59650 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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.

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: 

• Agency Web Site: http://

rdinit.usda.gov/regs/. Follow 

instructions for submitting comments 

on the Web Site. 

• E-Mail: comments@usda.gov.

Include the RIN No. 0570–0050 in the 

subject line of the message. 

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• 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. 

• 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 

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 59651

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 nontraditional 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 

59652 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 59653

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. Thirdparty, 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:

• Executive Order 11246, ‘‘Equal 

Employment Opportunity;’’

• Americans with Disabilities Act of 

1990; 

• Title VI of the Civil Rights Act of 

1964 (grants only); 

• Section 504 of the Rehabilitation 

Act of 1973 (grants only); 

• Equal Credit Opportunity Act (Title 

V of Pub. L. 90–321, as amended) 

(guaranteed loans only); 

• 7 CFR part 1940, subpart G, which 

requires an environmental impact 

analysis; and 

• 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 

59654 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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: 

• A table of contents; 

• A one page summary of the project; 

• A description of applicant/borrower 

eligibility and project eligibility; 

• A description of agricultural 

producer’s/rural small business’

business, farm, or ranch operation and 

ownership; 

• Management information; 

• 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 

• 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. 

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

• Biomass, bioenergy. 

• Biomass, digesters. 

• Geothermal, electric. 

• Geothermal, direct use. 

• Hydrogen. 

• Solar, small. 

• Solar, large.

• Wind, small. 

• Wind, large. 

• 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 precommercial technologies or 

technologies with limited commercial 

operational history; projects using preengineered systems or kits will require 

less information than projects that 

require system design engineering; and 

systems or improvements using designbuild project delivery methods where 

the supplier assumes all project delivery 

risks will require less information than 

those projects utilizing design-bidconstruction methods where the risks of 

project delivery fall on the applicant or 

borrower. Small projects using preengineered 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 

§ 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. 

59656 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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:

• 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. 

• 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. 

• 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. 

• 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. 

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

• 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 prequalify as ‘‘certified’’ lenders for making 

guaranteed loans for renewable energy 

systems and energy efficiency 

improvements. 

• 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 multinotes. 

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 § 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 

59658 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

§ 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 § 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 

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

59660 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

TABLE 1.—SUMMARY OF SOCIAL BENEFITS AND COSTS BY FY FOR BASELINE CASE

[Million dollars] 

Item 

FY 

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

Item Units 

FY 

2003 2004 2005 2006 2007 

Agricultural producers and rural small 

businesses served.

Number .............................................. 113 238 300 300 300 

Jobs Created ..................................... Number of full time equivalents ......... 243 887 1,770 1,830 1,890 

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 

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

59662 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 benefitcost 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 

§ 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. 

§ 4280.102 General. 

Sections 4280.103 through 4280.105 

contain definitions, exception authority, 

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

§ 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 costaccounting 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. 

59664 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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.

§ 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.

§ 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.

§ 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

§ 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 

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

§ 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 precommercial or commercially available 

and replicable technology.

(c) The project must be technically 

feasible, as determined using the 

procedures specified in § 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 thirdparty 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.

§ 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 inkind 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. Thirdparty, 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, inkind 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.

§ 4280.110 [Reserved]

§ 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 § 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 

59666 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 precommercially 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 § 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 

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

59668 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 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. 

(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 

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

59670 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

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

59672 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

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

59674 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

(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 

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

59676 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

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

59678 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 onsite 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 

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

59680 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 nonenergy 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-andafter 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 byproducts. 

(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 

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 59681

decommissioning budget and any 

unique concerns to the 

decommissioning process.

§ 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.

§ 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.

§ 4280.114 Laws that contain other 

compliance requirements. 

(a) Equal employment opportunity.

For all construction contracts and grants 

59682 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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, § 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.

§ 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 § 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) § 1924.5(c) does not apply; 

(3) § 1924.5(d)(1)(i), (ii), and (vi) do 

not apply; 

(4) § 1924.5(d)(2) does not apply; 

(5) § 1924.5(d)(4)(i) and (iv) do not 

apply; 

(6) § 1924.5(f)(1)(i), (ii), (iii)(A), 

(iii)(B), (iii)(D), and (iii)(F) do not apply; 

(7) § 1924.5(f)(2) does not apply; 

(8) § 1924.5(i) does not apply; 

(9) § 1924.6(a)(1), (2), and (3) do not 

apply; 

(10) § 1924.6(b) does not apply; 

(11) § 1924.6(c) does not apply; 

(12) § 1924.6(d) does not apply; 

(13) § 1924.8 does not apply; 

(14) § 1924.10(c)(1) does not apply; 

(15) § 1924.12 does not apply; 

(16) § 1924.13(c) does not apply; 

(17) § 1924.13(e)(1) does not apply; 

and 

(18) § 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.

§ 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.

§ 4280.117 Servicing grants. 

Grants will be serviced in accordance 

with 7 CFR part 1951, subpart E and the 

Grant Agreement.

§§ 4280.118–4280.120 [Reserved] 

Guaranteed Loans

§ 4280.121 Borrower eligibility. 

To receive a guaranteed loan under 

this subpart, a borrower must meet each 

of the criteria, as applicable, identified 

in § 4280.107(a) through (e).

§ 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 § 4280.108.

§ 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 

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

§ 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.

§ 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.

§ 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.

§ 4280.127 [Reserved]

§ 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 

§ 4280.111(a) (except for 

§§ 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 § 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 § 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 

§ 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 

59684 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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 

§ 4280.111(c), as applicable. 

(d) Technical requirements reports. 

Each applicant must submit the 

information required under 

§ 4280.111(d), as applicable.

§ 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 § 4280.112(d) (except for 

the criteria specified in 

§ 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.

§ 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.

§ 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 

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

§ 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.

§ 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.

§ 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. § 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.

§ 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.

§ 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.

§ 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 

59686 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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.

§ 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.

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 59687

§ 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-tovalue 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.

§ 4280.140 Financial statements. 

(a) Except for the requirement to 

demonstrate financial need for the 

funding, the financial information 

required in § 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.

§ 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 selfcontained 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.

§ 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.

§ 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.

§ 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.’’

§ 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.

§ 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 

59688 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

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.

§ 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 § 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.

§ 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.

§ 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.

§ 4280.150 Insurance requirements. 

(a) Each borrower must obtain the 

insurance required in § 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 

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

§ 4280.151 Laws that contain other 

compliance requirements. 

(a) Each applicant and borrower must 

comply with the requirements specified 

in § 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.

§ 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 § 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 § 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’slength transaction and adequate 

consideration. 

59690 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

(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 § 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 

§ 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 § 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 § 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 

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

§ 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 § 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.

§ 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 bimonthly 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 § 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.

§ 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.

§ 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 § 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 

§ 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 

§ 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: 

59692 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

(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 § 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; 

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

§ 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 § 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 § 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 § 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.

§ 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.

§ 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; 

59694 Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 

(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 courtordered 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.

§ 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

§ 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.

Federal Register / Vol. 69, No. 192 / Tuesday, October 5, 2004 / Proposed Rules 59695

§ 4280.162—4280.192 [Reserved] 

Combined Funding

§ 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 §§ 4280.107 and 4280.121. Projects 

must meet the applicability 

requirements specified in §§ 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 §§ 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 §§ 4280.111 and 4280.128. 

The separate applications must be 

submitted simultaneously. 

(2) The documentation required for 

grants and guaranteed loans, as 

specified in §§ 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 §§ 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 

§§ 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.

§§ 4280.194—4280.199 [Reserved]

§ 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