Energy Efficiency and Conservation Loan Program, 73355-73371 [2013-29158]
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Vol. 78
Thursday,
No. 234
December 5, 2013
Part III
Department of Agriculture
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Rural Utilities Service
7 CFR Parts 1710, 1717, 1721, et al.
Energy Efficiency and Conservation Loan Program; Final Rule
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Federal Register / Vol. 78, No. 234 / Thursday, December 5, 2013 / Rules and Regulations
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Parts 1710, 1717, 1721, 1724,
and 1730
RIN 0572–AC19
Energy Efficiency and Conservation
Loan Program
Rural Utilities Service, USDA.
Final rule.
AGENCY:
ACTION:
The Rural Utilities Service
(RUS or Agency) is publishing policies
and procedures for loan and guarantee
financial assistance in support of energy
efficiency programs (EE Programs)
sponsored and implemented by electric
utilities for the benefit of rural persons
in their service territory. This final rule
amends RUS regulations on General and
Pre-Loan Policies and Procedures
Common to Electric Loans and
Guarantees, which were codified on
December 20, 1993. The final rule also
includes conforming amendments to
additional RUS regulations. Under
Section 2 of the Rural Electrification Act
(RE Act), RUS is authorized to assist
electric borrowers in implementing
Demand side management, energy
efficiency and conservation programs,
and on-grid and off-grid renewable
energy systems. The scope of this
regulation falls within the authority of
the Act.
DATES: This final rule is effective
February 3, 2014.
FOR FURTHER INFORMATION CONTACT:
Gerard Moore, USDA-Rural Utilities
Service, 1400 Independence Avenue
SW., Stop 1569, Washington, DC 20250–
1569, telephone (202) 205–9692 or
email to gerard.moore@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Executive Summary
The Rural Utilities Service (RUS or
Agency) is publishing policies and
procedures for loan and guarantee
financial assistance in support of energy
efficiency programs (EE Programs)
sponsored and implemented by electric
utilities for the benefit of rural persons
in their service territory. This final rule
is designed to supplement the policies
contained in 7 CFR part 1710,
GENERAL AND PRE–LOAN POLICIES
AND PROCEDURES COMMON TO
ELECTRIC LOANS AND
GUARANTEES, which were finalized in
December 1993. Under Section 2(a) of
the Rural Electrification Act of 1936 (7
U.S.C. 902(a)), the Secretary of
Agriculture is explicitly ‘‘authorized
and empowered to make loans in the
several States and Territories of the
United States . . . for the purpose of
assisting electric borrowers to
implement Demand side management,
energy efficiency and conservation
programs, and on-grid and off-grid
renewable energy systems.’’ Section
6101 of the Food, Conservation, and
Energy Act of 2008 (2008 Farm Bill)
inserted the words ‘‘and energy
efficiency’’ into this provision. In order
to implement this new focus of the
program, RUS amends 7 CFR part 1710
by adding a new Subpart H entitled
‘‘Energy Efficiency and Conservation
Loan Program.’’ (EECLP).
In fiscal year 2014 the Rural Utilities
Service will make $250 million
available to support energy efficiency as
indicated in the President’s climate
change action plan. In future years, the
amount of funding made available will
be based on the performance of the
program.
The goals of an eligible Energy
Efficiency project eligible for funding
under this program and Subpart H
include: (1) Increasing energy efficiency
at the end user level; (2) modifying
electric load such that there is a
reduction in overall system demand; (3)
effecting a more efficient use of existing
electric distribution, transmission and
generation facilities; (4) attracting new
businesses and creating jobs in rural
communities by investing in energy
efficiency; and (5) encouraging the use
of renewable energy fuels for either
Demand side management or the
reduction of conventional fossil fuel use
within the service territory. Although
not a goal, RUS recognizes that there
will be a reduction of green house gases
with energy efficiency improvements.
The Energy Efficiency and
Conservation Loan Program may
include loans supporting energy
efficiency activities undertaken by the
utility itself, the finance of energy
efficiency projects undertaken by others,
and investments made by the utility to
accomplish their obligations under
utility energy services contracts. It is
important to distinguish that there are
potentially two different types of loans
associated with this regulation. RUS
will loan funds to a utility for an energy
efficiency program. The utility, in turn,
may choose to relend these funds to
their consumers (ultimate recipient) for
energy efficiency improvements in
industrial, commercial, or residential
applications. The utility may also use
the funds to complete energy efficiency
activities on their own property. The
anticipated transfers during the first
year of the program will be the funding
availability of $250 million. RUS
expects this to increase over the life of
the program.
Impacts
The new Subpart H for the Energy
Efficiency and Conservation Loan
Program can have several economic
impacts. The benefits include: (1) The
value of purchased energy saved; (2) the
value of corresponding avoided
generation, transmission and/or
distribution; and (3) savings in energy
bills.
The final loan program is estimated to
have administrative costs to the
applicant and federal government, at
about $740,000 total for applicants, and
about $1.7 million for the Federal
government.
The Energy Efficiency and
Conservation Loan Program will impose
administrative costs on applicants and
the Federal government. Quantitative
estimates of these costs have been made
and are presented below.
Applicants and Awardees
Estimates of costs for applicants: the
twenty expected applications are broken
down into two sections—applications
and reporting. Table 2 summarizes the
estimated costs.
TABLE 2—ESTIMATE BURDEN TO APPLICANTS
Applications
Reporting
Totals
Existing Electric Program Borrowers .........................................................................
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Energy Efficiency and Conservation Loan Program
$593,356
$148,339
$741,695
Applications
All entities seeking financial
assistance under this program must
submit certain information to the
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Agency in order to apply for a loan. The
total estimated cost for applying is
approximately $593,356, calculated by
multiplying the number of applicants
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(20) by the labor hours associated with
the additional burden (823.20) by an
estimated $45 per hour for labor. See
OPM’s Web site at https://www.opm.gov/
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policy-data-oversight/pay-leave/
salaries-wages/
Reporting
All applicants that are awarded funds
must submit reports to the Agency to
provide information on their
performance. The total estimated cost
for reporting is approximately $148,338,
calculated by the number of applicants
(20) by labor cost ($45) by hours per
year (164.82).
Federal Government
Estimates of costs to the Federal
government were made based on the
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activities that the Federal government
would incur to implement the rule and
the length of time each activity required.
A cost of $48.35 per hour was used in
making these cost estimates.
TABLE 3—ENERGY EFFICIENCY AND CONSERVATION LOAN PROGRAM BURDEN COST TO THE FEDERAL GOVERNMENT
Energy efficiency and
conservation loan
program
Activity
Review of loan Application ......................................................................................................................................................
Yearly review of financial and statistical information ..............................................................................................................
Additional costs associated with the collection of information ................................................................................................
$1,585,880
125,710
5,000
Total * ................................................................................................................................................................................
1,716,590
* Data created from OPM salary and wage table at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/.
The following paragraphs summarize
the activities and costs to be incurred by
the Federal government for this
program.
Applications
RUS is responsible for reviewing and
approving applications. As part of this
process, RUS will acknowledge receipt
of applications and inform the
applicants whether their application
was selected for funding. The estimated
cost for these application activities is
approximately $1,585,880.
Review of Reports
RUS is responsible for reviewing
various reports, including, but not
limited to, project management plan,
energy efficiency work plan, quality
control plan, etc. The estimated cost for
reviewing these reports annually is
approximately $125,710.
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Executive Order 12866 and 13563
This final rule has been reviewed
under Executive Order (EO) 12866,
‘‘Regulatory Planning and Review,’’ 58
FR 51735 (Oct. 4, 1993), and has been
determined to be ‘‘economically
significant’’ by the Office of
Management and Budget. The EO
defines an economically significant
regulatory action as one that is likely to
result in a rule that may have an annual
effect on the economy of $100 million
or more or adversely affect, in a material
way, the economy, a sector of the
economy, productivity, competition,
jobs, the environment, public health or
safety, or State, local, or tribal
governments or communities. As
required by OMB circular A–4 the
regulatory impact analysis will be
published along with this rule on
regulations.gov.
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The agency has also reviewed this
regulation pursuant to EO 13563, issued
on January 18, 2011 (76 FR 3281, Jan.
21, 2011). EO 13563 is supplemental to
and explicitly reaffirms the principles,
structures, and definitions governing
regulatory review established in EO
12866. To the extent permitted by law,
agencies are required by EO 13563 to:
(1) Propose or adopt a regulation only
upon a reasoned determination that its
benefits justify its costs (recognizing
that some benefits and costs are difficult
to quantify); (2) tailor regulations to
impose the least burden on society,
consistent with obtaining regulatory
objectives, taking into account, among
other things, and to the extent
practicable, the costs of cumulative
regulations; (3) select, in choosing
among alternative regulatory
approaches, those approaches that
maximize net benefits (including
potential economic, environmental,
public health and safety, and other
advantages; distributive impacts; and
equity); (4) to the extent feasible, specify
performance objectives, rather than
specifying the behavior or manner of
compliance that regulated entities must
adopt; and (5) identify and assess
available alternatives to direct
regulation, including providing
economic incentives to encourage the
desired behavior, such as user fees or
marketable permits, or providing
information upon which choices can be
made by the public.
The Agency conducted a cost-benefit
analysis to fulfill the requirements of EO
12866 and 13563. In this analysis, the
Agency identifies potential benefits and
costs of the Energy Efficiency and
Conservation Loan Program to
borrowers, and RUS. The analysis
contains quantitative estimates of the
burden to the public and the Federal
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government and qualitative descriptions
of the expected economic,
environmental, and energy impacts
associated with the Energy Efficiency
and Conservation Loan Program. This
analysis will be made publicly available
in the docket
RUS will only make loans for these
purposes to electric utility systems. RUS
anticipates that borrowers under this
subpart will be generation and
transmission (G&T) borrowers or their
distribution members or unaffiliated
distribution borrowers who are current
on their loan payments and in
compliance with their loan documents.
This program is held to the same high
standards and regulatory requirements
as the existing RUS electric loan
program. RUS also anticipates that the
energy efficiency improvements
installation work may be contracted by
either the utility or the Ultimate
Recipient, or performed directly by
employees of the borrower, at the
discretion of the utility designing the
energy efficiency program. In all cases,
the eligible borrower is expected to hold
title to the receivables funded by the
RUS loan.
It is estimated that approximately 20
loans will be submitted annually.
Considering applicants are existing RUS
borrowers, it is anticipated that all 20
loans would be awarded. The
administrative cost to the Applicant and
the Federal government to apply, award
and maintain these loans is $2.458
million.
Catalog of Federal Domestic Assistance
The program described by this rule is
an eligible purpose/subsidiary program
of the Electrification Loans and Loan
Guarantee program as listed in the
Catalog of Federal Domestic Assistance
Programs under number 10.850, Rural
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Electrification Loans and Loan
Guarantees. The Catalog is available on
the Internet at https://www.cfda.gov.
Executive Order 12372
This final rule is excluded from the
scope of Executive Order 12372,
Intergovernmental Consultation, which
may require consultation with State and
local officials. See the final rule related
notice entitled, ‘‘Department Programs
and Activities Excluded from Executive
Order 12372’’ (50 FR 47034).
Paperwork Reduction Act of 1995
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
chapter 35), the information collection
for this program has been approved by
the Office of Management and Budget
under OMB Control Number 0572–0032.
E-Government Act Compliance
The Agency is committed to the EGovernment Act, which requires
Government agencies in general to
provide the public the option of
submitting information or transacting
business electronically to the maximum
extent possible.
National Environmental Policy Act
Review
In accordance with the National
Environmental Policy Act of 1969 (42
U.S.C. 4321 et seq.), the Agency has
prepared and published a Programmatic
Environmental Assessment (PEA) for
this loan program activity as part of this
rulemaking process. The PEA was
published on February 6, 2013 in the
Federal Register at 78 FR 8444, and
prepared pursuant to the National
Environmental Policy Act of 1969
(NEPA) (42 U.S.C. 4321 et seq.), the
Council on Environmental Quality’s
(CEQ) regulations for implementing
NEPA (40 CFR parts 1500–1508), and
RUS’ NEPA implementing regulations,
Environmental Policies and Procedures
(7 CFR part 1794). A Notice of Finding
of No Significant Impact was published
on Friday August 16, 2013 in the
Federal Register at VOL. 78, NO. 159.
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Regulatory Flexibility Act Certification
It has been determined the Regulatory
Flexibility Act is not applicable to this
rule since the RUS is not required by 5
U.S.C. 551 et seq. or any other provision
of law to publish a notice of proposed
rulemaking with respect to the subject
matter of this rule.
Unfunded Mandates
This rule contains no Federal
mandates (under the regulatory
provisions of title II of the Unfunded
Mandates Reform Act of 1995) for state,
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local, and tribal governments or for the
private sector. Therefore, this rule is not
subject to the requirements of section
202 and 205 of the Unfunded Mandates
Reform Act of 1995.
Executive Order 12988
This rule has been reviewed under
Executive Order 12988, Civil Justice
Reform. The Agency has determined
that this rule meets the applicable
standards in Section 3 of the Executive
Order. In addition, all state and local
laws and regulations that are in conflict
with this rule will be preempted, no
retroactive effort will be given to this
rule, and, in accordance with section
212(e) of the Department of Agriculture
Reorganization Act of 1994 (7 U.S.C.
6912(e)), administrative appeals
procedures, if any, must be exhausted
before any action against the
Department or its agencies may be
initiated.
Executive Order 13132, Federalism
The policies contained in this rule do
not have any substantial direct effect on
state and local governments, on the
relationship between the national
government and the state and local
governments, or on the distribution of
power and responsibilities among the
various levels of government. Nor does
this rule impose substantial direct
compliance costs on state and local
governments. Therefore, consultation
with the states is not required.
Executive Order 13175, Consultation
and Coordination With Indian Tribal
Governments
This Executive Order imposes
requirements on the development of
regulatory policies that have tribal
implications or preempt tribal laws.
Between October 2010 and January
2011, the United States Department of
Agriculture (USDA) hosted seven
regional regulation Tribal consultation
sessions to gain input by elected Tribal
officials or their designees concerning
the impact of this rule (and other 2008
Farm Bill changes) on Tribal
governments, communities, and
individuals. No comments specific to
this rule were received through that
process. If a Tribe determines that this
rule has implications of which Rural
Development is not aware or would like
further information regarding the
consultation process, please contact
Rural Development’s Native American
Coordinator at (720) 544–2911 or
AIAN@wdc.usda.gov.
Background
This rulemaking amends 7 CFR part
1710 by adding a new Subpart H
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entitled ‘‘Energy Efficiency and
Conservation Loan Program.’’ Under
Section 2(a) of the Rural Electrification
Act of 1936 (7 U.S.C. 902(a)), the
Secretary of Agriculture is explicitly
‘‘authorized and empowered to make
loans in the several States and
Territories of the United States . . . for
the purpose of assisting electric
borrowers to implement Demand side
management, energy efficiency and
conservation programs, and on-grid and
off-grid renewable energy systems.’’ As
noted, Section 6101 of the 2008 Farm
Bill inserted the words ‘‘energy
efficiency’’ into this provision, which
was originally added as an amendment
to the RE Act by the Rural
Electrification Loan Restructuring Act of
1993 (‘‘RELRA’’) (Pub. L. 103–129 sec.
2(c)(1)(B)).1
RUS has experience with
implementing programs that promote
energy conservation, and RELRA
explicitly recognized that energy
conservation is part of the Agency’s
mission. Starting in 1980, for example,
RUS developed an Energy Resources
Conservation Program by issuing RUS
Bulletin 20–23, Section 12, ‘‘Extensions
for Energy Resources Conservation
Loans’’, dated December 8, 1980.2 This
Bulletin interpreted the Administrator
of RUS’s discretion under the RE Act to
extend the time for payments, and this
became the foundation for the ‘‘ERC
Loan Program.’’ At that time, RUS did
not make ERC Loan Program loans
directly. It operated the ERC Loan
Program by entering into agreements
with its borrowers to defer amortization
of their loans in order for the borrowers
to fund energy conservation
improvements. The borrowers, generally
electric cooperatives, made loans to
their members out of the cash flow
resulting from the deferments they
received from RUS on their own loans.
Even though RUS did not make the ERC
loans itself, the Agency provided
financial assistance to rural Consumers
by using the electric cooperatives as
intermediaries.
Congress subsequently amended
Section 12 of the RE Act in 1990 and
1 Senator Patrick Leahy as the Chairman of the
Senate Committee on Agriculture, Nutrition and
Forestry explained this provision in a letter dated
June 18, 1993 to Senator Jim Sasser the Chairman
of the Senate Committee on the Budget as follows:
‘‘These amendments also permit REA [now RUS] to
make loans for demand side management and
energy conservation program[s] which are required
by some state agencies. They are also often the most
cost effective methods of meeting the energy needs
of rural areas.’’
2 This Bulletin was rescinded in 2002 when RUS
updated and codified the ERC Loan Program as 7
CFR Part 1721, subpart B. (See 67 FR 484, January
4, 2002).
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again in 2008. In 1990, Congress
expanded Section 12 to enable
deferments such that borrowers could
provide financing to local businesses,
with the intent of stimulating rural
economic development. In 2008,
Congress expanded Section 12 of the RE
Act to authorize energy efficiency and
use audits and to install energy
efficiency measures or devices to reduce
demand on electric systems.
The recent grant of additional
authority in Section 2(a) of the RE Act
to make loans and guarantees for energy
efficiency, as contrasted with the
Section 12 authority to merely defer
payments on direct loans, has become
increasingly significant as the
percentage of the RUS portfolio
represented by direct loans continues to
amortize. In recent times the Agency
delivers nearly all of its electric program
assistance in the form of loan
guarantees. As a guarantor, RUS does
not have the same discretion to defer
payments that it does when it is the
lender. Consequently, RUS has
determined that it is now necessary and
appropriate to finalize a loan program
for this RE Act purpose.
‘‘The RE Act, 7 U.S.C. 904, commits
to the discretion of the Administrator
the making of loans for rural
electrification. . . .’’ Alabama Power
Co. v. Ala. Elec. Coop., 394 F.2d 672 at
675 (CA 5) cert. denied 393 U.S. 1000
(1968). ‘‘REA is the administrative
agency charged by Congress with
responsibility for facilitating rural
electrification. REA was intended by
Congress to determine the appropriate
course of conduct to accomplish the
legislative purpose.’’ Public Utility
District No. 1 of Franklin County v. Big
Bend Electric Cooperative, Inc., 618
F.2d 601 at 603 (CA 9 1980). By broadly
adding ‘‘energy efficiency’’ in the 2008
Farm Bill as a legislative purpose for the
RE Act loans, Congress left it to the
Administrator’s discretion to fashion the
appropriate method to accomplish this
purpose. Drawing on more than three
decades of experience in using electric
cooperatives as local intermediaries to
accomplish RE Act objectives at the
Consumer level, RUS will deliver this
energy efficiency program by drawing
upon its favorable past successes and
using its electric borrowers as
intermediaries.
RUS will only make loans for eligible
purposes to electric utility systems . An
eligible borrower means a utility system
that has direct or indirect responsibility
for providing retail electric service to
persons in a rural area. This definition
includes existing borrowers and utilities
who meet current RUS borrower
requirements. RUS anticipates that
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borrowers under the Energy Efficiency
and Conservation Loan Program will be
generation and transmission (G&T)
borrowers, their distribution members,
or unaffiliated distribution borrowers
who are current on their RUS loan
payments and in compliance with those
loan documents. RUS anticipates that
the Energy Efficiency (EE)
improvements installation work may be
contracted by either the utility, the
Ultimate Recipient, or performed
directly by employees of the borrower.
In all cases, the Eligible Borrower will
hold title to the receivables funded by
the RUS loan.
RUS is authorized by the RE Act to
make loans to implement Demand side
management (DSM), EE Programs and
conservation programs, and on-grid and
off-grid renewable energy systems.
Energy efficiency in this regulation is
defined as the degree a system or
component performs its designated
function with minimum consumption of
resources. Renewable energy systems
have a specific role in this regulation.
Renewable generation can be used as
load modifiers, which can increase the
efficiency of energy consumption from
the utilities perspective and are effective
at decreasing energy used by decreasing
load. Renewable energy and
conservation savings associated with
this regulation are from the utilities
perspective, though the energy savings
could be realized by both the Consumer
and utility, depending on the type of
project, as the utility is the RUS
borrower and is culpable for repayment
of the loan. Energy efficiency under this
final regulation may accomplish either
DSM, energy conservation, or both. The
goals of an eligible EE Program under
Subpart H may include one or more of
the following: (1) Increase energy
efficiency at the end user level; (2)
modify electric load such that there is
a reduction in overall system demand;
(3) effect a more efficient use of existing
electric distribution, transmission and
generation facilities; (4) attract new
businesses and create jobs in rural
communities; and (5) encourage the use
of renewable energy fuels.
There are three primary differences
between the existing energy resource
conservation program codified in 7 CFR
part 1721 subpart B (ERC program) and
the EECLP final regulation in 7 CFR part
1710, subpart H. First, the existing ERC
program is limited to direct loan
principal deferments and is not
available for RUS guaranteed loans.
Second, the list of eligible loan purposes
for this program is more expansive than
the ERC program and, where applicable,
emphasizes that the assets in question
must be characterized as an integral part
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of the Consumer’s real property that
would typically transfer with the title
under applicable state law. Lastly, the
term of financing available under
Subpart H is longer than the term
allowed for principal deferments under
the ERC loan program.
Rural electric cooperatives are
proponents of energy efficiency
measures. According to the National
Rural Electric Cooperative Association:
73 percent of these co-ops plan on
significantly expanding existing
efficiency programs in the next two
years: 70 percent of co-ops offer
financial incentives to promote greater
energy efficiency: 96 percent of co-ops
have some form of energy efficiency
program in place, co-ops are responsible
for nearly 25 percent of residential peak
load management capacity, and
cooperatives have 10 percent of retail
electricity sales but are responsible for
20 percent of actual peak demand
reduction. Representatives from rural
electric cooperatives have commented
that access to low interest funds can be
the difference between success and
failure for an energy efficiency program.
Eligible EE Programs can be
comprised of a variety of activities,
performed by either the utility or third
parties. This final rule sets forth the
policies and procedures related to
eligible EE Programs where the RUS
will finance: (1) Energy efficiency
activities undertaken by the utility
itself; (2) loans made by the utility to
finance energy efficiency projects
undertaken by others; and (3)
investments made by the utility to
accomplish their obligations under
utility energy services contracts. The
types of activities that are eligible for
RUS financing under Subpart H include
but are not limited to: (1) Energy audits;
(2) community awareness and outreach
programs; (3) services, materials and
equipment provided by a qualified local
contractor to improve energy efficiency
at the Consumer level; and (4) energy
efficiency loans made by the utility to
its customers. RUS is allowing fuel
switching as an eligible activity under
this regulation. A description of EE
Programs that qualify for RUS financing
can be found in § 1710.405. Eligible
investments are listed in § 1710.406.
Finally, eligible borrowers are defined
in § 1710.404.
Some programs designed by utilities
may have the utility initially owning an
asset even though it is located on a
Consumer’s premise and the asset is
later conveyed to the Consumer after it
is paid for or a predetermined time
period has elapsed. Where this is the
case, RUS is proposing that the
application include an additional or
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revised Schedule C to the RUS mortgage
listing these assets as Excepted Property
under the RUS mortgage, so as to
preclude the assets being captured
under the after acquired clause that is
standard in the RUS mortgage codified
in 7 CFR part 1718. It is the intent of
RUS that a release of lien need not be
executed by the Agency for the utility to
convey to the Consumer clear title to
these assets when this Schedule C is
recorded.
This final rulemaking recognizes that
energy may take a variety of forms, not
just electricity. The criteria to be met by
eligible programs include energy
efficiency as measured by British
Thermal Unit (Btu) input relative to Btu
output, in order to facilitate the widest
and greatest contribution by the rural
utility in optimizing the energy
consumption profile of its service
territory. This rulemaking also provides
that an eligible program must
demonstrate that the financial strength
of the electric utility is not harmed by
EE Program activities funded under
Subpart H.
An important distinction between
eligible energy efficiency assets to be
financed under this new Subpart H and
other energy efficiency activities is that
the assets located at a Consumer’s
premises, whether or not title is to be
held by the utility must, for the most
part, be considered an integral part of
the real property that would typically
transfer with the title under applicable
State law in order to be financed
pursuant to an eligible program under
Subpart H.
Eligible programs shall provide that
the utility will recoup all or part of the
costs from specific ratepayers on whose
behalf an investment has been made.
Recoupment may take the form of
Consumer loan repayment or a
dedicated tariff. An eligible program
reviewed under Subpart H must show
that the payment terms and loan term
offered to the Consumer are generally
correlated with the expected life of the
applicable assets. An eligible program
must also offer an undertaking that
funds, collected from ratepayers, in
excess of the current amortization
requirements for the RUS loan will be
redeployed for EE Program purposes or
used to prepay the RUS loan. These
prepayments are in addition to
scheduled principal and interest debt
service payments.
Applications for program financings
under Subpart H must fully describe a
Business Plan that meets the
requirements of § 1710.407.
The Agency recognizes that energy
efficiency investments that reduce
energy consumption at the Consumer
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premises (for instance those that affect
the power factor) may prompt a need for
investments at the system level to
sustain the reliability and stability of the
grid. The business plan called for in
Subpart H must identify the related
system investment to be identified as
part of the EE Program, but these system
level investments would be reflected in
the utility’s construction work plan and
financed as part of a traditional loan
application.
It is not required that an eligible
program fund energy audits performed
at Consumer premises. However, if the
utility proposes to provide audits;
Subpart H requires that the program
must also include a provision for
assisting Consumers in implementing
changes suggested in aggregate to be
cost effective by the audit. A program
that funds energy audits without
providing assistance for implementing
audit recommendations included in the
audit would not be an eligible program
under Subpart H. Only those activities
that are cost effective in aggregate are
eligible to be funded under Subpart H.
The list of eligible investments and
activities that a qualified plan may
incorporate is not intended to be
exhaustive. The intent is to facilitate
flexibility for the utility’s EE Program
consistent with the resources and
Consumer profiles in its service
territory.
This lending program is designed for
utility-designed and directed EE
Programs. As such it anticipates that
eligible loan purposes will include
program administrative and other soft
costs, such as marketing expenses,
where not more than five percent of the
loan budget may be used for these
purposes. A utility’s program may
include acting as an intermediary
lender, where the utility uses RUS
financing to make Consumer loans to
finance these investments on the
Consumers’ premises. Where this is the
case, Subpart H requires the borrower to
have a maximum interest rate to the
ultimate consumer at 1.5 percent above
the RUS loan cost to the borrower
unless an exception is granted by the
Administrator. Exceptions will be made
on a case-by-case basis to ensure
repayment of the government’s loan. We
will not accept an exception if the loan
is feasible at 1.5 percent. This rate must
be discussed in the applicant’s business
plan.
The process for applying for EECLP
loans is intended to largely conform to
the Agency’s existing process for loans
relating to other eligible purposes.
Accordingly, the requirements
discussed throughout 7 CFR part 1710
apply equally to EECLP loans unless
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otherwise stated after giving effect to the
conforming amendments incorporated
in this rulemaking. Expenditures by the
utility will be reimbursed by the Agency
after the fact pursuant to an inventory
of work orders system as is typical for
our existing loan process. The analytical
material needed to support an EECLP
loan is different from what is needed to
analyze a generation or transmission
loan. Accordingly, Subpart H elaborates
on what is needed for RUS to approve
an EE Program and loans to execute the
program. EE Program activity will be
captured under a separate energy
efficiency work plan. Energy efficiency
investments will not be listed on the
traditional construction work plan that
applies to utility assets financed by
RUS.
As with other loans made pursuant to
7 CFR part 1710, a borrower’s
Environmental Report (ER) is expected
to accompany the energy efficiency
work plan associated with the loan
request. The ER is in accordance with 7
CFR part 1794. Part 1794 contains the
policies and procedures of the Rural
Utilities Service for implementing the
requirements of the National
Environmental Policy Act. In the case of
an EECLP loan, this ER will be expected
to reference the PEA completed by the
Agency for EECLP loans, and identify
any investments and their potential
environmental impacts proposed in the
work plan that were not analyzed in the
PEA.
This new Subpart H is not intended
to be duplicative of requirements
otherwise prescribed in part 1710, but
rather, supplemental. It identifies
requirements that are unique to loans
made under the proposed Subpart H to
finance EE Programs. It prescribes
requirements for our direct borrowers.
Our direct borrowers will then act as
intermediary lenders to accomplish the
investments outlined in an approved EE
program. Where there is an express
conflict with requirements elsewhere in
part 1710, the provisions of Subpart H
would apply, but otherwise Subpart H
is not intended to supplant the
applicability of the rest of part 1710 or
other applicable parts in the Code of
Federal Regulations.
In implementing Subpart H, as
required for all of part 1710, RUS will
work with Department of Energy (DOE),
following the requirements set out by
the Rural Electrification Act of 1936,
Section 16 that states: ‘‘the Secretary in
making or guaranteeing loans for the
construction, operations, or enlargement
of generating plants or electric
transmission lines or systems shall
consider such general criteria consistent
with the provisions of this Act as may
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be published by the Secretary of
Energy.’’
Summary of Major Changes in
Response to Comments on the Rule
The agency published a Proposed
rulemaking on July 26, 2012, at 77 FR
43723. RUS received 63 comments on
the proposed Energy Efficiency and
Conservation Loan Program. The sixty
three commenters consisted of industry
representatives that included: Electric
cooperatives, such as South Carolina
Electric and Gas company; nonprofit
energy efficiency supporters, such as the
E3 coalition and the Sierra Club; and
envelope organizations that represent
RUS borrowers, such as the National
Rural Electric Cooperative Association.
Sixty two of the sixty three letters were
extremely supportive of the regulation,
and applauded RUS for proposing the
program. The opposing letter stated that
it was against all Federal programs.
Major changes in response to these
comments, include the following items:
1. Removed restrictions on the size of
load modifiers.
2. Adjusted soft cost limitations from
4 percent to 5 percent.
3. Limit Consumer interest rate to 1.5
percent above the cost of the loan to the
borrower.
4. Decreased the complexity of the
loan program by eliminating
performance thresholds.
5. Defined certified energy auditor.
6. Added fuel switching as an eligible
purpose.
7. Clarified the definition of eligible
borrowers to include former and new
RUS borrowers that meet RUS standards
specified in regulation and statute.
8. Changed the cost effectiveness
requirements, extending requirements to
10 years or equipment useful life on an
aggregate basis.
9. Removed the Net Utility Plant
language.
10. Allowed some pre-retrofitting as
an eligible activity.
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Summary of Comments
A summary of the comments and
RUS’s response are as follows:
Small Scale Renewable Energy Projects
Comment: There were 17 comments
addressing the small scale renewable
energy limitation of ‘‘nameplate
generation capacity that is less than the
50 percent of the average anticipated
electrical load associated with the end
user.’’ Of the 17 comments, only 4
wanted to decrease or eliminate small
scale renewables, on the basis that small
scale renewables tend to not be cost
effective.
Response: The Energy Efficiency and
Conservation Loan program regulation
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has been edited, and will no longer have
any restrictions on small scale
renewable energy projects. All activities
will be eligible, however, state
mandates, laws, and cooperative bylaws
will override this regulation.
Soft Costs Associated With a Borrower’s
Loan
Comment: Seven comments requested
that RUS not limit the ‘‘administrative’’
costs associated with the loan. The
current regulation limits administrative
costs to 4 percent.
Response: RUS acknowledges that
there is a cost to our borrowers to startup and maintain an energy efficiency
program, and has agreed to increase the
‘‘administrative’’ cost limitation to 5
percent in the final regulation. However,
RUS must protect the Electric Program
loan portfolio, and increasing the rate
any higher may impair the productivity
of the program, and subsequently the
subsidy rate. Also, cooperatives may
have the opportunity to rate-base certain
energy efficiency costs.
The Rate Borrowers Can Charge to the
Ultimate Consumer Above the Treasury
Based Interest Rate
Comment: RUS requested comments
on the appropriate markup borrowers
could charge above the Treasury-based
interest rate. Twenty-one comments
were received. The majority of
comments stated that markups must be
between 5 and 10 percent, with
numerous comments stating that RUS
should not specify a cap to make the
program economical to the borrower.
Response: Borrowers are limited to
interest rates 1.5 percent above the cost
of their RUS loan. Exceptions will be
given on a case-by-case basis that must
be clearly articulated in the business
plan such as unavoidable program level
costs. We will not accept an exception
if the loan is feasible at 1.5 percent.This
information, combined with all the
other additional information, will allow
RUS to determine the feasibility of the
loan.
Decrease the Complexity of the Loan
Program
Comment: RUS received seven
comments stating that the current
program requirements were too
complicated and burdensome. Requiring
an environmental plan, business plan,
quality assurance plan, performance
thresholds, return on investment
demonstrations, additional supporting
documents, and load forecasting before
and after improvements was too
extensive, and would limit borrower’s
interest in the program.
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Response: RUS has simplified the
regulation to decrease the Energy
Efficiency and Conservation Loan
Program’s complexity and burden.
Performance thresholds have been
removed, the cost effectiveness
definition has been modified, and
procedures edited to keep the program
simple and straight forward.
Define Certified Energy Auditor
Comment: Six comments were
submitted, asking RUS to clarify the
definition of certified energy auditor.
Response: RUS has clarified the
definition, allowing a borrower to use
an auditor certified under state, local, or
federal standards.
Identifying the Appropriate
Performance Thresholds
Comment: Twenty comments were
received on what were the appropriate
performance thresholds for the Energy
Efficiency and Conservation Loan
Program. Seven comments supported
the language in the proposed rule,
stating ‘‘existing energy efficiency
standards or criteria such as those from
Energy Star, Federal Energy
Management Program (FEMP),
American National Standards Institute
(ANSI), or other voluntary consensus
standards,’’ 2 comments recommended
limiting the thresholds to Energy Star or
Energy Efficiency Ratio, and the
remaining 9 comments recommended
that RUS fund all market proven energy
products that reduce the Consumer’s
annual Btu.
Response: RUS clarified that
borrowers are encouraged to use
existing energy efficiency standards or
criteria such as those from ENERGY
STAR, FEMP, ANSI, or other voluntary
consensus standards rather than
performance thresholds to give
Borrowers greater latitude.
Fuel Switching
Comment: Twelve comments strongly
supported fuel switching. Fuel
switching is essential for some
borrowers to handle peak demand.
Response: RUS has modified the
regulation to allow fuel switching. Many
of the 12 comments in support of fuel
switching were associations that
represent over 1,000 electric
cooperatives and millions of
households, including NW Energy
Coalition, Midwest Energy Efficiency
Alliance, Utility Geothermal Working
Group, Iowa Environmental Council,
The Mountain Association for
Community Economic Development,
and the National Rural Electric
Cooperative Association.
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The $250 Million Funding Limitation
Comment: Sixteen comments were
received, all in strong support of
removing the $250 million limitation.
Response: The $250 million was an
estimate of what the Agency believed
would be the demand for the program.
Public comment indicates more interest
in the program than the proposed rule’s
$250 million per year limitation. In
fiscal year 2014, the Rural Utilities
Service will make $250 million
available to support energy efficiency as
indicated in the Presidents climate
change action plan. In future years, the
amount of funding made available will
be based on the performance of the
program. Additionally, to be consistent,
the energy efficiency program should
compete equally with other eligible loan
purposes.
A Preferred Lender Program
Comment: One comment was
submitted proposing a preferred lender
program that borrowers could qualify
for if they had a loan total of less than
$2 million. Standards would be set for
basic, preapproved weatherization
practices and be made available to any
eligible borrower. Standard benefit
levels would be assigned to those
practices and applied when determining
benefits. There would not be a
requirement for energy audits or post
tests. This would cut the cost of
program delivery while maintaining
well established and known benefits for
the members. The cooperatives that
wish to participate at a higher loan level
would have to comply with the
standards established in the proposed
regulations.
Response: RUS believes that preferred
lending criteria is not needed in the
regulation. RUS will use current
authorities to streamline the application
process.
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Former RUS Borrowers and Their
Eligibility for the Loan Program
Comment: Four comments were
submitted supporting allowance of
former RUS borrowers to return to the
program.
Response: The regulation has been
modified to clarify that past borrowers
are eligible for the Energy Efficiency and
Conservation Loan program, in
accordance with the statute and any
other regulation relating to new or
returning borrowers.
The Cost Effective Requirement in
Section 1710.405
Comment: Nine comments were
received, eight requesting a payback
period that was longer than the current
5 years stated in the regulation. One
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comment requested that the payback
period be less than the life of the
product.
Response: The regulation has been
modified to more precisely define cost
effectiveness and increase the payback
to 10 years, except in cases where the
useful life of the technology on an
aggregate basis can be demonstrated to
be longer than the 10 year period. RUS
will evaluate the useful life assumption
on a case-by-case basis.
Financial Institutions and Cooperative
Relending
Comment: Four comments were
received requesting RUS to add
language in the regulation that defines
who RUS borrowers can work with as
intermediaries.
Response: RUS will not add any
additional language. Business cases will
be reviewed to determine the viability of
the loan. Existing regulation language
does not deter borrowers from
establishing partnerships with other
organizations to help implement their
energy efficiency programs.
Net Utility Plant
Comment: Three comments were
received asking RUS to remove the
provisions of § 1710.409(d (1)). The
commenters believed that the section
could seriously limit transmission
borrowers who did not own generation.
Response: RUS has removed the
section. Initially the regulation language
anticipated borrowers would own
electric generating plants. Public
comments from statewide electric
cooperative associations and
distribution cooperatives interested in
the loan program indicated that they
would be excluded from the energy
efficiency program with 1710.409(d(1)).
These current borrowers are not
generation and transmission
organizations and therefore do not own
electric generation plants. The language
has been removed to allow them to
participate.
Bulletin and Guidance Documents
Comment: Four comments asked RUS
to remove §§ 1710.406(d), 1017.407(g),
and 1710.408(i). Each of those sections
state borrowers shall follow a bulletin or
other publication to be identified later.
They claim that the proposed provision
violates the Administrative Procedures
Act by purporting to establish as
regulatory obligations purely
administrative determinations to be
made later without notice and comment
rulemaking.
Response: The proposed rule required
borrowers to follow requirements in yet
to be developed bulletins. The final
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regulation has been changed from
‘‘shall’’ to ‘‘are strongly encouraged to.’’
Please see the following regulatory
language ‘‘(g) The borrowers are strongly
encouraged to follow a bulletin or such
other publication as RUS deems
appropriate that contains and describes
best practices for energy efficiency
business plans. RUS will make this
bulletin or publication publicly
available and revise it from time to time
or eliminate it as RUS deems it
necessary. ‘‘
Requiring all Electric Borrowers To
Participate in This Program
Comment: Three comments asked if
all current borrowers would be required
to participate in the Energy Efficiency
Loan Program. One of the two
comments stated that RUS must require
all borrowers to participate in this loan
program and have active energy
efficiency programs.
Response: The Energy Efficiency and
Conservation Loan program allows for
energy efficiency improvements as an
eligible purpose and will be reviewed
and approved as other eligible purposes
within the statute and the regulation.
RUS does not believe it to be
appropriate to require Borrowers to
participate in this program.
Requiring all Load Forecasting
Comment: Two comments questioned
the need for load forecasting, one
comment stated that their current
energy efficiency and conservation loan
program is made up of only 30–40
members, not affecting the forecast at
all.
Response: Load Forecasting is an
important accountability component of
the Energy Efficiency and Conservation
Loan program. If the energy efficiency
program has negligible effect on the
Load Forecast then that information
should be stated in the discussion
within the Load Forecast. No changes
were made to the regulation.
Quality Assurance plan
Comment: One comment stated that
there were very few qualified energy
managers and professional engineers in
rural areas that are available to conduct
the requirements of a program
evaluation, and questioned who would
have to bear the cost of the evaluation.
Response: RUS recognizes that there
will be additional expenses associated
with the Energy Efficiency and
Conservation Loan program. The
borrowers may pass along those costs to
the Ultimate Recipient, but it needs to
be explained in the submitted work
plan.
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Loan Advances on a Reimbursement
Basis
Comment: Two comments questioned
how funds would be distributed. They
were not supportive of funding projects
on a reimbursable basis.
Response: All of RUS’s programs are
run on a reimbursable basis, though the
regulation currently states that startup
capital of up to 5 percent may be made
available for an energy efficiency plan.
No changes will be made to our current
funding model.
Making Post-Installment Evaluations
Publically Available
Comment: Two comments requested
that all post-installment evaluation and
verification requirements be made
available to the public.
Response: RUS acknowledges the
importance of transparency, but also
must weigh the privacy of our
borrowers. We will provide information
to the public in conformity with the
Freedom of Information Act.
Using Qualified Contractors
Comment: One comment reiterated
the importance of using qualified
contractors to install energy efficiency
and conservation activities.
Response: RUS is a strong supporter
of using qualified contractors and will
require borrowers to state the types of
contractors that will be used, if any, in
a borrower’s quality assurance plan.
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Program Aggregation
Comment: One comment stated that
borrowers should be able to aggregate
their various energy efficiency programs
to bring them up to scale, decreasing the
total workload.
Response: The Energy Efficiency and
Conservation Loan program will hold
each borrower accountable. Though
borrowers can work with each other to
decrease costs, each borrower will be
individually held responsible for
providing the required level of
information and oversight.
Ground Source Heat Pumps
Comment: One comment stated that
the regulation should not specifically
call out ground source heat pumps, as
the technology is advancing quickly.
Response: Ground source heat pumps
are just one eligible activity under the
Energy Efficiency and Conservation
Loan program. Though mentioned in the
regulation as an example, we are neither
promoting nor discouraging their use.
Offer Technical Assistance to Utilities
Comment: One comment requested
RUS provide technical assistance to
utilities to design, administer, and
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evaluate their energy efficiency loan
program.
Response: RUS will work closely with
the borrower, answering any questions
they may have on their business plan,
quality assurance plan, etc.
Encourage Peer-to-Peer Networking
Through Webinars
Comment: Six comments requested
RUS set up regular webinars, phone
conferences and an on-line peerexchange Web site for participating
borrowers.
Response: RUS supports the exchange
of ideas and will facilitate cross
communication when possible, but RUS
does not have the resources to commit
to this on a large scale. RUS will partner
with other federal agencies to support
broader peer-to-peer exchange.
The Definition of Energy Efficiency and
Conservation measures
Comment: One comment requested
that we add the following language to
the energy efficiency and conservation
measures definition, ‘‘which may also
include the onsite generation of
electricity from waste heat resources. ’’
Response: RUS believes the definition
is inclusive, and the additional language
is unnecessary.
Promote On-Bill Repayment
Comment: Eight comments stated that
RUS stress the importance of using onbill repayment as an effective financing
method for energy efficiencies.
Response: RUS recognizes that on-bill
financing is one way for a borrower to
be repaid for their activities, however
the borrower will have the ultimate
decision on how they will recover their
expenses. Their method of choice will
be articulated in their business plan.
Additional Language Clarifying That
Borrowers Cannot Exclude Renters
Comment: Five comments requested
that RUS add language to the regulation
requiring utilities to identify approaches
that would ensure the equitable
treatment by all types of consumers, and
explicitly include low-income in both
single-family and multi-family
buildings.
Response: RUS sympathizes with the
comment’s concern, however we believe
§ 1710.122 on Equal opportunity and
nondiscrimination located in the
overarching Electric Program regulation,
fulfills the needs specified by the
comments.
Pre-Retrofits Should Be Allowed as
Program Costs
Comment: Four comments stated that
pre-retrofit activities that need to take
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73363
place to make a house structurally
sound before weatherization activities
can take place, be an eligible activity
under the Energy Efficiency and
Conservation loan program
Response: RUS added language to
allow limited pre-retrofits as an eligible
loan activity. The Department of Energy
has established that many opportunities
for energy efficiency upgrades exist in
low income housing. Often the
residential building envelope needs
infrastructure improvements to be able
to accept energy efficiency upgrades.
For example, the floor of a residential
building may need structural repairs
before efficient insulation can be
installed. This would reduce the overall
energy requirement for the structure.
Loan Loss Reserves and Credit
Enhancements Should Be Allowed as
Program Costs
Comment: Four comments stated that
RUS allow borrowers to create loan loss
reserve funds to allow utilities to attract
investors and leverage private capital, as
an eligible activity under the Energy
Efficiency and Conservation loan
program
Response: RUS is statutorily required
to fund energy efficiency and
conservation activities. Additional
activities are outside the agency’s
authority and would require
amendments.
Additional Language Supporting a
Diverse Workforce
Comment: One comment requested
that RUS add language to require
borrowers to use local and underrepresented businesses when
implementing their energy efficiency
program.
Response: A borrower must prove that
their energy efficiency program is cost
effective; specifying who a borrower
must work with is beyond the scope of
Subpart H.
Consumer Eligibility
Comment: Seven comments requested
that RUS clarify ‘‘due diligence’’ to
confirm that ability to repay a loan or
participate in a program does not have
to include a credit check, but rather rely
on utility bill payment history.
Response: The borrower is held
accountable for paying off the loan, and
needs to determine eligible Consumers.
Their method of choice will be
articulated in their business plan.
Clarifying § 1710.255(b)
Comment: One comment requested
clarification on § 1710.255(b), which
requires that all facilities being
improved be included in the energy
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efficiency work plan, to state that this
section only applies to utility-owned
properties.
Response: RUS believes the Energy
Efficiency Work Plan (EEWP) must also
itemize Consumer upgrades in
aggregate.
Clarifying Demand Side Management
Comment: Three comments requested
that RUS specifically state that switches
for water heaters and air conditioning
units be eligible under Demand side
management, or at a minimum clearly
state energy efficiency in the definition.
Response: RUS believes the definition
is inclusive, and the additional language
is unnecessary.
Redefine Energy Efficiency and
Conservation Measures
Comment: Two comments requested
that RUS change the sentence ‘‘ultimate
goal is the reduction of utility energy
needs’’ to ‘‘ultimate goal is the
reduction of all forms of consumer
energy needs (based on annual Btu
consumption).
Response: RUS believes the current
definition fits the ultimate goal, to
reduce utility energy needs, Consumer
energy needs is too limiting as utilities
are also eligible to finance energy
efficiency activities in their facilities.
Clarifying § 1710.406(b)(7)
Comment: Two comments requested
that the words ‘‘power quality
equipment’’ be added.
Response: RUS believes the definition
is inclusive, and the additional language
is unnecessary.
Fuel Cells
Comment: Two comments requested
that RUS remove fuel cells as an eligible
activity and investment.
Response: Fuel cells can be used in
energy efficiency and conservation
activities and will keep the activity in
the regulation. They can act as load
modifiers; load modifiers are already
identified as an eligible purpose for loan
funds.
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Clarifying § 1710.406(a)(1)
Comment: Two comments requested
that RUS make changes to § 1710.406
(a)(1). The proposed rule states that
eligible program activities and
investments ‘‘shall be designed to
improve energy efficiency or
MANAGED demand on the customer
side of the meter. While demand
improvements are a primary goal of the
rule, demand improvement can be
accomplished through managed or
passive improvements on the customer
side of the meter. Consequently the
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word ‘managed’ should be removed
from the text and replaced with the
word ‘‘reduce’’ and the word ‘‘peak’’
should be added before ‘‘demand.’’ The
new text should state ‘‘shall be designed
to improve energy efficiency or reduce
peak demand on the customer side of
the meter.
Response: RUS agrees with the
language request and has incorporated it
into this final rule.
Loan Directly to Consumers
Clarifying § 1710.405(b)(1)(vii)
Comment: Two comments requested
RUS explicitly support a given
technology or fuel. One comment
requested that RUS create a broader
regulation that clearly articulates the
importance of natural gas. One comment
requested that RUS explicitly include
installation of solar thermal, gas, and
electric-resistance water heaters as an
eligible use of program funds.
Response: RUS does not support one
technology or fuel source. No changes
will be made to the regulation.
Comment: One comment requests
additional clarification in the
background section on what the rate
will be for borrowers.
Response: This section has been
revised for other reasons, the issue is
moot.
§ 1721.1(a)
Comment: One comment requests the
section be modified to remove insured,
and revise the language to be ‘‘a)
Purpose and amount. With the
exception of minor projects, loan funds
will be advanced only for projects
which are included in a RUS approved
borrower’s construction work plan
(CWP), EE Program work plan (EEWP),
or approved amendment, that have also
received written Environmental
Clearance and/or Approval from RUS
prior to the start of construction, and
follow RUS’ contract and bidding
procedures as set forth in 7 CFR part
1726 if applicable. Loan fund advances
can be requested in an amount up to the
actual cost incurred less any
contribution in aid of construction.
Response: RUS accepts the following
language change: ‘‘a) Purpose and
amount. With the exception of minor
projects, loan funds will be advanced
only for projects which are included in
a RUS approved borrower’s EE Program
work plan (EEWP), or approved
amendment, that have also received
written Environmental Clearance and/or
Approval from RUS prior to the start of
construction, and follow RUS’ contract
and bidding procedures as set forth in
7 CFR part 1726 if applicable. Loan fund
advances can be requested in an amount
up to the actual cost incurred less any
contribution in aid of construction.
State and Federal Interactions
Comment: One comment asked if the
Energy Efficiency loan program would
override state or federal Law.
Response: The Energy Efficiency and
Conservation Loan program does not
override any statutory state or federal
laws.
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Comment: One comment requested
that RUS change the loan program, and
loan directly to consumers, bypassing
the electric companies.
Response: The Energy Efficiency and
Conservation Loan program does not
statutorily allow us this discretion.
Natural Gas Expansion and Explicit
Support of Water Heaters
Appropriate Performance Thresholds
for Water Heaters
Comment: One comment requested
that RUS set explicit energy efficiency
thresholds for water heaters.
Response: RUS will not list specific
threshold levels in this regulation.
Rather, we have clarified that borrowers
are encouraged to use existing energy
efficiency standards or criteria such as
those from: Energy Star, FEMP, ANSI, or
other voluntary consensus standards.
Focus on Utility Programs That Support
Customer Investments in Energy
Efficiency
Comment: One comment asked RUS
to establish requirements and guidelines
that will ensure program funds are
substantially devoted to support utility
programs designed to support efficiency
investments in customer homes,
buildings, and facilities.
Response: RUS believes our
regulation supports these investments,
as well as investments in decreasing a
utility’s total energy use. No additional
language was added.
Leverage Other Federal Programs With
the Energy Efficiency Program
Comment: One comment asked RUS
to explore leveraging options with
USDA’s Rural Housing Service, Federal
Housing Administration, Department of
Veterans Affairs, and the Federal
Housing Finance Authority.
Response: RUS supports program
collaboration, and will continue to work
with our Federal partners, but no
additional language will be included in
the regulation.
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7 CFR Part 1724
Consider Combined Heat and Power
Projects as Eligible Measures
Comment: One comment asked RUS
to explicitly state combined heat and
power projects are an eligible energy
conservation activity under the
regulation.
Response: RUS believes our
regulation provides enough flexibility to
allow these forms of activities, without
specifying every eligible activity in the
regulation.
Fuel Switching Definition
Comment: One comment requested
RUS change the definition of fuel
switching to ‘‘the temporary use of nonelectric energy sources as a method to
limit electric peak loads during limited
time periods. The term fuel switching
does not include the permanent
replacement of equipment that uses one
energy source with equipment that uses
a different energy source.’’
Response: RUS clarified the definition
of ‘‘fuel switching.’
Loan Monitoring
Comment: One comment asked RUS
to adopt data collection procedures to
track program financials and measure
performance.
Response: RUS has and will continue
to collect data on loan activities,
monitoring and tracking performance
measures. No additional language needs
to be added to the regulation.
Existing EE Programs
Comment: One comment requested
RUS target supplementing existing and
planned energy efficiency programs and
budgets, not replacing the programs.
Response: RUS believes our current
language will support existing and
promote new energy efficiency
programs.
List of Subjects
7 CFR Part 1710
Electric power, Loan programsenergy, Reporting and recordkeeping
requirements, Rural areas.
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7 CFR Part 1717
Administrative practice and
procedure, Electric power, Electric
power rates, Electric utilities,
Intergovernmental relations,
Investments, Loan programs-energy,
Reporting and recordkeeping
requirements, Rural areas.
7 CFR Part 1721
Electric power, Loan programsenergy, Rural areas.
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Electric power, Loan programsenergy, Reporting and recordkeeping
requirements, Rural areas.
7 CFR Part 1730
Electric power, Loan programsenergy, Reporting and recordkeeping
requirements, Rural areas.
For reasons set forth in the preamble,
the Agency amends 7 CFR chapter XVII
as follows:
PART 1710—GENERAL AND PRELOAN POLICIES AND PROCEDURES
COMMON TO ELECTRIC LOANS AND
GUARANTEES
1. The authority citation for part 1710
continues to read as follows:
■
Authority: 7 U.S.C. 901 et seq., 1921 et
seq., 6941 et seq.
Subpart A—General
2. In § 1710.2(a) revise the definition
of ‘‘Demand side management’’ and add
a definition of ‘‘Eligible Energy
Efficiency Programs’’ in alphabetical
order to read as follows:
■
§ 1710.2 Definitions and rules of
construction.
(a) * * *
Demand side management (DSM)
means the deliberate planning and/or
implementation of activities to
influence Consumer use of electricity
provided by a distribution borrower to
produce beneficial modifications to the
system load profile. Beneficial
modifications to the system load profile
ordinarily improve load factor or
otherwise help in utilizing electric
system resources to best advantage
consistent with acceptable standards of
service and lowest system cost. Load
profile modifications are characterized
as peak clipping, valley filling, load
shifting, strategic conservation, strategic
load growth, and flexible load profile.
(See, for example, publications of the
Electric Power Research Institute (EPRI),
3412 Hillview Avenue, Palo Alto, CA
94304, especially ‘‘Demand-Side
Management Glossary’’ EPRI TR–
101158, Project 1940–25, Final Report,
October 1992.) DSM includes energy
conservation programs.
*
*
*
*
*
Eligible Energy Efficiency and
Conservation Programs (Eligible EE
Program) means an energy efficiency
and conservation program that meets
the requirements of Subpart H of this
part.
*
*
*
*
*
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Subpart C—Loan Purposes and Basic
Policies
§ 1710.100
[Amended]
3. In § 1710.100, amend the first
sentence by adding the words
‘‘efficiency and’’ before ‘‘energy
conservation’’.
■
§ 1710.101
[Amended]
4. In § 1710.101, amend the second
sentence of paragraph (b) by adding the
word ‘‘direct’’ before ‘‘loans to
individual consumers’’.
■
§ 1710.102
[Amended]
5. Amend § 1710.102 as follows:
a. Amend the first sentence of
paragraph (a) by adding ‘‘energy
efficiency and’’ before ‘‘energy
conservation’’; and
■ b. Amend the first sentence of
paragraph (b) by adding ‘‘energy
efficiency and’’ before ‘‘energy
conservation’’.
■ 6. Amend § 1710.106 by adding
paragraph (a)(6) and revising paragraphs
(c)(1) and (d) to read as follows:
■
■
§ 1710.106
Uses of loan funds.
(a) * * *
(6) Eligible Energy Efficiency and
Conservation Programs pursuant to
Subpart H of this part.
*
*
*
*
*
(c) * * *
(1) Electric facilities, equipment,
appliances, or wiring located inside the
premises of the Consumer, except for
assets financed pursuant to an Eligible
EE Program, and qualifying items
included in a loan for Demand side
management or energy resource
conservation programs, or renewable
energy systems.
*
*
*
*
*
(d) A distribution borrower may
request a loan period of up to 4 years.
Except in the case of loans for new
generating and associated transmission
facilities, a power supply borrower may
request a loan period of not more than
4 years for transmission and substation
facilities and improvements or
replacements of generation facilities.
The loan period for new generating
facilities and DSM activities will be
determined on a case-by-case basis. The
Administrator may approve a loan
period shorter than the period requested
by the borrower, if in the
Administrator’s sole discretion, a loan
made for the longer period would fail to
meet RUS requirements for loan
feasibility and loan security set forth in
§§ 1710.112 and 1710.113, respectively.
*
*
*
*
*
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§ 1710.109
Federal Register / Vol. 78, No. 234 / Thursday, December 5, 2013 / Rules and Regulations
[Amended]
§ 1710.205
7. In § 1710.109 amend the first
sentence of paragraph (a) by adding the
words ‘‘energy efficiency and
conservation program work plan,’’ after
‘‘construction work plan’’.
■ 8. Amend § 1710.115 by adding
paragraph (c) to read as follows:
■
§ 1710.115
*
*
*
*
(c) The term for loans made to finance
Eligible EE Programs will be determined
in accordance with § 1710.408 of this
part.
*
*
*
*
*
[Amended]
9. In § 1710.120 add the words
‘‘energy efficiency and conservation
program work plans,’’ after
‘‘construction work plans,’’.
■
Subpart D—Basic Requirements for
Loan Approval
10. Amend § 1710.152 by adding
paragraph (e) to read as follows:
■
§ 1710.152
Primary support documents.
*
*
*
*
*
(e) EE Program work plan (EEWP). In
the case of a loan application to finance
an Eligible Energy Efficient Program, an
EE Program work plan shall be prepared
in lieu of a traditional CWP required
pursuant to paragraph (b) of this section.
The requirements for an EEWP are set
forth in § 1710.255 and in subpart H of
this part.
Subpart E—Load Forecasts
11. Amend § 1710.202 by adding
paragraph (d) to read as follows:
■
§ 1710.202 Requirement to prepare a load
forecast—power supply borrowers.
*
*
*
*
*
(d) Notwithstanding paragraphs (a)
through (c) of this section, a power
supply borrower that has an outstanding
loan for an Eligible EE Program is
required to maintain an approved load
forecast and an approved load forecast
work plan on an ongoing basis.
■ 12. Amend § 1710.203 by adding
paragraph (f) to read as follows:
§ 1710.203 Requirement to prepare a load
forecast—distribution borrowers.
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*
*
*
*
*
(f) Notwithstanding paragraphs (a)
through (e) of this section, a distribution
borrower that has an outstanding loan
for an Eligible EE Program is required to
maintain an approved load forecast and
an approved load forecast work plan on
an ongoing basis.
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Subpart F—Construction Work Plans
and Related Studies
14. Add § 1710.255 to subpart F to
read as follows:
■
Final maturity.
*
§ 1710.120
[Amended]
13. In § 1710.205 amend paragraph
(b)(5) by adding the words ‘‘and energy
efficiency and conservation program’’
after ‘‘demand side management’’.
■
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§ 1710.255 Energy efficiency work plans—
energy efficiency borrowers.
(a) All energy efficiency borrowers
must maintain a current EEWP
approved by their board of directors
covering in aggregate all new
construction, improvements,
replacements, and retirements of energy
efficiency related equipment and
activities;
(b) An energy efficiency borrower’s
EEWP shall cover a period of between
2 and 4 years, and include all facilities
to be constructed or improved which are
eligible for RUS financing, whether or
not RUS financial assistance will be
sought or be available for certain
facilities. The construction period
covered by an EEWP in support of a
loan application shall not be shorter
than the loan period requested for
financing of the facilities;
(c) The borrower’s EEWP may only
include facilities, equipment and other
activities that have been approved by
RUS as a part of an Eligible Energy
Efficiency and Conservation Program
pursuant to subpart H of this part;
(d) The borrower’s EEWP must be
consistent with the documentation
provided as part of the current RUS
approved EE Program as outlined in
§ 1710.410(c); and
(e) The borrower’s EEWP must
include an estimated schedule for the
implementation of included projects.
Subpart G—Long Range Financial
Forecasts
15. Amend § 1710.300 by
redesignating paragraphs (d)(3) through
(5) as paragraphs (d)(4) through (6)
respectively; and adding a new
paragraph (d)(3) to read as follows:
■
§ 1710.300
General.
*
*
*
*
*
(d) * * *
(3) RUS-approved EE Program work
plan;
*
*
*
*
*
§ 1710.302
[Amended]
16. In § 1710.302 amend paragraph
(d)(5) by removing the reference
‘‘§ 1710.300(d)(5)’’ and adding in its
place ‘‘§ 1710.300(d)(6)’’.
■
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Subpart I—Application Requirements
and Procedures for Loans
§§ 1710.400 through 1710.407
[Redesignated as §§ 1710.500 through
1710.507]
17a. In subpart I, redesignate
§§ 1710.400 through 1710.407 as
§§ 1710.500 through 1710.507,
respectively.
■ 17b. Add Subpart H consisting of
§§ 1710.400 through 1710.499, to read
as follows:
■
Subpart H—Energy Efficiency and
Conservation Loan Program
Sec.
1710.400 Purpose.
1710.401 RUS policy.
1710.402 Scope.
1710.403 General.
1710.404 Definitions.
1710.405 Eligible energy efficiency and
conservation programs.
1710.406 Eligible activities and
investments.
1710.407 Business plan.
1710.408 Quality assurance plan.
1710.409 Loan provisions.
1710.410 Application documents.
1710.411 Analytical support
documentation.
1710.412 Borrower accounting methods,
management reporting, and audits.
1710.413 Compliance with other laws and
regulations.
1710.414–1710.499 [Reserved]
Subpart H—Energy Efficiency and
Conservation Loan Program
§ 1710.400
Purpose.
(a) This subpart establishes policies
and requirements that apply to loans
and loan guarantees to finance Energy
Efficiency and Conservation programs
(EE Programs) undertaken by an eligible
utility system to finance Demand side
management, energy efficiency and
conservation, or on-grid and off-grid
renewable energy system programs that
will result in the better management of
their system load growth, a more
beneficial load profile, or greater
optimization of the use of alternative
energy resources in their service
territory. These programs may be
considered an essential utility service.
(b)(1) The goals of an eligible Energy
Efficiency project eligible for funding
under this program and Subpart H
include:
(i) Increasing energy efficiency at the
end user level;
(ii) Modifying electric load such that
there is a reduction in overall system
demand;
(iii) Effecting a more efficient use of
existing electric distribution,
transmission and generation facilities;
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(iv) Attracting new businesses and
creating jobs in rural communities by
investing in energy efficiency; and
(v) Encouraging the use of renewable
energy fuels for either Demand side
management or the reduction of
conventional fossil fuel use within the
service territory.
(2) Although not a goal, RUS
recognizes that there will be a reduction
of green house gases with energy
efficiency improvements.
§ 1710.401
RUS policy.
EE Programs under this subpart may
be financed at the distribution level or
by an electric generation and
transmission provider. RUS encourages
borrowers to coordinate with the
relevant member systems regarding their
intention to implement a program
financed under this subpart. RUS also
encourages borrowers to leverage funds
available under this subpart with State,
local, or other funding sources that may
be available to implement such
programs.
§ 1710.402
Scope.
This subpart adapts and modifies, but
does not supplant, the requirements for
all borrowers set forth elsewhere where
the purpose of the loan is to finance an
approved EE program. In the event there
is overlap or conflict between this
subpart and the provisions of this part
1710 or other parts of the Code of
Federal Regulations, the provisions of
this subpart will apply for loans made
or guaranteed pursuant to this subpart.
§ 1710.403
General.
EE Programs financed under this
subpart may be directed at all forms of
energy consumed within a utility’s
service territory, not just electricity,
where the electric utility is in a position
to facilitate the optimization of the
energy consumption profile within its
service territory and do so in a way that
enhances the financial or physical
performance of the rural electric system
and enables the repayment of the energy
efficiency loan.
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§ 1710.404
Definitions.
For the purpose of this subpart, the
following terms shall have the following
meanings. In the event there is overlap
or conflict between the definitions
contained in § 1710.2, the definitions set
forth below will apply for loans made or
guaranteed pursuant to this subpart.
British thermal unit (Btu) means the
quantity of heat required to raise one
pound of water one degree Fahrenheit.
Certified energy auditor for
commercial and industrial energy
efficiency improvements. (1) An energy
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auditor shall meet one of the following
criteria:
(i) An individual possessing a current
commercial or industrial energy auditor
certification from a national, industryrecognized organization;
(ii) A Licensed Professional Engineer
in the State in which the audit is
conducted with at least 1 year
experience and who has completed at
least two similar type Energy Audits;
(iii) An individual with a four-year
engineering or architectural degree with
at least 3 years experience and who has
completed at least five similar type
Energy Audits; or
(iv) Beginning in calendar year 2015,
an energy auditor certification
recognized by the Department of Energy
through its Better Buildings Workforce
Guidelines project.
(2) For residential energy efficiency
improvements, an energy auditor shall
meet one of the following criteria: The
workforce qualification requirements of
the Home Performance with Energy Star
Program, as outlined in Section 3 of the
Home Performance with Energy Star
Sponsor Guide; or an individual
possessing a current residential energy
auditor or building analyst certification
from a national, industry-recognized
organization.
Cost effective means the aggregate cost
of an EE Program is less than the
financial benefit of the program over
time. The cost of a program for this
purpose shall include the costs of
incentives, measurement and
verification activity and administrative
costs, and the benefits shall include,
without limitation, the value of energy
saved, the value of corresponding
avoided generation, transmission or
distribution and reserve investments as
may be displaced or deferred by
program activities, and the value of
corresponding avoided greenhouse gas
emissions and other pollutants.
Demand means the electrical load
averaged over a specified interval of
time. Demand is expressed in kilowatts,
kilovolt amperes, kilovars, amperes, or
other suitable units. The interval of time
is generally 15 minutes, 30 minutes, or
60 minutes.
Demand savings means the
quantifiable reduction in the load
requirement for electric power, usually
expressed in kilowatts (kW) or
megawatts (MW) such that it reduces
the cost to serve the load.
Eligible borrower means a utility
system that has direct or indirect
responsibility for providing retail
electric service to persons in a rural
area. This definition includes existing
borrowers and utilities who meet
current RUS borrower requirements.
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73367
Energy audit means an inspection and
analysis of energy flows in a building,
process, or system with the goal of
identifying opportunities to enhance
energy efficiency. The activity should
result in an objective standard-based
technical report containing
recommendations for improving the
energy efficiency. The report should
also include an analysis of the estimated
benefits and costs of pursuing each
recommendation and the simple
payback period.
Energy efficiency and conservation
measures means equipment, materials
and practices that when installed and
used at a Consumer’s premises result in
a verifiable reduction in energy
consumption, measured in Btus, or
demand as measured in Btu-hours, or
both, at the point of purchase relative to
a base level of output. The ultimate goal
is the reduction of utility or consumer
energy needs.
Energy efficiency and conservation
program (EE Program) means a program
of activities undertaken or financed by
a utility within its service territory to
reduce the amount or rate of energy
used by Consumers relative to a base
level of output.
HVAC means heating, ventilation, and
air conditioning.
Load means the Power delivered to
power utilization equipment performing
its normal function.
Load factor means the ratio of the
average load over a designated period of
time to the peak load occurring in the
same period.
Peak demand (or maximum demand)
means the highest demand measured
over a selected period of time, e.g., one
month.
Peak demand reduction means a
decrease in electrical demand on an
electric utility system during the
system’s peak period, calculated as the
reduction in maximum average demand
achieved over a specified interval of
time.
Power means the rate of generating,
transferring, or using energy. The basic
unit is the watt, where one Watt is
approximately 3.41213 Btu/hr.
Re-lamping means the initial
conversion of bulbs or light fixtures to
more efficient lighting technology but
not the replacement of like kind bulbs
or fixtures after the initial conversion.
SI means the International System of
Units: the modern metric system.
Smart Grid Investments means capital
expenditures for devices or systems that
are capable of providing real time, two
way (utility and Consumer) information
and control protocols for individual
Consumer owned or operated
appliances and equipment, usually
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through a Consumer interface or smart
meter.
Ultimate recipient means a Consumer
that receives a loan from a borrower
under this subpart.
Utility Energy Services Contract
(UESC) means a contract whereby a
utility provides a Consumer with
comprehensive energy efficiency
improvement services or demand
reduction services.
Utility system means an entity in the
business of providing retail electric
service to Consumers (distribution
entity) or an entity in the business of
providing wholesale electric supply to
distribution entities (generation entity)
or an entity in the business of providing
transmission service to distribution or
generation entities (transmission entity),
where, in each case, the entities provide
the applicable service using self-owned
or controlled assets under a published
tariff that the entity and any associated
regulatory agency may adjust.
Watt means the SI unit of power equal
to a rate of energy transfer (or the rate
at which work is done), of one joule per
second.
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§ 1710.405 Eligible energy efficiency and
conservation programs.
(a) General. Eligible EE Programs
shall:
(1) Be developed and implemented by
an Eligible borrower and applied within
its service territory;
(2) Consist of eligible activities and
investments as provided in § 1710.406
(3) Provide for the use of State and
local funds where available to
supplement RUS loan funds;
(4) Incorporate the applicant’s policy
applicable to the interconnection of
distributed resources;
(5) Incorporate a business plan that
meets the requirements of § 1710.407;
(6) Incorporate a quality assurance
plan that meets the requirements of
§ 1710.408;
(7) Demonstrate that the program can
be expected to be Cost effective;
(8) Demonstrate that the program will
have a net positive or neutral
cumulative impact on the borrower’s
financial condition over the time period
contemplated in the analytical support
documents demonstrating that the net
present value of program costs incurred
by the borrower are positive, pursuant
to § 1710.411;
(9) Demonstrate energy savings or
peak demand reduction for the service
territory overall; and
(10) Be approved in writing by RUS
prior to the investment of funds for
which reimbursement will be requested.
(b) Financial Structures. Eligible EE
Programs may provide for direct
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recoupment of expenditures for eligible
activities and investment from Ultimate
Recipients as follows:
(1) Loans made to Ultimate Recipients
located in a rural area where —
(i) The Ultimate Recipients may be
wholesale or retail;
(ii) The loans may be secured or
unsecured;
(iii) The loan receivables are owned
by the Eligible Borrower;
(iv) The loans are made or serviced
directly by the Eligible Borrower or by
a financial institution pursuant to a
contractual relationship between the
Eligible Borrower and the financial
institution;
(v) Due diligence is performed to
confirm the repayment ability of the
Ultimate Recipient;
(vi) Loans are funded only upon
completion of the project financed or to
reimburse startup costs that have been
incurred;
(vii) The rate charged the Ultimate
Recipient is less than or equal to the
direct Treasury rate established daily by
the United States Treasury pursuant to
§ 1710.51(a)(1) or § 1710.52, as
applicable, plus the borrower’s interest
rate from RUS and 1.5 percent .
Exceptions will be made on a case-bycase basis to ensure repayment of the
government’s loan and must be clearly
articulated in the business plan RUS
will not accept an exception request if
the loan is feasible at 1.5 percent; and
(viii) Loans are not used to refinance
a preexisting loan.
(2) A tariff that is specific to an
identified rural Consumer, premise or
class of ratepayer; or
(3) On bill repayment and other
financial recoupment mechanisms as
may be approved by RUS.
(c) Period of performance—(1)
Performance standards. (i) Eligible EE
Programs activities that are listed under
§ 1710.406(b) should be designed to
achieve the applicable operating
performance standards within one year
of the date of installation of the
facilities.
(ii) All activities other than those
included in paragraph (c)(1)(i) of this
section should be designed to achieve
the applicable operating performance
targets within the time period
contemplated by the analytic support
documents for the overall EE Program as
approved by RUS.
(2) Cost effectiveness. Eligible EE
Programs must demonstrate that Cost
effectiveness as measured for the
program overall will be achieved within
ten years of initial funding, except in
cases where the useful life of the
technology on an aggregate basis can be
demonstrated to be longer than the ten
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year period. RUS will evaluate the
useful life assumption on a case-by-case
basis.
§ 1710.406 Eligible activities and
investments.
(a) General. Eligible program activities
and investments:
(1) Shall be designed to improve
energy efficiency and/or reduce peak
demand on the customer side of the
meter;
(2) Shall be Cost effective in the
aggregate after giving effect to all
activities and investments contemplated
in the approved EE Program; and
(3) May apply to all Consumer classes.
(b) Eligible activities and investments.
Eligible program activities and
investments may include, but are not
limited to, the following:
(1) Energy efficiency and conservation
measures where assets financed at an
Ultimate Recipient premises can be
characterized as an integral part of the
real property that would typically
transfer with the title under applicable
state law. Where applicable, it is
anticipated that the loan obligation
would also be expected to transfer with
ownership of the metered account
serving that property.
(2) Renewable Energy Systems,
including —
(i) On or Off Grid Renewable energy
systems;
(ii) Fuel cells;
(3) Demand side management (DSM)
investments including Smart Grid
Investments;
(4) Energy audits;
(5) Utility Energy Services Contracts;
(6) Consumer education and outreach
programs;
(7) Power factor correction equipment
on the Ultimate Recipient side of the
meter;
(8) Re-lamping to more energy
efficient lighting; and
(9) Fuel Switching as in:
(i) The replacement of existing fuel
consuming equipment using a particular
fuel with more efficient fuel consuming
equipment that uses another fuel but
which does not increase direct
greenhouse gas emissions; or
(ii) The installation of non-electric
fuel consuming equipment to facilitate
management of electric system peak
loads. Fuel switching to fossil or
biomass fueled electric generating
equipment is expressly excluded.
(10) Other activities and investments
as approved by RUS as part of the EE
Program such as, but not limited to, preretrofit improvements.
(c) Intermediary lending. EE Program
loan funds may be used for direct relending to Ultimate Recipients where
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the requirements of § 1710.405(b) are
met.
(d) Performance standards. Borrowers
are required to use Energy Star qualified
equipment where applicable or meet or
exceed efficiency requirements
designated by the Federal Energy
Management Program.
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§ 1710.407
Business plan.
An Eligible EE Program must have a
business plan for implementing the
program. The business plan is expected
to have a global perspective on the
borrower’s energy efficiency plan.
Therefore, energy efficiency upgrades
should be identified in aggregate. The
business plan must have the following
elements:
(a) Executive summary. The executive
summary shall capture the overall
objectives to be met by the Eligible EE
Program and the timeframe in which
they are expected to be achieved.
(b) Organizational background. The
background section shall include
descriptions of the management team
responsible for implementing the
Eligible EE Program.
(c) Marketing plan. The marketing
section should identify the target
Consumers, promotional activities to be
pursued and target penetration rates by
Consumer category and investment
activity.
(d) Operations plan. The operations
plan shall include but is not limited to:
(1) A list of the activities and
investments to be implemented under
the EE Program and the Btu savings goal
targeted for each category;
(2) An estimate of the dollar amount
of investment by the utility for each
category of activities and investments
listed under paragraph (d)(1) of this
section;
(3) A staffing plan that identifies
whether and how outsourced
contractors or subcontractors will be
used to deliver the program;
(4) A description of the process for
documenting and perfecting collateral
arrangements for Ultimate Recipient
loans, if applicable; and
(5) The overall Btu savings to be
accomplished over the life of the EE
Program.
(e) Financial plan. The financial plan
shall include but is not limited to:
(1) A schedule showing sources and
uses of funds for the program;
(2) An itemized budget for each
activity and investment category listed
in the operations plan;
(3) An aggregate Cost effectiveness
forecast;
(4) Where applicable, provision for
Ultimate Recipient loan loss reserves.
These loan loss reserves will not be
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funded by RUS. Loan loss reserves are
not required when a utility will not be
relending RUS funds.
(5) Identify expected Ultimate
Recipient loan delinquency and default
rates and report annually on deviations
from the expected rates.
(f) Risk analysis. The business plan
shall include an evaluation of the
financial and operational risk associated
with the program, including an estimate
of prospective Consumer loan losses
consistent with the loan loss reserve to
be established pursuant to paragraph
(e)(4) of this section.
(g) The borrowers are strongly
encouraged to follow a bulletin or such
other publication as RUS deems
appropriate that contains and describes
best practices for energy efficiency
business plans. RUS will make this
bulletin or publication publicly
available and revise it from time-to-time
as RUS deems it necessary.
§ 1710.408
Quality assurance plan.
An eligible EE program must have a
quality assurance plan as part of the
program. The quality assurance plan is
expected to have a global perspective on
the borrower’s energy efficiency plan.
Therefore, energy efficiency upgrades
should be identified in aggregate. Every
effort is made to fund only EE programs
that are administered in accordance
with quality assurance plans meeting
standards designed to achieve the
purposes of this subpart. However, RUS
and its employees assume no legal
liability for the accuracy, completeness
or usefulness of any information,
product, service, or process funded
directly or indirectly with financial
assistance provided under this subpart.
Nothing in the loan documents between
RUS and the energy efficiency borrower
shall confer upon any other person any
right, benefit or remedy of any nature
whatsoever. Neither RUS nor its
employees makes any warranty, express
or implied, including the warranties of
merchantability and fitness for a
particular purpose, with respect to any
information, product, service, or process
available from an energy efficiency
borrower. The approval by RUS and its
employees of an energy efficiency
borrower’s quality assurance plan is
solely for the benefit of RUS. Approval
of the quality assurance plan does not
constitute an RUS endorsement. The
quality assurance plan must have the
following elements:
(a) Quality assurance assessments
shall include the use of qualified energy
managers or professional engineers to
evaluate program activities and
investments;
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73369
(b) Where applicable, program
evaluation activities should use the
protocols for determining energy
savings as developed by the U.S.
Department of Energy in the Uniform
Methods Project.
(c) Energy audits shall be performed
for energy efficiency investments
involving the building envelope at an
Ultimate Recipient premises;
(d) Energy audits must be performed
by certified energy auditors; and
(e) Follow up audits shall be
performed within one year after
installation on a sample of investments
made to confirm whether efficiency
improvement expectations are being
met.
(f) In cases involving energy efficiency
upgrades to a single system (such as a
ground source heat pump) the new
system must be designed and installed
by certified and insured professionals
acceptable to the utility.
(g) Industry or manufacturer standard
performance tests, as applicable, shall
be required on any system upgraded as
a result of an EE Program. This testing
shall indicate the installed system is
meeting its designed performance
parameters.
(h) In some programs the utility may
elect to recommend independent
contractors who can perform energy
efficiency related work for their
customers. In these cases utilities shall
monitor the work done by the
contractors and confirm that the
contractors are performing quality work.
Utilities should remove substandard
contractors from their recommended
lists if the subcontractors fail to perform
at a satisfactory level. RUS does not
endorse or recommend any particular
independent contractors.
(i) Contractors not hired by the utility
may not act as agents of the utility in
performing work financed under this
subpart.
(j) The borrowers are strongly
encouraged to follow a bulletin or other
publication that RUS deems appropriate
and contains and describes best
practices for energy efficiency quality
assurance plans. RUS will make this
bulletin or publication publicly
available and revise it from time-to-time
as RUS deems it necessary.
§ 1710.409
Loan provisions.
(a) Loan term. The maximum term for
loans under this subpart shall be 15
years unless the loans relate to ground
source loop investments or technology
on an aggregate basis that has a useful
life greater than 15 years. Ground source
loop investments as the term is used in
this paragraph do not include ancillary
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equipment related to ground source heat
pump systems.
(b) Loan feasibility. Loan feasibility
must be demonstrated for all loans made
under this subpart. Loans made under
this subpart shall be secured.
(c) Reimbursement for completed
projects. (1) A borrower may request an
initial advance not to exceed five
percent of the total loan amount for
working capital purposes to implement
an eligible EE Program;
(2) Except for the initial advance
provided for in paragraph (c)(1) of this
section, all advances under this subpart
shall be used for reimbursement of
expenditures relating to a completed
activity or investment; and
(3) Advances shall be in accordance
with RUS procedures.
(d) Loan amounts. (1) Cumulative
loan amounts outstanding under this
subpart will be determined by the
Assistant Administrator of the Electric
Program and based an applicant’s
business plan; and
(2) Financing for administrative costs
may not exceed 5 percent of the total
loan amount.
(3) The Rural Utilities Service
reserves the right to place a cap on both
the total amount of funds an eligible
entity can apply for, as well as a cap on
the total amount of funds the Energy
Efficiency and Conservation Program
can utilize in the appropriations.
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§ 1710.410
Application documents.
The required application
documentation listed in this section is
not all inclusive but is specific to
Eligible borrowers requesting a loan
under this subpart and in most cases is
supplemental to the general
requirements for loan applications
provided for in this part 1710:
(a) A letter from the Borrower’s
General Manager requesting a loan
under this subpart.
(b) A copy of the board resolution
establishing the EE Program that reflects
an undertaking that funds collected in
excess of then current amortization
requirements for the related RUS loan
will be redeployed for EE Program
purposes or used to prepay the RUS
loan.
(c) Current RUS-approved EE Program
documentation that includes:
(1) A Business Plan that meets the
requirements of § 1710.407;
(2) A Quality Assurance Plan that
meets the requirements of § 1710.408;
(3) Analytical support documentation
that meets the requirements of
§ 1710.411;
(4) A copy of RUS’ written approval
of the EE Program.
(d) An EE program work plan that
meets the requirements of § 1710.255;
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(e) A statement of whether an initial
working capital advance pursuant to
§ 1710.409(c)(1) is included in the loan
budget together with a schedule of how
these funds will be used.
(f) A proposed draft Schedule C
pursuant to 7 CFR part 1718 that lists
assets to be financed under this subpart
as excepted property under the RUS
mortgage, as applicable.
§ 1710.411 Analytical support
documentation.
Applications for loans under this
subpart may only be made for eligible
activities and investments included in
an RUS-approved EE Program. In
addition to a business plan and
operations plan, a request for EE
program approval must include
analytical support documentation that
demonstrates the program meets the
requirements of § 1710.303 and assures
RUS of the operational and financial
integrity of the EE Program. This
documentation must include, but is not
necessarily limited to, the following:
(a) A comparison of the utility’s
projected annual growth in demand
after incorporating the EE Program
together with an updated baseline
forecast on file with RUS, where each
includes an estimate of energy
consuming devices used by customers
in the service territory and a specific
time horizon as determined by the
utility for meeting the performance
objectives established by them for the
EE Program;
(b) Demonstration that the required
periods of performance under
§ 1710.405(c) can reasonably be
expected to be met;
(c) A report of discussions and
coordination conducted with the power
supplier, where applicable, issues
identified as a result, and the outcome
of this effort.
(d) An estimate of the amount of
direct investment in utility-owned
generation that will be deferred as a
result of the EE Program;
(e) A description of efforts to identify
state and local sources of funding and,
if available, how they are to be
integrated in the financing of the EE
Program; and
(f) Copies of sample documentation
used by the utility in administering its
EE Program.
(g) Such other documents and reports
as the Administrator may require.
§ 1710.412 Borrower accounting methods,
management reporting, and audits.
Nothing in this subpart changes a
Borrower’s obligation to comply with
RUS’s accounting, monitoring and
reporting requirements. In addition
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Fmt 4701
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thereto, the Administrator may also
require additional management reports
that provide the agency with a means of
evaluating the extent to which the goals
and objectives identified in the EE Plan
are being accomplished.
§ 1710.413 Compliance with other laws
and regulations.
Nothing in this subpart changes a
Borrower’s obligation to comply with all
laws and regulations to which it is
subject.
§§ 1710.414–1710.499
[Reserved]
PART 1717—POST-LOAN POLICIES
AND PROCEDURES COMMON TO
INSURED AND GUARANTEED
ELECTRIC LOANS
18. The authority citation for part
1717 continues to read as follows:
■
Authority: 7 U.S.C. 901 et seq., 1921 et
seq., 6941 et seq.
Subpart R—Lien Accommodations and
Subordinations for 100 Percent Private
Financing
19. Amend § 1717.852 by revising
paragraph (b)(2)(ii) to read as follows:
■
§ 1717.852
Financing purposes.
*
*
*
*
*
(b) * * *
(2) * * *
(ii) Renewable energy systems and
RUS-approved programs of Demand
side management, energy efficiency and
energy conservation; and
*
*
*
*
*
PART 1721—POST-LOAN POLICIES
AND PROCEDURES FOR INSURED
AND GUARANTEED ELECTRIC LOANS
20. The authority citation for part
1721 continues to read as follows:
■
Authority: 7 U.S.C. 901 et seq., 1921 et
seq., 6941 et seq.
Subpart A—Advance of Funds
21. Amend § 1721.1 by revising
paragraph (a) to read as follows:
■
§ 1721.1
Advances.
(a) Purpose and amount. With the
exception of minor projects, loan funds
will be advanced only for projects
which are included in an RUS approved
construction work plan (CWP), EE
Program work plan (EEWP), or approved
amendment, and in an approved loan as
amended. Loan fund advances can be
requested in an amount representing
actual costs incurred.
*
*
*
*
*
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planning (including the development of
an EE Program eligible for financing
pursuant to subpart H of part 1710 of
this chapter, design, and construction
management of the system.
*
*
*
*
*
PART 1724—ELECTRIC
ENGINEERING, ARCHITECTURAL
SERVICES AND DESIGN POLICIES
AND PROCEDURES
22. The authority citation for part
1724 continues to read as follows:
■
Authority: 7 U.S.C. 901 et seq., 1921 et
seq., 6941 et seq.
PART 1730—ELECTRIC SYSTEM
OPERATIONS AND MAINTENANCE
Subpart C—Engineering Services
■
23. Amend § 1724.30 by revising
paragraph (a) to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et
seq., 6941 et seq.
§ 1724.30 Borrowers’ requirements—
engineering services.
Subpart B—Operations and
Maintenance Requirements
24. The authority citation for part
1730 continues to read as follows:
■
*
*
*
*
(a) Each borrower shall select one or
more qualified persons to perform the
engineering services involved in the
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*
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Appendix A to Subpart B of Part 1730—
Review Rating Summary, RUS Form
300
*
*
*
*
*
*
Fmt 4701
Sfmt 9990
*
*
*
John Charles Padalino,
Administrator, Rural Utilities Service.
[FR Doc. 2013–29158 Filed 12–4–13; 8:45 am]
BILLING CODE P
25. Amend Appendix A to subpart B
of Part 1730 by adding paragraph 13.f.
to read as follows:
Frm 00017
*
13. * * *
f. Energy Efficiency and Conservation
Program quality assurance compliance—
Rating:lll
■
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]]>Agencies
[Federal Register Volume 78, Number 234 (Thursday, December 5, 2013)]
[Rules and Regulations]
[Pages 73355-73371]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29158]
[[Page 73355]]
Vol. 78
Thursday,
No. 234
December 5, 2013
Part III
Department of Agriculture
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Rural Utilities Service
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7 CFR Parts 1710, 1717, 1721, et al.
Energy Efficiency and Conservation Loan Program; Final Rule
Federal Register / Vol. 78 , No. 234 / Thursday, December 5, 2013 /
Rules and Regulations
[[Page 73356]]
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DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Parts 1710, 1717, 1721, 1724, and 1730
RIN 0572-AC19
Energy Efficiency and Conservation Loan Program
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Utilities Service (RUS or Agency) is publishing
policies and procedures for loan and guarantee financial assistance in
support of energy efficiency programs (EE Programs) sponsored and
implemented by electric utilities for the benefit of rural persons in
their service territory. This final rule amends RUS regulations on
General and Pre-Loan Policies and Procedures Common to Electric Loans
and Guarantees, which were codified on December 20, 1993. The final
rule also includes conforming amendments to additional RUS regulations.
Under Section 2 of the Rural Electrification Act (RE Act), RUS is
authorized to assist electric borrowers in implementing Demand side
management, energy efficiency and conservation programs, and on-grid
and off-grid renewable energy systems. The scope of this regulation
falls within the authority of the Act.
DATES: This final rule is effective February 3, 2014.
FOR FURTHER INFORMATION CONTACT: Gerard Moore, USDA-Rural Utilities
Service, 1400 Independence Avenue SW., Stop 1569, Washington, DC 20250-
1569, telephone (202) 205-9692 or email to gerard.moore@wdc.usda.gov.
SUPPLEMENTARY INFORMATION:
Executive Summary
The Rural Utilities Service (RUS or Agency) is publishing policies
and procedures for loan and guarantee financial assistance in support
of energy efficiency programs (EE Programs) sponsored and implemented
by electric utilities for the benefit of rural persons in their service
territory. This final rule is designed to supplement the policies
contained in 7 CFR part 1710, GENERAL AND PRE-LOAN POLICIES AND
PROCEDURES COMMON TO ELECTRIC LOANS AND GUARANTEES, which were
finalized in December 1993. Under Section 2(a) of the Rural
Electrification Act of 1936 (7 U.S.C. 902(a)), the Secretary of
Agriculture is explicitly ``authorized and empowered to make loans in
the several States and Territories of the United States . . . for the
purpose of assisting electric borrowers to implement Demand side
management, energy efficiency and conservation programs, and on-grid
and off-grid renewable energy systems.'' Section 6101 of the Food,
Conservation, and Energy Act of 2008 (2008 Farm Bill) inserted the
words ``and energy efficiency'' into this provision. In order to
implement this new focus of the program, RUS amends 7 CFR part 1710 by
adding a new Subpart H entitled ``Energy Efficiency and Conservation
Loan Program.'' (EECLP).
In fiscal year 2014 the Rural Utilities Service will make $250
million available to support energy efficiency as indicated in the
President's climate change action plan. In future years, the amount of
funding made available will be based on the performance of the program.
The goals of an eligible Energy Efficiency project eligible for
funding under this program and Subpart H include: (1) Increasing energy
efficiency at the end user level; (2) modifying electric load such that
there is a reduction in overall system demand; (3) effecting a more
efficient use of existing electric distribution, transmission and
generation facilities; (4) attracting new businesses and creating jobs
in rural communities by investing in energy efficiency; and (5)
encouraging the use of renewable energy fuels for either Demand side
management or the reduction of conventional fossil fuel use within the
service territory. Although not a goal, RUS recognizes that there will
be a reduction of green house gases with energy efficiency
improvements.
The Energy Efficiency and Conservation Loan Program may include
loans supporting energy efficiency activities undertaken by the utility
itself, the finance of energy efficiency projects undertaken by others,
and investments made by the utility to accomplish their obligations
under utility energy services contracts. It is important to distinguish
that there are potentially two different types of loans associated with
this regulation. RUS will loan funds to a utility for an energy
efficiency program. The utility, in turn, may choose to relend these
funds to their consumers (ultimate recipient) for energy efficiency
improvements in industrial, commercial, or residential applications.
The utility may also use the funds to complete energy efficiency
activities on their own property. The anticipated transfers during the
first year of the program will be the funding availability of $250
million. RUS expects this to increase over the life of the program.
Impacts
The new Subpart H for the Energy Efficiency and Conservation Loan
Program can have several economic impacts. The benefits include: (1)
The value of purchased energy saved; (2) the value of corresponding
avoided generation, transmission and/or distribution; and (3) savings
in energy bills.
The final loan program is estimated to have administrative costs to
the applicant and federal government, at about $740,000 total for
applicants, and about $1.7 million for the Federal government.
The Energy Efficiency and Conservation Loan Program will impose
administrative costs on applicants and the Federal government.
Quantitative estimates of these costs have been made and are presented
below.
Applicants and Awardees
Estimates of costs for applicants: the twenty expected applications
are broken down into two sections--applications and reporting. Table 2
summarizes the estimated costs.
Table 2--Estimate Burden to Applicants
----------------------------------------------------------------------------------------------------------------
Energy Efficiency and Conservation Loan Program Applications Reporting Totals
----------------------------------------------------------------------------------------------------------------
Existing Electric Program Borrowers................. $593,356 $148,339 $741,695
----------------------------------------------------------------------------------------------------------------
Applications
All entities seeking financial assistance under this program must
submit certain information to the Agency in order to apply for a loan.
The total estimated cost for applying is approximately $593,356,
calculated by multiplying the number of applicants (20) by the labor
hours associated with the additional burden (823.20) by an estimated
$45 per hour for labor. See OPM's Web site at https://www.opm.gov/
[[Page 73357]]
policy-data-oversight/pay-leave/salaries-wages/
Reporting
All applicants that are awarded funds must submit reports to the
Agency to provide information on their performance. The total estimated
cost for reporting is approximately $148,338, calculated by the number
of applicants (20) by labor cost ($45) by hours per year (164.82).
Federal Government
Estimates of costs to the Federal government were made based on the
activities that the Federal government would incur to implement the
rule and the length of time each activity required. A cost of $48.35
per hour was used in making these cost estimates.
Table 3--Energy Efficiency and Conservation Loan Program Burden Cost to
the Federal Government
------------------------------------------------------------------------
Energy efficiency
Activity and conservation
loan program
------------------------------------------------------------------------
Review of loan Application........................ $1,585,880
Yearly review of financial and statistical 125,710
information......................................
Additional costs associated with the collection of 5,000
information......................................
---------------------
Total *....................................... 1,716,590
------------------------------------------------------------------------
* Data created from OPM salary and wage table at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/.
The following paragraphs summarize the activities and costs to be
incurred by the Federal government for this program.
Applications
RUS is responsible for reviewing and approving applications. As
part of this process, RUS will acknowledge receipt of applications and
inform the applicants whether their application was selected for
funding. The estimated cost for these application activities is
approximately $1,585,880.
Review of Reports
RUS is responsible for reviewing various reports, including, but
not limited to, project management plan, energy efficiency work plan,
quality control plan, etc. The estimated cost for reviewing these
reports annually is approximately $125,710.
Executive Order 12866 and 13563
This final rule has been reviewed under Executive Order (EO) 12866,
``Regulatory Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), and has
been determined to be ``economically significant'' by the Office of
Management and Budget. The EO defines an economically significant
regulatory action as one that is likely to result in a rule that may
have an annual effect on the economy of $100 million or more or
adversely affect, in a material way, the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities. As required by OMB circular A-4 the regulatory impact
analysis will be published along with this rule on regulations.gov.
The agency has also reviewed this regulation pursuant to EO 13563,
issued on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 is
supplemental to and explicitly reaffirms the principles, structures,
and definitions governing regulatory review established in EO 12866. To
the extent permitted by law, agencies are required by EO 13563 to: (1)
Propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs (recognizing that some benefits and
costs are difficult to quantify); (2) tailor regulations to impose the
least burden on society, consistent with obtaining regulatory
objectives, taking into account, among other things, and to the extent
practicable, the costs of cumulative regulations; (3) select, in
choosing among alternative regulatory approaches, those approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; distributive impacts;
and equity); (4) to the extent feasible, specify performance
objectives, rather than specifying the behavior or manner of compliance
that regulated entities must adopt; and (5) identify and assess
available alternatives to direct regulation, including providing
economic incentives to encourage the desired behavior, such as user
fees or marketable permits, or providing information upon which choices
can be made by the public.
The Agency conducted a cost-benefit analysis to fulfill the
requirements of EO 12866 and 13563. In this analysis, the Agency
identifies potential benefits and costs of the Energy Efficiency and
Conservation Loan Program to borrowers, and RUS. The analysis contains
quantitative estimates of the burden to the public and the Federal
government and qualitative descriptions of the expected economic,
environmental, and energy impacts associated with the Energy Efficiency
and Conservation Loan Program. This analysis will be made publicly
available in the docket
RUS will only make loans for these purposes to electric utility
systems. RUS anticipates that borrowers under this subpart will be
generation and transmission (G&T) borrowers or their distribution
members or unaffiliated distribution borrowers who are current on their
loan payments and in compliance with their loan documents. This program
is held to the same high standards and regulatory requirements as the
existing RUS electric loan program. RUS also anticipates that the
energy efficiency improvements installation work may be contracted by
either the utility or the Ultimate Recipient, or performed directly by
employees of the borrower, at the discretion of the utility designing
the energy efficiency program. In all cases, the eligible borrower is
expected to hold title to the receivables funded by the RUS loan.
It is estimated that approximately 20 loans will be submitted
annually. Considering applicants are existing RUS borrowers, it is
anticipated that all 20 loans would be awarded. The administrative cost
to the Applicant and the Federal government to apply, award and
maintain these loans is $2.458 million.
Catalog of Federal Domestic Assistance
The program described by this rule is an eligible purpose/
subsidiary program of the Electrification Loans and Loan Guarantee
program as listed in the Catalog of Federal Domestic Assistance
Programs under number 10.850, Rural
[[Page 73358]]
Electrification Loans and Loan Guarantees. The Catalog is available on
the Internet at https://www.cfda.gov.
Executive Order 12372
This final rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation, which may require consultation
with State and local officials. See the final rule related notice
entitled, ``Department Programs and Activities Excluded from Executive
Order 12372'' (50 FR 47034).
Paperwork Reduction Act of 1995
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
chapter 35), the information collection for this program has been
approved by the Office of Management and Budget under OMB Control
Number 0572-0032.
E-Government Act Compliance
The Agency is committed to the E-Government Act, which requires
Government agencies in general to provide the public the option of
submitting information or transacting business electronically to the
maximum extent possible.
National Environmental Policy Act Review
In accordance with the National Environmental Policy Act of 1969
(42 U.S.C. 4321 et seq.), the Agency has prepared and published a
Programmatic Environmental Assessment (PEA) for this loan program
activity as part of this rulemaking process. The PEA was published on
February 6, 2013 in the Federal Register at 78 FR 8444, and prepared
pursuant to the National Environmental Policy Act of 1969 (NEPA) (42
U.S.C. 4321 et seq.), the Council on Environmental Quality's (CEQ)
regulations for implementing NEPA (40 CFR parts 1500-1508), and RUS'
NEPA implementing regulations, Environmental Policies and Procedures (7
CFR part 1794). A Notice of Finding of No Significant Impact was
published on Friday August 16, 2013 in the Federal Register at VOL. 78,
NO. 159.
Regulatory Flexibility Act Certification
It has been determined the Regulatory Flexibility Act is not
applicable to this rule since the RUS is not required by 5 U.S.C. 551
et seq. or any other provision of law to publish a notice of proposed
rulemaking with respect to the subject matter of this rule.
Unfunded Mandates
This rule contains no Federal mandates (under the regulatory
provisions of title II of the Unfunded Mandates Reform Act of 1995) for
state, local, and tribal governments or for the private sector.
Therefore, this rule is not subject to the requirements of section 202
and 205 of the Unfunded Mandates Reform Act of 1995.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. The Agency has determined that this rule meets the
applicable standards in Section 3 of the Executive Order. In addition,
all state and local laws and regulations that are in conflict with this
rule will be preempted, no retroactive effort will be given to this
rule, and, in accordance with section 212(e) of the Department of
Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)),
administrative appeals procedures, if any, must be exhausted before any
action against the Department or its agencies may be initiated.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on state and local governments, on the relationship
between the national government and the state and local governments, or
on the distribution of power and responsibilities among the various
levels of government. Nor does this rule impose substantial direct
compliance costs on state and local governments. Therefore,
consultation with the states is not required.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This Executive Order imposes requirements on the development of
regulatory policies that have tribal implications or preempt tribal
laws. Between October 2010 and January 2011, the United States
Department of Agriculture (USDA) hosted seven regional regulation
Tribal consultation sessions to gain input by elected Tribal officials
or their designees concerning the impact of this rule (and other 2008
Farm Bill changes) on Tribal governments, communities, and individuals.
No comments specific to this rule were received through that process.
If a Tribe determines that this rule has implications of which Rural
Development is not aware or would like further information regarding
the consultation process, please contact Rural Development's Native
American Coordinator at (720) 544-2911 or AIAN@wdc.usda.gov.
Background
This rulemaking amends 7 CFR part 1710 by adding a new Subpart H
entitled ``Energy Efficiency and Conservation Loan Program.'' Under
Section 2(a) of the Rural Electrification Act of 1936 (7 U.S.C.
902(a)), the Secretary of Agriculture is explicitly ``authorized and
empowered to make loans in the several States and Territories of the
United States . . . for the purpose of assisting electric borrowers to
implement Demand side management, energy efficiency and conservation
programs, and on-grid and off-grid renewable energy systems.'' As
noted, Section 6101 of the 2008 Farm Bill inserted the words ``energy
efficiency'' into this provision, which was originally added as an
amendment to the RE Act by the Rural Electrification Loan Restructuring
Act of 1993 (``RELRA'') (Pub. L. 103-129 sec. 2(c)(1)(B)).\1\
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\1\ Senator Patrick Leahy as the Chairman of the Senate
Committee on Agriculture, Nutrition and Forestry explained this
provision in a letter dated June 18, 1993 to Senator Jim Sasser the
Chairman of the Senate Committee on the Budget as follows: ``These
amendments also permit REA [now RUS] to make loans for demand side
management and energy conservation program[s] which are required by
some state agencies. They are also often the most cost effective
methods of meeting the energy needs of rural areas.''
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RUS has experience with implementing programs that promote energy
conservation, and RELRA explicitly recognized that energy conservation
is part of the Agency's mission. Starting in 1980, for example, RUS
developed an Energy Resources Conservation Program by issuing RUS
Bulletin 20-23, Section 12, ``Extensions for Energy Resources
Conservation Loans'', dated December 8, 1980.\2\ This Bulletin
interpreted the Administrator of RUS's discretion under the RE Act to
extend the time for payments, and this became the foundation for the
``ERC Loan Program.'' At that time, RUS did not make ERC Loan Program
loans directly. It operated the ERC Loan Program by entering into
agreements with its borrowers to defer amortization of their loans in
order for the borrowers to fund energy conservation improvements. The
borrowers, generally electric cooperatives, made loans to their members
out of the cash flow resulting from the deferments they received from
RUS on their own loans. Even though RUS did not make the ERC loans
itself, the Agency provided financial assistance to rural Consumers by
using the electric cooperatives as intermediaries.
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\2\ This Bulletin was rescinded in 2002 when RUS updated and
codified the ERC Loan Program as 7 CFR Part 1721, subpart B. (See 67
FR 484, January 4, 2002).
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Congress subsequently amended Section 12 of the RE Act in 1990 and
[[Page 73359]]
again in 2008. In 1990, Congress expanded Section 12 to enable
deferments such that borrowers could provide financing to local
businesses, with the intent of stimulating rural economic development.
In 2008, Congress expanded Section 12 of the RE Act to authorize energy
efficiency and use audits and to install energy efficiency measures or
devices to reduce demand on electric systems.
The recent grant of additional authority in Section 2(a) of the RE
Act to make loans and guarantees for energy efficiency, as contrasted
with the Section 12 authority to merely defer payments on direct loans,
has become increasingly significant as the percentage of the RUS
portfolio represented by direct loans continues to amortize. In recent
times the Agency delivers nearly all of its electric program assistance
in the form of loan guarantees. As a guarantor, RUS does not have the
same discretion to defer payments that it does when it is the lender.
Consequently, RUS has determined that it is now necessary and
appropriate to finalize a loan program for this RE Act purpose.
``The RE Act, 7 U.S.C. 904, commits to the discretion of the
Administrator the making of loans for rural electrification. . . .''
Alabama Power Co. v. Ala. Elec. Coop., 394 F.2d 672 at 675 (CA 5) cert.
denied 393 U.S. 1000 (1968). ``REA is the administrative agency charged
by Congress with responsibility for facilitating rural electrification.
REA was intended by Congress to determine the appropriate course of
conduct to accomplish the legislative purpose.'' Public Utility
District No. 1 of Franklin County v. Big Bend Electric Cooperative,
Inc., 618 F.2d 601 at 603 (CA 9 1980). By broadly adding ``energy
efficiency'' in the 2008 Farm Bill as a legislative purpose for the RE
Act loans, Congress left it to the Administrator's discretion to
fashion the appropriate method to accomplish this purpose. Drawing on
more than three decades of experience in using electric cooperatives as
local intermediaries to accomplish RE Act objectives at the Consumer
level, RUS will deliver this energy efficiency program by drawing upon
its favorable past successes and using its electric borrowers as
intermediaries.
RUS will only make loans for eligible purposes to electric utility
systems . An eligible borrower means a utility system that has direct
or indirect responsibility for providing retail electric service to
persons in a rural area. This definition includes existing borrowers
and utilities who meet current RUS borrower requirements. RUS
anticipates that borrowers under the Energy Efficiency and Conservation
Loan Program will be generation and transmission (G&T) borrowers, their
distribution members, or unaffiliated distribution borrowers who are
current on their RUS loan payments and in compliance with those loan
documents. RUS anticipates that the Energy Efficiency (EE) improvements
installation work may be contracted by either the utility, the Ultimate
Recipient, or performed directly by employees of the borrower. In all
cases, the Eligible Borrower will hold title to the receivables funded
by the RUS loan.
RUS is authorized by the RE Act to make loans to implement Demand
side management (DSM), EE Programs and conservation programs, and on-
grid and off-grid renewable energy systems. Energy efficiency in this
regulation is defined as the degree a system or component performs its
designated function with minimum consumption of resources. Renewable
energy systems have a specific role in this regulation. Renewable
generation can be used as load modifiers, which can increase the
efficiency of energy consumption from the utilities perspective and are
effective at decreasing energy used by decreasing load. Renewable
energy and conservation savings associated with this regulation are
from the utilities perspective, though the energy savings could be
realized by both the Consumer and utility, depending on the type of
project, as the utility is the RUS borrower and is culpable for
repayment of the loan. Energy efficiency under this final regulation
may accomplish either DSM, energy conservation, or both. The goals of
an eligible EE Program under Subpart H may include one or more of the
following: (1) Increase energy efficiency at the end user level; (2)
modify electric load such that there is a reduction in overall system
demand; (3) effect a more efficient use of existing electric
distribution, transmission and generation facilities; (4) attract new
businesses and create jobs in rural communities; and (5) encourage the
use of renewable energy fuels.
There are three primary differences between the existing energy
resource conservation program codified in 7 CFR part 1721 subpart B
(ERC program) and the EECLP final regulation in 7 CFR part 1710,
subpart H. First, the existing ERC program is limited to direct loan
principal deferments and is not available for RUS guaranteed loans.
Second, the list of eligible loan purposes for this program is more
expansive than the ERC program and, where applicable, emphasizes that
the assets in question must be characterized as an integral part of the
Consumer's real property that would typically transfer with the title
under applicable state law. Lastly, the term of financing available
under Subpart H is longer than the term allowed for principal
deferments under the ERC loan program.
Rural electric cooperatives are proponents of energy efficiency
measures. According to the National Rural Electric Cooperative
Association: 73 percent of these co-ops plan on significantly expanding
existing efficiency programs in the next two years: 70 percent of co-
ops offer financial incentives to promote greater energy efficiency: 96
percent of co-ops have some form of energy efficiency program in place,
co-ops are responsible for nearly 25 percent of residential peak load
management capacity, and cooperatives have 10 percent of retail
electricity sales but are responsible for 20 percent of actual peak
demand reduction. Representatives from rural electric cooperatives have
commented that access to low interest funds can be the difference
between success and failure for an energy efficiency program.
Eligible EE Programs can be comprised of a variety of activities,
performed by either the utility or third parties. This final rule sets
forth the policies and procedures related to eligible EE Programs where
the RUS will finance: (1) Energy efficiency activities undertaken by
the utility itself; (2) loans made by the utility to finance energy
efficiency projects undertaken by others; and (3) investments made by
the utility to accomplish their obligations under utility energy
services contracts. The types of activities that are eligible for RUS
financing under Subpart H include but are not limited to: (1) Energy
audits; (2) community awareness and outreach programs; (3) services,
materials and equipment provided by a qualified local contractor to
improve energy efficiency at the Consumer level; and (4) energy
efficiency loans made by the utility to its customers. RUS is allowing
fuel switching as an eligible activity under this regulation. A
description of EE Programs that qualify for RUS financing can be found
in Sec. 1710.405. Eligible investments are listed in Sec. 1710.406.
Finally, eligible borrowers are defined in Sec. 1710.404.
Some programs designed by utilities may have the utility initially
owning an asset even though it is located on a Consumer's premise and
the asset is later conveyed to the Consumer after it is paid for or a
predetermined time period has elapsed. Where this is the case, RUS is
proposing that the application include an additional or
[[Page 73360]]
revised Schedule C to the RUS mortgage listing these assets as Excepted
Property under the RUS mortgage, so as to preclude the assets being
captured under the after acquired clause that is standard in the RUS
mortgage codified in 7 CFR part 1718. It is the intent of RUS that a
release of lien need not be executed by the Agency for the utility to
convey to the Consumer clear title to these assets when this Schedule C
is recorded.
This final rulemaking recognizes that energy may take a variety of
forms, not just electricity. The criteria to be met by eligible
programs include energy efficiency as measured by British Thermal Unit
(Btu) input relative to Btu output, in order to facilitate the widest
and greatest contribution by the rural utility in optimizing the energy
consumption profile of its service territory. This rulemaking also
provides that an eligible program must demonstrate that the financial
strength of the electric utility is not harmed by EE Program activities
funded under Subpart H.
An important distinction between eligible energy efficiency assets
to be financed under this new Subpart H and other energy efficiency
activities is that the assets located at a Consumer's premises, whether
or not title is to be held by the utility must, for the most part, be
considered an integral part of the real property that would typically
transfer with the title under applicable State law in order to be
financed pursuant to an eligible program under Subpart H.
Eligible programs shall provide that the utility will recoup all or
part of the costs from specific ratepayers on whose behalf an
investment has been made. Recoupment may take the form of Consumer loan
repayment or a dedicated tariff. An eligible program reviewed under
Subpart H must show that the payment terms and loan term offered to the
Consumer are generally correlated with the expected life of the
applicable assets. An eligible program must also offer an undertaking
that funds, collected from ratepayers, in excess of the current
amortization requirements for the RUS loan will be redeployed for EE
Program purposes or used to prepay the RUS loan. These prepayments are
in addition to scheduled principal and interest debt service payments.
Applications for program financings under Subpart H must fully
describe a Business Plan that meets the requirements of Sec. 1710.407.
The Agency recognizes that energy efficiency investments that
reduce energy consumption at the Consumer premises (for instance those
that affect the power factor) may prompt a need for investments at the
system level to sustain the reliability and stability of the grid. The
business plan called for in Subpart H must identify the related system
investment to be identified as part of the EE Program, but these system
level investments would be reflected in the utility's construction work
plan and financed as part of a traditional loan application.
It is not required that an eligible program fund energy audits
performed at Consumer premises. However, if the utility proposes to
provide audits; Subpart H requires that the program must also include a
provision for assisting Consumers in implementing changes suggested in
aggregate to be cost effective by the audit. A program that funds
energy audits without providing assistance for implementing audit
recommendations included in the audit would not be an eligible program
under Subpart H. Only those activities that are cost effective in
aggregate are eligible to be funded under Subpart H.
The list of eligible investments and activities that a qualified
plan may incorporate is not intended to be exhaustive. The intent is to
facilitate flexibility for the utility's EE Program consistent with the
resources and Consumer profiles in its service territory.
This lending program is designed for utility-designed and directed
EE Programs. As such it anticipates that eligible loan purposes will
include program administrative and other soft costs, such as marketing
expenses, where not more than five percent of the loan budget may be
used for these purposes. A utility's program may include acting as an
intermediary lender, where the utility uses RUS financing to make
Consumer loans to finance these investments on the Consumers' premises.
Where this is the case, Subpart H requires the borrower to have a
maximum interest rate to the ultimate consumer at 1.5 percent above the
RUS loan cost to the borrower unless an exception is granted by the
Administrator. Exceptions will be made on a case-by-case basis to
ensure repayment of the government's loan. We will not accept an
exception if the loan is feasible at 1.5 percent. This rate must be
discussed in the applicant's business plan.
The process for applying for EECLP loans is intended to largely
conform to the Agency's existing process for loans relating to other
eligible purposes. Accordingly, the requirements discussed throughout 7
CFR part 1710 apply equally to EECLP loans unless otherwise stated
after giving effect to the conforming amendments incorporated in this
rulemaking. Expenditures by the utility will be reimbursed by the
Agency after the fact pursuant to an inventory of work orders system as
is typical for our existing loan process. The analytical material
needed to support an EECLP loan is different from what is needed to
analyze a generation or transmission loan. Accordingly, Subpart H
elaborates on what is needed for RUS to approve an EE Program and loans
to execute the program. EE Program activity will be captured under a
separate energy efficiency work plan. Energy efficiency investments
will not be listed on the traditional construction work plan that
applies to utility assets financed by RUS.
As with other loans made pursuant to 7 CFR part 1710, a borrower's
Environmental Report (ER) is expected to accompany the energy
efficiency work plan associated with the loan request. The ER is in
accordance with 7 CFR part 1794. Part 1794 contains the policies and
procedures of the Rural Utilities Service for implementing the
requirements of the National Environmental Policy Act. In the case of
an EECLP loan, this ER will be expected to reference the PEA completed
by the Agency for EECLP loans, and identify any investments and their
potential environmental impacts proposed in the work plan that were not
analyzed in the PEA.
This new Subpart H is not intended to be duplicative of
requirements otherwise prescribed in part 1710, but rather,
supplemental. It identifies requirements that are unique to loans made
under the proposed Subpart H to finance EE Programs. It prescribes
requirements for our direct borrowers. Our direct borrowers will then
act as intermediary lenders to accomplish the investments outlined in
an approved EE program. Where there is an express conflict with
requirements elsewhere in part 1710, the provisions of Subpart H would
apply, but otherwise Subpart H is not intended to supplant the
applicability of the rest of part 1710 or other applicable parts in the
Code of Federal Regulations.
In implementing Subpart H, as required for all of part 1710, RUS
will work with Department of Energy (DOE), following the requirements
set out by the Rural Electrification Act of 1936, Section 16 that
states: ``the Secretary in making or guaranteeing loans for the
construction, operations, or enlargement of generating plants or
electric transmission lines or systems shall consider such general
criteria consistent with the provisions of this Act as may
[[Page 73361]]
be published by the Secretary of Energy.''
Summary of Major Changes in Response to Comments on the Rule
The agency published a Proposed rulemaking on July 26, 2012, at 77
FR 43723. RUS received 63 comments on the proposed Energy Efficiency
and Conservation Loan Program. The sixty three commenters consisted of
industry representatives that included: Electric cooperatives, such as
South Carolina Electric and Gas company; nonprofit energy efficiency
supporters, such as the E3 coalition and the Sierra Club; and envelope
organizations that represent RUS borrowers, such as the National Rural
Electric Cooperative Association. Sixty two of the sixty three letters
were extremely supportive of the regulation, and applauded RUS for
proposing the program. The opposing letter stated that it was against
all Federal programs.
Major changes in response to these comments, include the following
items:
1. Removed restrictions on the size of load modifiers.
2. Adjusted soft cost limitations from 4 percent to 5 percent.
3. Limit Consumer interest rate to 1.5 percent above the cost of
the loan to the borrower.
4. Decreased the complexity of the loan program by eliminating
performance thresholds.
5. Defined certified energy auditor.
6. Added fuel switching as an eligible purpose.
7. Clarified the definition of eligible borrowers to include former
and new RUS borrowers that meet RUS standards specified in regulation
and statute.
8. Changed the cost effectiveness requirements, extending
requirements to 10 years or equipment useful life on an aggregate
basis.
9. Removed the Net Utility Plant language.
10. Allowed some pre-retrofitting as an eligible activity.
Summary of Comments
A summary of the comments and RUS's response are as follows:
Small Scale Renewable Energy Projects
Comment: There were 17 comments addressing the small scale
renewable energy limitation of ``nameplate generation capacity that is
less than the 50 percent of the average anticipated electrical load
associated with the end user.'' Of the 17 comments, only 4 wanted to
decrease or eliminate small scale renewables, on the basis that small
scale renewables tend to not be cost effective.
Response: The Energy Efficiency and Conservation Loan program
regulation has been edited, and will no longer have any restrictions on
small scale renewable energy projects. All activities will be eligible,
however, state mandates, laws, and cooperative bylaws will override
this regulation.
Soft Costs Associated With a Borrower's Loan
Comment: Seven comments requested that RUS not limit the
``administrative'' costs associated with the loan. The current
regulation limits administrative costs to 4 percent.
Response: RUS acknowledges that there is a cost to our borrowers to
start-up and maintain an energy efficiency program, and has agreed to
increase the ``administrative'' cost limitation to 5 percent in the
final regulation. However, RUS must protect the Electric Program loan
portfolio, and increasing the rate any higher may impair the
productivity of the program, and subsequently the subsidy rate. Also,
cooperatives may have the opportunity to rate-base certain energy
efficiency costs.
The Rate Borrowers Can Charge to the Ultimate Consumer Above the
Treasury Based Interest Rate
Comment: RUS requested comments on the appropriate markup borrowers
could charge above the Treasury-based interest rate. Twenty-one
comments were received. The majority of comments stated that markups
must be between 5 and 10 percent, with numerous comments stating that
RUS should not specify a cap to make the program economical to the
borrower.
Response: Borrowers are limited to interest rates 1.5 percent above
the cost of their RUS loan. Exceptions will be given on a case-by-case
basis that must be clearly articulated in the business plan such as
unavoidable program level costs. We will not accept an exception if the
loan is feasible at 1.5 percent.This information, combined with all the
other additional information, will allow RUS to determine the
feasibility of the loan.
Decrease the Complexity of the Loan Program
Comment: RUS received seven comments stating that the current
program requirements were too complicated and burdensome. Requiring an
environmental plan, business plan, quality assurance plan, performance
thresholds, return on investment demonstrations, additional supporting
documents, and load forecasting before and after improvements was too
extensive, and would limit borrower's interest in the program.
Response: RUS has simplified the regulation to decrease the Energy
Efficiency and Conservation Loan Program's complexity and burden.
Performance thresholds have been removed, the cost effectiveness
definition has been modified, and procedures edited to keep the program
simple and straight forward.
Define Certified Energy Auditor
Comment: Six comments were submitted, asking RUS to clarify the
definition of certified energy auditor.
Response: RUS has clarified the definition, allowing a borrower to
use an auditor certified under state, local, or federal standards.
Identifying the Appropriate Performance Thresholds
Comment: Twenty comments were received on what were the appropriate
performance thresholds for the Energy Efficiency and Conservation Loan
Program. Seven comments supported the language in the proposed rule,
stating ``existing energy efficiency standards or criteria such as
those from Energy Star, Federal Energy Management Program (FEMP),
American National Standards Institute (ANSI), or other voluntary
consensus standards,'' 2 comments recommended limiting the thresholds
to Energy Star or Energy Efficiency Ratio, and the remaining 9 comments
recommended that RUS fund all market proven energy products that reduce
the Consumer's annual Btu.
Response: RUS clarified that borrowers are encouraged to use
existing energy efficiency standards or criteria such as those from
ENERGY STAR, FEMP, ANSI, or other voluntary consensus standards rather
than performance thresholds to give Borrowers greater latitude.
Fuel Switching
Comment: Twelve comments strongly supported fuel switching. Fuel
switching is essential for some borrowers to handle peak demand.
Response: RUS has modified the regulation to allow fuel switching.
Many of the 12 comments in support of fuel switching were associations
that represent over 1,000 electric cooperatives and millions of
households, including NW Energy Coalition, Midwest Energy Efficiency
Alliance, Utility Geothermal Working Group, Iowa Environmental Council,
The Mountain Association for Community Economic Development, and the
National Rural Electric Cooperative Association.
[[Page 73362]]
The $250 Million Funding Limitation
Comment: Sixteen comments were received, all in strong support of
removing the $250 million limitation.
Response: The $250 million was an estimate of what the Agency
believed would be the demand for the program. Public comment indicates
more interest in the program than the proposed rule's $250 million per
year limitation. In fiscal year 2014, the Rural Utilities Service will
make $250 million available to support energy efficiency as indicated
in the Presidents climate change action plan. In future years, the
amount of funding made available will be based on the performance of
the program. Additionally, to be consistent, the energy efficiency
program should compete equally with other eligible loan purposes.
A Preferred Lender Program
Comment: One comment was submitted proposing a preferred lender
program that borrowers could qualify for if they had a loan total of
less than $2 million. Standards would be set for basic, preapproved
weatherization practices and be made available to any eligible
borrower. Standard benefit levels would be assigned to those practices
and applied when determining benefits. There would not be a requirement
for energy audits or post tests. This would cut the cost of program
delivery while maintaining well established and known benefits for the
members. The cooperatives that wish to participate at a higher loan
level would have to comply with the standards established in the
proposed regulations.
Response: RUS believes that preferred lending criteria is not
needed in the regulation. RUS will use current authorities to
streamline the application process.
Former RUS Borrowers and Their Eligibility for the Loan Program
Comment: Four comments were submitted supporting allowance of
former RUS borrowers to return to the program.
Response: The regulation has been modified to clarify that past
borrowers are eligible for the Energy Efficiency and Conservation Loan
program, in accordance with the statute and any other regulation
relating to new or returning borrowers.
The Cost Effective Requirement in Section 1710.405
Comment: Nine comments were received, eight requesting a payback
period that was longer than the current 5 years stated in the
regulation. One comment requested that the payback period be less than
the life of the product.
Response: The regulation has been modified to more precisely define
cost effectiveness and increase the payback to 10 years, except in
cases where the useful life of the technology on an aggregate basis can
be demonstrated to be longer than the 10 year period. RUS will evaluate
the useful life assumption on a case-by-case basis.
Financial Institutions and Cooperative Relending
Comment: Four comments were received requesting RUS to add language
in the regulation that defines who RUS borrowers can work with as
intermediaries.
Response: RUS will not add any additional language. Business cases
will be reviewed to determine the viability of the loan. Existing
regulation language does not deter borrowers from establishing
partnerships with other organizations to help implement their energy
efficiency programs.
Net Utility Plant
Comment: Three comments were received asking RUS to remove the
provisions of Sec. 1710.409(d (1)). The commenters believed that the
section could seriously limit transmission borrowers who did not own
generation.
Response: RUS has removed the section. Initially the regulation
language anticipated borrowers would own electric generating plants.
Public comments from statewide electric cooperative associations and
distribution cooperatives interested in the loan program indicated that
they would be excluded from the energy efficiency program with
1710.409(d(1)). These current borrowers are not generation and
transmission organizations and therefore do not own electric generation
plants. The language has been removed to allow them to participate.
Bulletin and Guidance Documents
Comment: Four comments asked RUS to remove Sec. Sec. 1710.406(d),
1017.407(g), and 1710.408(i). Each of those sections state borrowers
shall follow a bulletin or other publication to be identified later.
They claim that the proposed provision violates the Administrative
Procedures Act by purporting to establish as regulatory obligations
purely administrative determinations to be made later without notice
and comment rulemaking.
Response: The proposed rule required borrowers to follow
requirements in yet to be developed bulletins. The final regulation has
been changed from ``shall'' to ``are strongly encouraged to.'' Please
see the following regulatory language ``(g) The borrowers are strongly
encouraged to follow a bulletin or such other publication as RUS deems
appropriate that contains and describes best practices for energy
efficiency business plans. RUS will make this bulletin or publication
publicly available and revise it from time to time or eliminate it as
RUS deems it necessary. ``
Requiring all Electric Borrowers To Participate in This Program
Comment: Three comments asked if all current borrowers would be
required to participate in the Energy Efficiency Loan Program. One of
the two comments stated that RUS must require all borrowers to
participate in this loan program and have active energy efficiency
programs.
Response: The Energy Efficiency and Conservation Loan program
allows for energy efficiency improvements as an eligible purpose and
will be reviewed and approved as other eligible purposes within the
statute and the regulation. RUS does not believe it to be appropriate
to require Borrowers to participate in this program.
Requiring all Load Forecasting
Comment: Two comments questioned the need for load forecasting, one
comment stated that their current energy efficiency and conservation
loan program is made up of only 30-40 members, not affecting the
forecast at all.
Response: Load Forecasting is an important accountability component
of the Energy Efficiency and Conservation Loan program. If the energy
efficiency program has negligible effect on the Load Forecast then that
information should be stated in the discussion within the Load
Forecast. No changes were made to the regulation.
Quality Assurance plan
Comment: One comment stated that there were very few qualified
energy managers and professional engineers in rural areas that are
available to conduct the requirements of a program evaluation, and
questioned who would have to bear the cost of the evaluation.
Response: RUS recognizes that there will be additional expenses
associated with the Energy Efficiency and Conservation Loan program.
The borrowers may pass along those costs to the Ultimate Recipient, but
it needs to be explained in the submitted work plan.
[[Page 73363]]
Loan Advances on a Reimbursement Basis
Comment: Two comments questioned how funds would be distributed.
They were not supportive of funding projects on a reimbursable basis.
Response: All of RUS's programs are run on a reimbursable basis,
though the regulation currently states that startup capital of up to 5
percent may be made available for an energy efficiency plan. No changes
will be made to our current funding model.
Making Post-Installment Evaluations Publically Available
Comment: Two comments requested that all post-installment
evaluation and verification requirements be made available to the
public.
Response: RUS acknowledges the importance of transparency, but also
must weigh the privacy of our borrowers. We will provide information to
the public in conformity with the Freedom of Information Act.
Using Qualified Contractors
Comment: One comment reiterated the importance of using qualified
contractors to install energy efficiency and conservation activities.
Response: RUS is a strong supporter of using qualified contractors
and will require borrowers to state the types of contractors that will
be used, if any, in a borrower's quality assurance plan.
Program Aggregation
Comment: One comment stated that borrowers should be able to
aggregate their various energy efficiency programs to bring them up to
scale, decreasing the total workload.
Response: The Energy Efficiency and Conservation Loan program will
hold each borrower accountable. Though borrowers can work with each
other to decrease costs, each borrower will be individually held
responsible for providing the required level of information and
oversight.
Ground Source Heat Pumps
Comment: One comment stated that the regulation should not
specifically call out ground source heat pumps, as the technology is
advancing quickly.
Response: Ground source heat pumps are just one eligible activity
under the Energy Efficiency and Conservation Loan program. Though
mentioned in the regulation as an example, we are neither promoting nor
discouraging their use.
Offer Technical Assistance to Utilities
Comment: One comment requested RUS provide technical assistance to
utilities to design, administer, and evaluate their energy efficiency
loan program.
Response: RUS will work closely with the borrower, answering any
questions they may have on their business plan, quality assurance plan,
etc.
Encourage Peer-to-Peer Networking Through Webinars
Comment: Six comments requested RUS set up regular webinars, phone
conferences and an on-line peer-exchange Web site for participating
borrowers.
Response: RUS supports the exchange of ideas and will facilitate
cross communication when possible, but RUS does not have the resources
to commit to this on a large scale. RUS will partner with other federal
agencies to support broader peer-to-peer exchange.
The Definition of Energy Efficiency and Conservation measures
Comment: One comment requested that we add the following language
to the energy efficiency and conservation measures definition, ``which
may also include the onsite generation of electricity from waste heat
resources. ''
Response: RUS believes the definition is inclusive, and the
additional language is unnecessary.
Promote On-Bill Repayment
Comment: Eight comments stated that RUS stress the importance of
using on-bill repayment as an effective financing method for energy
efficiencies.
Response: RUS recognizes that on-bill financing is one way for a
borrower to be repaid for their activities, however the borrower will
have the ultimate decision on how they will recover their expenses.
Their method of choice will be articulated in their business plan.
Additional Language Clarifying That Borrowers Cannot Exclude Renters
Comment: Five comments requested that RUS add language to the
regulation requiring utilities to identify approaches that would ensure
the equitable treatment by all types of consumers, and explicitly
include low-income in both single-family and multi-family buildings.
Response: RUS sympathizes with the comment's concern, however we
believe Sec. 1710.122 on Equal opportunity and nondiscrimination
located in the overarching Electric Program regulation, fulfills the
needs specified by the comments.
Pre-Retrofits Should Be Allowed as Program Costs
Comment: Four comments stated that pre-retrofit activities that
need to take place to make a house structurally sound before
weatherization activities can take place, be an eligible activity under
the Energy Efficiency and Conservation loan program
Response: RUS added language to allow limited pre-retrofits as an
eligible loan activity. The Department of Energy has established that
many opportunities for energy efficiency upgrades exist in low income
housing. Often the residential building envelope needs infrastructure
improvements to be able to accept energy efficiency upgrades. For
example, the floor of a residential building may need structural
repairs before efficient insulation can be installed. This would reduce
the overall energy requirement for the structure.
Loan Loss Reserves and Credit Enhancements Should Be Allowed as Program
Costs
Comment: Four comments stated that RUS allow borrowers to create
loan loss reserve funds to allow utilities to attract investors and
leverage private capital, as an eligible activity under the Energy
Efficiency and Conservation loan program
Response: RUS is statutorily required to fund energy efficiency and
conservation activities. Additional activities are outside the agency's
authority and would require amendments.
Additional Language Supporting a Diverse Workforce
Comment: One comment requested that RUS add language to require
borrowers to use local and under-represented businesses when
implementing their energy efficiency program.
Response: A borrower must prove that their energy efficiency
program is cost effective; specifying who a borrower must work with is
beyond the scope of Subpart H.
Consumer Eligibility
Comment: Seven comments requested that RUS clarify ``due
diligence'' to confirm that ability to repay a loan or participate in a
program does not have to include a credit check, but rather rely on
utility bill payment history.
Response: The borrower is held accountable for paying off the loan,
and needs to determine eligible Consumers. Their method of choice will
be articulated in their business plan.
Clarifying Sec. 1710.255(b)
Comment: One comment requested clarification on Sec. 1710.255(b),
which requires that all facilities being improved be included in the
energy
[[Page 73364]]
efficiency work plan, to state that this section only applies to
utility-owned properties.
Response: RUS believes the Energy Efficiency Work Plan (EEWP) must
also itemize Consumer upgrades in aggregate.
Clarifying Demand Side Management
Comment: Three comments requested that RUS specifically state that
switches for water heaters and air conditioning units be eligible under
Demand side management, or at a minimum clearly state energy efficiency
in the definition.
Response: RUS believes the definition is inclusive, and the
additional language is unnecessary.
Redefine Energy Efficiency and Conservation Measures
Comment: Two comments requested that RUS change the sentence
``ultimate goal is the reduction of utility energy needs'' to
``ultimate goal is the reduction of all forms of consumer energy needs
(based on annual Btu consumption).
Response: RUS believes the current definition fits the ultimate
goal, to reduce utility energy needs, Consumer energy needs is too
limiting as utilities are also eligible to finance energy efficiency
activities in their facilities.
Clarifying Sec. 1710.406(b)(7)
Comment: Two comments requested that the words ``power quality
equipment'' be added.
Response: RUS believes the definition is inclusive, and the
additional language is unnecessary.
Fuel Cells
Comment: Two comments requested that RUS remove fuel cells as an
eligible activity and investment.
Response: Fuel cells can be used in energy efficiency and
conservation activities and will keep the activity in the regulation.
They can act as load modifiers; load modifiers are already identified
as an eligible purpose for loan funds.
Clarifying Sec. 1710.406(a)(1)
Comment: Two comments requested that RUS make changes to Sec.
1710.406 (a)(1). The proposed rule states that eligible program
activities and investments ``shall be designed to improve energy
efficiency or MANAGED demand on the customer side of the meter. While
demand improvements are a primary goal of the rule, demand improvement
can be accomplished through managed or passive improvements on the
customer side of the meter. Consequently the word `managed' should be
removed from the text and replaced with the word ``reduce'' and the
word ``peak'' should be added before ``demand.'' The new text should
state ``shall be designed to improve energy efficiency or reduce peak
demand on the customer side of the meter.
Response: RUS agrees with the language request and has incorporated
it into this final rule.
Clarifying Sec. 1710.405(b)(1)(vii)
Comment: One comment requests additional clarification in the
background section on what the rate will be for borrowers.
Response: This section has been revised for other reasons, the
issue is moot.
Sec. 1721.1(a)
Comment: One comment requests the section be modified to remove
insured, and revise the language to be ``a) Purpose and amount. With
the exception of minor projects, loan funds will be advanced only for
projects which are included in a RUS approved borrower's construction
work plan (CWP), EE Program work plan (EEWP), or approved amendment,
that have also received written Environmental Clearance and/or Approval
from RUS prior to the start of construction, and follow RUS' contract
and bidding procedures as set forth in 7 CFR part 1726 if applicable.
Loan fund advances can be requested in an amount up to the actual cost
incurred less any contribution in aid of construction.
Response: RUS accepts the following language change: ``a) Purpose
and amount. With the exception of minor projects, loan funds will be
advanced only for projects which are included in a RUS approved
borrower's EE Program work plan (EEWP), or approved amendment, that
have also received written Environmental Clearance and/or Approval from
RUS prior to the start of construction, and follow RUS' contract and
bidding procedures as set forth in 7 CFR part 1726 if applicable. Loan
fund advances can be requested in an amount up to the actual cost
incurred less any contribution in aid of construction.
State and Federal Interactions
Comment: One comment asked if the Energy Efficiency loan program
would override state or federal Law.
Response: The Energy Efficiency and Conservation Loan program does
not override any statutory state or federal laws.
Loan Directly to Consumers
Comment: One comment requested that RUS change the loan program,
and loan directly to consumers, bypassing the electric companies.
Response: The Energy Efficiency and Conservation Loan program does
not statutorily allow us this discretion.
Natural Gas Expansion and Explicit Support of Water Heaters
Comment: Two comments requested RUS explicitly support a given
technology or fuel. One comment requested that RUS create a broader
regulation that clearly articulates the importance of natural gas. One
comment requested that RUS explicitly include installation of solar
thermal, gas, and electric-resistance water heaters as an eligible use
of program funds.
Response: RUS does not support one technology or fuel source. No
changes will be made to the regulation.
Appropriate Performance Thresholds for Water Heaters
Comment: One comment requested that RUS set explicit energy
efficiency thresholds for water heaters.
Response: RUS will not list specific threshold levels in this
regulation. Rather, we have clarified that borrowers are encouraged to
use existing energy efficiency standards or criteria such as those
from: Energy Star, FEMP, ANSI, or other voluntary consensus standards.
Focus on Utility Programs That Support Customer Investments in Energy
Efficiency
Comment: One comment asked RUS to establish requirements and
guidelines that will ensure program funds are substantially devoted to
support utility programs designed to support efficiency investments in
customer homes, buildings, and facilities.
Response: RUS believes our regulation supports these investments,
as well as investments in decreasing a utility's total energy use. No
additional language was added.
Leverage Other Federal Programs With the Energy Efficiency Program
Comment: One comment asked RUS to explore leveraging options with
USDA's Rural Housing Service, Federal Housing Administration,
Department of Veterans Affairs, and the Federal Housing Finance
Authority.
Response: RUS supports program collaboration, and will continue to
work with our Federal partners, but no additional language will be
included in the regulation.
[[Page 73365]]
Consider Combined Heat and Power Projects as Eligible Measures
Comment: One comment asked RUS to explicitly state combined heat
and power projects are an eligible energy conservation activity under
the regulation.
Response: RUS believes our regulation provides enough flexibility
to allow these forms of activities, without specifying every eligible
activity in the regulation.
Fuel Switching Definition
Comment: One comment requested RUS change the definition of fuel
switching to ``the temporary use of non-electric energy sources as a
method to limit electric peak loads during limited time periods. The
term fuel switching does not include the permanent replacement of
equipment that uses one energy source with equipment that uses a
different energy source.''
Response: RUS clarified the definition of ``fuel switching.'
Loan Monitoring
Comment: One comment asked RUS to adopt data collection procedures
to track program financials and measure performance.
Response: RUS has and will continue to collect data on loan
activities, monitoring and tracking performance measures. No additional
language needs to be added to the regulation.
Existing EE Programs
Comment: One comment requested RUS target supplementing existing
and planned energy efficiency programs and budgets, not replacing the
programs.
Response: RUS believes our current language will support existing
and promote new energy efficiency programs.
List of Subjects
7 CFR Part 1710
Electric power, Loan programs-energy, Reporting and recordkeeping
requirements, Rural areas.
7 CFR Part 1717
Administrative practice and procedure, Electric power, Electric
power rates, Electric utilities, Intergovernmental relations,
Investments, Loan programs-energy, Reporting and recordkeeping
requirements, Rural areas.
7 CFR Part 1721
Electric power, Loan programs-energy, Rural areas.
7 CFR Part 1724
Electric power, Loan programs-energy, Reporting and recordkeeping
requirements, Rural areas.
7 CFR Part 1730
Electric power, Loan programs-energy, Reporting and recordkeeping
requirements, Rural areas.
For reasons set forth in the preamble, the Agency amends 7 CFR
chapter XVII as follows:
PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO
ELECTRIC LOANS AND GUARANTEES
0
1. The authority citation for part 1710 continues to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Subpart A--General
0
2. In Sec. 1710.2(a) revise the definition of ``Demand side
management'' and add a definition of ``Eligible Energy Efficiency
Programs'' in alphabetical order to read as follows:
Sec. 1710.2 Definitions and rules of construction.
(a) * * *
Demand side management (DSM) means the deliberate planning and/or
implementation of activities to influence Consumer use of electricity
provided by a distribution borrower to produce beneficial modifications
to the system load profile. Beneficial modifications to the system load
profile ordinarily improve load factor or otherwise help in utilizing
electric system resources to best advantage consistent with acceptable
standards of service and lowest system cost. Load profile modifications
are characterized as peak clipping, valley filling, load shifting,
strategic conservation, strategic load growth, and flexible load
profile. (See, for example, publications of the Electric Power Research
Institute (EPRI), 3412 Hillview Avenue, Palo Alto, CA 94304, especially
``Demand-Side Management Glossary'' EPRI TR-101158, Project 1940-25,
Final Report, October 1992.) DSM includes energy conservation programs.
* * * * *
Eligible Energy Efficiency and Conservation Programs (Eligible EE
Program) means an energy efficiency and conservation program that meets
the requirements of Subpart H of this part.
* * * * *
Subpart C--Loan Purposes and Basic Policies
Sec. 1710.100 [Amended]
0
3. In Sec. 1710.100, amend the first sentence by adding the words
``efficiency and'' before ``energy conservation''.
Sec. 1710.101 [Amended]
0
4. In Sec. 1710.101, amend the second sentence of paragraph (b) by
adding the word ``direct'' before ``loans to individual consumers''.
Sec. 1710.102 [Amended]
0
5. Amend Sec. 1710.102 as follows:
0
a. Amend the first sentence of paragraph (a) by adding ``energy
efficiency and'' before ``energy conservation''; and
0
b. Amend the first sentence of paragraph (b) by adding ``energy
efficiency and'' before ``energy conservation''.
0
6. Amend Sec. 1710.106 by adding paragraph (a)(6) and revising
paragraphs (c)(1) and (d) to read as follows:
Sec. 1710.106 Uses of loan funds.
(a) * * *
(6) Eligible Energy Efficiency and Conservation Programs pursuant
to Subpart H of this part.
* * * * *
(c) * * *
(1) Electric facilities, equipment, appliances, or wiring located
inside the premises of the Consumer, except for assets financed
pursuant to an Eligible EE Program, and qualifying items included in a
loan for Demand side management or energy resource conservation
programs, or renewable energy systems.
* * * * *
(d) A distribution borrower may request a loan period of up to 4
years. Except in the case of loans for new generating and associated
transmission facilities, a power supply borrower may request a loan
period of not more than 4 years for transmission and substation
facilities and improvements or replacements of generation facilities.
The loan period for new generating facilities and DSM activities will
be determined on a case-by-case basis. The Administrator may approve a
loan period shorter than the period requested by the borrower, if in
the Administrator's sole discretion, a loan made for the longer period
would fail to meet RUS requirements for loan feasibility and loan
security set forth in Sec. Sec. 1710.112 and 1710.113, respectively.
* * * * *
[[Page 73366]]
Sec. 1710.109 [Amended]
0
7. In Sec. 1710.109 amend the first sentence of paragraph (a) by
adding the words ``energy efficiency and conservation program work
plan,'' after ``construction work plan''.
0
8. Amend Sec. 1710.115 by adding paragraph (c) to read as follows:
Sec. 1710.115 Final maturity.
* * * * *
(c) The term for loans made to finance Eligible EE Programs will be
determined in accordance with Sec. 1710.408 of this part.
* * * * *
Sec. 1710.120 [Amended]
0
9. In Sec. 1710.120 add the words ``energy efficiency and conservation
program work plans,'' after ``construction work plans,''.
Subpart D--Basic Requirements for Loan Approval
0
10. Amend Sec. 1710.152 by adding paragraph (e) to read as follows:
Sec. 1710.152 Primary support documents.
* * * * *
(e) EE Program work plan (EEWP). In the case of a loan application
to finance an Eligible Energy Efficient Program, an EE Program work
plan shall be prepared in lieu of a traditional CWP required pursuant
to paragraph (b) of this section. The requirements for an EEWP are set
forth in Sec. 1710.255 and in subpart H of this part.
Subpart E--Load Forecasts
0
11. Amend Sec. 1710.202 by adding paragraph (d) to read as follows:
Sec. 1710.202 Requirement to prepare a load forecast--power supply
borrowers.
* * * * *
(d) Notwithstanding paragraphs (a) through (c) of this section, a
power supply borrower that has an outstanding loan for an Eligible EE
Program is required to maintain an approved load forecast and an
approved load forecast work plan on an ongoing basis.
0
12. Amend Sec. 1710.203 by adding paragraph (f) to read as follows:
Sec. 1710.203 Requirement to prepare a load forecast--distribution
borrowers.
* * * * *
(f) Notwithstanding paragraphs (a) through (e) of this section, a
distribution borrower that has an outstanding loan for an Eligible EE
Program is required to maintain an approved load forecast and an
approved load forecast work plan on an ongoing basis.
Sec. 1710.205 [Amended]
0
13. In Sec. 1710.205 amend paragraph (b)(5) by adding the words ``and
energy efficiency and conservation program'' after ``demand side
management''.
Subpart F--Construction Work Plans and Related Studies
0
14. Add Sec. 1710.255 to subpart F to read as follows:
Sec. 1710.255 Energy efficiency work plans--energy efficiency
borrowers.
(a) All energy efficiency borrowers must maintain a current EEWP
approved by their board of directors covering in aggregate all new
construction, improvements, replacements, and retirements of energy
efficiency related equipment and activities;
(b) An energy efficiency borrower's EEWP shall cover a period of
between 2 and 4 years, and include all facilities to be constructed or
improved which are eligible for RUS financing, whether or not RUS
financial assistance will be sought or be available for certain
facilities. The construction period covered by an EEWP in support of a
loan application shall not be shorter than the loan period requested
for financing of the facilities;
(c) The borrower's EEWP may only include facilities, equipment and
other activities that have been approved by RUS as a part of an
Eligible Energy Efficiency and Conservation Program pursuant to subpart
H of this part;
(d) The borrower's EEWP must be consistent with the documentation
provided as part of the current RUS approved EE Program as outlined in
Sec. 1710.410(c); and
(e) The borrower's EEWP must include an estimated schedule for the
implementation of included projects.
Subpart G--Long Range Financial Forecasts
0
15. Amend Sec. 1710.300 by redesignating paragraphs (d)(3) through (5)
as paragraphs (d)(4) through (6) respectively; and adding a new
paragraph (d)(3) to read as follows:
Sec. 1710.300 General.
* * * * *
(d) * * *
(3) RUS-approved EE Program work plan;
* * * * *
Sec. 1710.302 [Amended]
0
16. In Sec. 1710.302 amend paragraph (d)(5) by removing the reference
``Sec. 1710.300(d)(5)'' and adding in its place ``Sec.
1710.300(d)(6)''.
Subpart I--Application Requirements and Procedures for Loans
Sec. Sec. 1710.400 through 1710.407 [Redesignated as Sec. Sec.
1710.500 through 1710.507]
0
17a. In subpart I, redesignate Sec. Sec. 1710.400 through 1710.407 as
Sec. Sec. 1710.500 through 1710.507, respectively.
0
17b. Add Subpart H consisting of Sec. Sec. 1710.400 through 1710.499,
to read as follows:
Subpart H--Energy Efficiency and Conservation Loan Program
Sec.
1710.400 Purpose.
1710.401 RUS policy.
1710.402 Scope.
1710.403 General.
1710.404 Definitions.
1710.405 Eligible energy efficiency and conservation programs.
1710.406 Eligible activities and investments.
1710.407 Business plan.
1710.408 Quality assurance plan.
1710.409 Loan provisions.
1710.410 Application documents.
1710.411 Analytical support documentation.
1710.412 Borrower accounting methods, management reporting, and
audits.
1710.413 Compliance with other laws and regulations.
1710.414-1710.499 [Reserved]
Subpart H--Energy Efficiency and Conservation Loan Program
Sec. 1710.400 Purpose.
(a) This subpart establishes policies and requirements that apply
to loans and loan guarantees to finance Energy Efficiency and
Conservation programs (EE Programs) undertaken by an eligible utility
system to finance Demand side management, energy efficiency and
conservation, or on-grid and off-grid renewable energy system programs
that will result in the better management of their system load growth,
a more beneficial load profile, or greater optimization of the use of
alternative energy resources in their service territory. These programs
may be considered an essential utility service.
(b)(1) The goals of an eligible Energy Efficiency project eligible
for funding under this program and Subpart H include:
(i) Increasing energy efficiency at the end user level;
(ii) Modifying electric load such that there is a reduction in
overall system demand;
(iii) Effecting a more efficient use of existing electric
distribution, transmission and generation facilities;
[[Page 73367]]
(iv) Attracting new businesses and creating jobs in rural
communities by investing in energy efficiency; and
(v) Encouraging the use of renewable energy fuels for either Demand
side management or the reduction of conventional fossil fuel use within
the service territory.
(2) Although not a goal, RUS recognizes that there will be a
reduction of green house gases with energy efficiency improvements.
Sec. 1710.401 RUS policy.
EE Programs under this subpart may be financed at the distribution
level or by an electric generation and transmission provider. RUS
encourages borrowers to coordinate with the relevant member systems
regarding their intention to implement a program financed under this
subpart. RUS also encourages borrowers to leverage funds available
under this subpart with State, local, or other funding sources that may
be available to implement such programs.
Sec. 1710.402 Scope.
This subpart adapts and modifies, but does not supplant, the
requirements for all borrowers set forth elsewhere where the purpose of
the loan is to finance an approved EE program. In the event there is
overlap or conflict between this subpart and the provisions of this
part 1710 or other parts of the Code of Federal Regulations, the
provisions of this subpart will apply for loans made or guaranteed
pursuant to this subpart.
Sec. 1710.403 General.
EE Programs financed under this subpart may be directed at all
forms of energy consumed within a utility's service territory, not just
electricity, where the electric utility is in a position to facilitate
the optimization of the energy consumption profile within its service
territory and do so in a way that enhances the financial or physical
performance of the rural electric system and enables the repayment of
the energy efficiency loan.
Sec. 1710.404 Definitions.
For the purpose of this subpart, the following terms shall have the
following meanings. In the event there is overlap or conflict between
the definitions contained in Sec. 1710.2, the definitions set forth
below will apply for loans made or guaranteed pursuant to this subpart.
British thermal unit (Btu) means the quantity of heat required to
raise one pound of water one degree Fahrenheit.
Certified energy auditor for commercial and industrial energy
efficiency improvements. (1) An energy auditor shall meet one of the
following criteria:
(i) An individual possessing a current commercial or industrial
energy auditor certification from a national, industry-recognized
organization;
(ii) A Licensed Professional Engineer in the State in which the
audit is conducted with at least 1 year experience and who has
completed at least two similar type Energy Audits;
(iii) An individual with a four-year engineering or architectural
degree with at least 3 years experience and who has completed at least
five similar type Energy Audits; or
(iv) Beginning in calendar year 2015, an energy auditor
certification recognized by the Department of Energy through its Better
Buildings Workforce Guidelines project.
(2) For residential energy efficiency improvements, an energy
auditor shall meet one of the following criteria: The workforce
qualification requirements of the Home Performance with Energy Star
Program, as outlined in Section 3 of the Home Performance with Energy
Star Sponsor Guide; or an individual possessing a current residential
energy auditor or building analyst certification from a national,
industry-recognized organization.
Cost effective means the aggregate cost of an EE Program is less
than the financial benefit of the program over time. The cost of a
program for this purpose shall include the costs of incentives,
measurement and verification activity and administrative costs, and the
benefits shall include, without limitation, the value of energy saved,
the value of corresponding avoided generation, transmission or
distribution and reserve investments as may be displaced or deferred by
program activities, and the value of corresponding avoided greenhouse
gas emissions and other pollutants.
Demand means the electrical load averaged over a specified interval
of time. Demand is expressed in kilowatts, kilovolt amperes, kilovars,
amperes, or other suitable units. The interval of time is generally 15
minutes, 30 minutes, or 60 minutes.
Demand savings means the quantifiable reduction in the load
requirement for electric power, usually expressed in kilowatts (kW) or
megawatts (MW) such that it reduces the cost to serve the load.
Eligible borrower means a utility system that has direct or
indirect responsibility for providing retail electric service to
persons in a rural area. This definition includes existing borrowers
and utilities who meet current RUS borrower requirements.
Energy audit means an inspection and analysis of energy flows in a
building, process, or system with the goal of identifying opportunities
to enhance energy efficiency. The activity should result in an
objective standard-based technical report containing recommendations
for improving the energy efficiency. The report should also include an
analysis of the estimated benefits and costs of pursuing each
recommendation and the simple payback period.
Energy efficiency and conservation measures means equipment,
materials and practices that when installed and used at a Consumer's
premises result in a verifiable reduction in energy consumption,
measured in Btus, or demand as measured in Btu-hours, or both, at the
point of purchase relative to a base level of output. The ultimate goal
is the reduction of utility or consumer energy needs.
Energy efficiency and conservation program (EE Program) means a
program of activities undertaken or financed by a utility within its
service territory to reduce the amount or rate of energy used by
Consumers relative to a base level of output.
HVAC means heating, ventilation, and air conditioning.
Load means the Power delivered to power utilization equipment
performing its normal function.
Load factor means the ratio of the average load over a designated
period of time to the peak load occurring in the same period.
Peak demand (or maximum demand) means the highest demand measured
over a selected period of time, e.g., one month.
Peak demand reduction means a decrease in electrical demand on an
electric utility system during the system's peak period, calculated as
the reduction in maximum average demand achieved over a specified
interval of time.
Power means the rate of generating, transferring, or using energy.
The basic unit is the watt, where one Watt is approximately 3.41213
Btu/hr.
Re-lamping means the initial conversion of bulbs or light fixtures
to more efficient lighting technology but not the replacement of like
kind bulbs or fixtures after the initial conversion.
SI means the International System of Units: the modern metric
system.
Smart Grid Investments means capital expenditures for devices or
systems that are capable of providing real time, two way (utility and
Consumer) information and control protocols for individual Consumer
owned or operated appliances and equipment, usually
[[Page 73368]]
through a Consumer interface or smart meter.
Ultimate recipient means a Consumer that receives a loan from a
borrower under this subpart.
Utility Energy Services Contract (UESC) means a contract whereby a
utility provides a Consumer with comprehensive energy efficiency
improvement services or demand reduction services.
Utility system means an entity in the business of providing retail
electric service to Consumers (distribution entity) or an entity in the
business of providing wholesale electric supply to distribution
entities (generation entity) or an entity in the business of providing
transmission service to distribution or generation entities
(transmission entity), where, in each case, the entities provide the
applicable service using self-owned or controlled assets under a
published tariff that the entity and any associated regulatory agency
may adjust.
Watt means the SI unit of power equal to a rate of energy transfer
(or the rate at which work is done), of one joule per second.
Sec. 1710.405 Eligible energy efficiency and conservation programs.
(a) General. Eligible EE Programs shall:
(1) Be developed and implemented by an Eligible borrower and
applied within its service territory;
(2) Consist of eligible activities and investments as provided in
Sec. 1710.406
(3) Provide for the use of State and local funds where available to
supplement RUS loan funds;
(4) Incorporate the applicant's policy applicable to the
interconnection of distributed resources;
(5) Incorporate a business plan that meets the requirements of
Sec. 1710.407;
(6) Incorporate a quality assurance plan that meets the
requirements of Sec. 1710.408;
(7) Demonstrate that the program can be expected to be Cost
effective;
(8) Demonstrate that the program will have a net positive or
neutral cumulative impact on the borrower's financial condition over
the time period contemplated in the analytical support documents
demonstrating that the net present value of program costs incurred by
the borrower are positive, pursuant to Sec. 1710.411;
(9) Demonstrate energy savings or peak demand reduction for the
service territory overall; and
(10) Be approved in writing by RUS prior to the investment of funds
for which reimbursement will be requested.
(b) Financial Structures. Eligible EE Programs may provide for
direct recoupment of expenditures for eligible activities and
investment from Ultimate Recipients as follows:
(1) Loans made to Ultimate Recipients located in a rural area where
--
(i) The Ultimate Recipients may be wholesale or retail;
(ii) The loans may be secured or unsecured;
(iii) The loan receivables are owned by the Eligible Borrower;
(iv) The loans are made or serviced directly by the Eligible
Borrower or by a financial institution pursuant to a contractual
relationship between the Eligible Borrower and the financial
institution;
(v) Due diligence is performed to confirm the repayment ability of
the Ultimate Recipient;
(vi) Loans are funded only upon completion of the project financed
or to reimburse startup costs that have been incurred;
(vii) The rate charged the Ultimate Recipient is less than or equal
to the direct Treasury rate established daily by the United States
Treasury pursuant to Sec. 1710.51(a)(1) or Sec. 1710.52, as
applicable, plus the borrower's interest rate from RUS and 1.5 percent
. Exceptions will be made on a case-by-case basis to ensure repayment
of the government's loan and must be clearly articulated in the
business plan RUS will not accept an exception request if the loan is
feasible at 1.5 percent; and
(viii) Loans are not used to refinance a preexisting loan.
(2) A tariff that is specific to an identified rural Consumer,
premise or class of ratepayer; or
(3) On bill repayment and other financial recoupment mechanisms as
may be approved by RUS.
(c) Period of performance--(1) Performance standards. (i) Eligible
EE Programs activities that are listed under Sec. 1710.406(b) should
be designed to achieve the applicable operating performance standards
within one year of the date of installation of the facilities.
(ii) All activities other than those included in paragraph
(c)(1)(i) of this section should be designed to achieve the applicable
operating performance targets within the time period contemplated by
the analytic support documents for the overall EE Program as approved
by RUS.
(2) Cost effectiveness. Eligible EE Programs must demonstrate that
Cost effectiveness as measured for the program overall will be achieved
within ten years of initial funding, except in cases where the useful
life of the technology on an aggregate basis can be demonstrated to be
longer than the ten year period. RUS will evaluate the useful life
assumption on a case-by-case basis.
Sec. 1710.406 Eligible activities and investments.
(a) General. Eligible program activities and investments:
(1) Shall be designed to improve energy efficiency and/or reduce
peak demand on the customer side of the meter;
(2) Shall be Cost effective in the aggregate after giving effect to
all activities and investments contemplated in the approved EE Program;
and
(3) May apply to all Consumer classes.
(b) Eligible activities and investments. Eligible program
activities and investments may include, but are not limited to, the
following:
(1) Energy efficiency and conservation measures where assets
financed at an Ultimate Recipient premises can be characterized as an
integral part of the real property that would typically transfer with
the title under applicable state law. Where applicable, it is
anticipated that the loan obligation would also be expected to transfer
with ownership of the metered account serving that property.
(2) Renewable Energy Systems, including --
(i) On or Off Grid Renewable energy systems;
(ii) Fuel cells;
(3) Demand side management (DSM) investments including Smart Grid
Investments;
(4) Energy audits;
(5) Utility Energy Services Contracts;
(6) Consumer education and outreach programs;
(7) Power factor correction equipment on the Ultimate Recipient
side of the meter;
(8) Re-lamping to more energy efficient lighting; and
(9) Fuel Switching as in:
(i) The replacement of existing fuel consuming equipment using a
particular fuel with more efficient fuel consuming equipment that uses
another fuel but which does not increase direct greenhouse gas
emissions; or
(ii) The installation of non-electric fuel consuming equipment to
facilitate management of electric system peak loads. Fuel switching to
fossil or biomass fueled electric generating equipment is expressly
excluded.
(10) Other activities and investments as approved by RUS as part of
the EE Program such as, but not limited to, pre-retrofit improvements.
(c) Intermediary lending. EE Program loan funds may be used for
direct re-lending to Ultimate Recipients where
[[Page 73369]]
the requirements of Sec. 1710.405(b) are met.
(d) Performance standards. Borrowers are required to use Energy
Star qualified equipment where applicable or meet or exceed efficiency
requirements designated by the Federal Energy Management Program.
Sec. 1710.407 Business plan.
An Eligible EE Program must have a business plan for implementing
the program. The business plan is expected to have a global perspective
on the borrower's energy efficiency plan. Therefore, energy efficiency
upgrades should be identified in aggregate. The business plan must have
the following elements:
(a) Executive summary. The executive summary shall capture the
overall objectives to be met by the Eligible EE Program and the
timeframe in which they are expected to be achieved.
(b) Organizational background. The background section shall include
descriptions of the management team responsible for implementing the
Eligible EE Program.
(c) Marketing plan. The marketing section should identify the
target Consumers, promotional activities to be pursued and target
penetration rates by Consumer category and investment activity.
(d) Operations plan. The operations plan shall include but is not
limited to:
(1) A list of the activities and investments to be implemented
under the EE Program and the Btu savings goal targeted for each
category;
(2) An estimate of the dollar amount of investment by the utility
for each category of activities and investments listed under paragraph
(d)(1) of this section;
(3) A staffing plan that identifies whether and how outsourced
contractors or subcontractors will be used to deliver the program;
(4) A description of the process for documenting and perfecting
collateral arrangements for Ultimate Recipient loans, if applicable;
and
(5) The overall Btu savings to be accomplished over the life of the
EE Program.
(e) Financial plan. The financial plan shall include but is not
limited to:
(1) A schedule showing sources and uses of funds for the program;
(2) An itemized budget for each activity and investment category
listed in the operations plan;
(3) An aggregate Cost effectiveness forecast;
(4) Where applicable, provision for Ultimate Recipient loan loss
reserves. These loan loss reserves will not be funded by RUS. Loan loss
reserves are not required when a utility will not be relending RUS
funds.
(5) Identify expected Ultimate Recipient loan delinquency and
default rates and report annually on deviations from the expected
rates.
(f) Risk analysis. The business plan shall include an evaluation of
the financial and operational risk associated with the program,
including an estimate of prospective Consumer loan losses consistent
with the loan loss reserve to be established pursuant to paragraph
(e)(4) of this section.
(g) The borrowers are strongly encouraged to follow a bulletin or
such other publication as RUS deems appropriate that contains and
describes best practices for energy efficiency business plans. RUS will
make this bulletin or publication publicly available and revise it from
time-to-time as RUS deems it necessary.
Sec. 1710.408 Quality assurance plan.
An eligible EE program must have a quality assurance plan as part
of the program. The quality assurance plan is expected to have a global
perspective on the borrower's energy efficiency plan. Therefore, energy
efficiency upgrades should be identified in aggregate. Every effort is
made to fund only EE programs that are administered in accordance with
quality assurance plans meeting standards designed to achieve the
purposes of this subpart. However, RUS and its employees assume no
legal liability for the accuracy, completeness or usefulness of any
information, product, service, or process funded directly or indirectly
with financial assistance provided under this subpart. Nothing in the
loan documents between RUS and the energy efficiency borrower shall
confer upon any other person any right, benefit or remedy of any nature
whatsoever. Neither RUS nor its employees makes any warranty, express
or implied, including the warranties of merchantability and fitness for
a particular purpose, with respect to any information, product,
service, or process available from an energy efficiency borrower. The
approval by RUS and its employees of an energy efficiency borrower's
quality assurance plan is solely for the benefit of RUS. Approval of
the quality assurance plan does not constitute an RUS endorsement. The
quality assurance plan must have the following elements:
(a) Quality assurance assessments shall include the use of
qualified energy managers or professional engineers to evaluate program
activities and investments;
(b) Where applicable, program evaluation activities should use the
protocols for determining energy savings as developed by the U.S.
Department of Energy in the Uniform Methods Project.
(c) Energy audits shall be performed for energy efficiency
investments involving the building envelope at an Ultimate Recipient
premises;
(d) Energy audits must be performed by certified energy auditors;
and
(e) Follow up audits shall be performed within one year after
installation on a sample of investments made to confirm whether
efficiency improvement expectations are being met.
(f) In cases involving energy efficiency upgrades to a single
system (such as a ground source heat pump) the new system must be
designed and installed by certified and insured professionals
acceptable to the utility.
(g) Industry or manufacturer standard performance tests, as
applicable, shall be required on any system upgraded as a result of an
EE Program. This testing shall indicate the installed system is meeting
its designed performance parameters.
(h) In some programs the utility may elect to recommend independent
contractors who can perform energy efficiency related work for their
customers. In these cases utilities shall monitor the work done by the
contractors and confirm that the contractors are performing quality
work. Utilities should remove substandard contractors from their
recommended lists if the subcontractors fail to perform at a
satisfactory level. RUS does not endorse or recommend any particular
independent contractors.
(i) Contractors not hired by the utility may not act as agents of
the utility in performing work financed under this subpart.
(j) The borrowers are strongly encouraged to follow a bulletin or
other publication that RUS deems appropriate and contains and describes
best practices for energy efficiency quality assurance plans. RUS will
make this bulletin or publication publicly available and revise it from
time-to-time as RUS deems it necessary.
Sec. 1710.409 Loan provisions.
(a) Loan term. The maximum term for loans under this subpart shall
be 15 years unless the loans relate to ground source loop investments
or technology on an aggregate basis that has a useful life greater than
15 years. Ground source loop investments as the term is used in this
paragraph do not include ancillary
[[Page 73370]]
equipment related to ground source heat pump systems.
(b) Loan feasibility. Loan feasibility must be demonstrated for all
loans made under this subpart. Loans made under this subpart shall be
secured.
(c) Reimbursement for completed projects. (1) A borrower may
request an initial advance not to exceed five percent of the total loan
amount for working capital purposes to implement an eligible EE
Program;
(2) Except for the initial advance provided for in paragraph (c)(1)
of this section, all advances under this subpart shall be used for
reimbursement of expenditures relating to a completed activity or
investment; and
(3) Advances shall be in accordance with RUS procedures.
(d) Loan amounts. (1) Cumulative loan amounts outstanding under
this subpart will be determined by the Assistant Administrator of the
Electric Program and based an applicant's business plan; and
(2) Financing for administrative costs may not exceed 5 percent of
the total loan amount.
(3) The Rural Utilities Service reserves the right to place a cap
on both the total amount of funds an eligible entity can apply for, as
well as a cap on the total amount of funds the Energy Efficiency and
Conservation Program can utilize in the appropriations.
Sec. 1710.410 Application documents.
The required application documentation listed in this section is
not all inclusive but is specific to Eligible borrowers requesting a
loan under this subpart and in most cases is supplemental to the
general requirements for loan applications provided for in this part
1710:
(a) A letter from the Borrower's General Manager requesting a loan
under this subpart.
(b) A copy of the board resolution establishing the EE Program that
reflects an undertaking that funds collected in excess of then current
amortization requirements for the related RUS loan will be redeployed
for EE Program purposes or used to prepay the RUS loan.
(c) Current RUS-approved EE Program documentation that includes:
(1) A Business Plan that meets the requirements of Sec. 1710.407;
(2) A Quality Assurance Plan that meets the requirements of Sec.
1710.408;
(3) Analytical support documentation that meets the requirements of
Sec. 1710.411;
(4) A copy of RUS' written approval of the EE Program.
(d) An EE program work plan that meets the requirements of Sec.
1710.255;
(e) A statement of whether an initial working capital advance
pursuant to Sec. 1710.409(c)(1) is included in the loan budget
together with a schedule of how these funds will be used.
(f) A proposed draft Schedule C pursuant to 7 CFR part 1718 that
lists assets to be financed under this subpart as excepted property
under the RUS mortgage, as applicable.
Sec. 1710.411 Analytical support documentation.
Applications for loans under this subpart may only be made for
eligible activities and investments included in an RUS-approved EE
Program. In addition to a business plan and operations plan, a request
for EE program approval must include analytical support documentation
that demonstrates the program meets the requirements of Sec. 1710.303
and assures RUS of the operational and financial integrity of the EE
Program. This documentation must include, but is not necessarily
limited to, the following:
(a) A comparison of the utility's projected annual growth in demand
after incorporating the EE Program together with an updated baseline
forecast on file with RUS, where each includes an estimate of energy
consuming devices used by customers in the service territory and a
specific time horizon as determined by the utility for meeting the
performance objectives established by them for the EE Program;
(b) Demonstration that the required periods of performance under
Sec. 1710.405(c) can reasonably be expected to be met;
(c) A report of discussions and coordination conducted with the
power supplier, where applicable, issues identified as a result, and
the outcome of this effort.
(d) An estimate of the amount of direct investment in utility-owned
generation that will be deferred as a result of the EE Program;
(e) A description of efforts to identify state and local sources of
funding and, if available, how they are to be integrated in the
financing of the EE Program; and
(f) Copies of sample documentation used by the utility in
administering its EE Program.
(g) Such other documents and reports as the Administrator may
require.
Sec. 1710.412 Borrower accounting methods, management reporting, and
audits.
Nothing in this subpart changes a Borrower's obligation to comply
with RUS's accounting, monitoring and reporting requirements. In
addition thereto, the Administrator may also require additional
management reports that provide the agency with a means of evaluating
the extent to which the goals and objectives identified in the EE Plan
are being accomplished.
Sec. 1710.413 Compliance with other laws and regulations.
Nothing in this subpart changes a Borrower's obligation to comply
with all laws and regulations to which it is subject.
Sec. Sec. 1710.414-1710.499 [Reserved]
PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND
GUARANTEED ELECTRIC LOANS
0
18. The authority citation for part 1717 continues to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Subpart R--Lien Accommodations and Subordinations for 100 Percent
Private Financing
0
19. Amend Sec. 1717.852 by revising paragraph (b)(2)(ii) to read as
follows:
Sec. 1717.852 Financing purposes.
* * * * *
(b) * * *
(2) * * *
(ii) Renewable energy systems and RUS-approved programs of Demand
side management, energy efficiency and energy conservation; and
* * * * *
PART 1721--POST-LOAN POLICIES AND PROCEDURES FOR INSURED AND
GUARANTEED ELECTRIC LOANS
0
20. The authority citation for part 1721 continues to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Subpart A--Advance of Funds
0
21. Amend Sec. 1721.1 by revising paragraph (a) to read as follows:
Sec. 1721.1 Advances.
(a) Purpose and amount. With the exception of minor projects, loan
funds will be advanced only for projects which are included in an RUS
approved construction work plan (CWP), EE Program work plan (EEWP), or
approved amendment, and in an approved loan as amended. Loan fund
advances can be requested in an amount representing actual costs
incurred.
* * * * *
[[Page 73371]]
PART 1724--ELECTRIC ENGINEERING, ARCHITECTURAL SERVICES AND DESIGN
POLICIES AND PROCEDURES
0
22. The authority citation for part 1724 continues to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Subpart C--Engineering Services
0
23. Amend Sec. 1724.30 by revising paragraph (a) to read as follows:
Sec. 1724.30 Borrowers' requirements--engineering services.
* * * * *
(a) Each borrower shall select one or more qualified persons to
perform the engineering services involved in the planning (including
the development of an EE Program eligible for financing pursuant to
subpart H of part 1710 of this chapter, design, and construction
management of the system.
* * * * *
PART 1730--ELECTRIC SYSTEM OPERATIONS AND MAINTENANCE
0
24. The authority citation for part 1730 continues to read as follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Subpart B--Operations and Maintenance Requirements
0
25. Amend Appendix A to subpart B of Part 1730 by adding paragraph
13.f. to read as follows:
Appendix A to Subpart B of Part 1730--Review Rating Summary, RUS Form
300
* * * * *
13. * * *
f. Energy Efficiency and Conservation Program quality assurance
compliance--
Rating:------
* * * * *
John Charles Padalino,
Administrator, Rural Utilities Service.
[FR Doc. 2013-29158 Filed 12-4-13; 8:45 am]
BILLING CODE P
