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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF ENERGY

10 CFR Part 609

RIN 1901-AB27

Loan Guarantees for Projects That Employ Innovative Technologies

AGENCY: Office of the Chief Financial Officer, Department of Energy.
ACTION: Final rule.
SUMMARY: On August 7, 2009, the Department of Energy (DOE or the Department) published a Notice of Proposed Rulemaking and Opportunity for Comment (NOPR) to make certain changes to the existing regulations for the loan guarantee program authorized by Section 1703 of Title XVII of the Energy Policy Act of 2005 (Title XVII or the Act). Section 1703 of Title XVII authorizes the Secretary of Energy (Secretary) to make loan guarantees for projects that "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued." Section 1703 of Title XVII also identifies ten categories of technologies and projects that are potentially eligible for loan guarantees. The two principal goals of section 1703 of Title XVII are to encourage commercial use in the United States of new or significantly improved energy-related technologies and to achieve substantial environmental benefits. DOE believes that commercial use of these technologies will help sustain and promote economic growth, produce a more stable and secure energy supply and economy for the United States, and improve the environment.

Through experience gained implementing the loan guarantee program authorized by section 1703 of Title XVII, and information received from industry indicating the wide variety of ownership and financing structures which participants would like to employ in implementing projects seeking loan guarantees, DOE believes it is appropriate to make certain changes to the existing regulations to provide flexibility in the determination of an appropriate collateral package to secure guaranteed loan obligations, facilitate collateral sharing and related intercreditor arrangements with other project lenders, and to provide a more workable interpretation of certain statutory provisions regarding DOE's treatment of collateral, consistent with the intent and purposes of Title XVII. Having considered all of the comments submitted to DOE in response to the NOPR, the Department today is issuing this final rule.

DATES: This rule is effective December 4, 2009.
FOR FURTHER INFORMATION CONTACT: David G. Frantz, Director, Loan Guarantee Program Office, 1000 Independence Avenue, SW., Washington, DC 20585-0121, e-mail:lgprogram@hq.doe.gov;or Susan S. Richardson, Chief Counsel for the Loan Guarantee Program, Office of the General Counsel, 1000 Independence Avenue, SW., Washington, DC 20585-0121, e-mail:lgprogram@hq.doe.gov.
SUPPLEMENTARY INFORMATION: I. Introduction and Background II. Public Comments on the NOPR and DOE's Responses A. Definition of Eligible Project B. Definition of Intercreditor Agreement C. Shorter Amortization for Non-Guaranteed Obligations D. Opposition to the Rule Change III. Regulatory Review A. Executive Order 12866 B. National Environmental Policy Act of 1969 C. Regulatory Flexibility Act D. Paperwork Reduction Act E. Unfunded Mandates Reform Act of 1995 F. Treasury and General Government Appropriations Act, 1999 G. Executive Order 13132 H. Executive Order 12988 I. Treasury and General Government Appropriations Act, 2001 J. Executive Order 13211 K. Congressional Notification L. Approval by the Office of the Secretary of Energy I. Introduction and Background

Today's final rule amends the regulations implementing the loanguarantee program authorized by section 1703 of Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511-16514) (referred to as Title XVII). Section 1703 of Title XVII authorizes the Secretary of Energy (Secretary), after consultation with the Secretary of the Treasury, to make loan guarantees for projects that “(1) avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and (2) employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.” (42 U.S.C. 16513(a))

On August 7, 2009, the Department published a Notice of Proposed Rulemaking and Opportunity for Comment (NOPR, 74 FR 39569) to make certain changes to the regulations for the Title XVII loan guarantee program.

Section 1702 of Title XVII outlines general terms and conditions for loan guarantee agreements and directs the Secretary to include in loan guarantee agreements “such detailed terms and conditions as the Secretary determines appropriate to (i) protect the interests of the United States in case of a default; and (ii) have available all the patents and technology necessary for any person selected, including the Secretary, to complete and operate the project. (42 U.S.C. 16512(g)(2)(c)). Further, section 1702(d) addresses certain threshold requirements that must be met before the guaranty is made; and section 1702(g) addresses the Secretary's rights in the case of default of the loan. Specifically, section 1702(d) of Title XVII states, under the heading “Repayment” and addressing “Subordination,” that “[t]he [guaranteed] obligation shall be subject to the condition that the obligation is not subordinate to other financing.” Further, when addressing the situation of default, section 1702(g)(2) of Title XVII states, with respect to “subrogation” and “superiority of rights,” that “[t]he rights of the Secretary, with respect to any property acquired pursuant to a guarantee or related agreements, shall be superior to the rights of any other person with respect to the property.”

On October 23, 2007, DOE issued a final rule implementing Title XVII. In that final rule, DOE interpreted the interplay between these two provisions of section 1702 such that both describe the rights the Secretary must secure as a condition of making a guarantee. This understanding is reflected in the text of the regulations which requires that the Secretary receive a first lien security interest in all project assets as an incident to making a guarantee. Moreover, this interpretation of the applicability of the superiority of rights provision as a required element of the Secretary's making a guarantee was embedded in the text of the rule and was made explicit in the preambles to the proposed and final rules implementing section 1703 of Title XVII.

The Department has critically reexamined the statute, particularly its text and structure, and now concludes, as described below, that the interpretation of the statute requiring receipt of a first lien on all project assets is not one that it was legally compelled to adopt, and was not correct. A first lien on all project assets is better understood as one element that the Secretary may require for a particular project, but is not compelled by the statute to require. This final rule reflects what the Department has concluded is the correct interpretation of section 1702.

First, it should be borne in mind that nowhere does section 1702 itself require that the Secretary receive a first lien on all project assets as a condition of his ability to make a loan guarantee. Instead the statute requires only that the Secretary's guaranteed obligation “not be subordinate to other financing.” In fact, section 1702 does not require that the lender or the Secretary receive any collateral as a statutory requirement for making a loan guarantee.

Next, the “first lien on all project assets” requirement contained in the regulations seems traceable only to the “superiority of rights” provision contained in section 1702(g)(2)(B). The structure and wording of the statute, however, is indicative that section 1702(g)'s provisions are designed to govern post-default rights of the Secretary, rather than to impose conditions that must be met at the time the Secretary determines to make a loan guarantee. So understood, the “property acquired” as to which the Secretary's rights “shall be superior to the rights of any other person” relates to property “acquired” by the Secretary pursuant to his right of subrogation to the rights of the lender in any collateral or security interest.

As a structural matter, it is notable that the “superiority of rights” provision appears within and under the heading “subrogation” contained in section 1702(g)(2). Consideration of the structure of the statute is aided by the various captions that introduce its various substantive provisions. In general, those captions—first “repayment,” then “subordination,” then “defaults,” “payment by the Secretary,” “subrogation,” and then “superiority of rights,” reinforce the structural understanding of the statute as keying its particular provisions to the sequence of stages that are foreseeable in the loan guarantee relationship. So perceived, the topic of “superiority of rights” would become germane only as a subset of the sequence that begins with a “default” and after “payment by the Secretary.”

It is also notable that the “superiority of rights” provision does not contain terms such as “lien”, “security interest”, “collateral” or the like, which could lead one to conclude that the plain meaning of the provision is to require a first lien on all project assets. Instead, the provision uses the words “any property acquired” with “acquired” in the past tense, which would indicate that the provision is intended to apply to property that has actually been acquired rather than property that one may or is entitled to acquire (as in the granting of a lien or security interest in collateral), which further supports DOE's interpretation.

Moreover, in reviewing applications for projects seeking a loan guarantee under section 1703 of Title XVII, DOE became aware that its original reading of the statute was in tension with the financing structure of many commercial transactions in the energy sector. For example, the tenancy in common ownership structure proposed for the next generation of nuclear generating facilities, under which multiple entities own undivided interests in a single facility, does not lend itself to the unitary project ownership anticipated by the regulations. In fact, tenancy in common is the typical form of ownership of utility grade power plants that are jointly owned by public power agencies, cooperative power systems and investor-owned utilities. Approximately one-third of all currently operating nuclear power reactors, and approximately one-third of all planned nuclear power reactors for which applications are pending at the Nuclear Regulatory Commission are jointly owned through tenancies in common. As such, each owner holds an undivided interest in the physical project assets, and each owner typically finances its investment in the project separately. In this scenario, DOE would not be guaranteeing a direct loan to a project company, and may be guaranteeing the loan obligations of only some but not all of the project owners. As a result, it may not be commercially feasible to obtain a lien on all project assets. Moreover, in certain circumstances, both in large infrastructure projects and in smallerprojects, creditworthy sponsors may be willing to offer a corporate lending structure in which DOE would rely on the balance sheet of the sponsor. In such a case, the credit of the sponsor may be sufficient to support a more modest pledge of assets.

Additionally, in response to prior solicitations, DOE has received expressions of interest from Export Credit Agencies (ECAs) concerning their possible participation in eligible projects as co-lenders, co-guarantors or insurers of loans. ECAs are governmental, quasi-governmental, or private institutions supported by and acting on behalf of their host governments that facilitate financing for home country exporters doing business in other nations. In addition to ECAs, there is a variety of other potential sources of financing for power generation projects, including municipal bond financing. There also could be interest rate or commodity hedging agreements and, after completion, working capital facilities for project companies. The ECAs, and likely the other sources of financing, will expect to share, on apari passubasis, in collateral pledged to secure the borrower's debt obligations.

Thus, the interpretation of the statute contained in the October 23, 2007, final rule effectively disqualifies from participation in Title XVII programs proposed energy production facilities that employ innovative technologies that are jointly owned through a tenants in common structure or where there are appropriate co-lenders or co-guarantors who require apari passustructure. DOE does not believe that a statute intended to encourage commercial use in the United States of new or significantly improved energy-related technologies would be written in a way as to make ineligible such industry participants.

As stated and explained above, DOE has concluded that section 1702 of Title XVII does not mandate that DOE receive a first lien position on all projects assets. In light of this interpretation of section 1702 of Title XVII, DOE is issuing this final rule which amends the existing regulations. Specifically, to ensure that the loan guarantee program has the ability to respond to the kinds of structuring issues discussed above, this final rule deletes the requirement of a first priority lien on all project assets (and other pledged collateral) and leaves to the Secretary the determination of an appropriate collateral package, as well as intercreditor arrangements. Such a determination by the Secretary is contemplated by sections 1702(a) and 1702(g)(2)(C), and remains subject to the requirement of section 1702(d)(3) that the guaranteed obligation not be subordinate to other financing. The Department believes that having the flexibility to determine on a project-by-project basis the scope of the collateral package and whetherpari passulending is in the best interests of the United States, will enable the Department to reduce its exposure on individual projects, diversify its portfolio and maximize the benefits of the resources available for the loan guarantee program.

II. Public Comments on the NOPR and DOE's Responses

The NOPR provided for the submission of comments through September 8, 2009. DOE received from the public several requests to extend the comment period. In response to those requests for additional time to comment on the proposed rule, DOE extended the comment period by two weeks.

DOE received timely comments on the NOPR from 2,123 interested parties (excluding requests for the extension of the comment period). DOE carefully reviewed all comments timely received on the NOPR.

Many of the comments that were received address matters that are not related to the specific rule changes proposed in the NOPR and are therefore outside the scope of this rulemaking. While DOE reviewed all of those comments, DOE will not address in this final rule any comments that are not within the scope of this rulemaking.

DOE summarizes below public comments received on the NOPR that are within the scope of this rulemaking, and discusses the Department's responses to those comments. In three cases, as described below, the Department made adjustments to the rule text as set forth in the NOPR. In addition, the Department made technical adjustments to the rule text in this final rule to implement more effectively the rule change and also made editorial and other corrections to the rule text that are not discussed in this preamble.

A. Definition of Eligible Project

Public Comments:Section 609.2 of the regulations defines “Eligible Project” to mean “a project located in the United States that employs a New or Significantly Improved Technology that is not a Commercial Technology, and that meets all applicable requirements of section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation and this part.” Several commenters expressed the view that this definition should be amended to clarify that an “Eligible Project” may include an undivided interest (i.e., interest held as a tenant in common) in a project or facility. As mentioned in the preamble, tenancy in common is the typical form of ownership of utility grade power plants that are jointly owned by public power agencies, cooperative power systems and investor-owned utilities.

DOE Response:DOE notes that the term “project”, which is used in the definition of “Eligible Project”, is not defined in Title XVII. DOE believes that the term “project” should be given its plain meaning to include any “planned undertaking”, which would include any project consisting of an undivided interest (i.e., interest held as a tenant in common) in project assets or facilities. As such, DOE believes that it is unnecessary to amend the definition of “Eligible Project” to include any text referring to “undivided interest”, “tenancy in common” or the like. However, DOE has adjusted the rule text in Sections 609.4(b) and 609.6(b)(5) of the regulations to clarify that applicants may submit project proposals with respect to their undivided ownership interests in project assets or facilities.

B. Definition of Intercreditor Agreement

Public Comments:Several commenters proposed technical changes to the definition of “Intercreditor Agreement” based on a concern that the definition may have been drafted too narrowly to accomplish one of the stated purposes of the rule change, which is to provide DOE with flexibility in the determination of appropriate collateral sharing and related intercreditor arrangements with other project lenders.

DOE Response:DOE has carefully reviewed these proposed technical changes and, based on these comments as well as DOE's further review, has made technical adjustments to the definition of “Intercreditor Agreement”. DOE believes that the modified definition of “Intercreditor Agreement”, as reflected in this final rule, provides the necessary flexibility to DOE while protecting the interests of the United States by requiring that any such agreement be “in form and substance satisfactory to DOE”.

C. Shorter Amortization of Non-Guaranteed Obligations

Public Comments:Section 609.10(d)(6) of the regulations provides that “[t]he non-guaranteed portion of any Guaranteed Obligation must be repaid on a pro-rata basis, and may not be repaid on a shorter amortization schedule than the guaranteed portion.” Several commenters expressed concern that this provision may prevent certaincredit providers, including Export Credit Agencies (ECAs) and other financial institutions, from participating in financings of Eligible Projects if such institutions require repayment on a shorter amortization schedule than the DOE-guaranteed loan. As indicated in the preamble, there exists a variety of potential sources of financing for power generation projects, including, but not limited to, ECAs.

DOE Response:DOE has carefully reviewed this issue and recognizes that there may be a diversity of appropriate financing arrangements and circumstances, including but not limited to participation by ECAs and other financial institutions, for the types of projects potentially eligible for DOE loan guarantees. DOE also recognizes that increasing the number of financial institutions that can participate in financings of Eligible Projects may have the effect of diversifying project-related risks. Accordingly, DOE has made adjustments to the text of Section 609.10(d)(6) of the regulations to permit shorter or faster amortization schedules for project-related financing or other credit arrangements (other than the Guaranteed Obligation), if DOE determines that the resulting financing structure of the project (1) allocates to DOE a reasonably proportionate share of the default risk, in light of (i) DOE's share of the total project financing, (ii) risk allocation among the credit providers, and (iii) internal and external credit enhancements; and (2) is appropriate to assure reasonable prospect of repayment of the principal of and interest on the DOE Guaranteed Obligation and to protect the interests of the United States in the case of default.

D. Opposition to the Rule Change

Public Comments:DOE received comments from a number of commenters opposed to the development of nuclear energy in general. These commenters expressed concern that the rule change appears to be promulgated with only one interest in mind—that of the nuclear power industry—and are opposed to the rule change. These commenters also expressed concern that the rule change will add unnecessary risk, such as the risk that taxpayers' money will be lost by “waiving” DOE's first lien rights to collateral.

DOE received a joint comment from a number of environmental and civic organizations (collectively, the “Joint Comment”) that made a number of assertions, including: (1) That the rule change violates or is inconsistent with Title XVII of the Act, (2) that DOE has failed to explain why DOE's interpretations and rationales in the preamble to the 2007 final rule with respect to the first lien issue are incorrect, (3) that the rule change does not provide DOE with a basis for establishing terms or conditions of loan guarantee agreements that provide “a reasonable prospect of repayment of the principal and interest” on a loan, (4) that the rule change unreasonably gives the Secretary unbridled discretion in establishing substitutions for the protection of a first lien, and (5) that by the rule change DOE will encourage risky investments and raise the potential for defaults.

DOE received a comment from a self-described “budget watchdog” group expressing concern that the removal of the first lien requirement will weaken protections for the taxpayers and will jeopardize the recovery of taxpayer-provided loan guarantee funds.

DOE received a comment from an environmental group that made a number of assertions, including (1) that the rule change conflicts with the statute, (2) that DOE's analysis is irrational and does not comport with the statute's plain language, (3) that there is insufficient evidence to support DOE's reasoning for the rule change, and (4) that the rule change will place taxpayer dollars at risk. In particular, the commenter asserted that the plain meaning of section 1702(d)(3) (which provides that “the obligation shall be subject to the condition that the obligation is not subordinate to other financing”) is to require a first lien on collateral. This assertion is based on the reasoning that the word “subordinate” means “inferior” and therefore the meaning of the words “not subordinate” would be the antonym of “subordinate” or “inferior” which is “superior”.

DOE Response:As explained in this preamble, DOE has concluded that section 1702 of Title XVII does not mandate that DOE receive a first lien position on all projects assets, and it is in light of this interpretation of section 1702 of Title XVII that DOE is issuing this final rule. DOE believes that the rule change, as reflected in this final rule, is correct as a matter of statutory interpretation and will facilitate the implementation of section 1703 of Title XVII.

It should be noted that under section 1703(b) of Title XVII, Congress expressly provided for ten categories of projects that are eligible for DOE loan guarantees, and one of those categories is “advanced nuclear energy facilities.” It should also be noted that the rule change, as reflected in this final rule, is not limited to any one particular energy sector or industry. DOE believes that this final rule will facilitate the financing of a variety of eligible projects, as authorized by Congress, across different energy sectors and industries.

With respect to the comments regarding risk, it should be noted that the rule change, as reflected in this final rule, does not mean that DOE “waives” its right to require first lien rights in collateral for any project. Rather, it correctly leaves to the Secretary the determination of an appropriate financing structure, including a collateral package, credit support and intercreditor arrangements, for individual projects. DOE believes that this flexibility is in the best interests of the United States, as it gives the Department the ability to participate in projects that contain diversified funding sources. DOE believes that instead of increasing risk, this approach will likely reduce DOE's risk—by reducing DOE's exposure (i.e., the amount of the DOE-guaranteed loan) on individual projects that also receive financing from non DOE-guaranteed sources—and consequently should help DOE diversify its portfolio.

With respect to the Joint Comment, DOE responds as follows:

(1) DOE believes that its interpretation of the Act, as reflected in the rule change, is correct as a matter of statutory interpretation and is consistent with the provisions, intent and purposes of the Act, for the reasons set forth above;

(2) DOE believes that, in the preamble to the NOPR and above, it has adequately explained its reasoning behind the rule change, including why the interpretations and rationales provided in the preamble to the 2007 final rule were incorrect. Additionally, DOE believes that its straightforward interpretation of the Act, as expressed in this final rule, renders unnecessary the convoluted reasoning in the preamble to the 2007 final rule which concluded that whilepari passuliens on project assets are prohibited by the statute, DOE may nevertheless agree to share the proceeds of collateral in apari passumanner as long as DOE controls the disposition of all project assets. Under that strained reasoning, DOE may enter into intercreditor or other arrangements to share proceeds from the sale of project collateral with lenders or other holders of the non-guaranteed portion of the DOE-guaranteed loan facility, but without explanation as to why co-lenders or co-guarantors who provide separate credit facilities and do not participate in the DOE-guaranteed loan facility are excluded from making anysuch intercreditor or other arrangements;

(3) DOE does not believe that the rule change will prevent or hinder DOE from requiring an appropriate financing structure, including collateral arrangements and credit support, on any individual project in order to make the determination that there is “a reasonable prospect of repayment of the principal and interest” on the related loan. This requirement with respect to each loan guarantee will continue to be in effect. As explained above, the rule change does not “waive” DOE's right to require first liens or otherwise require an appropriate collateral package and credit support for any project. It should also be noted that this final rule contains numerous criteria for the programmatic, technical and financial evaluation of loan guarantee applications;

(4) DOE notes that section 1702(g)(2)(C) of Title XVII provides that “a guarantee agreement shall include such detailed terms and conditions as the Secretary determines appropriate to (i) protect the interests of the United States in the case of default”. Accordingly, the Act gives the Secretary the discretion in determining what is “appropriate” with respect to the “detailed terms and conditions” of a loan guarantee agreement in the case of default. As explained above, the rule change correctly provides the Secretary with the flexibility to determine appropriate terms and conditions, including collateral, credit support and intercreditor terms, for individual projects; and

(5) DOE does not believe that the rule change itself will result in increased risk-taking or potential for defaults but rather, as explained above, the rule change will likely enhance the ability of DOE to reduce its risks.

With respect to the comments from the “budget watchdog” group, the rule change, as explained above, does not “waive” DOE's right to require first liens or otherwise to require an appropriate collateral package and credit support on any project. DOE will continue to be required to determine that there is “a reasonable prospect of repayment of the principal and interest” for each DOE-guaranteed loan. DOE will also continue to require such terms and conditions for guarantee agreements as DOE determines appropriate to protect the interests of the United States in the case of default.

With respect to the comment from the environmental group regarding the plain meaning of section 1702(d)(3), DOE notes that the plain meaning of “not X” does not necessarily mean the antonym or opposite of “X”. For example, the phrase “not less than” does not simply mean “greater than” but should more properly be understood to mean “equal to or greater than.” DOE believes that apari passu(a Latin term meaning “with equal step”) obligation is not a subordinate or inferior obligation.

With respect to the other assertions by the environmental group, DOE reiterates its responses above and believes that they are adequately responsive to those assertions.

III. Regulatory Review A. Executive Order 12866

Today's final rule has been determined to be a significant regulatory action under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993). Accordingly, this action was subject to review under that Executive Order by the Office of Information and Regulatory Affairs at Office of Management and Budget (OMB).

B. National Environmental Policy Act of 1969

Through the issuance of this final rule, DOE is making no decision relative to the approval of a loan guarantee for a particular proposed project. DOE has, therefore, determined that publication of this final rule is covered under the Categorical Exclusion found at paragraph A.6 of Appendix A to Subpart D, 10 CFR part 1021, which applies to the establishment of procedural rulemakings. Accordingly, neither an environmental assessment nor an environmental impact statement is required at this time. However, appropriate NEPA project review will be conducted prior to execution of a Loan Guarantee Agreement.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601et seq.) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990). DOE has made its procedures and policies available on the Office of the General Counsel's Web site:http://www.gc.doe.gov.

DOE is not obliged to prepare a regulatory flexibility analysis for this rulemaking because there is no requirement to publish a general notice of proposed rulemaking for rules related to loans under the Administrative Procedure Act (5 U.S.C. 553(a)(2)).

D. Paperwork Reduction Act

This final rule involves a collection of information previously approved by OMB under Control Number [1910-5134].

E. Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (Act) (2 U.S.C. 1531et seq.) requires each Federal agency, to the extent permitted by law, to prepare a written assessment of the effects of any Federal mandate in an agency rule that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. The Act also requires a Federal agency to develop an effective process to permit timely input by elected officials of State, Tribal, or local governments on a proposed “significant intergovernmental mandate,” and requires an agency plan for giving notice and opportunity to provide timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect small governments.

The term “Federal mandate” is defined in the Act to mean a Federal intergovernmental mandate or a Federal private sector mandate (2 U.S.C. 658(6)). Although the rule will impose certain requirements on non-Federal governmental and private sector applicants for loan guarantees, the Act's definitions of the terms “Federal intergovernmental mandate” and “Federal private sector mandate” exclude, among other things, any provision in legislation, statute, or regulation that is a condition of Federal assistance or a duty arising from participation in a voluntary program (2 U.S.C. 658(5) and (7), respectively). Today's final rule establishes requirements that persons voluntarily seeking loan guarantees for projects that would use certain new and improved energy technologies must satisfy as a condition of a Federal loan guarantee. Thus, this final rule falls under the exceptions in the definitions of “Federal intergovernmental mandate” and “Federal private sector mandate” for requirements that are a condition ofFederal assistance or a duty arising from participation in a voluntary program. The Act does not apply to this rulemaking.

F. Treasury and General Government Appropriations Act, 1999

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule that may affect family well being. This final rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

G. Executive Order 13132

Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. DOE has examined this rule and has determined that it would not preempt State law and would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. No further action is required by Executive Order 13132.

H. Executive Order 12988

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this final rule meets the relevant standards of Executive Order 12988.

I. Treasury and General Government Appropriations Act, 2001

The Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB.

OMB's guidelines were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). DOE has reviewed today's final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

J. Executive Order 13211

Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that: (1) Is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. Today's regulatory action would not have a significant adverse effect on the supply, distribution, or use of energy and is therefore not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects.

K. Congressional Notification

As required by 5 U.S.C. 801, DOE will submit to Congress a report regarding the issuance of today's final rule prior to the effective date set forth at the outset of this notice. The report will state that it has been determined that this rule is a “major rule” as defined by 5 U.S.C. 804(2).

L. Approval by the Office of the Secretary of Energy

The Secretary of Energy has approved the issuance of this final rule.

List of Subjects in 10 CFR Part 609

Administrative practice and procedure, Energy, Loan programs, and Reporting and recordkeeping requirements.

Issued in Washington, DC, on November 30, 2009. Steve Isakowitz, Chief Financial Officer. For the reasons stated in the preamble, chapter II of title 10 of the Code of Federal Regulations is amended by revising part 609 to read as follows: PART 609—LOAN GUARANTEES FOR PROJECTS THAT EMPLOY INNOVATIVE TECHNOLOGIES Sec. 609.1 Purpose and scope. 609.2 Definitions. 609.3 Solicitations. 609.4 Submission of Pre-Applications. 609.5 Evaluation of Pre-Applications. 609.6 Submission of Applications. 609.7 Programmatic, technical and financial evaluation of Applications. 609.8 Term Sheets and Conditional Commitments. 609.9 Closing on the Loan Guarantee Agreement. 609.10 Loan Guarantee Agreement. 609.11 Lender eligibility and servicing requirements. 609.12 Project costs. 609.13 Principal and interest assistance contract. 609.14 Full faith and credit and incontestability. 609.15 Default, demand, payment, and collateral liquidation. 609.16 Perfection of liens and preservation of collateral. 609.17 Audit and access to records. 609.18 Deviations. Authority:

42 U.S.C. 7254, 16511-16514.

§ 609.1 Purpose and scope.

(a) This part sets forth the policies and procedures that DOE uses for receiving, evaluating, and, after consultation with the Department of the Treasury, approving applications forloan guarantees to support Eligible Projects under Section 1703 of Title XVII of the Energy Policy Act of 2005, as amended.

(b) Except as set forth in paragraph (c) of this section, this part applies to all Pre-Applications, Applications, Conditional Commitments and Loan Guarantee Agreements to support Eligible Projects under Section 1703 of Title XVII of the Energy Policy Act of 2005, as amended.

(c) Sections 609.3, 609.4 and 609.5 of this part shall not apply to any Pre-Applications, Applications, Conditional Commitments or Loan Guarantee Agreements submitted, or entered into, as applicable, on or before December 31, 2007; provided, that DOE accepted the Pre-Application and invited an Application pursuant to such Pre-Application.

(d) Part 1024 of chapter X of title 10 of the Code of Federal Regulations shall not apply to actions taken under this part.

§ 609.2 Definitions.

Actmeans Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511-16514), as amended.

Administrative Cost of Issuing a Loan Guaranteemeans the total of all administrative expenses that DOE incurs during:

(1) The evaluation of a Pre-Application, if a Pre-Application is requested in a solicitation, and an Application for a loan guarantee;

(2) The offering of a Term Sheet, executing the Conditional Commitment, negotiation, and closing of a Loan Guarantee Agreement; and

(3) The servicing and monitoring of a Loan Guarantee Agreement, including during the construction, startup, commissioning, shakedown, and operational phases of an Eligible Project.

Applicantmeans any person, firm, corporation, company, partnership, association, society, trust, joint venture, joint stock company, or other business entity or governmental non-Federal entity that has submitted an Application to DOE and has the authority to enter into a Loan Guarantee Agreement with DOE under the Act.

Applicationmeans a comprehensive written submission in response to a solicitation or a written invitation from DOE to apply for a loan guarantee pursuant to § 609.6 of this part.

Borrowermeans any Applicant who enters into a Loan Guarantee Agreement with DOE and issues Guaranteed Obligations.

Commercial Technologymeans a technology in general use in the commercial marketplace in the United States at the time the Term Sheet is issued by DOE. A technology is in general use if it has been installed in and is being used in three or more commercial projects in the United States in the same general application as in the proposed project, and has been in operation in each such commercial project for a period of at least five years. The five-year period shall be measured, for each project, starting on the in service date of the project or facility employing that particular technology. For purposes of this section, commercial projects include projects that have been the recipients of a loan guarantee from DOE under this part.

Conditional Commitmentmeans a Term Sheet offered by DOE and accepted by the Applicant, with the understanding of the parties that if the Applicant thereafter satisfies all specified and precedent funding obligations and all other contractual, statutory and regulatory requirements, or other requirements, DOE and the Applicant will execute a Loan Guarantee Agreement: Provided that the Secretary may terminate a Conditional Commitment for any reason at any time prior to the execution of the Loan Guarantee Agreement; and Provided further that the Secretary may not delegate this authority to terminate a Conditional Commitment.

Contracting Officermeans the Secretary of Energy or a DOE official authorized by the Secretary to enter into, administer and/or terminate DOE Loan Guarantee Agreements and related contracts on behalf of DOE.

Credit Subsidy Costhas the same meaning as “cost of a loan guarantee” in section 502(5)(C) of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time the Loan Guarantee Agreement is executed, of the following estimated cash flows, discounted to the point of disbursement:

(1) Payments by the Government to cover defaults and delinquencies, interest subsidies, or other payments; less

(2) Payments to the Government including origination and other fees, penalties, and recoveries; including the effects of changes in loan or debt terms resulting from the exercise by the Borrower, Eligible Lender or other Holder of an option included in the Loan Guarantee Agreement.

DOEmeans the United States Department of Energy.

Eligible lendermeans:

(1) Any person or legal entity formed for the purpose of, or engaged in the business of, lending money, including, but not limited to, commercial banks, savings and loan institutions, insurance companies, factoring companies, investment banks, institutional investors, venture capital investment companies, trusts, or other entities designated as trustees or agents acting on behalf of bondholders or other lenders; and

(2) Any person or legal entity that meets the requirements of § 609.11 of this part, as determined by DOE; or

(3) The Federal Financing Bank.

Eligible projectmeans a project located in the United States that employs a New or Significantly Improved Technology that is not a Commercial Technology, and that meets all applicable requirements of section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation and this part.

Equitymeans cash contributed by the Borrowers and other principals. Equity does not include proceeds from the non-guaranteed portion of Title XVII loans, proceeds from any other non-guaranteed loans, or the value of any form of government assistance or support.

Federal Financing Bankmeans an instrumentality of the United States government created by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281et seq). The Bank is under the general supervision of the Secretary of the Treasury.

Guaranteed Obligationmeans any loan or other debt obligation of the Borrower for an Eligible Project for which DOE guarantees all or any part of the payment of principal and interest under a Loan Guarantee Agreement entered into pursuant to the Act.

Holdermeans any person or legal entity that owns a Guaranteed Obligation or has lawfully succeeded in due course to all or part of the rights, title, and interest in a Guaranteed Obligation, including any nominee or trustee empowered to act for the Holder or Holders.

Intercreditor Agreementmeans any agreement or instrument among DOE and one or more other persons providing financing or other credit arrangements or that otherwise provides for rights of DOE, in each case, in form and substance satisfactory to DOE and entered into or accepted by DOE in connection with a DOE loan guarantee upon a determination by DOE that such agreement or instrument is reasonable and necessary to protect the interests of the United States, and addressing such matters as collateral sharing, priorities (subject always to Section 1702(d)(3) of Title XVII) and voting rights among creditors and other intercreditor arrangements, as such agreement or instrument may be amended ormodified from time to time with the consent of DOE.

Loan Agreementmeans a written agreement between a Borrower and an Eligible Lender or other Holder containing the terms and conditions under which the Eligible Lender or other Holder will make loans to the Borrower to start and complete an Eligible Project.

Loan Guarantee Agreementmeans a written agreement that, when entered into by DOE and a Borrower, an Eligible Lender or other Holder, pursuant to the Act, establishes the obligation of DOE to guarantee the payment of all or a portion of the principal and interest on specified Guaranteed Obligations of a Borrower to Eligible Lenders or other Holders subject to the terms and conditions specified in the Loan Guarantee Agreement.

New or Significantly Improved Technologymeans a technology concerned with the production, consumption or transportation of energy and that is not a Commercial Technology, and that has either:

(1) Only recently been developed, discovered or learned; or

(2) Involves or constitutes one or more meaningful and important improvements in productivity or value, in comparison to Commercial Technologies in use in the United States at the time the Term Sheet is issued.

OMBmeans the Office of Management and Budget in the Executive Office of the President.

Pre-Applicationmeans a written submission in response to a DOE solicitation that broadly describes the project proposal, including the proposed role of a DOE loan guarantee in the project, and the eligibility of the project to receive a loan guarantee under the applicable solicitation, the Act and this part.

Project costsmeans those costs, including escalation and contingencies, that are to be expended or accrued by Borrower and are necessary, reasonable, customary and directly related to the design, engineering, financing, construction, startup, commissioning and shakedown of an Eligible Project, as specified in § 609.12 of this part. Project costs do not include costs for the items set forth in § 609.12(c) of this part.

Project Sponsormeans any person, firm, corporation, company, partnership, association, society, trust, joint venture, joint stock company or other business entity that assumes substantial responsibility for the development, financing, and structuring of a project eligible for a loan guarantee and, if not the Applicant, owns or controls, by itself and/or through individuals in common or affiliated business entities, a five percent or greater interest in the proposed Eligible Project, or the Applicant.

Secretarymeans the Secretary of Energy or a duly authorized designee or successor in interest.

Term Sheetmeans an offering document issued by DOE that specifies the detailed terms and conditions under which DOE may enter into a Conditional Commitment with the Applicant. A Term Sheet imposes no obligation on the Secretary to enter into a Conditional Commitment.

United Statesmeans the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa or any territory or possession of the United States of America.

§ 609.3 Solicitations.

(a) DOE may issue solicitations to invite the submission of Pre-Applications or Applications for loan guarantees for Eligible Projects. DOE must issue a solicitation before proceeding with other steps in the loan guarantee process including issuance of a loan guarantee. A Project Sponsor or Applicant may only submit one Pre-Application or Application for one project using a particular technology. A Project Sponsor or Applicant, in other words, may not submit a Pre-Application or Application for multiple projects using the same technology.

(b) Each solicitation must include, at a minimum, the following information:

(1) The dollar amount of loan guarantee authority potentially being made available by DOE in that solicitation;

(2) The place and time for response submission;

(3) The name and address of the DOE representative whom a potential Project Sponsor may contact to receive further information and a copy of the solicitation;

(4) The form, format, and page limits applicable to the response submission;

(5) The amount of the application fee (First Fee), if any, that will be required;

(6) The programmatic, technical, financial and other factors the Secretary will use to evaluate response submissions, including the loan guarantee percentage requested by the Applicant and the relative weightings that DOE will use when evaluating those factors; and

(7) Such other information as DOE may deem appropriate.

§ 609.4 Submission of Pre-Applications.

In response to a solicitation requesting the submission of Pre-Applications, either Project Sponsors or Applicants may submit Pre-Applications to DOE. Pre-Applications must meet all requirements specified in the solicitation and this part. At a minimum, each Pre-Application must contain all of the following:

(a) A cover page signed by an individual with full authority to bind the Project Sponsor or Applicant that attests to the accuracy of the information in the Pre-Application, and that binds the Project Sponsor(s) or Applicant to the commitments made in the Pre-Application. In addition, the information requested in paragraphs (b) and (c) of this section should be submitted in a volume one and the information requested in paragraphs (d) through (h) of this section should be submitted in a volume two, to expedite the DOE review process.

(b) An executive summary briefly encapsulating the key project features and attributes of the proposed project (for clarity, with respect to any project in which project assets or facilities are jointly owned by the Applicant and one or more other persons, each of whom owns an undivided ownership interest in such project assets or facilities, the Applicant may submit a project proposal with respect to its undivided ownership interest in such project assets or facilities);

(c) A business plan which includes an overview of the proposed project, including:

(1) A description of the Project Sponsor, including all entities involved, and its experience in project investment, development, construction, operation and maintenance;

(2) A description of the new or significantly improved technology to be employed in the project, including:

(i) A report detailing its successes and failures during the pilot and demonstration phases;

(ii) The technology's commercial applications;

(iii) The significance of the technology to energy use or emission control;

(iv) How and why the technology is “new” or “significantly improved” compared to technology already in general use in the commercial marketplace in the United States;

(v) Why the technology to be employed in the project is not in “general use;”

(vi) The owners or controllers of the intellectual property incorporated in and utilized by such technologies; and

(vii) The manufacturer(s) and licensee(s), if any, authorized to make the technology available in the United States, the potential for replication ofcommercial use of the technology in the United States, and whether and how the technology is or will be made available in the United States for further commercial use;

(3) The estimated amount, in reasonable detail, of the total Project Costs;

(4) The timeframe required for construction and commissioning of the project;

(5) A description of any primary off-take or other revenue-generating agreements that will provide the primary sources of revenues for the project, including repayment of the debt obligations for which a guarantee is sought.

(6) An overview of how the project complies with the eligibility requirements in section 1703 of the Act (42 U.S.C. 16513);

(7) An outline of the potential environmental impacts of the project and how these impacts will be mitigated;

(8) A description of the anticipated air pollution and/or anthropogenic greenhouse gas reduction benefits and how these benefits will be measured and validated; and

(9) A list of all of the requirements contained in this part and the solicitation and where in the Pre-Application these requirements are addressed;

(d) A financing plan overview describing:

(1) The amount of equity to be invested and the sources of such equity;

(2) The amount of the total debt obligations to be incurred and the funding sources of all such debt if available;

(3) The amount of the Guaranteed Obligation as a percentage of total project debt; and as a percentage of total project cost; and

(4) A financial model detailing the investments in and the cash flows generated and anticipated from the project over the project's expected life-cycle, including a complete explanation of the facts, assumptions, and methodologies in the financial model;

(e) An explanation of what estimated impact the loan guarantee will have on the interest rate, debt term, and overall financial structure of the project;

(f) Where the Federal Financing Bank is not the lender, a copy of a letter from an Eligible Lender or other Holder(s) expressing its commitment to provide, or interest in providing, the required debt financing necessary to construct and fully commission the project;

(g) A copy of the equity commitment letter(s) from each of the Project Sponsors and a description of the sources for such equity; and

(h) A commitment to pay the Application fee (First Fee), if invited to submit an Application.

§ 609.5 Evaluation of Pre-Applications.

(a) Where Pre-Applications are requested in a solicitation, DOE will conduct an initial review of the Pre-Application to determine whether:

(1) The proposal is for an Eligible Project;

(2) The submission contains the information required by § 609.4 of this part; and

(3) The submission meets all other requirements of the applicable solicitation.

(b) If a Pre-Application fails to meet the requirements of paragraph (a) of this section, DOE may deem it non-responsive and eliminate it from further review.

(c) If DOE deems a Pre-Application responsive, DOE will evaluate:

(1) The commercial viability of the proposed project;

(2) The technology to be employed in the project;

(3) The relevant experience of the principal(s); and

(4) The financial capability of the Project Sponsor (including personal and/or business credit information of the principal(s)).

(d) After the evaluation described in subsection (c) of this section, DOE will determine if there is sufficient information in the Pre-Application to assess the technical and commercial viability of the proposed project and/or the financial capability of the Project Sponsor and to assess other aspects of the Pre-Application. DOE may ask for additional information from the Project Sponsor during the review process and may request one or more meetings with the Project Sponsor.

(e) After reviewing a Pre-Application and other information acquired under paragraph (c) of this section, DOE may provide a written response to the Project Sponsor or Applicant either inviting the Applicant to submit an Application for a loan guarantee and specifying the amount of the Application filing fee (First Fee) or advising the Project Sponsor that the project proposal will not receive further consideration. Neither the Pre-Application nor any written or other feedback that DOE may provide in response to the Pre-Application eliminates the requirement for an Application.

(f) No response by DOE to, or communication by DOE with, a Project Sponsor, or an Applicant submitting a Pre-Application or subsequent Application shall impose any obligation on DOE to enter into a Loan Guarantee Agreement.

§ 609.6 Submission of Applications.

(a) In response to a solicitation or written invitation to submit an Application, an Applicant submitting an Application must meet all requirements and provide all information specified in the solicitation and/or invitation and this part.

(b) An Application must include, at a minimum, the following information and materials:

(1) A completed Application form signed by an individual with full authority to bind the Applicant and the Project Sponsors;

(2) Payment of the Application filing fee (First Fee) for the Pre-Application, if any, and Application phase;

(3) A detailed description of all material amendments, modifications, and additions made to the information and documentation provided in the Pre-Application, if a Pre-Application was requested in the solicitation, including any changes in the proposed project's financing structure or other terms;

(4) A description of how and to what measurable extent the project avoids, reduces, or sequesters air pollutants and/or anthropogenic emissions of greenhouse gases, including how to measure and verify those benefits;

(5) A description of the nature and scope of the proposed project, including:

(i) Key milestones;

(ii) Location of the project;

(iii) Identification and commercial feasibility of the new or significantly improved technology(ies) to be employed in the project;

(i