This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

2029 

Vol. 76, No. 8 

Wednesday, January 12, 2011 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 107 

RIN 3245–AF86 

Small Business Investment 

Companies—Energy Saving Qualified 

Investments 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Proposed rule. 

SUMMARY: In this proposed rule, the U.S. 

Small Business Administration (SBA) is 

setting forth the new defined terms, 

‘‘Energy Saving Qualified Investment’’ 

and ‘‘Energy Saving Activities’’, for the 

Small Business Investment Company 

(SBIC) Program. The new definitions are 

being established to facilitate 

implementation of a provision of the 

Energy Independence and Security Act 

of 2007 (Energy Act), which allows an 

SBIC making an ‘‘energy saving qualified 

investment’’ to obtain SBA leverage by 

issuing a deferred interest ‘‘energy 

saving debenture’’. This rule would also 

implement a provision of the Energy Act 

that provides access to additional SBA 

leverage for SBICs that have made 

Energy Saving Qualified Investments in 

Smaller Enterprises, as defined in SBA 

regulations. 

DATES: Comments must be received on 

or before February 11, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN 3245–AF 86, by any 

of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail, Hand Delivery/Courier: Sean 

Greene, Associate Administrator for 

Investment, U.S. Small Business 

Administration, 409 Third Street, SW., 

Washington, DC 20416. 

SBA will post comments on http:// 

www.regulations.gov. If you wish to 

submit confidential business 

information (CBI) as defined in the User 

Notice at http://www.regulations.gov, 

please submit the information to Carol 

Fendler, Investment Division, 409 Third 

Street, SW., Washington, DC 20416. 

Highlight the information that you 

consider to be CBI and explain why you 

believe this information should be held 

confidential. SBA will review the 

information and make the final 

determination of whether it will publish 

the information or not. 

FOR FURTHER INFORMATION CONTACT: 

Carol Fendler, Investment Division, 

Office of Capital Access, (202) 205–7559 

or sbic@sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The Energy Independence and 

Security Act of 2007, Public Law 110– 

140, Title XII, section 1205(a), amended 

section 303 of the Small Business 

Investment Act of 1958 (SBI Act) by 

authorizing SBICs licensed after 

September 30, 2008, to issue energy 

saving debentures. Section 1205(b) of 

the Energy Act amended section 103 of 

the SBI Act by adding the new defined 

terms ‘‘energy saving debenture’’ and 

‘‘energy saving qualified investment.’’ 

Section 1206 of the Energy Act amended 

section 303(b)(2) of the SBI Act to make 

SBICs licensed after September 30, 

2008, eligible for additional leverage if 

they have made energy saving qualified 

investments. An SBIC making maximum 

use of this provision could have 

approximately 11% more leverage 

outstanding than would be permitted 

under the standard leverage eligibility 

formula. 

II. Section by Section Analysis 

Section 107.50—Definitions. The 

Energy Act provides that energy saving 

debentures are to be issued at a 

discount, have a 5-year or 10-year 

maturity, and require no interest 

payment or annual charge for the first 

five years. Although an SBIC can use 

other funds to make an energy saving 

qualified investment, an SBIC that 

issues an Energy Saving Debenture must 

use the proceeds only to make an energy 

saving qualified investment. To 

implement these new statutory 

provisions, SBA proposes to add 

‘‘Energy Saving Qualified Investment’’ 

and ‘‘Energy Saving Activities’’ as 

defined terms in § 107.50. 

‘‘Energy Saving Qualified Investment’’ 

The proposed regulatory definition of 

Energy Saving Qualified Investment has 

several key points. First, as specified in 

the statute, an Energy Saving Qualified 

Investment can only be made by an 

SBIC licensed after September 30, 2008. 

Second, the investment must be made in 

a Small Business, as defined in 13 CFR 

part 107. Third, the investment must be 

in the form of a Loan, a Debt Security 

(a debt instrument that includes an 

equity feature, such as warrants or rights 

to convert to equity), or an Equity 

Security. Fourth, the Small Business 

must be ‘‘primarily engaged’’ in business 

activities that reduce the use or 

consumption of non-renewable energy 

sources (‘‘Energy Saving Activities’’). 

‘‘Energy Saving Activities’’ 

The proposed rule defines Energy 

Saving Activities primarily by reference 

to various criteria established by the 

Department of Energy and other Federal 

agencies to identify energy efficient 

products and services and to encourage 

the provision of renewable energy 

sources. As one example, the 

manufacturing of products that satisfy 

the criteria for use of the Energy Star 

trademark label would qualify as an 

Energy Saving Activity. For each type of 

Energy Saving Activity, the proposed 

rule provides a reference to the 

appropriate Federal program or Internal 

Revenue Code section, or a detailed 

definition that would allow users to 

determine whether the manufacture or 

development of a specific product, or 

the provision of a specific service, 

qualifies under the definition. SBA 

believes that reference wherever 

possible to existing standards for energy 

efficient products and services will 

ensure that Energy Saving Qualified 

Investments satisfy the objectives of the 

Energy Act. This approach will also 

allow the definition of Energy Saving 

Activities to be more easily updated as 

energy efficiency standards expand to 

include new products and services. 

In addition, paragraph (4) of the 

definition would allow SBA to 

determine whether activities not 

specifically addressed in the proposed 

rule are Energy Saving Activities. This 

approach will provide flexibility to 

accommodate activities based on 

technologies or practices that may 

emerge in the future. Paragraph (4) 

encompasses the manufacturing of 

products, provision of services, and 

conduct of research and development 

activities that reduce (or are anticipated 

to reduce) the consumption of nonmstockstill on DSKH9S0YB1PROD with PROPOSALS

2030 Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 

renewable energy, either through the 

more efficient use of such energy or by 

providing energy from renewable 

sources. An SBIC requesting a 

determination by SBA under paragraph 

(4) will be asked to submit written 

information and certifications (see also 

the discussion of proposed § 107.610 in 

this preamble). The proposed definition 

identifies the information required to be 

submitted and the factors that SBA will 

take into account in determining 

whether activities are Energy Saving 

Activities, although an SBIC would be 

free to provide other information to 

support its request. Ideally, the claimed 

energy savings will have been tested by 

an independent engineer or other 

recognized professional with expertise 

in the subject technology. The results of 

in-house or other non-independent 

testing may also be considered if the 

SBIC can document that tests were 

designed, performed and evaluated by 

qualified personnel following 

appropriate professional standards. SBA 

will also consider such factors as 

patents held by the Small Business, 

grants awarded by Federal or State 

government agencies, foundations, etc. 

to promote energy efficiency or energy 

savings, and licenses purchased by the 

Small Business to make use of energysaving technologies developed by 

others. For research and developmentstage companies that have not yet 

brought a product or service to market, 

SBA will consider projected energy 

savings, but the SBIC must also provide 

evidence supporting the feasibility and 

commercial potential of the products or 

services under development. Finally, 

SBA will consider whether an activity 

that would have been eligible for an 

energy-related Federal tax credit in past 

years should be considered an Energy 

Saving Activity, even though the subject 

credit is not currently available. 

SBA welcomes comments regarding 

additional activities that may be 

candidates for inclusion in the Energy 

Saving Activities definition. For 

example, SBA is open to suggestions 

regarding activities that could reduce 

the consumption of non-renewable fuels 

by reducing the dependency on 

automobiles for transportation, such as 

provision of telework facilities, 

carpooling services, or improved transit 

options. 

Electronic Access to Criteria for 

Evaluation of ‘‘Energy Saving Activities’’ 

SBA intends to link its Investment 

Division Web site (http://www.sba.gov/ 

inv) to other government Web sites that 

will assist users in determining whether 

a company providing or developing 

particular products or services is 

engaged in Energy Saving Activities. 

Some sites allow users to search for a 

specific product by name, while others 

provide performance criteria or 

outcomes that a qualifying product or 

service must satisfy. The current 

addresses for these sites are: 

1. Energy Star: http:// 

www.energystar.gov/products 

2. Federal Energy Management 

Program: www1.eere.energy.gov/femp/

technologies/eep_purchasingspecs.html 

3. Renewable Electricity Production 

Tax Credit (Internal Revenue Code 

Section 45): http://www.irs.gov/irb/

2010–18_IRB/ar11.html 

4. Energy Credit (Internal Revenue 

Code Section 48): http://frwebgate.

access.gpo.gov/cgi-bin/usc.cgi?

ACTION=RETRIEVE&FILE=

$$xa$$busc26.wais&start=1688508&

SIZE=98870&TYPE=PDF 

5. Installation-related Federal Tax 

Credits for Consumer Energy Efficiency: 

http://www.energystar.gov/index.cfm?c=

tax_credits.tx_index 

Determining Whether a Concern is 

‘‘Primarily Engaged’’ in Energy Saving 

Activities 

The proposed rule presumes that a 

company is ‘‘primarily engaged’’ in 

Energy Saving Activities if it derived at 

least 50% of its total revenues for its 

most recently completed fiscal year 

directly from Energy Saving Activities. 

However, SBA recognizes that one of 

the objectives of creating the Energy 

Saving debenture, which does not 

require the payment of interest during 

the first five years following issuance, 

may be to allow SBICs to invest in 

earlier stage enterprises that do not meet 

this revenue test for Energy Saving 

Activities. In some cases, small 

businesses may be engaged in research 

and development activities with little or 

no revenues. In other instances, a 

company may already have revenue 

from activities not related to Energy 

Saving Activities, but may be heavily 

engaged in activities that are expected to 

produce revenue from Energy Saving 

Activities in the future. Therefore, the 

proposed rule would allow SBA to 

determine that a small business is 

primarily engaged in Energy Saving 

Activities based on the totality of the 

circumstances, as evidenced by such 

factors as the distribution of the 

company’s revenues; the percentage of 

total employees engaged in Energy 

Saving Activities; the expenditures 

(which may include both amounts 

expensed and amounts capitalized) 

allocated to Energy Saving Activities; 

activities related to the development 

and use of intellectual property held by 

the company related to Energy Saving 

Activities; and Energy Saving Activities 

contemplated by a business plan 

presented to outside investors as part of 

a formal fund-raising effort. 

Energy Saving Debenture 

As provided in section 1205(b) of the 

Energy Act, the energy saving debenture 

would be a five- or ten-year debenture 

issued at a discount so as to be, in effect, 

a ‘‘zero coupon’’ debenture for the first 

five years. SBA leverage fees would be 

paid as required under current 

§ 107.1130, except for the annual charge 

in § 107.1130(d) which would be 

deferred for the first five years and 

thereafter be payable semi-annually 

along with the debenture interest. For 

example, an SBIC issuing a $1,000,000 

ten-year debenture with a combined 

interest rate and annual charge of 6% 

would receive roughly $750,000 upon 

issuance and would make no payments 

of interest or annual charge for the first 

five years. Starting with the sixth year, 

the SBIC would make semi-annual 

payments of interest and charges on the 

debenture’s face amount of $1,000,000. 

At maturity the SBIC would pay the 

$1,000,000 face amount of the 

debenture. 

Each SBIC that was licensed after 

September 30, 2008, and is eligible to 

issue debentures under current 

regulations would be eligible to issue an 

energy saving debenture for the purpose 

of making an Energy Saving Qualified 

Investment. No regulatory changes are 

necessary to implement this new type of 

debenture. 

Section 107.610—Required 

Certifications for Loans and 

Investments. An SBIC that intends to 

issue energy saving debentures based on 

its Energy Saving Qualified Investments 

or that intends to seek additional 

leverage based on its Energy Saving 

Qualified Investments in Smaller 

Enterprises must have an appropriate 

certification for each such investment. 

Proposed § 107.610(f) makes a 

distinction between investments for 

which SBA needs to make a prefinancing determination of eligibility 

and those for which it does not. If the 

small business concern is engaged in 

activities that are specifically included 

in the Energy Saving Activities 

definition, and it is presumed to be 

‘‘primarily engaged’’ in those activities 

based on the source of its revenues, the 

SBIC only needs to certify the basis for 

the concern’s eligibility and retain the 

certification and supporting 

documentation in its files. If SBA must 

make a pre-financing determination as 

to whether the concern is engaged in 

Energy Saving Activities and/or whether 

it is ‘‘primarily engaged’’ in such 

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Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 2031 

activities, the proposed rule would 

require the SBIC to provide SBA with 

all available information from the 

concern that is relevant to those 

determinations, along with certifications 

by the SBIC and the concern that the 

submitted information is true and 

correct. SBA recognizes the burden that 

may be inherent in this type of ‘‘total 

facts and circumstances’’ determination, 

but believes it is preferable to offer this 

option to SBICs rather than to define 

Energy Saving Qualified Investments 

more narrowly. 

Section 107.1150—Maximum Amount 

of Leverage for a Section 301(c) 

Licensee. New paragraph (d) 

implements a provision of the Energy 

Act that may provide additional 

leverage eligibility to SBICs licensed on 

or after October 1, 2008, that make 

Energy Saving Qualified Investments in 

Smaller Enterprises. This paragraph 

adjusts the leverage eligibility formula 

in § 107.1150(a) by subtracting from an 

SBIC’s outstanding leverage the cost 

basis of Energy Saving Qualified 

Investments that the SBIC has made in 

Smaller Enterprises. The amount that 

can be subtracted is limited to 33% of 

the SBIC’s Leverageable Capital. 

Furthermore, as required by the Energy 

Act, only the cost basis of Energy Saving 

Qualified Investments that individually 

do not exceed 20% of the SBIC’s 

Regulatory Capital may be subtracted, 

even though SBICs in general can invest 

up to 30% of their Regulatory Capital in 

a single company. 

Compliance With Executive Orders 

12866, 12988 and 13132, the Paperwork 

Reduction Act (44 U.S.C. Ch. 35) and 

the Regulatory Flexibility Act (5 U.S.C. 

601–612) 

Executive Order 12866 

The Office of Management and Budget 

has determined that this rule is a 

‘‘significant’’ regulatory action under 

Executive Order 12866. The Regulatory 

Impact Analysis is set forth below. 

1. Necessity of Regulation 

This proposed regulatory action 

would implement sections 1205 and 

1206 of the Energy Independence and 

Security Act of 2007, Public Law 110– 

140. The statutory revisions provide an 

SBIC seeking to make an ‘‘energy saving 

qualified investment’’ with a new SBA 

leverage option in the form of an 

‘‘energy saving debenture.’’ 

2. Alternative Approaches to Regulation 

Because the regulatory definition of 

Energy Saving Qualified Investment 

must be consistent with the statutory 

definition, SBA had a limited ability to 

consider alternatives. The statute 

defines ‘‘energy saving qualified 

investment’’ as an ‘‘investment in a small 

business concern that is primarily 

engaged in researching, manufacturing, 

developing, or providing products, 

goods, or services that reduce the use or 

consumption of non-renewable energy 

resources.’’ The SBA considered 

adopting this statutory definition 

without modification. However, SBA 

did not select this approach due to 

concerns that without some 

interpretation of the broad statutory 

language, it would be difficult to 

evaluate (a) whether qualifying 

investments would actually contribute 

to the energy-saving objectives of the 

statute and (b) what constitutes 

‘‘primarily engaged’’. 

In considering alternatives for 

determining whether a qualifying 

investment would likely contribute to 

the energy-saving objectives of the 

statute, the SBA conferred with the 

Department of Energy (DOE) to consider 

two options besides using the broad 

statutory definition: (1) Defining a list of 

specific industries and (2) referencing 

existing standards developed for Federal 

programs that promote energy 

efficiency. SBA did not adopt the first 

option to identify a list of specific 

industries because (1) ‘‘energy saving’’ 

efforts take place across a broad 

spectrum of industries; (2) the North 

American Industrial Classification 

System (NAICS) codes, typically used to 

identify industries, are inadequate for 

capturing whether a business is 

involved in ‘‘energy saving’’ across this 

spectrum; and (3) developing a static list 

does not adequately allow for either a 

full range of products and services or 

the rapid growth in this area that might 

further the statutory goals. Given the 

number of Federal programs already 

directed towards ‘‘energy saving’’ 

activities, SBA chose to adopt the 

second option in order to improve 

standardization across agencies, allow 

growth as DOE and other agencies 

update program standards to reflect new 

‘‘energy saving’’ initiatives, and to 

address the broadest spectrum of 

products and services. Towards those 

goals, SBA recognizes that SBICs may 

wish to invest in Small Businesses that 

are manufacturing or researching 

products or performing services that 

have not been identified by existing 

Federal standards. Therefore, SBA will 

also consider other investments on a 

case by case basis, based on the SBIC’s 

ability to demonstrate energy savings 

associated with the Small Business’s 

activities. 

To determine whether a concern is 

‘‘primarily engaged’’ in Energy Saving 

Activities, SBA considered using either 

a specific quantitative standard or an 

evaluation based on total facts and 

circumstances. For simplicity, the 

proposed rule presumes that a business 

is ‘‘primarily engaged’’ if it derived at 

least 50% of revenues during its most 

recently completed fiscal year from 

Energy Saving Activities. SBA also 

considered a higher percentage 

requirement, but chose 50% to 

encourage energy-saving investments as 

much as possible while meeting 

statutory requirements. Alternatively, an 

SBIC may ask SBA to determine 

whether a concern is ‘‘primarily 

engaged’’ in Energy Saving Activities 

based on an evaluation of various 

factors. As stated in the proposed 

definition of Energy Saving Qualified 

Investments, these factors include ‘‘the 

distribution of revenues, employees and 

expenditures, intellectual property 

rights held, and business plans 

presented to investors as part of a formal 

solicitation’’. SBA believes the 

combination of these two approaches 

provides a reasonable balance between 

simplicity and inclusiveness. 

3. Potential Benefits and Costs 

SBA anticipates that this rule will 

provide marginal benefit to small 

businesses seeking investments by 

SBICs under those circumstances in 

which the investment structure does not 

lend itself well to SBA’s standard 

debenture. Standard debentures require 

the SBIC to make semi-annual interest 

payments, while the energy saving 

debenture contemplated by the statute 

would be issued at a discount, have a 

5-year or 10-year maturity, and require 

no interest payment or annual charge for 

the first five years. This structure is the 

same as the SBIC program’s currently 

available low and moderate income 

(LMI) debenture. 

Since the structure of the energy 

saving debenture mirrors that of the LMI 

debenture, in determining this rule’s 

benefit to both SBICs and small 

businesses, SBA analyzed the impact of 

the LMI debenture. The LMI debenture 

was first issued in FY 2001. Between FY 

2001 and March 31, 2010, SBICs have 

issued approximately $4.2 billion in 

debentures, with less than $45 million 

in LMI debentures (approximately 1% 

of all debenture leverage issued since 

FY 2001). The proceeds of LMI 

debentures can only be used to make 

LMI financings; however, SBA estimates 

that only 2% of LMI financings by 

SBICs issuing debentures were funded 

using the LMI debenture. SBICs placed 

21.5% of their investment dollars in 

portfolio companies in LMI zones 

between FY 2001 and July 31, 2010, 

compared with 21.6% in fiscal years 

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2032 Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 

1998–2000 when the LMI debenture was 

not available. The structural similarities 

between the LMI debenture and the 

energy saving debenture suggest that 

this rule will have a similarly marginal 

impact. 

In estimating the impact, the SBA also 

considered available industry data. The 

PricewaterhouseCoopers/National 

Venture Capital Association 

MoneyTree TM Report indicates that $1.9 

billion in Cleantech investments were 

made in calendar year 2009, 

representing approximately 11% of all 

venture financings. SBA believes that 

Cleantech investments are fairly 

representative of energy saving 

investments. SBA estimates that the 

percentage of the SBIC portfolio 

directed towards Energy Saving 

Qualified Investments will be similar to 

the percentage of Cleantech investments 

in the venture industry. However, only 

SBICs licensed after September 30, 

2008, will be eligible to issue energy 

saving debentures and many such SBICs 

will choose to use the standard 

debenture to make these types of 

financings. Therefore, the SBA estimates 

that approximately half of the 

anticipated SBIC energy saving 

investments will be performed using the 

new energy saving debenture or 5% of 

all financings by SBICs issuing 

debentures. In FY 2009, SBICs issuing 

debentures provided $1.2 billion in 

financing to small businesses. 

With respect to potential costs of the 

regulation to SBICs, the cost has been 

incorporated into the program 

formulation model which determines 

the annual fee to keep the debenture 

program to zero subsidy cost as required 

by law. Because the structure of the LMI 

debenture is the same as the energy 

saving debenture, SBA used its 

performance as a proxy for the energy 

saving debenture. SBA’s estimate that 

energy saving debentures would 

constitute 5% of total demand for 

debenture leverage resulted in an 

increase to the annual fee of 14.3 basis 

points versus formulations with no 

energy saving debentures. This increase 

reflects the additional risk associated 

with underlying SBIC equity 

investments contemplated in the usage 

of this debenture. Despite this increase, 

the annual fee is estimated to remain 

substantially lower than the ten year 

average and far below the statutory 

maximum of 1.38%. It should be noted 

that if the energy saving debenture was 

formulated as a stand-alone program 

(apart from the standard debenture) it is 

likely that its annual fee would exceed 

the statutory maximum. SBA will 

review the demand for and performance 

of the energy saving debenture on an 

annual basis to determine if these 

assumptions should be changed. Should 

the actual or anticipated demand for the 

energy saving debenture exceed 5% of 

all debenture leverage issued in any 

given year, SBA will consider separately 

formulating the energy saving debenture 

as a separate program so that its higher 

cost would be borne directly by users 

rather than spread among all SBICs. 

Executive Order 12988 

This action meets applicable 

standards set forth in section 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

retroactive or presumptive effect. 

Executive Order 13132 

The rule will not have substantial 

direct effects on the States, or the 

distribution of power and 

responsibilities among the various 

levels of government. Therefore, for the 

purposes of Executive Order 13132, 

Federalism, SBA determines that this 

proposed rule has no federalism 

implications warranting the preparation 

of a federalism assessment. 

Paperwork Reduction Act, 44 U.S.C. 

Ch. 35 

SBA has determined that this 

proposed rule imposes additional 

reporting and recordkeeping 

requirements under the Paperwork 

Reduction Act, 44 U.S.C., chapter 35. 

This collection of information includes 

three different reporting requirements: 

(1) Information needed for SBA to 

determine whether a Small Business is 

‘‘primarily engaged’’ in Energy Saving 

Activities, (2) information needed for 

SBA to determine whether a particular 

activity is an ‘‘Energy Saving Activity’’, 

and (3) identification of a completed 

financing as an Energy Saving Qualified 

Investment on the Portfolio Financing 

Report. As a result of proposed changes 

in this rule, SBA will also amend an 

existing approved information 

collection, Portfolio Financing Report, 

SBA Form 1031 (OMB Control Number 

3245–0078). The titles, descriptions and 

respondent descriptions of the 

information collections provisions are 

discussed below with an estimate of the 

annual reporting burden. Included in 

the estimate is the time for reviewing 

instructions, searching existing data 

sources, gathering and maintaining the 

data needed, and completing and 

reviewing each collection of 

information. 

SBA invites comments on: (1) 

Whether the proposed collection of 

information is necessary for the proper 

performance of SBA’s functions, 

including whether the information will 

have a practical utility; (2) the accuracy 

of SBA’s estimate of the burden of the 

proposed collections of information, 

including the validity of the 

methodology and assumptions used; 

(3) ways to enhance the quality, utility, 

and clarity of the information to be 

collected; and (4) ways to minimize the 

burden of the collection of information 

on respondents, including through the 

use of automated collection techniques, 

when appropriate, and other forms of 

information technology. 

Please send comments by the closing 

date for comment for this proposed rule 

to Wendy Liberante, Office of 

Management and Budget, Office of 

Information and Regulatory Affairs, 725 

17th Street, NW., Washington, DC 20503 

and to Harry Haskins, Deputy Associate 

Administrator for Investment, Office of 

Investment, Small Business 

Administration, 409 Third Street, SW., 

Washington, DC 20416. 

A. ‘‘Primarily Engaged’’ and ‘‘Energy 

Saving Activity’’ Determinations 

Title: Financing Eligibility Statement 

for Usage of Energy Saving Debentures 

[no SBA form number]. 

Summary: The Financing Eligibility 

Statement for Usage of Energy Saving 

Debentures will be used by SBICs 

requesting either or both of the SBA 

determinations that may be requested 

under the proposed rule: (1) Whether a 

Small Business is ‘‘primarily engaged’’ 

in Energy Saving Activities, as 

described in the proposed definition of 

‘‘Energy Saving Qualified Investment’’ in 

§ 107.50 and as used in 

§ 107.610(f)(2)(i), and/or (2) whether a 

particular activity in which a Small 

Business is engaged is an ‘‘Energy 

Saving Activity’’, as described in the 

proposed definition of that term and as 

used in § 107.610(f)(2)(ii). The SBIC 

must provide supporting evidence of the 

Small Business’s eligibility based on the 

factors listed in the proposed rule. 

Need and Purpose: Section 1205 of 

the Energy Independence and Security 

Act of 2007 makes SBA leverage in the 

form of a deferred interest ‘‘energy 

saving debenture’’ available to SBICs 

licensed after September 30, 2008 for 

the purpose of making Energy Saving 

Qualified Investments. The proposed 

rule identifies various criteria under 

which a financing can qualify as an 

Energy Saving Qualified Investment; 

however, SBA recognizes that some 

proposed investments will need to be 

individually reviewed by SBA to 

determine whether they fulfill the 

energy saving objectives of the statute. 

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Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 2033 

SBA will use the submitted information 

to make those determinations. 

Description of Respondents: Small 

business investment companies will 

submit this form to obtain a 

determination from SBA as to whether 

a proposed financing is an Energy 

Saving Qualified Investment. There are 

approximately 300 active SBICs; only 

about 10% of these were licensed after 

September 30, 2008, and are eligible to 

issue energy saving debentures to make 

Energy Saving Qualified Investments. 

Based on anticipated new licensing 

activity, SBA is estimating the number 

of eligible SBICs at 60. Assuming each 

of these SBICs will invest in five 

companies per year, that 5% of all 

investments will be in energy-saving 

companies, and that one-third of those 

will require SBA to make a prefinancing determination of eligibility, 

SBA estimates five responses per year. 

SBA estimates the burden of this 

collection of information as follows: An 

applicant will complete this collection 

once for each prospective Energy Saving 

Qualified Investment that requires SBA 

to make a pre-financing determination 

of eligibility. SBA estimates that the 

time needed to complete this collection 

will average 10 hours. SBA estimates 

that the cost to complete this collection 

will be approximately $150 per hour. 

Total estimated aggregate burden is 50 

hours per annum costing a total of 

$7,500 for the year. 

B. Portfolio Financing Report 

Title: Portfolio Financing Report, SBA 

Form 1031 (OMB Control Number 

3245–0078). 

Summary: SBA Form 1031 is a 

currently approved information 

collection form. SBA regulations 

(§ 107.640) require SBICs to submit a 

Portfolio Financing Report on SBA 

Form 1031 for each financing that an 

SBIC provides to a small business 

concern. The form is SBA’s primary 

source of information for compiling 

statistics on the SBIC program as a 

provider of capital to small businesses. 

SBA also uses the information provided 

on Form 1031 to evaluate SBIC 

compliance with regulatory 

requirements. SBA proposes to revise 

the form by adding one new question, 

which would ask the SBIC to use a pulldown menu to identify whether a 

completed financing was an Energy 

Saving Qualified Investment. SBA’s 

financial reporting software would 

automatically transfer this designation 

to the SBA Form 468 (SBIC Financial 

Statements), the source of data needed 

to determine eligibility for additional 

leverage based on Energy Saving 

Qualified Investments under 

§ 107.1150(d)(2)(i). 

Need and Purpose: Section 1206 of 

the Energy Independence and Security 

Act of 2007 increases the maximum 

amount of leverage potentially available 

to an SBIC licensed on or after October 

1, 2008, that makes Energy Saving 

Qualified Investments. Proposed 

§ 107.1150(d) adjusts the basic leverage 

eligibility formula in § 107.1150(a) by 

subtracting from an SBIC’s outstanding 

leverage the cost basis of Energy Saving 

Qualified Investments that the SBIC has 

made in Smaller Enterprises. The 

amount that can be subtracted is limited 

to 33% of the SBIC’s Leverageable 

Capital. SBA will use the information 

submitted on Form 1031 to track Energy 

Saving Qualified Investments that an 

SBIC may use in its leverage eligibility 

calculation, as well as for overall 

program evaluation purposes. 

Description of Respondents: All SBICs 

are currently required to submit SBA 

Form 1031 within 30 days after closing 

an investment. The current estimate of 

3,700 responses per year is not affected 

by this proposed rule. SBA proposes to 

add a single additional field to the form 

to identify whether the investment is an 

Energy Saving Qualified Investment. 

SBA estimates the burden of this 

collection of information as follows: An 

SBIC making an Energy Saving 

Qualified Investment will select that 

descriptor from a pull-down menu on 

SBA Form 1031. There is no 

incremental burden attributable to 

completion of this additional field. An 

SBIC will complete SBA Form 1031 for 

each of its completed financing 

transactions. The currently approved 

hour burden for this collection is 12 

minutes per response (0.2 hours), at a 

cost of $5.00 per response (based on 

$25.00 per hour). The total estimated 

burden is 740 hours per annum at an 

aggregate cost of $18,500. 

The recordkeeping requirements 

under the proposed rule relate to the 

information that an SBIC must maintain 

in its files to support the required 

certifications for Energy Saving 

Qualified Investments under 

§ 107.610(f)(1). SBA expects that SBICs 

will be able to obtain the necessary 

documentation with minimal effort. The 

SBIC would first document that the 

contemplated investment is in a 

company that provides products or 

services included in the definition of 

Energy Saving Activities, generally by 

referring to one of the government web 

sites discussed in this preamble. 

Second, the SBIC would document that 

the company derives at least 50 percent 

of its revenues from the sales of these 

products or services; the company 

would have this information available 

in the ordinary course of business. 

Compliance with the Regulatory 

Flexibility Act, 5 U.S.C. 601–612 

When an agency promulgates a rule, 

the Regulatory Flexibility Act (5 U.S.C. 

601–612) requires the agency to prepare 

an initial regulatory flexibility analysis 

(IRFA) which will describe the potential 

economic impact of the rule on small 

entities and alternatives that may 

minimize that impact. Section 605 of 

the RFA allows an agency to certify a 

rule, in lieu of preparing an IRFA, if the 

rulemaking is not expected to have a 

significant economic impact on a 

substantial number of small entities. 

This proposed rule affects all SBICs 

issuing debentures, of which there are 

approximately 160, most of which are 

small entities. Therefore, SBA has 

determined that this proposed rule will 

have an impact on a substantial number 

of small entities. However, SBA has 

determined that the impact on entities 

affected by the rule will not be 

significant. The energy saving qualified 

investment definition identifies the type 

of investment for which an SBIC will be 

permitted to seek SBA funding in the 

form of an ‘‘energy saving debenture’’; 

this instrument, because of its deferred 

interest feature, is expected to provide 

SBICs with greater flexibility in 

structuring qualified investments. The 

energy saving debenture is expected to 

increase the annual fee charged on all 

new debenture commitments by 

approximately 14 basis points; however, 

the fee would continue to remain low by 

historical standards. Accordingly, the 

Administrator of the SBA hereby 

certifies that this rule will not have a 

significant impact on a substantial 

number of small entities. SBA welcomes 

comment from members of the public 

who believe there will be a significant 

impact either on SBICs, or on 

companies that receive funding from 

SBICs. 

List of Subjects in 13 CFR Part 107 

Investment companies, Loan 

programs—business, Reporting and 

recordkeeping requirements, Small 

businesses. 

For the reasons stated in the 

preamble, SBA proposes to amend part 

107 of title 13 of the Code of Federal 

Regulations as follows: 

PART 107—SMALL BUSINESS 

INVESTMENT COMPANIES 

1. The authority citation for part 107 

continues to read as follows: 

Authority: 15 U.S.C. 681 et seq., 683, 

687(c), 687b, 687d, 687g, 687m and Pub. L. 

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2034 Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 

106–554, 114 Stat. 2763; and Pub. L. 111–5, 

123 Stat. 115. 

2. Amend § 107.50 by adding 

definitions of ‘‘Energy Saving Activities’’ 

and ‘‘Energy Saving Qualified 

Investment’’, to read as follows: 

§107.50 Definitions of terms. 

* * * * * 

Energy Saving Activities means any of 

the following: 

(1) Manufacturing or research and 

development of products, integral 

product components, integral material, 

or related software that meet one or 

more of the following: 

(i) Improves residential energy 

efficiency as demonstrated by meeting 

Department of Energy and 

Environmental Protection Agency 

criteria for use of the Energy Star 

trademark label; 

(ii) Improves commercial energy 

efficiency as demonstrated by being in 

the upper 25% of efficiency for all 

similar products as designated by the 

Department of Energy’s Federal Energy 

Management Program; 

(iii) Improves automobile efficiency or 

reduces petroleum consumption 

through the use of advanced batteries, 

power electronics, or electric motors; 

advanced combustion engine 

technology; or advanced materials 

technologies, such as lightweighting; 

(iv) Improves industrial energy 

efficiency through combined heat and 

power (CHP) prime mover or power 

generation technologies, heat recovery 

units, absorption chillers, desiccant 

dehumidifiers, packaged CHP systems, 

more efficient process heating 

equipment, more efficient steam 

generation equipment, or heat recovery 

steam generators for industrial 

application; 

(v) Reduces the consumption of nonrenewable energy by providing 

renewable energy sources, as 

demonstrated by meeting the standards, 

applicable to the year in which the 

investment is made, for receiving a 

Renewable Electricity Production Tax 

Credit as defined in Internal Revenue 

Code Section 45 or an Energy Credit as 

defined in Internal Revenue Code 

Section 48; or 

(vi) Improves electricity delivery 

efficiency by supporting the smart grid 

functions as identified in 42 U.S.C. 

17386(d) by delivering a product, 

service, or functionality that serves one 

or more of the following operational 

domains: equipment manufacturing, 

customer systems, advanced metering 

infrastructure, electric distribution 

systems, electric transmission systems, 

or grid cyber security. 

(2) Installation and/or inspection 

services associated with the deployment 

of energy saving products as identified 

by meeting one or more of the following 

standards: 

(i) Deploys products that qualify, in 

the year in which the investment is 

made, for installation-related Federal 

Tax Credits for Consumer Energy 

Efficiency; 

(ii) Deploys products related to 

commercial energy efficiency as 

demonstrated by deploying commercial 

equipment that is in the upper 25% of 

efficiency for all similar products as 

designated by the Department of 

Energy’s Federal Energy Management 

Program; 

(iii) Deploys combined heat and 

power products, goods, or services; 

(iv) Deploys products that qualify, in 

the year in which the investment is 

made, for receiving a Renewable 

Electricity Production Tax Credit as 

defined in Internal Revenue Code 

Section 45 or an Energy Credit as 

defined in Internal Revenue Code 

Section 48; or 

(v) Deploys a product, service, or 

functionality that improves electricity 

delivery efficiency by supporting the 

smart grid functions as identified in 42 

U.S.C. 17386(d) serving one or more of 

the following operational domains: 

equipment manufacturing, customer 

systems, advanced metering 

infrastructure, electric distribution 

systems, electric transmission systems, 

or grid cyber security. 

(3) Auditing and/or consulting 

services performed with the objective of 

identifying potential improvements of 

the type described in paragraph (1) or 

(2) of this definition. 

(4) Other manufacturing, service, or 

research and development activities that 

use less energy to provide the same 

level of energy service or reduce the 

consumption of non-renewable energy 

by providing renewable energy sources, 

as determined by SBA. A Licensee must 

obtain such determination in writing 

prior to providing Financing to a Small 

Business. SBA will consider factors 

including but not limited to: 

(i) Results of energy efficiency testing 

performed in accordance with 

recognized professional standards, 

preferably by a qualified third-party 

professional, such as a certified energy 

assessor, energy auditor, or energy 

engineer; 

(ii) Patents or grants awarded to or 

licenses held by the Small Business 

related to Energy Saving Activities 

listed in subsection (1) or (2) in this 

definition; 

(iii) For research and development of 

products or services that are anticipated 

to reduce the consumption of nonrenewable energy, written evidence 

from an independent certified thirdparty professional of the feasibility, 

commercial potential, and projected 

energy savings of such products or 

services; 

(iv) Eligibility of the product or 

service for a Federal tax credit cited in 

this definition that is not available in 

the year in which the investment is 

made, but was available in a previous 

year. 

Energy Saving Qualified Investment 

means a Financing which: 

(1) Is made by a Licensee licensed 

after September 30, 2008; 

(2) Is in the form of a Loan, Debt 

Security, or Equity Security, each as 

defined in this section; and 

(3) Is made to a Small Business that 

is primarily engaged in Energy Saving 

Activities. A Small Business that 

derived at least 50% of its revenues 

during its most recently completed 

fiscal year from Energy Saving Activities 

is presumed to be primarily engaged in 

such activities. Alternatively, a Licensee 

licensed after September 30, 2008 may 

request a determination from SBA prior 

to the provision of Financing as to 

whether a Small Business is primarily 

engaged in Energy Saving Activities. 

SBA will consider the distribution of 

revenues, employees and expenditures, 

intellectual property rights held, and 

Energy Saving Activities described in a 

business plan presented to investors as 

part of a formal solicitation in making 

its determination. 

* * * * * 

3. Amend § 107.610 by revising the 

last sentence of the introductory text 

and adding paragraph (f) to read as 

follows: 

§ 107.610 Required certifications for Loans 

and Investments. 

* * * Except for information and 

documentation prepared under 

paragraph (f)(2) of this section, you must 

keep these documents in your files and 

make them available to SBA upon 

request. 

* * * * * 

(f) For each Energy Saving Qualified 

Investment: 

(1) If a pre-Financing determination of 

eligibility by SBA is not required under 

the definition of Energy Saving 

Activities or Energy Saving Qualified 

Investment: 

(i) A certification by you, dated as of 

the closing date of the Financing, as to 

the basis for the qualification of the 

Financing as an Energy Saving Qualified 

Investment; and 

(ii) Supporting documentation of the 

Energy Saving Activities engaged in by 

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Federal Register / Vol. 76, No. 8 / Wednesday, January 12, 2011 / Proposed Rules 2035 

the concern and the percentage of its 

revenues derived from Energy Saving 

Activities during its most recently 

completed fiscal year. 

(2) If a pre-Financing determination of 

eligibility by SBA is required under the 

definition of Energy Saving Activities or 

Energy Saving Qualified Investment: 

(i) If the concern did not derive at 

least 50% of its revenues during its most 

recently completed fiscal year from 

Energy Saving Activities, submit to SBA 

in writing all available information 

concerning the factors considered under 

paragraph (3) of the definition of 

‘‘Energy Saving Qualified Investment’’ in 

§ 107.50, certified by both you and the 

concern to be true and correct to the 

best of your knowledge. 

(ii) If you are requesting a 

determination by SBA that the activities 

in which the concern is primarily 

engaged are Energy Saving Activities, 

submit to SBA in writing a description 

of the product or service being provided 

or developed, including all available 

documentation of the energy savings 

produced or anticipated, addressing the 

factors considered under paragraph (4) 

of the definition of ‘‘Energy Saving 

Activities’’ in § 107.50 and certified by 

both you and the concern to be true and 

correct to the best of your knowledge. 

4. Amend § 107.1150 by adding a 

sentence at the end of paragraph (c) 

introductory text and adding paragraph 

(d) to read as follows: 

§ 107.1150 Maximum amount of Leverage 

for a Section 301(c) Licensee. 

* * * * * 

(c) * * * Any investment that you 

use as a basis to seek additional leverage 

under this paragraph (c) cannot also be 

used to seek additional leverage under 

paragraph (d) of this section. 

* * * * * 

(d) Additional Leverage based on 

Energy Saving Qualified Investments in 

Smaller Enterprises. (1) Subject to SBA’s 

credit policies, if you were licensed on 

or after October 1, 2008, you may have 

outstanding Leverage in excess of the 

amounts permitted by paragraphs (a) 

and (b) of this section in accordance 

with this paragraph (d). Any investment 

that you use as a basis to seek additional 

Leverage under this paragraph (d) 

cannot also be used to seek additional 

Leverage under paragraph (c) of this 

section. 

(2) To determine whether you may 

request a draw that would cause you to 

have outstanding Leverage in excess of 

the amount determined under paragraph 

(a) of this section: 

(i) Determine the cost basis, as 

reported on your most recent filing of 

SBA Form 468, of any Energy Saving 

Qualified Investments in a Smaller 

Enterprise that individually do not 

exceed 20% of your Regulatory Capital. 

(ii) Calculate the amount that equals 

33% of your Leverageable Capital. 

(iii) Subtract from your outstanding 

Leverage the lesser of (d)(1)(i) or 

(d)(1)(ii). 

(iv) If the amount calculated in 

paragraph (d)(1)(iii) is less than the 

maximum Leverage determined under 

paragraph (a) of this section, the 

difference between the two amounts 

equals your additional Leverage 

availability. 

Dated: January 6, 2011. 

Karen G. Mills, 

Administrator. 

[FR Doc. 2011–486 Filed 1–11–11; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 17 

[Docket No. FAA–2010–0840; Notice 

No. 10–18] 

RIN 2120–AJ82 

Procedures for Protests and Contracts 

Dispute 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: This action would update, 

simplify, and streamline the current 

regulations governing the procedures for 

bid protests brought against the FAA 

and contract disputes brought against or 

by the FAA. It would also add a 

voluntary dispute avoidance and early 

resolution process. This action is 

necessary to ensure the regulations 

reflect the changes that have evolved 

since 1999 when they were first 

implemented. The intended effect of 

this action is to streamline and further 

improve the protest and dispute 

process. 

DATES: Send your comments on or 

before March 14, 2011. 

ADDRESSES: You may send comments 

identified by Docket Number FAA– 

2010–0840 using any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and follow 

the online instructions for sending your 

comments electronically. 

• Mail: Send comments to Docket 

Operations, M–30; U.S. Department of 

Transportation, 1200 New Jersey 

Avenue, SE., Room W12–140, West 

Building Ground Floor, Washington, DC 

20590–0001. 

• Hand Delivery or Courier: Take 

comments to Docket Operations in 

Room W12–140 of the West Building 

Ground Floor at 1200 New Jersey 

Avenue, SE., Washington, DC, between 

9 a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. 

• Fax: Fax comments to Docket 

Operations at 202–493–2251. 

For more information on the rulemaking 

process, see the SUPPLEMENTARY

INFORMATION section of this document. 

Privacy: We will post all comments 

we receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. 

Using the search function of the docket 

Web site, anyone can find and read the 

electronic form of all comments 

received into any of our dockets, 

including the name of the individual 

sending the comment (or signing the 

comment for an association, business, 

labor union, etc.). You may review 

DOT’s complete Privacy Act Statement 

in the Federal Register published on 

April 11, 2000 (65 FR 19477–78) or you 

may visit http://DocketsInfo.dot.gov. 

Docket: To read background 

documents or comments received, go to 

http://www.regulations.gov at any time 

and follow the online instructions for 

accessing the docket or Docket 

Operations in Room W12–140 of the 

West Building Ground Floor at 1200 

New Jersey Avenue, SE., Washington, 

DC, between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: 

Marie A. Collins, Senior Attorney and 

Dispute Resolution Officer, FAA Office 

of Dispute Resolution for Acquisition, 

AGC–70, Room 8332, Federal Aviation 

Administration, 400 7th Street, SW., 

Washington, DC 20590, telephone (202) 

366–6400. 

SUPPLEMENTARY INFORMATION: Later in 

this preamble under the Additional 

Information section, we discuss how 

you can comment on this proposal and 

how we will handle your comments. 

Included in this discussion is related 

information about the docket, privacy, 

and the handling of proprietary or 

confidential business information. We 

also discuss how you can get a copy of 

related rulemaking documents. 

Authority for This Rulemaking and 

Background 

In 1995 Congress, through the 

Department of Transportation 

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