agencies.
USEC Inc. (USEC) stated that it does not understand the purpose of
proposed Sec. 609.9(f) which required that applicants obtain a credit
rating from a nationally recognized rating agency reflecting the final
term sheet without a Federal guarantee. USEC said that such a
requirement would add to the cost of the application process with
little benefit since the credit rating agencies are ill-equipped to
evaluate the technical risks associated with new or emerging
technologies. USEC stated that credit rating agencies look to
historical data--not clearly relevant to new or emerging technologies.
On the other hand, USEC said that DOE is positioned to conduct such an
evaluation on its own with the other information provided in the
application. (USEC at 5).
S&P stated that the credit assessments provided at the time of
application will likely have to be limited to a rating category (with
the `+' and `-' signs that normally accompany S&P ratings), because
project documentation will likely be in a very preliminary state at
this point. (S&P at 8). Goldman Sachs recommended that the requirement
for a credit assessment as part of the application submission be
eliminated from the final rule although sponsors should be able to
elect to obtain a credit assessment as part of their application
submission if they wish to do so. Goldman Sachs stated that obtaining a
credit assessment is a long process that ``frequently consumes valuable
time and resources during the most critical stages of negotiation.''
Also, Goldman Sachs asserted that ``the primary rating agencies often
do not provide a final rating until all documents have been negotiated
and closing is imminent'' and that the rating will ``be highly
dependent on the existence of the loan guarantee, and thus a rating
without the guarantee will be of little substantive value.'' (Goldman
Sachs at 9).
FES and P&W proposed that DOE set a project cost threshold of $25
million for waiving the credit rating requirement. (FES at 3, P&W at
2). Illinois also stated that DOE generally should have authority to
waive any credit rating requirement. However, according to Illinois, a
simple project size threshold for waiving the requirement would
oversimplify the circumstances under which DOE would consider such
waivers. Illinois stated that rather than a simple project size
threshold, DOE should set forth other criteria, such as a ratio of
project debt to sponsor equity, the duration of the loan guarantee or
the credit subsidy cost, in addition to the project size. (Illinois at
2).
DOE Response:
1. Lender Risk, Stripping and Pari Passu
The primary goals of the Title XVII loan guarantee program are to
encourage and incentivize the commercial use in the United States of
new or significantly improved energy-related technologies and to
achieve substantial environmental benefits.
Sections 609.10(d)(3), (4) and (13) of the NOPR provided, in sum,
that (1) DOE could guarantee no more than 90 percent of any debt
instrument for an eligible project, (2) the guaranteed portion of any
debt instrument could not be stripped from the non-guaranteed portion,
and (3) DOE must have a first lien on all project assets pledged as
collateral for a guaranteed loan. The vast majority of comments DOE
received were in opposition to those provisions.
DOE is persuaded by the comments it received that identified a
number of problems and difficulties with proposed sections 609.10(d)(3)
and (4), and therefore is revising those sections in the final rule.
Because the program focuses on innovative technologies, for which there
often is not readily available private market financing at reasonable
terms, and thus there is not always a readily available commercial
market substitute for debt that does not receive a Title XVII
guarantee, DOE has determined that an alternative approach is more
appropriate.
Sections 609.10(d)(3) and (4) now provide that DOE may guarantee up
to 100 percent of the amount of a loan for a project that receives a
Title XVII loan guarantee, so long as all loan guarantees DOE issues
for a particular project do not exceed 80 percent of Project Costs,
which is a limitation imposed by Title XVII itself. As provided in the
NOPR, section 609.7, DOE will evaluate the extent to which the
requested amount of the loan guarantee, and the requested amount of
guaranteed obligations are reasonable, relative to the nature and scope
of the project.
In accordance with Federal credit policy, DOE will issue 100
percent loan guarantees only if the loan is issued and funded by the
Treasury Department's Federal Financing Bank. DOE also will issue loan
guarantees for loans from private lenders where the guarantee sought is
for less than 100 percent of the loan amount, and the final rule
provides that if DOE guarantees 90 percent or less of a Guaranteed
Obligation, the Eligible Lenders and other Holders will not be
prohibited from separating the guaranteed portion from the non-
guaranteed portion of the debt instrument. Thus, in cases where a
lender issues a loan and receives a guarantee for more than 90 percent
of the loan amount, the non-guaranteed portion cannot be stripped from
the guaranteed portion.
If a loan is not 100 percent guaranteed, it can be obtained from an
approved Eligible Lender. Moreover, if 90 percent or less of a loan is
guaranteed by DOE, the Department is allowing Eligible Lenders and
other Holders to strip the guaranteed portion of a Guaranteed
Obligation from the non-
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guaranteed portion. DOE believes that in such circumstances, DOE still
will gain the benefit of private sector debt market underwriting, but
at the same time will ensure that Eligible Projects are able to obtain
necessary financing, and be able to do so on reasonable terms.
In the unique context of loan guarantees for innovative energy
projects, DOE believes that the changes made from the NOPR will assist
projects in obtaining financing on reasonable terms. DOE recognizes
that Federal credit policy generally encourages Federal credit programs
to require that guaranteed obligations have a non-guaranteed portion.
As noted above, the program focuses on innovative technologies for
which there is often not readily available private market financing at
reasonable terms, and thus there may not always be a readily available
commercial market substitute for debt that does not receive a Title
XVII guarantee. Therefore, the Department has concluded that these
terms are necessary and appropriate to carry out the purposes of this
program.
DOE has determined that it should allow stripping on some partially
guaranteed loans--i.e., only those on which DOE has guaranteed 90
percent or less of the Guaranteed Obligation. As noted above, the Title
XVII program presents a unique situation--one in which loan guarantees
will be issued for projects that otherwise might have little or no
access to financing on reasonable terms, primarily because of the
innovative nature of the eligible technologies and projects.
Where DOE guarantees more than 90 percent of the amount of a
Guaranteed Obligation, the guaranteed portion cannot be stripped from
the non-guaranteed portion of the loan. In such situations, DOE is
concerned that there may not be a sufficient amount of non-guaranteed
debt to cause reasonable and appropriate debt market due diligence
being performed.
DOE notes that several of the commenters cited other Federal credit
programs as justification for removing taxpayer protections proposed in
the NOPR; in several cases Title XVII is significantly different from
the programs cited. For example, financing under the TIFIA program is
statutorily limited to 33 percent of eligible project costs, and
therefore there is significant equity and lender participation. The
Title XVII program is likely to be extremely large, with $4 billion of
loan volume already provided under the 2007 Continuing Resolution, and
$9 billion requested in the 2008 President's Budget. DOE already has
pre-applications from the first solicitation requesting in excess of
$25 billion in loan guarantees. The Title XVII program involves
advanced technologies, which by nature are riskier than technologies
already in commercial operation.
DOE believes its resolution of the issues addressed above will help
ensure that eligible projects of all sizes can gain access to credit on
reasonable terms. DOE is concerned about project access to capital
markets at reasonable interest rates and on reasonable terms and
conditions, and believes that the modifications it has made t