[Federal Register Volume 69, Number 192 (Tuesday, October 5, 2004)]
[Proposed Rules]
[Pages 59650-59695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22093]



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Part II





Department of Agriculture





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Rural Business-Cooperative Service



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7 CFR Part 4280



Renewable Energy Systems and Energy Efficiency Improvements Grant, 
Guaranteed Loan, and Direct Loan Program; Proposed Rule

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / 
Proposed Rules

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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

7 CFR Part 4280

RIN 0570-AA50


Renewable Energy Systems and Energy Efficiency Improvements 
Grant, Guaranteed Loan, and Direct Loan Program

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Proposed rule.

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SUMMARY: Rural Business-Cooperative Service proposes to implement a 
program for making grants, loan guarantees, and direct loans to farmers 
and ranchers (agricultural producers) or rural small businesses to 
purchase renewable energy systems and make energy efficiency 
improvements. The Farm Security and Rural Investment Act of 2002 (2002 
Act) established the Renewable Energy Systems and Energy Efficiency 
Improvements Program. This program will help farmers, ranchers, and 
rural small businesses to reduce energy costs and consumption.

DATES: Written comments on this proposed rule must be received on or 
before November 4, 2004 to be assured of consideration. The comment 
period for the information collection under the Paperwork Reduction Act 
of 1995 continues through November 4, 2004.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
    <bullet> Agency Web Site: http://rdinit.usda.gov/regs/. Follow 
instructions for submitting comments on the Web Site.
    <bullet> E-Mail: <a href="/cdn-cgi/l/email-protection#73101c1e1e161d070033060017125d141c05"><span class="__cf_email__" data-cfemail="9ffcf0f2f2faf1ebecdfeaecfbfeb1f8f0e9">[email protected]</span></a>. Include the RIN No. 0570-0050 
in the subject line of the message.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
    <bullet> Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or another courier service requiring a street address to 
the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.

All written comments will be available for public inspection during 
regular working hours at 300 7th Street, SW., 7th Floor, address listed 
above.

FOR FURTHER INFORMATION CONTACT: Georg A. Shultz, Special Advisor for 
Renewable Energy Policy and Programs, Office of the Deputy 
Administrator Business Programs, U.S. Department of Agriculture, Mail 
Stop 3220, 1400 Independence Ave., SW., Washington, DC 20250-3220, 
Telephone: (202) 720-2976.

SUPPLEMENTARY INFORMATION: The information presented in this preamble 
is organized as follows:

I. Background
    A. Statutory Authority
    B. Background Information
    C. Request for Comments
II. General Criteria and Terms for Approval of Grants and Guaranteed 
Loans
    A. Applicant and Applicant/Borrower Eligibility
    B. Project Eligibility
    C. Eligible Project Costs
    D. Project Funding
    E. Appeals
    F. Insurance
    G. Construction Planning and Performing Development
    H. Laws that Contain Other Requirements
III. Application and Documentation Requirements for Grants and 
Guaranteed Loans
    A. Application
    B. Forms, Certifications, and Agreements
    C. Studies and Reports
IV. Evaluation of Grant and Guaranteed Loan Applications
    A. Criteria for Applications for Renewable Energy Systems
    B. Criteria for Applications for Energy Efficiency Improvements
    C. Selection of Evaluation Criteria and their Point Values
V. Processing and Servicing Grants and Guaranteed Loans
    A. Processing and Servicing Grants
    B. Processing and Servicing Guaranteed Loans
    C. Processing and Servicing Combined Funding
VI. Economic Analysis
    A. Benefit-Cost Analysis
    B. Small Businesses
VII. Administrative Requirements
    A. Paperwork Reduction Act
    B. Intergovernmental Review
    C. Regulatory Flexibility Act
    D. Civil Justice Reform
    E. National Environmental Policy Act
    F. Unfunded Mandates Reform Act
    G. Executive Order 13132, Federalism
    H. Executive Order 12866, Regulatory Planning and Review

I. Background

A. Statutory Authority

    The Farm Security and Rural Investment Act of 2002 (2002 Act) 
established the Renewable Energy Systems and Energy Efficiency 
Improvements Program under Title IX, Section 9006. The 2002 Act 
mandates that the Secretary of Agriculture create a program to make 
loans, loan guarantees, and grants to ``a farmer, rancher, or rural 
small business'' to purchase renewable energy systems and make energy 
efficiency improvements. The purpose of the program is to help 
agricultural producers and rural small businesses to reduce energy 
costs and consumption. The 2002 Act mandates the maximum percentage 
that the Agency will provide in funding for these projects. Grant 
funding is limited to 25 percent of the eligible project cost and will 
be made only to those who demonstrate financial need. Guaranteed loans 
and direct loans are each limited to 50 percent of the eligible project 
costs. Lastly, the Agency may fund up to 50 percent of the eligible 
cost for any combination of grants, guaranteed loans, and direct loans 
per project under this program.
    In determining the amount of a grant, guaranteed loan, or direct 
loan for renewable energy systems and energy efficiency improvements, 
the 2002 Act requires the Agency to take into consideration, as 
applicable, the following factors:
    1. The type of renewable energy system or energy efficiency 
improvement to be purchased;
    2. The estimated quantity of energy to be generated by the 
renewable energy system or energy efficiency improvement;
    3. The expected environmental benefits of the renewable energy 
system or energy efficiency improvement;
    4. The extent to which the renewable energy system or energy 
efficiency improvement will be replicable;
    5. The demonstrated amount of energy savings expected to be derived 
from this activity or project;
    6. The estimated length of time it would take for the energy 
savings generated by the project to equal the cost of the activity or 
project; and
    7. Other appropriate factors.

B. Background Information

    Due to time constraints for implementing this program, the Agency 
decided to institute only the grant program for FY 2003. Therefore, a 
NOFA inviting applications to purchase renewable energy systems and 
make energy efficiency improvements under the grant program was 
published in the Federal Register on April 8, 2003 (68 FR 17009). Of 
the 147 applications for grant funds received, 114 were approved and 
funded under this program for FY 2003. For FY 2004, the Agency 
published a second NOFA (May 5, 2004; 69 FR 25234) for a grant program 
for

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renewable energy systems and energy efficiency improvements. For FY 
2005, the Agency is in the process of developing a rule for a complete 
grant, guaranteed loan, and direct loan program. This notice is the 
first formal step of this process.
    In developing the proposed rule, the Agency relied on several main 
components. First, the rule needs to be consistent with the 
requirements specified in the 2002 Act. Thus, some of the proposed 
requirements are statutorily-based. Second, Rural Development is 
proposing to implement the grant and guaranteed loan program based on 
the requirements outlined in the NOFA published on April 8, 2003, 
including stakeholder comments. Third, in proposing the guaranteed loan 
program, the Agency is proposing requirements based on the experience 
of other loan programs (e.g., the Business and Industry Loan program) 
and the need to ensure that loan programs are based on sound financial 
principles.
    Based on experience, the Agency is proposing to require applicants 
and borrowers as well as their proposed projects to meet certain 
eligibility requirements to ensure that the funds available under this 
program are disbursed to those who meet the target market in the 2002 
Act. To assess the eligibility and viability of proposed projects, 
applicants will be required to provide certain information.
    Because of limitations of available funds, the Agency is proposing 
criteria to score and rank eligible projects to determine those 
projects that are funded first. To make funds available to more 
agricultural producers and rural small businesses, the Agency is 
proposing limits to maximum funding levels. In addition, minimum 
funding levels are being proposed to help ensure that most projects 
that have beneficial aspects of energy production and energy savings in 
rural areas can be considered for assistance.
    Finally, the Agency is proposing processing and servicing 
requirements, which are necessary for any grant and guaranteed loan 
program.
    With regards to the direct loan program, the Agency has chosen not 
to promulgate a regulation for the direct loan program under section 
9006 at this time because we believe the government needs to have 
options for dealing with change and innovation within the renewable 
energy industry. By allowing the Agency to tailor the direct program to 
specific needs that are not properly addressed by either the grant or 
guarantee gives the government some flexibility in dealing with the 
ever changing and evolving nature of the renewable energy industry. As 
funding is provided for this purpose, the Agency will develop the 
appropriate rules, terms, conditions and criteria for the direct loan 
program that will address the specific direct loan needs for renewable 
energy at that time. Finally, the implementation of a direct loan 
program can require significant staffing and resources, which the 
Agency does not currently have. By implementing a direct loan program 
tailored to specific needs at a later time, the Agency will be in a 
better position to allocate the necessary staff and resources to 
implement a direct loan program. For these reasons, the Agency is not 
proposing a specific direct loan program at this time, but is instead 
identifying the process for developing a direct loan program and the 
information that would be included in the direct loan program.

C. Request for Comments

    The Agency is requesting comments on the overall program being 
proposed. The Agency is especially interested in comments on the 
following areas:
    1. The rule sets a minimum funding amount of $2,500. How would this 
minimum value affect the projects most likely to otherwise use this 
program?
    2. The rule does not allow non-traditional lenders to participate 
in the program. Is this appropriate for renewable energy projects or 
would some non-traditional lenders be likely to lend funds for this 
type of activity if the rule did not prohibit their participation?
    3. Are there ways to improve, streamline, or simplify the 
application process for the program? The Agency is particularly 
interested in the views of program applicants and other interested 
stakeholders. The Agency will consider comments based on its need to 
assess the eligibility and viability of proposed projects. Applicants 
and the Agency must meet all applicable laws, regulations and executive 
orders. The applicants must provide the Agency and other agencies with 
appropriate information so that all compliance issues can be addressed 
and competing applications can be evaluated in a fair and objective 
process. The Agency will balance the above criteria, where possible, 
with the need to establish information requirements commensurate with 
the scale and complexity of the proposed renewable energy system or 
energy efficiency improvement.
    Comments are to be submitted as indicated in the DATES and 
ADDRESSES sections above. The Agency will consider all comments, 
although some may be addressed at a future date.
    The Agency believes that a 30-day comment period, rather than a 60-
day comment period, is sufficient for soliciting public comments on 
this proposed rulemaking. First, the stakeholders are already very 
familiar with the grant and guaranteed loan program being proposed. The 
Agency issued two Notices of Funds Availability (NOFAs) for grant 
programs under section 9006, one in fiscal year (FY) 2003 and one in FY 
2004, and requested public comments on both NOFAs. In addition, the 
Agency's current Business and Industry (B&I) guaranteed loan program 
forms the basis of the proposed guaranteed loan program. Second, in 
developing the proposed program, the Agency considered all of the 
comments received on the NOFAs and used its experience with the NOFAs 
in developing the proposed rule. Third, the Agency hosted a national 
public stakeholders forum for constituents on December 3, 2002, which 
was simulcast nationwide over the Internet. At this forum, attendees 
expressed their views on the implementation of section 9006. There was 
significant participation with both oral and written comments, which 
were also considered in the development of the proposed rule. Finally, 
the grant program is identical to the latest NOFA and there are only a 
few differences being proposed between the section 9006 guaranteed loan 
program and the existing B&I guaranteed loan program. For these 
reasons, the Agency believes that 30 days is sufficient for the 
stakeholders to understand the proposed program and to provide comment 
on it. If additional time is required, stakeholders can always request 
an extension of the public comment period.

II. General Criteria and Terms for Approval of Grants and Guaranteed 
Loans

    There exist thousands of agricultural producers and rural small 
businesses engaged in meeting the needs of the nation's growing 
population. The potential contribution of this group toward meeting the 
national goal of conserving and reducing energy usage nationwide is 
great. In implementing this program, the Agency encourages agricultural 
producers and rural small businesses to utilize commercially available 
technologies.
Terminology
    Throughout this preamble, we use the term ``applicant,'' 
``borrower,'' and ``grantee'' in describing the proposed grant and loan 
program. The term ``applicant'' refers to the entity seeking

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a grant or loan. For the grant program, this entity is the agricultural 
producer or rural small business. For the direct loan program, this 
entity is the agricultural producer. For the guaranteed loan program, 
however, this entity is the lender. We use the term ``borrower'' when 
referring to the agricultural producer or rural small business that is 
seeking the guaranteed loan or to whom a loan has been made. We use the 
term ``grantee,'' to refer to the agricultural producer or rural small 
business that has received a grant.
    In summary, when the phrase ``applicant or borrower'' is used in 
the preamble, it refers to the agricultural producer or rural small 
business seeking the grant, guaranteed loan, or direct loan. When just 
the term ``applicant'' is used, it refers to the entity (agricultural 
producer, rural small business, or lender) submitting the application, 
as described in the above paragraph.

A. Applicant and Applicant/Borrower Eligibility

    To be eligible to receive a grant or guaranteed loan, an applicant 
or borrower must meet each of the five criteria, as applicable, 
identified below. These criteria were selected because they are 
identified in Section 9006 of the 2002 Act.
    1. To receive a grant or guaranteed loan, the applicant or borrower 
must be an agricultural producer (farmer or rancher) or a rural small 
business;
    2. If the applicant or borrower is an individual, the applicant or 
borrower must be a citizen of the United States (U.S.) or reside in the 
U.S. after being legally admitted for permanent residence;
    3. Entities must be at least 51 percent owned, directly or 
indirectly, by individuals who are either citizens of the U.S. or 
reside in the U.S. after being legally admitted for permanent 
residence;
    4. If the applicant or borrower is applying as a rural small 
business, both the applicant's or borrower's business headquarters and 
the proposed project must be in a rural area; and
    5. For grants only, the applicant must have demonstrated financial 
need.
    Any applicant, borrower, or owner that has an outstanding Federal 
judgment, is delinquent in paying Federal income taxes, or is 
delinquent on a Federal debt is ineligible to receive a grant or 
guaranteed loan under this program. This condition is consistent with 
standard Agency practice for funding programs.

B. Project Eligibility

    The proposed rule contains criteria to determine if an applicant's 
proposed project is eligible to receive funds or guarantees under the 
Renewable Energy Systems and Energy Efficiency Improvements Program. To 
be eligible, the proposed project is required to meet the following 
criteria, as applicable:
    1. The project must be for the purchase of a renewable energy 
system or to make energy efficiency improvements;
    2. The project must be for a replicable, pre-commercial or a 
replicable, commercially available technology;
    3. The project must be technically feasible;
    4. The project must be located in a rural area;
    5. The applicant or borrower must be the owner of the system and 
control the operation and maintenance of the proposed project. However, 
a qualified third-party operator will be allowed to manage the 
operation and/or maintenance of the proposed project; and
    6. All projects must be based on satisfactory sources of revenues 
in an amount sufficient to provide for the operation and maintenance of 
the system or project.
    Projects that are still in the research and development stage are 
not eligible for funds under this program, because the 2002 Act 
requires projects to be ``replicable'' and the Agency does not believe 
projects that are in the research and development stage meet this 
statutory requirement. In addition, a project for which construction 
has been initiated will not be considered by the Agency because the 
necessary environmental assessment cannot be conducted in accordance 
with the National Environmental Protection Act.
    The technical feasibility of each proposed project will be based on 
all of the information provided by the applicant and on other sources 
of information, such as recognized industry experts in the applicable 
technology field, as necessary. If the project is determined to be not 
technically feasible, the applicant will be notified in writing of this 
determination and the reasons therefore. The rule allows the applicant 
or borrower to appeal such determinations.

C. Eligible Project Costs

    Funds may be used only for certain specified project costs, 
provided these costs are an integral and necessary part of the total 
project. Funds received under 7 CFR part 4280, subpart B, cannot be 
used for any other project costs. The eligible project costs are:
    1. Post-application purchase and installation of equipment, except 
agricultural tillage equipment and vehicles. Vehicles are considered to 
be any powered mobile equipment, including but not limited to cars and 
tractors;
    2. Post-application construction or project improvements, except 
residential;
    3. Energy audits or assessments;
    4. Permit fees;
    5. Professional service fees, except for application preparation;
    6. Feasibility studies;
    7. Business plans;
    8. Retrofitting;
    9. Construction of a new facility only when the facility is used 
for the same purpose; is approximately the same size; and, based on the 
energy audit, will provide more energy savings than improving an 
existing facility. Only costs identified in the energy audit for energy 
efficiency projects are allowed;
    10. Working capital (guaranteed loans only); and
    11. Land acquisition (guaranteed loans only).
    The Agency selected these items as eligible project costs because 
they are integral to the acquisition or construction of eligible 
projects and these items are necessary for the successful 
implementation and quality assurance of the project; and allowing these 
costs provides for support of actual purchase of a renewable energy 
system and energy efficiency improvements. The Agency is allowing 
working capital and land acquisition as an eligible project costs for 
guaranteed loans because the Agency wants to ensure that the relatively 
limited percentage of grant funds (25 percent for grants versus 50 
percent for guaranteed loans) are used for the renewable energy system 
or energy efficiency improvement project itself.

D. Project Funding

    1. Funding Amounts. The minimum level of funding available for a 
grant, guaranteed loan, or a combined grant and guaranteed loan is 
$2,500. The Agency believes that including this minimum level of 
funding will allow more agricultural producers and rural small 
businesses to qualify and take advantage of this program. The Agency's 
goal in implementing this program is to distribute all of the available 
funds quickly and equitably to qualified applicants and borrowers.
    To encourage wide participation and distribution of funds, the 
Agency has established levels of available funding for both funding 
programs. The following paragraphs discuss maximum

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funding levels and specific details related to funding for grants and 
guaranteed loans, and percentages of eligible project costs available 
under each funding program.
    i. Grant Funding. The maximum funding level for grants for 
renewable energy systems is $500,000. The maximum funding level for 
grants for energy efficiency improvements is $250,000. The maximum 
amount of grant assistance to one individual or entity is limited to 
$750,000.
    As required by the 2002 Act, the amount of grant funds made 
available to an applicant for an eligible project must not exceed 25 
percent of eligible project costs. The remaining funds needed to 
complete the project must come from other sources. The applicant may 
use third-party, in-kind contributions as part of the remaining funds. 
Third-party, in-kind contributions, however, cannot exceed 10 percent 
of the matching funds provided by other sources.
    ii. Loan funding. For guaranteed loans, the maximum funding level 
is $10 million. If a more than $10 million in loan guarantees is 
sought, then the loan should be sought under the Agency's B&I program.
    The amount of guaranteed loan funds made available to an applicant 
or borrower for an eligible project will not exceed 50 percent of 
eligible project costs.
    For guaranteed loans, the total amount of Agency loans to one 
borrower will be limited to no more than $10 million. The percentage of 
the guarantee, which will be negotiated between the lender and the 
borrower, cannot exceed 85 percent for loans of $600,000 or less; 80 
percent for loans greater than $600,000 but up to $5 million; and 70 
percent for loans greater than $5 million but up to $10 million.
    c. Combined Grant and Guaranteed Loan Funding. As required by the 
2002 Act, a combined grant and guaranteed loan under this program 
cannot exceed 50 percent of eligible project costs and the applicant or 
borrower is responsible for having other funding sources for the 
remaining funds. Eligible project costs will be based on costs 
identified for each type of funding being requested under a combination 
funding request.
    2. Interest rates on loans.
    i. Guaranteed loans. The interest rate for a guaranteed loan will 
be negotiated between the lender and the borrower and may be fixed, 
variable, or a combination of fixed and variable as long as it is a 
legal rate. If a variable interest rate is used, it must be tied to a 
base rate agreed to by the lender and the borrower and may be varied no 
more than once per quarter.
    The interest rate for a guaranteed loan is to be based on indices, 
such as money market indices, that are published in a recognized 
banking industry source. As in the Agency's B&I program, the interest 
rate can not be more than that rate customarily charged borrowers in 
similar circumstances in the ordinary course of business and is subject 
to Agency review and approval.
    ii. Combination Funding. The interest rate for the loan portion of 
a combined funding request will be determined based on the procedures 
specified for guaranteed loans.
    3. Terms of Loan. This rule sets maximum loan term limits for 
guaranteed loans and also applies when they are part of a combination 
funding request. These term limits vary according to the type of item 
and will be utilized only when the loan cannot reasonably be repaid 
over a shorter term. The maximum loan terms being proposed are 
established loan terms used under the Agency's B&I program and are 
familiar to commercial lenders. The maximum loan term limits in this 
rule are as follows:
    i. For real estate, 30 years.
    ii. For machinery and equipment, 15 years, or the useful life, 
whichever is less.
    iii. For repayment for combined loans on real estate and equipment, 
20 years.
    iv. For working capital, 7 years.
    The first installment of principal and interest will, if possible, 
be scheduled for payment after the project is operational and has begun 
to generate income.
    4. Guaranteed Loan Fees. This rule sets the maximum guarantee fee 
at 1 percent and the maximum annual renewal fee at 0.5 percent. The 
Agency considered establishing a higher guarantee fee (2 percent), 
which would help leverage funds. However, the Agency believes that the 
lower fee is more appropriate because it provides a financial 
incentive, relative to other programs, to agricultural producers and 
rural small businesses to participate in this program. The maximum 
annual renewal fee is based on Small Business Administration (SBA) 
programs and is adopted for this program to provide additional funds to 
supplement the available funds appropriate to the program, thereby 
allowing the program to reach more potential applicants. The Agency 
will publish each year in the Federal Register the fee levels in effect 
for that year.

E. Appeals

    Consistent with standard Agency policy, appeals will be handled in 
accordance with 7 CFR part 11. Any party adversely affected by an 
Agency decision under this subpart may request a determination of 
appealability from the Director, National Appeals Division, USDA, 
within 30 days of the adverse decision.

F. Insurance

    This rule will require the applicant or borrower to carry certain 
types of insurance. The insurance requirements are consistent with 
other Rural Development programs and are applicable to this program. 
All insurance must be maintained for the life of the grant or loan, 
unless such requirement is waived or modified by the Agency.

G. Construction Planning and Performing Development

    Consistent with Agency policies, construction planning and 
performing development requirements of 7 CFR part 1924, subpart A, will 
be used for grants.
    Under the Guaranteed Loan program, lenders will be required to 
ensure that all project facilities are designed utilizing accepted 
architectural and engineering practices, conform to applicable Federal, 
state, and local codes and requirements, and meet the requirements of 
this regulation.

H. Laws That Contain Other Requirements

    There are several laws that applicants and borrowers must comply 
with under this program. These are:
    <bullet> Executive Order 11246, ``Equal Employment Opportunity;''
    <bullet> Americans with Disabilities Act of 1990;
    <bullet> Title VI of the Civil Rights Act of 1964 (grants only);
    <bullet> Section 504 of the Rehabilitation Act of 1973 (grants 
only);
    <bullet> Equal Credit Opportunity Act (Title V of Pub. L. 90-321, 
as amended) (guaranteed loans only);
    <bullet> 7 CFR part 1940, subpart G, which requires an 
environmental impact analysis; and
    <bullet> Executive Order 12898, ``Environmental Justice,'' under 
which the Agency will conduct a Civil Rights Impact Analysis in regard 
to environmental justice.

III. Application and Documentation Requirements for Grants and 
Guaranteed Loans

    The Agency is requiring the minimum amount of information that it 
needs to evaluate an applicant's or borrower's

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eligibility, evaluate the proposed project's eligibility, evaluate the 
applications and establish selection priorities among competing 
projects, ensure compliance with applicable regulations, and 
effectively monitor the applicant's or borrower's activities after the 
loan is made or the grant is awarded. The following paragraphs describe 
the Agency's proposed application and documentation requirements when 
applying for a grant or guaranteed loan.
    In applying for grant or guaranteed loan funds under this program, 
the applicant will be required to submit an application; submit a 
series of forms, certifications, and agreements; perform a feasibility 
study for renewable energy systems projects of more than $100,000; and 
prepare technical requirements reports.

A. Application

    Separate applications must be submitted for renewable energy system 
and for energy efficiency improvement projects from applicants applying 
for both. Only one application per each type of project may be 
submitted. Applicants applying for a combined grant and guaranteed loan 
will submit a separate application for each grant and guaranteed loan, 
with at least one set of documentation. The separate applications must 
be submitted simultaneously.
    Applications will consist of:
    <bullet> A table of contents;
    <bullet> A one page summary of the project;
    <bullet> A description of applicant/borrower eligibility and 
project eligibility;
    <bullet> A description of agricultural producer's/rural small 
business' business, farm, or ranch operation and ownership;
    <bullet> Management information;
    <bullet> Financial information including an explanation of 
financial need (grants only), balance sheets and income statements or 
equivalent, information to allow assessment of annual receipts (rural 
small businesses only), historical financial statements, pro forma 
balances sheets, and gross market value of agricultural products 
(agricultural producers only); and
    <bullet> A Dun and Bradstreet (D&B) Data Universal Numbering System 
(DUNS) number (grants only).
    For renewable energy systems, the applicant must also indicate 
whether the technology to be employed is commercially or pre-
commercially available and is replicable, the information to support 
this position, and a description of the availability of materials, 
labor, and equipment for the facility. Also required is information on 
the demand for the product and/or service; who will buy the product 
and/or service, identification of the supply (past, present, and 
future) of the product and/or service; identification of competitors; 
and a description how the business will be able to sell enough of its 
product/service to be profitable given the trends in demand and supply.
    The Agency will then evaluate applications to determine if the 
applicant or borrower is eligible and if the project is eligible to 
receive funds and to score each application to assist in determining 
those projects that are funded first.

B. Forms, Certifications, and Agreements

    Applicants must submit a series of forms, certifications, and 
agreements with each application. These forms, certifications, and 
agreements are necessary for the Agency to evaluate applications and to 
administer this program. Some of these are applicable to both funding 
programs. Applicants applying for a combined grant and guaranteed loan 
will be required to submit all applicable forms for both types of 
funding.
    Most of the forms being used for this program have been used in 
other, similar programs. Rather than develop new forms, which would be 
very time consuming, the Agency is amending these existing forms. For 
example, Form 4279-4, ``Lender's Agreement,'' would be amended to note 
that Section III, Item A.2, is only applicable to the Business and 
Industry program.
    1. Grants. For grants, an applicant will be required to submit the 
following:
    i. Form SF-424, ``Application for Federal Assistance.''
    ii. Form SF-424C, ``Budget Information--Construction Programs.''
    iii. Form SF-424D, ``Assurances--Construction Programs.''
    iv. AD-1049, ``Certification Regarding Drug-Free Workplace 
Requirements (Grants).''
    v. AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion -Lower Tiered Covered 
Transactions.''
    vi. A copy of a bank statement or a copy of the commitment letter 
from the funding source.
    vii. Exhibit A-1 of RD Instruction 1940-Q, ``Certification for 
Contracts, Grants and Loans,'' if the grant exceeds $100,000 (or 
Exhibit A-2 of RD Instruction 1940-Q, ``Statement for Loan 
Guarantees,'' if the guaranteed loan exceeds $150,000).
    viii. Form SF-LLL, ``Disclosure of Lobbying Activities.''
    ix. AD-1047, ``Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions.''
    x. Form RD 400-1, ``Equal Opportunity Agreement.''
    xi. Form RD 400-4, ``Assurance Agreement.''
    xii. Where applicable, a copy of a letter of intent to purchase 
power, a power purchase agreement, a copy of a letter of intent for an 
interconnection agreement, or an interconnection agreement will be 
required from your utility company or other purchaser for renewable 
energy systems.
    xiii. Where applicable, intergovernmental consultation comments in 
accordance with Executive Order 12372.
    xiv. Certification indicating whether or not there is a known 
relationship or association with an Agency employee.
    xv. An environmental impact analysis prepared in accordance with 7 
CFR part 1940, subpart G, using Form RD 1940-20, ``Request for 
Environmental Information.''
    2. Guaranteed loans. For guaranteed loans, an applicant will be 
required to submit the items described above in paragraphs B.1.vii 
through xv as well as the following items:
    i. Form 4279-1, ``Application for Loan Guarantee.''
    ii. A personal credit report for the borrower, a proprietor 
(owner), and anyone owning 20 percent or more interest in the 
borrower's business from a credit reporting company acceptable to the 
Agency.
    iii. Completed appraisals should be submitted when the application 
is filed. If the appraisal has not been completed when the application 
is filed, the applicant must submit an estimated appraisal. In all 
cases, a completed appraisal must be submitted prior to the loan being 
closed.
    iv. Lender's complete comprehensive written analysis.
    v. Commercial credit reports on the borrower and any parent, 
affiliate, and subsidiary firms.
    vi. Current personal and corporate financial statements of any 
guarantors.
    vii. A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions.
    viii. A certification by the lender that it has completed a 
comprehensive written analysis of the proposal, the borrower is 
eligible, the loan is for authorized purposes, and there is reasonable 
assurance of repayment ability based on the borrower's history, 
projections and equity, and the collateral to be obtained.

[[Page 59655]]

C. Studies and Reports

    1. Feasibility Study for Renewable Energy Systems. Because of 
factors of cost and complexity for renewable energy system projects of 
more than $100,000, a project-specific feasibility study prepared by a 
qualified independent consultant will be required. The feasibility 
study will have to include an analysis of the market, financial, 
economic, technical, and management feasibility of the proposed 
project. The feasibility study will also have to include an opinion and 
a recommendation by the independent consultant. Applicants for 
renewable energy system projects of $100,000 or less and for all energy 
efficiency improvement projects will not be required to conduct a 
feasibility study.
    2. Technical Requirements Reports. This rule contains technical 
requirements for renewable energy systems and energy efficiency 
improvement projects. The rule identifies the following project 
technology categories:
    <bullet> Biomass, bioenergy.
    <bullet> Biomass, digesters.
    <bullet> Geothermal, electric.
    <bullet> Geothermal, direct use.
    <bullet> Hydrogen.
    <bullet> Solar, small.
    <bullet> Solar, large.
    <bullet> Wind, small.
    <bullet> Wind, large.
    <bullet> Energy efficiency improvements.
    The purpose of these technical requirements reports is to ensure 
that the renewable energy system or energy efficiency improvement 
operates or performs as expected over its design life in a reliable and 
cost effective manner. To this end, the applicant must provide 
information on project design, procurement, startup, operation, and 
maintenance.
    The technical requirements vary for each different system and 
project. In general, smaller projects will require less information 
than larger projects, projects using mature technologies will require 
less information than pre-commercial technologies or technologies with 
limited commercial operational history; projects using pre-engineered 
systems or kits will require less information than projects that 
require system design engineering; and systems or improvements using 
design-build project delivery methods where the supplier assumes all 
project delivery risks will require less information than those 
projects utilizing design-bid-construction methods where the risks of 
project delivery fall on the applicant or borrower. Small projects 
using pre-engineered kits or appliances utilizing a mature technology 
with significant commercial operational history will require the least 
information.
    The type of information to be provided includes the qualifications 
of the project team, agreements and permits, resource assessment, 
preliminary design and engineering, project development schedules, 
economic/feasibility modeling, equipment procurement, equipment 
installation, operations and maintenance, and project decommissioning. 
Energy efficiency improvement projects of more than $100,000 would be 
required to conduct an energy audit. The specific inputs for each of 
the ten technologies are identified in the proposed rule. The Agency 
allows for the use of an abbreviated set of requirements for small 
projects using a pre-engineered kits or complete integrated appliances 
utilizing a mature technology.
    Projects costing more than $100,000 will be required to employ the 
services of a professional engineer (PE). The applicant or borrower may 
be required to use the services of a PE for projects of $100,000 or 
less, depending on the level of engineering required for the specific 
project or if necessary to ensure public safety.
    To facilitate the review of proposed projects, all technical 
information provided will be required to follow a specific format, 
which is set forth in Sec.  4280.111(d). However, supporting 
information may be submitted in other formats as determined by the 
applicant. Although not required in the proposed rule, the Agency 
recommends that the narrative portion of the technical requirements 
portion of the application for small solar and small wind projects be 
less than 10 pages. For all proposed projects, the applicant will be 
required to submit the original technical requirements report plus one 
copy to the State Rural Development Office.

IV. Evaluation of Grant and Guaranteed Loan Applications

    The Agency will evaluate each application and make a determination 
as to whether the applicant or borrower is eligible, whether the 
proposed project is eligible, and whether the proposed grant or 
guaranteed loan or combined funding request complies with all 
applicable statutes and regulations. The Agency will also evaluate the 
technical feasibility of each grant, while the lender will make this 
evaluation for guaranteed loans. The evaluation will be based on the 
information provided by the applicant and on other sources of 
information, such as recognized industry experts in the applicable 
technology field, as necessary.
    If the Agency determines that either the applicant or borrower or 
the project is ineligible, the Agency will notify the applicant in 
writing of the decision, reasons therefore, and any appeal rights, and 
no further evaluation will take place.
    If the Agency determines that the application is incomplete, the 
Agency will return it to the applicant to provide the applicant the 
opportunity to resubmit the application. The Agency will identify those 
parts of the application that are incomplete. Upon receipt of a 
complete application, the Agency will complete its evaluation of the 
application and forward a copy of the technical requirements to outside 
qualified industry experts for review.
    The Agency will score each application in order to prioritize each 
proposed project. The evaluation criteria that the Agency will use to 
score renewable energy systems and energy efficiency improvement 
projects are discussed in Sections IV.A and IV.B, respectively. The 
rationale for the selection criteria and their point values is 
presented in Sections IV.C.1 and IV.C.2, respectively.

A. Criteria for Applications for Renewable Energy Systems

    1. Quantity of Energy Produced. Points are earned for the amount of 
energy replaced or the amount of energy generated, not both.
    i. Energy replacement. If the proposed renewable energy system is 
intended primarily for self use by the agricultural producer or rural 
small business and will provide energy replacement of greater than 75 
percent, 20 points will be awarded; greater than 50 percent, but equal 
to or less than 75 percent, 15 points will be awarded; or greater than 
25 percent, but equal to or less than 50 percent, 10 points will be 
awarded. The energy replacement should be determined by dividing the 
estimated quantity of energy to be generated by at least the past 12 
months' energy profile of the agricultural producer or rural small 
business or anticipated energy use.
    ii. Energy generation. If the proposed renewable energy system is 
intended primarily for production of energy for sale, 20 points will be 
awarded.
    2. Environmental Benefits. If the purpose of the proposed renewable 
energy system is to upgrade an existing facility or construct a new 
facility required to meet applicable health or sanitary standards, 10 
points will be awarded. The applicant must supply appropriate 
documentation.

[[Page 59656]]

    3. Commercial Availability. If the renewable energy system is 
currently commercially available and replicable, an additional 10 
points will be awarded.
    4. Cost Effectiveness. If the proposed renewable energy system will 
return the cost of the investment in 5 years or less, 25 points will be 
awarded; up to 10 years, 20 points will be awarded; up to 15 years, 15 
points will be awarded; or up to 20 years, 10 points will be awarded. 
The estimated return on investment will be determined by dividing the 
total project cost by the estimated projected net annual income and/or 
energy savings of the renewable energy system.
    5. Matching Funds (for Grants only). If the agricultural producer 
or rural small business has provided eligible matching funds of over 90 
percent, 15 points will be awarded; 85-90 percent, 10 points will be 
awarded; or at least 80 and up to but not including 85 percent, 5 
points will be awarded.
    6. Management. If the renewable energy system will be monitored and 
managed by a qualified third-party operator, an additional 10 points 
will be awarded.
    7. Small Agricultural Producer. If the applicant (for grants) or 
borrower (for guaranteed loans) is an agricultural producer producing 
agricultural products with a gross market value of less than $1 million 
in the preceding year, an additional 10 points will be awarded.
    8. Loan Rate (Guaranteed loans only). If the rate of the loan is 
below the Prime Rate (as published in The Wall Street Journal) plus 
1.75 percent, 5 points will be awarded. If the rate of the loan is 
below the Prime Rate (as published in The Wall Street Journal) plus 1 
percent, an additional 5 points will be awarded.

B. Criteria for Applications for Energy Efficiency Improvements

    1. Energy savings. If the estimated energy expected to be saved, as 
determined by an energy assessment or audit, will be 35 percent or 
greater, 20 points will be awarded; 30 and up to but not including 35 
percent, 15 points will be awarded; 25 and up to but not including 30 
percent, 10 points will be awarded; or 20 and up to but not including 
25 percent, 5 points will be awarded.
    2. Cost Effectiveness. If the proposed energy efficiency 
improvements will return the cost of the investment in 2 years or less, 
25 points will be awarded; greater than 2 and up to and including 5 
years, 20 points will be awarded; greater than 5 and up to and 
including 9 years, 15 points will be awarded; or greater than 9 and up 
to and including 11 years, 10 points will be awarded.
    3. Matching Funds (for Grants only). If the agricultural producer 
or rural small business has provided eligible matching funds of over 90 
percent, 15 points will be awarded; 85-90 percent, 10 points will be 
awarded; or 80 and up to but not including 85 percent, 5 points will be 
awarded.
    4. Small Agricultural Producer. If the applicant (for grants) or 
borrower (for guaranteed loans) is an agricultural producer producing 
agricultural products with a gross market value of less than $1 million 
in the preceding year, an additional 10 points will be awarded.
    5. Loan Rate (Guaranteed loans only). If the rate of the loan is 
below the Prime Rate (as published in The Wall Street Journal) plus 
1.75 percent, 5 points will be awarded. If the rate of the loan is 
below the Prime Rate (as published in The Wall Street Journal) plus 1 
percent an additional 5 points will be awarded.

C. Selection of Evaluation Criteria and Their Point Values

    1. Selection of Evaluation Criteria. The 2002 Act requires the 
Agency to consider the following factors in determining the amount of a 
grant or loan to be awarded or approved under this program:
    i. The type of renewable energy systems to be purchased;
    ii. The estimated quantity of energy to be generated by the 
renewable energy system;
    iii. The expected environmental benefits of the renewable energy 
system;
    iv. The extent to which the renewable energy system is replicable.
    v. The amount of energy savings expected to be derived from the 
activity, as determined by an energy audit comparable to an energy 
audit conducted under section 9004;
    vi. The estimated length of time it would take for the energy 
savings generated by the activity to equal the cost of the activity; 
and
    vii. Other factors as appropriate.
    The Agency has incorporated Items C.1.ii through vi into the 
evaluation criteria for renewable energy systems and Items C.1.v and vi 
into the evaluation criteria for energy efficiency improvements (Items 
C.1.i through iv are not applicable to energy efficiency improvements). 
The Agency did not use Item C.1.i, the type of renewable energy system, 
as an evaluation criteria because the rule specifies the types of 
renewable energy systems that are approvable and no reason was found to 
``favor'' one technology over another.
    The Agency identified up to four additional factors that were 
considered appropriate. These factors, the programs to which they are 
applicable, and the reasons for their selection, are:
    <bullet> Matching funds, which is applicable to both renewable 
energy systems and energy efficiency improvements. One of the Agency's 
goals for this program is to fund as many projects as possible. To 
enable more projects to be funded, the Agency elected to include as a 
criterion the amount of funds being requested. Those projects 
requesting less assistance will be awarded more points than those 
projects requesting more assistance. As there are no matching funds 
associated with guaranteed loans, this criterion is applicable only to 
grants.
    <bullet> Management, which is applicable to renewable energy 
systems only. One of the Agency's goals for this program is to fund 
projects that have a high likelihood of success. One key component to a 
successful project is the quality of the management team. Therefore, 
the Agency believes it appropriate to include management as an 
evaluation criterion for renewable energy projects. This criterion is 
applicable for grants and guaranteed loans.
    <bullet> Small agricultural producers, which is applicable to 
renewable energy systems and energy efficiency improvements. The 2002 
Act specifies the target market as rural small businesses and 
agricultural producers, but does not limit the size associated with 
agricultural producers. Another of the Agency's goals for this program 
is to help ensure additional income to small agricultural producers, 
thereby assisting in their economic sustainability. In order to help 
meet this goal, the Agency has elected to include as an evaluation 
criterion the size of the agricultural producer. This criterion is 
applicable to grants and guaranteed loans.
    <bullet> Loan rate, which is only appropriate for guaranteed loans, 
because there are no loan rates associated with grants. The Agency is 
adopting loan rate as a criterion because it is consistent with Agency 
procedures under the B&I program and are applicable to this program.
    2. Evaluation Criteria Point Values. The Agency has assigned point 
values or point value ranges to each of the criterion identified above. 
Generally, the Agency considers all of the evaluation criteria to be of 
similar value for scoring applications and, therefore, most have 
similar point values. It is possible, and likely, that many 
applications will receive no points for some of the criteria because 
the application does not meet the conditions for being awarded points.

[[Page 59657]]

For example, a guaranteed loan with an interest at the Prime Rate plus 
2 percent would receive no points for the Loan Rate criterion.
    The criterion that the Agency believes should have the highest 
potential weight is cost effectiveness, because this criterion 
evaluates the overall return on investment for each project. Point 
values for this criterion range from 10 to 25.
    After this criterion, the Agency believes the criterion for the 
amount of energy generated or saved is the second most important 
criterion because it reflects the basic goals of the program's 
projects--to create new renewable energy systems and to improve energy 
efficiency. Point values for this criterion range from 10 to 20 for 
energy replacement and 20 points for energy generation for renewable 
energy systems, and from 5 to 20 points for energy savings for energy 
improvement projects.
    The remaining criteria all have point values of about 10 points, 
although some have the potential to be slightly higher (e.g., 15 points 
under matching funds for those seeking the lowest percentage 
assistance) or lower (e.g., 5 points under loan rate for higher 
interest rates).

V. Processing and Servicing Grants and Guaranteed Loans

A. Processing and Servicing Grants

    The Agency will prepare a Letter of Conditions, which establishes 
conditions that must be understood and agreed to by the applicant 
before the Agency will obligate any funds. The applicant must sign the 
Letter of Intent to Meet Conditions, if they accept the conditions of 
the grant. The grantee must sign a Grant Agreement (Form RD 4280-2) and 
abide by all requirements contained in the Grant Agreement as well as 
other requirements specified.
    Grants will be serviced in accordance with 7 CFR part 1951, subpart 
E and the Grant Agreement. The Agency is using 7 CFR part 1951, subpart 
E, for this program because it is the Agency's regulations for 
servicing Agency grant programs.

B. Processing and Servicing Guaranteed Loans

    Under the proposed program, guaranteed loans will be processed and 
serviced in essentially the same manner as guaranteed loans are 
processed and serviced under the Agency's B&I program. The Agency 
determined that the requirements in the B&I program for processing and 
servicing guaranteed loans under the renewable energy systems and 
energy efficiency improvements program are applicable and therefore 
have essentially adopted the B&I requirements. Two exceptions to note 
are:
    <bullet> Under the proposed program, the Agency is not utilizing 
the ``Certified Lender'' aspect of the B&I program because the Agency 
believes that there are few, if any, lenders who would pre-qualify as 
``certified'' lenders for making guaranteed loans for renewable energy 
systems and energy efficiency improvements.
    <bullet> Under the proposed program, the Agency is only allowing a 
single note system and is not incorporating the multi-note system from 
the B&I program. The Agency is doing this because the size of the loans 
associated with the renewable energy systems and energy efficiency 
improvements program are likely to be small enough that there is 
minimal benefit to allowing multi-notes and the program becomes simpler 
to implement without multi-notes.
    The following paragraphs discuss the processing and servicing 
requirements of the guaranteed loan program.
    1. Eligible Lenders. Lenders eligible to make guaranteed loans 
under this program are the ``traditional'' lenders, as identified under 
the B&I guaranteed loan program. Such lenders include, but are not 
limited to: Federal or State chartered banks, Farm Credit Banks, other 
Farm Credit System institutions with direct lending authority, Banks 
for Cooperatives, or Savings and Loan Associations. These lenders have 
a broad range of experience and expertise to make, secure, service, and 
collect loans. In addition, these lenders allow the Agency to implement 
this program quickly because of the similarities between this program 
and the B&I program.
    2. Lender's Functions and Responsibilities. As under the B&I 
program, lenders are responsible for properly implementing the 
guaranteed loan program, making sound loans, and conducting all 
servicing in a reasonable and prudent manner, in accordance with Agency 
regulations and approvals, as required. Lender's responsibilities in 
fulfilling this requirement include, but are not limited to:
    i. Processing applications;
    ii. Developing and maintaining loan files. Both the lender and 
borrower must permit representatives of the Agency to inspect and make 
copies of any records of the lender or borrower pertaining to the loan;
    iii. Obtaining valid evidence of debt and collateral. Complete, 
self, contained appraisals are required for loans of $600,000 or more. 
Complete summary appraisals are required for loans less than $600,000. 
Unconditional personal and corporate guarantees for those owning or 
having a beneficial interest greater than 20 percent of the borrower 
will be required where legally permissible;
    iv. Supervising and monitoring project construction and ensuring 
all projects are designed according to accepted practices;
    v. Distributing loan funds;
    vi. Conducting credit evaluations. For each proposed project, 
lenders will be required to conduct a credit analysis in order to 
determine credit quality of the borrower. Elements of credit quality to 
be addressed include adequacy of equity, cash flow, collateral, 
history, management, and the current status of the industry for which 
credit is to be extended. In determining the adequacy of equity, the 
lender must ensure that, for loans over $600,000, evidence of cash 
equity injection in the project of not less than 25 percent of eligible 
project costs is demonstrated and that, for loans of $600,000 or less, 
evidence of cash equity injection in the project of not less than 15 
percent of eligible project costs is demonstrated;
    vii. Ensuring that borrowers furnish all required environmental 
information and reporting any environmental issues to the Agency; and
    viii. Closing loans. When loan closing plans are established, the 
lender must notify the Agency in writing. At the same time, or 
immediately after loan closing, the lender must provide to the Agency 
the lender's certifications (as required by Sec.  4280.146), an 
executed Form 4279-4, ``Lender's Agreement,'' an executed Form RD 1980-
19, ``Guaranteed Loan Closing Report,'' and appropriate guarantee fee, 
copies of legal loan documents, and disbursement plan if working 
capital is a purpose of the project. Note that, if a valid Lender's 
Agreement already exists, the lender will not be required to execute a 
new Lender's Agreement with each loan guarantee.
    3. Loan Note Guarantee. A loan guarantee will be evidenced by Form 
4279-5, ``Loan Note Guarantee,'' which is prepared and issued by the 
Agency. The entire loan must be evidenced by one note, and the Agency 
will issue only one Loan Note Guarantee. The lender may assign all or 
part of the guaranteed portion of the loan to one or more holders.
    The Agency will not issue the Loan Note Guarantee until the lender 
certifies certain conditions have been met (e.g., all required 
insurance is in effect, the loan has been properly closed). If the

[[Page 59658]]

Agency determines that it cannot execute the Loan Note Guarantee, the 
Agency will inform the lender of the reasons and give the lender a 
reasonable period within which to satisfy the objections. If the lender 
satisfies the objections within the time allowed, the guarantee will be 
issued.
    Any changes in borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the program and be approved by the Agency loan approval 
official.
    Upon approval of a loan guarantee, the Agency will issue a 
Conditional Commitment, which contains the conditions under which a 
Loan Note Guarantee will be issued. If certain conditions cannot be 
met, the lender and/or borrower may propose alternate conditions and 
the Agency may negotiate with the lender and/or borrower regarding any 
proposed changes to the Conditional Commitment.
    4. Additional actions. This rule also provides procedures for 
actions that may be made in connection to a guaranteed loan. Actions 
covered include:
    i. Sale or assignment. A lender may sell all or part of the 
guaranteed portion of the loan on the secondary market or retain the 
entire loan, provided the loan is not in default. Sale or assignment 
cannot be made to the borrower or members of the borrower's immediate 
families, officers, directors, stockholders, other owners, or a parent, 
subsidiary or affiliate.
    ii. Participation. The lender may obtain participation in the loan 
under its normal operating procedures. However, the lender must retain 
title to the note and retain its interest in the collateral.
    iii. Minimum retention. The lender must hold in its own portfolio a 
minimum of 5 percent of the total loan amount. The amount required to 
be maintained must be of the unguaranteed portion of the loan and 
cannot be participated to another. The lender may sell the remaining 
amount of the unguaranteed portion of the loan only through 
participation. Sale of this part of the unguaranteed portion, while 
allowable, will not be guaranteed.
    iv. Repurchase from holder. A holder may submit a written demand 
for repurchase of the unpaid guaranteed portion of the loan to the 
lender or to the Agency under certain conditions. The lender has the 
option to repurchase. The lender must notify, in writing, the holder 
and the Agency of its decision. If the lender declines, the Agency will 
purchase from the holder the unpaid principal balance of the guaranteed 
portion according to the conditions set forth in the regulations and 
instruments.
    Purchase by the Agency does not change, alter, or modify any of the 
lender's obligations to the Agency arising from the loan or guarantee 
nor does it waive any of the Agency's rights against the lender. The 
Agency has the right to set-off against the lender all rights inuring 
to the Agency as the holder of the instrument against the Agency's 
obligation to the lender under the guarantee.
    Alternatively to the holder requesting repurchase, if the lender 
determines that repurchase of the guaranteed portion of the loan is 
necessary to adequately service the loan, the holder must sell the 
guaranteed portion of the loan to the lender for an amount equal to the 
unpaid principal and interest on such portion less the lender's 
servicing fee according to the requirements of the regulations and 
instruments.
    v. Transfer of lenders. The Agency may approve the substitution of 
a new eligible lender provided there are no changes in the borrower's 
ownership or control, loan purposes, or scope of project, and loan 
conditions in the Conditional Commitment and the Loan Agreement remain 
the same. The Agency will analyze the new lender's servicing 
capability, eligibility, and experience prior approving the 
substitution.
    5. Servicing guaranteed loans. The lender is responsible for 
servicing the entire loan and for taking all servicing actions that a 
reasonable, prudent lender would perform in servicing its own portfolio 
of loans that are not guaranteed. The lender must remain mortgagee and 
secured party of record. The entire loan must be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan.
    i. Servicing. Servicing responsibilities include, but are not 
limited to, the collection of payments, obtaining compliance with the 
covenants and provisions in the Loan Agreement obtaining and analyzing 
financial statements, checking on payment of taxes and insurance 
premiums, and maintaining liens on collateral. Lenders will be 
responsible for:
    A. Submitting semiannual reports on the outstanding principal and 
interest balance on each guaranteed loan using Form RD 1980-41, 
``Guaranteed Loan Status Report.''
    B. Notifying the Agency, in writing, of the loan's classification 
or rating under its regulatory standards.
    C. Attending meetings with the Agency to ascertain how the 
guaranteed loan is being serviced and that the conditions and covenants 
of the Loan Agreement are being enforced; and
    D. Submitting annual financial statements and a written summary of 
the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower.
    The lender will not be allowed to make additional loans to the 
borrower without first obtaining the prior written approval of the 
Agency, even though such loans will not be guaranteed.
    ii. Changes to the loan. This rule allows changes in the interest 
rate, the release of collateral, subordination of lien position, 
alterations of the loan instrument, and loan transfer and assumption.
    A. Under certain circumstances, interest rates may be temporarily 
or permanently reduced or increased, and fixed rates can be changed to 
variable rates.
    B. All releases of collateral with a value exceeding $100,000 must 
be supported by a current appraisal. The remaining collateral must be 
sufficient to provide for repayment of the Agency's guaranteed loan. 
Sale or release of collateral must be based on an arm's-length 
transaction as specified in the regulations and instruments.
    C. The Agency will only consider a parity or junior lien position. 
After the subordination, collateral must be adequate to secure the 
loan.
    D. Agency approval is required before the lender can alter or 
approve changes to any loan instrument.
    E. All transfers and assumptions must be approved by the Agency, in 
writing, and must be to borrowers eligible under this program and any 
new loan terms must be within the terms authorized by Sec.  4280.125. 
Other transfer and assumption conditions include: loan terms can only 
be changed with Agency approval and concurrence of any holder and the 
transferor (including guarantors); loans to provide additional funds in 
connection with a transfer and assumption will be considered as a new 
loan application under Sec.  4280.128; the lender must make a complete 
credit analysis, which is subject to Agency review and approval; and 
document and ensure that the transaction can be and is properly and 
legally transferred, and the conveyance instruments will be and are 
filed, registered, or recorded as appropriate.
    iii. Other servicing requirements. This rule also contains 
requirements for:
    A. Substitution of Lender. Agency written approval is required. The 
Agency will not pay any loss or share

[[Page 59659]]

in any costs with a new lender unless a relationship is established 
through a substitution of lender that has been approved by the Agency. 
The proposed substitute lender must be an eligible lender under this 
program, must be able to service the loan in accordance with the 
original loan documents, and must agree in writing to acquire and must 
acquire title to the unguaranteed portion of the loan held by the 
original lender and to assume all original loan requirements, including 
liabilities and servicing responsibilities.
    B. Default by Borrower. This rule outlines options a borrower can 
use to resolve a default. These include, but are not limited to, 
deferment of principal, reamortization and rescheduling, and 
liquidation.
    C. Protective Advances. If a borrower cannot meet its obligations, 
the lender will be required to make protective advances for the purpose 
of preserving and protecting the collateral as required in the 
regulations and instruments. Protective advances, however, cannot be 
made in lieu of additional loans.
    D. Liquidation. Liquidation of the loan may be considered by the 
lender under certain circumstances and must be concurred with by the 
Agency. Conditions and requirements associated with many aspects of 
liquidation are specified in the regulations and instruments, 
including, but not limited to, those for the decision to liquidate, 
liquidation plans, accounting and reports, abandonment of collateral, 
and settlements. The procedures and requirements are the same as those 
associated with the B&I guaranteed loan program.
    E. Bankruptcy. The lender will be required to protect the 
guaranteed loan and all collateral securing the loan in bankruptcy 
proceedings. This rule specifies procedures to be followed in 
reorganization proceedings and in liquidation proceeding covering such 
items, as applicable, as estimated loss, interest loss, and final loss 
payments; payment application, overpayments; and protective advances.
    F. Requirements After Project Construction. Once the project has 
been constructed, the lender must provide the Agency periodic reports 
from the borrower. For renewable energy systems, this report will be 
required beginning the first full calendar year following the year in 
which project construction was completed and continuing for 3 full 
years. Information in this report will include the actual amount of 
energy produced in BTUs, kilowatts, or similar energy equivalents; if 
applicable, documentation that identified health and/or sanitation 
problem has been solved; the annual income and/or energy savings of the 
renewable energy system; a summary of the cost of operating and 
maintaining the facility; a description of any maintenance or 
operational problems associated with the facility; and recommendations 
for development of future similar projects.
    For energy efficiency improvement projects, this report will be 
required beginning the first full calendar year following the year in 
which project construction was completed and continuing for 2 full 
years. This report will specify the actual amount of energy saved due 
to the energy efficiency improvements.
    G. Replacement of Documents. The Agency may issue a replacement 
Loan Note Guarantee or Assignment Guarantee Agreement, which has been 
lost, stolen, destroyed, mutilated, or defaced, to the lender or holder 
upon receipt of an acceptable certificate of loss and an indemnity 
bond. This rule identifies responsibilities for replacing documents and 
the information required for their replacement.

C. Processing and Servicing Combined Funding

    Where the Agency approves a combined funding request, the grant 
portion will be processed and serviced according to the procedures 
described in paragraph A for grants. The guaranteed loan portion will 
be processed and serviced according to the procedures described in 
paragraph B for guaranteed loans.

VI. Economic Analysis

    To support the development of this rule, a benefit-cost analysis 
was performed. In addition, an assessment of the potential impacts on 
small businesses was made. The following paragraphs summarize the 
benefit-cost analysis that was performed and the results. This summary 
is then followed by a brief discussion of the benefit-cost analysis as 
it applies to small businesses. Because this rule is not an 
economically significant rule under Executive Order 12866, the economic 
analysis conducted by USDA in support of this rule does not necessarily 
conform to OMB Circular A-4, Regulatory Analysis.

A. Benefit-Cost Analysis

    1. Scope of the Analysis. This analysis looks at the social 
benefits and costs from the implementation of the proposed rule. The 
social benefits examined are:
    i. The value of the energy produced or saved, including green tag 
values. ``Green tag'' refers to the positive environmental attributes 
of renewable energy compared to ``dirtier'' generation power sources. 
The green tag value refers to the additional amount an electricity 
service provider will pay to ``green'' their energy supply or to the 
additional amount a retail customer is willing to pay to purchase 
``green'' power.
    ii. The amount of carbon emissions reduced as the result of 
electricity generation being displaced or reduced.
    The social costs examined are the costs of participating in the 
proposed program and the amount of USDA funds used in the program.
    Other effects examined included:
    i. The number of agricultural producers and rural small businesses 
that are served by the program.
    ii. The number of jobs created.
    iii. The amount of electricity generated or saved (energy cost 
savings).
    iv. The amount of energy displaced (e.g., the number of barrels of 
oil no longer needed).
    2. Scenarios Analyzed. The analysis examines a baseline case and 
several policy alternatives. In addition, the analysis varied several 
of the parameters to assess the sensitivity of the results. The basic 
inputs into the analysis are:
    i. The total amount of program funding in FYs 2003 through 2007;
    ii. The amount of program funding obligated for grants, guaranteed 
loans, and direct loans;
    iii. The amount of program funding for renewable energy projects 
and for energy efficiency improvements;
    iv. The subsidy rate;
    v. The discount rate; and
    vi. The useful life of projects.
    3. Results--Baseline Case
    Table 1 summarizes the social benefits and costs of the proposed 
rule.

[[Page 59660]]



                     Table 1.--Summary of Social Benefits and Costs by FY for Baseline Case
                                                [Million dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                       FY
                             Item                             --------------------------------------------------
                                                                  2003      2004      2005      2006      2007
----------------------------------------------------------------------------------------------------------------
Social Costs:
    Participation............................................      2.4        2.4       2.4       2.4       2.4
    USDA Funds...............................................     19.8       15.7      20.0      20.0      20.0
Social Benefits:
    Green Tag Value..........................................      1.2        3.5       6.8       6.9       7.1
    Carbon Emission Reduction (million tons per year)........      0.055      0.22      0.44      0.44      0.44
----------------------------------------------------------------------------------------------------------------

    As seen in Table 1, the annual estimated social cost (in year 2000 
dollars) for each of the five FYs ranges from $18 to $22.4 million. In 
return, the annual estimated social benefits (in year 2000 dollars) of 
the green tag values for each of the five FYs ranges from $1 million to 
$7 million, while carbon emission reductions range from 55,000 tons in 
FY 2003 up to 440,000 tons in the last three FYs.
    In addition to the social benefits, the proposed program is also 
projected to provide other benefits, as noted earlier. These other 
benefits are summarized in Table 2 for each of the five FYs. Once the 
program is fully implemented, approximately 300 agricultural producers 
and rural small businesses are estimated to participate in the program. 
The projects that these participants would implement are estimated to 
create approximately 1,800 jobs per year, provide energy cost savings 
up to $131 million in FY 2007, and save approximately 3 million barrels 
of oil each year.

                                     Table 2.--Other Benefits--Baseline Case
----------------------------------------------------------------------------------------------------------------
                                                                                  FY
              Item                       Units       -----------------------------------------------------------
                                                         2003        2004        2005        2006        2007
----------------------------------------------------------------------------------------------------------------
Agricultural producers and rural  Number............       113         238         300         300         300
 small businesses served.
Jobs Created....................  Number of full           243         887       1,770       1,830       1,890
                                   time equivalents.
Energy Cost Savings.............  Million dollars...         8.4        35.6        78.4       108.6       131.7
Energy Displaced................  Million barrels...         0.5         1.7         3.3         3.1         3.1
----------------------------------------------------------------------------------------------------------------

    4. Results--Other Scenarios. As noted earlier, several alternative 
policy scenarios and sensitivity analysis scenarios were examined to 
evaluate the effect of variations in several of the parameters. The 
following paragraphs summarize the effects of three of these other 
scenarios on green tag values. For more details, please refer to the 
complete analysis document.
    i. Grants Only. Under this alternative policy scenario, the Agency 
would only provide grants in FY 2004 through FY 2007; no guaranteed or 
direct loans would be made. The effect under this scenario is estimated 
to be a reduction in green tag benefits of over 75 percent for both the 
five year period and the useful life of the projects.
    ii. Change in Subsidy Rate. A 1 percent drop in the subsidy rate 
(from 5.18 percent to 4.18 percent) in FY 2005 through FY 2007 is 
estimated to increase green tag benefits by over 30 percent. On the 
other hand, a 1 percent increase in the subsidy rate (to 6.18 percent) 
is estimated to result in a 10 percent decrease in green tag benefits.
    iii. Change in Discount Rate. A decrease in the discount rate from 
7 percent to 3 percent increases the present value of the green tag 
benefits by about 16 percent over the five year period and by over 55 
percent over the useful life of the projects.

B. Small Businesses

    This program is targeted to agricultural producers and rural small 
businesses. Based on data compiled by the USDA Economic Research 
Service and the Small Business Administration, over 3 million entities 
would be eligible for this program. The vast majority of agricultural 
producers also fit the definition of small businesses. Excluding the 
small percentage of agricultural producers that do not qualify as small 
entities, the almost 3 million entities would qualify as small 
businesses under this program. Given this situation, the benefit-cost 
analysis discussed above can be considered as the relevant analysis for 
analyzing the impacts of the proposed program on small businesses.

VII. Administrative Requirements

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, Rural 
Development will seek OMB approval of the reporting and recordkeeping 
requirements contained in this proposed rule. Rural Development is 
committed to compliance with the Government Paperwork Elimination Act, 
which requires Government agencies, in general, to provide the public 
the option of submitting information or transacting business 
electronically to the maximum extent possible.
    The following estimates are based on the average over the first 
three years the program is in place.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 6 hours per response.
    Respondents: Agricultural producers and rural small businesses.
    Estimated Number of Respondents: 388.
    Estimated Number of Responses per Respondent: 14.
    Estimated Number of Responses: 5,335.
    Estimated Total Annual Burden on Respondents: 32,149.
    Type of Request: New collection.
    Abstract: The Farm Security and Rural Investment Act of 2002 (2002 
Act) established the Renewable Energy Systems and Energy Efficiency 
Improvements Program under Title IX, Section 9006. The 2002 Act 
requires the

[[Page 59661]]

Secretary of Agriculture to create a program to make grants, loan 
guarantees, and direct loans to agricultural producers and rural small 
businesses to purchase renewable energy systems and make energy 
efficiency improvements. The program will help agricultural producers 
and rural small businesses to reduce energy costs and consumption and 
help meet the nation's energy needs.
    The information requirements contained in this proposed rule 
require information from grant, guaranteed loan, and direct loan 
applicants and borrowers. The information is vital for Rural 
Development to make wise decisions regarding the eligibility of 
applicants and borrowers, establish selection priorities among 
competing applicants, ensure compliance with applicable Rural 
Development regulations, and effectively monitor the grantees and 
borrowers activities to protect the Government's financial interest and 
ensure that funds obtained from the Government are use appropriately. 
This collection of information is necessary in order to implement the 
grant, guaranteed loan, and direct loan program for Renewable Energy 
Systems and Energy Efficiency Improvements established under the 2002 
Act.
    Copies of this information collection can be obtained from Cheryl 
Thompson, Regulations and Paperwork Management Burden at (202) 692-
0043.
    Comments are invited on (1) whether the proposed collection of 
information is necessary for the proper performance of the functions of 
Rural Development, including whether the information will have 
practical utility; (2) the accuracy of the new Rural Development 
estimate of the burden of the proposed collection 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 those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. 
Comments may be sent to: Cheryl Thompson, Regulations and Paperwork 
Management Branch, U.S. Department of Agriculture, Rural Development, 
STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250. All 
responses to this notice will be summarized and included in the request 
for OMB approval. All comments will also become a matter of public 
record.

B. Intergovernmental Review

    The Rural Development Grant, Guaranteed Loan, and Direct Loan 
Program is subject to the provisions of Executive Order 12372, which 
requires intergovernmental consultation with State and local officials. 
Rural Development will conduct intergovernmental consultation in the 
manner delineated in RD Instruction 1940-J, ``Intergovernmental Review 
of Rural Development Programs and Activities,'' and in the notice 
related to 7 CFR part 3015, subpart V.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires Federal agencies to 
prepare a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements under the Administrative Procedures 
Act or any other statute unless the Agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities. Small entities include small businesses, small organizations, 
and small governments. The major purpose of the RFA is to keep 
paperwork and regulatory requirements from getting out of proportion to 
the scale of the entities being regulated, without compromising the 
objectives of the Act.
    For purposes of assessing the impacts of today's proposed rule on 
small entities, small entity is defined as: (1) A small business 
according to the Small Business Administration (SBA) size standards by 
NAICS code ranging from 500 to 1,000 employees; (2) a small 
governmental jurisdiction that is a government of a city, county, town, 
school district or special district with a population of less than 
50,000; and (3) a small organization that is any not-for-profit 
enterprise that is independently owned and operated and is not dominant 
in its field.
    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and certified by signature of this 
document that this proposed rule would not have a significant economic 
impact on a substantial number of small entities. This action impacts 
those who choose to participate in the grant, guaranteed loan, and 
direct loan program and requires only minimum information/paperwork to 
evaluate an application. Therefore, a regulatory flexibility analysis 
was not performed.
    Although a regulatory flexibility analysis was not performed, the 
Agency conducted a benefit-cost analysis and an initial regulatory 
flexibility analysis (IRFA) that examines the impact on small entities. 
The benefit-cost analysis and the IRFA (referred to as the Unified 
Analysis) are available for review in the docket and the results are 
summarized below.
    The program targets rural small businesses plus agricultural 
producers. The vast majority of these agricultural producers qualify as 
small businesses too. Based on data compiled by the USDA Economic 
Research Service and the SBA, there are approximately 3 million of the 
entities who would qualify under this program.
    The benefit-cost analysis reflects a large net beneficial impact. 
The expenditure of slightly less than $100 million in nominal USDA 
funds over five years (approximately $20 million per year) from FY 2003 
through FY 2007 represents a present value cost in constant year 2000 
dollars of approximately $71 million. This sum in turn supports total 
program funding (USDA funds and private funds) of over $1 billion. The 
cumulative cash flow benefits through 2007 are $360 million in 
comparison to the $71 million cost. The cash flow benefits based upon 
life cycle analysis are $1.5 billion, again based upon this $71 million 
cost.
    Given that almost the entire program is directed at small 
businesses, the burden analysis is a representative measure for small 
businesses of the reporting, recordkeeping, and other compliance costs. 
The burden analysis estimated an annual (three-year average) cost of 
$1.9 million for an estimated 388 applicants per year.
    As noted above, the proposed rule is directed almost entirely at 
small businesses. Therefore, the benefit-cost analysis represents the 
results as it affects small businesses.

D. Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this rule: (1) All State and 
local laws and regulations that are in conflict with this proposed rule 
will be preempted, (2) no retroactive effect will be given to this 
rule, and (3) administrative proceedings in accordance with 7 CFR part 
11 must be exhausted before bringing suit in court challenging action 
taken under this rule, unless those regulations specifically allow 
bringing suit at an earlier time.

E. National Environmental Policy Act

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G. Rural Development has determined that this action does not 
constitute a major Federal action significantly affecting the quality 
of the

[[Page 59662]]

human environment, and, in accordance with the National Environmental 
Policy Act of 1969, Pub.L 91-190, an Environmental Impact Statement is 
not required.

F. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, 
Rural Development must prepare a written statement, including a 
benefit-cost analysis, for proposed and final rules with ``Federal 
mandates'' that may result in expenditures to State, local or tribal 
governments, in the aggregate, or to the private sector of $100 million 
or more in any 1 year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This proposed rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for State, local, and 
tribal governments or the private sector. Thus, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

G. Executive Order 13132, Federalism

    It has been determined under Executive Order 13132, Federalism, 
that this proposed rule does not have sufficient federalism 
implications to warrant the preparation of a Federalism assessment. The 
provisions contained in this proposed rule will not have a substantial 
direct effect on States or their political subdivisions or on the 
distribution of power and responsibilities among the various levels of 
government.

H. Executive Order 12866, Regulatory Planning and Review

    Under Executive Order 12866, this proposed rule has been determined 
to be ``significant'' and, therefore, has been reviewed by the Office 
of Management and Budget (OMB). The Order defines ``significant'' 
regulatory action as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety in State, local or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.

List of Subjects in 7 CFR Part 4280

    Business and industry, Direct loan programs, Economic development, 
Energy, Energy efficiency improvements, Grant programs, Guaranteed loan 
programs, Renewable energy systems, Rural areas.

    For the reasons stated in the preamble, title 7, chapter XLII of 
the Code of Federal Regulations is amended as follows:

CHAPTER XLII--RURAL BUSINESS--COOPERATIVE SERVICE AND RURAL UTILITIES 
SERVICE, DEPARTMENT OF AGRICULTURE

    1. Part 4280 is added to read as follows:

PART 4280--LOANS AND GRANTS

Subpart A--[Reserved]
Subpart B--Renewable Energy Systems and Energy Efficiency Improvements 
Grant, Guaranteed Loan, and Direct Loan Program
Sec.
4280.101 Purpose.
4280.102 General.
4280.103 Definitions.
4280.104 Exception authority.
4280.105 Appeals.
4280.106 Conflict of interest.

Grants

4280.107 Applicant eligibility.
4280.108 Project eligibility.
4280.109 Grant funding.
4280.110 [Reserved]
4280.111 Application and documentation.
4280.112 Evaluation of grant applications.
4280.113 Insurance requirements.
4280.114 Laws that contain other compliance requirements.
4280.115 Construction planning and performing development.
4280.116 Grantee requirements.
4280.117 Servicing grants.
4280.118-.120 [Reserved]

Guaranteed Loans

4280.121 Borrower eligibility.
4280.122 Project eligibility.
4280.123 Guaranteed loan funding.
4280.124 Interest rates.
4280.125 Terms of loan.
4280.126 Guarantee/annual renewal fee percentages.
4280.127 [Reserved]
4280.128 Application and documentation.
4280.129 Evaluation of guaranteed loan applications.
4280.130 Eligible lenders.
4280.131 Lender's functions and responsibilities.
4280.132 Access to records.
4280.133 Conditions of guarantee.
4280.134 Sale or assignment of guaranteed loan.
4280.135 Participation.
4280.136 Minimum retention.
4280.137 Repurchase from holder.
4280.138 Replacement of document.
4280.139 Credit quality.
4280.140 Financial statements.
4280.141 Appraisals.
4280.142 Personal and corporate guarantees.
4280.143 Loan approval and obligation of funds.
4280.144 Transfer of lenders.
4280.145 Changes in borrower.
4280.146 Conditions precedent to issuance of Loan Note Guarantee.
4280.147 Issuance of the guarantee.
4280.148 Refusal to execute Loan Note Guarantee.
4280.149 Requirements after project construction.
4280.150 Insurance requirements.
4280.151 Laws that contain other compliance requirements.
4280.152 Servicing guaranteed loans.
4280.153 Substitution of lender.
4280.154 Default by borrower.
4280.155 Protective advances.
4280.156 Liquidation.
4280.157 Determination of loss and payment.
4280.158 Future recovery.
4280.159 Bankruptcy.
4280.160 Termination of guarantee.

Direct Loans

4280.161 Direct Loan Process
4280.162-.192 [Reserved]

Combined Funding

4280.193 Combined funding.
4280.194-.199 [Reserved]
4280.200 OMB control number. [Reserved]

    Authority: 7 U.S.C. 8106.

Subpart A--[Reserved]

Subpart B--Renewable Energy Systems and Energy Efficiency 
Improvements Grant, Guaranteed Loan, and Direct Loan Program


Sec.  4280.101  Purpose.

    This subpart contains a program of procedures and requirements for 
making grants and guaranteed loans, or a combination thereof, to 
agricultural producers and rural small businesses for the purchase of 
renewable energy systems and energy efficiency improvements in rural 
areas. This subpart also presents the process that will be used to 
provide funds for direct loans.


Sec.  4280.102  General.

    Sections 4280.103 through 4280.105 contain definitions, exception 
authority,

[[Page 59663]]

and appeals, which are applicable to all of the funding programs under 
this subpart. Sections 4280.107 through 4280.117 contain the procedures 
and requirements for obtaining a grant, and processing and servicing of 
grants by the Agency. Sections 4280.121 through 4280.151 contain the 
procedures and requirements for making and processing loans guaranteed 
by the Agency. Sections 4280.152 through 4280.160 contain the 
requirements for servicing loans guaranteed by the Agency. These 
requirements apply to lenders, holders, and other parties involved in 
making, guaranteeing, holding, servicing, or liquidating such loans. 
Section 4280.161 presents the process the Agency will use to make 
direct loans available. Section 4280.193 contains the requirements for 
obtaining and servicing a combined grant and guaranteed loan.


Sec.  4280.103  Definitions.

    The following definitions are applicable to this subpart.
    Agency. Rural Development or successor Agency assigned by the 
Secretary of Agriculture to administer the program.
    Agricultural producer. An individual or entity directly engaged in 
the production of agricultural products, including crops (including 
farming); livestock (including ranching); forestry products; 
hydroponics; nursery stock; or aquaculture, whereby 50 percent or 
greater of their gross income is derived from the operations.
    Annual receipts. The total income or gross income (sole 
proprietorship) plus cost of goods sold.
    Applicant. For grant programs, the applicant is the agricultural 
producer or rural small business that is seeking a grant under this 
subpart. For guaranteed loan programs, the applicant is the lender that 
is seeking a loan guarantee under this subpart.
    Arm's-length transaction. The sale, release, or disposition of 
assets in which the title to the property passes to a ready, willing, 
and able disinterested third party that is not affiliated with or 
related to and has no security, monetary or stockholder interest in the 
borrower or transferor at the time of the transaction.
    Assignment guarantee agreement. Form 4279-6. The signed agreement 
among the Agency, the lender, and the holder containing the terms and 
conditions of an assignment of a guaranteed portion of a loan.
    Assumption of debt. The signed agreement by one party to legally 
bind itself to pay the debt incurred by another.
    Biogas. Biomass converted to gaseous fuels.
    Biomass. Any organic material that is available on a renewable or 
recurring basis including agricultural crops; trees grown for energy 
production; wood waste and wood residues; plants, including aquatic 
plants and grasses; fibers; animal waste and other waste materials; and 
fats, oils, and greases, including recycled fats, oils, and greases. It 
does not include paper that is commonly recycled or unsegregated solid 
waste.
    Borrower. All parties liable for the loan except for guarantors.
    Capacity. The load that a power generation unit or other electrical 
apparatus or heating unit is rated by the manufacturer to be able to 
meet or supply.
    Commercially available. Systems that have a proven operating 
history and an established design, installation, equipment, and service 
industry.
    Conditional commitment (Form 4279-3). The Agency's notice to the 
lender that the loan guarantee it has requested is approved subject to 
the completion of all conditions and requirements.
    Default. The condition where a borrower is not in compliance with 
one or more loan covenants as stipulated in the Letter of Conditions, 
Conditional Commitment, or Loan Agreement.
    Deficiency balance. The balance remaining on a loan after all 
collateral has been liquidated.
    Deficiency judgment. A monetary judgment rendered by a court of 
competent jurisdiction after foreclosure and liquidation of all 
collateral securing the loan.
    Delinquent loan. A loan where a scheduled loan payment has not been 
received within the due date and any grace period as stipulated in the 
promissory note and loan agreement.
    Demonstrated financial need. The demonstration by an applicant that 
the applicant is unable to finance the project from its own resources 
or other funding sources without grant assistance.
    Eligible project cost. The total project costs that are eligible to 
be paid with grant and/or guaranteed loan funds.
    Energy audit. A written report by an independent, qualified entity 
or individual that documents current energy usage, recommended 
improvements and their costs, energy savings from these improvements, 
dollars saved per year, and the weighted-average payback period in 
years.
    Energy efficiency improvement. Improvements to a facility or 
process that reduce energy consumption.
    Existing business. A business that has completed at least one full 
business cycle.
    Existing lender debt. A debt not guaranteed by the Agency, but owed 
by a borrower to the same lender that is applying for or has received 
the Agency guarantee.
    Fair market value. The price that could reasonably be expected for 
an asset in an arm's-length transaction between a willing buyer and a 
willing seller under ordinary economic and business conditions.
    Fair market value of equity in real property. Fair market value of 
real property as established by appraisal; less the outstanding balance 
of any mortgages, liens, or enhancements.
    Financial feasibility. The ability of the business to achieve the 
projected income and cash flow. The concept includes assessments of the 
cost-accounting system, the availability of short-term credit for 
seasonal business, and the adequacy of raw materials and supplies, 
where necessary.
    Grant close-out. When all required work is completed, 
administrative actions relating to the completion of work and 
expenditures of funds have been accomplished, and the Agency accepts 
final expenditure information.
    Holder. A person or entity, other than the lender, who owns all or 
part of the guaranteed portion of the loan, with no servicing 
responsibilities.
    In-kind contributions. Applicant or third-party real or personal 
property or services benefiting the Federally assisted project or 
program that are contributed by the applicant or a third party. The 
identifiable value of goods and services must directly benefit the 
project.
    Interconnection agreement. The terms and conditions governing the 
interconnection and parallel operation of the grantee's or borrower's 
electric generation equipment and the utility's electric power system.
    Interim financing. A temporary or short-term loan made with the 
clear intent that it will be repaid through another loan. Interim 
financing is frequently used to pay construction and other costs 
associated with a planned project, with permanent financing to be 
obtained after project completion.
    Lender. The organization making, servicing, and collecting the loan 
that is guaranteed under the provisions of this subpart.
    Lender's agreement, Form 4279-4. Agreement between the Agency and 
the lender setting forth the lender's loan responsibilities when the 
Loan Note Guaranteed is issued.

[[Page 59664]]

    Loan agreement. For guaranteed loans, the agreement between the 
borrower and lender containing the terms and conditions of the 
guaranteed loan and the responsibilities of the borrower and lender.
    Loan Note Guarantee, Form 4279-5. The terms and conditions of the 
guarantee issued and executed by the Agency.
    Loan-to-value. The ratio of the dollar amount of a loan to the 
dollar value of the discounted collateral pledged as security for the 
loan.
    Matching funds. The funds needed to pay for the portion of the 
eligible project costs not funded or guaranteed by the Agency through a 
grant or guaranteed loan under this program. Matching funds can not 
include grants from any Federal grant program.
    Negligent servicing. The failure to perform those services which a 
reasonable, prudent lender would perform in servicing (including 
liquidation of) its own portfolio of loans that are not guaranteed. The 
term includes not only the concept of a failure to act, but also not 
acting in a timely manner, or acting in a manner contrary to the manner 
in which a reasonable, prudent lender would act.
    Nonprogram (NP) loan. An NP loan exists when credit is extended to 
an ineligible applicant and/or transferee in connection with a loan 
assumption or sale of inventory property; in cases of unauthorized 
assistance; or a borrower whose legal organization has changed, 
resulting in the borrower being ineligible for program benefits.
    Other waste materials. Inorganic or organic materials that are used 
as inputs for energy production or are by-products of the energy 
production process.
    Parity. A lien position whereby two or more lenders share a 
security interest of equal priority in collateral. In the event of 
default, each lender will be affected on a pro rata basis.
    Participation. Sale of an interest in a loan by the lender wherein 
the lender retains the note, collateral securing the note, and all 
responsibility for loan servicing and liquidation.
    Power purchase arrangement. The terms and conditions governing the 
sale and transportation of electricity produced by the grantee or 
borrower to another party.
    Pre-commercial technology. Technologies that have emerged through 
the research and development process and have technical and economic 
potential for application in commercial energy markets but are not yet 
commercially available.
    Promissory Note. Evidence of debt. A note that a loan recipient 
signs promising to pay a specific amount of money at a stated time or 
on demand.
    Renewable energy. Energy derived from a wind, solar, biomass, or 
geothermal source; or hydrogen derived from biomass or water using 
wind, solar, or geothermal energy sources.
    Renewable energy system. A process that produces energy from a 
renewable energy source.
    Rural. Any area other than a city or town that has a population of 
greater than 50,000 inhabitants and the urbanized area contiguous and 
adjacent to such a city or town according to the latest decennial 
census of the United States.
    Small business. A private entity including a sole proprietorship, 
partnership, corporation, and a cooperative (including a cooperative 
qualified under section 501(c)(12) of the Internal Revenue Code) but 
excluding any private entity formed solely for a charitable purpose, 
and which private entity is considered a small business concern in 
accordance with the Small Business Administration's (SBA) Small 
Business Size Standards by North American Industry Classification 
System (NAICS) Industry found in 13 CFR part 121; provided the entity 
has 500 or fewer employees and $20 million or less in total annual 
receipts including all parent, affiliate, or subsidiary entities at 
other locations.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. Financial statement 
analysis normally contains spreadsheets for balance sheet items and 
income statements and may include funds flow statement data and 
commonly used ratios. The spreadsheets enable a reviewer to easily scan 
the data, spot trends, and make comparisons.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
Virgin Islands of the United States, Guam, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the Republic of Palau, 
the Federated States of Micronesia, and the Republic of the Marshall 
Islands.
    Subordination. An agreement whereby lien priorities on certain 
assets pledged to secure payment of a loan will be reduced to a 
position junior to, or on parity with, the lien position of another 
loan in order for the borrower to obtain additional financing, not 
guaranteed by the Agency, from the lender or a third party.
    Total project cost. The sum of all costs associated with a 
completed, operational project.


Sec.  4280.104  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart that is not inconsistent 
with any authorizing statute or applicable law if the Administrator 
determines that application of the requirement or provision would 
adversely affect the USDA's interest.


Sec.  4280.105  Appeals.

    Only the grantee, borrower, lender, or holder can appeal an Agency 
decision made under this subpart. In cases where the Agency has denied 
or reduced the amount of final loss payment to the lender, the adverse 
decision may be appealed by the lender only. An adverse decision that 
only impacts the holder may be appealed by the holder only. A decision 
by a lender adverse to the interest of the borrower is not a decision 
by the Agency, whether or not concurred in by the Agency. Appeals will 
be handled in accordance with 7 CFR part 11. Any party adversely 
affected by an Agency decision under this subpart may request a 
determination of appealability from the Director, National Appeals 
Division, USDA, within 30 days of the adverse decision.


Sec.  4280.106  Conflict of interest.

    No conflict of interest or appearance of conflict of interest will 
be allowed. For purposes of this subpart, conflict of interest 
includes, but is not limited to, distribution or payment to an 
individual owner, partner, stockholder, or beneficiary of the applicant 
or borrower or a close relative of such an individual when such 
individual will retain any portion of the ownership of the applicant or 
borrower.

Grants


Sec.  4280.107  Applicant eligibility.

    To receive a grant under this subpart, an applicant must meet each 
of the criteria, as applicable, as set forth in paragraphs (a) through 
(f) of this section.
    (a) The applicant or borrower must be an agricultural producer or 
rural small business.
    (b) Individuals must be citizens of the United States (U.S.) or 
reside in the U.S. after being legally admitted for permanent 
residence.
    (c) Entities must be at least 51 percent owned, directly or 
indirectly, by individuals who are either citizens of the U.S. or 
reside in the U.S. after being legally admitted for permanent 
residence.
    (d) If the applicant or borrower or an owner has an outstanding 
judgment obtained by the United States in a

[[Page 59665]]

Federal Court (other than in the United States Tax Court), is 
delinquent in the payment of Federal income taxes, or is delinquent on 
a Federal debt, the applicant or borrower is not eligible to receive a 
grant or guaranteed loan until the judgment is paid in full or 
otherwise satisfied or the delinquency is resolved.
    (e) In the case of an applicant or borrower that is applying as a 
rural small business, the business headquarters must be in a rural area 
and the project to be funded also must be in a rural area.
    (f) The applicant must have demonstrated financial need.


Sec.  4280.108  Project eligibility.

    For a project to be eligible to receive a grant under this subpart, 
the proposed project must meet each of the criteria, as applicable, in 
paragraphs (a) through (f) of this section.
    (a) The project must be for the purchase of a renewable energy 
system or to make energy efficiency improvements.
    (b) The project must be for a pre-commercial or commercially 
available and replicable technology.
    (c) The project must be technically feasible, as determined using 
the procedures specified in Sec.  4280.112(c).
    (d) The project must be located in a rural area.
    (e) The applicant (for grants) or borrower (for guaranteed loans) 
must be the owner of the system and control the operation and 
maintenance of the proposed project. A qualified third-party operator 
may be used to manage the operation and/or maintenance of the proposed 
project.
    (f) All projects financed under this subpart must be based on 
satisfactory sources of revenues in an amount sufficient to provide for 
the operation and maintenance of the system or project.


Sec.  4280.109  Grant funding.

    (a) The amount of grant funds that will be made available to an 
eligible project under this subpart will not exceed 25 percent of 
eligible project costs.
    (1) The only eligible project costs are those costs associated with 
the items identified in paragraphs (a)(1)(i) through (ix) of this 
section, as long as the items are an integral and necessary part of the 
total project:
    (i) Post-application purchase and installation of equipment, except 
agricultural tillage equipment and vehicles;
    (ii) Post-application construction or project improvements, except 
residential;
    (iii) Energy audits or assessments;
    (iv) Permit fees;
    (v) Professional service fees, except for application preparation;
    (vi) Feasibility studies;
    (vii) Business plans;
    (viii) Retrofitting; and
    (ix) Construction of a new facility only when the facility is used 
for the same purpose, is approximately the same size, and based on the 
energy audit will provide more energy savings than improving an 
existing facility. Only costs identified in the energy audit for energy 
efficiency projects are allowed.
    (2) The applicant must provide at least 75 percent of eligible 
project costs to complete the project. Applicant in-kind and other 
Federal grant awards cannot be used to meet the matching fund 
requirement. However, the Agency will allow third-party, in-kind 
contributions to be used in meeting the matching fund requirement. 
Third-party, in-kind contributions will be limited to 10 percent of the 
matching fund requirement of the grantee. The Agency will advise if the 
third-party, in-kind contributions are acceptable in accordance with 7 
CFR part 3015.
    (b) The maximum amount of grant assistance to one individual or 
entity will not exceed $750,000.
    (c) Applications for renewable energy systems must be for a minimum 
grant request of $2,500, but no more than $500,000.
    (d) Applications for energy efficiency improvements must be for a 
minimum grant request of $2,500, but no more than $250,000.


Sec.  4280.110  [Reserved]


Sec.  4280.111  Application and documentation.

    The following requirements apply to all grant applications under 
this subpart.
    (a) Application. Separate applications must be submitted for 
renewable energy system and energy efficiency improvement projects. For 
each type of project, only one application may be submitted.
    (1) Table of Contents. The first item in each application will be a 
detailed Table of Contents in the order presented below. Include page 
numbers for each component of the proposal. Begin pagination 
immediately following the Table of Contents.
    (2) Project Summary. A summary of the project proposal, not to 
exceed one page, must include the following: Title of the project, 
description of the project including goals and tasks to be 
accomplished, names of the individuals responsible for conducting and 
completing the tasks, and the expected timeframes for completing all 
tasks, including an operational date. The applicant must also clearly 
state whether the application is for the purchase of a renewable energy 
system or to make energy efficiency improvements.
    (3) Eligibility. Each applicant must describe how the grantee or 
borrower meets the requirements of Sec.  4280.107.
    (4) Agricultural producer/rural small business information. All 
applications must contain the following information on the agricultural 
producer or rural small business seeking funds under this program:
    (i) Business/farm/ranch operation.
    (A) A description of the ownership, including a list of individuals 
and/or entities with ownership interest, names of any corporate 
parents, affiliates, and subsidiaries, as well as a description of the 
relationship, including products, between these entities.
    (B) A description of the operation.
    (ii) Management. The resume of key managers focusing on relevant 
business experience. If a third-party operator is used to monitor and 
manage the project, provide a discussion on the benefits and burdens of 
such monitoring and management as well as the qualifications of the 
third party.
    (iii) Financial Information.
    (A) Explanation of demonstrated financial need.
    (B) For rural small businesses, a current balance sheet and income 
statement prepared in accordance with generally accepted accounting 
principles (GAAP) and dated within 90 days of the application. 
Agricultural producers should present financial information in the 
format that is generally required by commercial agriculture lenders. 
Financial information is required on the total operations of the 
agricultural producer/rural small business and its parent, subsidiary, 
or affiliates at other locations.
    (C) Rural small businesses must provide sufficient information to 
determine total annual receipts of the business and any parent, 
subsidiary, or affiliates at other locations. Voluntarily providing tax 
returns is one means of satisfying this requirement. Information 
provided must be sufficient for the Agency to make a determination of 
total income and cost of goods sold by the business.
    (D) If available, historical financial statements prepared in 
accordance with GAAP for the past 3 years, including income statements 
and balance sheets. If agricultural producers are unable to

[[Page 59666]]

present this information in accordance with GAAP, they may instead 
present financial information for the past 3 years in the format that 
is generally required by commercial agriculture lenders.
    (E) Pro forma balance sheet at startup of the agricultural 
producer's/rural small business' business that reflects the use of the 
loan proceeds or grant award; and 3 additional years, indicating the 
necessary start-up capital, operating capital, and short-term credit; 
and projected cash flow and income statements for 3 years supported by 
a list of assumptions showing the basis for the projections.
    (F) For agricultural producers, identify the gross market value of 
your agricultural products for the calendar year preceding the year in 
which you submit your application.
    (iv) Production information for renewable energy system projects.
    (A) Provide a statement as to whether the technology to be employed 
by the facility is commercially or pre-commercially available and 
replicable. Provide information to support this position.
    (B) Describe the availability of materials, labor, and equipment 
for the facility.
    (v) Business market information for renewable energy system 
projects.
    (A) Demand. Identify the demand (past, present, and future) for the 
product and/or service and who will buy the product and/or service.
    (B) Supply. Identify the supply (past, present, and future) of the 
product and/or service and your competitors.
    (C) Market niche. Given the trends in demand and supply, describe 
how the business will be able to sell enough of its product/service to 
be profitable.
    (vi) A Dun and Bradstreet Universal Numbering System (DUNS) number.
    (b) Forms, certifications, and agreements. Each application 
submitted under paragraph (a) of this section must contain, as 
applicable, the items identified in paragraphs (b)(1) through (15) of 
this section.
    (1) Form SF-424, ``Application for Federal Assistance.''
    (2) Form SF-424C, ``Budget Information--Construction Programs.'' 
Each cost classification category listed on the form must be filled out 
if it applies to your project. Any cost category item not listed on the 
form that applies to your project can be put under the miscellaneous 
category. Attach a separate sheet if you are using the miscellaneous 
category and list each miscellaneous cost by not allowable and 
allowable costs in the same format as on Form 424C, ``Budget 
Information--Construction Programs.'' All project costs must be 
categorized as either allowable or not allowable.
    (3) Form SF-424D, ``Assurances--Construction Programs.''
    (4) AD-1049, ``Certification Regarding Drug-Free Workplace 
Requirements.''
    (5) AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tiered Covered 
Transactions.''
    (6) A copy of a bank statement or a copy of the confirmed funding 
commitment from the funding source. Matching funds must be included on 
the Application for Federal Assistance (SF 424) and Budget 
Information--Construction Programs (SF 424C).
    (7) Exhibit A-1 of RD Instruction 1940-Q, ``Certification for 
Contracts, Grants and Loans,'' required by Section 319 of Public Law 
101-121 if the grant exceeds $100,000 or Exhibit A-2 of RD Instruction 
1940-Q, ``Statement for Loan Guarantees,'' required by Section 319 of 
Public Law 101-121 if the guaranteed loan exceeds $150,000.
    (8) If the applicant or borrower has made or agreed to make payment 
using funds other than Federal appropriated funds to influence or 
attempt to influence a decision in connection with the application, 
Form SF-LLL, ``Disclosure of Lobbying Activities,'' must be completed.
    (9) AD-1047, ``Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions.''
    (10) Form RD 400-1, ``Equal Opportunity Agreement.''
    (11) Form RD 400-4, ``Assurance Agreement.''
    (12) If the project involves interconnection to an electric 
utility, a copy of a letter of intent to purchase power, a power 
purchase agreement, a copy of a letter of intent for an interconnection 
agreement, or an interconnection agreement will be required from your 
utility company or other purchaser for renewable energy systems.
    (13) If applicable, intergovernmental consultation comments in 
accordance with Executive Order 12372.
    (14) Applicants and borrowers must provide a certification 
indicating whether or not there is a known relationship or association 
with an Agency employee.
    (15) Each applicant must prepare an environmental impact analysis 
as specified in Sec.  4280.114(d).
    (c) Feasibility study for renewable energy systems. Each 
application for a renewable energy system project, except for requests 
of $100,000 or less, must include a project-specific feasibility study 
prepared by a qualified independent consultant. The feasibility study 
must include an analysis of the market, financial, economic, technical, 
and management feasibility of the proposed project. The feasibility 
study must also include an opinion and a recommendation by the 
independent consultant.
    (d) Technical requirements reports. The technical report must 
demonstrate that the project design, procurement, installation, 
startup, operation and maintenance of the renewable energy system or 
energy efficiency improvement will operate or perform as specified over 
its design life in a reliable and a cost effective manner. The 
technical report must also identify all necessary project agreements, 
demonstrate that those agreements will be in place, and that necessary 
project equipment and services are available over the design life. All 
technical information provided must follow the format specified in 
paragraphs (d)(1) through (10) of this section. Supporting information 
may be submitted in other formats. Design drawings and process flow 
charts are encouraged as exhibits. A discussion of each topic 
identified in paragraphs (d)(1) through (10) of this section is not 
necessary if the topic is not applicable to the specific project. 
Questions identified in the Agency's technical review of the project 
must be answered to the Agency's satisfaction before the application 
will be approved. The applicant must submit the original technical 
requirements report plus one copy to the State Rural Development 
Office. For small solar and small wind projects, the narrative portion 
of technical requirements portion of the proposals, excluding 
supporting documentation and drawings, should be less than ten pages. 
Projects costing more than $100,000 require the services of a 
professional engineer (PE). Depending on the level of engineering 
required for the specific project or if necessary to ensure public 
safety, the services of a PE may be required for smaller projects.
    (1) Biomass, bioenergy. The technical requirements specified in 
paragraphs (d)(1)(i) through (x) of this section apply to renewable 
energy projects that produce fuel, thermal energy, or electric power 
from a lignocellulosic biomass source, including wood, agricultural 
residue excluding animal wastes, or other energy crops considered 
biomass or bioenergy projects. The major components of bioenergy 
systems will vary significantly depending on the type of feedstock, 
product, type of process, and size of the process but in general

[[Page 59667]]

includes components around which the balance of the system is designed.
    (i) Qualifications of project team. The biomass project team will 
vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project engineer, 
a construction contractor or system installer, and a system operator 
and maintainer. One individual or entity may serve more than one role. 
The project team must have demonstrated expertise in similar biomass 
systems development, engineering, installation, and maintenance. The 
applicant must provide authoritative evidence that project team service 
providers have the necessary professional credentials or relevant 
experience to perform the required services. The applicant must also 
provide authoritative evidence that vendors of proprietary components 
can provide necessary equipment and spare parts for the system to 
operate over its design life. The application must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the biomass system equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (C) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing biomass energy systems 
including any relevant certifications by recognized organizations or 
bodies. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available; and
    (D) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining biomass renewable energy 
equipment or projects. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating and with 
references if available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(1)(ii)(A) through (G) 
of this section.
    (A) Biomass systems must be installed in accordance with applicable 
local, State, and national codes and regulations. Identify zoning and 
code issues, and required permits and the schedule for meeting those 
requirements and securing those permits.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) Identify land use agreements required for the project and the 
schedule for securing the agreements and the term of those agreements.
    (D) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (E) Identify available component warranties for the specific 
project location and size.
    (F) Systems interconnected to the electric power system will need 
arrangements to interconnect with the utility. Identify utility system 
interconnection requirements, power purchase arrangements, or licenses 
where required and the schedule for meeting those requirements and 
obtaining those agreements. This is required even if the system is 
installed on the customer side of the utility meter. For systems 
planning to utilize a local net metering program, describe the 
applicable local net metering program.
    (G) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the type, 
quantity, quality, and seasonality of the biomass resource including 
harvest and storage, where applicable. Where applicable, also indicate 
shipping or receiving method and required infrastructure for shipping. 
For proposed projects with an established resource, provide a summary 
of the resource.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive including 
site selection, system and component selection, and system monitoring 
equipment. Systems must be constructed by a qualified entity.
    (A) The application must include a concise but complete description 
of the biomass project including location of the project, resource 
characteristics, system specifications, electric power system 
interconnection, and monitoring equipment. Identify possible vendors 
and models of major system components. Describe the expected electric 
power, fuel production, or thermal energy production of the proposed 
system as rated and as expected in actual field conditions. For systems 
with a capacity more than 20 tons per day of biomass, address 
performance on a monthly and annual basis. For small projects such as a 
commercial biomass furnace or pelletizer of up to 5 tons daily 
capacity, proven, commercially available devices need not be addressed 
in detail. Describe the uses of or the market for electricity, heat, or 
fuel produced by the system. Discuss the impact of reduced or 
interrupted biomass availability on the system process.
    (B) The application must include a description of the project site 
and address issues such as site access, foundations, backup equipment 
when applicable, and environmental concerns with emphasis on 
visibility, odor, noise, construction, and installation issues. 
Identify any unique construction and installation issues.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including resource assessment, system and site design, permits and 
agreements, equipment procurement, and system installation from 
excavation through startup and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including project management, resource 
assessment, project design, project permitting, land agreements, 
equipment, site preparation, system installation,

[[Page 59668]]

startup and shakedown, warranties, insurance, financing, professional 
services, and operations and maintenance costs. Provide a detailed 
analysis and description of annual project revenues and expenses. 
Provide a detailed description of applicable investment incentives, 
productivity incentives, loans, and grants.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Biomass 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Provide information regarding available system and component 
warranties and availability of spare parts;
    (B) For systems having a biomass input capacity exceeding 10 tons 
of biomass per day,
    (1) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedule for the mechanical, 
piping, and electrical systems and system monitoring and control 
requirements. Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds; and
    (2) Discuss the costs and labor associated with operations and 
maintenance of system and plans for in or outsourcing. Describe 
opportunities for technology transfer for long term project operations 
and maintenance by a local entity or owner/operator; and
    (C) Provide and discuss the risk management plan for handling 
large, unanticipated failures or major components. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for in-sourcing or out-sourcing.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (2) Anaerobic digester projects. The technical requirements 
specified in paragraphs (d)(2)(i) through (x) of this section apply to 
renewable energy projects, called anaerobic digester projects, that use 
animal waste and other organic substrates to produce thermal or 
electrical energy via anaerobic digestion. The major components of an 
anaerobic digester system include the digester, the gas handling and 
transmission systems, and the gas use system.
    (i) Qualifications of project team. The anaerobic digester project 
team should consist of a system designer, a project manager, an 
equipment supplier, a project engineer, a construction contractor, and 
a system operator or maintainer. One individual or entity may serve 
more than one role. The project team must have demonstrated commercial-
scale expertise in anaerobic digester systems development, engineering, 
installation, and maintenance as related to the organic materials and 
operating mode of the system. The applicant must provide authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services. The applicant must also provide authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the system to operate over its design life. The 
applicant must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the anaerobic digester system equipment manufacturers 
of major components being considered in terms of the length of time in 
business and the number of units installed at the capacity and scale 
being considered;
    (C) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing anaerobic digester systems 
including any relevant certifications by recognized organizations or 
bodies. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating consistent with the 
substrate material and with references if available; and
    (D) For regional or centralized digester plants, describe the 
system operator's qualifications and experience for servicing, 
operating, and maintaining similar projects. Farm scale systems may not 
require operator experience as the developer is typically required to 
provide operational training during system startup and shakedown. 
Provide a list of the same or similar projects designed, installed, or 
supplied and currently operating consistent with the substrate material 
and with references if available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(2)(ii)(A) through (G) 
of this section.
    (A) Anaerobic digester systems must be installed in accordance with 
applicable local, State, and national codes and regulations. Anaerobic 
digesters must also be designed and constructed in accordance with USDA 
anaerobic digester standards. Identify zoning and code issues, and 
required permits and the schedule for meeting those requirements and 
securing those permits.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) For regional or centralized digester plants, identify feedstock 
access agreements required for the project and the schedule for 
securing those agreements and the term of those agreements.
    (D) Identify any permits or agreements required for transport and 
ultimate waste disposal and the schedule for securing those agreements 
and permits.
    (E) Identify available component warranties for the specific 
project location and size.
    (F) Systems interconnected to the electric power system will need 
arrangements to interconnect with the

[[Page 59669]]

utility. Identify utility system interconnection requirements, power 
purchase arrangements, or licenses where required and the schedule for 
meeting those requirements and obtaining those agreements. This is 
required even if the system is installed on the customer side of the 
utility meter. For systems planning to utilize a local net metering 
program, describe the applicable local net metering program.
    (G) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the substrates 
used as digester inputs including animal wastes, food processing 
wastes, or other organic wastes in terms of type, quantity, 
seasonality, and frequency of collection. Describe any special handling 
of feedstock that may be necessary. Describe the process for 
determining the feedstock resource. Provide either tabular values or 
laboratory analysis of representative samples that include 
biodegradability studies to produce gas production estimates for the 
project on daily, monthly, and seasonal basis.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive including 
site selection, digester component selection, gas handling component 
selection, and gas use component selection. Systems must be constructed 
by a qualified entity.
    (A) The application must include a concise but complete description 
of the anaerobic digester project including location of the project, 
farm description, feedstock characteristics, a step-by-step flowchart 
of unit operations, electric power system interconnection equipment, 
and any required monitoring equipment. Identify possible vendors and 
models of major system components. Provide the expected system energy 
production, heat balances, material balances as part of the unit 
operations flowchart.
    (B) The application must include a description of the project site 
and address issues such as site access, foundations, backup equipment 
when applicable, and environmental concerns with emphasis on 
visibility, odor, noise, construction and installation issues. Identify 
any unique construction and installation issues.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including feedstock assessment, system and site design, permits and 
agreements, equipment procurement, system installation from excavation 
through startup and shakedown, and operator training.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including project management, feedstock 
assessment, project design, project permitting, land agreements, 
equipment, site preparation, system installation, startup and 
shakedown, warranties, insurance, financing, professional services, 
training and operations, and maintenance costs of both the digester and 
the gas use systems. Provide a detailed analysis and description of 
annual project revenues and expenses. Provide a detailed description of 
applicable investment incentives, productivity incentives, loans, and 
grants.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Anaerobic 
digester systems may be constructed of components manufactured in more 
than one location. Provide a description of any unique equipment 
procurement issues such as scheduling and timing of component 
manufacture and delivery, ordering, warranties, shipping, receiving, 
and on-site storage or inventory. Procurement must be made in 
accordance with the requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 3-year warranty for 
equipment and a 10-year warranty on design. Provide information 
regarding system warranties and availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the digester, the gas 
handling equipment, and the gas use systems. Describe any maintenance 
requirements for system monitoring and control equipment;
    (C) Provide information that supports expected design life of the 
system and the timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for insourcing or outsourcing; and
    (E) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/operator.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (3) Geothermal, electric generation. The technical requirements 
specified in paragraphs (d)(3)(i) through (x) of this section apply to 
geothermal projects that produce electric power from the thermal 
potential of a geothermal source. The major components of an electric 
generating geothermal system include the production well, the separator 
or heat exchanger, the turbine, the generator, condenser, and the 
balance of station elements including the field piping, roads, fencing 
and grading, plant buildings, transformers and other electrical 
infrastructure such as interconnection equipment.
    (i) Qualifications of project team. The electric generating 
geothermal plant project team should consist of a system designer, a 
project manager, an equipment supplier, a project engineer,

[[Page 59670]]

a construction contractor, and a system operator and maintainer. One 
individual or entity may serve more than one role. The project team 
must have demonstrated expertise in geothermal electric generation 
systems development, engineering, installation, and maintenance. The 
applicant must provide authoritative evidence that project team service 
providers have the necessary professional credentials or relevant 
experience to perform the required services. The applicant must also 
provide authoritative evidence that vendors of proprietary components 
can provide necessary equipment and spare parts for the system to 
operate over its design life. The applicant must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the geothermal plant equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (C) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing geothermal electric 
generation systems including any relevant certifications by recognized 
organizations or bodies. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating and with 
references if available; and
    (D) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining electric generating geothermal 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(3)(ii)(A) through (F) 
of this section.
    (A) Electric generating geothermal systems must be installed in 
accordance with applicable local, State, and national codes and 
regulations. Identify zoning and code issues, and required permits and 
the schedule for meeting those requirements and securing those permits.
    (B) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the schedule for securing those agreements and permits.
    (C) Identify land use or access to the resource agreements required 
for the project and the schedule for securing the agreements and the 
term of those agreements.
    (D) Identify available component warranties for the specific 
project location and size.
    (E) Systems interconnected to the electric power system will need 
arrangements to interconnect with the utility. Identify utility system 
interconnection requirements, power purchase arrangements, or licenses 
where required and the schedule for meeting those requirements and 
obtaining those agreements.
    (F) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the quality of 
the geothermal resource including temperature, flow, and sustainability 
and what conversion system is to be installed. Describe any special 
handling of cooled geothermal waters that may be necessary. Describe 
the process for determining the geothermal resource including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary 
of the resource and the specifications of the measurement setup.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive including 
site selection, system and component selection, conversion system 
component and selection, design of the local collection grid, 
interconnection equipment selection, and system monitoring equipment. 
Systems must be constructed by a qualified entity.
    (A) The application must include a concise but complete description 
of the geothermal project including location of the project, resource 
characteristics, thermal system specifications, electric power system 
interconnection equipment and project monitoring equipment. Identify 
possible vendors and models of major system components. Provide the 
expected system energy production on a monthly and annual basis.
    (B) The application must include a description of the project site 
and address issues such as site access, proximity to the electrical 
grid, environmental concerns with emphasis on visibility, noise, 
construction, and installation issues. Identify any unique construction 
and installation issues.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including resource assessment, system and site design, permits and 
agreements, equipment procurement, and system installation from 
excavation through startup and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including project management, resource 
assessment, project design, project permitting, land agreements, 
equipment, site preparation, system installation, startup and 
shakedown, warranties, insurance, financing, professional services, and 
operations and maintenance costs. Provide a detailed analysis and 
description of annual project revenues including electricity sales, 
production tax credits, revenues from green tags, and any other 
production incentive programs throughout the life of the project. 
Provide a detailed description of applicable investment incentives, 
productivity incentives, loans, and grants.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Geothermal 
systems may be constructed of

[[Page 59671]]

components manufactured in more than one location. Provide a 
description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Procurement must be made in accordance with the requirements of 7 CFR 
part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup or shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the mechanical and 
electrical systems and system monitoring and control requirements;
    (C) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components such as the turbine. 
Include in the discussion, costs and labor associated with operations 
and maintenance of system and plans for insourcing or outsourcing; and
    (E) Describe opportunities for technology transfer for long term 
project operations and maintenance by a local entity or owner/operator.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (4) Geothermal, direct use. The technical requirements specified in 
paragraphs (d)(4)(i) through (x) of this section apply to geothermal 
projects that directly use thermal energy from a geothermal source. The 
major components of a direct use geothermal system include the 
production well, the heat exchanger, pumps, and the balance of station 
elements including the, field piping, re-injection wells or other 
disposal equipment as required, and final point-of-use heat exchangers 
and control systems.
    (i) Qualifications of project team. The geothermal project team 
should consist of a system designer, a project manager, an equipment 
supplier, a project engineer, a construction contractor, and a system 
operator and maintainer. One individual or entity may serve more than 
one role. The project team must have demonstrated expertise in 
geothermal heating systems development, engineering, installation, and 
maintenance. The applicant must provide authoritative evidence that 
project team service providers have the necessary professional 
credentials or relevant experience to perform the required services. 
The applicant must also provide authoritative evidence that vendors of 
proprietary components can provide necessary equipment and spare parts 
for the system to operate over its design life. The applicant must:
    (A) Discuss the proposed project delivery method. Such method 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the geothermal system equipment manufacturers of major 
components being considered in terms of the length of time in business 
and the number of units installed at the capacity and scale being 
considered;
    (C) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing direct use geothermal 
systems including any relevant certifications by recognized 
organizations or bodies. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating and with 
references if available; and
    (D) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining direct use generating geothermal 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(4)(ii)(A) through (F) 
of this section.
    (A) Direct use geothermal systems must be installed in accordance 
with applicable local, State, and national codes and regulations. 
Identify zoning and code issues, and required permits and the schedule 
for meeting those requirements and securing those permits.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) Identify land use or access to the resource agreements required 
for the project and the schedule for securing the agreements and the 
term of those agreements.
    (D) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the schedule for securing those permits and agreements.
    (E) Identify available component warranties for the specific 
project location and size.
    (F) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the quality of 
the geothermal resource including temperature, flow, and sustainability 
and what direct use system is to be installed. Describe any special 
handling of cooled geothermal waters that may be necessary. Describe 
the process for determining the geothermal resource including 
measurement setup for the collection of the geothermal resource data. 
For proposed projects with an established resource, provide a summary 
of the resource and the specifications of the measurement setup.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive including 
site selection, system and component selection, thermal system 
component

[[Page 59672]]

selection, and system monitoring equipment. Systems must be constructed 
by a qualified entity.
    (A) The application must include a concise but complete description 
of the geothermal project including location of the project, resource 
characteristics, thermal system specifications, and monitoring 
equipment. Identify possible vendors and models of major system 
components. Provide the expected system energy production on a monthly 
and annual basis.
    (B) The application must include a description of the project site 
and address issues such as, site access, thermal backup equipment, 
environmental concerns with emphasis on visibility, noise, 
construction, and installation issues. Identify any unique construction 
and installation issues.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including resource assessment, system and site design, permits and 
agreements, equipment procurement, and system installation from 
excavation through startup and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including project management, resource 
assessment, project design, project permitting, land agreements, 
equipment, site preparation, system installation, startup and 
shakedown, warranties, insurance, financing, professional services, and 
operations and maintenance costs. Provide a detailed analysis and 
description of annual project revenues and expenses. Provide a detailed 
description of applicable investment incentives, productivity 
incentives, loans, and grants.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Geothermal 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding system warranties and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance for the mechanical and 
electrical systems and system monitoring and control requirements;
    (C) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for insourcing or outsourcing; and
    (E) Describe opportunities for technology transfer for long term 
project operations and maintenance by a local entity or owner/operator.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (5) Hydrogen. The technical requirements specified in paragraphs 
(d)(5)(i) through (x) of this section apply to renewable energy 
projects that produce hydrogen and renewable energy projects that use 
mechanical or electric power or thermal energy from a renewable 
resource using hydrogen as an energy transport medium. The major 
components of hydrogen systems include reformers, electrolyzers, 
hydrogen compression and storage components, and fuel cells.
    (i) Qualifications of project team. The hydrogen project team will 
vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project engineer, 
a construction contractor or system installer, and a system operator 
and maintainer. One individual or entity may serve more than one role. 
The project team must have demonstrated expertise in similar hydrogen 
systems development, engineering, installation, and maintenance. The 
applicant must provide authoritative evidence that project team service 
providers have the necessary professional credentials or relevant 
experience to perform the required services. The applicant must also 
provide authoritative evidence that vendors of proprietary components 
can provide necessary equipment and spare parts for the system to 
operate over its design life. The applicant must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the hydrogen system equipment manufacturers of major 
components for the hydrogen system being considered in terms of the 
length of time in the business and the number of units installed at the 
capacity and scale being considered;
    (C) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor qualifications 
for engineering, designing, and installing hydrogen systems including 
any relevant certifications by recognized organizations or bodies. 
Provide a list of the same or similar projects designed, installed, or 
supplied and currently operating and with references if available; and
    (D) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining hydrogen system equipment or 
projects. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available.
    (ii) Agreements and permits. The applicant must identify all 
necessary

[[Page 59673]]

agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (d)(5)(ii)(A) through (G) of this section.
    (A) Hydrogen systems must be installed in accordance with 
applicable local, State, and national codes and regulations. Identify 
zoning and building code issues, and required permits and the schedule 
for meeting those requirements and securing those permits.
    (B) Identify licenses where required and the schedule for obtaining 
those licenses.
    (C) Identify land use agreements required for the project and the 
schedule for securing the agreements and the term of those agreements.
    (D) Identify any permits or agreements required for solid, liquid, 
and gaseous emissions or effluents and the schedule for securing those 
permits and agreements.
    (E) Identify available component warranties for the specific 
project location and size.
    (F) Systems interconnected to the electric power system will need 
arrangements to interconnect with the utility. Identify utility system 
interconnection requirements, power purchase arrangements, or licenses 
where required and the schedule for meeting those requirements and 
obtaining those agreements. This is required even if the system is 
installed on the customer side of the utility meter. For systems 
planning to utilize a local net metering program, provide a description 
of the applicable local net metering program.
    (G) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the type, 
quantity, quality, and seasonality of the biomass resource. For solar, 
wind, or geothermal sources of energy used to generate hydrogen, 
indicate the local renewable resource where the hydrogen system is to 
be installed. Local resource maps may be used as an acceptable 
preliminary source of renewable resource data. For proposed projects 
with an established renewable resource, provide a summary of the 
resource.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Projects shall be engineered by a qualified entity. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive including 
site selection, system and component selection, and system monitoring 
equipment. Systems must be constructed by a qualified entity.
    (A) The application must include a concise but complete description 
of the hydrogen project including location of the project, resource 
characteristics, system specifications, electric power system 
interconnection equipment, and monitoring equipment. Identify possible 
vendors and models of major system components. Describe the expected 
electric power, fuel production, or thermal energy production of the 
proposed system. Address performance on a monthly and annual basis. 
Describe the uses of or the market for electricity, heat, or fuel 
produced by the system. Discuss the impact of reduced or interrupted 
resource availability on the system process.
    (B) The application must include a description of the project site 
and address issues such as site access, foundations, backup equipment 
when applicable, and any environmental and safety concerns. Identify 
any unique construction and installation issues.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including resource assessment, system and site design, permits and 
agreements, equipment procurement, and system installation from 
excavation through startup and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including project management, resource 
assessment, project design and engineering, project permitting, land 
agreements, equipment, site preparation, system installation, startup 
and shakedown, warranties, insurance, financing, professional services, 
and operations and maintenance costs. Provide a detailed analysis and 
description of annual project revenues and expenses. Provide a detailed 
description of applicable investment incentives, productivity 
incentives, loans, and grants.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Hydrogen 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues, such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, and receiving, and on-site 
storage or inventory. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Provide information regarding system warranties and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance of the reformer, 
electrolyzer, or fuel cell as appropriate, and other mechanical, 
piping, and electrical systems and system monitoring and control 
requirements;
    (C) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for in or outsourcing; and
    (E) Describe opportunities for technology transfer for long term 
project operations and maintenance by a local entity or owner/operator.

[[Page 59674]]

    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (6) Solar, small. The technical requirements specified in 
paragraphs (d)(6)(i) through (x) of this section apply to small solar 
electric projects and small solar thermal projects. Small solar 
electric projects are those for which the rated power of the system is 
10kW or smaller. The major components of a small solar electric system 
are the solar panels, the support structure, the foundation, the power 
conditioning equipment, the interconnection equipment, surface or 
submersible water pumps, energy storage equipment and supporting 
documentation including operations and maintenance manuals. Small solar 
electric projects are either stand-alone (off grid) or interconnected 
to the grid at less than 600 volts (on grid). Small solar thermal 
projects are those for which the rated storage volume of the system is 
240 gallons, or smaller. The major components of a small solar thermal 
system are the solar collector(s), the support structure, the 
foundation, the circulation pump(s) and piping, heat exchanger (if 
required), energy storage equipment and support
    (i) Qualifications of project team. The small solar project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity may 
serve more than one role. The applicant must provide authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services. The applicant must also provide authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the system to operate over its design life. The 
applicant must:
    (A) Discuss the qualifications of the suppliers of major components 
being considered;
    (B) Describe the knowledge, skills, and abilities needed to 
service, operate, and maintain the system for the proposed application; 
and
    (C) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small solar systems including any relevant certifications by recognized 
organizations or bodies. Provide a list of the same or similar systems 
designed or installed by the design and installation team and currently 
operating and with references if available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(6)(ii)(A) through (D) 
of this section.
    (A) Small solar systems must be installed in accordance with local, 
State, and national building and electrical codes and regulations. 
Identify zoning, building and electrical code issues, and required 
permits and the schedule for meeting those requirements and securing 
those permits.
    (B) Identify available component warranties for the specific 
project location and size.
    (C) Small solar electric systems interconnected to the electric 
power system will need arrangements to interconnect with the utility. 
Identify utility system interconnection requirements, power purchase 
arrangements, or licenses where required and the schedule for meeting 
those requirements and obtaining those agreements. This is required 
even if the system is installed on the customer side of the utility 
meter. For systems planning to utilize a local net metering program, 
describe the applicable local net metering program.
    (D) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Describe the local 
solar resource where the solar system is to be installed. Acceptable 
sources of solar resource data include state solar maps and nearby 
weather station data. Incorporate information from state solar resource 
maps when possible. Indicate the source of the solar data and 
assumptions made when applying nearby solar data to the site.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. For small solar electric systems, the engineering must 
be comprehensive, including solar collector design and selection, 
support structure design and selection, power conditioning design and 
selection, surface or submersible water pumps and energy storage 
requirements as applicable, and selection of cabling, disconnects and 
interconnection equipment. For small solar thermal systems, the 
engineering must be comprehensive, including solar collector design and 
selection, support structure design and selection, pump and piping 
design and selection, and energy storage design and selection.
    (A) The application must include a concise but complete description 
of the small solar system including location of the project and 
proposed equipment specifications. Identify possible vendors and models 
of major system components. Provide the expected system energy 
production based on available solar resource data on a monthly (when 
possible) and annual basis and how the energy produced by the system 
will be used.
    (B) The application must include a description of the project site 
and address issues such as solar access, orientation, proximity to the 
load or the electrical grid, environmental concerns, unique safety 
concerns, construction, and installation issues, and whether special 
circumstances exist.
    (C) Sites and application load must be controlled by the 
agricultural producer or rural small business for the proposed project 
life or for the financing term of any associated federal loans or loan 
guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including design, permitting, equipment, 
site preparation, system installation, system startup and shakedown, 
warranties, insurance, financing, professional services, and operations 
and maintenance costs. Provide a detailed description of applicable 
investment incentives, productivity incentives, loans, and grants. 
Provide a detailed description of historic or expected energy use and 
expected energy offsets or sales on monthly and annual bases.
    (vii) Equipment procurement. The applicant must demonstrate that

[[Page 59675]]

equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Small solar 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Provide a detailed description of equipment 
certification. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment needed for project construction, and provide a 
description of the startup and shakedown specification and process and 
the conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical 
and electrical and software systems;
    (C) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations or 
maintenance; and
    (D) Provide information regarding expected system design life and 
timing of major component replacement or rebuilds. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for in or outsourcing.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (7) Solar, large. The technical requirements specified in 
paragraphs (d)(7)(i) through (x) of this section apply to large solar 
electric projects and large solar thermal projects. Large solar 
electric systems are those for which the rated power of the system is 
larger than 10kW. The major components of a large solar electric system 
are the solar panels, the support structure, the foundation, the power 
conditioning equipment, the interconnection equipment, surface or 
submersible water pumps and energy storage equipment and supporting 
documentation including operations and maintenance manuals. Large solar 
electric systems are either stand-alone (off grid) or interconnected to 
the grid (on grid.) Large solar thermal systems are those for which the 
rated storage volume of the system is greater than 240 gallons. The 
major components of a small solar thermal system are the solar 
collector(s), the support structure, the foundation, the circulation 
pump(s) and piping, heat exchanger (if required), energy storage 
equipment and supporting documentation including operations and 
maintenance manuals.
    (i) Qualifications of project team. The large solar project team 
should consist of an equipment supplier of major components, a project 
manager, general contractor, a system engineer, a system installer, and 
system maintainer. One individual or entity may serve more than one 
role. The applicant must provide authoritative evidence that project 
team service providers have the necessary professional credentials or 
relevant experience to perform the required services. The applicant 
must also provide authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life. The applicant must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developer's 
risk;
    (B) Discuss the qualifications of the suppliers of major components 
being considered;
    (C) Discuss the project manager, general contractor, system 
engineer, and system installer qualifications for engineering, 
designing, and installing large solar systems including any relevant 
certifications by recognized organizations or bodies. Provide a list of 
the same or similar systems designed or installed by the design, 
engineering, and installation team and currently operating and with 
references if available; and
    (D) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining the system for the proposed 
application. Provide a list of the same or similar systems designed or 
installed by the design, engineering, and installation team and 
currently operating and with references if available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(7)(ii)(A) through (D) 
of this section.
    (A) Large solar systems must be installed in accordance with local, 
State, and national building and electrical codes and regulations. 
Identify zoning, building and electrical code issues, and required 
permits and the schedule for meeting those requirements and securing 
those permits.
    (B) Identify available component warranties for the specific 
project location and size.
    (C) Large solar electric systems interconnected to the electric 
power system will need arrangements to interconnect with the utility. 
Identify utility system interconnection requirements, power purchase 
arrangements, or licenses where required and the schedule for meeting 
those requirements and obtaining those agreements. This is required 
even if the system is installed on the customer side of the utility 
meter. For systems planning to utilize a local net metering program, 
describe the applicable local net metering program.
    (D) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Describe the local 
solar resource where the solar system is to be installed. Acceptable 
sources of solar resource data include state solar maps and nearby 
weather station data. Incorporate information from state solar resource 
maps when possible. Indicate the source of the solar data and 
assumptions made when applying nearby solar data to the site.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable

[[Page 59676]]

laws, regulations, agreements, permits, codes, and standards.
    (A) For large solar electric systems, the engineering must be 
comprehensive, including solar collector design and selection, support 
structure design and selection, power conditioning design and 
selection, surface or submersible water pumps and energy storage 
requirements as applicable, and selection of cabling, disconnects and 
interconnection equipment. A complete set of engineering drawings, 
stamped by a professional engineer must be provided.
    (B) For large solar thermal systems, the engineering must be 
comprehensive, including solar collector design and selection, support 
structure design and selection, pump and piping design and selection, 
and energy storage design and selection. Provide a complete set of 
engineering drawings, stamped by a professional engineer.
    (C) For either type of system, provide a concise but complete 
description of the large solar system including location of the project 
and proposed equipment and system specifications. Identify possible 
vendors and models of major system components. Provide the expected 
system energy production based on available solar resource data on a 
monthly (when possible) and annual basis and how the energy produced by 
the system will be used.
    (D) For either type of system, provide a description of the project 
site and address issues such as, solar access, orientation, proximity 
to the load or the electrical grid, environmental concerns, unique 
safety concerns, construction, and installation issues and whether 
special circumstances exist.
    (E) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or for the financing term 
of any associated federal loans or loan guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including design and engineering, 
permitting, equipment, site preparation, system installation, system 
startup and shakedown, warranties, insurance, financing, professional 
services, and operations and maintenance costs. Provide a detailed 
description of applicable investment incentives, productivity 
incentives, loans, and grants. Provide a detailed description of 
historic or expected energy use and expected energy offsets or sales on 
a monthly and annual basis.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Large solar 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Provide a detailed description of equipment 
certification. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment, including cranes and other devices, needed for 
project construction, and provide a description of the startup and 
shakedown specification and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical 
and electrical and software systems;
    (C) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations or 
maintenance; and
    (D) Provide information regarding expected system design life and 
timing of major component replacement or rebuilds. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for insourcing or outsourcing.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (8) Wind, small. The technical requirements specified in paragraphs 
(d)(8)(i) through (x) apply to wind energy systems for which the rated 
power of the wind turbine is 100kW or smaller and with a generator hub 
height of 120 ft or less. Such systems are considered small wind 
systems. The major components of a small wind system are the wind 
turbine, the tower, the foundation, the inverter, the interconnection 
equipment and energy storage when applicable. A small wind system is 
either stand-alone or connected to the local electrical system at less 
than 600 volts.
    (i) Qualifications of project team. The small wind project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity may 
serve more than one role. The applicant must provide authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services. The applicant must also provide authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the system to operate over its design life. The 
applicant must:
    (A) Discuss the small wind turbine manufacturers and other 
equipment suppliers of major components being considered in terms of 
the length of time in business and the number of units installed at the 
capacity and scale being considered;
    (B) Describe the knowledge, skills, and abilities needed to 
service, operate, and maintain the system for the proposed application; 
and
    (C) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small wind systems including any relevant certifications by recognized 
organizations or bodies. Provide a list of the same or similar systems 
designed, installed, or supplied and currently operating and with 
references if available.
    (ii) Agreements and permits. The applicant must identify all 
necessary

[[Page 59677]]

agreements and permits required for the project and the status and 
schedule for securing those agreements and permits, including the items 
specified in paragraphs (d)(8)(ii)(A) through (D) of this section.
    (A) Small wind systems must be installed in accordance with 
applicable local, State, and national building and electrical codes and 
regulations. Identify zoning, building and electrical code issues, and 
required permits and the schedule for meeting those requirements and 
securing those permits.
    (B) Identify available component warranties for the specific 
project location and size.
    (C) Small wind systems interconnected to the electric power system 
will need arrangements to interconnect with the utility. Identify 
utility system interconnection requirements, power purchase 
arrangements, or licenses where required and the schedule for meeting 
those requirements and obtaining those agreements. This is required 
even if the system is installed on the customer side of the utility 
meter. For systems planning to utilize a local net metering program, 
describe the applicable local net metering program.
    (D) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the local wind 
resource where the small wind turbine is to be installed. Acceptable 
sources of wind resource data include state wind maps and nearby 
weather station data. Incorporate information from state wind resource 
maps when possible. Indicate the source of the wind data and the 
conditions of the wind monitoring when collected at the site or 
assumptions made when applying nearby wind data to the site.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Small wind systems must be engineered by either the wind 
turbine manufacturer or other qualified party. Systems must be offered 
as a complete, integrated system with matched components. The 
engineering must be comprehensive including turbine design and 
selection, tower design and selection, specification of guy wire 
anchors and tower foundation, inverter/controller design and selection, 
energy storage requirements as applicable, and selection of cabling, 
disconnects and interconnection equipment as well as the engineering 
data needed to match the wind system output to the application load, if 
applicable.
    (A) The application must include a concise but complete description 
of the small wind system including location of the project, proposed 
turbine specifications, tower height and type of tower, type of energy 
storage and location of storage if applicable, proposed inverter 
manufacturer and model, electric power system interconnection 
equipment, and application load and load interconnection equipment as 
applicable. Identify possible vendors and models of major system 
components. Provide the expected system energy production based on 
available wind resource data on monthly (when possible) and annual 
basis and how the energy produced by the system will be used.
    (B) The application must include a description of the project site 
and address issues such as access to the wind resource, proximity to 
the electrical gird or application load, environmental concerns with 
emphasis on visibility, noise, and avian impacts, construction, and 
installation issues and whether special circumstances such as proximity 
to airports exist. Provide a 360-degree panoramic photograph of the 
proposed site including indication of prevailing winds when possible.
    (C) Sites and application loads must be controlled by the 
agricultural producer or rural small business for the proposed project 
life or for the financing term of any associated federal loans or loan 
guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed project to demonstrate the 
financial performance of the project. Provide a detailed analysis and 
description of project costs including design, permitting, equipment, 
site preparation, system installation, system startup and shakedown, 
warranties, insurance, financing, professional services, and operations 
and maintenance costs. Provide a detailed description of applicable 
investment incentives, productivity incentives, loans, and grants. 
Provide a detailed description of historic or expected energy use and 
expected energy offsets or sales on a monthly and annual basis.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Small wind 
systems may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Provide a detailed description of equipment 
certification. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment, including cranes and other devices, needed for 
project construction, and provide a description of the startup and 
shakedown specification and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 5-year warranty for 
equipment and a commitment from the supplier to have spare parts 
available. Provide information regarding system warranty and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed system, including maintenance schedules for the mechanical 
and electrical and software systems;
    (C) Provide historical or engineering information that supports 
expected design life of the system and timing of major component 
replacement or rebuilds. Include in the discussion, costs and labor 
associated with operations and maintenance of system and plans for in 
or outsourcing; and
    (D) For owner maintained portions of the system, describe any 
unique

[[Page 59678]]

knowledge, skills, or abilities needed for service operations or 
maintenance.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (9) Wind, large. The technical requirements specified in paragraphs 
(d)(9)(i) through (x) of this section apply to wind energy systems for 
which the rated power of the individual wind turbine(s) is larger than 
100kW. Such systems are considered large wind systems. The major 
components of a large wind system are the wind turbine rotor, the 
gearbox, the generator, the tower, the power electronics, the local 
collection grid, and the interconnection equipment.
    (i) Qualifications of project team. The large wind project team 
should consist of a project manager, a meteorologist, an equipment 
supplier, a project engineer, a primary or general contractor, 
construction contractor, and a system operator and maintainer and in 
some cases the owner of the application or load served by the system. 
One individual or entity may serve more than one role. The applicant 
must provide authoritative evidence that project team service providers 
have the necessary professional credentials or relevant experience to 
perform the required services. The applicant must also provide 
authoritative evidence that vendors of proprietary components can 
provide necessary equipment and spare parts for the system to operate 
over its design life. The applicant must:
    (A) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design 
build method, often referred to as turn key, where the applicant 
establishes the specifications for the project and secures the services 
of a developer who will design and build the project at the developers 
risk;
    (B) Discuss the large wind turbine manufacturers and other 
equipment suppliers of major components being considered in terms of 
the length of time in business and the number of units installed at the 
capacity and scale being considered;
    (C) Discuss the project manager, equipment supplier, project 
engineer, and construction contractor qualifications for engineering, 
designing, and installing large wind systems including any relevant 
certifications by recognized organizations or bodies. Provide a list of 
the same or similar projects designed, installed, or supplied and 
currently operating and with references if available;
    (D) Discuss the qualifications of the meteorologist, including 
references; and
    (E) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining the system for the proposed 
application. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating and with references if 
available.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (d)(9)(ii)(A) through (E) 
of this section.
    (A) Large wind systems must be installed in accordance with local, 
State, and national building and electrical codes and regulations. 
Identify zoning, building and electrical code issues, and required 
permits and the schedule for meeting those requirements and securing 
those permits.
    (B) Identify land use agreements required for the project and the 
schedule for securing the agreements and the term of those agreements.
    (C) Identify available component warranties for the specific 
project location and size.
    (D) Large wind systems interconnected to the electric power system 
will need arrangements to interconnect with the utility. Large wind 
systems interconnected to the electric power system will need 
arrangements to interconnect with the utility. Identify utility system 
interconnection requirements, power purchase arrangements, or licenses 
where required and the schedule for meeting those requirements and 
obtaining those agreements.
    (E) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Resource assessment. The applicant must provide adequate and 
appropriate evidence of the availability of the renewable resource 
required for the system to operate as designed. Indicate the local wind 
resource where the wind turbine is to be installed. Wind resource maps 
may be used as an acceptable preliminary source of wind resource data. 
Projects greater than 500kW must obtain wind data from the proposed 
project site. For such projects, describe the proposed measurement 
setup for the collection of the wind resource data. For proposed 
projects with an established wind resource, provide a summary of the 
wind resource and the specifications of the measurement setup. Large 
wind systems larger than 500kW in size will typically require at least 
one year of on-site monitoring. If less than one year of data is used, 
the qualified meteorological consultant must provide a detailed 
analysis of correlation between the site data and a near-by long-term 
measurement site.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the system will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, codes, 
and standards. Large wind systems must be engineered by a qualified 
entity. Systems must be engineered as a complete, integrated system 
with matched components. The engineering must be comprehensive 
including site selection, turbine selection, tower selection, tower 
foundation, design of the local collection grid, interconnection 
equipment selection, and system monitoring equipment. For stand alone, 
non-grid applications, engineering information must be provided that 
demonstrates appropriate matching of wind turbine and load.
    (A) The application must include a concise but complete description 
of the large wind project including location of the project, proposed 
turbine specifications, tower height and type of tower, the collection 
grid, interconnection equipment, and monitoring equipment. Identify 
possible vendors and models of major system components. Provide the 
expected system energy production based on available wind resource data 
on monthly and annual bases. For wind projects larger than 500kW in 
size, provide the expected system energy production over the life of 
the project including a discussion on inter-annual variation using a 
comparison of the on-site monitoring data with long-term meteorological 
data from a nearby monitored site.
    (B) The application must include a description of the project site 
and address issues such as site access, proximity to the electrical 
grid or application load, environmental concerns with emphasis on 
visibility, noise, and avian impacts, construction, and installation 
issues and whether special circumstances such as proximity to airports 
exist.
    (C) Sites must be controlled by the agricultural producer or rural 
small business for the proposed project life or

[[Page 59679]]

for the financing term of any associated federal loans or loan 
guarantees.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including resource assessment, system and site design, permits and 
agreements, equipment procurement, and system installation from 
excavation through startup and shakedown.
    (vi) Financial feasibility. The applicant must provide a study that 
describes costs and revenues of the proposed energy efficiency 
improvement(s) to demonstrate the financial performance of the energy 
efficiency improvement(s). Provide a detailed analysis and description 
of project costs including project management, resource assessment, 
project design, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, and operations and 
maintenance costs. Provide a detailed description of applicable 
investment incentives, productivity incentives, loans, and grants. 
Provide a detailed analysis and description of annual project revenues 
including electricity sales, production tax credits, revenues from 
green tags, and any other production incentive programs throughout the 
life of the project. Provide a description of planned contingency fees 
or reserve funds to be used for unexpected large component replacement 
or repairs and for low productivity periods.
    (vii) Equipment procurement. The applicant must demonstrate that 
equipment required by the system is available and can be procured and 
delivered within the proposed project development schedule. Large wind 
turbines may be constructed of components manufactured in more than one 
location. Provide a description of any unique equipment procurement 
issues such as scheduling and timing of component manufacture and 
delivery, ordering, warranties, shipping, receiving, and on-site 
storage or inventory. Provide a detailed description of equipment 
certification. Procurement must be made in accordance with the 
requirements of 7 CFR part 1924, subpart A.
    (viii) Equipment installation. The applicant must fully describe 
the management of and plan for site development and system 
installation, provide details regarding the scheduling of major 
installation equipment, including cranes or other devices, needed for 
project construction, and provide a description of the startup and 
shakedown specification and process and the conditions required for 
startup and shakedown for each equipment item individually and for the 
system as a whole.
    (ix) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the system necessary for the 
system to operate as designed over the design life. The applicant must:
    (A) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance schedules for the 
mechanical and electrical systems and system monitoring and control 
requirements;
    (C) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components such as the turbine 
gearbox or rotor. Include in the discussion, costs and labor associated 
with operations and maintenance of system and plans for insourcing or 
outsourcing;
    (E) Describe opportunities for technology transfer for long term 
project operations and maintenance by a local entity or owner/operator; 
and
    (F) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations or 
maintenance.
    (x) Decommissioning. When uninstalling or removing the project, 
describe the decommissioning process. Describe any issues, 
requirements, and costs for removal and disposal of the system.
    (10) Energy efficiency improvements. The technical requirements 
specified in paragraphs (d)(10)(i) through (ix) of this section apply 
to projects that involve improvements to a facility, building or 
process resulting in reduced energy consumption or reduced amount of 
energy required per unit of production are regarded as energy 
efficiency projects. Projects in excess of $100,000 require a full 
energy audit as specified in paragraph (d)(10)(iii)(B) of this section. 
The system engineering for such projects must be performed by a 
qualified entity certified Professional Engineer as specified in 
paragraph (d)(10)(iv)(A) of this section.
    (i) Qualifications of project team. The energy efficiency project 
team is expected to consist of an energy auditor, a project manager, an 
equipment supplier of major components, a project engineer, and a 
construction contractor or system installer. One individual or entity 
may serve more than one role. The applicant must provide authoritative 
evidence that project team service providers have the necessary 
professional credentials or relevant experience to perform the required 
services. The applicant must also provide authoritative evidence that 
vendors of proprietary components can provide necessary equipment and 
spare parts for the system to operate over its design life. The 
applicant must:
    (A) Discuss the qualifications of the various project team members 
including any relevant certifications by recognized organizations or 
bodies;
    (B) Describe qualifications or experience of the team as related to 
installation, service, operation and maintenance of the project;
    (C) Provide a list of the same or similarly engineered projects 
designed, installed, or supplied by the team or by team members and 
currently operating. Provide references if available; and
    (D) Discuss the manufacturers of major energy efficiency equipment 
being considered including length of time in business.
    (ii) Agreements and permits. The applicant must identify all 
necessary agreements and permits required for the energy efficiency 
improvement(s) and the status and schedule for securing those 
agreements and permits, including the items specified in paragraphs 
(d)(10)(ii)(A) through (C) of this section.
    (A) Energy efficiency improvements must be installed in accordance 
with local, State, and national building and electrical codes and 
regulations. Identify building code, electrical code, and zoning issues 
and required permits, and the schedule for meeting those requirements 
and securing those permits.
    (B) Identify available component warranties for the specific 
project location and size.
    (C) Identify all environmental issues, including environmental 
compliance issues, associated with the project.
    (iii) Energy assessment. The applicant must provide adequate and 
appropriate evidence of energy savings expected when the system is 
operated as designed.
    (A) The application must include information on baseline energy 
usage (preferably including energy bills for at least one year), 
expected energy savings based on manufacturers specifications

[[Page 59680]]

or other estimates, estimated dollars saved per year, and payback 
period in years (total investment cost equal to cumulative total 
dollars of energy savings). Calculation of energy savings should follow 
accepted methodology and practices. System interactions should be 
considered and discussed.
    (B) For energy efficiency improvement projects in excess of 
$100,000, an energy audit is required. An energy audit is a written 
report by an independent, qualified entity that documents current 
energy usage, recommended potential improvements and their costs, 
energy savings from these improvements, dollars saved per year, and 
simple payback period in years (total costs divided by annual dollars 
of energy savings). The methodology of the energy audit must meet 
professional and industry standards. The energy audit must cover the 
following:
    (1) Situation report. Provide a narrative description of the 
facility or process, its energy system(s) and usage, and activity 
profile. Also include price per unit of energy (electricity, natural 
gas, propane, fuel oil, renewable energy, etc.) paid by the customer on 
the date of the audit. Any energy conversion should be based on use 
rather than source.
    (2) Potential improvements. List specific information on all 
potential energy-saving opportunities and their costs.
    (3) Technical analysis. Give consideration to the interactions 
among the potential improvements and other energy systems:
    (i) Estimate the annual energy and energy costs savings expected 
from each improvement identified in the potential project.
    (ii) Calculate all direct and attendant indirect costs of each 
improvement.
    (iii) Rank potential improvements measures by cost-effectiveness.
    (4) Potential improvement description. Provide a narrative summary 
of the potential improvement and its ability to provide needed 
benefits, including a discussion of non-energy benefits such as project 
reliability and durability.
    (i) Provide preliminary specifications for critical components.
    (ii) Provide preliminary drawings of project layout, including any 
related structural changes.
    (iii) Document baseline data compared to projected consumption, 
together with any explanatory notes. When appropriate, show before-and-
after data in terms of consumption per unit of production, time or 
area. Include at least 1 year's bills for those energy sources/fuel 
types affected by this project. Also submit utility rate schedules, if 
appropriate.
    (iv) Identify significant changes in future related operations and 
maintenance costs.
    (v) Describe explicitly how outcomes will be measured.
    (iv) Design and engineering. The applicant must provide 
authoritative evidence that the energy efficiency improvement(s) will 
be designed and engineered so as to meet its intended purpose, will 
ensure public safety, and will comply with applicable laws, 
regulations, agreements, permits, codes, and standards.
    (A) Energy efficiency improvement projects in excess of $100,000 
must be engineered by a qualified entity. Systems must be engineered as 
a complete, integrated system with matched components.
    (B) For all energy efficiency improvement projects, identify and 
itemize major energy efficiency improvements including associated 
project costs. Specifically delineate which costs of the project are 
directly associated with energy efficiency improvements. Describe the 
components, materials or systems to be installed and how they improve 
the energy efficiency of the process or facility being modified. 
Discuss passive improvements that reduce energy loads, such as 
improving the thermal efficiency of a storage facility, and active 
improvements that directly reduce energy consumption, such as replacing 
existing energy consuming equipment with high efficiency equipment, as 
separate topics. Discuss any anticipated synergy between active and 
passive improvements or other energy systems. Include in the discussion 
any change in on-site effluents, pollutants, or other by-products.
    (C) Identify possible suppliers and model of major pieces of 
equipment.
    (v) Project development schedule. The applicant must identify each 
significant task, its beginning and end, and its relationship to the 
time needed to initiate and carry the project through startup and 
shakedown. Provide a detailed description of the project timeline 
including energy audit (if applicable), system and site design, permits 
and agreements, equipment procurement, and system installation from 
site preparation through startup and shakedown.
    (vi) Equipment procurement. The applicant must demonstrate that 
equipment required for the energy efficiency improvement(s) is 
available and can be procured and delivered within the proposed project 
development schedule. Energy efficiency improvements may be constructed 
of components manufactured in more than one location. Provide a 
description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, ordering, 
warranties, shipping, receiving, and on-site storage or inventory. 
Provide a detailed description of equipment certification. Procurement 
must be made in accordance with the requirements of 7 CFR part 1924, 
subpart A.
    (vii) Equipment installation. The applicant must fully describe the 
management of and plan for installation of the energy efficiency 
improvement(s), identify specific issues associated with installation, 
provide details regarding the scheduling of major installation 
equipment needed for project discussion, and provide a description of 
the startup and shakedown specification and process and the conditions 
required for startup and shakedown for each equipment item individually 
and for the system as a whole. Include in this discussion any unique 
concerns, such as the effects of energy efficiency improvements on 
system power quality.
    (viii) Operations and maintenance. The applicant must identify the 
operations and maintenance requirements of the energy efficiency 
improvement(s) necessary for the energy efficiency improvement(s) to 
operate as designed over the design life. The applicant must:
    (A) Provide information regarding component warranties and the 
availability of spare parts;
    (B) Describe the routine operations and maintenance requirements of 
the proposed project, including maintenance schedules for the 
mechanical and electrical systems and system monitoring and control 
requirements;
    (C) Provide information that supports expected design life of the 
system and timing of major component replacement or rebuilds;
    (D) Provide and discuss the risk management plan for handling 
large, unanticipated failures of major components. Include in the 
discussion, costs and labor associated with operations and maintenance 
of system and plans for in or outsourcing; and
    (E) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations or 
maintenance.
    (ix) Decommissioning. Where appropriate, describe the 
decommissioning process. Describe the

[[Page 59681]]

decommissioning budget and any unique concerns to the decommissioning 
process.


Sec.  4280.112  Evaluation of grant applications.

    (a) General review. The Agency will evaluate each application and 
make a determination whether the applicant is eligible, the proposed 
grant is for an eligible project, and the proposed grant complies with 
all applicable statutes and regulations.
    (b) Ineligible or incomplete applications. If either the applicant 
or the project is ineligible, the Agency will inform the applicant in 
writing of the decision, reasons therefore, and any appeal rights, and 
no further evaluation of the application will occur. If the application 
is incomplete, the Agency will return it to the applicant to provide 
the applicant the opportunity to resubmit the application. The Agency 
will identify those parts of the application that are incomplete. Upon 
receipt of a complete application, the Agency will complete its 
evaluation of the application.
    (c) Technical feasibility determination. The Agency's determination 
of a project's technical feasibility will be based on the information 
provided by the applicant and on other sources of information, such as 
recognized industry experts in the applicable technology field, as 
necessary, to determine technical feasibility of the proposed project.
    (d) Evaluation criteria. Agency personnel will score and fund each 
application based on the evaluation criteria specified in paragraph 
(d)(1) of this section for renewable energy systems and in paragraph 
(d)(2) of this section for energy efficiency improvements. These 
criteria must be individually addressed in narrative form on a separate 
sheet of paper.
    (1) Criteria for applications for renewable energy systems. 
Criteria for applications for renewable energy systems are:
    (i) Quantity of energy produced. Points may only be awarded for 
either energy replacement or energy generation, but not for both;
    (A) Energy replacement. If the proposed renewable energy system is 
intended primarily for self use by the farm, ranch, or rural small 
business and will provide energy replacement of greater than 75 
percent, 20 points will be awarded; greater than 50 percent, but equal 
to or less than 75 percent, 15 points will be awarded; or greater than 
25 percent, but equal to or less than 50 percent, 10 points will be 
awarded. The energy replacement should be determined by dividing the 
estimated quantity of energy to be generated by at least the past 12 
months' energy profile of the agricultural producer or rural small 
business or anticipated energy use. The estimated quantity of energy 
may be described in Btu's, kilowatts, or similar energy equivalents. 
Energy profiles can be obtained from the utility company;
    (B) Energy generation. If the proposed renewable energy system is 
intended primarily for production of energy for sale, 20 points will be 
awarded;
    (ii) Environmental benefits. If the purpose of the proposed 
renewable energy system is to upgrade an existing facility or construct 
a new facility required to meet applicable health or sanitary 
standards, 10 points will be awarded. Documentation must be obtained by 
the applicant from the appropriate regulatory agency with jurisdiction 
to establish the standard, to verify that a bona fide standard exists, 
what that standard is, and that the proposed project is needed and 
required to meet the standard;
    (iii) Commercial availability. If the renewable energy system is 
currently commercially available and replicable, an additional 10 
points will be awarded;
    (iv) Cost effectiveness. If the proposed renewable energy system 
will return the cost of the investment in 5 years or less, 25 points 
will be awarded; up to 10 years, 20 points will be awarded; up to 15 
years, 15 points will be awarded; or up to 20 years, 10 points will be 
awarded. The estimated return on investment is calculated by dividing 
the total project cost by the estimated projected net annual income 
and/or energy savings of the renewable energy system;
    (v) Matching funds. If the agricultural producer or rural small 
business has provided eligible matching funds of over 90 percent, 15 
points will be awarded; 85-90 percent, 10 points will be awarded; or at 
least 80 and up to but not including 85 percent, 5 points will be 
awarded;
    (vi) Management. If the renewable energy system will be monitored 
and managed by a qualified third-party operator, such as pursuant to a 
service contract, maintenance contract, or remote telemetry, an 
additional 10 points will be awarded; and
    (vii) Small agricultural producer. If the applicant (for grants) or 
borrower (for guaranteed loans) is an agricultural producer producing 
agricultural products with a gross market value of less than $1 million 
in the preceding year, an additional 10 points will be awarded.
    (2) Criteria for applications for energy efficiency improvements. 
Criteria for applications for energy efficiency improvements are:
    (i) Energy savings. If the estimated energy expected to be saved by 
the installation of the energy efficiency improvements will be 35 
percent or greater, 20 points will be awarded; 30 and up to but not 
including 35 percent, 15 points will be awarded; 25 and up to but not 
including 30 percent, 10 points will be awarded; or 20 and up to but 
not including 25 percent, 5 points will be awarded. Energy savings will 
be determined by the projections in an energy assessment or audit;
    (ii) Cost effectiveness. If the proposed energy efficiency 
improvements will return the cost of the investment in 2 years or less, 
25 points will be awarded; greater than 2 and up to and including 5 
years, 20 points will be awarded; greater than 5 and up to and 
including 9 years, 15 points will be awarded; or greater than 9 and up 
to and including 11 years, 10 points will be awarded. The estimated 
return on investment is calculated by dividing the total project cost 
by the project net annual energy savings of the energy efficiency 
improvements;
    (iii) Matching funds. If the agricultural producer or rural small 
business has provided eligible matching funds of over 90 percent, 15 
points will be awarded; 85-90 percent, 10 points will be awarded; or 80 
and up to but not including 85 percent, 5 points will be awarded; and
    (iv) Small agricultural producer. If the applicant (for grants) or 
borrower (for guaranteed loans) is an agricultural producer producing 
agricultural products with a gross market value of less than $1 million 
in the preceding year, an additional 10 points will be awarded.


Sec.  4280.113  Insurance requirements.

    Insurance is required to protect the interest of the recipient of 
funds under this subpart and the Agency. The coverage must be 
maintained for the life of the grant unless this requirement is waived 
or modified by the Agency in writing.
    (a) Worker compensation insurance is required in accordance with 
State law.
    (b) National flood insurance is required in accordance with 7 CFR 
part 1806, subpart B (RD Instructions 426.2).
    (c) Business interruption insurance will be required.


Sec.  4280.114  Laws that contain other compliance requirements.

    (a) Equal employment opportunity. For all construction contracts 
and grants

[[Page 59682]]

in excess of $10,000, the contractor must comply with Executive Order 
11246, as amended by Executive Order 11375, and as supplemented by 
applicable Department of Labor regulations (41 CFR part 60). The 
applicant and borrower are responsible for ensuring that the contractor 
complies with these requirements.
    (b) Americans with Disabilities Act (ADA). Loans and grants that 
involve the construction of or addition to facilities that accommodate 
the public and commercial facilities, as defined by the ADA, must 
comply with the ADA. The applicant and borrower are responsible for 
compliance.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, Title VI of the Civil 
Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. 
This may include collection and maintenance of data on the race, sex, 
and national origin on the recipient's membership/ownership and 
employees. These data should be available to conduct compliance reviews 
in accordance with 7 CFR part 1901, subpart E, Sec.  1901.204, 
Compliance Review. Initial reviews will be conducted after Form RD 400-
4, ``Assurance Agreement,'' is signed and all subsequent reviews every 
three years thereafter. The Agency should be contacted to provide 
further guidance on collection of information and compliance with Civil 
Rights laws.
    (d) Environmental analysis. Each applicant must prepare an 
environmental impact analysis using Form 1940-20, ``Request for 
Environmental Information,'' pursuant to Rural Development 
environmental regulations found at 7 CFR part 1940, subpart G. The 
applicant will contact the appropriate State Agency office located in 
the applicant's State for assistance in completing this form. A site 
visit by the Agency will be scheduled, if necessary, to determine the 
scope of the review. The applicant will be notified of all specific 
compliance requirements, such as the publication of public notices. Any 
required environmental review must be completed by the Agency prior to 
the Agency obligating any grant or loan funds. The taking of any 
actions or incurring any obligations during the time of application or 
application review and processing that would either limit the range of 
alternatives to be considered or that would have an adverse effect on 
the environment, such as the initiation of construction, will result in 
project ineligibility.
    (e) Executive Order 12898, Environmental Justice. When grant and 
loans are proposed, Rural Development employees are to conduct a Civil 
Rights Impact Analysis in regard to environmental justice. The CIRA 
must be conducted and the analysis documented utilizing Form RD 2006-
38, Civil Rights Impact Analysis Certification. This must be done prior 
to loan approval, obligation of funds, or other commitments of agency 
resources, including issuance of a Letter of Conditions or a 
Conditional Commitment (Form 4279-3) of guarantee, whichever occurs 
first.


Sec.  4280.115  Construction planning and performing development.

    The requirements of 7 CFR part 1924, except as identified in 
paragraph (a) of this section, apply for construction of renewable 
energy systems and energy efficiency improvement projects as 
applicable.
    (a) The following sections and paragraphs either do not apply to 
this subpart or are modified for the purposes of this subpart as 
described:
    (1) Under Sec.  1924.4,
    (i) For the purposes of this subpart, ``County Supervisor,'' 
``Assistant County Supervisor,'' ``District Director,'' and ``Assistant 
District Director'' means the Agency. Wherever those terms are used in 
7 CFR part 1924, subpart A, read ``the Agency.''
    (ii) The definition for ``manufactured housing'' does not apply; 
and
    (iii) The definition for ``modular/panelized housing'' does not 
apply;
    (2) Sec.  1924.5(c) does not apply;
    (3) Sec.  1924.5(d)(1)(i), (ii), and (vi) do not apply;
    (4) Sec.  1924.5(d)(2) does not apply;
    (5) Sec.  1924.5(d)(4)(i) and (iv) do not apply;
    (6) Sec.  1924.5(f)(1)(i), (ii), (iii)(A), (iii)(B), (iii)(D), and 
(iii)(F) do not apply;
    (7) Sec.  1924.5(f)(2) does not apply;
    (8) Sec.  1924.5(i) does not apply;
    (9) Sec.  1924.6(a)(1), (2), and (3) do not apply;
    (10) Sec.  1924.6(b) does not apply;
    (11) Sec.  1924.6(c) does not apply;
    (12) Sec.  1924.6(d) does not apply;
    (13) Sec.  1924.8 does not apply;
    (14) Sec.  1924.10(c)(1) does not apply;
    (15) Sec.  1924.12 does not apply;
    (16) Sec.  1924.13(c) does not apply;
    (17) Sec.  1924.13(e)(1) does not apply; and
    (18) Sec.  1924, Exhibits A through E and I through M do not apply.
    (b) Recipients of grants under this subpart are not authorized to 
construct the facility, project, or improvement in total, or in part, 
or utilize their own personnel and/or equipment.


Sec.  4280.116  Grantee requirements.

    (a) Letter of Conditions, which is prepared by the Agency, 
establishes conditions that must be understood and agreed to by the 
applicant before any obligation of funds can occur. The applicant must 
sign Letter of Intent to Meet Conditions and Form 1940-1, ``Request for 
Obligation of Funds,'' if they accept the conditions of the grant. 
These forms will be enclosed with the Letter of Conditions. The grant 
will be obligated when the Agency receives an executed Letter of Intent 
and Request for Obligation of Funds from the applicant agreeing to all 
provisions in the Letter of Conditions.
    (b) The grantee must sign and abide by all requirements contained 
in Form 4280-2, ``Grant Agreement,'' and this subpart.


Sec.  4280.117  Servicing grants.

    Grants will be serviced in accordance with 7 CFR part 1951, subpart 
E and the Grant Agreement.


Sec. Sec.  4280.118-4280.120  [Reserved]

Guaranteed Loans


Sec.  4280.121  Borrower eligibility.

    To receive a guaranteed loan under this subpart, a borrower must 
meet each of the criteria, as applicable, identified in Sec.  
4280.107(a) through (e).


Sec.  4280.122  Project eligibility.

    For a project to be eligible to receive a guaranteed loan under 
this subpart, the project must meet each of the criteria, as 
applicable, in Sec.  4280.108.


Sec.  4280.123  Guaranteed loan funding.

    (a) The amount of guaranteed loan funds that will be made available 
to an eligible project under this subpart will not exceed 50 percent of 
eligible project costs. Eligible project costs are only those costs 
associated with the items listed in paragraphs (a)(1) through (11) of 
this section, as long as the items are an integral and necessary part 
of the total project.
    (1) Post-application purchase and installation of equipment, except 
agricultural tillage equipment and vehicles;
    (2) Post-application construction or project improvements, except 
residential;
    (3) Energy audits or assessments;
    (4) Permit fees;
    (5) Professional service fees, except for application preparation;
    (6) Feasibility studies;
    (7) Business plans;
    (8) Retrofitting;
    (9) Construction of a new facility only when the facility is used 
for the same purpose, is approximately the same size, and, based on the 
energy audit, will provide more energy savings than

[[Page 59683]]

improving an existing facility. Only costs identified in the energy 
audit for energy efficiency projects are allowed;
    (10) Working capital; and
    (11) Land acquisition.
    (b) The minimum amount of a guaranteed loan made to a borrower is 
$2,500. The maximum amount of a guaranteed loan made to a borrower is 
$10 million.
    (c) The percentage of guarantee, up to the maximum allowed by this 
section, will be negotiated between the lender and the Agency. The 
maximum percentage of guarantee is 85 percent for loans of $600,000 or 
less; 80 percent for loans greater than $600,000 but up to $5 million; 
70 percent for loans greater than $5 million but up to $10 million.
    (d) The total amount of Agency loans under this program to one 
borrower, including the guaranteed and unguaranteed portions, the 
outstanding principal and interest balance of any existing Agency 
guaranteed loans, and new loan request, must not exceed $10 million.


Sec.  4280.124  Interest rates.

    (a) The interest rate for the guaranteed loan will be negotiated 
between the lender and the borrower and may be either fixed or variable 
as long as it is a legal rate. The variable rate will be based on 
published indices, such as money market indices. In no case, however, 
shall the rate be more than the rate customarily charged borrowers in 
similar circumstances in the ordinary course of business. The interest 
rate charged is subject to Agency review and approval.
    (b) A variable interest rate agreed to by the lender and borrower 
must be a rate that is tied to a base rate agreed to by the lender and 
the Agency. The variable interest rate may be adjusted at different 
intervals during the term of the loan, but the adjustments may not be 
more often than quarterly and must be specified in the Loan Agreement. 
The lender must incorporate, within the variable rate Promissory Note 
at loan closing, the provision for adjustment of payment installments 
coincident with an interest-rate adjustment. The lender must ensure 
that the outstanding principal balance is properly amortized within the 
prescribed loan maturity to eliminate the possibility of a balloon 
payment at the end of the loan.
    (c) Any change in the interest rate between the date of issuance of 
the Conditional Commitment and before the issuance of the Loan Note 
Guarantee must be approved in writing by the Agency approval official. 
Approval of such a change will be shown as an amendment to the 
Conditional Commitment.
    (d) A combination of fixed and variable rates will be allowed.


Sec.  4280.125  Terms of loan.

    (a) The maximum loan term limits will be utilized only when the 
loan cannot reasonably be repaid over a shorter term. The repayment 
term for a loan for:
    (1) Real estate must not exceed 30 years.
    (2) Machinery and equipment must not exceed 15 years, or the useful 
life, whichever is less.
    (3) Repayment for combined loans on real estate and equipment must 
occur before 20 years.
    (4) Working capital must not exceed 7 years.
    (b) The first installment of principal and interest will, if 
possible, be scheduled for payment after the project is operational and 
has begun to generate income.
    (c) Only loans that require a periodic payment schedule that will 
fully retire the debt over the term of the loan without a balloon 
payment will be guaranteed.
    (d) A loan's maturity will take into consideration the use of 
proceeds, the useful life of assets being financed, and the borrower's 
ability to repay the loan.
    (e) All loans guaranteed through this program must be sound, with 
reasonably assured repayment.


Sec.  4280.126  Guarantee/annual renewal fee percentages.

    (a) Fee ceilings. The maximum guarantee fee that may be charged is 
1 percent. The maximum annual renewal fee that may be charged is 0.5 
percent. The Agency will establish each year the guarantee fee and 
annual renewal fee and a notice will be published in the Federal 
Register.
    (b) Guarantee fee. The guarantee fee will be paid to the Agency by 
the lender and is nonrefundable. The guarantee fee may be passed on to 
the borrower. The guarantee fee must be paid at the time the Loan Note 
Guarantee is issued.
    (c) Annual renewal fee. The annual renewal fee will be calculated 
on the unpaid principal balance and billed to the lender in accordance 
with the Federal Register publication. The annual renewal fee may not 
be passed on to the borrower.


Sec.  4280.127  [Reserved]


Sec.  4280.128  Application and documentation.

    The following requirements apply to all guaranteed loan 
applications under this subpart.
    (a) Applications. Applications must be filed with the Agency by 
submitting the application information required in Sec.  4280.111(a) 
(except for Sec. Sec.  4280.111(a)(4)(iii)(A) and 4280.111(a)(4)(vi)).
    (b) Forms, certifications, and agreements. Each application 
submitted under paragraph (a) of this section must contain, as 
applicable, the items described in Sec.  4280.111(b)(7) through (15) 
and in paragraphs (b)(1) through (8) of this section.
    (1) A completed Form 4279-1, ``Application for Loan Guarantee.''
    (2) A personal credit report for the borrower, a proprietor 
(owner), each partner, officer, director, key employee, and stockholder 
owning 20 percent or more interest in the borrower's business from a 
credit reporting company acceptable to the Agency.
    (3) Appraisals completed in accordance with Sec.  4280.141. 
Completed appraisals should be submitted when the application is filed. 
If the appraisal has not been completed when the application is filed, 
the applicant must submit an estimated appraisal. In all cases, a 
completed appraisal must be submitted prior to the loan being closed.
    (4) Lender's complete comprehensive written analysis in accordance 
with Sec.  4280.139.
    (5) Commercial credit reports obtained by the lender on the 
borrower and any parent, affiliate, and subsidiary firms.
    (6) Current personal and corporate financial statements of any 
guarantors.
    (7) A proposed Loan Agreement or a sample Loan Agreement with an 
attached list of the proposed Loan Agreement provisions. The following 
requirements must be addressed in the proposed or sample Loan 
Agreement:
    (i) Prohibition against assuming liabilities or obligations of 
others.
    (ii) Restriction on dividend payments.
    (iii) Limitation on the purchase or sale of equipment and fixed 
assets.
    (iv) Limitation on compensation of officers and owners.
    (v) Minimum working capital or current ratio requirement.
    (vi) Maximum debt-to-net worth ratio.
    (vii) Restrictions concerning consolidations, mergers, or other 
circumstances.
    (viii) Limitations on selling the business without the concurrence 
of the lender.
    (ix) Repayment and amortization of the loan.
    (x) List of collateral and lien priority for the loan including a 
list of persons and corporations guaranteeing the loan with a schedule 
for providing the lender with personal and corporate financial

[[Page 59684]]

statements. Financial statements on the corporate and personal 
guarantors must be updated at least annually.
    (xi) Type and frequency of financial statements to be required for 
the duration of the loan.
    (xii) The final Loan Agreement between the lender and borrower must 
contain any additional requirements imposed by the Agency in its 
Conditional Commitment (Form 4279-3).
    (xiii) When submitting the proposed Loan Agreement, a section 
within the loan agreement reserved for the later insertion of any 
necessary measures by the borrower to avoid or reduce adverse 
environmental impacts from this proposal's construction or operation. 
Such measures, if necessary, will be determined by the Agency through 
the completion of the environmental review process.
    (xiv) Allow the Agency access to the project and its performance 
information during its useful life and permit periodic inspection of 
the project by a representative of the Agency.
    (8) A certification by the lender that it has completed a 
comprehensive written analysis of the proposal, the borrower is 
eligible, the loan is for authorized purposes, and there is reasonable 
assurance of repayment ability based on the borrower's history, 
projections and equity, and the collateral to be obtained.
    (c) Feasibility study for renewable energy systems. Each applicant 
must submit the information required under Sec.  4280.111(c), as 
applicable.
    (d) Technical requirements reports. Each applicant must submit the 
information required under Sec.  4280.111(d), as applicable.


Sec.  4280.129  Evaluation of guaranteed loan applications.

    (a) General review. The Agency will evaluate each application and 
make a determination whether the borrower is eligible, the proposed 
loan is for an eligible project, there is reasonable assurance of 
repayment ability, there is sufficient collateral and equity, and the 
proposed loan complies with all applicable statutes and regulations. If 
the Agency determines it is unable to guarantee the loan, the lender 
will be informed in writing. Such notification will include the reasons 
for denial of the guarantee.
    (b) Ineligible or incomplete applications. If either the borrower 
or the project is ineligible, the Agency will inform the lender in 
writing of the decision, reasons therefore, and any appeal rights, and 
no further evaluation of the application will occur. If the application 
is incomplete, the Agency will return it to the lender to provide the 
lender the opportunity to resubmit the application. The Agency will 
identify those parts of the application that are incomplete. Upon 
receipt of a complete application, the Agency will complete its 
evaluation of the application.
    (c) Evaluation criteria. Agency personnel will score each 
application based on the evaluation criteria specified in Sec.  
4280.112(d) (except for the criteria specified in Sec.  
4280.112(d)(1)(v) and (d)(2)(iii)) and in paragraphs (c)(1) and (2) of 
this section:
    (1) If the rate of the loan is below the Prime Rate (as published 
in The Wall Street Journal) plus 1.75 percent (5 points); and
    (2) If the rate of the loan is below the Prime Rate (as published 
in The Wall Street Journal) plus 1 percent (an additional 5 points).
    (d) Technical feasibility determination. The Agency's determination 
of a project's technical feasibility will be based on the information 
provided by the applicant and on other sources of information, such as 
recognized industry experts in the applicable technology field, as 
necessary, to determine technical feasibility of the proposed project.


Sec.  4280.130  Eligible lenders.

    An eligible lender is any Federal or State chartered bank, Farm 
Credit Bank, other Farm Credit System institution with direct lending 
authority, Bank for Cooperatives, or Savings and Loan Association. 
These entities must be subject to credit examination and supervision by 
either an agency of the United States or a State. Eligible lenders will 
also include credit unions, provided they are subject to credit 
examination and supervision by either the National Credit Union 
Administration or a State agency, and insurance companies, provided 
they are regulated by a State or National insurance regulatory agency. 
Eligible lenders include the National Rural Utilities Cooperative 
Finance Corporation.


Sec.  4280.131  Lenders' functions and responsibilities.

    (a) General. Lenders are responsible for implementing the 
guaranteed loan program under this subpart. All lenders requesting or 
obtaining a loan guarantee must perform the requirements specified in 
paragraphs (a)(1) through (9) in this section:
    (1) Process applications for guaranteed loans;
    (2) Develop and maintain adequately documented loan files;
    (3) Recommend only loan proposals that are eligible and financially 
feasible;
    (4) Obtain valid evidence of debt and collateral in accordance with 
sound lending practices;
    (5) Supervise construction;
    (6) Distribute loan funds; A lender that is considering advancing 
an interim loan is advised that the Agency assumes no responsibility or 
obligation to take out an interim loan advanced prior to the 
Conditional Commitment being issued;
    (7) Service guaranteed loans in a reasonable and prudent manner; 
including liquidation, if necessary;
    (8) Follow Agency regulations; and
    (9) Obtain Agency approvals or concurrence as required.
    (b) Credit evaluation. The lender must analyze all credit factors 
associated with each proposed loan and apply its professional judgment 
to determine that the credit factors, considered in combination, ensure 
loan repayment. The lender must have an adequate underwriting process 
to ensure that loans are reviewed by someone other than the originating 
officer. There must be good credit documentation procedures.
    (c) Environmental information. Lenders must ensure that borrowers 
furnish all environmental information required under 7 CFR part 1940, 
subpart G. Lenders have a responsibility to become familiar with 
Federal environmental requirements; to consider, in consultation with 
the prospective borrower, the potential environmental impacts of their 
proposals at the earliest planning stages; and to develop proposals 
that minimize the potential to adversely impact the environment. 
Lenders must alert the Agency to any controversial environmental issues 
related to a proposed project or items that may require extensive 
environmental review. Lenders must help the borrower prepare Form RD 
1940-20 (when required by 7 CFR part 1940, subpart G); assist in the 
collection of additional data when the Agency needs such data to 
complete its environmental review of the proposal; and assist in the 
resolution of environmental problems. Lenders must alert the Agency to 
any controversial environmental issues related to a proposed project or 
items that may require extensive environmental review.
    (d) Construction planning and performing development.
    (1) Design policy. The lender must ensure that all project 
facilities are designed utilizing accepted architectural and 
engineering practices

[[Page 59685]]

and must conform to applicable Federal, state, and local codes and 
requirements as well as all requirements of this regulation. The lender 
must also ensure that the project will be completed with available 
funds and, once completed, will be used for its intended purpose and 
produce products in the quality and quantity proposed in the completed 
application approved by the Agency.
    (2) Project control. The lender must monitor the progress of 
construction and undertake the reviews and inspections necessary to 
ensure that construction conforms with applicable Federal, state, and 
local code requirements; proceeds are used in accordance with the 
approved plans, specifications, and contract documents; and that funds 
are used for eligible project costs.
    (e) Loan closing. The lender must conduct loan closings.


Sec.  4280.132  Access to records.

    Both the lender and borrower must permit representatives of the 
Agency (or other agencies of the United States) to inspect and make 
copies of any records of the lender or borrower pertaining to the 
Agency guaranteed loans during regular office hours of the lender or 
borrower or at any other time upon agreement between the lender, the 
borrower, and the Agency, as appropriate.


Sec.  4280.133  Conditions of guarantee.

    A loan guarantee under this subpart will be evidenced by a Loan 
Note Guarantee issued by the Agency. Each lender must execute a 
Lender's Agreement (Form 4279-4). If a valid Lender's Agreement already 
exists, it is not necessary to execute a new Lender's Agreement with 
each loan guarantee. The provisions of this subpart apply to all 
outstanding guarantees. In the event of a conflict between the 
guarantee documents and this subpart as they exist at the time the 
documents are executed, this subpart will control.
    (a) Full faith and credit. A guarantee under this subpart 
constitutes an obligation supported by the full faith and credit of the 
United States and is incontestable except for fraud or 
misrepresentation of which a lender or holder has actual knowledge at 
the time it becomes such lender or holder or which a lender or holder 
participates in or condones. The guarantee will be unenforceable to the 
extent that any loss is occasioned by a provision for interest on 
interest. In addition, the guarantee will be unenforceable by the 
lender to the extent any loss is occasioned by the violation of usury 
laws, negligent servicing, or failure to obtain the required security 
regardless of the time at which the Agency acquires knowledge thereof. 
Any losses occasioned will be unenforceable to the extent that loan 
funds are used for purposes other than those specifically approved by 
the Agency in its Conditional Commitment. The Agency will guarantee 
payment as follows:
    (1) To any holder, 100 percent of any loss sustained by the holder 
on the guaranteed portion of the loan and on interest due on such 
portion.
    (2) To the lender, the lesser of:
    (i) Any loss sustained by the lender on the guaranteed portion, 
including principal and interest evidenced by the notes or assumption 
agreements and secured advances for protection and preservation of 
collateral made with the Agency's authorization; or
    (ii) The guaranteed principal advanced to or assumed by the 
borrower and any interest due thereon.
    (b) Rights and liabilities. When a guaranteed portion of a loan is 
sold to a holder, the holder will succeed to all rights of the lender 
under the Loan Note Guarantee to the extent of the portion purchased. 
The lender must remain bound to all obligations under the Loan Note 
Guarantee, Lender's Agreement, and the Agency program regulations. A 
guarantee and right to require purchase will be directly enforceable by 
a holder notwithstanding any fraud or misrepresentation by the lender 
or any unenforceability of the guarantee by the lender, except for 
fraud or misrepresentation of which the holder had actual knowledge at 
the time it became the holder or in which the holder participates or 
condones. In the event of material fraud, negligence or 
misrepresentation by the lender or the lender's participation in or 
condoning of such material fraud, negligence or misrepresentation, the 
lender will be liable for payments made by the Agency to any holder.
    (c) Payments. A lender will receive all payments of principal and 
interest on account of the entire loan and will promptly remit to the 
holder its pro rata share thereof, determined according to its 
respective interest in the loan, less only the lender's servicing fee.


Sec.  4280.134  Sale or assignment of guaranteed loan.

    (a) The lender may sell all or part of the guaranteed portion of 
the loan on the secondary market or retain the entire loan. The lender 
must not sell or assign any amount of the guaranteed or unguaranteed 
portion of the loan to the borrower or members of the borrower's 
immediate families, officers, directors, stockholders, other owners, or 
a parent, subsidiary or affiliate. If the lender desires to market all 
or part of the guaranteed portion of the loan at or subsequent to loan 
closing, such loan must not be in default. Loans made with the proceeds 
of any obligation, the interest on which is excludable from income 
under 26 U.S.C. Sec.  103 (interest on State and local banks) or any 
successor section, will not be guaranteed.
    (b) The entire loan must be evidenced by one note, and only one 
Loan Note Guarantee will be issued. The lender may assign all or part 
of the guaranteed portion of the loan to one or more holders only by 
using the Agency's Assignment Guarantee Agreement. The holder, upon 
written notice to the lender and the Agency, may reassign the unpaid 
guaranteed portion of the loan sold under the Assignment Guarantee 
Agreement. Upon notification and completion of the assignment, the 
assignee will succeed to all rights and obligations of the holder 
thereunder.
    (c) The lender's servicing fee will stop when the Agency purchases 
the guaranteed portion of the loan from the secondary market. No such 
servicing fee may be charged to the Agency and all loan payments and 
collateral proceeds received will be applied first to the guaranteed 
loan and, when applied to the guaranteed loan, will be applied on a pro 
rata basis.


Sec.  4280.135  Participation.

    The lender may obtain participation in the loan under its normal 
operating procedures; however, the lender must retain title to the note 
and retain its interest in the collateral.


Sec.  4280.136  Minimum retention.

    The lender must hold in its own portfolio a minimum of 5 percent of 
the total loan amount. The amount required to be maintained must be of 
the unguaranteed portion of the loan and cannot be participated to 
another. The lender may sell the remaining amount of the unguaranteed 
portion of the loan only through participation.


Sec.  4280.137  Repurchase from holder.

    (a) Repurchase by lender. A lender has the option to repurchase the 
unpaid guaranteed portion of the loan from a holder within 30 days of 
written demand by the holder when the borrower is in default not less 
than 60 days on principal or interest due on the loan; or the lender 
has failed to remit to the holder its pro rata share of any payment 
made by the borrower within 30 days of the lender's receipt thereof. 
The repurchase by the lender will be for an amount equal to the unpaid

[[Page 59686]]

guaranteed portion of principal and accrued interest less the lender's 
servicing fee. The holder must concurrently send a copy of the demand 
letter to the Agency. The guarantee will not cover the note interest to 
the holder on the guaranteed loan accruing after 90 days from the date 
of the demand letter to the lender requesting the repurchase. The 
lender will accept an assignment without recourse from the holder upon 
repurchase. The lender is encouraged to repurchase the loan to 
facilitate the accounting of funds, resolve the problem, and prevent 
default, where and when reasonable. The lender must notify, in writing, 
the holder and the Agency of its decision.
    (b) Agency repurchase.
    (1) If the lender does not repurchase the unpaid guaranteed portion 
of the loan as provided in paragraph (a) of this section, the Agency 
will purchase from the holder the unpaid principal balance of the 
guaranteed portion together with accrued interest to date of 
repurchase, less the lender's servicing fee, within 30 days after 
written demand to the Agency from the holder. (This is in addition to 
the copy of the written demand on the lender.) The guarantee will not 
cover the note interest to the holder on the guaranteed loan accruing 
after 90 days from the date of the original demand letter of the holder 
to the lender requesting the repurchase.
    (2) The holder's demand to the Agency must include a copy of the 
written demand made upon the lender. The holder must also include 
evidence of its right to require payment from the Agency. Such evidence 
must consist of either the original of the Loan Note Guarantee properly 
endorsed to the Agency or the original of the Assignment Guarantee 
Agreement properly assigned to the Agency without recourse including 
all rights, title, and interest in the loan. The holder must include in 
its demand the amount due including unpaid principal, unpaid interest 
to date of demand, and interest subsequently accruing from date of 
demand to proposed payment date. The Agency will be subrogated to all 
rights of the holder.
    (3) The Agency will notify, in writing, the lender of its receipt 
of the holder's demand for payment. The lender must promptly provide 
the Agency with the information necessary for the Agency to determine 
the appropriate amount due the holder. Upon request by the Agency, the 
lender will furnish a current statement certified by an appropriate, 
authorized officer of the lender of the unpaid principal and interest 
then owed by the borrower on the loan and the amount then owed to any 
holder. Any discrepancy between the amount claimed by the holder and 
the information submitted by the lender must be resolved between the 
lender and the holder before payment will be approved. Such conflict 
will suspend the running of the 30-day payment requirement.
    (4) Purchase by the Agency neither changes, alters, nor modifies 
any of the lender's obligations to the Agency arising from the loan or 
guarantee nor does it waive any of the Agency's rights against the 
lender. The Agency has the right to set-off against the lender all 
rights inuring to the Agency as the holder of the instrument against 
the Agency's obligation to the lender under the guarantee.
    (c) Repurchase for servicing. If, in the opinion of the lender, 
repurchase of the guaranteed portion of the loan is necessary to 
adequately service the loan, the holder must sell the guaranteed 
portion of the loan to the lender for an amount equal to the unpaid 
principal and interest on such portion less the lender's servicing fee. 
The guarantee will not cover the note interest to the holder on the 
guaranteed loan accruing after 90 days from the date of the demand 
letter of the lender or the Agency to the holder requesting the holder 
to tender its guaranteed portion. The lender must not repurchase from 
the holder for arbitrage or other purposes to further its own financial 
gain. Any repurchase must be made only after the lender obtains the 
Agency's written approval. If the lender does not repurchase the 
portion from the holder, the Agency may, at its option, purchase such 
guaranteed portion for servicing purposes.


Sec.  4280.138  Replacement of document.

    (a) The Agency may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement which was lost, stolen, destroyed, 
mutilated, or defaced to the lender or holder upon receipt of an 
acceptable certificate of loss and an indemnity bond.
    (b) When a Loan Note Guarantee or Assignment Guarantee Agreement is 
lost, stolen, destroyed, mutilated, or defaced while in the custody of 
the lender or holder, the lender must coordinate the activities of the 
party who seeks the replacement documents and will submit the required 
documents to the Agency for processing. The requirements for 
replacement are as follows:
    (1) A certificate of loss, notarized and containing a jurat, which 
includes:
    (i) Name and address of owner;
    (ii) Name and address of the lender of record;
    (iii) Capacity of person certifying;
    (iv) Full identification of the Loan Note Guarantee or Assignment 
Guarantee Agreement including the name of the borrower, the Agency's 
case number, date of the Loan Note Guarantee or Assignment Guarantee 
Agreement, face amount of the evidence of debt purchased, date of 
evidence of debt, present balance of the loan, percentage of guarantee, 
and, if an Assignment Guarantee Agreement, the original named holder 
and the percentage of the guaranteed portion of the loan assigned to 
that holder. Any existing parts of the document to be replaced must be 
attached to the certificate;
    (v) A full statement of circumstances of the loss, theft, 
mutilation, defacement, or destruction of the Loan Note Guarantee or 
Assignment Guarantee Agreement; and
    (vi) For the holder, evidence demonstrating current ownership of 
the Loan Note Guarantee and Note or the Assignment Guarantee Agreement. 
If the present holder is not the same as the original holder, a copy of 
the endorsement of each successive holder in the chain of transfer from 
the initial holder to present holder must be included if in existence. 
If copies of the endorsement cannot be obtained, best available records 
of transfer must be submitted to the Agency (e.g., order confirmation, 
canceled checks, etc.).
    (2) An indemnity bond acceptable to the Agency must accompany the 
request for replacement except when the holder is the United States, a 
Federal Reserve Bank, a Federal corporation, a State or territory, or 
the District of Columbia. The bond must be with surety except when the 
outstanding principal balance and accrued interest due the present 
holder is less than $1 million, verified by the lender in writing in a 
letter of certification of balance due. The surety must be a qualified 
surety company holding a certificate of authority from the Secretary of 
the Treasury and listed in Treasury Department Circular 570.
    (3) All indemnity bonds must be issued and payable to the United 
States of America acting through the USDA. The bond must be in an 
amount not less than the unpaid principal and interest. The bond must 
hold USDA harmless against any claim or demand which might arise or 
against any damage, loss, costs, or expenses which might be sustained 
or incurred by reasons of the loss or replacement of the instruments.

[[Page 59687]]

Sec.  4280.139  Credit quality.

    The lender must determine credit quality and must address all of 
the elements of credit quality in a written credit analysis including 
adequacy of equity, cash flow, collateral, history, management, and the 
current status of the industry for which credit is to be extended.
    (a) Cash flow. All efforts will be made to structure debt so that 
the business has adequate debt coverage and the ability to accommodate 
expansion.
    (b) Collateral. Collateral must have documented value sufficient to 
protect the interest of the lender and the Agency and the discounted 
collateral value will normally be at least equal to the loan amount. 
Lenders will discount collateral consistent with sound loan-to-value 
policy.
    (c) Equity. In determining the adequacy of equity, the lender must 
meet the criteria specified in paragraph (c)(1) of this section for 
loans over $600,000 and the criteria in paragraph (c)(2) of this 
section for loans of $600,000 or less.
    (1) For loans over $600,000, borrowers shall demonstrate evidence 
of cash equity injection in the project of not less than 25 percent of 
eligible project costs. The fair market value of equity in real 
property that is to be pledged as collateral for the loan may be 
substituted in whole or in part to meet the cash equity requirement. 
However, the appraisal completed to establish the fair market value of 
the real property must not be more than one year old and must meet the 
Agency appraisal standards.
    (2) For loans of $600,000 or less, borrowers shall demonstrate 
evidence of cash equity injection in the project of not less than 15 
percent of eligible project costs. However, the appraisal completed to 
establish the fair market value of the real property must not be more 
than one year old and must meet the Agency appraisal standards.
    (d) Lien priorities. The entire loan must be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. The unguaranteed portion of the loan will neither 
be paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior position may be considered by the Agency 
provided discounted collateral values are adequate to secure the loan 
in accordance with paragraph (b) of this section after considering 
prior liens.


Sec.  4280.140  Financial statements.

    (a) Except for the requirement to demonstrate financial need for 
the funding, the financial information required in Sec.  
4280.111(a)(4)(iii) is required for the guaranteed loan program.
    (b) If the proposed guaranteed loan exceeds $3 million, the Agency 
will require annual audited financial statements.


Sec.  4280.141  Appraisals.

    (a) Loans of $600,000 or more. A complete self-contained appraisal 
must be conducted. Lenders will be responsible for ensuring that 
appraisal values adequately reflect the actual value of the collateral. 
All real property appraisals associated with Agency guaranteed 
loanmaking and servicing transactions must meet the requirements 
contained in the Financial Institutions Reform, Recovery and 
Enforcement Act (FIRREA) of 1989 and the appropriate guidelines 
contained in Standards 1 and 2 of the Uniform Standards of Professional 
Appraisal Practices (USPAP). All appraisals will include consideration 
of the potential effects from a release of hazardous substances or 
petroleum products or other environmental hazards on the market value 
of the collateral. Lenders must complete at least a Transaction Screen 
Questionnaire environmental site assessment for any new sites and a 
Phase I environmental site assessment on existing business sites, which 
should be provided to the appraiser for completion of the self-
contained appraisal. Chattels will be evaluated in accordance with 
normal banking practices and generally accepted methods of determining 
value.
    (b) Loans for less than $600,000. A complete summary appraisal may 
be conducted in lieu of a complete self-contained appraisal as required 
under paragraph (a) of this section. Summary appraisals must be 
conducted in accordance with USPAP.
    (c) Specialized appraisers. Specialized appraisers will be required 
to complete appraisals in accordance with paragraphs (a) and (b) of 
this section. The Agency may approve a waiver of this requirement only 
if a specialized appraiser does not exist in a specific industry or 
hiring one would cause an undue financial burden to the borrower.


Sec.  4280.142  Personal and corporate guarantees.

    (a) Personal and corporate guarantees, when obtained, are part of 
the collateral for the loan. However, the value of such guarantee is 
not considered in determining whether a loan is adequately secured for 
loanmaking purposes.
    (b) Unconditional personal and corporate guarantees for those 
owning or having a beneficial interest greater than 20 percent of the 
borrower will be required where legally permissible.


Sec.  4280.143  Loan approval and obligation of funds.

    (a) Upon approval of a loan guarantee, the Agency will issue a 
Conditional Commitment to the lender containing conditions under which 
a Loan Note Guarantee will be issued
    (b) If certain conditions of the Conditional Commitment cannot be 
met, the lender and/or borrower may propose alternate conditions. 
Within the requirements of the applicable regulations and instructions 
and reasonable and prudent lending practices, the Agency may negotiate 
with the lender and/or borrower regarding any proposed changes to the 
Conditional Commitment.


Sec.  4280.144  Transfer of lenders.

    (a) The Agency may approve the substitution of a new eligible 
lender in place of a former lender who holds an outstanding Conditional 
Commitment when the Loan Note Guarantee has not yet been issued 
provided, that there are no changes in the borrower's ownership or 
control, loan purposes, or scope of project, and loan conditions in the 
Conditional Commitment and the Loan Agreement remain the same.
    (b) The new lender's servicing capability, eligibility, and 
experience will be analyzed by the Agency prior to approval of the 
substitution. The original lender will provide the Agency with a letter 
stating the reasons it no longer desires to be a lender for the 
project. The substituted lender must execute a new part B of Form 4279-
1, ``Application for Loan Guarantee.''


Sec.  4280.145  Changes in borrower.

    Any changes in borrower ownership or organization prior to the 
issuance of the Loan Note Guarantee must meet the eligibility 
requirements of the program and be approved by the Agency loan approval 
official.


Sec.  4280.146  Conditions precedent to issuance of Loan Note 
Guarantee.

    The Loan Note Guarantee will not be issued until the lender 
certifies to the following:
    (a) No major changes have been made in the lender's loan conditions 
and requirements since the issuance of the Conditional Commitment, 
unless such changes have been approved by the Agency.
    (b) All planned property acquisition has been completed, all 
development has been completed in accordance with

[[Page 59688]]

plans and specifications, conforms with applicable Federal, state, and 
local codes, performed at a steady state operating level in accordance 
with the technical requirements, and costs have not exceeded the amount 
approved by the lender and the Agency.
    (c) Hazard, flood, liability, worker compensation, and personal 
life insurance, when required, are in effect.
    (d) Truth-in-lending requirements have been met.
    (e) All equal credit opportunity requirements have been met.
    (f) The loan has been properly closed, and the required security 
instruments have been obtained.
    (g) The borrower has marketable title to the collateral then owned 
by the borrower, subject to the instrument securing the loan to be 
guaranteed and to any other exceptions approved in writing by the 
Agency.
    (h) When required, the entire amount of the loan for working 
capital has been disbursed except in cases where the Agency has 
approved disbursement over an extended period of time.
    (i) When required, personal, partnership, or corporate guarantees 
have been obtained.
    (j) All other requirements of the Conditional Commitment have been 
met.
    (k) Lien priorities are consistent with the requirements of the 
Conditional Commitment. No claims or liens of laborers, subcontractors, 
suppliers of machinery and equipment, or other parties have been or 
will be filed against the collateral, and no suits are pending or 
threatened that would adversely affect the collateral when the security 
instruments are filed.
    (l) The loan proceeds have been or will be disbursed for purposes 
and in amounts consistent with the Conditional Commitment and the 
Application for Loan Guarantee (Form 4279-1). A copy of the detailed 
loan settlement of the lender must be attached to support this 
certification.
    (m) There has been neither any material adverse change in the 
borrower's financial condition nor any other material adverse change in 
the borrower, for any reason, during the period of time from the 
Agency's issuance of the Conditional Commitment to issuance of the Loan 
Note Guarantee, regardless of the cause or causes of the change and 
whether or not the change or causes of the change were within the 
lender's or borrower's control. The lender must address any assumptions 
or reservations in the requirement and must address all adverse changes 
of the borrower, any parent, affiliate, or subsidiary of the borrower, 
and guarantors.
    (n) None of the lender's officers, directors, stockholders, or 
other owners (except stockholders in an institution that has normal 
stockshare requirements for participation) has a substantial financial 
interest in the borrower and neither the borrower nor its officers, 
directors, stockholders, or other owners has a substantial financial 
interest in the lender. If the borrower is a member of the board of 
directors or an officer of a Farm Credit System (FCS) institution that 
is the lender, the lender will certify that an FCS institution on the 
next highest level will independently process the loan request and act 
as the lender's agent in servicing the account.
    (o) The Loan Agreement includes all measures identified in the 
Agency's environmental impact analysis for this proposal (measures with 
which the borrower must comply) for the purpose of avoiding or reducing 
adverse environmental impacts of the proposal's construction or 
operation.


Sec.  4280.147  Issuance of the guarantee.

    (a) When loan closing plans are established, the lender must notify 
the Agency in writing. At the same time, or immediately after loan 
closing, the lender must provide the following to the Agency:
    (1) Lender's certifications as required by Sec.  4280.146,
    (2) Executed Form 4279-4, ``Lender's Agreement,'' and
    (3) Executed Form RD 1980-19, ``Guaranteed Loan Closing Report'' 
and appropriate guarantee fee.
    (b) When the Agency is satisfied that all conditions for the 
guarantee have been met, the Loan Note Guarantee and the following 
documents, as appropriate, will be issued:
    (1) Assignment Guarantee Agreement. If the lender assigns the 
guaranteed portion of the loan to a holder, the lender, holder, and the 
Agency must execute the Assignment Guarantee Agreement;
    (2) Certificate of Incumbency. If requested by the lender, the 
Agency will provide the lender with a copy of Form 4279-7, 
``Certificate of Incumbency and Signature,'' with the signature and 
title of the Agency official who signs the Loan Note Guarantee, 
Lender's Agreement, and Assignment Guarantee Agreement;
    (3) Copies of legal loan documents; and
    (4) Disbursement plan if working capital is a purpose of the 
project.


Sec.  4280.148  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, the Agency will promptly inform the lender of the reasons 
and give the lender a reasonable period within which to satisfy the 
objections. If the lender requests additional time in writing and 
within the period allowed, the Agency may grant the request. If the 
lender satisfies the objections within the time allowed, the guarantee 
will be issued.


Sec.  4280.149  Requirements after project construction.

    Once the project has been constructed, the lender must provide the 
Agency periodic reports from the borrower. The borrower's reports will 
include, but not be limited to, the information specified in paragraphs 
(a) and (b) of this section, as applicable.
    (a) For renewable energy systems, commencing the first full 
calendar year following the year in which project construction was 
completed and continuing for 3 full years, provide a report detailing 
the following will be provided:
    (1) Report the actual amount of energy produced in BTUs, kilowatts, 
or similar energy equivalents.
    (2) If applicable, provide documentation that identified health 
and/or sanitation problem has been solved.
    (3) Provide the annual income and/or energy savings of the 
renewable energy system.
    (4) Summarize the cost of operating and maintaining the facility.
    (5) Description of any maintenance or operational problems 
associated with the facility.
    (6) Recommendations for development of future similar projects.
    (b) For energy efficiency improvement projects, commencing the 
first full calendar year following the year in which project 
construction was completed and continuing for 2 full years, report the 
actual amount of energy saved due to the energy efficiency 
improvements.


Sec.  4280.150  Insurance requirements.

    (a) Each borrower must obtain the insurance required in Sec.  
4280.113(a) through (c) and in paragraphs (b) and (c) in this section. 
The coverage required by this section must be maintained for the life 
of the loan unless this requirement is waived or modified by the Agency 
in writing.
    (b) Hazard insurance with a standard mortgage clause naming the 
lender as beneficiary will be required on every

[[Page 59689]]

loan in an amount that is at least the lesser of the depreciated 
replacement value of the collateral or the amount of the loan. Hazard 
insurance includes fire, windstorm, lightning, hail, explosion, riot, 
civil commotion, aircraft, vehicle, marine, smoke, builder's risk 
during construction by the business, and property damage.
    (c) The lender may require life insurance on every loan to insure 
against the risk of death of persons critical to the success of the 
business. When required, coverage will be in amounts necessary to 
provide for management succession or to protect the business. The cost 
of insurance and its effect on the borrower's working capital must be 
considered as well as the amount of existing insurance which could be 
assigned without requiring additional expense.


Sec.  4280.151  Laws that contain other compliance requirements.

    (a) Each applicant and borrower must comply with the requirements 
specified in Sec.  4280.114(a), (b), and (d), as applicable, and with 
paragraph (b) of this section.
    (b) Equal Credit Opportunity Act. In accordance with the Equal 
Credit Opportunity Act (Title V of Pub. L. 90-321, as amended), with 
respect to any aspect of a credit transaction, neither the lender nor 
the Agency will discriminate against any borrower on the basis of race, 
color, religion, national origin, sex, marital status or age (providing 
the borrower has the capacity to contract), or because all or part of 
the borrower's income derives from a public assistance program, or 
because the borrower has, in good faith, exercised any right under the 
Consumer Protection Act. The lender will comply with the requirements 
of the Equal Credit Opportunity Act as contained in the Federal Reserve 
Board's Regulation implementing that Act (see 12 CFR part 202). Such 
compliance will be accomplished prior to loan closing.


Sec.  4280.152  Servicing guaranteed loans.

    The lender must service the entire loan and must remain mortgagee 
and secured party of record notwithstanding the fact that another party 
may hold a portion of the loan. The entire loan must be secured by the 
same security with equal lien priority for the guaranteed and 
unguaranteed portions of the loan. The unguaranteed portion of a loan 
will neither be paid first nor given any preference or priority over 
the guaranteed portion of the loan.
    (a) Servicing. The lender is responsible for servicing the entire 
loan and for taking all servicing actions that a reasonable, prudent 
lender would perform in servicing its own portfolio of loans that are 
not guaranteed. The Loan Note Guarantee is unenforceable by the lender 
to the extent any loss is occasioned by violation of usury laws, use of 
loan funds for unauthorized purposes, negligent servicing, or failure 
to obtain the required security interest regardless of the time at 
which the Agency acquires knowledge of the foregoing. This 
responsibility includes but is not limited to the collection of 
payments, obtaining compliance with the covenants and provisions in the 
Loan Agreement, obtaining and analyzing financial statements, checking 
on payment of taxes and insurance premiums, and maintaining liens on 
collateral.
    (1) Lender reports. The lender must report the outstanding 
principal and interest balance on each guaranteed loan semiannually 
using Form RD 1980-41, ``Guaranteed Loan Status Report.''
    (2) Loan classification. Within 90 days of receipt of the Loan Note 
Guarantee, the lender must notify the Agency, in writing, of the loan's 
classification or rating under its regulatory standards. Should the 
classification be changed at a future time, the lender must notify, in 
writing, the Agency immediately.
    (3) Agency and lender conference. At the Agency's request, the 
lender must meet with the Agency to ascertain how the guaranteed loan 
is being serviced and that the conditions and covenants of the Loan 
Agreement are being enforced.
    (4) Financial reports. The lender must obtain and forward to the 
Agency the financial statements required by the Loan Agreement. The 
lender must submit annual financial statements to the Agency within 120 
days of the end of the borrower's fiscal year. The lender must analyze 
the financial statements and provide the Agency with a written summary 
of the lender's analysis and conclusions, including trends, strengths, 
weaknesses, extraordinary transactions, and other indications of the 
financial condition of the borrower. Spreadsheets of the new financial 
statements must also be included.
    (5) Additional expenditures. The lender must not make additional 
loans to the borrower without first obtaining the prior written 
approval of the Agency, even though such loans will not be guaranteed.
    (b) Interest rate adjustments. The lender must use the procedures 
described in paragraphs (b)(1) and (2) of this section when adjusting 
the interest rate on a guaranteed loan.
    (1) Reductions. The borrower, lender, and holder (if any) may 
collectively initiate a permanent or temporary reduction in the 
interest rate of the guaranteed loan at any time during the life of the 
loan upon written agreement among these parties. The lender must notify 
the Agency, in writing, within 10 calendar days of the change. If any 
of the guaranteed portion has been purchased by the Agency, then the 
Agency will affirm or reject interest rate change proposals in writing. 
The Agency will concur in such interest-rate changes only when it is 
demonstrated to the Agency that the change is a more viable alternative 
than initiating or proceeding with liquidation of the loan or 
continuing with the loan in its present state.
    (i) Fixed rates can be changed to variable rates to reduce the 
borrower's interest rate only when the variable rate has a ceiling 
which is less than or equal to the original fixed rate.
    (ii) Variable rates can be changed to a fixed rate which is at or 
below the current variable rate.
    (iii) The interest rates, after adjustments, must comply with the 
requirements for interest rates on new loans as established by Sec.  
4280.124.
    (iv) The lender is responsible for the legal documentation of 
interest-rate changes by an endorsement or any other legally effective 
amendment to the promissory note; however, no new notes may be issued. 
Copies of all legal documents must be provided to the Agency.
    (2) Increases. No increases in interest rates will be permitted 
except the normal fluctuations in approved variable interest rates 
unless a temporary interest-rate reduction occurred.
    (c) Release of collateral. The lender must use the procedures 
described in paragraphs (c)(1) through (3) of this section in order to 
release collateral associated with the guaranteed loan.
    (1) All releases of collateral with a value exceeding $100,000 must 
be supported by a current appraisal on the collateral released. The 
appraisal will be at the expense of the borrower and must meet the 
requirements of Sec.  4280.141. The remaining collateral must be 
sufficient to provide for repayment of the Agency's guaranteed loan. 
The Agency may, at its discretion, require an appraisal of the 
remaining collateral in cases where it is determined that the Agency 
may be adversely affected by the release of collateral. Sale or release 
of collateral must be based on an arm's-length transaction and adequate 
consideration.

[[Page 59690]]

    (2) Within the parameters of paragraph (c)(1) of this section, 
lenders may, over the life of the loan, release collateral (other than 
personal and corporate guarantees) with a cumulative value of up to 20 
percent of the original loan amount without Agency concurrence, if the 
proceeds generated are used to reduce the guaranteed loan or to buy 
replacement collateral or buy real estate equal to or greater than the 
collateral being replaced.
    (3) Within the parameters of paragraph (c)(1) of this section, 
release of collateral with a cumulative value in excess of 20 percent 
of the original loan or when the proceeds will not be used to reduce 
the guaranteed loan or to buy replacement collateral must be requested 
in writing by the lender and concurred in by the Agency in writing in 
advance of the release. A written evaluation will be completed by the 
lender to justify the release.
    (d) Subordination of lien position. A subordination of the lender's 
lien position must be requested in writing by the lender and concurred 
by the Agency in writing in advance of the subordination. The Agency 
will only consider a parity or junior lien position. After the 
subordination, collateral must be adequate to secure the loan. The lien 
to which the guaranteed loan is subordinated must be for a fixed dollar 
limit. The subordination must be for a fixed period of time, after 
which the guaranteed loan lien priority will be restored. Subordination 
to a revolving line of credit will not exceed 1 year. There must be 
adequate consideration for the subordination.
    (e) Alterations of loan instruments. The lender must not alter or 
approve any alterations of any loan instrument without the prior 
written approval of the Agency.
    (f) Loan transfer and assumption. When a loan is transferred and 
assumed, the procedures described in paragraphs (f)(1) through (11) of 
this section must be followed.
    (1) Documentation of request. All transfers and assumptions must be 
approved in writing by the Agency and must be to eligible borrowers in 
accordance with Sec.  4280.121. An individual credit report must be 
provided for transferee proprietors, partners, officers, directors, and 
stockholders with 20 percent or more interest in the business, along 
with such other documentation as the Agency may request to determine 
eligibility.
    (2) Terms. Loan terms must not be changed unless the change is 
approved in writing by the Agency with the concurrence of any holder 
and the transferor (including guarantors) if they have not been or will 
not be released from liability. Any new loan terms must be within the 
terms authorized by Sec.  4280.125. The lender's request for approval 
of new loan terms will be supported by an explanation of the reasons 
for the proposed change in loan terms.
    (3) Release of liability. The transferor, including any guarantor, 
may be released from liability only with prior Agency written 
concurrence and only when the value of the collateral being transferred 
is at least equal to the amount of the loan being assumed and is 
supported by a current appraisal and a current financial statement. The 
Agency will not pay for the appraisal. If the transfer is for less than 
the debt, the lender must demonstrate to the Agency that the transferor 
and guarantors have no reasonable debt-paying ability considering their 
assets and income in the foreseeable future.
    (4) Proceeds. Any proceeds received from the sale of collateral 
before a transfer and assumption will be credited to the transferor's 
guaranteed loan debt in inverse order of maturity before the transfer 
and assumption are closed.
    (5) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered as a new 
loan application under Sec.  4280.128.
    (6) Credit quality. The lender must make a complete credit analysis 
which is subject to Agency review and approval.
    (7) Documents. Prior to Agency approval, the lender must advise the 
Agency, in writing, that the transaction can be properly and legally 
transferred, and the conveyance instruments will be filed, registered, 
or recorded as appropriate.
    (i) The assumption will be done on the lender's assumption 
agreement and will contain the Agency case number of the transferor and 
transferee. The lender must provide the Agency with a copy of the 
transfer and assumption agreement. The lender must ensure that the 
transfer and assumption is noted on the original Loan Note Guarantee.
    (ii) A new Loan Agreement, consistent in principle with the 
original Loan Agreement, must be executed to establish the terms and 
conditions of the loan being assumed. An assumption agreement can be 
used to establish the loan covenants.
    (iii) The lender must provide to the Agency a written certification 
that the transfer and assumption is valid, enforceable, and complies 
with all Agency regulations.
    (8) Loss resulting from transfer. If a loss should occur upon 
consummation of a complete transfer and assumption for less than the 
full amount of the debt and the transferor (including personal 
guarantors) is released from liability, the lender, if it holds the 
guaranteed portion, may file an estimated report of loss, using Form RD 
449-30, ``Loan Note Guaranteed Loss Report,'' to recover its pro rata 
share of the actual loss. If a holder owns any of the guaranteed 
portion, such portion must be repurchased by the lender or the Agency 
in accordance with Sec.  4280.137(c). In completing the report of loss, 
the amount of the debt assumed will be entered as net collateral 
(recovery). Approved protective advances and accrued interest thereon 
made during the arrangement of a transfer and assumption must be 
included in the calculations.
    (9) Related party. If the transferor and transferee are affiliated 
or related parties, any transfer and assumption must be for the full 
amount of the debt.
    (10) Payment requests. Requests for a loan guarantee to provide 
equity for a transfer and assumption must be considered as a new loan 
under this subpart.
    (11) Cash down payment. When the transferee will be making a cash 
down payment as part of the transfer and assumption:
    (i) The lender must have an appropriate appraiser, acceptable to 
both the transferee and transferor and currently authorized to perform 
appraisals to determine the value of the collateral securing the loan. 
The Agency will not pay the appraisal fee or any other costs.
    (ii) The market value of the collateral, plus any additional 
property the transferee proposes to offer as collateral, must be 
adequate to secure the balance of the guaranteed loans.
    (iii) Cash down payments may be paid directly to the transferor 
provided:
    (A) The lender recommends that the cash be released, and the Agency 
concurs prior to the transaction being completed. The lender may wish 
to require that an amount be retained for a defined period of time as a 
reserve against future defaults. Interest on such account may be paid 
periodically to the transferor or transferee as agreed;
    (B) The lender determines that the transferee has the repayment 
ability to meet the obligations of the assumed guaranteed loan as well 
as any other indebtedness;
    (C) Any payments by the transferee to the transferor will not 
suspend the transferee's obligations to continue to meet the guaranteed 
loan payments as they come due under the terms of the assumption; and

[[Page 59691]]

    (D) The transferor agrees not to take any action against the 
transferee in connection with the assumption without prior written 
approval of the lender and the Agency.


Sec.  4280.153  Substitution of lender.

    After the issuance of a Loan Note Guarantee, the lender must not 
sell or transfer the entire loan without the prior written approval of 
the Agency. The Agency will not pay any loss or share in any costs 
(i.e., appraisal fees, environmental studies, or other costs associated 
with servicing or liquidating the loan) with a new lender unless a 
relationship is established through a substitution of lender in 
accordance with paragraph (a) of this section. This includes cases 
where the lender has failed and been taken over by a regulatory agency 
such as the Federal Deposit Insurance Corporation (FDIC) and the loan 
is subsequently sold to another lender.
    (a) The Agency may approve the substitution of a new lender if:
    (1) The proposed substitute lender:
    (i) Is an eligible lender in accordance with Sec.  4280.130;
    (ii) Is able to service the loan in accordance with the original 
loan documents; and
    (iii) Agrees in writing to acquire and must acquire title to the 
unguaranteed portion of the loan held by the original lender and 
assumes all original loan requirements, including liabilities and 
servicing responsibilities.
    (2) The substitution of the lender is requested in writing by the 
borrower, the proposed substitute lender, and the original lender if 
still in existence.
    (b) Where the lender has failed and been taken over by FDIC and the 
guaranteed loan is liquidated by FDIC rather than being sold to another 
lender, the Agency will pay losses and share in costs as if FDIC were 
an approved substitute lender.


Sec.  4280.154  Default by borrower.

    (a) The lender must notify the Agency, in writing, when a borrower 
is 30 days past due on a payment or is otherwise in default of the Loan 
Agreement. Form RD 1980-44, ``Guaranteed Loan Borrower Default Status'' 
must be used and the lender must continue to submit this form bi-
monthly until such time as the loan is no longer in default. If a 
monetary default exceeds 60 days, the lender must arrange a meeting 
with the Agency and the borrower to resolve the problem.
    (b) In considering options, the prospects for providing a permanent 
cure without adversely affecting the risk to the Agency and the lender 
is the paramount objective.
    (1) Curative actions include but are not limited to:
    (i) Deferment of principal (subject to rights of any holder);
    (ii) An additional unguaranteed temporary loan by the lender to 
bring the account current;
    (iii) Reamortization of or rescheduling the payments on the loan 
(subject to rights of any holder);
    (iv) Transfer and assumption of the loan in accordance with Sec.  
4280.152(f);
    (v) Reorganization;
    (vi) Liquidation;
    (vii) Subsequent loan guarantees; and
    (viii) Changes in interest rates with the Agency's, the lender's, 
and the holder's approval, provided that the interest rate is adjusted 
proportionately between the guaranteed and unguaranteed portion of the 
loan and the type of rate remains the same.
    (2) In the event a deferment, rescheduling, reamortization, or 
moratorium is accomplished, it will be limited to the remaining life of 
the collateral or loan terms, whichever is less.


Sec.  4280.155  Protective advances.

    Protective advances are advances made by the lender for the purpose 
of preserving and protecting the collateral where the debtor has failed 
to, will not, or cannot meet its obligations. Sound judgment must be 
exercised in determining that the protective advance preserves 
collateral and recovery is actually enhanced by making the advance. 
Protective advances will not be made in lieu of additional loans.
    (a) The maximum loss to be paid by the Agency will never exceed the 
original principal plus accrued interest regardless of any protective 
advances made.
    (b) Protective advances and interest thereon at the note rate will 
be guaranteed at the same percentage of loss as provided in the Loan 
Note Guarantee.
    (c) Protective advances must constitute an indebtedness of the 
borrower to the lender and be secured by the security instruments. 
Agency written authorization is required when cumulative protective 
advances exceed $5,000.


Sec.  4280.156  Liquidation.

    In the event of one or more incidents of default or third party 
actions that the borrower cannot or will not cure or eliminate within a 
reasonable period of time, liquidation of the loan may be considered by 
the lender. If the lender concludes that liquidation is necessary, it 
must request the Agency's concurrence. The lender will liquidate the 
loan unless the Agency, at its option, carries out liquidation. When 
the decision to liquidate is made, if the loan has not already been 
repurchased, provisions will be made for repurchase in accordance with 
Sec.  4280.137.
    (a) Decision to liquidate. A decision to liquidate must be made 
when it is determined that the default cannot be cured through actions 
contained in Sec.  4280.154 or it has been determined that it is in the 
best interest of the Agency and the lender to liquidate. The decision 
to liquidate or continue with the borrower must be made as soon as 
possible when any of the following exist:
    (1) A loan has been delinquent 90 days and the lender and borrower 
have not been able to cure the delinquency through one of the actions 
contained in Sec.  4280.154;
    (2) It has been determined that delaying liquidation will 
jeopardize full recovery on the loan; and
    (3) The borrower or lender has been uncooperative in resolving the 
problem and the Agency or the lender has reason to believe the borrower 
is not acting in good faith, and it would enhance the position of the 
guarantee to liquidate immediately.
    (b) Liquidation by the Agency. The Agency may require the lender to 
assign the security instruments to the Agency if the Agency, at its 
option, decides to liquidate the loan. When the Agency liquidates, 
reasonable liquidation expenses will be assessed against the proceeds 
derived from the sale of the collateral.
    (c) Submission of liquidation plan. The lender must, within 30 days 
after a decision to liquidate, submit to the Agency in writing its 
proposed detailed method of liquidation. Upon approval by the Agency of 
the liquidation plan, the lender will commence liquidation.
    (d) Lender's liquidation plan. The liquidation plan must include, 
but is not limited to, the following:
    (1) Such proof as the Agency requires to establish the lender's 
ownership of the guaranteed loan promissory note and related security 
instruments and a copy of the payment ledger, if available, which 
reflects the current loan balance and accrued interest to date and the 
method of computing the interest;
    (2) A full and complete list of all collateral including any 
personal and corporate guarantees;
    (3) The recommended liquidation methods for making the maximum 
collection possible on the indebtedness and the justification for such 
methods, including recommended action:

[[Page 59692]]

    (i) For acquiring and disposing of all collateral; and
    (ii) To collect from guarantors;
    (4) Necessary steps for preservation of the collateral;
    (5) Copies of the borrower's latest available financial statements;
    (6) Copies of the guarantor's latest available financial 
statements;
    (7) An itemized list of estimated liquidation expenses expected to 
be incurred along with justification for each expense;
    (8) A schedule to periodically report to the Agency on the progress 
of liquidation;
    (9) Estimated protective advance amounts with justification;
    (10) Proposed protective bid amounts on collateral to be sold at 
auction and a breakdown to show how the amounts were determined;
    (11) A voluntary conveyance, if one is considered, including the 
proposed amount to be credited to the guaranteed debt;
    (12) Legal opinions, if needed; and
    (13) If the outstanding balance of principal and accrued interest 
is less than $100,000, the lender will obtain an estimate of fair 
market and potential liquidation value of the collateral. If the 
outstanding balance of principal and accrued interest is $100,000 or 
more, the lender will obtain an independent appraisal report meeting 
the requirements of Sec.  4280.141 on all collateral securing the loan 
that will reflect the fair market value and potential liquidation 
value. In order to formulate a liquidation plan which maximizes 
recovery, collateral must be evaluated for the release of hazardous 
substances, petroleum products, or other environmental hazards which 
may adversely impact the market value of the collateral. Both the 
estimate and the appraisal must consider this aspect. The independent 
appraiser's fee, including the cost of the environmental site 
assessment, will be shared equally by the Agency and the lender.
    (e) Approval of liquidation plan. The Agency will inform the lender 
in writing whether it concurs in the lender's liquidation plan. Should 
the Agency and the lender not agree on the liquidation plan, 
negotiations will take place between the Agency and the lender to 
resolve the disagreement. When the liquidation plan is approved by the 
Agency, the lender must proceed expeditiously with liquidation.
    (1) A transfer and assumption of the borrower's operation can be 
accomplished before or after the loan goes into liquidation. However, 
if the collateral has been purchased through foreclosure or the 
borrower has conveyed title to the lender, no transfer and assumption 
is permitted.
    (2) A protective bid may be made by the lender, with prior Agency 
written approval, at a foreclosure sale to protect the lender's and the 
Agency's interest. The protective bid must not exceed the amount of the 
loan, including expenses of foreclosure, and should be based on the 
liquidation value considering estimated expenses for holding and 
reselling the property. These expenses include, but are not limited to, 
expenses for resale, interest accrual, length of time necessary for 
resale, maintenance, guard service, weatherization, and prior liens.
    (f) Acceleration. The lender, or the Agency if it liquidates, will 
proceed to accelerate the indebtedness as expeditiously as possible 
when acceleration is necessary including giving any notices and taking 
any other legal actions required. A copy of the acceleration notice or 
other acceleration document will be sent to the Agency (or lender if 
the Agency liquidates). The guaranteed loan will be considered in 
liquidation once the loan has been accelerated and a demand for payment 
has been made upon the borrower.
    (g) Filing an estimated loss claim. When the lender is conducting 
the liquidation and owns any or all of the guaranteed portion of the 
loan, the lender must file an estimated loss claim once a decision has 
been made to liquidate if the liquidation will exceed 90 days. The 
estimated loss payment will be based on the liquidation value of the 
collateral. For the purpose of reporting and loss claim computation, 
the lender will discontinue interest accrual on the defaulted loan in 
accordance with Agency procedures, and the loss claim will be promptly 
processed in accordance with applicable Agency regulations.
    (h) Accounting and reports. When the lender conducts liquidation, 
it must account for funds during the period of liquidation and must 
provide the Agency with reports at least quarterly on the progress of 
liquidation including disposition of collateral, resulting costs, and 
additional procedures necessary for successful completion of the 
liquidation.
    (i) Transmitting payments and proceeds to the Agency. When the 
Agency is the holder of a portion of the guaranteed loan, the lender 
must transmit to the Agency its pro rata share of any payments received 
from the borrower, liquidation payments, or payments of other proceeds, 
using Form RD 1980-43, ``Lender's Guaranteed Loan Payment to USDA.''
    (j) Abandonment of collateral. There may be instances when the cost 
of liquidation would exceed the potential recovery value of the 
collection. The lender, with proper documentation and concurrence of 
the Agency, may abandon the collateral in lieu of liquidation. A 
proposed abandonment will be considered a servicing action requiring an 
environmental review by the Agency. Examples where abandonment may be 
considered include, but are not limited to:
    (1) The cost of liquidation is increased or the value of the 
collateral is decreased by environmental issues;
    (2) The collateral is functionally or economically obsolete;
    (3) There are superior liens held by other parties in excess of the 
value of the collateral;
    (4) The collateral has deteriorated; or
    (5) The collateral is specialized and there is little or no demand 
for it.
    (k) Disposition of personal or corporate guarantees. The lender 
must take action to maximize recovery from all collateral, including 
personal and corporate guarantees. The lender must seek a deficiency 
judgment when there is a reasonable chance of future collection of the 
judgment. The lender must make a decision whether or not to seek a 
deficiency judgment when:
    (1) A borrower voluntarily liquidates the collateral, but the sale 
fails to pay the guaranteed indebtedness;
    (2) The collateral is voluntarily conveyed to the lender, but the 
borrower and personal and corporate guarantors are not released from 
liability; or
    (3) A liquidation plan is being developed for forced liquidation.
    (l) Compromise settlement. A compromise settlement may be 
considered at any time.
    (1) The lender and the Agency must receive complete financial 
information on all parties obligated for the loan and must be satisfied 
that the statements reflect the true and correct financial position of 
the debtor including all assets. Adequate consideration must be 
received before a release from liability is issued. Adequate 
consideration includes money, additional security, or other benefit to 
the goals and objectives of the Agency.
    (2) Before a personal guarantor can be released from liability, the 
following factors must be considered.
    (i) Cash, either lump sum or over a period of time, or other 
consideration offered by the guarantor;
    (ii) Age and health of the guarantor;
    (iii) Potential income of the guarantor;
    (iv) Inheritance prospects of the guarantor;

[[Page 59693]]

    (v) Availability of the guarantor's assets.
    (vi) Possibility that the guarantor's assets have been concealed or 
improperly transferred; and
    (vii) Effect of other guarantors on the loan.
    (3) Once the Agency and the lender agree on a reasonable amount 
that is fair and adequate, the lender can proceed to effect the 
settlement compromise.
    (4) A compromise will only be accepted if it is in the best 
interest of the Agency.


Sec.  4280.157  Determination of loss and payment.

    In all liquidation cases, final settlement will be made with the 
lender after the collateral is liquidated, unless otherwise designated 
as a future recovery or after settlement and compromise of all parties 
has been completed. The Agency will have the right to recover losses 
paid under the guarantee from any party that may be liable.
    (a) Report of loss form. Loan Note Guarantee Report of Loss will be 
used for calculations of all estimated and final loss determinations. 
Estimated loss payments may only be approved by the Agency after the 
Agency has approved a liquidation plan.
    (b) Estimated loss. In accordance with the requirements of Sec.  
4280.156(g), an estimated loss claim based on liquidation appraisal 
value may be prepared and submitted by the lender.
    (1) The estimated loss payment must be applied as of the date of 
such payment. The total amount of the loss payment remitted by the 
Agency will be applied by the lender on the guaranteed portion of the 
loan debt. Such application does not release the borrower from 
liability.
    (2) An estimated loss will be applied first to reduce the principal 
balance on the guaranteed loan and the balance, if any, to accrued 
interest. Interest accrual on the defaulted loan will be discontinued.
    (3) A protective advance claim will be paid only at the time of the 
final report of loss payment except in certain transfer and assumption 
situations as specified in Sec.  4280.152(f).
    (c) Final loss. Within 30 days after liquidation of all collateral, 
except for certain unsecured personal or corporate guarantees as 
provided for in this section, is completed, a final report of loss must 
be prepared and submitted by the lender to the Agency. The Agency will 
not guarantee interest beyond this 30-day period other than for the 
period of time it takes the Agency to process the loss claim. Before 
approval by the Agency of any final loss report, the lender must 
account for all funds during the period of liquidation, disposition of 
the collateral, all costs incurred, and any other information necessary 
for the successful completion of liquidation. Upon receipt of the final 
accounting and report of loss, the Agency may audit all applicable 
documentation to determine the final loss. The lender must make its 
records available and otherwise assist the Agency in making any 
investigation. The documentation accompanying the report of loss must 
support the amounts shown on the Loan Note Guarantee Report of Loss.
    (1) A determination must be made regarding the collectibility of 
unsecured personal and corporate guarantees. If reasonably possible, 
such guarantees should be promptly collected or otherwise disposed of 
in accordance with Sec.  4280.156(k) prior to completion of the final 
loss report. However, in the event that collection from the guarantors 
appears unlikely or will require a prolonged period of time, the report 
of loss will be filed when all other collateral has been liquidated, 
and unsecured personal or corporate guarantees will be treated as a 
future recovery with the net proceeds to be shared on a pro rata basis 
by the lender and the Agency.
    (2) The lender must document that all of the collateral has been 
accounted for and properly liquidated and that liquidation proceeds 
have been properly accounted for and applied correctly to the loan.
    (3) The lender must show a breakdown of any protective advance 
amount as to the payee, purpose of the expenditure, date paid, and 
evidence that the amount expended was proper and that payment was 
actually made.
    (4) The lender will show a breakdown of liquidation expenses as to 
the payee, purpose of the expenditure, date paid, and evidence that the 
amount expended was proper and that payment was actually made. 
Liquidation expenses are recoverable only from collateral proceeds. 
Attorney fees may be approved as liquidation expenses provided the fees 
are reasonable and cover legal issues pertaining to the liquidation 
that could not be properly handled by the lender and its in-house 
counsel.
    (5) Accrued interest must be supported by documentation as to how 
the amount was accrued. If the interest rate was a variable rate, the 
lender must include documentation of changes in both the selected base 
rate and the loan rate.
    (6) Loss payments will be paid by the Agency within 60 days after 
the review of the final loss report and accounting of the collateral.
    (d) Loss limit. The amount payable by the Agency to the lender 
cannot exceed the limits set forth in the Loan Note Guarantee.
    (e) Rent. Any net rental or other income that has been received by 
the lender from the collateral will be applied on the guaranteed loan 
debt.
    (f) Liquidation costs. Liquidation costs must be deducted from the 
proceeds of the disposition of collateral. If changed circumstances 
after submission of the liquidation plan require a substantial revision 
of liquidation costs, the lender will procure the Agency's written 
concurrence prior to proceeding with the proposed changes. No in-house 
expenses of the lender will be allowed. In-house expenses include, but 
are not limited to, employee's salaries, staff lawyers, travel, and 
overhead.
    (g) Payment. When the Agency finds the final report of loss to be 
proper in all respects, it will approve Form RD 449-30, ``Loan Note 
Guaranteed Report of Loss,'' and proceeds as follows:
    (1) If the loss is greater than any estimated loss payment, the 
Agency will pay the additional amount owed by the Agency to the lender.
    (2) If the loss is less than the estimated loss payment, the lender 
must reimburse the Agency for the overpayment plus interest at the note 
rate from the date of payment.
    (3) If the Agency has conducted the liquidation, it will pay the 
lender in accordance with the Loan Note Guarantee.


Sec.  4280.158  Future recovery.

    After a loan has been liquidated and a final loss has been paid by 
the Agency, any future funds which may be recovered by the lender must 
be pro rated between the Agency and the lender based on the original 
percentage of guarantee.


Sec.  4280.159  Bankruptcy.

    The lender must protect the guaranteed loan and all collateral 
securing the loan in bankruptcy proceedings.
    (a) Lender's responsibilities. It is the lender's responsibility to 
protect the guaranteed loan debt and all of the collateral securing it 
in bankruptcy proceedings. These responsibilities include, but are not 
limited to the following:
    (1) The lender must file a proof of claim where necessary and all 
the necessary papers and pleadings concerning the case;
    (2) The lender must attend and, where necessary, participate in 
meetings of the creditors and all court proceedings;

[[Page 59694]]

    (3) When permitted by the Bankruptcy Code, the lender must request 
modification of any plan of reorganization whenever it appears that 
additional recoveries are likely;
    (4) The Agency must be kept informed on a regular basis in writing 
of all aspects of the proceedings; and
    (5) In a Chapter 11 reorganization, if an independent appraisal of 
collateral is necessary in the Agency's opinion, the Agency and the 
lender will share such appraisal fee equally.
    (b) Reports of loss during bankruptcy. When the loan is involved in 
reorganization proceedings, payment of loss claims may be made as 
provided in this section. For a liquidation proceeding, only paragraphs 
(b)(3) and (5) of this section are applicable.
    (1) Estimated loss payments.
    (i) If a borrower has filed for protection under Chapter 11 of 
Title 11 of the United States Code for a reorganization (but not 
Chapter 13) and all or a portion of the debt has been discharged, the 
lender must request an estimated loss payment of the guaranteed portion 
of the accrued interest and principal discharged by the court. Only one 
estimated loss payment is allowed during the reorganization. All 
subsequent claims of the lender during reorganization will be 
considered revisions to the initial estimated loss. A revised estimated 
loss payment may be processed by the Agency, at its option, in 
accordance with any court-approved changes in the reorganization plan. 
Once the reorganization plan has been completed, the lender is 
responsible for submitting the documentation necessary for the Agency 
to review and adjust the estimated loss claim to reflect any actual 
discharge of principal and interest and to reimburse the lender for any 
court-ordered interest-rate reduction under the terms of then 
reorganization plan.
    (ii) The lender must use the Loan Note of Guarantee Report of Loss 
to request an estimated loss payment and to revise any estimated loss 
payments during the course of the reorganization plan. The estimated 
loss claim, as well as any revisions to this claim, will be accompanied 
by documentation to support the claim.
    (iii) Upon completion of a reorganization plan, the lender must 
complete and forward Form RD 1980-44, ``Guaranteed Loan Borrower 
Default Status,'' to the Agency.
    (2) Interest loss payments.
    (i) Interest losses sustained during the period of the 
reorganization plan will be processed in accordance with paragraph 
(b)(1) of this section.
    (ii) Interest losses sustained after the reorganization plan is 
completed will be processed annually when the lender sustains a loss as 
a result of a permanent interest rate reduction which extends beyond 
the period of the reorganization plan.
    (iii) If an estimated loss claim is paid during the operation of 
the Chapter 11 reorganization plan and the borrower repays in full the 
remaining balance without an additional loss sustained by the lender, a 
final report of loss is not necessary.
    (3) Final loss payments. Final loss payments will be processed when 
the loan is liquidated.
    (4) Payment application. The lender must apply estimated loss 
payments first to the unsecured principal of the guaranteed portion of 
the debt and then to the unsecured interest of the guaranteed portion 
of the debt. In the event a bankruptcy court attempts to direct the 
payments to be applied in a different manner, the lender will 
immediately notify the Agency servicing office in writing.
    (5) Overpayments. Upon completion of the reorganization plan, the 
lender will provide the Agency with the documentation necessary to 
determine whether the estimated loss paid equals the actual loss 
sustained. If the actual loss sustained as a result of the 
reorganization is less than the estimated loss, the lender must 
reimburse the Agency for the overpayment plus interest at the note rate 
from the date of payment of the estimated loss. If the actual loss is 
greater than the estimated loss payment, the lender must submit a 
revised estimated loss in order to obtain payment of the additional 
amount owed by the Agency to the lender.
    (6) Protective advances. If approved protective advances were made 
prior to the borrower having filed bankruptcy, these protective 
advances and accrued interest will be considered in the loss 
calculations.
    (c) Legal expenses during bankruptcy proceedings. The lender must 
follow the procedures described in paragraphs (c)(1) and (2) of this 
section for handling legal expenses during bankruptcy proceedings.
    (1) When a bankruptcy proceeding results in a liquidation of the 
borrower by a trustee, legal expenses will be handled as directed by 
the court.
    (2) Chapter 11 generally pertains to a reorganization of a business 
contemplating an ongoing business, rather than a termination and 
dissolution of the business, where legal protection is afforded to the 
business as defined under Chapter 11 of the Bankruptcy Code. 
Consequently, expenses incurred by the lender in a Chapter 11 
reorganization can never be liquidation expenses unless the proceeding 
becomes a Chapter 11 liquidation. If the proceeding should become a 
liquidating Chapter 11, reasonable and customary liquidation expenses 
may be deducted from proceeds of collateral as provided in Form 4279-4, 
``Lender's Agreement.'' Chapter 7 pertains to a liquidation of the 
borrower's assets. If, and when, liquidation of the borrower's assets 
under Chapter 7 is conducted by the bankruptcy trustee, then the lender 
cannot claim expenses.


Sec.  4280.160  Termination of guarantee.

    A guarantee under this part will terminate automatically when any 
of the circumstances specified in paragraphs (a) through (c) of this 
section occurs.
    (a) Upon full payment of the guaranteed loan;
    (b) Upon full payment of any loss obligation; or
    (c) Upon written notice from the lender to the Agency that the 
guarantee will terminate 30 days after the date of notice, provided 
that the lender holds all of the guaranteed portion and the Loan Note 
Guarantee is returned to the Agency to be canceled.

Direct Loans


Sec.  4280.161  Direct loan process.

    (a) The Agency will determine each year whether or not direct loan 
funds are available. For each year in which direct loan funds are 
available, the Agency will publish a Notice of Funds Availability 
(NOFA) in the Federal Register.
    (b) In each direct loan NOFA, the Agency will identify the 
following:
    (1) the amount of funds available for direct loans;
    (2) applicant and project eligibility criteria;
    (3) minimum and maximum loan amounts;
    (4) interest rates;
    (5) terms of loan;
    (6) application and documentation requirements;
    (7) evaluation of applications;
    (8) actions required of the applicant/borrower (e.g., appraisals, 
land and property acquisition);
    (9) insurance requirements;
    (10) laws that contain other compliance requirements;
    (11) construction planning and performing development;
    (12) requirements after project construction;
    (13) letter of conditions, loan agreement, and loan closing 
process;
    (14) processing and servicing of direct loans by the Agency; and
    (15) any applicable definitions.

[[Page 59695]]

Sec.  4280.162--4280.192  [Reserved]

Combined Funding


Sec.  4280.193  Combined funding.

    This section identifies the requirements for a project for which an 
applicant is seeking a combined grant and guaranteed loan.
    (a) Eligibility. Applicants must meet the applicability 
requirements specified in Sec. Sec.  4280.107 and 4280.121. Projects 
must meet the applicability requirements specified in Sec. Sec.  
4280.108 and 4280.122.
    (b) Funding. Funding provided under this section is subject to the 
limits described in paragraphs (b)(1) and (2) of this section.
    (1) The amount of any combined grant and guaranteed loan must not 
exceed 50 percent of eligible project costs. For purposes of combined 
funding requests, total eligible project costs are based on the total 
costs associated with those items specified in Sec. Sec.  4280.109(a) 
and 4280.123(a). The applicant must provide the remaining total funds 
needed to complete the project.
    (2) Third-party, in-kind contributions will be limited to 10 
percent of the matching fund requirement of the grantee/borrower.
    (c) Application and documentation. When applying for a combined 
funding request, the applicant must submit applications as specified in 
paragraph (c)(1) of this section and documentation as specified in 
paragraph (c)(2) of this section.
    (1) Separate applications for both types of assistance (grant and 
guaranteed loan) are required. Each application must meet the 
requirements specified in Sec. Sec.  4280.111 and 4280.128. The 
separate applications must be submitted simultaneously.
    (2) The documentation required for grants and guaranteed loans, as 
specified in Sec. Sec.  4280.111 and 4280.128, respectively, must be 
submitted, as applicable, with the applications specified in paragraph 
(c) of this section. The applicant must submit at least one set of 
documentation.
    (d) Evaluation of combined funding requests. The Agency will 
evaluate each application according to applicable procedures specified 
in Sec. Sec.  4280.112 and 4280.129.
    (e) Interest rates and terms of loan. The interest rate and terms 
of loan for the loan portion of the combined funding request will be 
determined based on the procedures specified in Sec. Sec.  4280.124 and 
4280.125 for guaranteed loans.
    (f) Other provisions. In addition to the requirements specified in 
paragraphs (a) through (e) of this section, the combined funding 
request shall be subject to the other requirements specified in this 
subpart, including, but not limited to, the processing and servicing 
requirements, as applicable and as described in paragraphs (f)(1) and 
(2) of this section.
    (1) All other provisions of Section A of this subpart shall apply 
to the grant portion of the combined funding request.
    (2) All other provisions of Section B of this subpart shall apply 
to the guaranteed loan portion of the combined funding request.


Sec. Sec.  4280.194--4280.199  [Reserved]


Sec.  4280.200 OMB control number.  [Reserved]

    Dated: September 23, 2004.
Gilbert G. Gonzalez, Jr.,
Acting Under Secretary.
[FR Doc. 04-22093 Filed 10-4-04; 8:45 am]
BILLING CODE 3410-XY-P


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