[Federal Register Volume 79, Number 248 (Monday, December 29, 2014)]
[Rules and Regulations]
[Pages 78220-78285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30133]



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Vol. 79

Monday,

No. 248

December 29, 2014

Part III





Department of Agriculture





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Rural Business-Cooperative Service





Rural Utilities Service





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7 CFR Part 4280





Rural Energy for America Program; Final Rule

Federal Register / Vol. 79 , No. 248 / Monday, December 29, 2014 / 
Rules and Regulations

[[Page 78220]]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA76


Rural Energy for America Program

AGENCY: Rural Business-Cooperative Service and Rural Utilities Service, 
USDA.

ACTION: Final rule.

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SUMMARY: The Rural Business-Cooperative Service (Agency) is publishing 
this final rule for the Rural Energy for America Program (REAP). This 
final rule modifies REAP based on comments received on the interim 
rule, which was published on April 14, 2011, and the proposed rule, 
which was published on April 12, 2013. The final rule establishes 
provisions for the grants and loan guarantees available for renewable 
energy systems (RES) and energy efficiency improvements (EEI) and for 
the grants available for energy audits and for renewable energy 
development assistance.

DATES: This final rule is effective February 12, 2015.

FOR FURTHER INFORMATION CONTACT: Kelley Oehler, Energy Branch, U.S. 
Department of Agriculture, 1400 Independence Avenue SW., Stop 3225, 
Washington, DC 20250-3201; telephone (202) 720-6819.

SUPPLEMENTARY INFORMATION:

Executive Summary

    The Farm Security and Rural Investment Act of 2002 (FSRIA), 
established the renewable energy systems (RES) and energy efficiency 
improvements (EEI) program under Title IX, Section 9006, 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.
    Section 9001 of the Food, Conservation, and Energy Act of 2008 
(2008 Farm Bill) amended Title IX of the FSRIA. Under the 2008 Farm 
Bill, Section 9007 of the amended FSRIA authorized the Agency to 
continue providing to agricultural producers and rural small businesses 
loan guarantees and grants for the development and construction of RES 
and EEI projects, but removed the ability to provide direct loans. The 
2008 Farm Bill also expanded the types of RES technologies eligible for 
funding to include hydroelectric and ocean energy. Further, the 2008 
Farm Bill authorizes the Agency to provide grants specifically for 
energy audits (EA), renewable energy development assistance (REDA), and 
RES feasibility studies. The 2008 Farm Bill also changed the name of 
the program to the Rural Energy for America Program (REAP).
    REAP's authority is continued in the Agricultural Act of 2014 (2014 
Farm Bill), with several specific changes: (1) Removing RES feasibility 
study grants, (2) removing the ability to provide assistance for 
flexible fuel pumps, adding councils as define in 16 U.S.C. 3451, to be 
an eligible applicant for EA and REDA grants, and (4) creating a three 
tier application process for RES and EEI projects.
    REAP seeks to promote energy efficiency and renewable energy 
development for agricultural producers and rural small businesses by 
providing grants and guaranteed loans for eight different categories of 
renewable energy production (e.g., wind, solar, anaerobic digestion, 
hydro, and geothermal) as well as for EEI.
    Eligible applicants for RES and EEI financial assistance are 
agricultural producers and rural small businesses. For EA and REDA 
grants, eligible entities are units of a state tribal or local 
government; land-grant colleges and universities, and other institution 
of higher education; rural electric cooperatives; councils, as define 
in 16 U.S.C. 3451; public power entities; and instrumentalities of a 
state, tribal, or local government.

Purpose of the Regulatory Action

    This final rule revises 7 CFR part 4280, subpart B to implement the 
provisions contained in the 2014 Farm Bill and addresses comments 
received on both the interim rule, published in the Federal Register on 
April 14, 2011, and the proposed rule, published in the Federal 
Register on April 12, 2013.

Summary of the Major Changes

    For RES and EEI projects, the final rule implements a three-tier 
application process based on total project cost; reduces the technical 
reports requirements; removes pre-commercial technologies as eligible 
technologies; and modifies several scoring criteria for RES and EEI. 
For EA and REDA projects, the final rule removes the scoring criterion 
regarding contracting. The final rule also incorporates grant and 
guaranteed loan application deadline dates that allow the Agency to 
meet the statutory deadlines for funding the EA and REDA grants and RES 
and EEI grants of $20,000 or less.

Costs and Benefits

    For a typical fiscal year, the Agency estimates that approximately 
1,393 REAP awards will be made as follows: 487 RES awards, 884 EEI 
awards, and 22 EA/REDA awards. Of the RES awards, the vast majority are 
expected to be associated with solar, followed by wind and biomass 
projects. The awardees are expected to be mostly businesses, including 
sole proprietors, with relatively few state, local, and tribal 
government entities.
    The Regulatory Impact Analysis (RIA) completed for this final rule 
calculates a net costs savings of approximately $10 million as the 
result of improvements in the implementation of the REAP program. The 
cost savings achieved by the rule are attributed to the decreased costs 
estimated for the changes in program implementation. In addition the 
reduction in burden meets the reporting requirements of the 
retrospective review report which provided a specific percentage 
reduction in application burden, specifically the time it takes to 
complete the narrative portion of the application, which was reduced 
from 40 hours in the baseline, down to 20 hours in the final rule, a 50 
percent reduction.

Executive Order 12866

    This final rule has been reviewed under Executive Order (EO) 12866 
and has been determined to be economically significant by the Office of 
Management and Budget (OMB). The EO defines a ``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, or 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 this EO. The Agency 
conducted a benefit-cost analysis to fulfill the requirements of EO 
12866.

Executive Order 13563

    The agency has reviewed this regulation pursuant to EO 13563, 
issued on January 18, 2011 (76 FR 3281, January 21, 2011). EO 13563 is 
supplemental to and explicitly reaffirms

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the principles, structures, and definitions governing regulatory review 
established in EO 12866. To the extent permitted by law, agencies are 
required by EO 13563 to: (1) Propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs (recognizing 
that some benefits and costs are difficult to quantify); (2) tailor 
regulations to impose the least burden on society, consistent with 
obtaining regulatory objectives, taking into account, among other 
things, and to the extent practicable, the costs of cumulative 
regulations; (3) select, in choosing among alternative regulatory 
approaches, those approaches that maximize net benefits (including 
potential economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity); (4) to the extent 
feasible, specify performance objectives, rather than specifying the 
behavior or manner of compliance that regulated entities must adopt; 
and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    The Agency identified REAP as one of the Department's periodic 
retrospective review of regulations under Executive Order 13563, and 
has proposed a tiered application approach that reduces applicant 
burden for technical reports and streamlines the narrative portion of 
the application. Notably, there is an estimated 20 percent reduction in 
the number of hours it takes to complete a technical report for those 
applications for projects with total project costs of more than $80,000 
to $200,000; the elimination of a technical report for those 
applications for projects with total project costs of $80,000 or less; 
and a 50 percent reduction in the number of hours it takes to complete 
the narrative portion of burden.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act 1995 (UMRA), Public 
Law 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 generally must prepare a written statement, including 
a cost-benefit 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 one year. When such a statement is needed for a rule, 
section 205 of the 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 final 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 the UMRA.

Environmental Impact Statement

    REAP has been operating since 2005 under 7 CFR part 4280, subpart 
B, and through the issuance of various Notices of Funds Availability 
(NOFA), including several notices issued in response to Title IX of the 
Food, Conservation, and Energy Act of 2008 (2008 Farm Bill). Under this 
program, the Agency conducts a National Environmental Policy Act (NEPA) 
review for each application received. To date, no significant 
environmental impacts have been reported, and Findings of No 
Significant Impact (FONSI) have been issued for each approved 
application. Taken collectively, the applications show no potential for 
significant adverse cumulative effects.
    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment, and in 
accordance with NEPA of 1969, 42 U.S.C. 4321 et. seq., an Environmental 
Impact Statement is not required. Grant applications will be reviewed 
individually to determine compliance with NEPA.

Executive Order 12988, Civil Justice Reform

    This final rule has been reviewed under EO 12988, Civil Justice 
Reform. In accordance with this rule: (1) All state and local laws and 
regulations that are in conflict with this rule will be preempted; (2) 
no retroactive effect will be given to this rule; and (3) 
administrative proceedings in accordance with the regulations of the 
Department of Agriculture's National Appeals Division (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.

Executive Order 13132, Federalism

    It has been determined, under EO 13132, Federalism, that this final 
rule does not have sufficient federalism implications to warrant the 
preparation of a Federalism Assessment. The provisions contained in the 
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 government levels.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
Administrative Procedure Act or any other statute unless the Agency 
certifies that the rule will not have an economically significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small organizations, and small governmental 
jurisdictions.
    In compliance with the RFA, Rural Development has determined that 
this action, while mostly affecting small entities, will not have a 
significant economic impact on a substantial number of these small 
entities. Rural Development made this determination based on the fact 
that this regulation only impacts those who choose to participate in 
the program. Small entity applicants will not be affected to a greater 
extent than large entity applicants.

Executive Order 13211, Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    The regulatory impact analysis conducted for this final rule meets 
the requirements for EO 13211, which states that an agency undertaking 
regulatory actions related to energy supply, distribution, or use is to 
prepare a Statement of Energy Effects. This analysis finds that this 
rule will not have any adverse impacts on energy supply, distribution, 
or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the provisions of EO 12372, which 
require intergovernmental consultation with state and local officials.

Executive Order 13175, Consultation and Coordination With Indian Tribes

    This EO imposes requirements on Rural Development in the 
development

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of regulatory policies that have tribal implications or preempt tribal 
laws. Rural Development has determined that this rule does not have a 
substantial direct effect on one or more Indian Tribe(s) or on either 
the relationship or the distribution of powers and responsibilities 
between the Federal Government and the Indian Tribes. Thus, this rule 
is not subject to the requirements of EO 13175.
    However, in implementing changes to the program resulting from the 
2008 Farm Bill, this program was included in the USDA Joint Agency 
Regional Consultations that consolidated the consultation efforts of 70 
USDA rules from the 2008 Farm Bill. USDA Rural Development sent senior 
level agency staff to seven regional locations and engaged tribal 
leadership in each region to consult on a host of programmatic 
adjustments.
    Upon completion of the consultation process, USDA Rural Development 
analyzed the feedback and incorporated input from the consultation into 
REAP. For example, with the intent to increase tribal participation in 
the program, the definition of a small business in this rule includes 
tribal business entities formed as Section 17 Corporations as 
determined by the Secretary of the Interior or other tribal business 
entities that have similar structures and relationships with their 
tribal governments as determined by USDA Rural Development.

Programs Affected

    REAP is listed in the Catalog of Federal Domestic Assistance under 
Number 10.868.

Paperwork Reduction Act

    The information collection requirements contained in this final 
rule have been submitted to the Office of Management and Budget (OMB) 
for review and approval.

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies to provide increased opportunities for citizen access to 
Government information and services, and for other purposes. The rule 
allows electronic submission of applications through grants.gov. The 
Rural Development Web site contains information on all of Rural 
Development's programs, including regulations, fillable forms, and 
factsheets.

I. Background

    Rural Development administers a multitude of programs, ranging from 
housing and community facilities to infrastructure and business 
development. Its mission is to increase economic opportunity and 
improve the quality of life in rural communities by providing 
leadership, infrastructure, venture capital, and technical support that 
can support rural communities, helping them to prosper.
    To achieve its mission, Rural Development provides financial 
support (including direct loans, grants, loan guarantees, and direct 
payments) and technical assistance to help enhance the quality of life 
and provide support for economic development in rural areas. The 2008 
Farm Bill contains several sections under which Rural Development 
provides financial assistance for the production and use of biofuels. 
This authority is continued in the Agricultural Act of 2014 (2014 Farm 
Bill).
    In response to the Farm Security and Rural Investment Act of 2002 
(FSRIA), which established the Renewable Energy Systems and Energy 
Efficiency Improvements Program under Title IX, Section 9006, the 
Agency promulgated a rule (70 FR 41264, July 18, 2005) under 7 CFR part 
4280, subpart B) a program for making grants, loan guarantees, and 
direct loans to farmers and ranchers (agricultural producers) or rural 
small businesses to purchase RES and make EEI. Renewable energy sources 
eligible for funding included bioenergy, anaerobic digesters, 
geothermal electric, direct geothermal, solar, hydrogen, and wind.
    Section 9001 of the 2008 Farm Bill amended Title IX of the FSRIA. 
Under the 2008 Farm Bill and Section 9007 of the amended FSRIA, the 
Agency is authorized to continue providing to agricultural producers 
and rural small businesses loan guarantees and grants for the 
development and construction of RES and EEI projects. In addition to 
the current set of renewable energy projects eligible for funding, the 
2008 Farm Bill expanded the program to include two new renewable energy 
technologies: hydroelectric and ocean energy. Further, the 2008 Farm 
Bill authorized the Agency to provide grants specifically for energy 
audits, renewable energy development assistance, and feasibility 
studies. This expanded program is referred to as REAP, which continues 
the Agency's assistance for the adoption of both RES and EEI through 
Federal Government loan guarantees and grants. During the promulgation 
of this final rule, the 2014 Farm Bill was enacted and repealed the RES 
feasibility study component of REAP. This change has been incorporated 
into this final rule. In addition, the 2014 Farm Bill report language 
removed the ability to provide assistance for flexible fuel pumps, and 
the Bill added a provision to allow a council to be an eligible 
applicant for energy audit and renewable energy development assistance. 
Both of these changes have also been incorporated into this final rule. 
All comments regarding RES feasibility study grants and flexible fuel 
pumps will not be summarized or addressed. All references in the final 
rule to RES feasibility study grants and flexible fuel pumps have been 
removed.
    After the 2008 Farm Bill, the Agency issued a series of Federal 
Register notices implementing the provisions in the 2008 Farm Bill for 
RES feasibility studies, energy audits, and renewable energy 
development assistance. For energy audits and renewable energy 
development assistance, these notices were published on March 11, 2009 
(74 FR 10533), and May 27, 2010 (75 FR 29706).
    On April 14, 2011 (76 FR 21110), the Agency published an interim 
final rule that established a consolidated REAP program by including 
each part of the program in a single subpart. Because the majority of 
the interim final rule was based on existing provisions that were at 
that time being implemented through the existing subpart for RES and 
EEI (7 CFR part 4280, subpart B) and the notices identified above, the 
Agency published the REAP regulation as an interim final rule, with the 
opportunity to comment.
    On April 12, 2013 (78 FR 22044), the Agency published a proposed 
rule for REAP, which proposed a number of changes to the interim final 
rule.
    The Agency requested comments on both the interim final rule and 
the proposed rule. All of the comments received are summarized in 
Section III of this preamble. Most of the proposed rule's provisions 
have been carried forward into subpart B of this final rule, although 
there have been several significant changes. A summary of major changes 
to the proposed rule are summarized below in Section II of this 
preamble.

II. Summary of Changes to the Proposed Rule

    This section presents the major changes to the REAP April 12, 2013, 
proposed rule. Most of the changes were the result of the Agency's 
consideration of public comments on the proposed rule. As indicated 
above, the Agency is also making changes to the rule due to

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statutory changes resulting from the enactment of the 2014 Farm Bill. 
Other changes, however, are being made even though the Agency did not 
receive comments on those provisions. The Agency is making these other 
changes as a result of the recent revocation of the USDA's 1971 
Statement of Policy titled ``Public Participation in Rulemaking,'' FR 
Doc. 2013-25321. This revocation restores to USDA the discretion to use 
notice-and-comment rulemaking procedures when appropriate. Rather than 
making these other changes in a separate rulemaking, the Agency has 
elected to include them in this final rule. Unless otherwise indicated, 
rule citations refer to those in the final rule.

A. Definitions (Sec.  4280.103)

    The following definition was added to the final rule:
    Council. The definition was added because the 2014 Farm Bill allows 
a council, as define in 16 U.S.C. 3451, to be an eligible applicant for 
energy audit and renewable energy development assistance grants.
    The following definitions were revised from what was published in 
the proposed rule:
    Agricultural Producer. Clarified that the 50 percent of gross 
income must come from the products that are grown or raised.
    Annual Receipts. Directly incorporates the definition found in 
Small Business Administration regulations.
    Anaerobic Digester Project. Clarifies that the digester uses animal 
waste.
    Commercially Available. The Agency added a second part to the 
definition such that a Renewable Energy System would be considered 
``commercially available'' if the system has been certified by a 
recognized industry organization whose certification standards are 
acceptable to the Agency. In addition, the Agency clarified the 
definition to make clear that the provisions are applied equally to 
domestic and foreign systems.
    Complete Application. Revised definition to encompass that an 
application must be complete enough for the Agency to determine 
technical merit, which is similar process to the existing rules 
methodology to determine technical merit.
    Departmental Regulations. Removed 7 CFR part 3021, because the 
cross reference is no longer valid.
    Eligible Project Costs. Reference REAP by name, instead of general 
term ``program.''
    Energy Assessment. Added language to the definition for projects 
with total project costs of $80,000 or less that an individual or 
entity can conduct energy assessments and does not require the 
individual or entity to be ``independent.''
    Feasibility Study. The term business was replaced with business 
operation, to clarify that it was not just a requirement for businesses 
but Ag producers as well.
    Instrumentality. Removed the examples since the 2014 Farm Bill now 
includes a council as an eligible applicant.
    Matching Funds. This definition was revised to clarify that 
matching funds are the additional funds required to complete the 
project that are required by 7 U.S.C. 8107, which are 75 percent of 
eligible project costs for grants and 25 percent of eligible project 
costs for guaranteed loans. Other funds provided that are in excess of 
the funds required by statute are not considered matching funds.
    Refurbished. This definition was revised to add the requirement 
that refurbishment must take place in a ``commercial'' facility and 
that the refurbished equipment must come with a warranty that is 
approved by the Agency or its designee.
    Retrofitting. The Agency made the definition more general by 
removing reference to renewable energy system and added a requirement 
that the retrofit does not affect the original warranty, if the 
warranty is still in existence.
    Renewable Energy System. The definition is being modified in 7 CFR, 
part 4280 because the 2014 Farm Bill added the definition of 
``renewable energy systems'' to the statute. The statutory definition 
of a ``renewable energy system'' is a system that produces a usable 
energy from a renewable energy source and may include distribution 
components necessary to move energy produced by such system to initial 
point of sale, but may not include a mechanism for dispensing energy at 
retail.
    Simple Payback. A number of changes were made to this definition.
    1. Replaced net income with earnings before interest, taxes, 
depreciation and amortization (EBITDA), which is financing measure of 
operating cash flow, based on data from the income statement.
    2. Removed all tax credits, carbon credits, renewable energy 
credits, from the calculation.
    3. Based on eligible project costs rather than total project costs.
    4. For EEI projects and RES systems that reduce onsite energy use, 
calculation of historical energy used prior to the project 
implementation can now be calculated on a 12, 24, 36, 48, or 60 month 
basis at the applicant's discretion, versus the proposed rule which 
required applicants to use a 36 months.
    5. For projects that reduce energy use, added ``or replace'' to 
identify that projects that replace energy will use this method to 
determine simple payback and removed the ability to include revenue 
from byproducts produced by the energy system. Also those RES project 
that replace over 100 percent of the energy used by the applicant will 
use the actual average price paid for the energy replaced, and the 
projected revenue received from energy sold in a typical year.
    Small Business. Added an additional option to qualify as a small 
business using average net income and net worth, and reorganized the 
definition.
    The following definitions were in the proposed rule but were 
removed from the final rule:
    Blended Liquid Transportation Fuel. The definition was required to 
define flexible fuel pumps and the 2014 Farm Bill report language 
repealed the ability of the REAP to provide assistance for flexible 
fuel pumps, therefore the Agency is removing the definition.
    Energy Analysis. As a result of this deletion, conforming changes 
were made throughout rule.
    Flexible fuel pump. The 2014 Farm Bill report language repealed the 
ability of the REAP to provide assistance for flexible fuel pumps, 
therefore the Agency is removing the definition.

B. General Applicant, Application, and Funding Provisions (Sec.  
4280.110)

    The Agency clarified that a grant application for EA and REDA can 
be submitted at any time.

C. Notifications (Sec.  4280.111)

    The final rule clarifies that once an application is determined to 
be ineligible no further processing of the application will occur. The 
Agency also relabeled paragraph (c) to ``Funding Determination'' rather 
than ``Disposition of applications.''

D. Project Eligibility (Sec.  4280.113)

    The Agency added a provision to identify conditions under which a 
subsequent EEI, that improves or replaces an EEI project previously 
funded under REAP, is eligible for funding.
    Based on comments, for agricultural producers with operations in 
non-rural areas, the Agency removed the italicized text in the 
following: ``the application can only be for renewable energy systems 
or energy efficiency

[[Page 78224]]

improvements on integral components of or that are directly related to 
the operation . . .'' so that it now reads: ``the application can only 
be for RES or EEI on components that are directly related to and their 
use and purpose is limited to the agricultural production operation . . 
.'' (see Sec.  4280.113(d)). This same change was also made for project 
eligibility for Energy Audits grants, Renewable Energy Development 
Assistance grants, and RES/EEI guaranteed loans.
    The Agency added provisions identifying how a renewable energy 
system project, in which a residence is closely associated with and 
shares an energy metering device with the rural small business or 
agricultural operation, would be eligible for funding (see Sec.  
4280.113(e)).

E. RES and EEI Grant Funding (Sec.  4280.114)

    In determining items that qualify as an eligible project cost, the 
Agency removed the phrase ``integral component'' so that an item is an 
eligible project cost if it is ``directly related to and its use and 
purpose is limited to the RES or EEI.'' (see Sec.  4280.114(c)).
    The Agency also identified that a second meter will be considered 
eligible project costs for those applicants whose projects involve 
residences (see Sec.  4280.114(c)(6)).
    Lastly, the Agency revised ineligible project costs (Sec.  
4280.114(d)) in the proposed rule by rephrasing ``guaranteeing of lease 
payments'' to ``lease payments'' and removing reference to 
``guaranteeing loans made by other Federal agencies'' which is not 
applicable to RES and EEI grants, but only to RES and EEI guaranteed 
loans.

F. Determination of Technical Merit (Sec.  4280.116)

    Under the final rule, the process and criteria that the Agency will 
use in determining whether a project has technical merit has been 
established in a new section (see Sec.  4280.116).

G. Grant applications for RES and EEI Projects (Sec.  4280.117, Sec.  
4280.118, Sec.  4280.119)

    The Agency clarified the time frames associated with determining if 
the applicant meets the definition of Rural Small Business for Annual 
receipts and number of employees, and with determining if the applicant 
meets the definition of Agricultural Producer for gross income (Annual 
receipts). This change applies to all three tiers of grant applications 
and to guaranteed loan applications.
    The Agency removed references to Form AD 2106, but included 
language in the application that requests applicant to provide 
ethnicity, race, and gender information. This information is optional 
and is not required for a Complete Application. This change was also 
made to the energy audit and renewable energy development assistance 
grants.
    The Agency added provisions to technical reports that were not in 
the proposed rule to describe how the technology meets Commercially 
Available definition, and to include simple payback calculations for 
the project.
    The Agency added language to the final rule to indicate what 
documentation is required to receive points for commitment of funds. 
This same change was also made for Energy Audits grants and Renewable 
Energy Development Assistance grants.

H. Scoring RES and EEI Grant Applications (Sec.  4280.120)

    Environmental benefits criterion was modified to detail how points 
are awarded if an applicant can document a positive effect on any of 
the three impact areas: Resource conservation, public health, and the 
environment.
    The Agency modified the second score criterion, ``Quantity of 
energy generated or saved per REAP dollar requested,'' by reducing the 
points allocated to 10 points. Due to this point reduction, the Agency 
has added back the scoring criterion from the existing rule ``Energy 
replaced, saved, or generated'' and allocated a maximum of 15 points to 
this criterion.
    ``Quantity of energy generated or saved per REAP dollar requested'' 
was further modified to use energy generated or saved over a 12 month 
period rather than 36 months that was required in the proposed rule, 
and the project will need to achieve 50,000 BTUs per REAP dollar 
requested rather than 25,000 to receive maximum point under this 
criterion.
    Size of agricultural producer or rural small business was clarified 
to indicate that the calculation is made on the size of the applicant's 
agricultural operation or business concern as applicable. This change 
conforms to language used in Small Business Administration (SBA) 
regulations for small business determination.
    The Agency has revised the ``readiness'' criterion (now referred to 
as ``Commitment of Funds'') to reflect a sliding scale for those 
applications that can show commitment of more than 50 percent matching 
funds and other funds.
    Previous grantees and borrowers criterion was revised to increase 
points for applicants who have not received previous assistance.
    Simple payback was revised to increase the maximum number of years 
for RES project payback by 5 years, raising it from 20 to 25.
    Under the State Director and Administrator priority points, the 
Agency added three new categories for consideration in awarding points: 
(1) The applicant is a member of an unserved or under-served 
population, (2) furthers a Presidential initiative or a Secretary of 
Agriculture priority, and (3) the proposed project is located in an 
impoverished area, has experienced long-term population decline, or 
loss of employment. . . .

I. Selecting RES and EEI Grant Applications for Award (Sec.  4280.121)

    Competition cycles for REAP applications were modified such that 
all RES/EEI grant applications, regardless of the amount of funding 
requested (which includes $20,000 or less), will compete in up to two 
competition cycles. RES/EEI grant applications requesting $20,000 or 
less will compete an additional three times for the $20,000 or less set 
aside, for a total of up to 5 competitions. Guaranteed loan-only 
applications will compete periodically, provided that the Agency 
receives a sufficient number of applications in order to maintain a 
competitive awards process.
    All competitions dates may be modified by a Federal Register Notice 
(see Sec.  4280.121 for RES/EEI grants).
    The Agency clarified that an application received after the 
application submittal deadline can be considered for funding in the 
subsequent fiscal year if the applicant remains interested in the 
grant. This same change was also made for Energy Audits grants and 
Renewable Energy Development Assistance grants.
    The Agency relabeled paragraph (e) from ``Disposition of ranked 
applications not funded'' to ``Handling of Ranked Applications Not 
Funded.''

J. Awarding and Administering RES and EEI Grants (Sec.  4280.122)

    A change was made to indicate that commitments for matching funds 
and other funds are needed prior to closing the grant.

K. Servicing RES and EEI Grants (Sec.  4280.123)

    Under programmatic changes the Agency revised the provision that 
requires prior approval (paragraph (b)(1)) to reflect that prior 
approval is

[[Page 78225]]

not required in cases where there is a decrease in project cost that 
does not have any negative affect on the long-term viability of the 
project. In these cases review and approval will be required prior to 
disbursement.
    For transfer of ownership, the Agency added a requirement that the 
project is also operational.
    For both RES and EEI reports, the Agency clarified that jobs 
reported, if any, are a direct result of the REAP funded project.
    For EEI reports, the Agency removed reference to 36 months and 
refers to the time period as reported in the energy assessment or 
energy audit.

L. Construction Planning and Performing Development (Sec.  4280.124)

    The Agency rephrased ``unnecessary experience and bonding 
requirements'' in the proposed rule to read ``unnecessary experience or 
excessive bonding requirements'' to better reflect Agency intent (see 
Sec.  4280.124(a)(1)).
    The final rule clarifies that any exception requested for surety 
must be in writing and will require Agency funding be disbursed after 
project is operational (see Sec.  4280.124(a)(3)(v)).
    The final rule eliminates the cross reference in the proposed rule 
to 7 CFR 1780.74 regarding contracts awarded prior to application and 
brought the applicable requirements into this section (see Sec.  
4280.124 (g)).

M. Guaranteed Loan Funding (Sec.  4280.129)

    The Agency added provisions to allow refinancing in the final rule 
under certain conditions. The final rule also clarifies that eligible 
project costs include buildings and equipment acquisition when an 
existing renewable energy system is being financed with guaranteed loan 
funds.

N. Scoring RES and EEI Guaranteed Loan-Only Applications (Sec.  
4280.135)

    The final rule incorporates a periodic competition for guaranteed 
loan-only applications, provided that the Agency receives a sufficient 
number of applications in order to maintain a competitive awards 
process.
    The final rule clarifies that all guaranteed loan-only applications 
that do not meet the minimum score will be competed in a National 
competition at end of the fiscal year.
    The Agency removed reference to Form AD 2106, but included language 
in the application that requests applicant to provide ethnicity, race, 
and gender information. This information is optional and is not 
required for a Complete Application.

O. Application and Documentation (Sec.  4280.137)

    The final rule corrects the reference in paragraph (b)(2)(v) from 
``the applicant must submit an estimated appraisal'' to ``the lender 
must submit an estimated appraisal.''

P. Selecting RES and EEI Guaranteed Loan-Only Applications for Award 
(Sec.  4280.139)

    The Agency changed quarterly competitions to periodic competitions 
in the final rule in order to improve access to capital and indicated 
that the final National competition would be the first business day of 
September. All competitions dates may be modified by a Federal Register 
Notice (see Sec.  4280.139 for RES/EEI guaranteed loans).
    The final rule relabels paragraph (c) from ``Disposition of ranked 
applications not funded'' to ``Handling of Ranked Applications Not 
Funded.''

Q. Technical Reports for Energy Efficiency Improvement Projects 
(Appendix A to Part 4280)

    The final rule requires energy audit or energy assessment to use 
actual energy consumed for the building and equipment being evaluated 
for 12, 24, 36, 48, or 60 months at the applicant's discretion, versus 
all applicants being required to use 36 months. The technical report 
was also modified to require information for simple payback 
calculations to be submitted. Lastly, the Agency added requirements for 
an individual or entity to perform assessments if total project cost is 
$80,000 or less.

R. Technical Reports for Renewable Energy System (RES) Projects With 
Total Project Costs of Less Than $200,000, but More Than $80,000 
(Appendix B to Part 4280)

    The Agency clarified what needs to be included in ``Project 
description'' and ``Resource assessment.'' The required information for 
simple payback calculations was clarified.

III. Summary of Comments and Responses

    The current REAP program was implemented through the interim final 
rule which was published in the Federal Register on April 14, 2011 (76 
FR 21110), with a 60-day comment period that ended June 13, 2011. The 
proposed rule was published in the Federal Register on April 12, 2013 
(78 FR 22044), with a 60-day comment period that ended June 11, 2013. 
Comments on the interim final rule were received from 32 commenters and 
comments on the proposed rule were received from 37 commenters. 
Combined, these commenters provided approximately 150 similar comments. 
Commenters included biorefinery owner/operators, community development 
groups, industry and trade associations, investment banking 
institutions, Rural Development personnel, and individuals. As a result 
of some of the comments, the Agency made changes in the rule. The 
Agency sincerely appreciates the time and effort of all commenters.
    Responses to the comments on both the interim final rule and the 
proposed rule are discussed below. Comments made in response to 
requested comments found in the proposed rule are presented first, 
followed by comments on the interim final rule and the proposed rule 
grouped by category and rule section.

Requested Comments--a. Application Threshold for Projects With Total 
Project Costs of No More Than $200,000

    Comment: One commenter stated that larger thresholds skew to favor 
larger projects. According to the commenter, most agricultural 
producers that the commenter works with in southern Oregon are working 
on solar projects that are much less expensive, generally involving 5 
kilowatt (kW), which can now be installed for less than $5/watt, for 
cattle water or power production for remote locations. The commenter 
recommended that the threshold be reduced to $100,000 or less.
    Response: The proposed rule contains two thresholds--$200,000 and 
$80,000. The commenter recommended a threshold of $100,000. The $80,000 
threshold is sufficient to address the commenter's concern.

Requested Comments--b. Less Documentation for Applications for Projects 
With Total Project Costs of No More Than $80,000

    Comment: Numerous commenters agreed with the Agency's decision to 
create a third category for projects totaling less than $80,000. The 
commenters stated that the current application for small projects is 
burdensome at 40 to 50 pages in length, and dissuades farmers and rural 
small businesses interested in small wind technologies from applying to 
the program. The commenters suggested developing a template that meets 
all the statutory requirements and one commenter submitted an 
alternative application for consideration. Many of the commenters 
endorsed the proposal to simplify the application process for projects 
in the $80,000 to $200,000 tier,

[[Page 78226]]

as it would presumably increase small wind energy participation in the 
REAP program.
    One commenter, in contrast, did not support the three-tiered grant 
application system, stating that three-tiers lead to additional 
complexity for applicants and Agency staff. This commenter recommended 
that the Agency use a two-tiered system, incorporating the simplified 
application process outlined for projects under $80,000 for all 
projects $200,000 or less.
    Response: The Agency thanks the commenters supporting the proposed 
three-tier application system. While the Agency agrees with the one 
commenter that a two-tier system would be simpler, the Agency finds 
that a three-tier system achieves a better balance in the information 
being requested to account for the differences in the level of 
technologies; that a two-tier system would either result in obtaining 
more information than is necessary for the smallest projects or not 
obtaining enough information on the larger projects.
    With regard to the suggestion by one commenter to develop a 
template for applications for $80,000 or less, the Agency agrees that 
this would be useful and intends to pursue the development of such a 
template.

Requested Comments--c. Definition of Small Business

    The Agency received comments on the definition of small business in 
both the interim final rule and the proposed rule. Both sets of 
comments are addressed below.
    Comment: In commenting on the interim final rule, a number of 
commenters were concerned that the restrictions in the SBA standards 
for defining a small business were unduly limiting retailers, 
especially those with multiple facilities, from participating in REAP. 
The commenters were seeking, in general, either to eliminate the use of 
SBA size standard for determining REAP eligibility or to apply the SBA 
size standard at the individual business concern level rather than at 
the entire entity level, which includes accounting for affiliates.
    Four commenters stated that an obstacle to using REAP that hits at 
the heart of rural America are the SBA size requirements. These 
requirements are based on average annual profits and/or number of 
employees, which prevent interested businesses from using this program. 
One commenter stated numerous farm cooperatives are unable to take 
advantage of REAP because they are owned by a parent company, have 
subsidiaries or affiliates at other locations, and do not qualify for 
the program because they come under the umbrella of a much larger 
entity, exceeding SBA eligibility requirements. The commenter 
encouraged USDA to allow these types of businesses to be judged as a 
stand-alone company when determining their eligibility based on SBA 
standards.
    Another commenter urged the Agency to use an alternate 
consideration for small business that would allow a broader 
interpretation of the term ``small business'' by allowing each site to 
be treated as its own entity rather than requiring small business 
status to be determined at the entire-entity level. According to the 
commenter, multi-site locations rarely qualify as a small business.
    Response: The Agency has determined that defining ``small 
business'' in accordance with how the SBA defines ``small business'' is 
not only reasonable, but helps provide consistency within the Federal 
Government. That being said, even SBA has several definitions for 
``small business'' depending on the specific SBA program. In evaluating 
the various SBA programs, the Agency has decided to use the small 
business sized standards used by the SBA financial assistance programs, 
commonly referred to as the 7A and the SBA 504 programs, as found in 13 
CFR 121.301(a) and (b).
    As noted in the comment, commenters were seeking, in general, 
either to remove the cap or to apply the cap at the individual business 
concern level rather than at the entire entity level, which includes 
accounting for affiliates. The Agency disagrees with both suggestions, 
primarily because the Agency has determined that it would be 
inappropriate to adjust how a business is determined to be a small 
business relative to the restrictions found in these SBA definitions; 
that is, the Agency defers to SBA's expertise and years of experience 
in the specific metrics to use to define a ``small business.''
    Further, with regard specifically to the recommendation to apply 
the income limitation to the individual business concern only, the 
Agency is concerned that either change would open the door for huge 
companies to obtain assistance by forming a secondary company that 
could apply for and receive REAP assistance. These companies would have 
resources not available to other small businesses and potentially have 
an unfair advantage when putting together an application for 
assistance.
    With regard to removing the income limitation altogether, the 
statutory authority for the program requires the Agency to consider the 
applicant's small business status as an eligibility criterion and the 
Agency cannot do otherwise. Thus, the Agency has not adopted this 
suggestion in the final rule.
    Comment: In commenting on the interim final rule, two commenters 
recommended revising the definition of small business to follow an 
Agency guideline or the broad guideline used by SBA, which only looks 
at net income and/or net worth, or some other standard guideline. 
According to the commenters, the small business size standards for each 
industry are so different that it makes it difficult to determine 
eligibility. Both commenters stated that, if there were one or two 
numbers to review in every case, it would be much easier and the Agency 
would be able to help more businesses.
    Response: For the reasons stated in the responses to the previous 
two comments, the Agency has decided to use the small business sized 
standards used by the SBA financial assistance programs, commonly 
referred to as the 7A and the SBA 504 programs, as found in 13 CFR 
121.301(a) and (b).
    With regard to the suggestion to look at net income and/or net 
worth in determining the size of the applicant, the Agency agrees that 
this is appropriate. By incorporating reference to 13 CFR 121.301(b), 
the Agency is adding the tangible net worth and average net income of 
the business concern and its affiliates as an alternative set of 
metrics for determining whether the applicant is a small business.
    Comment: One commenter suggested removing the limit on the size of 
the applicant all together given the intent of the program is to 
encourage energy savings and generation of renewable energy. According 
to the commenter, the SBA size standards are one of the most burdensome 
and inconsistent areas within REAP, particularly the determination of 
parent subsidiary and affiliate status and aggregation of this income 
has been a challenge. The commenter recommended that consideration be 
given to continue using SBA size standards thresholds as a cap for each 
business type, but not necessarily using the same process for defining 
the threshold.
    As an alternative, the commenter recommended using only the income 
of the applicant entity when determining eligibility. The commenter 
also asked whether the small business component could be addressed only 
in scoring rather than in eligibility determination. The commenter 
pointed that by doing this it would open up the eligibility to any for 
profit business and would

[[Page 78227]]

simplify the application process (e.g., no need to provide previous 
year's tax returns or look up North American Industry Classification 
System (NAICS) code).
    Response: While the Agency acknowledges the potential benefits of 
the commenter's suggestion to remove the size restriction on the 
applicant, as noted in a previous response, the statutory authority for 
the program requires the Agency to consider the applicant's small 
business status as an eligibility criterion and the Agency cannot do 
otherwise.
    In addition, the Agency does not agree with the commenter's 
alternative to use only the applicant's income for the reasons cited in 
a previous response and therefore has not adopted the commenter's 
suggestion in the final rule.
    Finally, because it is a statutory requirement that a business 
applicant be a ``small business,'' the Agency cannot accommodate the 
commenter's suggestion to address the size of the business as a scoring 
criterion only. The Agency notes that the final rule, as found in the 
proposed rule, does award points based on business size relative to the 
SBA small business size standards.

Requested Comments--d. Maximum Grant Size for Renewable Energy System 
Feasibility Studies

    The Agency received comments regarding the appropriate size for 
feasibility study grants, however the 2014 Farm Bill repealed the 
ability of REAP to make grants for feasibility studies, therefore the 
Agency will not summarize or address those comments.

Requested Comments--e. Using Average Annual Gallons of Renewable Fuel 
To Award Points for Flexible Fuel Pumps

    The Agency received comments regarding the average annual gallons 
of renewable fuel for flexible fuel pumps, however the 2014 Farm Bill 
repealed the ability of the REAP to provide assistance for flexible 
fuel pumps, therefore the Agency will not summarize or address those 
comments.

Requested Comments--f. Using a Minimum 25 Percent Tangible Balance 
Sheet Equity in Lieu of Cash Equity Requirement

    Comment: Two commenters expressed opposition to replacing the 
current cash equity requirement with a minimum of 25 percent tangible 
balance sheet equity (or a maximum debt-to-tangible net worth ratio of 
3:1).
    According to one commenter, the term ``net tangible balance sheet 
equity,'' which is used in the Business and Industry Guaranteed Loan 
(B&I) program, is not a typical lender used term and calculating this 
figure is confusing and does not provide any real useful information to 
the lender or the Agency. The present REAP rule allows the fair market 
value of equity to be used in the calculation of the equity 
requirements. If farmers are going to use REAP, they are going to meet 
the equity requirement by using current assets and their values as 
opposed to cash injection. The term ``land rich and cash poor'' applies 
to most farming operations at this time. On-farm renewable energy 
project applications will be reduced to miniscule amounts if we use the 
B&I equity requirement. If the future of the REAP program is the 
guaranteed loan, then the Agency should not be making it more difficult 
to potential applicants to meet the REAP requirements and that is 
precisely what such a change would do.
    The other commenter stated the use of tangible balance sheet equity 
(TBSE) appears to be a source of confusion for some existing B&I 
lenders and borrowers and extending the requirement to REAP would only 
make this worse. The B&I program requires TBSE when the loan is closed. 
Given REAP closings are after projects are in service, a TBSE 
requirement could create significant challenges as the balance sheet 
will likely see equity changes (cash) used to fund the construction 
phase. The current process of capping projects at 75 percent and using 
cash injection into the project works well. Also, agricultural 
producers typically do not provide Generally Accepted Accounting 
Principles (GAAP)-based financials as are typical to business and 
required in the B&I program. This requirement would be an additional 
burden. The commenter pointed out that REAP loans are generally secured 
well as there is new equipment with no existing liens, and that RES 
projects typically have takeoff contracts or power purchase agreement's 
to ensure cash flow, plus added security with the use of commercially 
available technology. Given these circumstances, the commenter is 
unsure as to what, if any, benefit using TBSE would bring to the 
program. Unless the current cash requirement is not working or the 
default rate has been unfavorable, the commenter recommended leaving 
the cash requirement as is. The commenter also noted that the cash 
equity requirement works with the combination grant/loan application 
where the grant is used for the cash injection.
    Response: The Agency agrees with the commenters. While a goal of 
the Agency is for REAP to be as consistent with the B&I program as 
possible, REAP's agricultural producer and rural small business 
constituents are poorly served by the use of the term ``net tangible 
balance sheet equity'' and it will not be used. The final rule requires 
equity to be cash equity.

Requested Comments--g. Options for Increasing Use of REAP Guaranteed 
Loans

    Comment: One commenter recommended that the Agency allow for 
waivers of the 20 percent personal guarantee when mitigation factors 
are in place in order to encourage greater use of REAP guaranteed 
loans.
    Response: The Agency proposed to revise REAP to follow the B&I 
program's provisions for personal and corporate guarantees, except as 
they apply to passive investors. The B&I provisions allow the Agency to 
waive the 20 percent requirement if the lender can document to the 
Agency's satisfaction that collateral, equity, cash flow, and 
profitability indicate an above-average ability to repay the loan (7 
CFR 4279.149(a)). By doing so, the commenter's recommendation has been 
addressed and the final rule maintains the incorporation of these B&I 
provisions.
    Comment: One commenter recommended removing the SBA threshold all 
together and mimic the B&I program eligibility.
    Response: The Agency does not agree with the commenter's suggestion 
to follow the B&I program in lieu of the SBA threshold. The B&I program 
is not specific to small businesses. Aligning REAP with how the SBA 
defines ``small business'' rather than how the B&I program determines 
applicant eligibility is more appropriate. Further, aligning REAP with 
the B&I program would be statutorily inconsistent with the REAP 
requirement to provide assistance to small businesses. For these 
reasons, the Agency has not adopted the commenter's suggestion in the 
final rule.
    Comment: One commenter recommended allowing refinancing of existing 
renewable energy projects, which is frequently inquired about. The 
commenter recommended that the Agency implement provisions that are 
equal to or less restrictive than those found in the current B&I 
program.
    Response: The Agency agrees with the commenter that allowing 
refinancing of existing projects would encourage the use of REAP loan 
guarantees and has added provisions to allow such

[[Page 78228]]

refinancing in the final rule. These provisions, however, require 
certain conditions be met. First, the existing project to be refinanced 
must be part of an application for a new project; that is, an 
application that proposes only to refinance an existing project is not 
eligible. Second, the existing project being refinanced must be a 
project that would otherwise be eligible under REAP. Third, the cost of 
the refinancing must be less than 50 percent of the eligible project 
costs of the application. In applying these provisions, the existing 
debt may be either current debt with the lender applying for the 
guarantee or debt from another lender.
    Comment: One commenter recommended allowing loan note guarantees to 
be issued up-front prior to complete system being installed and tested.
    Response: For the reasons discussed in response to directed 
question i below, the Agency is not incorporating this recommendation 
in the final rule.
    Comment: One commenter indicated quarterly competition is positive 
improvement from the current REAP program, but monthly funding cycles 
is better than quarterly.
    Response: The Agency agrees that shorter periods for competing 
guaranteed loan applications will provide the best service to those 
applying for such applications. The Agency, therefore, has decided to 
compete guaranteed loan-only applications on a periodic basis, provided 
that the Agency receives a sufficient number of applications in order 
to maintain a competitive awards process, and has included this 
provision in the final rule.

Requested Comments--h. Frequency for Competing Guaranteed Loan-Only 
Applications

    Comment: One commenter stated that, while quarterly competitions 
are a positive proposal to the existing regulation, allowing projects 
to compete on a monthly basis will be more consistent with the B&I 
program. The commenter also stated that continuous funding would also 
mirror SBA programs, which lenders are familiar with.
    Response: As noted in the response to the previous comment, the 
Agency agrees that shorter periods for competing guaranteed loan 
applications will provide the best service to those applying for such 
applications and, therefore, has incorporated periodic competitions for 
guaranteed loan-only applications in the final rule, provided that the 
Agency receives a sufficient number of applications in order to 
maintain a competitive awards process.

Requested Comments--i. Issuance of REAP Loan Note Guarantee Prior to 
Construction for Technologies That Demonstrate Lower Risk to the 
Government

    Comment: One commenter recommended allowing loan note guarantees to 
be issued up-front prior to complete system being installed and tested 
in order to encourage participation in the REAP loan guaranteed portion 
of the program.
    Response: The Agency agrees with the commenter that issuing the 
loan note guarantee up-front prior to the complete system being 
installed and tested would encourage participation in the program. 
However, no substantive suggestions were provided by the commenter on 
how risk to the program could be mitigated. Further, the similar B&I 
program does not issue loan note guarantees up-front for energy 
projects primarily because of the inherent increased risk with doing 
so. Therefore, the Agency has decided not to allow the issuing of loan 
guarantees up-front under REAP.

Requested Comments--j. Development of Multi-Farm, Community Digester 
Projects Under the Rule

    Comment: One commenter stated that a community digester may not 
qualify given the SBA size determination method if all entities incomes 
are aggregated. According to the commenter, looking at only the income 
or projected income or employees of newly formed entities may allow 
this type of project to be eligible.
    The commenter also suggested that the Agency consider modifying the 
Administrator points to encourage community-based renewable or energy 
efficiency projects with justification being that more people will 
benefit with project funding.
    Response: The Agency agrees with the commenter that more community 
digesters would qualify as eligible by not aggregating all of the 
entities' incomes. However, for the reasons stated earlier in a 
response concerning this issue, the Agency had determined that 
consistency with the application of SBA definitions of small business 
is important and that it is important to look at the financial position 
of all entities associated with a project. Therefore, the Agency has 
not revised the rule to incorporate the commenter's suggestion.
    With regard to the commenter's suggestion to modify how 
Administrator priority points are awarded, the Agency is not persuaded 
that funding a single, large community-based project necessarily 
benefits more people than funding an equivalent number of smaller 
projects. Thus, the Agency has not revised the rule in response to this 
suggestion.

Requested Comments--k. Subcategorization of Energy Efficiency 
Improvements for Purposes of Determining Under-Representation When 
Awarding State Director or Administrator Priority Points and Whether 
Historical Data or the Current Pool of Applications Should Be Used in 
Determining Under-Representation.

    Comment: One commenter did not support subdividing EEI projects to 
award under-represented project points. According to the commenter, 
this would lead to more political influenced awards from year-to-year 
versus supporting the true goal of energy savings, which these projects 
currently promote. According to the commenter, penalizing projects 
types that have formerly been completed also penalizes the applicant 
that was not an early innovator or just learned about the program, but 
still has a project that achieves energy savings. The commenter claims 
that the Agency's credibility with renewable energy technology awards 
has been hurt because grant writers/vendors do not know from year to 
year if their applications will be competitive as these priority points 
for under-represented technologies can be critical for renewable energy 
projects to receive funding.
    With regard to the second part of the question, the commenter 
stated that, while using historical data is preferable over considering 
the annual pool of applications, allowing states to award points to 
encourage growth specific to their state is the preferred method.
    Response: In the absence of input from other commenters on 
supporting a subdivision of EEI projects, the Agency has elected not to 
subdivide EEI projects for the purposes of determining whether a 
specific type of EEI project is under-represented when awarding 
discretionary points.
    The Agency is not subdividing EEI projects for the purposes of 
determining under-represented technologies, therefore, the agency did 
not respond to the second part of the comment (historical versus pool 
of applications for the year) because it is not applicable.

General

Support for Program
    Comment: Two commenters expressed general support for the

[[Page 78229]]

program, with one commenter stating that these programs will help 
jumpstart economic growth in alternative sectors in the United States.
    Response: The Agency thanks the commenters for their support.
Consolidation of Rule
    Comment: One commenter stated that consolidating each part of the 
program into a single subpart should be helpful in enhancing the REAP 
program's effectiveness in fostering the development of more anaerobic 
digesters.
    Response: The Agency agrees that consolidating each part of the 
REAP program into a single subpart enhances the Agency's effectiveness 
in implementing REAP, to the benefit of all eligible technologies, 
including anaerobic digesters.
    Comment: Two commenters expressed strong support for REAP from the 
dairy farmer perspective. One of the commenters stated that dairy 
farmers have a great opportunity to take advantage of multiple USDA 
programs to develop and construct anaerobic digester systems. The 
commenter appreciates the Secretary's commitment to these efforts as 
put forth in the dairy sustainability Memorandum of Understanding 
signed in late 2009. For example, dairy farmers may be able to utilize 
Environmental Quality Incentives Program (EQIP) through USDA's Natural 
Resource Conservation Service (NRCS) with REAP to develop an anaerobic 
digester system. The commenter recommended continuing to work to make 
certain these opportunities are developed and understood throughout the 
nation.
    The commenter also supported the comments submitted by the 
Innovation Center for U.S. Dairy, especially the Center's 
recommendations for modifying the personal loan guarantee language 
could allow for a number of dairy farmers to secure the necessary 
finances to utilize REAP for anaerobic digester systems.
    The other commenter expressed belief that REAP is critical for our 
nation's energy future and that opportunities abound for not only 
realizing the energy efficiencies on the farm, but also for dairy 
farmers to become producers of renewable energy.
    Response: The Agency thanks the commenters for supporting REAP. 
Agency officials collaborate closely with REAP applicants via its state 
offices through an array of supporting entities; such as the Natural 
Resource Conservation Service (NRCS), the Farm Service Agency (FSA), 
and the Forest Service (FS), state, and private stakeholders; to 
leverage program funds to their maximum impact upon national and 
departmental priorities.
    The Innovation Center for U.S. Dairy did not submit comments on the 
interim or proposed rule, so the Agency was unable to determine what 
the commenter was referring to beyond the comment on personal loan 
guarantee. The Agency notes that among the changes implemented by this 
rule is the incorporation of the personal and corporate guarantee 
requirements of the B&I program.
Rebate Program
    Comment: In commenting on the interim final rule, one commenter 
stated that there should be a rebate program for micro wind and solar 
in order to facilitate greater use of the program by these 
technologies.
    Response: The statutory authority of REAP requires the Agency to 
implement grants and loan guarantees. As such, the Agency is not 
authorized to use rebates in implementing REAP. In lieu of being able 
to implement a rebate program, the Agency is implementing a simplified 
application process for applications for projects with total project 
costs of $80,000 or less where funds are disbursed at project 
completion. This streamlined application process achieves many of the 
burden reductions that could be achieved under a direct rebate program.

EO 12372 Intergovernmental Review

    Comment: One commenter noted that the preamble to the interim final 
rule states that intergovernmental consultation results are not 
reported because they are ``not required of this program.'' The 
commenter stated that he understands that certain field offices insist 
that the U.S. Fish and Wildlife Service be consulted on all wind 
projects, regardless of their size, following a memo from Rural 
Development in Washington. According to the commenter, for fiscal year 
2011 this resulted in a severely compressed application deadline and 
dissuaded a number of qualified applicants. The commenter recommended 
that this situation be clarified, and that all wind projects of 100 kW, 
as a minimum, and under be allowed to proceed without such 
consultation. The commenter's preference would be exclusion for single 
turbine projects with heights up to 200 feet (ft).
    Response: The consultations referred to by the commenter are in 
connection with the NEPA and not with EO 12372, Intergovernmental 
Review. The Agency consultations with U.S. Fish and Wildlife Service 
regarding proposed project installations are not governed by EO 12372, 
but are instead governed by NEPA and Agency environmental regulations 
published in 7 CFR 1940, part G. Projects must comply with all 
environmental requirements; including Federal, state, and local 
requirements. All applicants must comply with the environmental 
requirements applicable to their project, including having the 
environmental review completed prior to approval of the project. 
Funding a grant or providing a loan guarantee is a Federal action 
requiring compliance with the NEPA. NEPA clearance must be done before 
the Agency obligates money, versus before application, so NEPA 
requirements should not significantly impact the time needed to submit 
an application.

Demonstrated Financial Need

    Comment: Four commenters supported the removal of the demonstrated 
financial need requirement. One commenter stated that the need to 
demonstrate financial need was one of the most onerous requirements of 
the program and that it is not called for in the current statute, is 
burdensome, and a significant obstacle to participation on very small 
projects. The other two commenters stated that the requirement was 
undefined and difficult to prove. Other commenters stated that the 
change should remain in the final regulation.
    Response: The Agency thanks the commenters for their support. The 
final rule does not contain a ``demonstrated financial need'' 
requirement. Further Congress evidenced its intent that ``demonstrated 
financial need'' not be shown when the 2008 Farm Bill removed it as a 
requirement for this program.

Funded Technologies

    Comment: Numerous commenters stated the 2002 Farm Bill and 2008 
Farm Bill specifically sought to promote renewable energy development 
for agricultural producers and rural small businesses. The 2008 Farm 
Bill set aside 20 percent of REAP funds for small business- and farm-
scale renewable energy technologies for grants of $20,000 or less. The 
commenters believe that the lengthy project cycles for small wind, 
burdensome REAP paperwork, and application process and lower success 
rates for small wind applications have resulted in increasingly poor 
program participation rates by small wind retailers.
    During fiscal years 2009 through 2012, the average funding success 
rate across all REAP technologies was 67 percent, which resulted in 
6,605 funded

[[Page 78230]]

projects out of 9,856 requests. Yet, during that same 4-year period, 
the average funding success rate for wind was 40 percent, which 
resulted in 376 funded projects out of 942 total requests. The 
percentage of REAP awards between fiscal years 2009 through 2021 for 
wind projects was just 6 percent. Agency data indicate that the low 
amount funded for wind projects has been even lower in recent years. 
The commenters suggested the numbers indicate that the REAP program, 
including the application process, is not accessible for farmers and 
small businesses interested in wind generation and there is a 
programmatic bias against small wind projects.
    Response: While the Agency agrees with the figures presented by the 
commenters, the Agency disagrees that the program is not accessible to 
farmers and small businesses interested in wind generation. The Agency 
has made and is making modifications to the program to ensure all 
technologies, including wind, have an ability to compete for funding, 
which include:
    <bullet> Scoring adjustment in simple payback awards full points at 
a 10-year payback period rather than a 4-year payback period. This 
increase in the payback period to receive full points has helped 
certain renewable energy system projects, including small wind 
projects.
    <bullet> To the extent that any one RES technology is unrepresented 
or under-represented in REAP awards, the program allows State Directors 
and the Administrator to award discretionary points to such projects. 
In fiscal year 2012 and fiscal year 2013, these discretionary points 
were awarded to wind projects and resulted in a higher percentage being 
funded. In fiscal year 2011, only 19 percent of the wind applications 
received were funded, but in fiscal year 2012 and fiscal year 2013 45 
percent and 56 percent, respectively, of the wind applications received 
were funded.

Multi-Farm Anaerobic Digester Projects

    Comment: In commenting on the interim final rule, one commenter 
recommended that a separate procedure be provided for projects 
involving multiple farms. The commenter provided a detailed separate 
procedure for providing an alternative combination grant and loan 
procedures for multi-farm digester projects, which would differ from 
the current combination grant and guaranteed loan process, as follows:
    <bullet> The grant portion should be available in the full amount 
of up to 25 percent of total costs of the activity, as authorized by 
REAP.
    <bullet> The loan guarantee portion should be authorized for up to 
75 percent of eligible project costs, less the amount of a grant, when:
    (1) At least 15 percent of eligible project costs is committed as 
private equity, and
    (2) A minimum 10-year contract has been executed for the end-use of 
the fuel.
    <bullet> The loan guarantee should also be available to support 
restructuring of loan amortization.
    <bullet> A project developer should be able to apply for a combined 
grant and loan guarantee on a rolling basis, or as soon as concept 
design and business plan are completed.
    <bullet> Project review should not be based on competitive scoring, 
but would instead be expedited and measured against a set of fixed 
criteria.
    <bullet> ``Hybrid'' project funding would be simultaneously 
available in the full amount offered by any separate program, whether 
USDA or Department of Energy (DOE) or other, and would not reduce the 
availability of the REAP grant.
    <bullet> An interim procedure should be devised for ``shovel 
ready'' projects, to phase in their financing and construction over 2 
years, beginning this summer. Some funding should be allocated from the 
fiscal year 2011 funds to finance the initiation of construction in 
fiscal year 2011 and a commitment of fiscal year 2012 funding be 
provided to finance the continuation and completion of construction 
next year. The current hard June 15 deadline for fiscal year 2011 
should be modified to allow the submission of applications for the 
filing of interim applications under this new procedure.
    <bullet> In the alternative, if a combination of full, 25 percent 
funding and a revised loan guarantee is to be made available for multi-
digester projects under a competitive scoring procedure, the current 
hard June 15 deadline needs to be modified to enable submission of 
applications for funding in fiscal year 2011.
    The commenter concluded by stating that, with greater, targeted 
funding and improved loan financing flexibility for these types of 
projects, the program's incentive value may be greatly leveraged so as 
to reach more farms and more sectors of the renewable energy 
marketplace.
    Response: The Agency points out that multi-farm anaerobic 
(community) digester projects are eligible projects under the current 
process and disagrees with the commenter that a separate award 
procedure is needed for providing a combination grant and loan for 
multi-farm anaerobic digesters because the current award process is 
sufficient and allows such facilities to compete on an equitable basis 
with all other technologies. The Agency has implemented periodic 
guaranteed loan-only competitions in the rule to improve access to 
capital. Furthermore, to fully implement the recommendation made by the 
commenter would require the Agency to set aside funds specifically for 
multi-farm digesters. This is something that the Agency cannot do 
without specific statutory authority, which the Agency does not 
currently have. Finally, the Agency works to sustain a diverse 
portfolio of RES and EEI projects across every state. To develop a 
procedure specific to one technology would be counter to this goal for 
the program.
    Comment: In commenting on the interim final rule, a number of 
commenters supported increased funding for multi-farm digesters. Some 
simply requested that the interim final rule be amended to allow multi-
farm digester projects to be funded in an amount equal to a full 25 
percent of project costs as authorized by REAP. According to one of the 
commenters, the up-front funding cap of $500,000 per digester for 
projects combining a loan guarantee with a grant is simply insufficient 
to drive the investment for a project of this scale, whereas funding of 
25 percent of project costs approaches the necessary amount. Therefore, 
the commenter recommended changing the rule to allow this amount of 
funding.
    Other commenters echoed similar concern and recommendations, 
explaining that the completion of the projects hinge largely on whether 
REAP funding can be made available at a level in the amount of 25 
percent of project costs, or substantially more than the $750,000 
currently authorized by the REAP funding rule and thus the cap of 
$750,000 must be raised, but would still need to conform to the 25 
percent of project costs statutory limitation.
    The commenters as a whole stressed the potential benefits of these 
changes to facilitate multi-farm digester projects. One of commenters 
noted that these projects take advantage of the economies of scale 
involved, where the only limitation on the number of farms that may be 
involved in this type of project is proximity to the host digester site 
and the associated costs of transporting the farm wastes and returned 
nutrient spread and bedding byproduct.
    Another commenter noted that there are challenges in making 
digester technology cost effective for single, small farm operations 
and that it is hard

[[Page 78231]]

to envision broad-based application of single digester equipment on 
smaller dairy operations as are typically found in the eastern United 
States. This commenter stated that the community digester model 
provides a workable solution to this challenge by allowing multiple 
producers to supply their wastes collectively to a single, larger scale 
operation.
    Still other commenters provided examples of projects currently 
being considered that would provide renewable natural gas as a 
substitute for #6 and #2 fuel oil in a co-generation plants at 
universities and extensive discussion of the potential overall benefits 
of the projects to the universities and local farming operations.
    Response: As implemented in 2011, REAP has two maximum funding 
levels: a $500,000 limit for any one renewable energy project and a 
$750,000 limit to any one entity (for all projects funded under REAP). 
With regard to combined funding requests (those requests seeking both a 
grant and a loan guarantee) for RES, the maximum loan amount is $25 
million and the maximum grant amount is $500,000. While the Agency 
acknowledges that certain projects, such as multi-farm digesters, may 
have significant funding requirements, the Agency seeks a program that 
not only supports a diversity of technologies, but provides funds to a 
large number of projects in all states to ensure a national-level 
program. Removing maximum funding levels would work counter to both of 
those goals (e.g., very large projects could take a significant portion 
of the limited funds available thereby reducing the number of projects 
that could otherwise have been funded and in turn reduce the diversity 
of projects). Further, multi-farm projects are not prohibited from 
seeking a combined funding request, as long as the grant portion does 
not exceed $500,000. For these reasons, the Agency has retained these 
levels in the final rule.

Project Eligibility

Pre-Commercial Technology/Commercially Available Definition
    Two commenters expressed concern about removing pre-commercial 
technology for the rule.
    One commenter stated that the rationale behind the removal of pre-
commercial technology was difficult to understand. The stated reason is 
to avoid overlap with the Biorefinery Assistance guaranteed loan 
program. The Biorefinery Assistance program appears to focus primarily 
on biofuels, which presumably encompasses only a subset of projects 
that apply for REAP funding. If the Agency is seeking to avoid overlap 
with the Biorefinery Assistance program, it appears that there are more 
efficient and precise mechanisms, such as explicitly stating that 
biorefinery projects receiving loans from the Biorefinery Assistance 
program would be ineligible.
    In pointing to the definition of pre-commercial technology 
(Technology that has emerged through the research and development 
process and has technical and economic potential for commercial 
application, but is not yet commercially available), the commenter 
pointed out that the definition is clearly broader than biorefinery 
projects, and making this category ineligible affects project types 
outside of what would also be relevant for the Biorefinery Assistance 
program.
    As proposed, only commercially available technologies would be 
available for funding. The definition for commercially available (from 
the same document) begins with ``A system that has a proven operating 
history specific to the proposed application'' and contains other 
requirements such as ``an established warranty exists for parts, labor, 
and performance.'' While the definition for pre-commercial is fairly 
broad, the requirements for a technology to be considered 
``commercially available'' are relatively restrictive. If the proposed 
rule change is accepted, then several new (but beyond pre-commercial) 
technologies could conceivably be made ineligible. Under a strict 
reading of the current definition of commercially available, products 
coming onto the market, such as an innovative wind turbine design or a 
new biodigester system, would be ineligible for REAP funding.
    There may be an argument for removing pre-commercial technology 
from eligibility to ensure participating projects are likely to 
succeed, but the given rationale appears incongruent with the potential 
consequences.
    The second commenter opposed eliminating the pre-commercial 
available technology from the rule because many projects do not qualify 
for the Biorefinery Assistance program and the removal will leave a 
void in the Agency's funding spectrum. This commenter stated that, if 
the Agency does their due diligence in the technical reviews to ensure 
sound projects are funded, the program can continue to foster 
innovative energy improvement and renewable energy projects.
    In contrast to these two commenters, numerous commenters supported 
the removal of pre-commercial technologies as eligible projects from 
the REAP program and, at the same time, recommended that the Agency 
strengthen the definition of ``commercially available.'' Without the 
qualified examination of documentation supporting the claim of 
commercial availability by an organization such as National Renewable 
Energy Laboratory (NREL), the broad language (one commenter 
specifically identified ``operating history of 1 year, established 
design and installation procedures, professional service providers' 
familiarity with the system'') risks the reputation of the program by 
inviting the entry of questionable wind energy systems into REAP.
    Commenters strongly recommended that the Agency require safety and 
performance standards certification to either American Wind Energy 
Association (AWEA) 9.1-2009 (for turbines >200m\2\ rotor area, ~ 60 kW) 
or International Electrotechnical Commission (IEC) 61400-12-1 and IEC 
61400-11 (2005 or future versions) by the Small Wind Certification 
Council, or other accredited certification body, for qualification as 
``commercially available.'' One of the commenters specifically 
recommended that the Agency include in the definition of ``commercially 
available'' certification standards for all RES from an accredited 
certification body.
    Response: As discussed below, the Agency is not including pre-
commercial technologies as eligible for REAP funding in the final rule 
and has revised the definition of ``commercially available.''
    With regard to the exclusion of pre-commercial technologies, the 
Agency acknowledges that the Agency's rationale presented in the 
preamble was incomplete. The Agency also acknowledges that eliminating 
the overlap with the Section 9003 program can be handled in several 
ways, as pointed out by the commenters. However, the Agency is 
concerned that including pre-commercial technologies within REAP 
continues to expose the Agency and taxpayer dollars to the risks 
associated with financing unproven technologies that do not meet the 
commercially available definition. Further, with the streamlining of 
applications, the Agency will be receiving less information to make 
technical merit determinations. To create another set of application 
requirements increases the complexity of the program at a time when the 
Agency is making a concerted effort to simplify it. Lastly, with 
regards conducting ``due diligence,'' the Agency is concerned that due 
diligence may be

[[Page 78232]]

insufficient to overcome the potential risks inherent with pre-
commercial technologies, such as whether the technology can be 
successfully scaled-up to a commercial level.
    Several commenters, in supporting the removal of pre-commercial 
technologies, recommended that the Agency strengthen the definition of 
``commercially available'' by requiring review of applications by such 
entities as the National Renewable Energy Laboratory (NREL)and/or 
requiring certification of projects as being commercially available by 
an appropriate industry body or meeting certain industry standards. The 
Agency has and will continue to work with NREL and other recognized 
industry experts, as needed.
    As described below, the Agency has revised the definition of 
``commercially available'' by requiring the system have:
    <bullet> ``Proven performance data'' in addition to a ``proven 
operating history'' and that there is at least one year of data 
demonstrating both the performance data and operating history; and
    <bullet> An existing established warranty that is valid in the 
United States.
    In addition, the Agency is adding the option of demonstrating that 
a system can be determined ``commercially available'' if it has been 
certified by a recognized industry organization whose certification 
standards are acceptable to the Agency. The Agency also revised the 
definition to clarify that the requirements apply equally to both 
domestic and foreign systems.
    Finally, with regard to the suggestion that the Agency explicitly 
state that biorefinery projects receiving loans from the Biorefinery 
Assistance program would be ineligible for REAP, the Agency agrees with 
the commenter that this helps delineate the two programs. The Agency 
intends to address this suggestion in the Biorefinery Assistance 
program final rule.
    In sum, the changes made in the final rule in response to this set 
of comments strengthen, clarify, and increase flexibility in 
demonstrating that a system is ``commercially available.''

Definitions (Sec.  4280.103)

Anaerobic Digester Product
    Comment: One commenter recommended that the underlined text be 
added to the definition: ``Anaerobic digester project. A renewable 
energy system that uses animal waste and other organic substrates, via 
anaerobic digestion, to produce biomethane that is used to produce 
thermal or electrical energy or converted to a compressed gaseous or 
liquid state for direct use or for injection into natural gas 
transmission and distribution systems.'' According to the commenter, 
this change will increase the demand for renewable biogas produced by 
anaerobic digesters. It would allow anaerobic digester projects that 
inject renewable biogas into the natural gas, in addition to or instead 
of using the gas on-site. Anaerobic biogas producers can receive added 
value from the renewable quality of their biogas, even when that gas is 
not used on site but put into transmission; wind and solar generators 
sell the renewable quality of their electrons to firms far from where 
the electrons are consumed. Encouraging the wheeling of renewable 
biogas through the natural gas transmission system allows customers, 
including stationary fuel cell power plants and hydrogen production 
systems at fuel cell electric vehicle fueling stations, to take 
advantage of renewable fuel using the existing natural gas system.
    Response: With regard to the suggestion that the definition be 
modified to include ``for direct use or for injection into natural gas 
transmission and distribution systems,'' the Agency disagrees that this 
is needed. The current definition does not exclude such uses and 
including the suggested language might unintentionally disqualify 
anaerobic digesters that the Agency would otherwise have funded. 
Therefore, the Agency has not included this suggested language in the 
final rule.
Annual Receipts
    Comment: One commenter stated that income limitations should be 
defined using net income, not gross income.
    Response: For the reasons stated earlier in our response to 
comments on the definition of ``small business,'' the Agency is using 
in the final rule the definitions of small business as found in SBA's 
provisions in 13 CFR 121.301(a) and (b). Having made this 
determination, the Agency defers to SBA's expertise and years of 
experience in the specific metrics to use to define a ``small 
business'' and, in the case of 13 CFR 121.301(b). The Agency notes that 
13 CFR 121.301(b), is still in the process of being updated, but based 
on 15 U.S.C. Section 632(a)(5), SBA can determine a small business 
eligible, for development company programs and for 7(a) business loans 
by using average net income after taxes of less than $5 million and 
tangible net worth of less than $15 million in the preceding 2 years. 
Thus, the commenter's request has been accommodated.
Energy Analysis
    Comment: Two commenters did not agree with adding the new 
definition of ``Energy Analysis.'' One commenter stated that the 
definition is ambiguous and does not provide a clear meaning as to what 
is expected, while the other commenter stated that it adds another 
level of confusion to the energy savings documentation requirement. 
According to the commenters, this new term varies little from the 
``energy assessment'' definition, and will result in added confusion 
for potential applicants. The commenters also questioned whether this 
definition will provide the Agency with the necessary information for 
informed energy savings decisions.
    Response: After considering these comments, the Agency has 
determined that it is unnecessary to have a separate definition for 
``energy analysis'' and has eliminated the term from the final rule.
Energy Assessor
    Comment: One commenter raised concerns with the ``energy assessor'' 
definition. The commenter questioned the credibility of using 3 years 
of experience and completion of five energy assessments or energy 
audits as a measure for a qualified consultant.
    Response: The Agency has reviewed the proposed definition for 
``energy assessor'' with knowledgeable federal professionals who 
indicated that the 3 years and five energy assessments or energy audits 
is a reasonable threshold to provide sufficient experience to perform 
energy assessments. Further, part of the definition of ``energy 
assessor'' is that the energy assessor is a ``Qualified Consultant.'' 
To be a ``qualified consultant,'' the individual or entity must possess 
``the knowledge, expertise, and experience to perform the specific task 
required.'' In this case, the specific task required is performing an 
energy assessment. The purpose of the ``number of years of experience'' 
and the ``number of similar projects'' within the definition of 
``energy assessor'' is to set a minimum benchmark to be applied across 
the various technologies included in REAP. Therefore, the Agency has 
not revised the rule in response to this comment.
Energy Audit
    Comment: One commenter indicated that there are three types on 
energy audits: Level I, a walk through audit; Level II, a full audit; 
and Level III, a full investment grade audit. The commenter asked if 
walk through audits are sufficient for REAP. According to the 
commenter, full audits identify numerous energy conservation measures

[[Page 78233]]

(ECMs) and it is customary to recommend that a specialist make a 
detailed analysis of a particular aspect regarding an ECM. The 
commenter noted that most REAP projects do not focus on one particular 
piece of equipment. If this is indeed the case, the commenter 
recommended that the Agency prescribe what is acceptable for such 
measures as many utility rebate or state grant programs do.
    Another commenter recommended that the Agency makes sure that the 
energy auditor performs the on-farm energy audit according to the 
American Society of Agricultural and Biological Engineers (ASABE) 
definitions.
    Response: As defined in the rule, an ``energy audit'' is, in part, 
a ``comprehensive report that meets an Agency-approved standard.'' 
Rather than defining what level energy audits would be acceptable to 
the Agency in the rule, the Agency will include guidance on what is 
acceptable in the Agency's instructions for the rule so as to identify 
those industry-recognized energy audit standards that are acceptable 
for conducting energy audits under this program. The Agency notes that, 
while the Level II and Level III energy audits described by the 
commenter would constitute energy audits acceptable to the Agency, a 
walk through energy audit (Level I) may be acceptable depending on the 
work that is done and presented in the audit. To be accepted by the 
Agency, an energy audit must contain the information outlined in 
Section B of Appendix A to 7 CFR part 4280.
    While the Agency agrees that an audit performed according to ASABE 
definitions is acceptable under REAP, not all audits need to be 
performed according to ASABE definitions in order for the audit to be 
acceptable to the Agency under REAP. As noted above, the Agency will 
include up-to-date guidance on what is acceptable in the Agency's 
instructions so as to further clarify that energy audits include 
industry recognized energy audit standards.
Energy Auditor
    Comment: One commenter recommended that the Agency ensures that the 
energy auditor conducting on-farm energy audits is either a 
professional engineer or certified energy manager.
    Response: The Agency disagrees with the commenter that the only 
entities qualified to perform energy audits under REAP are professional 
engineers and certified energy managers. The Agency has determined that 
a certified energy auditor; an individual with a 4 year engineering or 
architectural degree with at least 3 years of experience and who has 
completed at least five similar type energy audits; or an individual 
supervised by one of these individuals, has the sufficient experience 
for conducting energy audits under REAP and the Agency has not revised 
the rule in response to this comment.
Inspector
    Comment: One commenter stated that the definition of ``inspector'' 
does not define how the inspector is qualified other than having 3 
years of experience and completion of five energy assessments or energy 
audits. The commenter asked how the Agency arrived at five assessments 
or audits as a meaningful number and questioned whether five audits or 
assessments in 3 years makes an individual qualified.
    Response: The Agency points out that in the proposed rule 
``inspector'' is used in conjunction with the quality of the project 
work completed and not with energy audits or energy assessments. 
Nevertheless, the Agency disagrees with the commenter's assertion that 
the definition of ``inspector'' is solely defined by the number of 
years of experience and the number of projects. Part of the definition 
of ``inspector'' is that the inspector is a ``Qualified Consultant.'' 
To be a ``Qualified Consultant,'' the individual or entity must possess 
``the knowledge, expertise, and experience to perform the specific task 
required.'' The purpose of the number of years of experience and number 
of similar projects within the definition of ``inspector'' is to set a 
minimum benchmark to be applied across the various technologies 
included in REAP. The Agency has not revised the rule in response to 
this comment.
Qualified Consultant
    Comment: One commenter was concerned that requiring the Qualified 
Consultant be ``independent'' will have a negative effect on 
applications for small projects, which have the vendor perform the 
energy savings analysis, plus supply the equipment, and at times the 
project installation. The commenter pointed out that there are many 
small vendors in rural America who are qualified to provide the savings 
analysis as a service to their potential customers and this should not 
be discouraged. According to the commenter, this proposed definition 
would discourage this activity and harm small projects.
    Response: The Agency agrees with the point being made by the 
commenter. However, neither the proposed rule nor the final rule 
require projects with total project costs of $80,000 or less to use an 
energy assessor, who must be a qualified consultant. As found in the 
definition of ``Energy Analysis'' in the proposed rule, the energy 
analysis could have been performed by an individual or entity with at 
least 3 years of experience and at least five energy assessments or 
energy audits for similar projects. In Sec.  4280.103 of the final 
rule, while the Agency has removed the definition of energy analysis 
(for reasons discussed above), such an individual or entity can still 
be used to conduct energy assessments for projects with total project 
costs of $80,000 or less (as found in Section B of Appendix A to 7 CFR 
part 4280). As such, the final rule does not require the individual or 
entity to be ``independent.'' Thus, for these small projects, the 
vendor or installer of the RES or EEI may be sufficiently qualified to 
provide energy savings or energy replacement information.
    To the extent, however, that the commenter is referring to projects 
with total project costs of more than $80,000, the Agency disagrees 
with the commenter and is keeping the requirement that the energy 
assessment is performed by an independent entity (as found in the 
definition of ``Qualified Consultant'').
Retrofitting
    Comment: One commenter questioned why the term ``retrofitting'' 
applies only to RES. The commenter asked: ``Can't one retrofit an 
existing fan, motor, or lighting system?''
    Response: The Agency agrees that the definition of ``retrofitting'' 
does not need to reference RES and has revised the definition 
accordingly.
Simple Payback
    Comment: One commenter agreed with the proposed change to remove 
the adjustment of energy efficiency equipment based on the ratio of 
capacity when determining simple payback. According to the commenter, 
annualized energy savings is sufficient to ensure the goal of the 
program is being met.
    Response: As in the proposed rule, determining simple payback under 
the final rule does not include adjusting the EEI based on the ratio of 
capacity. The Agency agrees with the commenter that annualized energy 
saving is sufficient to ensure the goal of the program is being met.
    Comment: Two commenters disagreed with using 36 months of energy 
use data within the ``Simple Payback'' definition for EEI projects 
because the 36 month energy usage history requirement can be 
detrimental to certain applicants. According to the commenters, the

[[Page 78234]]

nature of some industries does not require the applicant to record 36 
months of energy usage. The commenters further state that the penalty 
of ineligibility due to an applicant's inability to produce 36 months 
of energy usage history is too severe. One commenter recommended that 
the Agency either retain the current 12 month energy usage history 
criteria or use a 3-year average.
    Response: In consideration of these comments, the Agency has 
decided not to implement the proposed rule's 36 month of energy usage, 
but instead allow the applicant a choice to use either the most recent 
12 months or an average of 2, 3, 4, or 5 years to provide the baseline 
data. The ability to use more than just 12 months will provide a more 
accurate picture of historical data, but not put an undue burden on the 
applicant or auditor to compile the data on past energy use for all EEI 
applications.
    Comment: One commenter encouraged the Agency to allow flexibility 
with the requirement that all utility bills be supplied with the audit/
application. The commenter pointed out that agricultural producers and 
businesses have the records on file, which are submitted to their 
auditor to derive at overall energy consumption, and the Agency should 
only request actual bills if necessary. This controls the paperwork 
burden on applicants as well as the paper volume for Agency files.
    Response: Neither the proposed rule nor the final rule requires 
applicants to submit their actual utility bills with either the energy 
audit or the application. The energy audit or energy assessment must 
present the information in the audit. The Agency agrees that applicants 
should keep such documentation in their files should the Agency request 
them as it reviews the energy audit and application.
    Comment: One commenter pointed out that the simple payback 
calculation allows Production Tax Credits (PTCs) and Renewable Energy 
Credits (RECs) to be counted, but not Investment Tax Credits (ITCs) or 
state subsidies. The commenter stated that this makes little sense, 
because a subsidy is a subsidy in a payback calculation whether it is 
paid at once or over time. According to the commenter, not including 
ITCs discriminates against wind and solar projects under 100 kW because 
such projects qualify for Section 48 ITCs, rather than the Section 45 
PTCs. The result is that the payback period of smaller projects is 
significantly exaggerated and their REAP scores are unfairly reduced.
    To remedy this situation, the commenter recommended eliminating the 
scoring for micro-projects entirely and replacing it with a ``first 
come/first served'' award system once annual funding is determined. The 
commenter stated that this unfair payback accounting, at a minimum, 
must be equitably revised so that smaller distributed generation 
projects are not improperly penalized.
    Response: The Agency must evaluate all projects against each other 
as required by the authorizing statute, and thus cannot implement a 
``first-come, first-served'' approach, as suggested by the commenter, 
in making awards.
    With regard to making changes to the calculation of simple payback, 
the Agency acknowledges that the simple payback calculation has been 
difficult to apply because of the differences in utility rates and 
incentives between state and regions. Rather than adding additional 
considerations (such as investment tax credits) to the calculation of 
simple payback, the Agency has decided to simplify its calculation by 
also removing from consideration in the calculation of net income all 
tax credits, carbon credits, and renewable energy credits. In addition 
to simplifying the calculation, this change allows the Agency to better 
evaluate each project on its own merits.
    Comment: One commenter noted that the simple payback calculation 
does not allow one time incentives to be figured into the return on the 
project for simplicity purposes and to allow equitable scoring between 
EEI projects and renewable energy projects and stated that this is 
understandable. The commenter then stated that one incentive that 
should be considered in the simple payback definition is depreciation 
on RES. This incentive is received as an annual benefit to a grantee, 
who installs a renewable energy system. The Modified Accelerated Cost 
Recovery System (MACRS) shortens the useful life of renewable energy 
equipment to 5 years and is recorded for tax purposes. The total value 
of the system (in terms of upfront costs) will be taken out of gross 
income over the 5 year depreciation period allowed by MACRS. For 
example in the case of solar MACRS reduces the solar energy equipment 
owner's tax liability with a net result of them keeping more of the 
annual revenue produced. This is an annual benefit taken over a period 
of years and should be reflected in the simple payback calculation. The 
commenter pointed out that, as it stands now, the formula subtracts 
depreciation to arrive at average net income and then adds it back in 
essentially creating a ``wash'' for depreciation and not figuring in 
this valuable annual incentive in the payback calculation for REAP 
scoring purposes. This should be considered to provide a more realistic 
view of the simple payback on RES. According to the commenter, EEI 
projects have historically had advantages in scoring under REAP and by 
allowing annual depreciation (MACRS) under the formula this would allow 
a more level playing field for the two types of purposes under REAP.
    Another commenter stated that tax credits and accelerated 
depreciation should be considered in the payback calculation if an 
accountant for the applicant can verify the company can benefit from 
them.
    Response: Incorporating MARCS as an alternative deduction method 
would result in increasing the complexity of the rule and the burden to 
the applicant and the Agency. Further, using MARCS would be difficult 
to calculate for each project. Therefore, the Agency is not modifying 
the simple payback calculation as requested by the commenters.
    Comment: Two commenters stated that the simple payback calculation 
should look at eligible project costs (EPC) instead of total project 
costs. Because the grant amount is based off of EPC, the commenter 
stated that it only makes sense that the scoring criteria look at the 
same amount.
    Response: The Agency agrees with the commenter and has modified the 
definition of simple payback to use eligible project costs instead of 
total project costs.
Small Wind System
    Comment: In commenting on the interim final rule, one commenter 
recommended eliminating the hub height limit of 120 ft. for small wind 
systems (used in various parts of the interim final rule), stating that 
the limitation to 100 kW is sufficient.
    Response: The Agency proposed in the proposed rule to eliminate the 
distinction between small and large wind projects, and the Agency is 
not distinguishing between small and large wind projects in the final 
rule. Thus, this comment is not relevant to the rule.
Total Project Costs
    Comment: In commenting on the interim final rule, one commenter 
recommended keeping the feasible study or energy audit cost included in 
the total project cost.
    Response: The rule continues to include feasibility study and 
energy audit costs as part of a project's total project cost. However, 
the Agency

[[Page 78235]]

points out that these two costs are not included in calculating a 
project's eligible project costs. This change was made because the 2008 
Farm Bill allowed grants specific to feasibility studies and energy 
audits available. While the 2014 Farm Bill has repealed the feasibility 
study grant the Agency has not made a change to eligible projects cost. 
Since the cost for these items have already been incurred at submission 
of the RES/EEI application and there is no bona-fide need for the grant 
to cover these costs.

Laws That Contain Other Compliance Requirement (Sec.  4280.108)

Environmental
    Comment: One commenter agreed with changing ``will'' to ``may'' 
with regard to the Agency determining whether a project becomes 
ineligible when an applicant takes any actions or incurs any 
obligations that would either limit the range of alternatives to be 
considered or that would have an adverse effect on the environment 
prior to Agency completing the environmental review.
    Response: The Agency thanks the commenter for supporting this 
change, which has been retained in the final rule.
    Comment: One commenter recommended that the Agency consider 
allowing environmental reviews to be conditional upon award as 
necessary to compete for funding. The commenter provided two examples 
as to why the Agency should consider this.

    Example A:  A Small producer completing an irrigation efficiency 
project is required to spend $1,500 on an archeological survey to 
complete the environmental without a funding guarantee. Over 90 
percent of the time the surveys are completed with no findings. Most 
producers withdraw applications versus completing the study.
    Example 2:  Applications comes in on deadline and Agency must 
process all applications as timely as possible. However, the 
environmental reviews are not always completed in time (given 
required 30 day comment period) in order to have such affected 
applications compete for funding. Many of these affected 
applications are renewable energy projects, which creates an unfair 
advantage to energy efficiency projects who are allowed to compete 
in all funding competitions.

    Response: The Agency cannot accommodate the commenter's suggestion 
allowing environmental reviews be conditional upon award because the 
Agency is bound by Agency regulations, outside the purview of the REAP 
rule, to complete the necessary environmental review prior to the 
obligation of funds for a project. The Agency does note that the final 
rule incorporates provisions that allow all applications, both for 
renewable energy projects and EEI projects, to compete in the same 
number of funding cycles. Thus, while a RES application may not be 
competed in the same funding cycles as an EEI application submitted at 
the same time, the RES application is still eligible to compete in the 
same total number of funding cycles. This addresses the commenter's 
concern of EEI projects having an ``unfair'' advantage in being able to 
compete in all funding competitions.
    Comment: One commenter stated that REAP should grant NEPA 
Categorical Exclusions for single wind turbine distributed generation 
projects up to, as a bare minimum, 100 kW and preferably for any single 
turbine up to 200 ft in height. Single small wind turbines have been 
installed at National Wildlife Refuges, National and State Parks, 
Audubon Preserves, schools, historical sites, tribal headquarters, and 
thousands of farms. No published study has identified small wind 
systems as having undesirable environmental impacts, such as noise or 
avian impacts. Available studies point to little or no impact from 
these small distributed installations. Medium scale wind turbine with 
heights up to 200 ft. (the Federal Aviation Administration 
determination threshold) have been installed at numerous sites and 
shown in pre-installation impact studies and post-installation 
monitoring to have little or no avian impacts. There should be a clear 
distinction between the environmental concerns for wind farm projects 
and the much smaller distributed generation projects.
    The commenter recommended that, if this is not acceptable to the 
Agency, then the Agency should adopt the DOE NEPA Categorical 
Exclusions for wind turbines up to 20 kW (and solar up to 60 kW) to 
reduce the burden on small project applicants.
    Response: With regard to the recommendation for a categorical 
exclusion for small wind and solar projects, it is outside the purview 
of this regulation to make such determinations. The Agency notes that 
it will pass this comment on to those within the Agency who perform the 
environmental assessments for REAP projects and make determinations as 
to whether these projects, or any other projects, should be 
categorically excluded. Thus, no changes have been made to this rule 
with regard to categorical exclusions.
    Comment: One commenter pointed to the preamble to the proposed rule 
that states, in part: ``To date, no significant environmental impacts 
have been reported, and Finding of No Significant Impact (FONSI) have 
been issued for each approved application. Taken collectively, the 
applications show no potential for significant adverse cumulative 
effects.'' Given this, the commenter asked whether a programmatic 
assessment can be issued to limit the Agency's environmental reviews on 
REAP applications to only certain areas per technology type that need 
to be addressed in full to ensure potential impacts are mitigated. 
According to the commenter, such streamlining would decrease the time 
and potential cost burdens on applicants, plus reduce Agency staff time 
as historically the program has shown to have no significant adverse 
effects on the environment.
    Response: The commenter is correct that all approved REAP projects 
have resulted in FONSIs. Programmatic assessments cannot assess the 
site specific impacts of an individual project and can be useful only 
for programmatic decisions by the Agency. All applicants must comply 
with the environmental requirements applicable to their project. 
Funding a grant or providing a loan guarantee is a Federal action 
requiring compliance with the NEPA. While small projects are likely to 
have fewer adverse environmental impacts than similar larger projects, 
USDA cannot predetermine that all projects will have limited impacts. 
USDA believes it is appropriate for environmental evaluations to be 
prepared on a project by project basis to analyze the nature and extent 
of a project's environmental impact. Thus, the Agency has not 
accommodated this suggestion.
    The Agency notes that it will pass this comment on to those within 
the Agency who perform the environmental assessments for REAP projects.

General Applicant, Application, and Funding Provisions (Sec.  4280.110)

Project Completion
    Comment: Two commenters are concerned that the 2 year deadline for 
project completion will put larger projects with longer durations in 
peril. One commenter asks how long a project could be extended, if the 
agency grants concurrence. In regard to small projects, one commenter 
suggested that the Agency utilize the Grant Agreement or the Letter of 
Conditions to make a statement that it has authority to de-obligate 
funds after a specified date. The commenter stated that this measure 
will reduce confusion for the applicants.
    Response: The Agency acknowledges the commenters' concern over the 
two year period. Extensions to the two year

[[Page 78236]]

requirement can be granted with justifications by the approval official 
(see Sec.  4280.110(i)(1)). Because there are many circumstances that 
may cause an extension to be required, the approval official has the 
authority to grant such extensions. The guidance recommended by the 
commenter to be included into the Letter of Conditions is acceptable 
and may be used to communicate the Agency's authority to de-obligate 
funds after a specified date.

Notifications (Sec.  4280.111)

    Comment: One commenter stated that ``Disposition of Applications'' 
may be a conflicting Agency term to determine when applications can be 
destroyed. The commenter recommended using ``Funding Determinations'' 
instead.
    Response: The Agency agrees with the commenter that using 
``disposition of applications'' could be confusing. The Agency has 
revised the terminology in the final rule to read ``Handling of Ranked 
Applications Not Funded.''

RES/EEI Applicant Eligibility (Sec.  4280.112)

Applicant Eligibility
    Comment: In commenting on the interim final rule, two commenters 
recommended maintaining eligibility for all agricultural producers, 
regardless of location. The commenters supported the Agency's action to 
remove the rural restriction for agricultural producers under all 
relevant REAP programs, stating that this action demonstrates support 
for REAP as a diverse program providing broad benefits to all 
agricultural producers across the country, which should remain a 
defining program goal.
    This is a commendable action for a number of reasons. Foremost, the 
authorizing legislation never restricted REAP eligibility to only rural 
agricultural producers, just to rural small businesses. The exclusion 
had the effect of excluding many nursery and greenhouse growers, fruit 
and vegetable growers and other growers of specialty crops from 
participating in this program. Many of these sectors have their own 
unique energy needs and can benefit from implementing both energy 
efficiency as well as renewable energy improvements.
    In addition, this change comports REAP with other USDA programs 
that serve all agricultural producers regardless of location. By this 
change the REAP program can have a greater reach in sectors across the 
country. The commenters urged USDA to maintain this policy of 
eligibility for all agricultural producers, regardless of location, in 
the Notice of Proposed Rulemaking for REAP.
    Response: The Agency thanks the two commenters for their comments 
and the final rule does not take into account an agricultural 
producer's location in determination the agricultural producer's 
eligibility for REAP funding.
Dun and Bradstreet Data Universal Numbering System/System for Awards 
Management System/Central Contractor Registration
    Since the 2011, applicants have been required to supply a Central 
Contractor Registration (CCR) number in order to be eligible. The CCR 
requirement was implemented through program notices published in the 
Federal Register. The CCR number has since been replaced with a System 
for Awards Management System (SAM) number, and applicants are now 
required to supply their SAM number with their application in order to 
be eligible. The proposed rule contains reference to the SAM number 
requirement. The Agency received comments on this requirement, whether 
commenting on the CCR or SAM number, as presented below.
    Comment: Several commenters were concerned over the requirement to 
submit a Dun and Bradstreet Data Universal Numbering System (DUNS) 
number and a CCR/SAM number as a condition for being eligible for REAP 
funding.
    According to one commenter, the process for requiring every 
applicant including individuals to obtain a DUNS number and register 
that number in SAM is very burdensome. In addition to the application 
burden, the commenter stated that the SAM system does not work properly 
at times, or provides delayed results or results are lost in cyberspace 
creating huge burdens for applicants and the Agency. This commenter 
further stated that individual, including sole proprietors, should not 
have to register with the CCR. According to the commenter, many of the 
program's applicants do not have Internet access or are unfamiliar with 
the Internet. According to the commenter, the process is burdensome and 
not user friendly, further complicating the program rather than 
simplifying it. Therefore, the commenter encouraged the Agency to 
remove the SAM requirement and rely on existing proven data systems 
already in use by the Agency to provide funding information. If this 
cannot be considered, the Agency needs to understand that SAM at times 
has some significant issues and it is not always feasible for borrowers 
to get the SAM number with expiration in a timely fashion. Agency staff 
should be allowed to document such cases in the running record, noting 
attempts made by the applicant, and provide waivers as needed in this 
event.
    Two other commenters were concerned about the burden of the CCR 
requirement on small farmers and businesses. One of these commenters 
stated that the requirement for the CCR registration will create a 
hurdle as many of the farmers and small business people are not 
computer literate, or will find the process too complicated. This 
commenter, therefore, suggested that projects less than $50,000 be 
exempted from the CCR requirements. The commenter stated that in 
Washington State, there are not many applicants for less than $20,000 
projects, and after completing the applications for them, he knows why. 
The commenter acknowledged that Agency staff have been very helpful in 
supporting applicants and that the commenter hopes the process can be 
streamlined.
    Response: While the Agency shares the commenters' concerns, the 
DUNS and CCR/SAM requirement is a Federal-wide law. Effective October 
1, 2010, changes were adopted to 2 CFR part 25 which required all grant 
applicants other than individuals who would use the grant for personal 
use (unrelated to any business or nonprofit organization they may own 
or operate in their name), to have a DUNS number and to be registered 
in the CCR database, which has since migrated to the SAM. The Agency 
will continue to work with all applicants to help ease the burden 
associated with meeting this Federal requirement.
    Comment: One commenter recommended exempting micro wind and solar 
projects from being required to demonstrate that satisfactory sources 
of revenue in an amount sufficient to provide for the operation, 
management, maintenance, and debt service of the project are available 
for the life of the project (Sec.  4280.113(h)). According to the 
commenter, it is burdensome and unnecessary to require applicants to 
show that resources for operations and maintenance and debt service are 
available for the life of the project. First, it assumes that these 
costs will exceed the savings in electric bills and, second, it implies 
that rural businesses are ill equipped to make sound investment 
decisions. Because REAP grants are limited to 25 percent of project 
costs, the commenter recommended eliminating this requirement.
    Response: The Agency disagrees with the commenter's recommendation. 
Regardless of an applicant's size, the Agency has determined that this

[[Page 78237]]

information is necessary to help ensure that it is making awards that 
are financially viable. It would be an imprudent use of taxpayer money 
to approve a project that cannot show that it is financially viable. 
Therefore, the Agency has not revised the rule in response to this 
comment.
Residential
    Comment: In commenting on the interim final rule, two commenters 
suggested alternatives to the residential restriction on farms.
    One commenter noted that the interim final rule allows excess 
electricity to be sold to the grid, but not to be used in a farm-
related residence. This means the applicant can get some value for 
excess, but not maximum value. It also means that the utility makes a 
profit on selling excess electricity generated from the project even 
though they did not pay any of the capital costs. The commenter 
believes a better approach would be to remove the residential 
restriction on farms with only one meter or allow applicant 
certification of non-use for non-business purposes. Applicants would 
show and affirm as part of a simplified form that the farm operation 
uses more energy on an annual basis than the RES is projected to 
produce.
    The other commenter supported the restriction of funding 
residential RES or EEI projects, but suggested allowing prorating 
project cost to the non-residential uses. According to this commenter, 
many agricultural producers wish to also power their homes on their 
farmsteads with RES and requiring a separate meter at additional costs 
discourages these applicants from applying. If we allowed them to size 
the system accordingly, interconnect to all load sources, but only 
provide funding for business portion of their load supported by 
appropriate documentation, both the applicant and the Agency would win.
    Response: The Agency agrees with the commenters that there should 
be more flexibility to allow agricultural producers to submit 
applications for RES where the resulting power is shared between the 
farm operation and the farm residence. To this end, the final rule 
provides applicants with three options to qualify an RES project in 
which a residence is closely associated with and shares an energy 
metering devices with the agricultural operation:
    <bullet> Install a second meter (or similar device) that results in 
all of the energy generated by the RES to be used for non-residential 
energy usage;
    <bullet> Certify that any excess power generated will be sold to 
the grid and will not be used by the residence; or
    <bullet> Demonstrate that 51 percent or greater of the energy to be 
generated will benefit the agricultural operation. If the farm 
residence uses more than 49 percent of the energy, however, this option 
would not apply.
    Although not requested by the commenters, the Agency has concluded 
that rural small business seeking to purchase RES that would provide 
energy to the small business and the business' residence should be 
afforded the same options, provided the residence is located at the 
place of business, and the Agency has incorporated this in the final 
rule.
    In addition, the Agency has revised the eligible project cost 
provisions to make clear as to what items associated with these options 
qualify as eligible project costs. Specifically, the following, as 
applicable, are eligible project costs:
    <bullet> The installation of the second meter, and
    <bullet> The portion of the project that benefits the agricultural 
operation or rural small business.

Project Eligibility (Sec.  4280.113)

New and Unused Versus Refurbished/Remanufactured
    Comment: Numerous commenters requested that the Agency disallow 
refurbished wind turbines or, in general, refurbished RES. The 
commenters stated that refurbished wind turbines undergo tremendous 
wear and tear and are being sold for scrap metal prices when 
decommissioned, and must be significantly refurbished to gain 
additional viability for an additional 20 years. Commenters were 
concerned that allowing refurbished turbines may create significant 
problem for the Agency in the future, with one commenter stating that 
significant variances in quality will damage the reputation of the 
program.
    One of the commenters recommended that Sec.  4280.113(a) specify 
``new and unused'' because, according to the commenter, there is no way 
to adequately police the degree to which a wind turbine is refurbished/
remanufactured and most of the refurbished turbines that have been sold 
to farmers were mostly cleaned up and repainted. Another commenter 
stated that the refurbishment process for wind turbines is not well 
governed. Commenters also pointed out that there is a risk of 
purchasing unviable refurbished turbines.
    One commenter pointed out that the Internal Revenue Service, the 
American Recovery and Reinvestment Act of 2009 program, and most states 
require new equipment ``nor previously placed in service'' for tax 
credit and rebate eligibility. According to the commenter, there are 
con artists exploiting the REAP loophole and the Agency should close 
it.
    Commenters also stated that new turbines are often more cost 
effective than their refurbished counterparts, with one commenter 
stating that to refurbish a wind turbine that has operated in a wind 
farm for 15 to 20 years so that it can be expected to provide an 
additional 20 years of service costs more than a new wind turbine.
    If refurbished systems are allowed, commenters suggested that the 
Agency works with NREL to establish technical criteria for refurbished 
wind systems to ensure they meet standards for safety, performance and 
reliability. Commenters also suggested that refurbished wind turbines 
receive approval from qualified engineers to ensure project quality. 
For example, one commenter stated that any retrofitted or refurbished 
renewable energy system should receive the review and approval of a 
qualified engineer--a ``wet stamp''--to ensure project quality and that 
engineering qualifications should be based on significant experience 
working with correlating RES. This commenter also recommended that the 
Agency require engineering recertification for the replacement of 
dynamic components as well as a review of all non-dynamic components to 
ensure sound support structures.
    Finally, commenters objected to subsidizing components that have 
previously been subsidized under other Federal programs because it 
constitutes unfair competition to the current manufacturers, amounting 
to, as one commenter described, a ``double subsidy.''
    Response: The Agency disagrees with the comments recommending that 
refurbished/remanufactured RES, such as wind systems, be ineligible for 
REAP funding. Many of the uncertainties surrounding refurbished wind 
turbines is a matter of missing market information that can be resolved 
with clear signaling; that is to say, an established set of 
certifications and/or standards and commensurate guarantees and/or 
warranty security. Secondary markets for small wind should in principle 
be no different than for that of used cars, farm equipment, etc. Given 
sufficient market information, agricultural producers and rural small 
businesses should be able to choose intelligently among available 
technologies subject to their preferences, policy support, and budget 
constraints. The presumption of unfair price competition assumes that

[[Page 78238]]

refurbished and new wind systems sell for the same price, which would 
not be the case given sufficient market information.
    In allowing refurbished equipment to be eligible for REAP funding, 
the Agency has revised the definition of ``refurbished'' to address 
concerns and suggestions raised by the commenters. Specifically, the 
revised definition:
    <bullet> Requires the RES to be brought into a commercial facility 
for refurbishment. This is intended to reduce unqualified businesses 
from ``refurbishing'' RES.
    <bullet> Requires a warranty that is approved by the Agency or its 
designee. This is intended to provide additional market information to 
the potential buyer of the refurbished RES and to reduce unqualified 
businesses from ``refurbishing'' RES.
    The Agency agrees that an RES could be refurbished and establishes 
a new ``useful life.''
    Comment: One commenter, in supporting the use of refurbished and 
retrofitted energy systems on the basis that it is consistent with 
other programs aimed at supporting small renewable energy projects, 
recommended that the Agency develop resources for project developers to 
find quality refurbished parts.
    Response: The Agency thanks the commenter for their support on this 
provision of the rule. However, the Agency cannot accommodate the 
commenters suggestion because REAP is a financing program and cannot 
serve as a ``clearinghouse'' for acceptable refurbished parts.
Certification of Turbines
    Comment: Several commenters recommended that wind turbines be 
certified.
    One commenter, who commented on both the interim final rule and the 
proposed rule, recommended that the Agency establish a requirement that 
small wind turbines be certified by an independent certification body 
prior to awarding grants and loans through REAP in order to promote 
confidence that small wind turbines installed with REAP funding have 
been tested for safety, function, performance and durability and to 
ensure consistency in ratings. In addition, for the 2011 funding cycle, 
the commenter recommended that small wind turbines that have achieved 
at least Small Wind Certification Council (SWCC) Limited Power 
Performance Certification or Conditional Temporary Certification 
receive higher scores in application review.
    The commenter provided detailed suggestions for such certification. 
This commenter requested that the Agency establish a requirement for 
wind turbines to be certified by an independent certification body. In 
addition, for the 2013 funding cycle, the commenter recommended that 
wind turbines that have achieved either full certification to the AWEA 
9.1 Standard or at least SWCC Limited Power Performance Certification 
or Conditional Temporary Certification (or equivalent) receive higher 
scores during application review.
    The growth of the distributed wind market is often tied to grants, 
incentives and rebates administered by Federal, State and utility 
programs. On-site wind turbines have great potential to serve 
increasing demands for distributed generation and can provide a cost-
effective solution for many homes, farms, schools and other end-users. 
However, performance and reliability obstacles have hindered greater 
adoption, and both consumers and agencies providing financial 
incentives need greater assurance of safety, functionality, and 
durability to justify investments. Certification helps prevent 
unethical marketing and false claims, thereby ensuring consumer 
protection and industry credibility.
    The commenter has received 50 Notices of Intent to Apply for 
Certification since its inception, certified its first turbine model in 
2011 and became an accredited certification body in 2012. The commenter 
pointed out that it has recently issued its fourth full certification 
along with a new Conditional Temporary Certification, bringing the 
tally to nine turbine models now SWCC-certified.
    Representing a significant share of the North American distributed 
wind market, the commenter's published certification ratings and labels 
are allowing easier comparison shopping, aiding incentive programs with 
setting payment levels, and leading toward national requirements. In 
addition to the nine models carrying SWCC certifications, five other 
models are currently collecting data at their respective testing sites, 
and several more are taking steps towards certification.
    SWCC certification has been identified as a pathway to eligibility 
for most of the leading wind incentive programs nationwide, and 
numerous programs have taken steps to require independent certification 
for small and medium wind turbines to be eligible for funding. The time 
is now for USDA to follow suit and ensure REAP's support of the 
continued development of the distributed wind sector. To provide 
perspective, the commenter included information on wind incentive 
programs already requiring or expecting to require certification, 
including links to individual programs administered by states.
    The commenter is an independent non-profit organization with the 
public purpose of providing certification services. A three-member 
Certification Commission makes all certification decisions. SWCC 
Commissioners are qualified and independent industry experts appointed 
by the SWCC Board of Directors. The Board includes representatives of 
different stakeholder groups and includes 3 directors (out of 11) who 
represent the industry sector. SWCC bylaws and operating procedures 
prevent conflicts of interest in certification decisions.
    A second commenter on the interim final rule stated support for the 
specific language regarding certification that is being recommended by 
the first commenter.
    A third commenter recommended that turbines certified by the SWCC 
should have priority over projects with uncertified equipment. Suitable 
approved lists would include that as provided and maintained by the 
Interstate Technical Advisory Council.
    Another commenters requested that the Agency provide guidance on 
what hardware is used, to require that turbines be certified, or in 
process of certification, so that the installed wind turbine actually 
works and the REAP money is well used.
    Response: All technologies eligible for REAP funding must be found 
to have technical merit and the proposed project must be found 
determined to be technically feasible. The documentation applicants 
submit with their applications must be sufficient to allow the Agency 
to make these determinations. The Agency will continue to use experts, 
such as those in NREL and other public institutions, to assist in 
making these determinations when needed in order to ensure safety, 
performance, and reliability of RES, including refurbished wind 
systems.
    In some cases, the documentation to support technical merit and 
technical feasibility determinations may require, or be enhanced by, 
appropriate certifications from existing boards for a particular type 
of technology. The Agency, however, is not incorporating into the rule 
specific certification requirements for wind turbines or any other 
technology. It remains the applicant's responsibility to demonstrate 
the quality of the technology being proposed. No changes have been made 
to the rule as a result of this comment.

[[Page 78239]]

Projected Annual Energy Costs
    Comment: One commenter suggested that the Agency clarify in Sec.  
4280.113(a)(4)(i) that a project is eligible without being subject to 
any capacity calculation reductions that are currently applied due to 
size of building or equipment if annual projected energy usage is less 
than historical usage.
    Response: The Agency agrees with the commenter that, in determining 
if a project qualifies as an EEI, there is no adjustment to the energy 
usage based on capacity differences before and after the EEI. The 
language in the rule text cited by the commenter makes no mention of 
such an adjustment. Further, the definition of ``energy efficiency 
improvement'' specifically references a reduction of energy consumption 
on an annual basis and also does not reference any adjustment to take 
into account any capacity changes. Thus, the Agency has determined that 
it is unnecessary to modify the language in the rule as suggested by 
the commenter.
RES/EEI Repeat Assistance on Same Project
    Comment: One commenter found the term ``shortly thereafter'' in 
Sec.  4280.113(a)(4)(ii) to be ambiguous. The commenter recommended 
providing a definitive timeframe after grant installation. The 
commenter suggested using the useful life of the improvements as 
outlined in the grant agreement for the originally funded project.
    Response: The Agency agrees that the example provided in the 
proposed rule needs further definition and that reference to the useful 
life of the EEI as the timeframe is appropriate. The Agency has revised 
the cited paragraph in the final rule to make clear that a subsequent 
EEI to previously REAP-funded EEI is eligible only if the following two 
conditions are met: (1) The replacement occurs at or after the end of 
the useful life as specified in the grant agreement of the previously 
REAP-funded EEI, and (2) the subsequent EEI is more energy efficient 
than the previously REAP-funded EEI.

Grant Applications--General (Sec.  4280.115)

    Comment: One commenter stated that all REAP applicants should 
receive funding for some proportion of their project cost.
    Response: While the Agency appreciates the commenter's sentiment, 
it is simply not feasible to do so. The authorizing statute requires 
the Agency to score applications using certain criteria and that by 
doing so we rank applications to determine those projects that score 
the highest. It is through such a process that the Agency is able to 
distribute the limited resources made available to the program to the 
more meritorious projects. No changes have been made to the rule in 
response to this comment.
Third-Party Contributions
    Comment: In commenting on the interim final rule, two commenters 
recommended reinstating the prohibition against third-party in-kind 
contributions as found in the 2005 final rule for REAP. Because REAP 
helps fund construction and equipment costs, it is not the type of 
assistance program where a third-party would come in and offer a valued 
assistance. According to the commenters, allowing in-kind contributions 
allows the applicant to manipulate total project costs. One of the two 
commenters also stated that allowing third-party in-kind contributions 
becomes a processing burden when determining how to value in-kind 
contributions, thus further complicating the program rather than 
simplifying it.
    Response: The Agency removed the prohibition against third-party 
in-kind contributions because it conflicts with Agency regulations 
found in 7 CFR 3015, which specifically allows the use of third-party 
in-kind contributions to count towards satisfying cost-sharing and 
matching requirements of a Federal grant (see 7 CFR 3015.51(b)). Thus, 
the Agency has not reinstated the prohibition on third-party in-kind 
contributions in the final rule.
Eligible Project Costs (Sec.  4280.115(c))
    Comment: One commenter stated that eligible project costs should 
not include remanufactured or refurbished equipment for the reasons 
previously provided by the commenter on allowing the purchase of 
refurbished RES as an eligible project for REAP funding.
    Response: As discussed previously in responding to comments on 
allowing the purchase of a refurbished RES to be an eligible project, 
the Agency has determined that it is equally reasonable to allow 
refurbished equipment to be an eligible project cost, provided such 
equipment comes with a warranty that is approved by the Agency or its 
designee.
    Comment: In commenting on the interim final rule, one commenter 
recommended that storage bins be excluded as an eligible project cost, 
but that grain dryers and other energy efficient savings, such as an 
air transfer system that is replacing a diesel tractor, be included as 
eligible project costs. Limiting the total project cost to just the 
dryer and any EEI. Putting up an 80,000 bushel storage bin that was 
included in the total project cost is not energy improvements. The 
money allocated for the 80,000 bushel bin could have been used for 
helping a first generation farmer replace two 30 year old bin dryers 
with a more energy efficient dryer. The commenter stated that more 
clarification is needed on eligible costs (i.e., what can be included 
and what must be excluded).
    Response: The Agency agrees with the commenter that more 
clarification is needed on what is included as eligible project costs, 
as illustrated through the commenter's example on storage bins, but 
disagrees with a blanket exclusion of storage bins as eligible project 
costs. In order to qualify as an eligible project cost for an EEI, the 
item in question (in this case, the storage bins) must be identified in 
the audit and must be ``directly related to and its use and purpose is 
limited to'' the EEI. If a project proposed to replace a grain dryer 
and its associated storage bins, the entire project would have to show 
an energy savings in order to be eligible. If this condition is met, 
then only those project items identified in the energy audit or energy 
assessment and that are directly related to and their use and purpose 
are solely for the EEI would be considered eligible project costs. If 
storage bins are added to eligible project costs, the simple payback 
for the project would be longer, potentially decreasing the score and 
competitiveness of the project. Thus, for the storage bins to be 
included as an eligible project cost, they must be identified in the 
energy audit or energy assessment, must be directly related to the EEI, 
and cannot be used for any other purpose. So, in some cases, storage 
bins may qualify as an eligible project costs and in others cases, they 
may not.
    The final rule contains slightly different provisions if the 
applicant is seeking a guaranteed loan. In this case, the storage bins 
are ``directly related to'' the EEI and would qualify as an eligible 
project cost.
    The Agency notes that in either case--grant or guaranteed loan--the 
storage bins would be part of total project costs.
    Comment: One commenter stated that capacity for a grain crop should 
be defined as the number of bushels harvested. A farmer should have to 
show an average as proven by at least 2 years. Unless there is a 
catastrophic event (hailstorm, drought, tornado)--then omit the 1 year 
and use the prior year--explaining why.
    Another commenter stated that, relevant to grain dryer 
applications,

[[Page 78240]]

information provided by energy auditors that have completed hundreds of 
grain dryer audits in over 20 states indicates that comparing bushels 
per hour (BPH) does not provide a reliable measurement of drying 
capacity change when evaluating two grain drying systems. A measurement 
of BPH indicates a system's speed of drying, much like the miles per 
hour when driving a vehicle. The best measurement of capacity change 
between two drying systems is measuring the total number of bushels 
dried through each system on an annual basis which then compare apples 
to apples. Using BPH is inaccurate, particularly for in-bin dryers 
compared to continuous flow dryers.
    In the case of in-bin systems, these operate with fewer BPH when 
compared to a high capacity systems and require more time dry from a 
certain moisture point to another (i.e., 25% to 15% which is the safe 
storage moisture). When measuring the total BTUs consumed by a dryer 
annually, the total annual bushels dried makes the most impact on the 
total consumption of fuel and electrical power. The lower BPH system in 
most cases utilize less fuel, but more electricity per bushel to remove 
10 percentage points of moisture because of lower instant air heating 
temperature and more time with fans operating on electrical horsepower.
    Consequently, when completing several grain dryer energy audits 
where a lower BPH system is looking to be replaced by a higher BPH 
system, often the lower BPH system has lower energy consumption and 
illustrates more efficiency when drying the same amount of bushels 
annually, but takes more time. Such as the typical case where projects 
involving converting from an in-bin dryer to a high capacity/continuous 
flow dryer have demonstrated notably higher BPH have been deemed 
inadequate for application to REAP because of the higher fuel cost.
    Response: The Agency disagrees with the comment to use bushels 
harvested because the amount of energy to be saved is directly related 
to the amount of grain to be dried and not to the amount of bushels 
harvested. To illustrate, an agricultural producer can use corn several 
different ways. The corn could be used for high moisture corn in the 
agricultural producers operation, sold without being dried, or dried 
and sold to a local grain elevator. Thus using bushels harvested could 
over estimate energy savings for an agricultural producer that is 
replacing a grain dryer.
    The Agency agrees with the commenter that limiting of capacity such 
as bushels per hours may not be the best way to evaluate a process, and 
the capacity limitation has been removed. The final rule requires 
actual average annual energy usage, based on historical records for up 
to 5 consecutive years, to be used in the energy assessment or energy 
audit for replacement of an inefficient system. An energy audit or 
energy assessment must document the historical energy usage by either 
attaching energy bills or providing a summary of those bills. If an 
agricultural producer had a bad year or catastrophic event where not as 
much grain was dried, it can be averaged with prior years or subsequent 
years, as appropriate.
    Comment: In commenting on the interim final rule, one commenter 
stated that, at the time of the NOFA, there were several changes that 
made it seem that the Agency was trying not to fund grants for grain 
dryers, especially through the limitation of capacity. When this was 
implemented in the interim final rule as the capacity of harvest (prior 
year) compared to capacity of harvest (current year), this allowed 
farmers to update outdated equipment, but didn't allow them to double 
or triple their set-up. The commenter stated that, while this was an 
excellent way of handling this, the Agency could just state that only 
the grain dryer and the motors (perhaps also a variable frequency drive 
because it makes the motors run more efficiently) for grain moving 
equipment are eligible--this would make it much clearer and fairer. The 
commenter then continued, stating that he would like to see the money 
awarded in a much fairer manner. According to the commenter, larger 
farmers are always somehow able to be eligible for greater amounts and 
seem to always figure out a way to expand at the expense of others.
    Response: While the Agency disagrees with the commenter's 
characterization of trying not to fund grain dryers, the Agency was, 
and is still, seeking to develop a scoring methodology that would 
achieve a greater diversification of technologies receiving funds under 
REAP. To further achieve this goal, the Agency included several changes 
to the REAP program and some of the proposed changes address the 
commenter's concern about awarding funds in a clearer and fairer 
manner. For example, one proposed change was to modify one of the 
scoring criteria for EEI projects to awards points on an ``energy saved 
per dollar amount requested,'' which applies to all energy efficiency 
technologies, including grain dryers. Further, the proposed rule 
removed the ``capacity'' aspect for determining the amount of a 
project's cost that is an eligible project cost and instead required 
that the project as a whole showed energy savings in order to be an 
eligible EEI project. These two proposed changes, which are included in 
the final rule, help level the playing field across all size 
applicants.
Funding Limits
    Comment: In commenting on the interim final rule, one commenter 
stated that the award process should allow for some flexibility in the 
award amount. For some of the projects very close to the cut-off score 
that might be funded if their request was smaller, the Agency should be 
able to ask multiple applicants if they would be interested in a 
reduction of funds or if they need the amount applied for.
    Response: The Agency agrees with the commenter and proposed a 
process to allow an applicant to accept a lower level of funding in the 
proposed rule. The Agency is retaining this provision in the final 
rule.

Application--General (Sec. Sec.  4280.116 through 4280.119)

Number of Copies
    Comment: In commenting on the interim final rule, one commenter 
stated that USDA should only require the original application to be 
submitted to the Agency (not original and one copy).
    Response: The Agency agrees with commenter, especially now that the 
Agency is encouraging electronic submittals. As was proposed in the 
proposed rule, the final rule requires only the original application be 
submitted to the Agency.
Foreign Technology
    Comment: In commenting on the interim final rule, one commenter 
encourages the Agency to use Sec.  4280.116(a)(3) to police unproven/
risky foreign wind turbines, but is concerned that the Agency may not 
have the technical expertise to make these judgments, particularly in 
light of the fraudulent documentation that some unscrupulous 
manufacturers and exporters have provided in the past. The commenter 
stated that they have previously recommended the adoption of 
certification standards for turbines that fall under the scope of AWEA 
9.1-2009 (>200m2 rotor area, ~ 40 kW).
    Response: As noted in a response to previous comments regarding 
certification standards for wind turbines, the Agency will continue to 
use experts, such as those in NREL and other public institutions, to 
assist in making these determinations when needed in order to ensure 
safety,

[[Page 78241]]

performance, and reliability of RES, including refurbished wind 
systems. In addition, both domestic and foreign technologies are held 
to the same set of standards for demonstrating that they are 
commercially available technologies (see the definition of Commercially 
Available), including the option of being considered Commercially 
Available if the system is certified by a recognized industry 
organization whose certification standards are acceptable to the 
Agency.
    With regard to the recommendation to adopt certification standards 
for wind turbines, the Agency notes, as stated in a previous response, 
that the documentation to support technical merit and technical 
feasibility determinations may require, or be enhanced by, appropriate 
certifications from existing boards for a particular type of 
technology. The Agency, however, is not incorporating into the rule 
specific certification requirements for wind turbines or any other 
technology. No changes to the rule have been in response to this 
specific comment.

Applications--Period and Submittal

Timing of Notices
    Comment: In commenting on the interim final rule, several 
commenters expressed concern as to the timing for when applications 
would be accepted, including frequency and consideration for accepting 
applications throughout the year. Commenters as a whole recommended 
advancing the timing of the whole solicitation process in the calendar 
year, which would allow more time for application preparation.
    One commenter stated that an earlier solicitation process would 
allow awardees to start construction before the winter freeze and to 
improve coordination with other Agency programs that will facilitate 
the construction of digesters.
    Another commenter pointed out that, since the beginning of the REAP 
program, the Agency has had difficulty releasing program funding notice 
before agricultural producers start spring planting. While state 
offices now accept applications based on the previous year's notice, 
this practice is not well known and is unevenly followed in the states.
    Another commenter stated that in 2011 the Agency allowed only 2 
months between the release of the NOFA (April 15) and the due date for 
applications (June 15). The early due date is not well-explained, 
especially as USDA reserves more time for itself to review applications 
than for applicants to prepare them--with 3.5 months before the end of 
the fiscal year. The timing is during the busiest part of the year for 
many agricultural producers, reducing their ability to use the program. 
The late release date and early deadline restrict the ability of 
various farm energy technology sectors to use the program. The 
commenter stated that USDA needs to release the funding notice by 
December or January.
    Still another commenter stated that the Agency needs to provide 
guidance or role for the 2012 program sooner than within 60 days of the 
deadline.
    Response: The Agency acknowledges the concerns expressed by the 
commenters. Under the final rule, REAP applications are accepted 
throughout the year. The rule establishes application deadlines and 
increases the number of competitions cycles and application deadlines 
depending on the type of application as follows:
    <bullet> RES/EEI grant applications requesting $20,000 or less may 
be competed up to five times a year;
    <bullet> combined RES/EEI guaranteed loan and grants twice a year; 
and
    <bullet> guaranteed loan-only applications will be competed 
periodically, provided that the Agency receives a sufficient number of 
applications in order to maintain a competitive awards process.
    This process is accomplished in the final rule without the need to 
publish a notice in the Federal Register each year and thus there is no 
longer an issue associated with waiting for funding before publishing a 
notice seeking applications. While the application deadlines are found 
in the final rule, the Agency will continue to identify the application 
deadlines in a FR notice published prior to the Federal fiscal year. In 
addition, the Agency intends to identify the application deadlines on 
the REAP Web page of the Agency's Web site and on grants.gov as 
applicable.
Hard Deadlines
    Comment: In commenting on the interim final rule, two commenters 
stated that the series of fixed deadlines for the submission of grant 
applications represents a tremendous disincentive for larger-scale 
projects, involving a number of farms and diverse technologies. 
According to the commenters, it is very difficult to incorporate a hard 
deadline and the concept of competitive funding into the two-party 
project design and review that must occur for this type of project. As 
one of the commenters stated, the current procedure may allow for fair 
review of the submission of a number of single farm digester projects, 
but it is quite an impediment for a project such as this, involving 
intensive, two-sided, review and negotiation between project developer 
and large-scale customer.
    One of the commenters also stated that this form of application 
procedure is unduly burdensome for a project that utilizes private 
equity. A review procedure should be devised that first requires and 
then serves to verify the due diligence that must have been performed 
by the investors.
    Further, the prospect that a properly designed and financed project 
must nonetheless be contingent on the competitive allocation of limited 
funds is almost an overwhelming obstacle for start-up entrepreneurs and 
their customer partners. It is one thing to put time and capital at 
risk as part of the business venture. It is quite another to be 
required to risk capital in an uncertain competition for funding. One 
of the commenters stated that he was sure that more than one similar 
project has been taken off the drawing board because either developer 
or customer, or both, does not have the wherewithal to pursue design of 
the project by a set deadline, and without any certainty that in the 
end the project will even be funded.
    According to one commenter, the combination of an arbitrary 
deadline and then passage of time for the competitive process is 
onerous for the development of a project in a northern climate because 
these areas have a limited building season to begin with, and the 
passage of any additional time creates tremendous pressure.
    The same commenter recommended that the Agency implement a rolling 
application procedure, which would allow for submission of design and 
business plans as soon as completed, and then quick review of such 
plans against stated project funding requirements derived from the 
current scoring protocol. According to this commenter, combining this 
quick review procedure with on-line, updated notice of current 
available funds would allow developers to know where they stand going 
into development of a project and minimize many of these risks for all 
parties concerned.
    Response: As noted in an earlier response, the Agency has included 
a continuous application process for both grant and guaranteed loan 
applications with periodic competitions throughout the year depending 
on the type of application. This allows applicants to submit 
applications any time during the year. These provisions should help 
mitigate the commenters' concerns.
    Comment: In commenting on the interim final rule, one commenter 
noted

[[Page 78242]]

that there is no mention of the possibility of going to an open and 
continuous grant cycle for micro projects.
    Response: As noted in the response to the previous comment, both 
the proposed rule and the final rule include a continuous application 
process with periodic competitions for grant applications for all 
technologies, including micro projects.
Rolling Over Applications
    Comment: In commenting on the interim final rule, one commenter 
suggested that the option for rolling over the same application should 
remain each year so that the applicant of a project has started 
construction has a chance at two funding cycles instead of just one. 
The commenter noted that many of the other Rural Development funding 
programs allow for funding consideration in more than one cycle.
    In contrast, another commenter commenting on the interim final rule 
recommended removing the option for rolling over an application. The 
commenter pointed out that the program is already oversubscribed and if 
a project did not score high enough to be funded in a fiscal year, the 
likelihood that it will be funded in a subsequent year is minimal. The 
commenter suggested that the applicant instead have the option to re-
file a new application for the same project if the project has not 
already been completed. This same commenter, in commenting on the 
proposed rule, supported the proposed provision that would limit roll-
over applications to two semi-annual competitions and one National 
competition.
    Response: After considering these comments, the Agency has made a 
few changes to how RES and EEI grant applications will be competed.
    A RES and EEI grant application requesting more than $20,000 in 
grant funds will be eligible to compete twice in one fiscal year--once 
in a state competition and, if unfunded at the state level, once in a 
national competition. If the application remains unfunded after the 
national competition, the Agency will discontinue considering the 
application for potential funding.
    A RES and EEI grant application requesting $20,000 or less in grant 
funds will be eligible to compete in up to five consecutive 
competitions--three state competitions and two national competitions. 
The order in which such an application is competed can be two state 
competitions followed by one National competition for grants of $20,000 
or less, followed by one state competition and one National competition 
for all grants regardless of size (all within the same Federal fiscal 
year) or one state and one national competition for grants of $20,000 
or less, then one state competition and one national competition for 
all grants regardless of size and another state competition, which 
means that the application would be competed across two fiscal years. 
If an application requesting $20,000 or less in grant funds is not 
funded after its fifth competition, the Agency will discontinue 
considering the application for potential funding.
First-Come, First Served Basis
    Comment: In commenting on the interim final rule, two commenters 
recommended the Agency include a ``first-come, first-served'' 
application procedure, one for multi-farm projects and one for small 
REAP grants.
    One commenter requested that a separate application procedure be 
devised to allow projects involving multi-farms and a fixed price fuel 
supply contract to apply on a rolling basis as they are ready, on a 
first-come, first-serve basis. According to the commenter, this will 
remove the impediments of the current application procedure.
    The other commenter stated that qualifying small REAP grants should 
be awarded on a first-come, first-served basis once funding is 
determined for that fiscal year. After submission from the state 
offices the qualifying applications should be funded in the order of 
their submission date until the mandatory 20 percent of REAP funds are 
exhausted.
    Response: As noted in a previous response, the Agency must evaluate 
all projects against each other as required by the authorizing statute, 
and thus cannot implement a ``first-come, first-served'' approach to 
making awards.

Small Projects/$20,000 or Less Grant Requests/Total Project Costs 
$80,000 or Less

Placement
    Comment: In commenting on the interim final rule, one commenter 
recommended placing the short-form application for grants under $20,000 
in Sec.  4280.116.
    Response: The Agency agrees that the placement of the application 
material for grants of $20,000 or less could have been placed more 
appropriately. The Agency restructured the application provisions in 
the proposed rule to delineate clearly the application requirements for 
projects whose total project costs are $200,000 and greater (Sec.  
4280.117), less than $200,000, but more than $80,000 (Sec.  4280.118), 
and $80,000 or less (Sec.  4280.119). The Agency has determined this 
structure is reasonable and has retained it in the final rule.
Streamline Application Process
    Comment: In commenting on the interim final rule, one commenter 
stated that, while applications can be submitted year round, the 
application process and grant making overall still takes longer than 
necessary for small wind projects.
    Another commenter stated that the current documentation 
requirements require a professional grant writer to win REAP awards. 
The commenter suggested that past distribution of REAP grants in Oregon 
would show that distribution is skewed in favor of large agricultural 
producers established in areas closest to metropolitan areas because 
agricultural producers in the commenter's county (Lake County) are so 
remote from where grant writers live that they typically do not have 
access to grant writers willing to travel to the county to do the grant 
work at a cost the agricultural producer is willing to pay for the 
chance of winning a grant. The commenter pointed out that they wrote a 
grant for the same financial benefit through the Oregon Department of 
Energy that could be completed in a 6-page document compared to the 60+ 
page document required by the REAP process. If the REAP documentation 
cannot be reduced to allow ranchers to write their own grants, then the 
REAP process, as it has been established, will continue with large 
agricultural producers being the beneficiaries of the program.
    Response: With the changes proposed to the program as adopted in 
the final rule, the Agency has reduced the burden associated with 
submitting applications under REAP, especially for small projects. The 
Agency notes that it still must collect sufficient information both to 
evaluate the merits of a project and for competition. Thus, there is a 
limit to how much the process can be streamlined. The Agency also notes 
that it will be making available an application form that will help 
streamline the process for applicants seeking grants of $20,000 or 
less.
    Comment: In commenting on the interim final rule, one commenter 
believes that, although OMB has approved the information collection 
requirements and Rural Development states that the information being 
collected is necessary to ensure compliance with the regulation and 
proper use of funds, the information

[[Page 78243]]

required of applicants is excessive, duplicative, and burdensome.
    This commenter recommended that the REAP rule allow the smallest 
projects to have a greatly simplified application. REAP has a standard 
application and a simplified application for projects below $200,000, 
but it lacks a third, even simpler, application for the special 
category of small projects--expressly created by Congress--with grants 
up to $20,000. Farmers and rural businesses wanting to apply for these 
smallest grants often have to resort to paid grant writers to assemble 
the 40 to 50 pages of documentation required for a qualifying 
application. Many qualified applicants are dissuaded from applying by 
the difficulty of the application. The commenter has prepared and 
attached a suggested 12 page streamlined alternative (of which all but 
3 pages are mandatory Federal forms) to the existing application 
requirements which meet all of the statutory requirements. The 
commenter believes that a simpler, less intimidating, application for 
REAP grants up to $20,000 would substantially increase participation, 
particularly for projects using small-scale wind and solar 
technologies.
    The commenter stated that the failure to streamline ``mini-
project'' applications may not meet the intent of the Regulatory 
Flexibility Act, despite Rural Development's assertion that the rule 
has ``no significant impact'' because it only impacts those that choose 
to participate in the program. This position neglects those that choose 
not to participate in the program because the requirements for the 
application are overly burdensome. Small wind system retailers report 
that up to 90 percent of potential applicants are dissuaded by the 
application requirements such as plot plans, financial statements, tax 
returns, and the NEPA form (they do not understand that the short form 
is often sufficient).
    Another commenter on the interim final rule also recommended that 
the Agency continue to reduce application complexity, especially for 
small projects. The interim final rule takes a strong step toward 
program simplification by removing the preferences for grant/loan 
guarantee applications. More complex application systems mean that many 
applicants must hire grant writers, which biases the program towards 
those who are better able to afford grant writers. Simplification will 
benefit agricultural producers of all means, especially smaller 
operators. REAP rules should require a greatly simplified application 
process for the smallest projects. Because so many smaller systems used 
off-the shelf technology, much of the application can be drastically 
simplified. A number of requirements, such as for design warranties not 
commonly offered, should be removed from application requirements for 
small projects.
    A third commenter echoed these same concerns. The commenter stated 
that the grant application is lengthy and overly burdensome for small, 
independent operators whose main focus is running their business. Faced 
with these burdensome requirements, many small business operators are 
contemplating hiring outside grant writers at considerable expense. Any 
action to lessen the burden for these operators would be a welcome 
change. Alternatively, the Department could allow application 
preparation as an eligible expense under professional service fees.
    Response: In the proposed rule, the Agency proposed a third-tier 
application process for projects with total project costs of $80,000 or 
less, which streamlines the application process for these smaller 
projects. The final rule maintains this third-tier application process. 
The Agency notes that there is a limit to how much the application 
process can be streamlined because the Agency must still receive 
sufficient information in order to determine a project's technical 
merit and to make selection among various meritorious projects.
    Comment: Many commenters expressed concern over the amount of 
paperwork and resulting expense required to file an application.
    Two commenters commended the Agency for creating a third category 
for projects with total project costs of $80,000 or less, and agreed 
that the smallest projects should have a greatly simplified 
application. According to the commenters, the current application is a 
lengthy 40 to 50 pages for project grants up to $20,000, and farmers 
and rural small businesses interested in RES are often dissuaded by the 
daunting application process, or end up paying grant writers to 
assemble the paperwork. The commenters, therefore, recommended that the 
Agency develop a short form and, if practicable, an on-line 
application. One of these commenters provided a 12 page application 
example that, according to the commenter, meets all of the statutory 
requirements as an alternative to the current, lengthy application. 
According to the commenters creating simplified, less-intimidating 
applications for projects totaling under $80,000 and under $200,000 
would substantially increase the number of small project applications 
(e.g., small wind energy) to and participation in the REAP program.
    Another commenter, who has worked on REAP applications since 2005, 
stated that REAP grants are long, repetitive, and cumbersome. The 
commenter asked for the Agency to make them shorter and easier to file.
    Another commenter has stated dissatisfaction with the length and 
difficulty of REAP applications, citing it took over a week of 
intensive work to complete each application package for $20,000 grants. 
The commenter highlighted that a consultant fee for the present 
application ranges from $3,000 to $5,000, which is too high of a cost 
for a potential return of $20,000. The commenter stated that the 
commenter will not participate unless wind is able to compete fairly, 
and the application is drastically shortened. According to the 
commenter, nothing in a small wind grant application should take more 
than two pages or more than one hour to complete.
    Response: The Agency thanks the commenters for the recommendations. 
The proposed rule streamlines the application process, including a 
simplified application for grants of $20,000 or less is provided in the 
final rule. The final rule incorporates three application categories, 
for which the Agency has developed forms to assist applicants with the 
application requirements. For projects with total costs $200,000 and 
greater, applicants can use RD Form 4280-3C, ``Application for 
Renewable Energy Systems and Energy Efficiency Improvement Projects, 
Total Project Cost of $200,000 and Greater.'' For projects with total 
costs of less than $200,000, but more than $80,000, applicants can use 
Form RD 4280-3B, ``Application for Renewable Energy Systems and Energy 
Efficiency Improvement Projects, Total Project Cost of Less Than 
$200,000, but More Than $80,000.'' Finally, for projects with total 
costs of $80,000 or less, applicants can use Form RD 4280-3A, 
``Application for Renewable Energy Systems and Energy Efficiency 
Improvement Projects, Total Project Cost of $80,000 or Less.'' The 
three application categories require different amounts of paperwork.
    The smaller the total project costs, the lesser amount of paperwork 
and burden are associated with the process. The forms can be used to 
meet the application requirements and will reduce burden because all 
the information needed for a complete application is in one complete 
concise form.

[[Page 78244]]

Certifications
    Comment: One commenter agreed with simplifying the application 
process to require certifications versus additional information 
upfront.
    Response: The Agency thanks the commenter for supporting this 
change. The final rule contains the same set of certifications as in 
the proposed rule for this set of applications.
Energy Bills
    Comment: One commenter stated that, with regard to applications for 
projects with total project costs of $80,000 or less, the requirement 
of small producers to maintain and provide 36 months of energy bills 
(see proposed Sec.  4280.119(b)(3)(iii)) is burdensome on the applicant 
and will result in many applicants being deemed ineligible after 
applying. According to the commenter, requiring a producer to go back 
for 36 months when they had no idea that they would be applying for 
these funds 30 months ago is unrealistic and should not be required.
    Response: As noted in the response to this issue on the calculation 
of simple payback, the Agency agrees with the commenter that 
maintaining 36 months' worth of energy bills may be burdensome to some 
applicants. The final rule allows the applicant to use the most recent 
12 months or calculate an annual average over the most recent 24, 36, 
48, or 60 month period for the energy assessment and energy audit.
Technical Review
    Comment: In commenting on the interim final rule, one commenter 
suggested that the Agency improve technical oversight at the program 
level and reduce technical reporting for single projects, especially 
small ones. Many of the concerns for project and technology viability 
that are addressed in applications can be addressed through other 
means. In the early years of the REAP program, the Agency worked more 
closely with the NREL to review and score applications. NREL works on 
renewable energy programming across multiple agencies and can continue 
to provide beneficial program design advice to the Agency. For example, 
NREL can assist the Agency in developing lists of prequalified 
equipment for the REAP program in order to avoid funding bad 
technology.
    In addition, a certification process is now under development in 
the small wind industry. The commenter recommended incorporating this 
process in order to bypass high reporting and application requirements. 
If a manufacturer's equipment has already been certified, that should 
be sufficient for technology evaluation. The commenter recommended that 
the Agency use prequalification and valid industry certification 
systems to reduce technical reporting requirements.
    Response: The Agency will work with third-party agencies, such as 
NREL, on an as-needed basis to help address concerns with 
``questionable'' technologies. For example, the Agency will use a 
third-party to help review all applications received for refurbished 
systems.
    With regard to reducing technical reporting for projects, 
especially small ones, the Agency has targeted the burden associated 
with the technical reporting requirements based on the size of the 
request for funding. This has resulted in much less burden for small 
project applications (those with total project costs of $80,000 or 
less). However, the Agency must collect sufficient information to both 
evaluate the merit of a project and compete that project with others. 
Thus, there is a limit to how much the process can be streamlined. The 
Agency also notes that it will be making available an application 
template that will help streamline the process for applicants seeking 
grants of $20,000 or less.
    The Agency disagrees that precertification of technologies is 
appropriate for this program. However, the final rule allows a 
technology to be determined commercially available if it is certified 
by a recognized industry organization whose certification standards are 
acceptable to the Agency.
Matching Funds Verification
    Comment: One commenter agreed with the Agency's decision to require 
applicants to provide a verification of matching funds equal to the 75 
percent contribution.
    Another commenter agreed with the Agency's decision to require 
applicants to provide the remainder of total project costs as a match. 
The commenter asked if the equity raised from the sale of Federal tax 
credits is able to be documented at the time of application in order to 
be used as a match.
    Response: The Agency thanks the commenters for the support. In 
response to the one commenter's question, equity raised from tax 
credits can be counted as equity if they can provide third party 
verification.
Working With Applicants
    Comment: Two commenters requested that the Agency work closely with 
applicants to help them through the application process.
    One commenter suggested that there be a representative to work 
directly with farmers or the installers that work with farmers in order 
to get more farmers putting in systems.
    The other commenter recommended that the Agency focus on providing 
paperwork assistance to applicant that is part of smaller agricultural 
operations or business owners, with a similar change considered for 
beginning farmers and entrepreneurs. The commenter noted that 
applicants that fall into these categories may not have the resources 
to seek extra assistance if they require it, and that paperwork 
assistance may determine the success of an application. The commenter 
stated that, if increased assistance were implemented within the 
program, it would help minimize the difficulty of applying for a loan, 
making it much easier for small operations to take advantage of REAP 
and encourage a diverse set of applicants.
    Response: Subject to available resources, the Agency endeavors to 
assist every potential REAP participant that requests support in 
completing an application. A simplified application for grants of 
$20,000 or less is provided in the final rule.

Evaluation of Applications (Sec.  4280.120)

Independent Organizations
    Comment: In commenting on the interim final rule, one commenter 
recommended that the Agency contract with an independent organization 
to evaluate the actual benefits from the broad inclusion of grain 
dryers under program eligibility and recommended program changes with a 
goal to focus limited program funds on adoption of the most energy 
efficient technologies available.
    The commenter stated that, over the years, the REAP program has 
worked better for some technologies than others. In recent years, the 
commenter has seen a growing dominance in the number of awards for a 
small handful of awards technologies. Grain dryers, in particular, have 
risen greatly in awards under the REAP program. The commenter stated 
that project award information they have reviewed is not definitive on 
which awards are grain dryers, but the numbers of awards clearly reach 
well over 1,300. As a result, many other technology providers are 
coming to regard REAP as ``the grain dryer program.''
    The commenter stated that project data they have reviewed indicates 
claims of increases in grain dryer efficiency of 33 percent to as much 
as 77 percent, usually for propane but also natural gas and 
electricity. The new

[[Page 78245]]

grain dryers are modern equipment using modern moisture sensors, flow 
control and metering that often replace equipment that is decades old 
and of lower technology. As a result, for some manufacturers, every 
grain dryer in their product line qualifies for REAP when replacing an 
old system, with no programmatic favor for more efficient models. The 
commenter questioned if REAP is truly driving technology improvements 
or if this is essentially a bonus for grain dryer purchases due to 
occur anyway (the ``free rider'' effect).
    In previous years, many awards for dryers were based upon expanded 
capacity for the new system. The interim final rule includes new 
changes that address this by restricting the amount of the award to the 
replacement capacity of the system. The rule addresses the definition 
of ``capacity,'' which varies for the many technologies covered by REAP 
(in some cases generating capacity, or horsepower capacity or BPH or 
other). The Agency should be commended for taking first steps to rein 
in the unwelcome dominance of REAP by one technology sector, but there 
is more to be done. The new definition should establish set criteria 
for definitions and calculation used by national and state offices for 
the sake of fairness and accuracy. As a rule, the Agency should focus 
the already limited program funds on adoption of the most energy 
efficient technology available.
    The large number of grain dryers funded under the program raises 
questions regarding how truly diverse the REAP program is when one type 
of technology so thoroughly dominates. In the case of grain dryers, 
this equipment is run only a few weeks per year, raising questions of 
how much energy is actually saved for the investment of public dollars. 
The commenter stated that they have heard reports that these grain 
dryers have also been very helpful in saving grain during the wet 
harvest seasons of recent years, though that is a side benefit. The 
commenter recommended that the Agency contract with an independent 
organization to evaluate the actual benefits from the broad inclusion 
of grain dryers under program eligibility and recommend program changes 
to reflect total energy efficiency gains due to program incentives.
    Response: The commenter is especially concerned with how well REAP 
allows for the diversification of projects, pointing specifically to 
grain dryers and whether additional oversight is needed to verify 
information being reported in grain dryer applications. While the 
Agency acknowledges that grain dryers have been a dominate technology, 
the Agency points out that the program (e.g., awarding discretionary 
points to under-represented technologies) helped diversify the 
program's portfolio, such that the percentage of the projects awarded 
to grain dryers fell by 50 percent or more from 52 percent in fiscal 
year 2010 to between 13 and 26 percent in fiscal years 2011 through 
2013.
    The Agency expects a further diversification to take place under 
the final rule by scoring projects on the basis of energy saved per 
Federal dollar requested. This should level the playing field further. 
In addition, by obtaining this metric, the Agency will be able to 
identify any project (grain dryer or otherwise) that reports a very 
high energy saved per Federal dollar requested figure to the extent 
that such a figure appears to be an outlier. The Agency will then be 
able to target such applications for further evaluation and can enlist, 
as necessary, additional assistance from third-parties, such as NREL, 
to help ensure that the information being reported is appropriate and 
not overstated.

Scoring Applications (Sec.  4280.120)

Overhaul
    Comment: In commenting on the interim final rule, one commenter 
stated that the existing scoring system used for the REAP program is in 
need of review and improvement. The commenter recommended that the 
point system be reorganized so as to realize public policy goals of the 
program, which include maximizing environmental protection, energy 
savings, and renewable energy production for producers and rural 
businesses. Many of the existing scores in the program relate more to 
paperwork preparation and less to energy or environmental performance 
of the system in question. The majority of points should evaluate the 
degree to which the proposals meet program goals for energy and 
environmental benefits. The changes should result in clear definitions, 
clear criteria, and a weighting that reflects the program criteria. In 
some cases, it will be helpful to develop criteria in consultation with 
the DOE and other Federal or state agencies with relevant experience.
    Response: The Agency agrees with the commenter that the program's 
scoring system needed improvement. The Agency reviewed the scoring 
system and the final rule contains changes that address the commenter's 
concerns. Under the existing rule, the energy (replacement, generation, 
and savings) and environmental benefit scoring criteria represented 
approximately 20 percent of the total potential application score. 
Under the final rule, these two scoring criteria account for 30 percent 
of the total potential score, thus emphasizing these particular aspects 
of the program's goals. The Agency also provides clearer definitions 
and scoring criteria. Finally, the Agency has evaluated the relative 
weightings of the scoring criteria to reflect all of the goals of the 
program.
    Comment: In commenting on the interim final rule, one commenter 
recommended that anaerobic waste digester technology that produces 
renewable biogas power and electricity be treated under the rule in a 
manner that is equitable in comparison to other renewable technologies. 
One of the specific suggestions made by the commenter was to improve 
the ranking/scoring criteria that support digester projects by making 
changes to the ranking criteria that consider environmental attributes 
of a digester project.
    A second commenter expressed similar concerns, stating that 
anaerobic digesters need to be better supported by the USDA. More REAP 
or similar funds need to be dedicated to anaerobic digesters as the 
bigger lobbying interests of wind power, solar power, and ethanol have 
long monopolized USDA funds. Anaerobic digesters are proven technology 
that cannot happen on our dairy farms without financial assistance from 
the Agency. This type of renewable energy project needs to have funding 
equity with the other technologies being funded under REAP.
    Response: In both the proposed rule and the final rule, the Agency 
has strived to reduce any actual or perceived imbalances in its 
consideration of meritorious projects to fund. However, with any set of 
scoring criteria, some technologies will have inherent advantages or 
disadvantages compared to others. It is impossible to totally eliminate 
this. With the inclusion of discretionary points for under-represented 
technologies, the Agency can help alleviate any unintended biases that 
occur as a result of the scoring criteria.
    With regard to funds being dedicated to a particular technology, in 
this case anaerobic digesters, the Agency cannot do so without specific 
statutory authorization.
    Comment: One commenter asserted that the scoring criteria in the 
proposed rule still places renewable energy projects at a disadvantage. 
The commenter suggested that reverting to separate pools of money per 
technology

[[Page 78246]]

type as a first round competition may help renewable energy projects to 
compete. Those that did not score high enough to be funded in their 
technology type pool should also be allowed to compete in the final 
National competition of funds.
    Response: While the Agency disagrees with the commenter's 
assertion, the Agency cannot accommodate the suggestion to create 
separate pools of money for each technology type without statutory 
authority.
Environmental Benefits
    Comment: One commenter asked why this criterion is being scored as 
an ``all or nothing'' rather than being scored on a graduated basis. 
Typically, the program has awarded points when appropriate 
documentation is made available and it specifically cites the project, 
but almost all EEI and RES projects have benefits. The commenter stated 
that it would be more effective to award more points when a project 
demonstrates that it is reducing greenhouse gases more than another. If 
that is not the case, then what are the quantitative values or is 
simply a pass/fail document worth 5 points? The commenter stated that 
the Agency's criterion lacks any quantitative aspect.
    Response: The Agency agrees that this criterion can be scored on a 
graduated basis based on meeting one or more of the three impact 
areas--environment, public health, and resource conservation. However, 
the Agency disagrees that this scoring criterion can be scored on a 
quantitative graduated basis as there are too many potential metrics 
and no one metric that would be suitable to all of the potential 
technologies. Further, selecting one specific metric, such as the 
commenter's greenhouse gas example, will raise a particular 
environmental aspect to a higher level than other, equally important 
environmental aspects; that is, it is difficult, if not impossible, to 
weigh one positive environmental impact against another.
    In consideration of the comment, the Agency has revised the rule to 
award one point if any one of the three impact areas is met, three 
points if any two of the three impact areas are met, and 5 points if 
all three impact areas are met.
    Comment: In commenting on the interim final rule, three commenters 
recommended increasing the points awarded for the Environmental 
Benefits scoring criterion. A fourth commenter, commenting on the 
proposed rule, also recommended increasing the points awarded for this 
criterion.
    One commenter recommended that the points awarded be increased from 
10 to 25 points, with acceptable documentation being an NRCS-approved 
conservation plan.
    A second commenter also believes more weight needs to be considered 
for the environmental benefits provided from REAP-eligible projects. 
Dairy farmers have never faced greater environmental demands than they 
do today. Fortunately, there are tools available to help alleviate many 
of these concerns. For example, anaerobic digester systems can provide 
vast opportunities for dairy farmers to mitigate air and water 
concerns. An anaerobic digester system can allow for a dairy farmer to 
vastly reduce their greenhouse gas emissions, especially methane. Also, 
anaerobic digester systems give dairy farmers a tool to reduce and 
control key nutrients, such as nitrogen and phosphorus.
    The third commenter stated that the Agency should increase the 
scoring proportion for air and water co-benefits. According to the 
commenter, a key rationale for the existence of REAP is to provide 
environmental benefits, but the program scoring falls short of gauging 
projects by their ability to serve this fundamental public policy goal 
of an improved environment. The commenter points out that the 10 points 
for environmental benefits are only approximately 8 percent of the 
overall program scoring. Furthermore, by undervaluing environmental 
benefits, the interim final rule's point allocation may miss 
opportunities during technology selection to achieve environmental 
gains such as better water or air quality, or habitat diversity. The 
marketplace already undervalues environmental benefits and REAP should 
provide a strong corrective for this market failure by more strongly 
favoring projects with environmental benefits. Examples of 
environmental co-benefits that should receive higher value include 
water savings from more energy efficient irrigation technologies, 
reduced pathogens or surface water due to anaerobic digesters, or the 
complete elimination of fossil fuel combustion due to noncombustible 
renewable energy sources such as wind and solar.
    Lastly, the third commenter stated that the existing requirement of 
a letter from a state agency is largely meaningless. The true 
determination of the letter is more a reflection of the ability of 
state agencies to generate them for specific projects rather than 
improved stewardship. The commenter recommended that the Agency replace 
this letter requirement with a better system reflecting environmental 
co-benefits.
    The commenter on the proposed rule recommended increasing the 
environmental benefit criterion point value from the proposed maximum 
of 5 points to some level above the maximum 10 points as found in the 
interim final rule. The commenter stated that this is an important 
facet of the program, as it helps give priority to projects that have a 
positive impact within the specified areas of the criterion--public 
health, the environment, and resource conservation. According to the 
commenter, these focus areas of this criterion are at the heart of 
REAP, and should be given sufficient weight. Projects that show a 
positive effect on the criterion's impact categories should be given 
priority, especially if a positive impact can be shown across all 
three.
    Response: The Agency has considered the commenters' recommendation 
to increase the point value for the environmental criterion to some 
level higher than 10 points. The primary purpose of REAP is to generate 
or save energy through RES and EEI, not to provide environmental 
benefits as claimed by one of the commenters. The Agency acknowledges 
that general letters from states were not a useful mechanism, and 
therefore revised the provision in the proposed rule. The Agency 
further acknowledges many of the points made by the commenters 
concerning the need to reduce the adverse impacts on the environment 
caused by energy generation. However, consideration of environmental 
impacts is but one of a number of criteria that the Agency must 
consider in determining which projects to fund. Because many, if not 
all, projects eligible for funding will have some positive impact on 
the environment, this criterion is not necessarily a very good 
discriminator between projects and is subjective. Further, as noted in 
the previous response, it is difficult to weigh one positive 
environmental impact against another, let alone to necessarily be able 
to measure them prior to a project being built. In consideration of 
these factors, the Agency reviewed the scoring criteria and their 
associated weights and has determined that relative to the overall 
goals of the program the 5 points for this criterion as found in the 
proposed rule is reasonable and is retained in the final rule.
Energy Generated or Saved per Dollar Requested/Quantity of Energy 
Replaced, Produced, or Saved
    Comment: Many commenters were against the addition of the ``energy 
generated per dollar requested''

[[Page 78247]]

criterion on the basis that it places small wind systems at a 
disadvantage.
    A number of the commenters stated that solar systems often have 
state or utility based incentives not available to wind, and 
``dumping'' of Chinese solar modules has created a distorted market 
place which this criterion would exacerbate. According to the 
commenters, over 70 percent of the solar modules installed in the U.S. 
in 2012 were built in China, while 91 percent of the small wind systems 
installed in America were built here. By making this change in the 
scoring criterion, the commenters state that this proposal will reduce 
the participation of small wind in the REAP program.
    Two commenters also did not support the Agency's proposed change to 
this scoring criterion because, according to these commenters, it 
favors certain renewable energy technologies, which one of the 
commenters stated would contradict the promotion of all renewable 
energy technologies mandated by the 2002 and 2008 Farm Bills. One of 
these two commenter stated that, based on sample calculations, solar 
projects would score lower than the typical energy efficiency projects, 
precluding them from competing fairly for REAP grant funds. Energy 
generation programs are typically more costly, and it is unfair that 
they are scored using the same criterion as efficiency projects. The 
commenter requests a study be done to fairly award energy system 
projects on an equal basis as energy efficiency projects.
    The other of these two commenters stated that certain RES often 
have state or utility based incentives not available to other 
technologies (e.g., solar renewable energy payment incentives, Made-in 
a certain state solar energy tax credits, technology specific feed-in 
tariffs, etc.). To a degree, all forms of energy receive incentives, 
but certain technologies receive disproportionate ones, which skews the 
energy marketplace. The commenter, therefore, recommended that the 
Agency statistically normalize scoring across technologies rather than 
apply a blunt ``energy-generated-per-dollar-requested'' criterion.
    Response: Based on the comments received, the Agency has modified 
this scoring criterion. The modifications are:
    <bullet> Creating two scoring components as follows:
    (1) Quantity of energy generated or saved per dollar requested. The 
points allocated to criterion were reduced from the 25 points in the 
proposed rule to 10 points. To obtain maximum points, the project must 
demonstrate it can generate or save at least 50,000 BTU's per dollar 
requested. This is an increase from the 25,000 BTU's published in the 
proposed rule.
    (2) Quantity of energy replaced, produced, or saved as found in the 
REAP program, but not in the proposed rule. However, energy efficiency 
projects must demonstrate 50 percent savings, up from 35 percent in the 
program, to receive the maximum of 15 points.
    <bullet> Applications for RES and EEI projects are eligible to 
receive points under both the ``Quantity of energy generated or saved 
per REAP dollar requested,'' and the ``Energy generated, replaced, or 
saved'' components.
    To the extent that any technologies become under-represented as a 
result of this change (or as the result of any other changes to the 
scoring criteria), the final rule also allows State Directors and the 
Administrator to award up to 10 discretionary points.
    With regard to the suggestion that the Agency ``normalize'' the 
scoring, this is not feasible at the state competition level because 
the level of funds is insufficient to allow a meaningful normalization. 
While there may be sufficient funding at the National Office pool level 
to consider normalization, the Agency has determined a more objective 
scoring criterion with the ability to award up to 10 discretionary 
points for under-represented technologies is the preferred approach and 
will still allow a broadly diverse project portfolio of renewable 
energy system and EEI technologies.
    Comment: In commenting on the interim final rule, one commenter 
stated that anaerobic digester technologies provide for energy 
replacement, energy savings, and energy generation. The commenter then 
suggested that anaerobic digester technologies be eligible to receive 
the maximum points associated for all three categories under Sec.  
4280.117(c)(1) of the interim final rule. Currently, the digester 
systems would be able to receive points for only one of these three 
categories and this discriminates against valuable and important 
attributes of the system.
    Response: The Agency acknowledges that anaerobic digesters have 
multiple attributes, but they are not the only technology to have such 
multiple attributes. To help maintain a balanced portfolio of 
technologies, the Agency has determined that it is reasonable to 
determine the primary use of the technology (either energy generation 
or energy savings) in the awarding of points. If a technology is found 
to be under-represented under the program, the regulation allows State 
Directors and the Administrator to award discretionary points to such 
technologies. The Agency has not made any changes to the final rule in 
response to this comment.
    Comment: In commenting on the interim final rule, one commenter 
recommended that the Agency add ``anaerobic digesters and biomethane 
fueling stations'' as a special, separate category reflecting the 
Secretary's commitment to rapidly expand the digester industry. The 
commenter specifically referred to: Sec.  4280.117(c)(1) of the interim 
final rule, add a new Sec.  4280.117(v) detailing that digesters and 
biomethane fueling stations should receive similar sliding scale of 
points depending on the combination amount of energy replaced, saved 
and generated; in 7 CFR 4280.117(c)(10), add ``anaerobic digesters and 
biomethane fueling stations.''
    Response: The 2014 Farm Bill modified the definition of renewable 
energy system to produce a usable energy from a renewable energy source 
and may include distribution components necessary to move energy 
produced by such system to initial point of sale, but may not include a 
mechanism for dispensing energy at retail. Therefore the Agency is 
unable to create a separate category for ``anaerobic digesters and 
biomethane fueling stations'' and has not revised the final rule in 
response to this comment.
    Comment: In commenting on the interim final rule, one commenter 
suggested that the underlined text be added to paragraph Sec.  
4280.117(c)(1)(iii): ``(iii) Energy generation or biomethane 
production. If the proposed RES is intended primarily for production of 
energy for sale, or for the production of biomethane for injection into 
natural gas transmission and distribution systems, 10 points will be 
awarded.'' The commenter believes this change will increase the demand 
for renewable biogas produced by anaerobic digesters. It would allow 
anaerobic digester projects that inject renewable biogas into the 
natural gas, in addition to or instead of using the gas on-site. 
Anaerobic biogas producers can receive added value from the renewable 
quality of their biogas, even when that gas is not used on site but put 
into transmission; wind and solar generators sell the renewable quality 
of their electrons to firms far from where the electrons are consumed.
    Encouraging the wheeling of renewable biogas through the natural 
gas transmission system allows customers, including stationary fuel 
cell power plants and hydrogen production systems and hydrogen 
production

[[Page 78248]]

systems at fuel cell electric vehicle fueling stations, to take 
advantage of renewable fuel using the existing natural gas system.
    Response: The Agency does not agree with the commenter that the 
suggested text needs to be included in the rule. Under the scoring 
system in the proposed rule and as included in the final rule scoring, 
a biogas application qualifies for points based on the biogas produced, 
including biogas that is cleaned, compressed, and injected into a 
natural gas transmission and distribution system. Thus, the Agency has 
not revised the rule as suggested by the commenter.
    Comment: In commenting on the interim final rule, one commenter 
stated that as a key goal of the program is to replace or save energy, 
or produce renewable energy, the overall weight for this scoring 
criterion should increase. As it stands now, this share of the points 
for energy replaced, produced, or saved is approximately 12 percent of 
the overall score. The weight should be substantially increased in 
proportion to the overall score, at least to 25 percent.
    The commenter recommended that the minimum energy efficiency gains 
required to earn additional points should be increased at all levels, 
especially the highest, in order to provide greater energy savings 
benefits. The commenter pointed out that the interim final rule 
provides more maximum points for energy efficiency or energy 
replacement, 15, compared to 10 maximum points for renewable energy for 
sale. The additional five points at the highest level should only be 
awarded in those cases with significantly higher efficiency gains or 
for use of multiple energy efficiency technologies, so as to award the 
highest points to the best performing proposals and not unduly 
diminishing renewable energy generation awards.
    Response: The Agency acknowledges that awarding of points for this 
scoring criterion needed to be revised. The Agency proposed revisions 
to this scoring criterion in the proposed rule, which addresses the 
commenter's concerns, including increasing the maximum points available 
under this criterion to 25 points and this maximum is retained in the 
final rule.
    Comment: In commenting on the interim final rule, one commenter 
opposes favored treatment of any eligible technology, particularly when 
small wind systems received approximately 2 percent of the 2010 awards.
    Response: The Agency revised the State Director and Administrator 
discretionary criterion in the final rule so that all projects, 
including small wind projects, will be equally eligible to receive 
discretionary points if they meet any of the conditions identified in 
this criterion, including, for example, if they are an under-
represented technology or are needed to achieve geographic diversity.
    Comment: In commenting on the interim final rule, one commenter 
stated that a renewable energy project being installed at a brand new 
facility does not receive points under this scoring criterion. The 
commenter recommended that a new scoring criterion be added to 
incentivize new businesses to install renewable energy projects.
    Response: The Agency added a scoring criterion found in the 
proposed rule, and as carried into Sec.  4280.120(b)(1) of the final 
rule that awards points to a renewable energy systems based on the 
amount of energy generated per dollar requested. In addition, new 
facilities may qualify for points under Sec.  4280.120(b)(2)(iii) which 
allows points to be awarded for energy production. These changes 
address the concern raised by the commenter and the need for another 
separate scoring criterion is unnecessary.
Readiness
    Comment: One commenter asked if the readiness scoring criteria will 
have a sliding scale for readiness points.
    Response: The Agency has revised this criterion to reflect a 
sliding scale for those applications that can show more than 50 percent 
matching funds and other funds, while those applications showing 50 
percent or less will still receive no points. In addition, the Agency 
is reducing the maximum number of points for this criterion from the 25 
in the proposed rule to 20 points in the final rule; note that the 20 
points is still higher than the maximum 15 points under the existing 
program.
    To illustrate the effect of the sliding scale compared to the 
interim final rule provision, please see the following table:

------------------------------------------------------------------------
                                                     Points awarded
                                               -------------------------
 Percentage of matching funds and other funds     Interim
                                                 final rule   Final rule
------------------------------------------------------------------------
50% or less...................................            0            0
60............................................            5            4
70............................................            5            8
75............................................           10           10
80............................................           10           12
90............................................           10           16
100...........................................           15           20
------------------------------------------------------------------------

Previous Grantees and Borrowers
    Comment: One commenter agreed with increasing the maximum points 
awarded under the ``previous grantee and borrower'' criterion, but 
recommended that the Agency give more to this scoring criterion.
    Response: The Agency has reviewed the overall scoring weights for 
the criteria in light of this and other comments and has determined 
that increasing the maximum points that can be awarded under this 
criterion to 15 would further encourage new applicants to apply. The 
final rule reflects this increase to 15 points for this scoring 
criterion.
    Comment: The commenter suggested that the Agency polls its field 
offices with specific calculations to determine how the proposed 
scoring change would affect the proposals prior to making any 
regulatory changes.
    Response: The Agency engaged its field staff during the development 
of the proposed rule. In addition, the public, including Agency field 
staff, has had the opportunity to comment on the proposed rule. Thus, 
the Agency has determined it is not necessary to further pursue the 
commenter's suggestion.
State Director and Administrator Priority Points
    Comment: One commenter recommended that, if comments are being 
sought for awarding under-represented or administrator points, the 
Agency should allow each state to award additional points specific to 
encouraging necessary growth within their state.
    Response: In considering the categories for which the State 
Director and Administrator can award their priority points, the Agency 
has expanded this criterion by adding three additional categories. The 
addition categories will allow State Directors more flexibility in 
awarding points to encourage necessary growth within their state for 
projects funded from their state allocation. These three categories 
are, in brief: (1) The applicant is a member of an unserved or under-
served population; (2) furthers a Presidential initiative or Secretary 
of Agriculture priority; and (3) the proposed project is located in an 
impoverished area, has experienced long-term population decline, or 
loss of employment. The Agency has determined that these categories for 
administrative points are required to maintain uniformity and 
consistency for awarding points between states.
    Comment: One commenter encouraged the Agency to allow states to 
retain the State Director awarded administrative points for a 
percentage of their caseload submitted to the National

[[Page 78249]]

Office for the pooled funding award consideration.
    Response: The commenter is requesting that the National Office keep 
any State Director points awarded to an application that is forward to 
the National Office for competition in the national pool of funds. The 
Agency disagrees with this recommendation because the purpose of the 
National competition is to compete all unfunded, eligible projects 
against each other to determine, at a National level, under-
representation and geographic distribution. It is using the 
``national'' lens that the Administrator will be determining whether to 
award these discretionary points.
Normalization
    Comment: In commenting on the interim final rule, numerous 
commenters recommended reinstituting data normalization across 
technologies in the application scoring process. One of the commenters 
stated that the recent dominance of grain dryers in REAP, and the 
desire to continue to promote technology diversity, could be addressed 
in other ways. In previous years, the Agency took steps intended to 
increase technology diversity in determining REAP awards. The Agency 
employed a ``normalization'' process developed by the NREL. The 
normalization process took place after proposals were all scored and 
sought to preserve some degree of balance among the technologies 
supported in the program. The normalization system maintained the 
relative point scores within single technology classes.
    This one commenter, in commenting on the proposed rule, again 
recommended that the Agency consider applying the normalization process 
to the REAP application process to avoid the dominance by one single 
technology. The commenter acknowledged that this may be difficult to do 
with the existing system for state allocations of program funds, but 
the allocations themselves also need to be reviewed and should be based 
on a metric related to energy. (Right now the state allocation system 
is vague and the method used to arrive at it is opaque). The Agency 
could also apply the normalization process across states to avoid 
grossly disproportionate awards.
    In contrast to these commenters, two commenters suggested that 
normalization should not come back into the final regulation for REAP. 
According to these commenters, a normalization process just complicates 
the program and removes the transparency of awards.
    Response: The Agency has chosen not to normalize, but to allocate 
funding to the states which has increased both technology diversity and 
participation in all 50 states and territories, and no changes have 
been made to the rule in response to this set of comments. The 
normalization procedure was performed in the past when only one funding 
competition was held and there were no state allocations. The use of 
administrative points has also allowed the Agency to sustain a broadly 
diverse technology portfolio.
    With regard to the comment suggesting that the allocations also 
need to be reviewed and should be based on a metric related to energy, 
that is outside the purview of this particular rulemaking, but the 
Agency will pass this comment on to those within the Agency dealing 
with state allocation of funds.
Small Projects
    Comment: In commenting on the interim final rule, one commenter 
recommended that the REAP application scoring system should be 
abandoned for the smallest projects and its complexity was 
inappropriate for micro projects. According to the commenter, the 
current REAP application scoring system is disproportionately complex 
and opaque for the smallest (grants up to $20,000) projects and it 
should be replaced with a simple checklist for the state offices to use 
before forwarding an application to USDA-Washington and all projects 
that meet this criteria should be eligible.
    Response: The Agency partially agrees with the commenter in that 
some of scoring criteria were unduly complex for very small (micro) 
projects, including the technical merit criterion and the commercial 
availability criterion. Both criteria were excluded in the proposed 
rule. The Agency removed the criterion for commercial availability 
entirely (for reasons discussed elsewhere in this preamble) and 
replaced the technical merit scoring criterion with a pass/fail 
determination.
    The Agency, however, cannot abandon a scoring system for the 
smallest projects because the Agency still needs to evaluate all 
projects against each other, as required by the authorizing statute, in 
order to determine the more meritorious projects. A ``simple 
checklist'' does not do this and, even though a project may be 
``checked off,'' it does not speak to the project's merits relative to 
the Agency's goals.
Technical Report/Technical Merit
    Comment: In commenting on the interim final rule, several 
commenters recommended that the technical report be a pass/fail review 
instead of being scored using a points system. According to the 
commenters, the score awarded is subjective and depends on the opinion 
of the reviewer causing inconsistencies among similar projects. 
Similarly, a number of commenters on the proposed rule supported the 
proposed removal of technical merit as a scoring criterion due to its 
inconsistency and subjectivity in favor of a ``pass/fail'' screen.
    Response: The Agency agrees with the commenters, although the 
scoring criterion being referred to by the commenters was ``technical 
merit'' and not ``technical report.'' The Agency recognized that the 
``technical merit'' criterion was posing the difficulties identified by 
the commenters and, in the proposed rule, proposed to remove it as a 
scoring criterion and replace it with a pass/fail determination, which 
the Agency is retaining in the final rule.
    Comment: Some commenters recommended that the Agency work closely 
with NREL to establish the ``pass/fail'' criteria for the proposed 
rule. One of the commenters pointed out that NREL has a renewable 
energy science and engineering background to provide guidance to 
identify technically qualified projects.
    Response: The Agency agrees that the rule needs to identify a 
metric by which the ``pass/fail'' determination will be made, and has 
included such in the final rule. Both the areas in the technical 
reports and the criteria developed and used to score a project's 
technical merit were developed in consultation with NREL. The Agency 
took that information to identify the key areas of each technical 
report to examine in determining whether a project has ``technical 
merit'' and distilled the criteria used to score projects on technical 
merit into a concise metric--does the information exhibit any 
weaknesses in the area and does it show that the project meets or 
exceeds any requirements specified for it.
    Comment: Due to the nature of the small wind market, some 
commenters recommended that the Agency regularly communicate with the 
NREL to maintain a current and consistent understanding of which 
manufacturers and distributors may be considered reputable.
    Response: The Agency agrees with the commenter. While Agency staff 
will continue to work to ensure that technologies eligible for REAP 
funding

[[Page 78250]]

are commercially available and meritorious, it is not the Agency's role 
to be either a clearinghouse of information on manufacturers and 
distributors or to make judgments on their reputations.
Commercial Availability and Warranty
    Comment: In commenting on the interim final rule (Sec.  
4280.117(c)(3)), one commenter recommended that the Agency add the 
ability to utilize an ``Operations and Performance'' contract as an 
alternative to a warranty requirement. Two other commenters stated that 
the scoring criterion that gives 5 extra points for a 5-year warranty 
should be removed. According to these two commenters, this criterion is 
unclear and can be interpreted in many ways, and it is difficult to 
prove that the applicant actually received the warranty upon project 
completion.
    Response: The Agency has removed the ``commercial availability'' 
scoring criterion and, as a result, the language concerning warranties 
referred to by the commenter is no longer part of scoring. Thus, the 
concerns expressed by the commenters are no longer relevant.
    Comment: In commenting on the interim final rule, one commenter 
pointed out that The Innovation Center for U.S. Dairy is working with 
USDA to address the lack of a North American Industry Classification 
System (NAICS) code(s) for anaerobic digesters, which would help 
relieve difficulties experienced by the industry in applying for 
Federal grants. If such a new code(s) is established or selected, the 
commenter urges its immediate adoption by the program for the process 
of analyzing an applicant's credit.
    Response: The Agency acknowledges that at this time anaerobic 
digesters do not have a NAICS code specifically applicable to them, and 
that they are being covered under an ``energy generation'' NAICS code. 
If and when a NAICS code specific to anaerobic digesters is developed, 
the Agency does not anticipate any issues with its adoption as soon as 
it is available. The Agency notes that no changes to the rule are 
required to address the commenter's concern.

Construction Planning and Performing Development (Sec.  4280.124)

    Comment: One commenter, referencing page 22048, column 3, paragraph 
4 of the proposed rule's Federal Register notice, expressed support for 
the elimination of all procurement contracts for projects with total 
project cost less than $200,000.
    Response: While the Agency thanks the commenter for their support, 
the Agency notes that the preamble paragraph the commenter is 
referencing states ``. . . the Agency is proposing to remove the 
requirement that the Agency has to sign off on all procurement 
contracts for projects with total project costs of less than 
$200,000.'' The Agency did not propose to eliminate procurement 
contracts for this set of projects. The Agency has retained the 
proposed rule's provision found in Sec. Sec.  4280.118(c)(2) and 
4280.119(c)(2) of the final rule to remove the ``sign off'' requirement 
and no changes were made to the final rule as a result of this comment.
    Comment: One commenter disagreed with the Agency's removal of 
surety on contracts between $100,000 and $200,000 and the ability to 
use deposits and letters of credit in lieu of payment and performance 
bonds. The commenter indicated that a payment bond provides superior 
protection compared to a letter of credit or cash deposit to public 
bodies because a subcontractor or supplier can make a direct claim 
against the payment bond. A performance bond assures that qualified 
contractors are hired and that funds are available to complete the 
project.
    Response: The Agency has not removed the requirement for surety for 
contracts between $100,000 and $200,000, but has enabled the grantee to 
request exception to the surety requirement under certain conditions 
(see Sec.  4280.124(a)(3)(v)). The Agency has added language to Sec.  
4280.124(a)(3)(v) of the final rule that this must be requested by the 
applicant and, if an exception is made, Agency funds will not be paid 
out until the project is operational and performing as describe in the 
technical report.
    Comment: One commenter noted that proposed Sec.  4280.124(a)(3)(i) 
requires that the Agency be named as co-obligee on the required surety 
bonds. The commenter did not object to the addition as co-obligee 
subject to certain clarifying conditions. The Agency, as a co-obligee 
on the bond, is not a party to the contract between the contractor and 
grantee. It is a well-established principle that the obligee may not 
enforce the surety's obligations under the bond if the obligee itself 
is in default under the contract. However, the commenter presumes that 
the Agency is not a party to the contract. Thus, there is a question of 
whether the Agency can still require the surety to complete a project 
even when the grantee has stopped paying the contractor. A surety 
typically requires that the dual obligee bond have clarifying language 
to state that the surety cannot be expected to perform by either 
obligee if the first obligee (in this case, the grantee) is in breach 
of its payment obligations. The commenter recommended that such 
language be included in the regulations and the bond form.
    Response: The Agency agrees with the commenter that clarifying 
language is needed, but will address this in instructions to the rule 
rather than in the rule itself. The Agency is required to review and 
approve all contracts and will require that the clarifying language 
reference by the commenter be included in all contracts. It is noted 
that the Agency/applicant would typically resolve any undisputed 
financial obligations prior to bond enforcement.
    Comment: In referring to proposed Sec.  4280.124(a)(l), which 
includes within the examples of competitive restrictions ``unnecessary 
. . . bonding requirements,'' one commenter (Duke) suggested that bond 
requirements should not be viewed as an unreasonable barrier to entry 
if the pool of eligible contract awardees that the grantee and Agency 
wish to reach are qualified contractors. According to the commenter, 
through prequalification as described by the commenter, bonds 
facilitate the procuring agency's function of awarding contracts to 
capable and qualified contractors. The commenter further stated that 
bonds help ensure that the pool of contractors competing for a 
procurement are qualified and bonds do not keep such contractors from 
competing.
    Response: The Agency did not intend the wording in the proposed 
rule concerning ``unnecessary . . . bonding requirements'' to create 
the situation outlined by the commenter. The Agency generally agrees 
with the commenter. Therefore, to clarify the proposed rule language, 
the final rule reads, in part: ``unnecessary experience or excessive 
bonding.''
    Comment: One commenter supported the proposed exemption from the 
requirement to use a licensed professional engineer (PE) either when 
tribal (or state) law does not require the use of a licensed PE or when 
the project is not complex, as determined by the Agency, and can be 
completed to meet the requirements of this program without the services 
of a licensed PE.
    Response: The Agency thanks the commenter for their support on 
these proposed revisions, which have been included in the final rule.
    Comment: In commenting on the interim final rule, two commenters 
recommended that the forms referenced in Sec.  4280.119(e)(8), Final 
Payments, not be required for projects that are reimbursed by grant 
funds after project completion. Because the applicant is

[[Page 78251]]

allowed to incur costs as soon as the application is submitted, there 
is a chance that the project has been completed for some time before 
grant approval. Thus, it is burdensome to require paperwork on 
contracts that are already fulfilled and payment complete. One of the 
two commenters further stated that the applicant should assume this 
responsibility during the construction phase and the Agency would pay 
out funds only after the project proves it is operational.
    Response: The Agency disagrees with the commenters as these forms 
are needed to ensure that there are no outstanding liens on the project 
before the Agency disburses funds, and the final rule continues to 
require them. After the application has been submitted, the Agency can 
provide these forms to the applicant if the applicant makes the Agency 
aware that the applicant is going to start construction. This allows 
the applicant to have the forms for contractor sign off at the time the 
project is completed.

Awarding and Administering RES and EEI Grants (Sec.  4280.122)

    Comment: Two commenters agreed with the Agency's decision in the 
proposed rule to obtain certain forms and certifications on approved 
projects after selection rather than having every applicant complete 
them with their application.
    Response: The Agency thanks the commenter for the support. The 
final rule incorporates the same provisions in this regard as found in 
the proposed rule.

Servicing RES and EEI Grants (Sec.  4280.123)

Programmatic Changes
    Comment: One commenter stated that Agency concurrence on 
programmatic changes should only be required if the project costs 
increase. If a grantee is able to do the project at the same level as 
planned and do it for less cost, the Agency should not need to be 
consulted in advance of the work being done. Because reimbursements are 
made after the project is completed, the Agency would still be able to 
limit the maximum grant to 25 percent of actual costs. According to the 
commenter, getting Agency prior approval to spend less money is 
burdensome for both the grantee and the Agency and serves no useful 
purpose.
    Response: The Agency generally agrees with the commenter that 
requiring Agency prior approval for a decrease in project costs applied 
burdens both the grantee and the Agency, and is of no advantage to the 
Federal Government, provided that the reason(s) for decrease in the 
project cost does not have a negative impact on the long-term viability 
of the project. If the reason(s) for the lower cost is associated with 
the technology, its installation, or any other factor that negatively 
affects the long-term viability of the project, however, the Agency 
must retain the ability to approve any such cost reductions. Further, 
the final rule requires any decrease in project cost that does not have 
a negative impact on the long-term viability to be reviewed and 
approved by the Agency prior to disbursement of funds.

    Note:  These changes discussed here do not affect the 
requirement for prior Agency approval for changes in project scope 
and contractor or vendor.

Renewable Energy System Reports
    Comment: Two commenters supported the Agency's proposal to remove 
the health/sanitation requirement from the RES servicing report.
    Response: The Agency thanks the commenter for their support and the 
final rule does not require, as found it the proposed rule, this 
information to be submitted with the RES servicing report.
Energy Efficiency Improvement Reports
    Comment: One commenter was concerned about whether a grantee would 
be able to report the actual amount of energy saved in the project 
performance report for EEI. For example, if a grantee is switching fuel 
types from diesel to electric the grantee is not going to have any idea 
how much energy has been saved. The commenter recommended that the 
report instead ask for how much energy the grantee has used and the 
Agency can then compare that figure to grantee's previous energy usage 
as shown in the grantee's energy audit and prior energy bills. The 
commenter noted that making this change would allow the Agency to use 
consistent numbers when calculating the BTU value of each energy type 
and would provide a better overall report of savings from the overall 
projects.
    A second commenter made a similar suggestion, but recommended that 
grantees be given two options--either report the annual energy savings 
as calculated by the applicant or report annual energy consumption by 
fuel source to be compared to the energy audit and calculated by the 
Agency. According to the commenter, these changes would ensure the 
accuracy of information the Agency provides to Congress.
    Response: The Agency disagrees with the commenters that the 
requirement for applicants to report energy savings should be shifted 
from the applicant to the Agency. It is the Agency's position that, 
unlike other Federal programs where the government is implementing the 
improvement, REAP is financing the applicant to do the improvements. 
Thus, it is the applicant's responsibility to report to the Agency the 
energy savings to be realized. The Agency developed forms to assist 
applicants in meeting this requirement and to achieve more consistent 
reporting.
    Comment: One commenter stated that the Agency has no recognized 
Measurement and Verification Procedure for monitoring energy generated 
or saved for any of its projects. The commenter asked how reporting can 
be deemed accurate without a Measurement and Verification protocol. The 
Agency's report on results issued to Congress shows the actual 
performance of projected energy saved or generated based on projected 
results for 2009 REAP projects as 35.66 percent realized for 2010 and 
75.84 percent in 2011. For 2010, REAP projects reporting shows 39.74 
percent of the projected results were realized. Some of individual 
project reporting results show that the projected energy saved or 
generated is exactly the same, which is an improbable result. Without 
any real measurement and verification mechanism how does anyone really 
know how effective this program is? Measurement and Verification 
protocol is a common practice in the industry and it is requirement in 
the Federal Energy Management Program. While the typical Measurement 
and Verification protocol cost adds 10 percent to project costs, not 
every Measurement and Verification protocol program need be that 
expensive. The single most expensive monitoring expense that REAP 
identified has been a separate gas meter. However, data loggers are 
available that record the use of propane burners, given the operating 
characteristics of equipment, time of use may be correlated to gas use. 
The cost of data logger equipment is relatively inexpensive. The 
commenter asked why the Agency has not adopted a program of Measurement 
and Verification if only on a spot basis to test a sample of projects. 
The commenter also asked, ``What is the justification for self-
reporting?''
    Response: The Agency acknowledges that a formal measurement and 
verification program helps ensure the accuracy of information reported. 
However, the Agency has decided not to implement such a program for 
this rule.

[[Page 78252]]

It is the Agency's position that, unlike other Federal programs where 
the Government is implementing the improvement, REAP is financing the 
applicant to do the improvements. Thus, it is the applicant's 
responsibility to (self-) report to the Agency the energy savings to be 
realized. Further, requiring a third-party verification process will 
increase the cost of the program to the grantee and may be cost 
prohibitive for some grantees. Implementing a ``spot'' check program 
run by the Agency would in appropriately shift the burden from the 
applicant to the government. The Agency has not made any changes to the 
rule as a result of this comment. However, the Agency will develop 
templates to assist applicants in providing accurate and consistent 
measurement of energy saved or generated by the project funded with 
REAP.
Job Reporting
    Comment: One commenter stated that the requirement to submit jobs 
created or saved will, in virtually every case of energy efficiency, 
result in a negative report. If we already know that to be the case, 
why require it from the grantee for the 2 to 3 years of reports that 
have to be filed?
    Another commenter suggested directly incorporating into the 
regulation and reporting documents that energy savings reports may 
report zero jobs if applicable. The commenter also recommended that the 
Agency clarify in the reporting document that the jobs must be a direct 
result of the project, not simply a statement of the number of 
individuals that the business currently employs.
    Response: While the primary purpose of REAP is energy creation and 
savings, the Agency is frequently asked by Administration officials and 
Congress to identify the number of jobs created or saved by all of its 
programs. Thus, even though EEI projects are unlikely to create or save 
many jobs, the Agency still needs to gather this information, which is 
at most a minimal burden on the grantee.
    With regard to the comments made by the second commenter, the 
Agency has made revisions to the final rule by (1) adding ``if any'' to 
follow ``Actual number of jobs'' to address the comment about being 
able to report ``0 jobs''; and (2) revising the requirement to read, in 
part, ``created or saved as a direct result of the EEI [RES] project 
for which REAP funding was used'' to address the comment about not 
reporting the number of people employed by the business.

Guaranteed Loans

Guaranteed Loans Awarded Subject to Available Funds
    Comment: One commenter stated that the Agency needs to ensure that 
it has funding available when selecting awarded projects, or that it 
has the ability to issue conditional commitments subject to funding if 
the guaranteed loan program is to be successful.
    Response: The Agency agrees with the commenter that funding must be 
in hand before the Agency makes any obligations to projects selected 
for funding. The Agency does not intend to issue ``conditional 
commitments'' as suggested because it would commit the Agency to 
funding projects before it actually has the funds available, which 
would be in violation of the Anti-deficiency Act.
Funding Level
    Comment: In referring to the interim final rule, one commenter 
stated that increasing the maximum amount of the loan guarantee made 
available to an eligible project from 50 percent to 75 percent of the 
eligible project costs and increasing the total amount of loans 
guaranteed to any one borrower from $10 million to $25 million would 
enhance the REAP program's effectiveness in fostering the development 
of more anaerobic digesters.
    On the other hand, another commenter stated that the interim final 
rule further facilitates larger projects through increases in loan/
grant percentage (50 percent to 75 percent) and the maximum loan 
guarantee to a single borrower ($10 million to $25 million). The 
commenter stated that these two changes will further tilt the program 
towards the already successful larger project segment. This commenter 
recommended eliminating these two changes. The commenter stated that a 
project that needs a USDA loan guarantee is not a better project than 
one that does not and pointed to distributed wind projects with medium 
and large scale wind turbines that are going unfunded by REAP because 
they have not needed or wanted USDA loan guarantees.
    In commenting on the proposed rule, a third commenter stated that, 
given there are already equity requirements in place for all REAP 
guaranteed loan projects, the 75 percent cap hinders the growth of the 
program. The commenter suggested, for example, that a small business or 
agricultural producer should be able to seek a REAP guaranteed loan for 
100 percent of total project costs through a lender and that the 25 
percent equity requirement should be placed on the business or 
agricultural producer and demonstrated from the balance sheet at 
closing as it is done in the B&I program.
    This third commenter then pointed out that the B&I program does not 
implement a 75 percent cap, but still has plenty of risk mitigation due 
to the requirements of the tangible balance sheet equity formula--20 
percent for existing businesses and 10 percent for new businesses. 
[Agency note: The commenter inadvertently reversed the percentages--the 
correct percentages are 10 percent for existing businesses and 20 
percent for new businesses. See 7 CFR 4279.131(d).] The commenter 
recommended that the same be implemented for REAP guaranteed loans. The 
renewable energy sector has matured somewhat since the early 
implementation of this program in 2002. At that time it would have 
seemed reasonable to impose a 75 percent threshold on funds and promote 
cost sharing with REAP guaranteed loans; however, the risk of these 
projects has decreased and elimination of the 75 percent cap would 
attract more lending institutions to utilize these underutilized 
guaranteed loan program funds and benefit rural businesses and 
agricultural producers as is the intention of the program.
    Response: The Agency implemented these two provisions in response 
to the 2008 Farm Bill, which limited the maximum amount of a loan 
guaranteed under REAP to $25 million and the maximum amount of a 
combined grant and loan guarantee to no more than 75 percent of the 
cost of the activity.
    With regards to the $25 million limitation, the Agency must apply 
this statutory. Further this limitation is being applied not only on a 
single project basis, but on a single borrower basis over the life of 
the program.
    The 75 percent of total eligible funds cap is specifically 
identified in the 2008 Farm Bill and continued in the 2014 Farm Bill as 
applying to combination requests (i.e., grant plus guaranteed loan 
requests) and the Agency must retain and cannot modify that 
requirement. Further, the Agency determined that extending this same 
cap to guaranteed loan-only requests is consistent with the intent of 
the statute as stated in the bill's accompanying managers' report.
Guarantee Fee Language
    Comment: One commenter expressed concern that the guarantee fee 
language will automatically result in increased guarantee and annual 
renewal fees, making the already undersubscribed

[[Page 78253]]

REAP guarantee program less attractive to lenders. The commenter 
encouraged the Agency to maintain existing annual and renewal fees to 
encourage participation.
    Response: The guarantee fee language in the proposed rule will not 
automatically result in the Agency increasing guarantee and annual 
renewal fees. Rather, the proposed language provides the Agency the 
ability to change the fee if and when necessary to have an operational 
program. Therefore, the Agency has incorporated the proposed rule 
language in the final rule.
    Comment: One commenter recommended that the REAP guarantee fee be 
allowed to be passed on to the borrower as is allowed in the B&I 
program.
    Response: The Agency agrees with the commenter, and points out that 
the proposed rule allowed the guarantee fee to be passed onto the 
borrower. This has been retained in the final rule.
Balloons
    Comment: In commenting on the interim final rule, one commenter 
recommended that anaerobic waste digester technology that produces 
renewable biogas power and electricity be treated under the rule in a 
manner that is equitable in comparison to other renewable technologies. 
One of the specific suggestions made by the commenter was for the 
Agency to add flexibility to loan term guidelines by allowing balloon 
maturities in combination with longer amortization schedules, because 
commercial banks that might typically utilize the REAP guarantee 
program will not extend loans past (say) ten years. The commenter 
pointed out that, although digester projects are steady cash flow 
producers, they typically cannot generate sufficient cash to amortize 
100 percent of principal in 10 years.
    Another commenter, also commenting on the interim final rule, 
recommended that the lender and borrower be able to negotiate a term 
for the loan that may be shorter than the amortization schedule (e.g., 
a balloon payment which would then extinguish the loan guarantee.)
    Response: The Agency acknowledges the potential benefit of allowing 
balloon maturities in combination with longer amortization schedules; 
however, doing so is not without risk both to the Agency and the 
borrower (in this case, to the rural small business and agricultural 
producer). It is because of this increased risk that all RBS guaranteed 
loan programs do not allow balloon payments. Therefore the Agency has 
decided not to implement balloon payments.
Restructuring Loan
    Comment: In commenting on the interim final rule, one commenter 
stressed the importance of changing the interim final rule to enable 
restructuring of amortization as part of a loan guarantee. Currently, 
the REAP rule allows only a simple loan guarantee in which the borrower 
must pay equal principal and interest payments for the term of the 
loan. This is a reasonable approach for a project where the technology 
needs to be proven out, or to provide further guarantee for a borrower.
    A project relying on private equity to secure the loan and 
utilizing proven technology certainly still benefit in part from this 
form of loan guarantee, as it no doubt ensures the security for the 
lending institution. Yet this benefit of a loan guarantee can be 
greatly enhanced with authorization of use of the loan guarantee to 
restructure the amortization. Again, this would ensure sufficient 
return on equity for the first few years. At the same time, the loan 
can be repaid well in advance of the expiration of the equipment's 
useful life.
    Response: The Agency intends to conform the REAP regulation for 
guaranteed loans to the B&I program. Under the B&I program, loan 
reamortization is only available when a loan is in default (either 
technical or monetary default). The Agency finds no grounds for 
deviating from those provisions for projects funded under REAP and 
therefore has not revised the rule as a result of this comment.
Personal and Corporate Guarantees
    Comment: In commenting on the interim final rule, one commenter 
recommended that the Agency incorporate a graduated reduction of the 
personal loan guarantee requirement for digester projects forecasting 
positive debt service coverage; that is, as the forecast coverage 
increases, the extent of the guarantee is reduced so that at some 
predetermined coverage level the personal guarantee requirement is 
eliminated entirely. According to the commenter, this change is needed 
to allow anaerobic waste digester technology that produces renewable 
biogas power and electricity to be treated under the rule in a manner 
that is equitable in comparison to other renewable technologies.
    Response: The Agency disagrees with the recommendation made by the 
commenter for a graduated reduction of the personal loan guarantee 
requirement. The Agency has determined that a higher probability of 
success for a project can be achieved when the borrower is actively 
managing the project. Reducing the personal guarantee can reduce the 
incentive for actively managing a project and may results in placing 
the project in a higher risk position that could result in higher 
losses. For these reasons, the Agency has not revised the rule in 
response to the commenter's recommendation.
    The Agency notes that the personal (and corporate) guarantee 
provisions for REAP in this regard are consistent with the Agency's B&I 
program and that a lender may request exceptions in cases where 
collateral, equity, cash flow, and profitability indicate an above 
average ability to repay the loan (see 7 CFR 4279.149(b)).
    Comment: In commenting on the interim final rule, one commenter 
recommended revising Sec.  4280.142(b) to underscore that an exemption 
be allowed to the longstanding requirement for a personal loan 
guarantee. The commenter specifically recommended that the Agency 
prepare business criteria for state offices to provide to lenders to 
evaluate the financial strength of digester projects utilizing a Debt 
Service Coverage Ratio (DSCR).
    Response: In the proposed rule, the Agency proposed to incorporate 
fully the personal and corporate guarantee provisions from the B&I 
program (see 7 CFR 4279.149). The B&I provisions allow exemptions from 
the personal loan guarantee under certain circumstances. The Agency has 
determined that this change, as incorporated in the final rule, is 
sufficient so as to meet the concern of the commenter. Lastly, the 
suggestion to prepare separate business criteria to provide to lenders 
is administrative in nature and outside the scope of the final rule.
Working Capital Funding
    Comment: While recognizing the benefit on placing a cap on working 
capital, one commenter recommended increasing the limit (cap) in order 
to help attract lenders to the guaranteed loan portion of REAP. 
According to the commenter, applicants have requested working capital 
for existing energy projects under REAP, but have consequently funded 
such projects under the Business and Industry guaranteed loan program. 
The commenter also recommended that the REAP regulation provide the 
Agency the discretion to set annual working capital funding caps as 
deemed necessary given program subscriptions to allow maximum 
flexibility from year to year.

[[Page 78254]]

    Response: The Agency has determined that the 5 percent cap is 
appropriate for existing businesses because the items included in the 
cap have already been incurred by the business. The Agency has not 
revised the rule in response to this comment.

Energy Audit and REDA Grants

Applicant Eligibility
    Comment: Several commenters recommended expanding the applicant 
eligibility section for energy audits and renewable energy developing 
assistance grants.
    One commenter recommended including non-profit entities that can 
document, in their application, their qualification and historical 
success in providing renewable energy development assistance.
    A second commenter recommended including as eligible entities non-
profit or public entities, including those entities that provide water 
and sewer service in rural areas.
    A third commenter recommended allowing milk cooperatives to be 
eligible for energy audit grants and renewable energy development 
assistance grants. Truly being the ``boots on the ground,'' milk 
cooperative field staff interacts every day with dairy farmers and have 
explicit knowledge and understanding of the operations of the farm. The 
commenter believes milk cooperatives have the ability and resources to 
provide this important service to better improve the delivery of energy 
audits and renewable energy development assistance.
    Response: In determining which entities are eligible to apply for 
an energy audit or REDA grant, the Agency is limited to those entities 
identified in the authorizing statute. The authorizing statute 
identifies three specific groups of entities--a unit of state, tribal, 
or local government; a land grant college or university or other 
institution of higher education; and a rural electric cooperative or 
public power entity. None of the entities suggested by the commenters 
match any of these entities identified in the statute. The closest 
possible match is reference to ``public power companies'' and the 
public entities that provide water and sewer that were mentioned by one 
of the commenters. However, it is the intent of the statute that public 
power entities have the same definition of state utility as defined in 
section 214(a) of the Federal Power Act (16 U.S.C. 824q(a)), where 
state utility is defined, in part as ``. . . to carry on the business 
of developing, transmitting, utilizing, or distributing power.'' Public 
entities that provide water and sewer are not providing ``power'' and 
thus would not be included.
    The authorizing statute also allows as eligible entities ``any 
other similar entity, as determined by the Secretary.'' None of the 
entities suggested by the commenters are ``similar.'' For example, none 
are educational institutions or government bodies. While one commenter 
suggested allowing milk cooperatives as eligible entities and the 
statue identifies rural electric cooperatives as eligible entities, the 
fact that both entities are cooperatives is insufficient to find them 
to be similar to the extent that milk cooperatives would be an eligible 
entity under the ``any other similar entity'' provision.
    In summary, none of the entities identified by the commenters are 
found to be eligible under the statutory provisions and no changes to 
the rule have been made as a result of these comments.
Scoring EA and REDA Grant Applications
    Comment: In commenting on the interim final rule, one commenter 
stated that the point scoring system for the $100,000 renewable energy 
development assistance grants provides up to 15 points for low cost 
energy audits, which means that proposals that provide energy audit 
services have a potential 15 point advantage over proposals that 
provide renewable energy development assistance. Given this criterion, 
it appears that the Agency does not really want to provide renewable 
energy development assistance, but is more focused on energy audits. Or 
does this scoring criterion only apply to energy audit proposals . . . 
and renewable energy development assistance grants will not be judged 
using this criterion or judged against the energy audit proposals?
    The commenter asked: ``How can the rules give a fair opportunity 
and level playing field to both renewable energy development assistance 
as well as energy audits?'' Both are equally vital and important in 
creating rural success in the transition to a secure clean energy 
future.
    Response: The Agency acknowledges the commenter's concern, which 
the Agency addressed in the proposed and final rules by providing equal 
footing for both energy audit grant applications and renewable energy 
development assistance grant applications.
Reporting EA/REDA
    Comment: One commenter asked whether the Agency knew the number of 
EEI projects resulting from energy audits the program has funded.
    Response: The Agency does not know the number of EEI projects that 
have resulted from energy audit funding under REAP. The Agency will 
consider developing a data management system for future tracking.

Appendix Comments

Proposed Rule--Appendix A
    Comment: One commenter found the second paragraph in Appendix A to 
be confusing, stating that allowing EEI projects costing $200,000 or 
less the ability to conduct either an energy audit or energy assessment 
appears to conflict with the new definition for energy analysis and 
when it can be used.
    Response: The Agency understands the potential confusion expressed 
by the commenter. For the reasons discussed previously in a response to 
another comment, the Agency has removed the definition of energy 
analysis from the final rule. Removing the definition of energy 
analysis from the rule eliminates this potential confusion.
Interim Final Rule--Appendix A and Appendix B, Section 2--Anaerobic 
Digester Projects
    Comment: One commenter suggests adding the underlined text to the 
introductory paragraph: ``The technical requirements specified in this 
section apply to anaerobic digester projects, which are, as defined in 
Sec.  4280.103, RES that use animal waste and other organic substrates 
to produce thermal or electrical energy via anaerobic digestion or 
produce biomethane in a compressed gaseous or liquid state for direct 
use or for injection into natural gas transmission and distribution 
systems.''
    The commenter also suggests the following addition to paragraph 
(b)(2): ``(2) For systems planning to interconnect with a gas or 
electric utility, describe the utility's system interconnection 
requirements, power purchase agreements, or licenses where required and 
the anticipated schedule for meeting those requirements and obtaining 
those agreements.''
    The commenter believes these changes will increase the demand for 
renewable biogas produced by anaerobic digesters. It would allow 
anaerobic digester projects that inject renewable biogas into the 
natural gas, in addition to or instead of using the gas on-site. 
Anaerobic biogas producers can receive added value from the renewable 
quality of their biogas, even when that gas is not used on site but put 
into transmission; wind and solar generators sell the renewable quality 
of their electrons to

[[Page 78255]]

firms far from where the electrons are consumed.
    Encouraging the wheeling of renewable biogas through the natural 
gas transmission system allows customers, including stationary fuel 
cell power plants and hydrogen production systems and hydrogen 
production systems at fuel cell electric vehicle fueling stations, to 
take advantage of renewable fuel using the existing natural gas system.
    Response: For the reasons discussed earlier in response to comments 
made by this commenter on the definition of ``anaerobic digesters,'' 
the Agency is not revising the rule as requested by the commenter. In 
addition, the proposed rule, and as found in the final rule, no longer 
contains the text being referred to by the commenter and, thus, the 
comment regarding the appendix for RES is no longer relevant.
Interim Final Rule, Appendix A, Section 8(f)
    Comment: One commenter stated that the instructions for the payback 
analysis for small wind systems (Appendix A of Subpart B, Section 8) 
list inclusion of ``applicable investment incentives'', which conflicts 
with the definition of simple payback found in Sec.  4280.103.
    Response: The ``applicable investment incentives'' the commenter is 
referring to is in the context of providing an economic assessment of 
the project and is not in reference to the calculation of simple 
payback. Thus, there is no conflict and no changes to the rule have 
been made as a result of this comment.
Interim Final Rule, Appendix A, Section 8--Small Wind
    Comment: One commenter noted that Section 8(i)(1) includes a 
requirement for a ``10 year warranty on design'' and a ``3 year 
warranty on equipment''. According to the commenter, the design 
warranty concept is not used in the wind industry. The commenter 
suggested that there should be a requirement for a 5-year parts and 
labor warranty and that turbines under 200 square meters should be 
certified to AWEA 9.1-2009 by the SWCC or a Nationally Recognized 
Testing Laboratory.
    Response: The final rule, as in the proposed rule, does not contain 
the ``10-year'' or ``3-year'' warranty requirements, as referenced by 
the commenter. Instead, the final rule requires that a system, such as 
wind, have an established warranty for major parts and labor (that is 
applicable for that particular system) as part of the requirement for 
being determined ``commercially available.'' The Agency will provide 
more specific guidance in an instructions document for the rule.
Interim Final Rule, Appendix B, Section 8--Small Wind
    Comment: One commenter stated that the requirements of Appendix B 
of Subpart B, Technical Reports, Section 8, should be radically 
simplified or eliminated (at least for micro projects). The commenter 
stated that a short-form application the commenter developed hits all 
the statutory requirements and would eliminate the need for the 
technical report.
    Response: The Agency needs information on each proposed project in 
order to determine the merit of the project and to evaluate it against 
other projects. Thus, the Agency cannot eliminate technical reports, 
even for micro-projects. However, the Agency streamlined the 
application process, which includes the requirement for the technical 
report, for small and mid-sized grants under the proposed rule and has 
retained that streamlined application process in the final rule.

List of Subjects in 7 CFR Part 4280

    Loan programs--Business and Industry, Economic Development, Energy, 
Energy Efficiency Improvements, Grant programs, Guaranteed Loan 
programs, Renewable Energy Systems, and Rural areas.

    For the reasons set forth in the preamble, under the authority at 5 
U.S.C. 301, 7 U.S.C. 1989, and 7 U.S.C. 8107, chapter XLII of title 7 
of the Code of Federal Regulations (CFR) is amended as follows:

PART 4280--LOAN AND GRANTS

0
1. The authority citation for part 4280 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 940c; 7 U.S.C. 8107

0
2. Subpart B is revised to read as follows:
Subpart B--Rural Energy for America Program

General

Sec.
4280.101 Purpose.
4280.102 Organization of subpart.
4280.103 Definitions.
4280.104 Exception authority.
4280.105 Review or appeal rights.
4280.106 Conflict of interest.
4280.107 Statute and regulation references.
4280.108 U.S. Department of Agriculture Departmental Regulations and 
laws that contain other compliance requirements.
4280.109 Ineligible Applicants, borrowers, and owners.
4280.110 General Applicant, application, and funding provisions.
4280.111 Notifications.

Renewable Energy System and Energy Efficiency Improvement Grants

4280.112 Applicant eligibility.
4280.113 Project eligibility.
4280.114 RES and EEI grant funding.
4280.115 Grant applications--general.
4280.116 Determination of technical merit.
4280.117 Grant applications for RES and EEI projects with total 
project costs $200,000 and greater.
4280.118 Grant applications for RES and EEI projects with total 
project costs of less than $200,000, but more than $80,000.
4280.119 Grant applications for RES and EEI projects with total 
project costs of $80,000 or less.
4280.120 Scoring RES and EEI grant applications.
4280.121 Selecting RES and EEI grant applications for award.
4280.122 Awarding and administering RES and EEI grants.
4280.123 Servicing RES and EEI grants.
4280.124 Construction planning and performing development.

Renewable Energy System and Energy Efficiency Improvement Guaranteed 
Loans

4280.125 Compliance with Sec. Sec.  4279.29 through 4279.99 of this 
chapter.
4280.126 Guarantee/annual renewal fee.
4280.127 Borrower eligibility.
4280.128 Project eligibility.
4280.129 Guaranteed loan funding.
4280.130 Loan processing.
4280.131 Credit quality.
4280.132 Financial statements.
4280.133 [Reserved]
4280.134 Personal and corporate guarantees.
4280.135 Scoring RES and EEI guaranteed loan-only applications.
4280.136 [Reserved]
4280.137 Application and documentation.
4280.138 Evaluation of RES and EEI guaranteed loan applications.
4280.139 Selecting RES and EEI guaranteed loan-only applications for 
award.
4280.140 [Reserved]
4280.141 Changes in borrower.
4280.142 Conditions precedent to issuance of loan note guarantee.
4280.143 Requirements after project construction.
4280.144-4280.151 [Reserved]
4280.152 Servicing guaranteed loans.
4280.153-4280.164 [Reserved]

Combined Funding for Renewable Energy Systems and Energy Efficiency 
Improvements

4280.165 Combined grant and guaranteed loan funding requirements.
4280.166-4280.185 Reserved]

Energy Audit and Renewable Energy Development Assistance Grants (REDA)

4280.186 Applicant eligibility.
4280.187 Project eligibility.
4280.188 Grant funding for Energy Audit And Renewable Energy 
Development Assistance.
4280.189 [Reserved]
4280.190 Energy Audit and REDA grant applications--content.

[[Page 78256]]

4280.191 Evaluation of Energy Audit and REDA grant applications.
4280.192 Scoring Energy Audit and REDA grant applications.
4280.193 Selecting Energy Audit and REDA grant applications for 
award.
4280.194 [Reserved]
4280.195 Awarding and administering Energy Audit and REDA grants.
4280.196 Servicing Energy Audit and REDA grants.
4280.197-4280.199 [Reserved]
4280.200 OMB control number.
Appendix A to Subpart B of Part 4280--Technical Reports for Energy 
Efficiency Improvement (EEI) Projects
Appendix B to Subpart B of Part 4280--Technical Reports for 
Renewable Energy System (RES) Projects with Total Project Costs of 
Less Than $200,000, but More Than $80,000
Appendix C to Subpart B of Part 4280--Technical Reports for 
Renewable Energy System (RES) Projects with Total Project Costs of 
$200,000 and Greater

Subpart B--Rural Energy for America Program

General


Sec.  4280.101  Purpose.

    This subpart contains the procedures and requirements for providing 
the following financial assistance under the Rural Energy for America 
Program (REAP):
    (a) Grants or guaranteed loans, or a combination grant and 
guaranteed loan, for the purpose of purchasing and installing Renewable 
Energy Systems (RES) and Energy Efficiency Improvements (EEI); and
    (b) Grants to assist Agricultural Producers and Rural Small 
Businesses by conducting Energy Audits (EA) and providing 
recommendations and information on Renewable Energy Development 
Assistance (REDA) and improving energy efficiency.


Sec.  4280.102  Organization of subpart.

    (a) Sections 4280.103 through 4280.111 discuss definitions; 
exception authority; review or appeal rights; conflict of interest; 
USDA Departmental Regulations; other applicable laws; ineligible 
Applicants, borrowers, and owners; general Applicant, application, and 
funding provisions; and notifications, which are applicable to all of 
the funding programs under this subpart.
    (b) Sections 4280.112 through 4280.124 discuss the requirements 
specific to RES and EEI grants. Sections 4280.112 and 4280.113 discuss, 
respectively, Applicant and project eligibility. Section 4280.114 
addresses funding provisions for these grants. Sections 4280.115 
through 4280.119 address grant application content, technical merit 
determination, and required documentation. Sections 4280.120 through 
4280.123 address the scoring, selection, awarding and administering, 
and servicing of these grant applications. Section 4280.124 addresses 
construction planning and development.
    (c) Sections 4280.125 through 4280.152 discuss the requirements 
specific to RES and EEI guaranteed loans. Sections 4280.125 through 
4280.128 discuss eligibility and requirements for making and processing 
loans guaranteed by the Agency. Section 4280.129 addresses funding for 
guaranteed loans. In general, Sections 4280.130 through 4280.152 
provide guaranteed loan origination and servicing requirements. These 
requirements apply to lenders, holders, and other parties involved in 
making, guaranteeing, holding, servicing, or liquidating such loans. 
Section 4280.137 addresses the application requirements for guaranteed 
loans.
    (d) Section 4280.165 presents the process by which the Agency will 
make combined loan guarantee and grant funding available for RES and 
EEI projects.
    (e) Sections 4280.186 through 4280.196 present the process by which 
the Agency will make EA and REDA grant funding available. These 
sections cover Applicant and project eligibility, grant funding, 
application content, evaluation, scoring, selection, awarding and 
administering, and servicing.
    (f) Appendices A through C cover technical report requirements. 
Appendix A applies to EEI projects; Appendix B applies to RES projects 
with Total Project Costs of Less Than $200,000, but more than $80,000; 
and Appendix C applies RES projects with Total Project Costs $200,000 
and Greater. Appendices A and B do not apply to RES and EEI projects 
with Total Project Costs of $80,000 or less, respectively. Instead, 
technical report requirements for these projects are found in Sec.  
4280.119.


Sec.  4280.103  Definitions.

    Terms used in this subpart are defined in either Sec.  4279.2 of 
this chapter or in this section. If a term is defined in both Sec.  
4279.2 and this section, it will have, for purposes of this subpart 
only, the meaning given in this section. Terms used in this subpart 
that have the same meaning as the terms defined in this section have 
been capitalized in this subpart.
    Administrator. The Administrator of Rural Business-Cooperative 
Service within the Rural Development Mission Area of the U.S. 
Department of Agriculture (USDA).
    Agency. The Rural Business-Cooperative Service (RBS) or successor 
agency assigned by the Secretary of Agriculture to administer the Rural 
Energy for America Program. References to the National Office, Finance 
Office, State Office, or other Agency offices or officials should be 
read as prefaced by ``Agency'' or ``Rural Development'' as applicable.
    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 those products.
    Anaerobic Digester Project. A Renewable Energy System that uses 
animal waste or other Renewable Biomass and may include other organic 
substrates, via anaerobic digestion, to produce biomethane that is used 
to produce thermal or electrical energy or that is converted to a 
compressed gaseous or liquid state.
    Annual Receipts. Means receipts as calculated under 13 CFR 121.104.
    Applicant. (1) Except for EA and REDA grants, the Agricultural 
Producer or Rural Small Business that is seeking a grant, guaranteed 
loan, or a combination of a grant and loan, under this subpart.
    (2) For EA and REDA grants, a unit of State, Tribal, or local 
government; a land-grant college or university or other Institution of 
Higher Education; a rural electric cooperative; a Public Power Entity; 
Council as defined in 16 U.S.C. 3451; or an Instrumentality of a State, 
Tribal, or local government that is seeking an EA or REDA grant under 
this subpart.
    Assignment Guarantee Agreement (Form RD 4279-6, or successor form). 
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, using the single note system.
    Bioenergy Project. A Renewable Energy System that produces fuel, 
thermal energy, or electric power from a Renewable Biomass source only.
    Capacity. The maximum output rate that an apparatus or heating unit 
is able to attain on a sustained basis as rated by the manufacturer.
    Commercially Available. A system that meets the requirements of 
either paragraph (1) or (2) of this definition.
    (1) A domestic or foreign system that:
    (i) Has, for at least one year specific to the proposed 
application, both a

[[Page 78257]]

proven and reliable operating history and proven performance data;
    (ii) Is based on established design and installation procedures and 
practices and is replicable;
    (iii) Has professional service providers, trades, large 
construction equipment providers, and labor who are familiar with 
installation procedures and practices;
    (iv) Has proprietary and balance of system equipment and spare 
parts that are readily available;
    (v) Has service that is readily available to properly maintain and 
operate the system; and
    (vi) Has an existing established warranty that is valid in the 
United States for major parts and labor.
    (2) A domestic or foreign Renewable Energy System that has been 
certified by a recognized industry organization whose certification 
standards are acceptable to the Agency.
    Complete Application. An application that contains all parts 
necessary for the Agency to determine Applicant and project 
eligibility, score the application, and, where applicable, enable the 
Agency to determine the technical merit of the project.
    Conditional Commitment (Form RD 4279-3, or successor form). 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 set forth by the Agency and outlined in the Conditional 
Commitment.
    Council. As defined in 16 U.S.C. 3451.
    Departmental Regulations. The regulations of the USDA's Office of 
Chief Financial Officer (or successor office) as codified in 2 CFR 
chapter IV.
    Design/Build Method. A method of project development whereby all 
design, engineering, procurement, construction, and other related 
project activities are performed under a single contract. The 
contractor is solely responsible and accountable for successful 
delivery of the project to the grantee and/or borrower as applicable.
    Eligible Project Costs. The Total Project Costs that are eligible 
to be paid or guaranteed with REAP funds.
    Energy Assessment. An Agency-approved report assessing energy use, 
cost, and efficiency by analyzing energy bills and surveying the target 
building and/or equipment sufficiently to provide an Agency-approved 
Energy Assessment.
    (1) If the project's Total Project Cost is greater than $80,000, 
the Energy Assessment must be conducted by either an Energy Auditor or 
an Energy Assessor or an individual supervised by either an Energy 
Assessor or Energy Auditor. The final Energy Assessment must be 
validated and signed by the Energy Assessor or Energy Auditor who 
conducted the Energy Assessment or by the supervising Energy Assessor 
or Energy Auditor of the individual who conducted the assessment, as 
applicable.
    (2) If the project's Total Project Cost is $80,000 or less, the 
Energy Assessment may be conducted in accordance with paragraph (1) of 
this definition or by an individual or entity that has at least 3 years 
of experience and completed at least five energy assessments or energy 
audits on similar type projects.
    Energy Assessor. A Qualified Consultant who has at least 3 years of 
experience and completed at least five energy assessments or energy 
audits on similar type projects and who adheres to generally recognized 
engineering principles and practices.
    Energy Audit. A comprehensive report that meets an Agency-approved 
standard prepared by an Energy Auditor or an individual supervised by 
an Energy Auditor that documents current energy usage; recommended 
potential improvements, typically called energy conservation measures, 
and their costs; energy savings from these improvements; dollars saved 
per year; and Simple Payback. The methodology of the Energy Audit must 
meet professional and industry standards. The final Energy Audit must 
be validated and signed off by the Energy Auditor who conducted the 
audit or by the supervising Energy Auditor of the individual who 
conducted the audit, as applicable.
    Energy Auditor. A Qualified Consultant that meets one of the 
following criteria:
    (1) A Certified Energy Auditor certified by the Association of 
Energy Engineers;
    (2) A Certified Energy Manager certified by the Association of 
Energy Engineers;
    (3) A Licensed Professional Engineer in the State in which the 
audit is conducted with at least 1 year experience and who has 
completed at least two similar type energy audits; or
    (4) An individual with a 4 year engineering or architectural degree 
with at least 3 years of experience and who has completed at least five 
similar type energy audits.
    Energy Efficiency Improvement (EEI). Improvements to or replacement 
of an existing building and/or equipment that reduces energy 
consumption on an annual basis.
    Feasibility Study. An analysis conducted by a Qualified Consultant 
of the economic, market, technical, financial, and management 
feasibility of a proposed project or business operation.
    Federal Fiscal Year. The 12-month period beginning October 1 of any 
given year and ending on September 30 of the following year.
    Financial Feasibility. The ability of a project or business 
operation to achieve sufficient income, credit, and cash flow to 
financially sustain a project over the long term. The concept of 
financial feasibility includes assessments of the cost-accounting 
system, the availability of short-term credit for seasonal businesses 
operations, and the adequacy of raw materials and supplies.
    Geothermal Direct Generation. A system that uses thermal energy 
directly from a geothermal source.
    Geothermal Electric Generation. A system that uses thermal energy 
from a geothermal source to produce electricity.
    Grant Agreement (Form RD 4280-2, Rural Business Cooperative Service 
Grant Agreement, or successor form). An agreement between the Agency 
and the grantee setting forth the provisions under which the grant will 
be administered.
    Hybrid. A combination of two or more Renewable Energy technologies 
that are incorporated into a unified system to support a single 
project.
    Hydroelectric Source. A Renewable Energy System producing 
electricity using various types of moving water including, but not 
limited to, diverted run-of-river water, in-stream run-of-river water, 
and in-conduit water. For the purposes of this subpart, only those 
Hydroelectric Sources with a Rated Power of 30 megawatts or less are 
eligible.
    Hydrogen Project. A system that produces hydrogen from a Renewable 
Energy source or that uses hydrogen produced from a Renewable Energy 
source as an energy transport medium in the production of mechanical or 
electric power or thermal energy.
    Immediate Family. Individuals who are closely related by blood, 
marriage, or adoption, or who live within the same household, such as a 
spouse, domestic partner, parent, child, brother, sister, aunt, uncle, 
grandparent, grandchild, niece, or nephew.
    Inspector. A Qualified Consultant who has at least 3 years of 
experience and completed at least five inspections on similar type 
projects. A project might require one or more Inspectors to perform the 
required inspections.
    Institution of Higher Education. As defined in 20 U.S.C. 1002(a).

[[Page 78258]]

    Instrumentality. An organization recognized, established, and 
controlled by a State, Tribal, or local government, for a public 
purpose or to carry out special purposes.
    Interconnection Agreement. A contract containing 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.
    Lender's Agreement (Form RD 4279-4, or Successor Form). Agreement 
between the Agency and the lender setting forth the lender's loan 
responsibilities.
    Loan Note Guarantee (Form RD 4279-5, or Successor Form). A 
guarantee issued and executed by the Agency containing the terms and 
conditions of the guarantee.
    Matching Funds. Those project funds required by the 7 U.S.C. 8107 
to receive the grant or guaranteed loan under this program. Funds 
provided by the applicant in excess of matching funds are not matching 
funds. Unless authorized by statute, other Federal grant funds cannot 
be used to meet a Matching Funds requirement.
    Ocean Energy. Energy created by use of various types of moving 
water in the ocean and other large bodies of water (e.g., Great Lakes) 
including, but not limited to, tidal, wave, current, and thermal 
changes.
    Passive Investor. An equity investor that does not actively 
participate in management and operation decisions of the business 
entity as evidenced by a contractual agreement.
    Power Purchase Agreement. The terms and conditions governing the 
sale and transportation of electricity produced by the grantee or 
borrower to another party.
    Public Power Entity. Is defined using the definition of ``State 
utility'' as defined in section 217(A)(4) of the Federal Power Act (16 
U.S.C. 824q(a)(4)). As of this writing, the definition ``means a State 
or any political subdivision of a State, or any agency, authority, or 
Instrumentality of any one or more of the foregoing, or a corporation 
that is wholly owned, directly or indirectly, by any one or more of the 
foregoing, competent to carry on the business of developing, 
transmitting, utilizing, or distributing power.''
    Qualified Consultant. An independent third-party individual or 
entity possessing the knowledge, expertise, and experience to perform 
the specific task required.
    Rated Power. The maximum amount of energy that can be created at 
any given time.
    Refurbished. Refers to a piece of equipment or Renewable Energy 
System that has been brought into a commercial facility, thoroughly 
inspected, and worn parts replaced and has a warranty that is approved 
by the Agency or its designee.
    Renewable Biomass. (1) Materials, pre-commercial thinnings, or 
invasive species from National Forest System land or public lands (as 
defined in section 103 of the Federal Land Policy and Management Act of 
1976 (43 U.S.C. 1702)) that:
    (i) Are byproducts of preventive treatments that are removed to 
reduce hazardous fuels; to reduce or contain disease or insect 
infestation; or to restore ecosystem health;
    (ii) Would not otherwise be used for higher-value products; and
    (iii) Are harvested in accordance with applicable law and land 
management plans and the requirements for old-growth maintenance, 
restoration, and management direction of paragraphs (e)(2), (e)(3), and 
(e)(4) and large-tree retention of subsection (f) of section 102 of the 
Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); or
    (2) Any organic matter that is available on a renewable or 
recurring basis from non-Federal land or land belonging to an Indian or 
Indian Tribe that is held in trust by the United States or subject to a 
restriction against alienation imposed by the United States, including:
    (i) Renewable plant material, including feed grains; other 
agricultural commodities; other plants and trees; and algae; and
    (ii) Waste material, including crop residue; other vegetative waste 
material (including wood waste and wood residues); animal waste and 
byproducts (including fats, oils, greases, and manure); and food waste, 
yard waste, and other biodegradable waste. (Waste material does not 
include unsegregated solid waste.)
    Renewable Energy. Energy derived from:
    (1) A wind, solar, Renewable Biomass, ocean (including tidal, wave, 
current, and thermal), geothermal or Hydroelectric Source; or
    (2) Hydrogen derived from Renewable Biomass or water using wind, 
solar, ocean (including tidal, wave, current, and thermal), geothermal 
or Hydroelectric Sources.
    Renewable Energy Development Assistance (REDA). Assistance provided 
by eligible grantees to Agricultural Producers and Rural Small 
Businesses to become more energy efficient and to use Renewable Energy 
technologies and resources. The Renewable Energy Development Assistance 
may consist of Renewable Energy Site Assessment and/or Renewable Energy 
Technical Assistance.
    Renewable Energy Site Assessment. A report provided to an 
Agricultural Producer or Rural Small Business providing information 
regarding and recommendations for the use of Commercially Available 
Renewable Energy technologies in its operation. The report must be 
prepared by a Qualified Consultant and must contain the information 
specified in Sections A through C of Appendix B.
    Renewable Energy System (RES). Meets the requirements of paragraph 
(1) and (2) of this definition:
    (1) A system that:
    (i) Produces usable energy from a Renewable Energy source; and
    (ii) May include distribution components necessary to move energy 
produced by such system to initial point of sale.
    (2) A system described in paragraph (1) of this definition may not 
include a mechanism for dispensing energy at retail.
    Renewable Energy Technical Assistance. Assistance provided to 
Agricultural Producers and Rural Small Businesses on how to use 
Renewable Energy technologies and resources in their operations.
    Retrofitting. A modification that incorporates a feature or 
features not included in the original design or for the replacement of 
existing components with ones that improve the original design and does 
not impact original warranty if the warranty is still in existence.
    Rural or Rural Area. Any area of a State not in a city or town that 
has a population of more than 50,000 inhabitants, according to the 
latest decennial census of the United States, or in the urbanized area 
contiguous and adjacent to a city or town that has a population of more 
than 50,000 inhabitants, and any area that has been determined to be 
``rural in character'' by the Under Secretary for Rural Development, or 
as otherwise identified in this definition.
    (1) An area that is attached to the urbanized area of a city or 
town with more than 50,000 inhabitants by a contiguous area of 
urbanized census blocks that is not more than two census blocks wide. 
Applicants from such an area should work with their Rural Development 
State Office to request a determination of whether their project is

[[Page 78259]]

located in a Rural Area under this provision.
    (2) For the purposes of this definition, cities and towns are 
incorporated population centers with definite boundaries, local self-
government, and legal powers set forth in a charter granted by the 
State.
    (3) For the Commonwealth of Puerto Rico, the island is considered 
Rural and eligible except for the San Juan Census Designated Place 
(CDP) and any other CDP with greater than 50,000 inhabitants. CDPs with 
greater than 50,000 inhabitants, other than the San Juan CDP, may be 
determined to be eligible if they are ``not urban in character.''
    (4) For the State of Hawaii, all areas within the State are 
considered Rural and eligible except for the Honolulu CDP within the 
County of Honolulu.
    (5) For the purpose of defining a Rural Area in the Republic of 
Palau, the Federated States of Micronesia, and the Republic of the 
Marshall Islands, the Agency shall determine what constitutes Rural and 
Rural Area based on available population data.
    (6) The determination that an area is ``rural in character'' will 
be made by the Under Secretary of Rural Development. The process to 
request a determination under this provision is outlined in paragraph 
(6)(ii) of this definition.
    (i) The determination that an area is ``rural in character'' under 
this definition will apply to areas that are within:
    (A) An urbanized area that has two points on its boundary that are 
at least 40 miles apart, which is not contiguous or adjacent to a city 
or town that has a population of greater than 150,000 inhabitants or 
the urbanized area of such a city or town; or
    (B) An urbanized area contiguous and adjacent to a city or town of 
greater than 50,000 inhabitants that is within 1/4 mile of a Rural 
Area.
    (ii) Units of local government may petition the Under Secretary of 
Rural Development for a ``rural in character'' designation by 
submitting a petition to both the appropriate Rural Development State 
Director and the Administrator on behalf of the Under Secretary. The 
petition shall document how the area meets the requirements of 
paragraph (6)(i)(A) or (B) of this definition and discuss why the 
petitioner believes the area is ``rural in character,'' including, but 
not limited to, the area's population density, demographics, and 
topography and how the local economy is tied to a rural economic base. 
Upon receiving a petition, the Under Secretary will consult with the 
applicable Governor or leader in a similar position and request 
comments to be submitted within 5 business days, unless such comments 
were submitted with the petition. The Under Secretary will release to 
the public a notice of a petition filed by a unit of local government 
not later than 30 days after receipt of the petition by way of 
publication in a local newspaper and posting on the Agency's Web site, 
and the Under Secretary will make a determination not less than 15 
days, but no more than 60 days, after the release of the notice. Upon a 
negative determination, the Under Secretary will provide to the 
petitioner an opportunity to appeal a determination to the Under 
Secretary, and the petitioner will have 10 business days to appeal the 
determination and provide further information for consideration.
    Rural Small Business. A Small Business that is located in a Rural 
Area or that can demonstrate the proposed project for which assistance 
is being applied for under this subpart is located in a Rural Area.
    Simple Payback. The estimated Simple Payback of a project funded 
under this subpart as calculated using paragraph (1) or (2) as 
applicable, of this definition.
    (1) For projects that generate energy for use offsite, Simple 
Payback is calculated as follows:
    (i) Simple Payback = (Eligible Project Costs)/(typical year) 
earnings before interest, taxes, depreciation, and amortization 
(EBITDA) for the project only.
    (ii) EBITDA will be based on:
    (A) All energy-related revenue streams and all revenue from 
byproducts produced by the energy system for a typical year including 
the fair market value of byproducts produced by and used in the project 
or related enterprises.
    (B) Income remaining after all project obligations are paid 
(operating and maintenance).
    (C) The Agency's review and acceptance of the project's typical 
year income (which is after the project is operating and stabilized) 
projections at the time of application submittal.
    (D) Does not include any tax credits, carbon credits, renewable 
energy credits, and construction and investment-related benefits.
    (2) For projects that reduce or replace onsite energy use (e.g., 
EEI projects that reduce and RES projects that replace onsite energy 
use), Simple Payback is calculated as follows:
    (i) Simple Payback = (Eligible Project Costs)/Dollar Value of 
Energy reduced or replaced)
    (ii) Dollar Value of Energy reduced or replaced incorporates the 
following:
    (A) Energy reduced or replaced will be calculated on the quantity 
of energy saved or replaced as determined by subtracting the result 
obtained under paragraph (2)(ii)(A)(2) from the result obtained under 
paragraph (2)(ii)(A)(1) of this definition, and converting to a 
monetary value using a constant value or price of energy (as determined 
under paragraph (2)(ii)(A)(3) of this definition).
    (1) Actual energy used in the original building and/or equipment, 
as applicable, prior to the RES or EEI project, must be based on the 
actual average annual total energy used in British thermal units (BTU) 
over the most recent 12, 24, 36, 48, or 60 consecutive months of 
operation.
    (2) Projected energy use if the proposed RES or EEI project had 
been in place for the original building and/or equipment, as 
applicable, for the same time period used to determine that actual 
energy use under paragraph (2)(ii)(A)(1) of this definition.
    (3) Value or price of energy must be the actual average price paid 
over the same time period used to calculate the actual energy used 
under paragraph (2)(ii)(A)(1) of this definition. RES projects that 
will replace 100 percent of an Applicant's energy use will be required 
to use the actual average price paid for the energy replaced and the 
projected revenue received from energy sold in a typical year.
    (B) Does not allow Energy Efficiency Improvements to monetize 
benefits other than the dollar amount of the energy savings the 
Agricultural Producer or Rural Small Business realizes as a result of 
the improvement.
    (C) Does not include any tax credits, carbon credits, renewable 
energy credits, and construction and investment-related benefits.
    Small Business. An entity or utility, as applicable, described 
below that meets Small Business Administration's (SBA) definition of 
Small Business as found in 13 CFR part 121.301(a) or (b). With the 
exception of the entities identified in this paragraph, all other non-
profit entities are ineligible.
    (1) A private for-profit entity, including a sole proprietorship, 
partnership, and corporation;
    (2) A cooperative (including a cooperative qualified under section 
501(c)(12) of the Internal Revenue Code);
    (3) An electric utility (including a Tribal or governmental 
electric utility) that provides service to rural consumers and must 
operate independent of direct government control; and
    (4) Tribal corporations or other Tribal business entities (as 
described in

[[Page 78260]]

paragraph (4)(i) and (ii) of this definition). The Agency shall 
determine the Small Business status of such Tribal entity without 
regard to the resources of the Tribal government.
    (i) Chartered under Section 17 of the Indian Reorganization Act (25 
U.S.C. 477), or
    (ii) Other Tribal business entities that have similar structures 
and relationships with their Tribal governments as determined by the 
Agency.
    State. Any of the 50 States of the United States, the Commonwealth 
of Puerto Rico, the U.S. Virgin Islands, 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.
    Total Project Costs. The sum of all costs associated with a 
completed project.
    Used Equipment. Any equipment that has been used in any previous 
application and is provided in an ``as is'' condition.


Sec.  4280.104  Exception authority.

    The Administrator may, with the concurrence of the Secretary of 
Agriculture, make an exception, on a case-by-case basis, 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 Federal Government's financial interest.


Sec.  4280.105  Review or appeal rights.

    An Applicant, lender, holder, borrower, or grantee may seek a 
review of an Agency decision or appeal to the National Appeals Division 
in accordance with 7 CFR part 11.
    (a) Guaranteed Loan. 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.
    (b) Combined guaranteed loan and grant. For an adverse decision 
involving a combination guaranteed loan and grant funding request, only 
the party that is adversely affected may request the review or appeal.


Sec.  4280.106  Conflict of interest.

    (a) General. 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 of 
grant, guaranteed loan funds, and Matching Funds or award of project 
construction contracts to an individual owner, partner, or stockholder, 
or to a beneficiary or Immediate Family of the Applicant or borrower 
when the recipient will retain any portion of ownership in the 
Applicant's or borrower's project. Grant and Matching Funds may not be 
used to support costs for services or goods going to, or coming from, a 
person or entity with a real or apparent conflict of interest.
    (b) Assistance to employees, relatives, and associates. The Agency 
will process any requests for assistance under this subpart in 
accordance with 7 CFR part 1900, subpart D.
    (c) Member/delegate clause. No member of or delegate to Congress 
shall receive any share or part of this grant or any benefit that may 
arise there from; but this provision shall not be construed to bar, as 
a contractor under the grant, a publicly held corporation whose 
ownership might include a member of Congress.


Sec.  4280.107  Statute and regulation references.

    All references to statutes and regulations are to include any and 
all successor statutes and regulations.


Sec.  4280.108  U.S. Department of Agriculture Departmental Regulations 
and laws that contain other compliance requirements.

    (a) Departmental Regulations. All projects funded under this 
subpart are subject to the provisions of the Departmental Regulations, 
as applicable, which are incorporated by reference herein.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscrimination requirements are met in 
accordance with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et 
seq. and 7 CFR part 15d, Nondiscrimination in Programs and Activities 
Conducted by the United States Department of Agriculture. The Agency 
will not discriminate against Applicants on the basis of race, color, 
religion, national origin, sex, marital status, or age (provided that 
the Applicant has the capacity to contract); because all or part of the 
Applicant's income derives from any public assistance program; or 
because the Applicant has in good faith exercised any right under the 
Consumer Credit Protection Act, 15 U.S.C. 1601 et seq.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, 42 U.S.C. 12101 et seq., 
Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., and 
Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. 794. This 
includes collection and maintenance of data on the race, sex, and 
national origin of the recipient's membership/ownership and employees. 
These data must be available to conduct compliance reviews in 
accordance with 7 CFR 1901.204.
    (1) Initial compliance reviews will be conducted by the Agency 
prior to funds being obligated.
    (2) Grants will require one subsequent compliance review following 
project completion. This will occur after the last disbursement of 
grant funds has been made.
    (d) Environmental analysis. 7 CFR part 1940, subpart G outlines 
environmental procedures and requirements for this subpart. Prospective 
Applicants are advised to contact the Agency to determine environmental 
requirements as soon as practicable after they decide to pursue any 
form of financial assistance directly or indirectly available through 
the Agency.
    (1) Any required environmental review must be completed by the 
Agency prior to the Agency obligating any funds.
    (2) The Applicant will be notified of all specific compliance 
requirements, including, but not limited to, the publication of public 
notices, and consultation with State Historic Preservation Offices and 
the U.S. Fish and Wildlife Service.
    (3) A site visit by the Agency may be scheduled, if necessary, to 
determine the scope of the review.
    (e) Discrimination complaints--(1) Who may file. Persons or a 
specific class of persons believing they have been subjected to 
discrimination prohibited by this section may file a complaint 
personally, or by an authorized representative with USDA, Director, 
Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 
20250.
    (2) Time for filing. A complaint must be filed no later than 180 
days from the date of the alleged discrimination, unless the time for 
filing is extended by the designated officials of USDA or Rural 
Development.


Sec.  4280.109  Ineligible Applicants, borrowers, and owners.

    Applicants, borrowers, and owners will be ineligible to receive 
funds under this subpart as discussed in paragraphs (a) and (b) of this 
section.

[[Page 78261]]

    (a) If an Applicant, borrower, or owner has an outstanding judgment 
obtained by the U.S. in a 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, borrower, or 
owner 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.
    (b) If an Applicant, borrower, or owner is debarred from receiving 
Federal assistance, the Applicant, borrower, or owner is not eligible 
to receive a grant or guaranteed loan under this subpart.


Sec.  4280.110  General Applicant, application, and funding provisions.

    (a) Satisfactory progress. An Applicant that has received one or 
more grants and/or guaranteed loans under this program must make 
satisfactory progress, as determined by the Agency, toward completion 
of any previously funded projects before the Applicant will be 
considered for subsequent funding.
    (b) Application submittal. Applications must be submitted in 
accordance with the provisions of this subpart unless otherwise 
specified in a Federal Register notice. Grant applications, guaranteed 
loan-only applications, and combined guaranteed loan and grant 
applications for financial assistance under this subpart may be 
submitted at any time.
    (1) Grant applications. Complete grant applications will be 
accepted on a continuous basis, with awards made based on the 
application's score and subject to available funding.
    (2) Guaranteed loan-only applications. Complete guaranteed loan-
only applications will be accepted on a continuous basis, with awards 
made based on the application's score and subject to available funding. 
Each application that is ready for funding and that scores at or above 
the minimum score will be competed on a periodic basis, with higher 
scoring applications receiving priority. Each application ready for 
funding that receives a score below the minimum score will be competed 
in a National Office competition at the end of the fiscal year in which 
the application was ready to be competed.
    (3) Combined guaranteed loan and grant applications. Applications 
requesting a RES or EEI grant and a guaranteed loan under this subpart 
will be accepted on a continuous basis, with awards made based on the 
grant application's score and subject to available funding.
    (c) Limit on number of applications. An Applicant can apply for 
only one RES project and one EEI project under this subpart per Federal 
Fiscal Year.
    (d) Limit on type of funding requests. An Applicant can submit only 
one type of funding request (grant-only, guaranteed loan-only, or 
combined funding) for each project under this subpart per Federal 
Fiscal Year.
    (e) Application modification. Once submitted and prior to Agency 
award, if an Applicant modifies its application, the application will 
be treated as a new application. The submission date of record for such 
modified applications will be the date the Agency receives the modified 
application, and the application will be processed by the Agency as a 
new application under this subpart.
    (f) Incomplete applications. Applicants must submit Complete 
Applications in order to be considered for funding. If an application 
is incomplete, the Agency will identify those parts of the application 
that are incomplete and return it, with a written explanation, to the 
Applicant for possible future resubmission. Upon receipt of a Complete 
Application by the appropriate Agency office, the Agency will complete 
its evaluation and will compete the application in accordance with the 
procedures specified in Sec. Sec.  4280.121, 4280.179, or 4280.193 as 
applicable.
    (g) Application withdrawal. During the period between the 
submission of an application and the execution of loan and/or grant 
award documents for an application selected for funding, the Applicant 
must notify the Agency, in writing, if the project is no longer viable 
or the Applicant no longer is requesting financial assistance for the 
project. When the Applicant notifies the Agency, the selection will be 
rescinded and/or the application withdrawn.
    (h) Technical report. Each technical report submitted under this 
subpart, as specified in Sec. Sec.  4280.117(e), 4280.118(b)(4), and 
4280.119(b)(3) and 4280.119(b)(4) must comply with the provisions 
specified in paragraphs (h)(1) through (3), as applicable, of this 
section.
    (1) Technical report format and detail. The information in the 
technical report must follow the format specified in Sec.  
4280.119(b)(3), Sec.  4280.119(b)(4), and Appendices A through C of 
this subpart, as applicable. Supporting information may be submitted in 
other formats. Design drawings and process flowcharts are encouraged as 
exhibits. In addition, information must be provided, in sufficient 
detail, to:
    (i) Allow the Agency to determine the technical merit of the 
Applicant's project under Sec.  4280.116;
    (ii) Allow the calculation of Simple Payback as defined in Sec.  
4280.103; and
    (iii) Demonstrate that the RES or EEI will operate or perform over 
the project's useful life in a reliable, safe, and a cost-effective 
manner. Such demonstration shall address project design, installation, 
operation, and maintenance.
    (2) Technical report modifications. If a technical report is 
prepared prior to the Applicant's selection of a final design, 
equipment vendor, or contractor, or other significant decision, it may 
be modified and resubmitted to the Agency, provided that the overall 
scope of the project is not materially changed as determined by the 
Agency. Changes in the technical report may require an updated Form RD 
1940-20, ``Request for Environmental Information.''
    (3) Hybrid projects. If the application is for a Hybrid project, 
technical reports must be prepared for each technology that comprises 
the Hybrid project.
    (i) Time limit on use of grant funds. Except as provided in 
paragraph (i)(1) of this section, grant funds not expended within 2 
years from the date the Grant Agreement was signed by the Agency will 
be returned to the Agency.
    (1) Time extensions. The Agency may extend the 2-year time limit if 
the Agency determines, at its sole discretion, that the grantee is 
unable to complete the project for reasons beyond the grantee's 
control. Grantees must submit a request for the no-cost extension no 
later than 30 days before the expiration date of the Grant Agreement. 
This request must describe the extenuating circumstances that were 
beyond their control to complete the project for which the grant was 
awarded, and why an approval is in the government's best interest.
    (2) Return of funds to the agency. Funds remaining after grant 
closeout that exceed the amount the grantee is entitled to receive 
under the Grant Agreement will be returned to the Agency.


Sec.  4280.111  Notifications.

    (a) Eligibility. If an Applicant and/or their application are 
determined by the Agency to be eligible for participation, the Agency 
will notify the Applicant or lender, as applicable, in writing.
    (b) Ineligibility. If an Applicant and/or their application are 
determined to be ineligible at any time, the Agency will inform the 
Applicant or lender, as applicable, in writing of the decision, reasons 
therefore, and any appeal rights.

[[Page 78262]]

No further processing of the application will occur.
    (c) Funding determinations. Each Applicant and/or lender, as 
applicable, will be notified of the Agency's decision on their 
application. If the Agency's decision is not to fund an application, 
the Agency will include in the notification any applicable appeal or 
review rights.

Renewable Energy System and Energy Efficiency Improvement Grants


Sec.  4280.112  Applicant eligibility.

    To receive a RES or EEI grant under this subpart, an Applicant must 
meet the requirements specified in paragraphs (a) through (e) of this 
section. If an award is made to an Applicant, that Applicant (grantee) 
must continue to meet the requirements specified in this section. If 
the grantee does not, then grant funds may be recovered from the 
grantee by the Agency in accordance with Departmental Regulations.
    (a) Type of Applicant. The Applicant must be an Agricultural 
Producer or Rural Small Business.
    (b) Ownership and control. The Applicant must:
    (1) Own or be the prospective owner of the project; and
    (2) Own or control the site for the project described in the 
application at the time of application and, if an award is made, for 
the useful life of the project as described in the Grant Agreement.
    (c) Revenues and expenses. The Applicant must have available at the 
time of application satisfactory sources of revenue in an amount 
sufficient to provide for the operation, management, maintenance, and 
any debt service of the project for the useful life of the project. In 
addition, the Applicant must control the revenues and expenses of the 
project, including its operation and maintenance, for which the 
assistance is sought. Notwithstanding the provisions of this paragraph, 
the Applicant may employ a Qualified Consultant under contract to 
manage revenues and expenses of the project and its operation and/or 
maintenance.
    (d) Legal authority and responsibility. Each Applicant must have 
the legal authority necessary to apply for and carry out the purpose of 
the grant.
    (e) Universal identifier and System for Awards Management (SAM). 
Unless exempt under 2 CFR 25.110, the Applicant must:
    (1) Be registered in the SAM prior to submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times during which it has an active Federal award or an application 
under consideration by the Agency; and
    (3) Provide its Dun and Bradstreet Data Universal Numbering System 
(DUNS) number in each application it submits to the Agency. Generally, 
the DUNS number is included on Standard Form-424, ``Application for 
Federal Assistance''.


Sec.  4280.113  Project eligibility.

    For a project to be eligible to receive a RES or EEI grant under 
this subpart, the proposed project must meet each of the requirements 
specified in paragraphs (a) through (f) of this section.
    (a) Be for:
    (1) The purchase of a new RES;
    (2) The purchase of a Refurbished RES;
    (3) The Retrofitting of an existing RES; or
    (4) Making EEI that will use less energy on an annual basis than 
the original building and/or equipment that it will improve or replace 
as demonstrated in an Energy Assessment or Energy Audit as applicable.
    (i) Types of improvements. Eligible EEI include, but are not 
limited to:
    (A) Efficiency improvements to existing RES and
    (B) Construction of a new energy efficient building only when the 
building is used for the same purpose as the existing building, and, 
based on an Energy Assessment or Energy Audit, as applicable, it will 
be more cost effective to construct a new building and will use less 
energy on annual basis than improving the existing building.
    (ii) Subsequent Energy Efficiency Improvements. A proposed EEI that 
replaces or duplicates an EEI previously funded under this subpart may 
or may not be eligible for funding.
    (A) If the proposed EEI would replace or duplicate the same EEI 
that had previously received funds under this subpart prior to the end 
of the useful life, as specified in the Grant Agreement, of that same 
EEI, then the proposed improvement, even if it is more energy efficient 
than the previously funded improvement, is ineligible. Example: An 
Applicant received a REAP grant to replace an exhaust fan (exhaust fan 
A) in a barn with a more energy efficient exhaust fan (exhaust fan B) 
with an expected useful life of 15 years, as specified in the Grant 
Agreement. If the Applicant decides to replace exhaust fan B after 8 
years (i.e., before it has reached the end of its useful life as 
specified it the Grant Agreement), an application for exhaust fan C to 
replace exhaust fan B would be ineligible for funding under this 
subpart even if exhaust fan C is more energy efficient than exhaust fan 
B.
    (B) If the proposed EEI would replace or duplicate the same EEI 
that had previously received funds under this subpart at or after the 
end of the useful life, as specified in the Grant Agreement, of that 
same EEI, then the proposed improvement is eligible for funding under 
this subpart provided it is more energy efficient than the previously 
funded improvement. If the proposed EEI is not more energy efficient 
than the previously funded improvement, then it is not eligible for 
funding under this subpart.
    (b) Be for a Commercially Available technology;
    (c) Have technical merit, as determined using the procedures 
specified in Sec.  4280.116; and
    (d) Be located in a Rural Area in a State if the type of Applicant 
is a Rural Small Business, or in a Rural or non-Rural Area in a State 
if the type of Applicant is an Agricultural Producer. If the 
Agricultural Producer's operation is in a non-Rural Area, then the 
application can only be for RES or EEI on components that are directly 
related to and their use and purpose is limited to the agricultural 
production operation, such as vertically integrated operations, and are 
part of and co-located with the agricultural production operation.
    (e) For an RES project in which a residence is closely associated 
with and shares an energy metering device with a Rural Small Business, 
where the residence is located at the place of business, or 
agricultural operation, the application is eligible if the applicant 
can document that one of the options specified in paragraphs (e)(1) 
through (3) of this section is met:
    (1) Installation of a second meter (or similar device) that results 
in all of the energy generated by the RES being used for non-
residential energy usage;
    (2) Certification is provided in the application that any excess 
power generated by the RES will be sold to the grid and will not be 
used by the Applicant for residential purposes; or
    (3) Demonstration that 51 percent or greater of the energy to be 
generated will benefit the Rural Small Business or agricultural 
operation. The Applicant must provide documentation that includes, but 
is not limited to, the following:
    (i) A Renewable Energy Site Assessment; or
    (ii) The amount of energy that is used by the residence and the 
amount that is used by the Rural Small Business or agricultural 
operation. Provide documentation, calculations, etc. to support the 
breakout of energy amounts.

[[Page 78263]]

The Agency may request additional data to determine residential versus 
business operation usage; and
    (iii) The actual percentage of energy determined to benefit the 
Rural Small Business or agricultural operation will be the basis to 
determine eligible project costs.
    (f) The Applicant is cautioned against taking any actions or 
incurring any obligations prior to the Agency completing the 
environmental review 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. If the Applicant 
takes any such actions or incurs any such obligations, it could result 
in project ineligibility.


Sec.  4280.114  RES and EEI grant funding.

    (a) Grant amounts. The amount of grant funds that will be made 
available to an eligible RES or EEI project under this subpart will not 
exceed 25 percent of Eligible Project Costs. Eligible Project Costs are 
specified in paragraph (c) of this section.
    (1) Minimum request. Unless otherwise specified in a Federal 
Register notice, the minimum request for a RES grant application is 
$2,500 and the minimum request for an EEI grant application is $1,500.
    (2) Maximum request. Unless otherwise specified in a Federal 
Register notice, the maximum request for a RES grant application is 
$500,000 and the maximum request for an EEI grant application is 
$250,000.
    (3) Maximum grant assistance. Unless otherwise specified in a 
Federal Register notice, the maximum amount of grant assistance to one 
individual or entity under this subpart will not exceed $750,000 per 
Federal Fiscal Year.
    (b) Matching funds and other funds. The Applicant is responsible 
for securing the remainder of the Total Project Costs not covered by 
grant funds.
    (1) Without specific statutory authority, other Federal grant funds 
cannot be used to meet the Matching Funds requirement. A copy of the 
statutory authority must be provided to the Agency to verify if the 
other Federal grant funds can be used to meet the Matching Funds 
requirement under this subpart.
    (2) Passive third-party equity contributions are acceptable for RES 
projects, including equity raised from the sale of Federal tax credits.
    (c) Eligible Project Costs. Eligible Project Costs are only those 
costs incurred after a Complete Application has been received by the 
Agency and are associated with the items identified in paragraphs 
(c)(1) through (6) of this section. Each item identified in paragraphs 
(c)(1) through (6) of this section is only an Eligible Project Cost if 
it is directly related to and its use and purpose is limited to the RES 
or EEI.
    (1) Purchase and installation of new or Refurbished equipment.
    (2) Construction, Retrofitting, replacement, and improvements.
    (3) EEI identified in the applicable Energy Assessment or Energy 
Audit.
    (4) Fees for construction permits and licenses.
    (5) Professional service fees for Qualified Consultants, 
contractors, installers, and other third-party services.
    (6) For an eligible RES in which a residence is closely associated 
with the Rural Small Business or agricultural operation the 
installation of a second meter to separate the residence from the 
portion of the project that benefits the Rural Small Business or 
agricultural operation, as applicable.
    (d) Ineligible project costs. Ineligible project costs for RES and 
EEI projects include, but are not limited to:
    (1) Agricultural tillage equipment, Used Equipment, and vehicles;
    (2) Residential RES or EEI projects;
    (3) Construction or equipment costs that would be incurred 
regardless of the installation of a RES or EEI shall not be included as 
an Eligible Project Costs. For example, the foundation for a building 
where a RES is being installed, storage only grains bins connected to 
drying systems, and the roofing of a building where solar panels are 
being attached;
    (4) Business operations that derive more than 10 percent of annual 
gross revenue (including any lease income from space or machines) from 
gambling activity, excluding State or Tribal-authorized lottery 
proceeds, as approved by the Agency, conducted for the purpose of 
raising funds for the approved project;
    (5) Business operations deriving income from activities of a sexual 
nature or illegal activities;
    (6) Lease payments;
    (7) Any project that creates a conflict of interest or an 
appearance of a conflict of interest as provided in Sec.  4280.106;
    (8) Funding of political or lobbying activities; and
    (9) To pay off any Federal direct or guaranteed loans or other 
Federal debts.
    (e) Award amount considerations. In determining the amount of a RES 
or EEI grant awarded, the Agency will take into consideration the 
following six criteria:
    (1) The type of RES to be purchased;
    (2) The estimated quantity of energy to be generated by the RES;
    (3) The expected environmental benefits of the RES;
    (4) The quantity of energy savings expected to be derived from the 
activity, as demonstrated by an Energy Audit;
    (5) The estimated period of time for the energy savings generated 
by the activity to equal the cost of the activity; and
    (6) The expected energy efficiency of the RES.


Sec.  4280.115  Grant applications--general.

    (a) General. Separate applications must be submitted for RES and 
EEI projects. An original of each application is required.
    (b) Application content. Applications for RES projects or EEI 
projects must contain the information specified in Sec.  4280.117 
unless the requirements of either Sec.  4280.118(a) or Sec.  
4280.119(a) are met. If the requirements of Sec.  4280.118(a) are met, 
the application may contain the information specified in Sec.  
4280.118(b). If the requirements of Sec.  4280.119(a) are met, the 
application may contain the information specified in Sec.  4280.119(b).
    (c) Evaluation of applications. The Agency will evaluate each RES 
and EEI grant application and make a determination as to whether:
    (1) The application is complete, as defined in Sec.  4280.103;
    (2) The Applicant is eligible according to Sec.  4280.112;
    (3) The project is eligible according to Sec.  4280.113; and
    (4) The proposed project has technical merit as determined under 
Sec.  4280.116.


Sec.  4280.116  Determination of technical merit.

    The Agency will determine the technical merit of all proposed 
projects for which Complete Applications are submitted under Sec. Sec.  
4280.117, 4280.118, and 4280.119 under this subpart using the 
procedures specified in this section. Only projects that have been 
determined by the Agency to have technical merit are eligible for 
funding under this subpart.
    (a) General. The Agency will use the information provided in the 
Applicant's technical report to determine whether or not the project 
has technical merit. In making this determination, the Agency may 
engage the services of other Government agencies or other recognized 
industry experts in the applicable technology field, at its discretion, 
to evaluate and rate the technical report. For guaranteed loan-only 
applications that are purchasing an existing RES, the technical report 
requirements can be provided in the technical feasibility section of 
the Feasibility Study, instead of completing separate technical report.

[[Page 78264]]

    (b) Technical report areas. The areas that the Agency will evaluate 
in the technical reports when making the technical merit determination 
are specified in paragraphs (b)(1) through (5) of this section.
    (1) EEI whose total project costs are $80,000 or less. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Project description;
    (ii) Qualifications of EEI provider(s); and
    (iii) Energy Assessment (or EA if applicable).
    (2) RES whose total project costs are $80,000 or less. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Project description;
    (ii) Resource assessment;
    (iii) Project economic assessment; and
    (iv) Qualifications of key service providers.
    (3) EEI whose total project costs are greater than $80,000. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Project information;
    (ii) Energy Assessment or EA as applicable; and
    (iii) Qualifications of the contractor or installers.
    (4) RES whose total project costs are less than $200,000, but more 
than $80,000. The following areas will be evaluated in making the 
technical merit determination:
    (i) Project description;
    (ii) Resource assessment;
    (iii) Project economic assessment;
    (iv) Project construction and equipment; and
    (v) Qualifications of key service providers.
    (5) RES whose total project costs are $200,000 and greater. The 
following areas will be evaluated in making the technical merit 
determination:
    (i) Qualifications of the project team;
    (ii) Agreements and permits;
    (iii) Resource assessment;
    (iv) Design and engineering;
    (v) Project development;
    (vi) Equipment procurement and installation; and
    (vii) Operations and maintenance.
    (c) Pass/fail assignments. The Agency will assign each area of the 
technical report, as specified in paragraph (b) of this section, a 
``pass'' or ``fail.'' An area will receive a ``pass'' if the 
information provided for the area has no weaknesses and meets or 
exceeds any requirements specified for the area. Otherwise, the area 
will receive a fail.
    (d) Determination. The Agency will compile the results for each 
area of the technical report to determine how to further process an 
application.
    (1) A project whose technical report receives a ``pass'' in each of 
the applicable technical report areas will be considered to have 
``technical merit'' and is eligible for further consideration for 
funding.
    (2) A project whose technical report receives a ``fail'' in any one 
technical report area will be considered to be without technical merit 
and is not be eligible for funding.


Sec.  4280.117  Grant Applications for RES and EEI projects with total 
project costs of $200,000 and greater.

    Grant applications for RES and EEI projects with Total Project 
Costs of $200,000 and Greater must provide the information specified in 
this section. This information must be presented in the order shown in 
paragraphs (a) through (f), as applicable, of this section. Each 
Applicant is encouraged, but is not required, to self-score the project 
using the evaluation criteria in Sec.  4280.120 and to submit with 
their application the total score, including appropriate calculations 
and attached documentation or specific cross-references to information 
elsewhere in the application.
    (a) Forms and certifications. Each application must contain the 
forms and certifications specified in paragraphs (a)(1) through (9), as 
applicable, of this section, except that paragraph (a)(4).
    (1) Form SF-424.
    (2) Form SF-424C, ``Budget Information-Construction Programs.''
    (3) Form SF-424D, ``Assurances-Construction Programs.''
    (4) Identify the ethnicity, race, and gender of the applicant. This 
information is optional and is not required for a Complete Application.
    (5) Form RD 1940-20 with documentation attached for the appropriate 
level of environmental assessment. The Applicant should contact the 
Agency to determine what documentation is required to be provided.
    (6) The Applicant must identify whether or not the Applicant has a 
known relationship or association with an Agency employee. If there is 
a known relationship, the Applicant must identify each Agency employee 
with whom the Applicant has a known relationship.
    (7) Certification that the Applicant is a legal entity in good 
standing (as applicable), and operating in accordance with the laws of 
the State(s) or Tribe where the Applicant has a place of business.
    (8) Certification by the Applicant that the equipment required for 
the project is available, can be procured and delivered within the 
proposed project development schedule, and will be installed in 
conformance with manufacturer's specifications and design requirements. 
This would not be applicable when equipment is not part of the project.
    (9) Certification by the Applicant that the project will be 
constructed in accordance with applicable laws, regulations, 
agreements, permits, codes, and standards.
    (b) Applicant information. Provide information specified in 
paragraphs (b)(1) through (4) of this section to allow the Agency to 
determine the eligibility of the Applicant.
    (1) Type of Applicant. Demonstrate that the Applicant meets the 
definition of Agricultural Producer or Rural Small Business, including 
appropriate information necessary to demonstrate that the Applicant 
meets the Agricultural Producer's percent of gross income derived from 
agricultural operations or the Rural Small Business' size, as 
applicable, requirements identified in these definitions. Include a 
description of the Applicant's farm/ranch/business operation.
    (i) Rural Small Business Applicants. Identify the primary North 
American Industry Classification System (NAICS) code applicable to the 
Applicant's business concern. Provide sufficient information to 
determine total Annual Receipts and number of employees of the business 
concern and any parent, subsidiary, or affiliate to demonstrate that 
the Applicant meets the definition of Small Business according to the 
time frames specified below.
    (A) For Applicant business concerns, parents, subsidiaries, and 
affiliates that have been in operation for 36 months or more, provide 
Annual Receipts information for the 36 months and the number of 
employees for the 12 months preceding the date the application is 
submitted.
    (B) For Applicant business concerns, parents, subsidiaries, and 
affiliates that have been in operation for less than 36 months but for 
at least 12 months, provide Annual Receipts and the number of employees 
for as long as the business concern, parent, subsidiary, or affiliate 
has been in operation.
    (C) For Applicant business concerns, parents, subsidiaries, and 
affiliates that have been in operation for less than 12 months, provide 
Annual Receipts and number of employees projections for the applicable 
entity based upon a typical operating year for a 3-year time period.
    (ii) Agricultural Producer Applicants. Provide the gross market 
value of the Applicant's agricultural products, gross agricultural 
income of the Applicant,

[[Page 78265]]

and gross nonfarm income of the Applicant according to the Annual 
Receipts time frames specified in paragraphs (b)(1)(i)(A) through (C) 
of this section, as applicable to the length of time that Applicant's 
agricultural operation has been in operation.
    (2) Applicant description. Describe the ownership of the Applicant, 
including the following information if applicable.
    (i) Ownership and control. Describe how the Applicant meets the 
ownership and control requirements.
    (ii) Affiliated companies. For entities (e.g., corporate parents, 
affiliates, subsidiaries), provide a list of the individual owners with 
their contact information of those entities. Describe the relationship 
between the Applicant and these other entities, including management 
and products exchanged.
    (3) Financial information. Financial information is required on the 
total operation of the Agricultural Producer/Rural Small Business and 
its parent, subsidiary, or affiliates. All information submitted under 
this paragraph must be substantiated by authoritative records.
    (i) Historical financial statements. Provide historical financial 
statements prepared in accordance with Generally Accepted Accounting 
Practices (GAAP) for the past 3 years, including income statements and 
balance sheets. If Agricultural Producers are unable to present this 
information in accordance with GAAP, they may instead present financial 
information in the format that is generally required by commercial 
agriculture lenders. For a Rural Small Business or Agricultural 
Producer that has been in operation for less than 3 years, provide 
income statements and balance sheets for as long as the business 
operation has been in existence.
    (ii) Current balance sheet and income statement. Provide a current 
balance sheet and income statement prepared in accordance with GAAP and 
dated within 90 days of the application. Agricultural Producers can 
present financial information in the format that is generally required 
by commercial agriculture lenders.
    (iii) Pro forma financial statements. Provide pro forma balance 
sheet at start-up of the Agricultural Producer's/Rural Small Business' 
business operation 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.
    (4) Previous grants and loans. State whether the Applicant has 
received any grants and/or loans under this subpart. If the Applicant 
has, identify each such grant and/or loan and describe the progress the 
Applicant has made on each project for which the grant and/or loan was 
received, including projected schedules and actual completion dates.
    (c) Project information. Provide information concerning the 
proposed project as a whole and its relationship to the Applicant's 
operations, including the following:
    (1) Identification as to whether the project is for a RES or an EEI 
project. Include a description and the location of the project.
    (2) A description of the process that will be used to conduct all 
procurement transactions to demonstrate compliance with Sec.  
4280.124(a)(1).
    (3) Describe how the proposed project will have a positive effect 
on resource conservation (e.g., water, soil, forest), public health 
(e.g., potable water, air quality), and the environment (e.g., 
compliance with the U.S. Environmental Protection Agency's (EPA) 
renewable fuel standard(s), greenhouse gases, emissions, particulate 
matter).
    (4) Identify the amount of funds and the source(s) the Applicant is 
proposing to use for the project. Provide written commitments for funds 
at the time the application is submitted to receive points under this 
scoring criterion.
    (i) If financial resources come from the Applicant, the Applicant 
must submit documentation in the form of a bank statement that 
demonstrates availability of funds.
    (ii) If a third party is providing financial assistance, the 
Applicant must submit a commitment letter signed by an authorized 
official of the third party. The letter must be specific to the 
project, identify the dollar amount and any applicable rates and terms. 
If the third party is a bank, a letter-of-intent, pre-qualification 
letter, subject to bank approval, or other underwriting requirements or 
contingencies are not acceptable. An acceptable condition may be based 
on the receipt of the REAP grant or an appraisal.
    (d) Feasibility Study. If the application is for a RES project with 
Total Project Costs of $200,000 and Greater, a Feasibility Study must 
be submitted. The Feasibility Study must be conducted by a Qualified 
Consultant.
    (e) Technical report. Each application must contain a technical 
report prepared in accordance with Sec.  4280.110(h) and Appendix A or 
C, as applicable, of this subpart.
    (f) Construction planning and performing development. Each 
application submitted must be in accordance with Sec.  4280.124 for 
planning, designing, bidding, contracting, and constructing RES and EEI 
projects as applicable.


Sec.  4280.118  Grant applications for RES and EEI Projects with total 
project costs of less than $200,000, but more than $80,000.

    Grant applications for RES and EEI projects with Total Project 
Costs of less than $200,000, but more than $80,000, may provide the 
information specified in this section or, if the Applicant elects to do 
so, the information specified in Sec.  4280.117. In order to submit an 
application under this section, the criteria specified in paragraph (a) 
of this section must be met. The content for applications submitted 
under this section is specified in paragraph (b) of this section. 
Unless otherwise specified in this subpart, the construction planning 
and performing development procedures and the payment process that will 
be used for awards for applications submitted under this section are 
specified in paragraphs (c) and (d), respectively, of this section.
    (a) Criteria for submitting applications for projects with total 
project costs of less than $200,000, but more than $80,000. In order to 
submit an application under this section, each of the conditions 
specified in paragraphs (a)(1) through (7) of this section must be met.
    (1) The Applicant must be eligible in accordance with Sec.  
4280.112.
    (2) The project must be eligible in accordance with Sec.  4280.113.
    (3) Total Project Costs must be less than $200,000, but more than 
$80,000.
    (4) Construction planning and performing development must be 
performed in compliance with paragraph (c) of this section. The 
Applicant or the Applicant's prime contractor assumes all risks and 
responsibilities of project development.
    (5) The Applicant or the Applicant's prime contractor is 
responsible for all interim financing, including during construction.
    (6) The Applicant agrees not to request reimbursement from funds 
obligated under this program until after project completion and is 
operating in accordance with the information provided in the 
application for the project.
    (7) The Applicant must maintain insurance as required under Sec.  
4280.122(b), except business interruption insurance is not required.
    (b) Application content. Applications submitted under this section 
must

[[Page 78266]]

contain the information specified in paragraphs (b)(1) through (4) of 
this section and must be presented in the same order. Each Applicant is 
encouraged, but is not required, to self-score the project using the 
evaluation criteria in Sec.  4280.120 and to submit with their 
application the total score, including appropriate calculations and 
attached documentation or specific cross-references to information 
elsewhere in the application.
    (1) Forms and certifications. The application must contain the 
items identified in Sec.  4280.117(a). In addition, the Applicant must 
submit a certification that the Applicant meets each of the criteria 
for submitting an application under this section as specified in 
paragraph (a) of this section.
    (2) Applicant information. The application must contain the items 
identified in Sec.  4280.117(b), except that the information specified 
in Sec.  4280.117(b)(3) is not required.
    (3) Project information. The application must contain the items 
identified in Sec.  4280.117(c).
    (4) Technical report. Each application must contain a technical 
report in accordance with Sec.  4280.110(h) and Appendix A or B, as 
applicable, of this subpart.
    (c) Construction planning and performing development. Applicants 
submitting applications under this section must comply with the 
requirements specified in paragraphs (c)(1) through (3) of this section 
for construction planning and performing development.
    (1) General. Paragraphs (a)(1), (2), and (4) of Sec.  4280.124 
apply.
    (2) Small acquisition and construction procedures. Small 
acquisition and construction procedures are those relatively simple and 
informal procurement methods that are sound and appropriate for a 
procurement of services, equipment, and construction of a RES or EEI 
project with a Total Project Cost of not more than $200,000. The 
Applicant is solely responsible for the execution of all contracts 
under this procedure, and Agency review and approval is not required.
    (3) Contractor forms. Applicants must have each contractor sign, as 
applicable:
    (i) Form RD 400-6, ``Compliance Statement,'' for contracts 
exceeding $10,000; and
    (ii) Form AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Covered 
Transactions,'' for contracts exceeding $25,000.
    (d) Payment process for applications for res and eei projects with 
total project costs of less than $200,000, but more than $80,000. (1) 
Upon completion of the project, the grantee must submit to the Agency a 
copy of the contractor's certification of final completion for the 
project and a statement that the grantee accepts the work completed. At 
its discretion, the Agency may require the Applicant to have an 
Inspector certify that the project is constructed and installed 
correctly.
    (2) The RES or EEI project must be constructed, installed, and 
operating as described in the technical report prior to disbursement of 
funds. For RES, the system must be operating at the steady state 
operating level described in the technical report for a period of not 
less than 30 days, unless this requirement is modified by the Agency, 
prior to disbursement of funds. Any modification to the 30-day steady 
state operating level requirement will be based on the Agency's review 
of the technical report and will be incorporated into the Letter of 
Conditions.
    (3) Prior to making payment, the Agency will be provided with Form 
RD 1924-9, ``Certificate of Contractor's Release,'' and Form RD 1924-
10, ``Release by Claimants,'' or similar forms, executed by all persons 
who furnished materials or labor in connection with the contract.


Sec.  4280.119  Grant applications for res and eei projects with total 
project costs of $80,000 or less.

    Grant applications for RES and EEI projects with Total Project 
Costs of $80,000 or less must provide the information specified in this 
section or, if the Applicant elects to do so, the information specified 
in either Sec. Sec.  4280.117 or 4280.118. In order to submit an 
application under this section, the criteria specified in paragraph (a) 
of this section must be met. The content for applications submitted 
under this section is specified in paragraph (b) of this section. 
Unless otherwise specified in this subpart, the construction planning 
and performing development procedures and the payment process that will 
be used for awards for applications submitted under this section are 
specified in paragraphs (c) and (d), respectively, of this section.
    (a) Criteria for submitting applications for RES and EEI projects 
with total project costs of $80,000 or less. In order to submit an 
application under this section, each of the conditions specified in 
paragraphs (a)(1) through (7) of this section must be met.
    (1) The Applicant must be eligible in accordance with Sec.  
4280.112.
    (2) The project must be eligible in accordance with Sec.  4280.113.
    (3) Total Project Costs must be $80,000 or less.
    (4) Construction planning and performing development must be 
performed in compliance with paragraph (c) of this section. The 
Applicant or the Applicant's prime contractor assumes all risks and 
responsibilities of project development.
    (5) The Applicant or the Applicant's prime contractor is 
responsible for all interim financing, including during construction.
    (6) The Applicant agrees not to request reimbursement from funds 
obligated under this program until after the project has been completed 
and is operating in accordance with the information provided in the 
application for the project.
    (7) The Applicant must maintain insurance as required under Sec.  
4280.122(b), except business interruption insurance is not required.
    (b) Application content. Applications submitted under this section 
must contain the information specified in paragraphs (b)(1) through 
(4), as applicable, of this section and must be presented in the same 
order. Each Applicant is encouraged, but is not required, to self-score 
the project using the evaluation criteria in Sec.  4280.120 and to 
submit with their application the total score, including appropriate 
calculations and attached documentation or specific cross-references to 
information elsewhere in the application.
    (1) Forms and certifications. Each application must contain the 
forms and certifications specified in paragraphs (b)(1)(i) through 
(ix), as applicable, of this section except that paragraph (b)(1)(iv) 
is optional.
    (i) Form SF-424.
    (ii) Form SF-424C.
    (iii) Form SF-424D.
    (iv) Identify the ethnicity, race, and gender of the applicant. 
This information is optional and is not required for a Complete 
Application.
    (v) Form RD 1940-20 with documentation attached for the appropriate 
level of environmental assessment. The Applicant should contact the 
Agency to determine what documentation is required to be provided.
    (vi) Certification by the Applicant that:
    (A) The Applicant meets each of the Applicant eligibility criteria 
found in Sec.  4280.112;
    (B) The proposed project meets each of the project eligibility 
requirements found in Sec.  4280.113;

[[Page 78267]]

    (C) The design, engineering, testing, and monitoring will be 
sufficient to demonstrate that the proposed project will meet its 
intended purpose;
    (D) The equipment required for the project is available, can be 
procured and delivered within the proposed project development 
schedule, and will be installed in conformance with manufacturer's 
specifications and design requirements. This would not be applicable 
when equipment is not part of the project;
    (E) The project will be constructed in accordance with applicable 
laws, regulations, agreements, permits, codes, and standards;
    (F) The Applicant meets the criteria for submitting an application 
for projects with Total Project Costs of $80,000 or less;
    (G) The Applicant will abide by the open and free competition 
requirements in compliance with Sec.  4280.124(a)(1); and
    (H) For Bioenergy Projects, any and all woody biomass feedstock 
from National Forest System land or public lands cannot be otherwise 
used as a higher value wood-based product.
    (vii) State whether the Applicant has received any grants and/or 
loans under this subpart. If the Applicant has, identify each such 
grant and/or loan and describe the progress the Applicant has made on 
each project for which the grant and/or loan was received, including 
projected schedules and actual completion dates.
    (viii) The Applicant must identify whether or not the Applicant has 
a known relationship or association with an Agency employee. If there 
is a known relationship, the Applicant must identify each Agency 
employee with whom the Applicant has a known relationship.
    (ix) The Applicant is a legal entity in good standing (as 
applicable), and operating in accordance with the laws of the state(s) 
or Tribe where the Applicant has a place of business.
    (2) General. For both RES and EEI project applications:
    (i) Identify whether the project is for a RES or an EEI project;
    (ii) Identify the primary NAICS code applicable to the Applicant's 
operation if known or a description of the operation in enough detail 
for the Agency to determine the primary NAICS code;
    (iii) Describe in detail or document how the proposed project will 
have a positive effect on resource conservation (e.g., water, soil, 
forest), public health (e.g., potable water, air quality), and the 
environment (e.g., compliance with the EPA's renewable fuel 
standard(s), greenhouse gases, emissions, particulate matter); and
    (iv) Identify the amount of Matching Funds and other funds and the 
source(s) the Applicant is proposing to use for the project. In order 
to receive points under this scoring criterion, written commitments for 
funds (e.g., a Letter of Commitment, bank statement) must be submitted 
when the application is submitted.
    (A) If financial resources come from the Applicant, the Applicant 
must submit documentation in the form of a bank statement that 
demonstrates availability of funds.
    (B) If a third party is providing financial assistance, the 
Applicant must submit a commitment letter signed by an authorized 
official of the third party. The letter must be specific to the 
project, identify the dollar amount and any applicable rates and terms. 
If the third party is a bank, a letter-of-intent, pre-qualification 
letter, subject to bank approval, or other underwriting requirements or 
contingencies are not acceptable. An acceptable condition may be based 
on the receipt of the REAP grant or an appraisal.
    (3) Technical report for EEI. Each EEI application submitted under 
this section must include a technical report in accordance with Sec.  
4280.110(h) and paragraphs (b)(3)(i) through (iv) of this section.
    (i) Project description. Provide a description of the proposed EEI, 
including its intended purpose and how it meets the requirements for 
being Commercially Available.
    (ii) Qualifications of EEI provider(s). Provide a resume or other 
evidence of the contractor or installer's qualifications and experience 
with the proposed EEI technology. Any contractor or installer with less 
than 2 years of experience may be required to provide additional 
information in order for the Agency to determine if they are a 
qualified installer/contractor.
    (iii) Energy assessment. Provide a copy of the Energy Assessment 
(or Energy Audit) performed for the project as required under Section C 
of Appendix A to this subpart and the qualifications of the individual 
or entity which completed the Energy Assessment.
    (iv) Simple Payback. Provide an estimate of Simple Payback, 
including all calculations, documentation, and any assumptions.
    (4) Technical report for RES. Each RES application submitted under 
this section must include a technical report in accordance with Sec.  
4280.110(h) and paragraphs (b)(4)(i) through (iv) of this section.
    (i) Project description. Provide a description of the project, 
including its intended purpose and a summary of how the project will be 
constructed and installed, and how it meets the definition of 
Commercially Available. Identify the project's location and describe 
the project site.
    (ii) Resource assessment. Describe the quality and availability of 
the renewable resource to the project. Identify the amount of Renewable 
Energy that will be generated once the proposed system is operating at 
its steady state operating level.
    (iii) Project economic assessment. Describe the projected financial 
performance of the proposed project. The description must address Total 
Project Costs, energy savings, and revenues, including applicable 
investment and other production incentives accruing from government 
entities. Revenues to be considered shall accrue from the sale of 
energy, offset or savings in energy costs, and byproducts. Provide an 
estimate of Simple Payback, including all calculations, documentation, 
and any assumptions.
    (iv) Qualifications of key service providers. Describe the key 
service providers, including the number of similar systems installed 
and/or manufactured, professional credentials, licenses, and relevant 
experience. If specific numbers are not available for similar systems, 
you may submit an estimation of the number of similar systems.
    (c) Construction planning and performing development for 
applications submitted under this section. All Applicants submitting 
applications under this section must comply with the requirements 
specified in paragraphs (c)(1) through (3) of this section for 
construction planning and performing development.
    (1) General. Paragraphs (a)(1), (2), and (4) of Sec.  4280.124 
apply.
    (2) Small acquisition and construction procedures. Small 
acquisition and construction procedures are those relatively simple and 
informal procurement methods that are sound and appropriate for a 
procurement of services, equipment and construction of a RES or EEI 
project with a Total Project Cost of not more than $80,000. The 
Applicant is solely responsible for the execution of all contracts 
under this procedure, and Agency review and approval is not required.
    (3) Contractor forms. Applicants must have each contractor sign, as 
applicable:
    (i) Form RD 400-6 for contracts exceeding $10,000; and
    (ii) Form AD-1048 for contracts exceeding $25,000.

[[Page 78268]]

    (d) Payment process for applications for RES and EEI projects with 
total project costs of $80,000 or less. (1) Upon completion of the 
project, the grantee must submit to the Agency a copy of the 
contractor's certification of final completion for the project and a 
statement that the grantee accepts the work completed. At its 
discretion, the Agency may require the Applicant to have an Inspector 
certify that the project is constructed and installed correctly.
    (2) The RES or EEI project must be constructed, installed, and 
operating as described in the technical report prior to disbursement of 
funds. For RES, the system must be operating at the steady state 
operating level described in the technical report for a period of not 
less than 30 days, unless this requirement is modified by the Agency, 
prior to disbursement of funds. Any modification to the 30-day steady 
state operating level requirement will be based on the Agency's review 
of the technical report and will be incorporated into the Letter of 
Conditions.
    (3) Prior to making payment, the grantee must provide the Agency 
with Form RD 1924-9 and Form RD 1924-10, or similar forms, executed by 
all persons who furnished materials or labor in connection with the 
contract.


Sec.  4280.120  Scoring RES and EEI grant applications.

    Agency personnel will score each eligible RES and EEI application 
based on the scoring criteria specified in this section, unless 
otherwise specified in a Federal Register notice, with a maximum score 
of 100 points possible.
    (a) Environmental benefits. A maximum of 5 points will be awarded 
for this criterion based on whether the Applicant has documented in the 
application that the proposed project will have a positive effect on 
any of the three impact areas: Resource conservation (e.g., water, 
soil, forest), public health (e.g., potable water, air quality), and 
the environment (e.g., compliance with EPA's renewable fuel 
standard(s), greenhouse gases, emissions, particulate matter). Points 
will be awarded as follows:
    (1) If the proposed project has a positive impact on any one of the 
three impact areas, 1 point will be awarded.
    (2) If the proposed project has a positive impact on any two of the 
three impact areas, 3 points will be awarded.
    (3) If the proposed project has a positive impact on all three 
impact areas, 5 points will be awarded.
    (b) Energy generated, replaced, or saved. A maximum of 25 points 
will be awarded for this criterion. Applications for RES and EEI 
projects will be awarded points under both paragraphs (b)(1) and (2) of 
this section.
    (1) Quantity of energy generated or saved per REAP grant dollar 
requested. A maximum of 10 points will be awarded for this sub-
criterion. For RES and EEI projects, points will be awarded for either 
the amount of energy generation per grant dollar requested, which 
includes those projects that are replacing energy usage with a 
renewable source, or the actual annual average energy savings over the 
most recent 12, 24, 36, 48, or 60 consecutive months of operation per 
grant dollar requested; points will not be awarded for more than one 
category.
    (i) Renewable Energy Systems. The quantity of energy generated per 
grant dollar requested will be determined by dividing the projected 
total annual energy generated by the RES, which will be converted to 
BTUs, by the grant dollars requested. Points will be awarded based on 
the annual amount of energy generated per grant dollar requested for 
the proposed RES as determined using paragraphs (b)(1)(i)(A) and (B) of 
this section. A maximum of 10 points will be awarded under this 
criterion.
    (A) The energy generated per grant dollar requested will be 
calculated using Equation 1.

Equation 1: EG/$ = (EG<INF>12</INF>/GR)

where:

EG/$ = Energy generated per grant dollar requested.
EG<INF>12</INF> = Projected total annual energy generated (BTUs) by 
the proposed RES for a typical year.
GR = Grant amount requested under this subpart.

    (B) If the projected total annual energy generated per grant dollar 
requested calculated under paragraph (b)(1)(i)(A) of this section is:
    (1) Less than 50,000 BTUs annual energy generated per grant dollar 
requested, points will be awarded as follows: Points awarded = (EG/$)/
50,000 x 10 points, where the points awarded are rounded to the nearest 
hundredth of a point.
    (2) 50,000 BTUs average annual energy saved per grant dollar 
requested or higher, 10 points will be awarded. For example, an 
Applicant has requested a $500,000 grant to install an Anaerobic 
Digester Project with a 500 kilowatt (kW) generator set. The Anaerobic 
Digester Project will produce 5,913,000 kilowatt hours (kWh) per year. 
At 3,412 BTUs per kWh, this is equivalent to 20,175,156,000 BTUs. Based 
on this example, there are 40,350.312 BTUs generated per grant dollar 
requested (20,175,156,00 BTUs/$500,000). Because this is less than 
50,000 BTUs average annual energy saved per grant dollar requested, 
points will be awarded as follows:
    Points awarded = 40,350.312 BTUs/50,000 BTUs x 10 = 8.07006
    This would be rounded to the nearest hundredth, or to 8.07 points.
    (ii) Energy Efficiency Improvements. Energy savings per grant 
dollar requested will be determined by dividing the average annual 
energy projected to be saved as determined by the Energy Assessment or 
Energy Audit for the EEI, which will be converted to BTUs, by the grant 
dollars requested. Points will be awarded based on the average annual 
amount of energy saved per grant dollar requested for the proposed EEI 
as determined using paragraphs (b)(1)(ii)(A) and (B) of this section. A 
maximum of 10 points will be awarded under this criterion.
    (A) The average annual energy saved per grant dollar requested 
shall be calculated using Equation 2.

Equation 2: ES/$ = (ES<INF>36</INF>/GR)

where:

ES/$ = Average annual energy saved per grant dollar requested.
ES<INF>36</INF> = Average annual energy saved by the proposed EEI 
over the same period used in the Energy Assessment or Energy Audit, 
as applicable.
GR = Grant amount requested under this subpart.

    (B) If the average annual energy saved per grant dollar requested 
calculated under paragraph (b)(1)(ii)(A) of this section is:
    (1) Less than 50,000 BTUs average annual energy saved per grant 
dollar requested, points will be awarded as follows: Points awarded = 
(ES/$)/50,000 x 10 points, where the points awarded are rounded to the 
nearest hundredth of a point.
    (2) 50,000 BTUs average annual energy saved per grant dollar 
requested or higher, 10 points will be awarded. For example, an 
Applicant has requested a $1,500 grant to install a new boiler. The 
average BTU usage of the existing boiler for the most recent 12 months 
prior to submittal of the application was 125,555,000 BTUs per year. If 
the new boiler had been in place for those same 12 months, the annual 
average BTU usage is estimated to be 100,000,000 BTUs. Thus, the new 
boiler is projected to save the Applicant 25,555,000 BTUs per year. 
Based on this example, there are 17,036.6667 BTUs saved per grant 
dollar requested (25,555,000 BTUs/$1,500). Because this is less than 
50,000 BTUs average annual energy saved per grant dollar requested, 
points will be awarded as follows:

[[Page 78269]]

    Points awarded = 17,036.6667 BTUs/50,000 BTUs x 10 = 3.407
    This would be rounded to the nearest hundredth, or to 3.41 points.
    (2) Quantity of energy replaced, saved, or generated. A maximum of 
15 points will be awarded for this sub-criterion. Points may only be 
awarded for energy replacement, energy savings, or energy generation. 
Points will not be awarded for more than one category.
    (i) Energy replacement. If the proposed RES is intended primarily 
for self-use by the Agricultural Producer or Rural Small Business and 
will provide energy replacement of greater than zero, but equal to or 
less than 25 percent, 5 points will be awarded; greater than 25 
percent, but equal to or less than 50 percent, 10 points will be 
awarded; or greater than 50 percent, 15 points will be awarded. Energy 
replacement is to be determined by dividing the estimated quantity of 
Renewable Energy to be generated over the most recent 12-month period, 
by the quantity of energy consumed over the same period by the 
applicable energy application. For a project to qualify as an energy 
replacement it must provide documentation on prior energy use. For a 
project involving new construction and being installed to serve the new 
facility, the project may be classified as energy replacement only if 
the applicant can document previous energy use from a facility of 
approximately the same size. Approximately the same size is further 
clarified to be 10 percent larger or smaller than the facility it is 
replacing. The estimated quantities of energy must be converted to 
either BTUs, Watts, or similar energy equivalents to facilitate 
scoring. If the estimated energy produced equals more than 150 percent 
of the energy requirements of the applicable process(es), the project 
will be scored as an energy generation project.
    (ii) Energy savings. If the estimated energy expected to be saved 
over the same period used in the Energy Assessment or Energy Audit, as 
applicable, by the installation of the EEI will be from 20 percent up 
to, but not including 35 percent, 5 points will be awarded; 35 percent 
up to, but not including 50 percent, 10 points will be awarded; or, 50 
percent or greater, 15 points will be awarded. Energy savings will be 
determined by the projections in an Energy Assessment or Energy Audit.
    (iii) Energy generation. If the proposed RES is intended for 
production of energy, 10 points will be awarded.
    (c) Commitment of funds. A maximum of 20 points will be awarded for 
this criterion based on the percentage of written commitment an 
Applicant has from its fund sources that are documented with a Complete 
Application. The percentage of written commitment must be calculated 
using the following equation.
    Percentage of written commitment = Total amount of funds for which 
written commitments have been submitted with the application/Total 
amount of Matching Funds and other funds required.
    (1) If the percentage of written commitments as calculated is 100 
percent of the Matching Funds, 20 points will be awarded.
    (2) If the percentage of written commitments as calculated is less 
than 100 percent, but more than 50 percent, points will be awarded as 
follows: ((percentage of written commitments - 50 percent)/(50 
percent)) x 20 points, where points awarded are rounded to the nearest 
hundredth of a point.
    (3) If the percentage of written commitments as calculated is 50 
percent or less, no points will be awarded.
    (d) Size of Agricultural Producer or Rural Small Business. A 
maximum of 10 points will be awarded for this criterion based on the 
size of the Applicant's agricultural operation or business concern, as 
applicable, compared to the SBA Small Business size standards 
categorized by the NAICS found in 13 CFR 121.201. For Applicants that 
are:
    (1) One-third or less of the maximum size standard identified by 
SBA, 10 points will be awarded.
    (2) Greater than one-third up to and including two-thirds of the 
maximum size standard identified by SBA, 5 points will be awarded.
    (3) Larger than two-thirds of the maximum size standard identified 
by SBA, no points will be awarded.
    (e) Previous grantees and borrowers. A maximum of 15 points will be 
awarded for this criterion based on whether the Applicant has received 
a grant or guaranteed loan under this subpart.
    (1) If the Applicant has never received a grant and/or guaranteed 
loan under this subpart, 15 points will be awarded.
    (2) If the Applicant has not received a grant and/or guaranteed 
loan under this subpart within the 2 previous Federal Fiscal Years, 5 
points will be awarded.
    (3) If the Applicant has received a grant and/or guaranteed loan 
under this subpart within the 2 previous Federal Fiscal Years, no 
points will be awarded.
    (f) Simple Payback. A maximum of 15 points will be awarded for this 
criterion based on the Simple Payback of the project. Points will be 
awarded for either RES or EEI; points will not be awarded for more than 
one category.
    (1) Renewable Energy Systems. If the Simple Payback of the proposed 
project is:
    (i) Less than 10 years, 15 points will be awarded;
    (ii) 10 years up to but not including 15 years, 10 points will be 
awarded;
    (iii) 15 years up to and including 25 years, 5 points will be 
awarded; or
    (iv) Longer than 25 years, no points will be awarded.
    (2) Energy Efficiency Improvements. If the Simple Payback of the 
proposed project is:
    (i) Less than 4 years, 15 points will be awarded;
    (ii) 4 years up to but not including 8 years, 10 points will be 
awarded;
    (iii) 8 years up to and including 12 years, 5 points will be 
awarded; or
    (iv) Longer than 12 years, no points will be awarded.
    (g) State Director and Administrator priority points. A maximum of 
10 points will be awarded for this criterion. A State Director, for its 
State allocation under this subpart, or the Administrator, for making 
awards from the National Office reserve, may award up to 10 points to 
an application based on the conditions specified in paragraphs (g)(1) 
through (5) of this section. In no case shall an application receive 
more than 10 points under this criterion.
    (1) The application is for an under-represented technology.
    (2) Selecting the application helps achieve geographic diversity.
    (3) The Applicant is a member of an unserved or under-served 
population.
    (4) Selecting the application helps further a Presidential 
initiative or a Secretary of Agriculture priority.
    (5) The proposed project is located in an impoverished area, has 
experienced long-term population decline, or loss of employment.


Sec.  4280.121  Selecting RES and EEI grant applications for award.

    Unless otherwise provided for in a Federal Register notice, RES and 
EEI grant applications will be processed in accordance with this 
section. Complete Applications will be evaluated, processed, and 
subsequently ranked, and will compete for funding, subject to the 
availability of grant funding.
    (a) RES and EEI grant applications. Complete RES and EEI grant 
applications, regardless of the amount of funding requested (which 
includes $20,000 or less), are eligible to compete in two competitions 
each Federal Fiscal Year--a State competition and a National 
competition.

[[Page 78270]]

    (1) To be competed in the State and National competitions, Complete 
Applications must be received by the applicable State Office by 4:30 
p.m. local time no later than April 30. If April 30 falls on a weekend 
or a federally-observed holiday, the next Federal business day will be 
considered the last day for receipt of a Complete Application. Complete 
Applications received after this date and time will be processed in the 
subsequent fiscal year.
    (2) All eligible RES and EEI grant applications that remain 
unfunded after completion of the State competitions will be competed in 
a National competition.
    (b) RES and EEI grant applications requesting $20,000 or less. 
Complete RES and EEI grant applications requesting $20,000 or less are 
eligible to compete in up to five competitions--two State competitions 
and a National competition for grants of $20,000 or less set aside, as 
well as the two competitions referenced in paragraph (a) of this 
section (see paragraph (e)(2) of this section).
    (1) For Complete RES and EEI grant applications for grants 
requesting $20,000 or less, there will be two State competitions each 
Federal Fiscal Year. Complete Applications for $20,000 or less that are 
received by the Agency by 4:30 p.m. local time on October 31 of the 
Federal Fiscal Year will be competed against each other. Complete 
Applications for $20,000 or less that are received by the Agency by 
4:30 p.m. local time on April 30 of the Federal Fiscal Year will be 
competed against each other, including any applications for $20,000 or 
less that were not funded from the prior competition. If either October 
31 or April 30 falls on a weekend or a federally-observed holiday, the 
next Federal business day will be considered the last day for receipt 
of a Complete Application. Complete Applications received after 4:30 
p.m. local time on April 30, regardless of the postmark on the 
application, will be processed in the subsequent fiscal year.
    (2) All eligible RES and EEI grant applications requesting $20,000 
or less that remain unfunded after completion of the State competition 
for applications received by April 30 will be competed in the National 
competition.
    (c) Ranking of applications. The Agency will rank complete eligible 
applications using the scoring criteria specific in Sec.  4280.120. 
Higher scoring applications will receive first consideration.
    (d) Funding selected applications. As applications are funded, if 
insufficient funds remain to fund the next highest scoring application, 
the Agency may elect to fund a lower scoring application. Before this 
occurs, the Agency will provide the Applicant of the higher scoring 
application the opportunity to reduce the amount of the Applicant's 
grant request to the amount of funds available. If the Applicant agrees 
to lower its grant request, the Applicant must certify that the 
purposes of the project will be met and provide the remaining total 
funds needed to complete the project. At its discretion, the Agency may 
also elect to allow any remaining multi-year funds to be carried over 
to the next fiscal year rather than selecting a lower scoring 
application.
    (e) Handling of ranked applications not funded. Based on the 
availability of funding, a ranked application might not be funded. How 
the unfunded application is handled depends on whether it is requesting 
more than $20,000 or is requesting $20,000 or less
    (1) The Agency will discontinue consideration for funding all 
complete and eligible applications requesting more than $20,000 that 
are not selected for funding after the State and National competitions 
for the Federal Fiscal Year.
    (2) All complete and eligible applications requesting $20,000 or 
less may be competed in up to five consecutive competitions as 
illustrated below. Example 1: An application that is unfunded in the 
first State competition of a fiscal year is eligible to be competed in 
the second State competition and the National competition for grants of 
$20,000 or less, as well as, the State and National competitions for 
all grants regardless of the dollar amount being requested, in that 
fiscal year. Example 2: An application that is first competed in the 
second State competition of a fiscal year can be competed in the 
National competition for that fiscal year and the first State 
competition in the following fiscal year for grants of $20,000 or less. 
In addition the application may compete in the State and National 
competitions for all grants regardless of the amount of funding 
requested, which are referenced in paragraph (a) of this section. The 
Agency will discontinue for potential funding all application 
requesting $20,000 or less that are not selected for funding after 
competing in a total of three State competitions and two national 
competitions.
    (f) Commencement of the project. Not all grant applications that 
compete for funding will receive an award. Thus, the Applicant assumes 
all risks if the Applicant chooses to purchase the technology proposed 
or start construction of the project to be financed in the grant 
application after the Complete Application has been received by the 
Agency, but before the Applicant is notified as to whether or not they 
have been selected for an award.


Sec.  4280.122  Awarding and administering RES and EEI grants.

    The Agency will award and administer RES and EEI grants in 
accordance with Departmental Regulations and with paragraphs (a) 
through (h) of this section.
    (a) Letter of Conditions. A Letter of Conditions will be prepared 
by the Agency, establishing conditions that must be agreed to by the 
Applicant before any obligation of funds can occur. Upon reviewing the 
conditions and requirements in the Letter of Conditions, the Applicant 
must complete, sign, and return the Form RD 1942-46, ``Letter of Intent 
to Meet Conditions,'' and Form RD 1940-1, ``Request for Obligation of 
Funds,'' to the Agency if they accept the conditions of the grant; or 
if certain conditions cannot be met, the Applicant may propose 
alternate conditions to the Agency. The Agency must concur with any 
changes proposed to the Letter of Conditions by the Applicant before 
the application will be further processed.
    (b) Insurance requirements. Agency approved insurance coverage must 
be maintained for 3 years after the Agency has approved the final 
performance report unless this requirement is waived or modified by the 
Agency in writing. Insurance coverage shall include, but is not limited 
to:
    (1) Property insurance, such as fire and extended coverage, will 
normally be maintained on all structures and equipment.
    (2) Liability.
    (3) National flood insurance is required in accordance with 7 CFR 
part 1806, subpart B, if applicable.
    (4) Business interruption insurance for projects with Total Project 
Costs of more than $200,000.
    (c) Forms and certifications. The forms specified in paragraphs 
(c)(1) through (8) of this section will be attached to the Letter of 
Conditions referenced in paragraph (a) of this section. The forms 
specified in paragraphs (c)(1) through (7) of this section and all of 
the certifications must be submitted prior to grant approval. The form 
specified in paragraph (c)(8) of this section, which is to be completed 
by contractors, does not need to be returned to the Agency, but must be 
kept on file by the grantee.
    (1) Form RD 1942-46, ``Letter of Intent to Meet Conditions.''
    (2) Form RD 1940-1.

[[Page 78271]]

    (3) Form AD-1049, ``Certification Regarding Drug-Free Workplace 
Requirements (Grants) Alternative 1-For Grantees Other than 
Individuals.''
    (4) Form SF-LLL, ``Disclosure of Lobbying Activities,'' if the 
grant exceeds $100,000 and/or if the grantee 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.
    (5) Form AD-1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters-Primary Covered Transactions.''
    (6) Form RD 400-1, ``Equal Opportunity Agreement,'' or successor 
form.
    (7) Form RD 400-4, ``Assurance Agreement,'' or successor form.
    (8) Form AD-1048, as signed by the contractor or other lower tier 
party.
    (d) Evidence of Matching Funds and other funds. If an Applicant 
submitted written evidence of Matching Funds and other funds with the 
application, the Applicant is responsible for ensuring that such 
written evidence is still in effect (i.e., not expired) when the grant 
is executed. If the Applicant did not submit written evidence of 
Matching Funds and other funds with the application, the Applicant must 
submit such written evidence that is in effect before the Agency will 
execute the Grant Agreement. In either case, written evidence of 
Matching Funds and other funds needed to complete the project must be 
provided to the Agency before execution of the Grant Agreement and must 
be in effect (i.e., must not have expired) at the time Grant Agreement 
is executed.
    (e) SAM number. Before the Grant Agreement can be executed, the 
number and expiration date of the Applicant's SAM number are required.
    (f) Grant Agreement. Once the requirements specified in paragraphs 
(a) through (e) of this section have been met, the Grant Agreement can 
be executed by the grantee and the Agency. The grantee must abide by 
all requirements contained in the Grant Agreement, this subpart, and 
any other applicable Federal statutes or regulations. Failure to follow 
these requirements might result in termination of the grant and 
adoption of other available remedies.
    (g) Grant approval. The grantee will be sent a copy of the executed 
Form RD 1940-1, the approved scope of work, and the Grant Agreement.
    (h) Power Purchase Agreement. Where applicable, the grantee shall 
provide to the Agency a copy of the executed Power Purchase Agreement 
within 12 months from the date that the Grant Agreement is executed, 
unless otherwise approved by the Agency.


Sec.  4280.123  Servicing RES and EEI Grants.

    The Agency will service RES and EEI grants in accordance with the 
requirements specified in Departmental Regulations; 7 CFR part 1951, 
subparts E and O, other than 7 CFR 1951.709(d)(1)(B)(iv); the Grant 
Agreement; and paragraphs (a) through (k) of this section.
    (a) Inspections. Grantees must permit periodic inspection of the 
project records and operations by a representative of the Agency.
    (b) Programmatic changes. Grantees may make changes to an approved 
project's costs, scope, contractor, or vendor subject to the provisions 
specified in paragraphs (b)(1) through (3) of this section. If the 
changes result in lowering the project's score to below what would have 
qualified the application for award, the Agency will not approve the 
changes.
    (1) Prior approval. The grantee must obtain prior Agency approval 
for any change to the scope, contractor, or vendor of the approved 
project. Changes in project cost will require Agency Approval as 
outlined in paragraph (a)(1)(iii) of this section.
    (i) Grantees must submit requests for programmatic changes in 
writing to the Agency for Agency approval.
    (ii) Failure to obtain prior Agency approval of any such change 
could result in such remedies as suspension, termination, and recovery 
of grant funds.
    (iii) Prior Agency approval is required for all increases in 
project costs. Prior Agency approval is required for a decrease in 
project cost only if the decrease would have a negative effect on the 
long-term viability of the project. A decrease in project cost that 
does not have a negative impact on long-term viability requires Agency 
review and approval prior to disbursement of funds.
    (2) Changes in project cost or scope. If there is a significant 
change in project cost or any change in project scope, then the 
grantee's funding needs, eligibility, and scoring, as applicable, will 
be reassessed. Decreases in Agency funds will be based on revised 
project costs and other factors, including Agency regulations used at 
the time of grant approval.
    (3) Change of contractor or vendor. When seeking a change, the 
grantee must submit to the Agency a written request for approval. The 
proposed contractor or vendor must have qualifications and experience 
acceptable to the Agency. The written request must contain sufficient 
information, which may include a revised technical report as required 
under Sec.  4280.117(e), Sec.  4280.118(b)(4), Sec.  4280.119(b)(3), or 
Sec.  4280.119(b)(4), as applicable, to demonstrate to the Agency's 
satisfaction that such change maintains project integrity. If the 
Agency determines that project integrity continues to be demonstrated, 
the grantee may make the change. If the Agency determines that project 
integrity is no longer demonstrated, the change will not be approved 
and the grantee has the following options: Continue with the original 
contractor or vendor; find another contractor or vendor that has 
qualifications and experience acceptable to the Agency to complete the 
project; or terminate the grant by providing a written request to the 
Agency. No additional funding will be available from the Agency if 
costs for the project have increased. The Agency decision will be 
provided in writing.
    (c) Transfer of obligations. Prior to the construction of the 
project, the grantee may request, in writing, a transfer of obligation 
to a different (substitute) grantee. Subject to Agency approval 
provided in writing, an obligation of funds established for a grantee 
may be transferred to a substitute grantee provided:
    (1) The substituted grantee
    (i) Is eligible;
    (ii) Has a close and genuine relationship with the original 
grantee; and
    (iii) Has the authority to receive the assistance approved for the 
original grantee; and
    (2) The type of RES or EEI technology, the project cost and scope 
of the project for which the Agency funds will be used remain 
unchanged.
    (d) Transfer of ownership. After the project is completed and 
operational, the grantee may request, in writing, a transfer of the 
Grant Agreement to another entity. Subject to Agency approval provided 
in writing, the Grant Agreement may be transferred to another entity 
provided:
    (1) The entity is determined by the Agency to be an eligible entity 
under this subpart; and
    (2) The type of RES or EEI technology and the scope of the project 
for which the Agency funds will be used remain unchanged.
    (e) Disposition of acquired property. Grantees must abide by the 
disposition requirements outlined in Departmental Regulations.
    (f) Financial management system and records. The grantee must 
provide for financial management systems and

[[Page 78272]]

maintain records as specified in paragraphs (f)(1) and (2) of this 
section.
    (1) Financial management system. The grantee will provide for a 
financial system that will include:
    (i) Accurate, current, and complete disclosure of the financial 
results of each grant;
    (ii) Records that identify adequately the source and application of 
funds for grant-supporting activities, together with documentation to 
support the records. Those records must contain information pertaining 
to grant awards and authorizations, obligations, unobligated balances, 
assets, liabilities, outlays, and income; and
    (iii) Effective control over and accountability for all funds. The 
grantee must adequately safeguard all such assets and must ensure that 
funds are used solely for authorized purposes.
    (2) Records. The grantee will retain financial records, supporting 
documents, statistical records, and all other records pertinent to the 
grant for a period of at least 3 years after completion of grant 
activities except that the records must be retained beyond the 3-year 
period if audit findings have not been resolved or if directed by the 
United States. The Agency and the Comptroller General of the United 
States, or any of their duly authorized representatives, must have 
access to any books, documents, papers, and records of the grantee that 
are pertinent to the specific grant for the purpose of making audit, 
examination, excerpts, and transcripts.
    (g) Audit requirements. If applicable, grantees must provide an 
annual audit in accordance with 7 CFR part 3052. The Agency may 
exercise its right to do a program audit after the end of the project 
to ensure that all funding supported Eligible Project Costs.
    (h) Grant disbursement. As applicable, grantees must disburse grant 
funds as scheduled in accordance with the appropriate construction and 
inspection requirements in Sec. Sec.  4280.118, 4280.119 or 4280.124 as 
applicable. Unless required by third parties providing cost sharing 
payments to be provided on a pro-rata basis with other funds, grant 
funds will be disbursed after all other funds have been expended.
    (1) Unless authorized by the Agency to do so, grantees may submit 
requests for reimbursement no more frequently than monthly. Ordinarily, 
payment will be made within 30 days after receipt of a proper request 
for reimbursement.
    (2) Grantees must not request reimbursement for the Federal share 
of amounts withheld from contractors to ensure satisfactory completion 
of work until after it makes those payments.
    (3) Payments will be made by electronic funds transfer.
    (4) Grantees must use SF-271, ``Outlay Report and Request for 
Reimbursement for Construction Programs,'' or other format prescribed 
by the Agency to request grant reimbursements.
    (5) For a grant awarded to a project with Total Project Costs of 
$200,000 and greater, grant funds will be disbursed in accordance with 
the above through 90 percent of grant disbursement. The final 10 
percent of grant funds will be held by the Agency until construction of 
the project is completed, the project is operational, and the project 
has met or exceeded the steady state operating level as set out in the 
grant award requirements. In addition, the Agency reserves the right to 
request additional information or testing if upon a final site visit 
the 30 day steady state operating level is not found acceptable to the 
Agency.
    (i) Monitoring of project. Grantees are responsible for ensuring 
that all activities are performed within the approved scope of work and 
that funds are only used for approved purposes.
    (1) Grantees shall constantly monitor performance to ensure that:
    (i) Time schedules are being met;
    (ii) Projected work is being accomplished by projected time 
periods;
    (iii) Financial resources are being appropriately expended by 
contractors (if applicable); and
    (iv) Any other performance objectives identified in the scope of 
work are being achieved.
    (2) To the extent that resources are available, the Agency will 
monitor grantees to ensure that activities are performed in accordance 
with the Agency-approved scope of work and to ensure that funds are 
expended for approved purposes. The Agency's monitoring of grantees 
neither:
    (i) Relieves the grantee of its responsibilities to ensure that 
activities are performed within the scope of work approved by the 
Agency and that funds are expended for approved purposes only; nor
    (ii) Provides recourse or a defense to the grantee should the 
grantee conduct unapproved activities, engage in unethical conduct, 
engage in activities that are or that give the appearance of a conflict 
of interest, or expend funds for unapproved purposes.
    (j) Reporting requirements. Financial and project performance 
reports must be provided by grantees and contain the information 
specified in paragraphs (j)(1) through (3) of this section.
    (1) Federal Financial Reports. Between grant approval and 
completion of project (i.e., construction), SF-425, ``Federal Financial 
Report'' will be required of all grantees as applicable on a semiannual 
basis. The grantee will complete the project within the total sums 
available to it, including the grant, in accordance with the scope of 
work and any necessary modifications thereof prepared by grantee and 
approved by the Agency.
    (2) Project performance reports. Between grant approval and 
completion of project (i.e., construction), grantees must provide 
semiannual project performance reports and a final project development 
report containing the information specified in paragraphs (j)(2)(i) and 
(ii) of this section. These reports are due 30 working days after June 
30 and December 31 of each year.
    (i) Semiannual project performance reports. Each semiannual project 
performance report must include the following:
    (A) A comparison of actual accomplishments to the objectives for 
that period;
    (B) Reasons why established objectives were not met, if applicable;
    (C) Reasons for any problems, delays, or adverse conditions which 
will affect attainment of overall program objectives, prevent meeting 
time schedules or objectives, or preclude the attainment of particular 
objectives during established time periods. This disclosure must be 
accompanied by a statement of the action taken or planned to resolve 
the situation; and
    (D) Objectives and timetables established for the next reporting 
period.
    (ii) Final project development report. The final project 
development report must be submitted 90 days after project completion 
and include:
    (A) A detailed project funding and expense summary; and
    (B) A summary of the project's installation/construction process, 
including recommendations for development of similar projects by future 
Applicants to the program.
    (3) Outcome project performance reports. Once the project has been 
constructed, the grantee must provide the Agency periodic reports. 
These reports will include the information specified in paragraphs 
(j)(3)(i) or (ii) of this section, as applicable.
    (i) Renewable Energy Systems. For RES projects, 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

[[Page 78273]]

information specified in paragraphs (j)(3)(i)(A) through (G) of this 
section.
    (A) Type of technology;
    (B) The actual annual amount of energy generated in BTUs, kilowatt-
hours, or similar energy equivalents;
    (C) Annual income for systems that are selling energy, if 
applicable, and/or energy savings of the RES;
    (D) A summary of the cost of operations and maintenance;
    (E) A description of any associated major maintenance or 
operational problems;
    (F) Recommendations for development of future similar projects; and
    (G) Actual number of jobs, if any, created or saved as a direct 
result of the RES project for which REAP funding was used.
    (ii) Energy Efficiency Improvements. For EEI projects, commencing 
the first full calendar year following the year in which project 
construction was completed and continuing for 2 full years, provide a 
report detailing, including calculations and any assumptions:
    (A) The actual amount of energy saved annually as determined by the 
difference between:
    (1) The annual amount of energy used by the project with the 
project in place and
    (2) The annual average amount of energy used in the period prior to 
application submittal as reported in the Energy Assessment or Energy 
Audit submitted with the application; and
    (B) Actual number of jobs, if any, created or saved as a direct 
result of the EEI project for which REAP funding was used.
    (k) Grant close-out. Grant close-out must be performed in 
accordance with the requirements specified in Departmental Regulations.


Sec.  4280.124  Construction planning and performing development.

    (a) General. The following requirements are applicable to all 
procurement methods specified in paragraph (f) of this section.
    (1) Maximum open and free competition. All procurement 
transactions, regardless of procurement method and dollar value, must 
be conducted in a manner that provides maximum open and free 
competition. Procurement procedures must not restrict or eliminate 
competition. Competitive restriction examples include, but are not 
limited to, the following: Placing unreasonable requirements on firms 
in order for them to qualify to do business; noncompetitive practices 
between firms; organizational conflicts of interest; and unnecessary 
experience or excessive bonding requirements. In specifying 
material(s), the grantee and its consultant will consider all materials 
normally suitable for the project commensurate with sound engineering 
practices and project requirements. The Agency will consider any 
recommendation made by the grantee's consultant concerning the 
technical design and choice of materials to be used for such a project. 
If the Agency determines that a design or material, other than those 
that were recommended, should be considered by including them in the 
procurement process as an acceptable design or material in the project, 
the Agency will provide such Applicant or grantee with a comprehensive 
justification for such a determination. The justification will be 
documented in writing.
    (2) Equal employment opportunity. For all construction contracts 
and grants in excess of $10,000, the contractor must comply with 
Executive Order 11246, as amended by Executive Order 11375 and 
Executive Order 13672, and as supplemented by applicable Department of 
Labor regulations (41 CFR part 60). The Applicant, or the lender and 
borrower, as applicable, is responsible for ensuring that the 
contractor complies with these requirements.
    (3) Surety. Any contract exceeding $100,000 for procurement will 
require surety, except as provided for in paragraph (a)(3)(v) of this 
section.
    (i) Surety covering both performance and payment will be required. 
The United States, acting through the Agency, will be named as co-
obligee on all surety unless prohibited by State or Tribal law. Surety 
may be provided as specified in paragraphs (a)(3)(i)(A) or (B) of this 
section.
    (A) Surety in the amount of 100 percent of the contract cost may be 
provided using either:
    (1) A bank letter of credit; or
    (2) Performance bonds and payment bonds. Companies providing 
performance bonds and payment bonds must hold a certificate of 
authority as an acceptable surety on Federal bonds as listed in 
Treasury Circular 570 as amended and be legally doing business in the 
State where the project is located.
    (B) Cash deposit in escrow of at least 50 percent of the contract 
amount. The cash deposit cannot be from funds awarded under this 
subpart.
    (ii) The surety will normally be in the form of performance bonds 
and payment bonds; however, when other methods of surety are necessary, 
bid documents must contain provisions for such alternative types of 
surety. The use of surety other than performance bonds and payment 
bonds requires concurrence by the Agency after submission of a 
justification to the Agency together with the proposed form of escrow 
agreement or letter of credit.
    (iii) For contracts of lesser amounts, the grantee may require 
surety.
    (iv) When surety is not provided, contractors must furnish evidence 
of payment in full for all materials, labor, and any other items 
procured under the contract in an Agency-approved form.
    (v) Applicants may request exceptions to surety for any of the 
situations identified in paragraphs (a)(3)(v)(A) through (D) of this 
section. Applicants must submit a written request to the Agency.
    (A) Small acquisition and construction procedures as specified in 
Sec.  4280.118(c) and (d) or Sec.  4280.119(c) and (d) as applicable 
are used.
    (B) The proposed project is for equipment purchase and installation 
only and the contract costs for the equipment purchase and installation 
are $200,000 or less.
    (C) The proposed project is for equipment purchase and installation 
only and the contract costs for the equipment purchase and installation 
are more than $200,000 and the following requirements can be met:
    (1) The project involves two or fewer subcontractors; and
    (2) The equipment manufacturer or provider must act as the general 
contractor.
    (D) Other construction projects that have only one contractor 
performing work.
    (4) Grantees accomplishing work. In some instances, grantees may 
wish to perform a part of the work themselves. Grantees may accomplish 
construction by using their own personnel and equipment, provided the 
grantees possess the necessary skills, abilities, and resources to 
perform the work and there is not a negative impact to their business 
operation. For a grantee to provide a portion of the work, with the 
remainder to be completed by a contractor:
    (i) A clear understanding of the division of work must be 
established and delineated in the contract;
    (ii) Grantees are not eligible for payment for their own work as it 
is not an Eligible Project Cost;
    (iii) Warranty requirements applicable to the technology must cover 
the grantee's work; and
    (iv) Inspection and acceptance of the grantee's work must be 
completed by either:
    (A) An Inspector that will:

[[Page 78274]]

    (1) Inspect, as applicable, and accept construction; and
    (2) Furnish inspection reports; or
    (B) A licensed engineer that will:
    (1) Prepare design drawings and specifications;
    (2) Inspect, as applicable, and accept construction; and
    (3) Furnish inspection reports.
    (b) Forms used. Technical service and procurement documents must be 
approved by the Agency and may be used only if they are customarily 
used in the area and protect the interest of the Applicant and the 
Government with respect to compliance with items such as the drawings, 
specifications, payments for work, inspections, completion, 
nondiscrimination in construction work and acceptance of the work. The 
Agency will not become a party to a construction contract or incur any 
liability under it. No contract will become effective until concurred 
in writing by the Agency. Such concurrence statement must be attached 
to and made a part of the contract.
    (c) Technical services. Unless the requirements of paragraph (c)(4) 
of this section can be met, all RES and EEI projects with Total Project 
Costs greater than $400,000 require:
    (1) The design, installation monitoring, testing prior to 
commercial operation, and project completion certification be completed 
by a licensed professional engineer (PE) or team of licensed PEs. 
Licensed PEs may be ``in-house'' PEs or contracted PEs.
    (2) Any contract for design services must be subject to Agency 
concurrence.
    (3) Engineers must be licensed in the State where the project is to 
be constructed.
    (4) The Agency may grant an exception to the requirements of 
paragraphs (c)(1) through (3) of this section if the following 
requirements are met:
    (i) State or Tribal law does not require the use of a licensed PE; 
and
    (ii) The project is not complex, as determined by the Agency, and 
can be completed to meet the requirements of this program without the 
services of a licensed PE.
    (d) Design policies. Final plans and specifications must be 
reviewed by the Agency and approved prior to the start of construction. 
Facilities funded by the Agency must meet the following design 
requirements, as applicable:
    (1) Environmental review. Facilities financed by the Agency must 
undergo an environmental analysis in accordance with the National 
Environmental Policy Act and 7 CFR part 1940, subpart G of this title. 
Project planning and design must not only be responsive to the 
grantee's needs but must consider the environmental consequences of the 
proposed project. Project design must incorporate and integrate, where 
practicable, mitigation measures that avoid or minimize adverse 
environmental impacts. Environmental reviews serve as a means of 
assessing environmental impacts of project proposals, rather than 
justifying decisions already made. Applicants may not take any action 
on a project proposal that will have an adverse environmental impact or 
limit the choice of reasonable project alternatives being reviewed 
prior to the completion of the Agency's environmental review. If such 
actions are taken, the Agency has the right to withdraw and discontinue 
processing the application.
    (2) Architectural barriers. All facilities intended for or 
accessible to the public or in which physically handicapped persons may 
be employed must be developed in compliance with the Architectural 
Barriers Act of 1968 (42 U.S.C. 4151 et seq.) as implemented by 41 CFR 
101-19.6, section 504 of the Rehabilitation Act of 1973 (42 U.S.C. 1474 
et seq.) as implemented by 7 CFR parts 15 and 15b, and Titles II and 
III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et 
seq.).
    (3) Energy/environment. Project design shall consider cost 
effective energy-efficient and environmentally-sound products and 
services.
    (4) Seismic safety. All new structures, fully or partially 
enclosed, used or intended for sheltering persons or property will be 
designed with appropriate seismic safety provisions in compliance with 
the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 et seq.), 
and EO 12699, Seismic Safety of Federal and Federally Assisted or 
Regulated New Building Construction. Designs of components essential 
for system operation and substantial rehabilitation of structures that 
are used for sheltering persons or property shall incorporate seismic 
safety provisions to the extent practicable as specified in 7 CFR part 
1792, subpart C.
    (e) Contract methods. This paragraph identifies the three types of 
contract methods that can be used for projects funded under this 
subpart. The procurement methods, which are applicable to each of these 
contract methods, are specified in paragraph (f) of this section.
    (1) Traditional method or design-bid-build. The services of the 
consulting engineer or architect and the general construction 
contractor must be procured in accordance with the following 
paragraphs.
    (i) Solicitation of offers. Solicitation of offers must:
    (A) Incorporate a clear and accurate description of the technical 
requirements for the material, product, or service to be procured. The 
description must not, in competitive procurements, contain features 
that unduly restrict competition. The description may include a 
statement of the qualitative nature of the material, product or service 
to be procured, and when necessary will set forth those minimum 
essential characteristics and standards to which it must conform if it 
is to satisfy its intended use. When it is impractical or uneconomical 
to make a clear and accurate description of the technical requirements, 
a ``brand name or equal'' description may be used to define the 
performance or other salient requirements of a procurement. The 
specific features of the named brands which must be met by offerors 
must be clearly stated.
    (B) Clearly specify all requirements which offerors must fulfill 
and all other factors to be used in evaluating bids or proposals.
    (ii) Contract pricing. Cost plus a percentage of cost method of 
contracting must not be used.
    (iii) Unacceptable bidders. The following will not be allowed to 
bid on, or negotiate for, a contract or subcontract related to the 
construction of the project:
    (A) An engineer or architect as an individual or entity who has 
prepared plans and specifications or who will be responsible for 
monitoring the construction;
    (B) Any entity in which the grantee's architect or engineer is an 
officer, employee, or holds or controls a substantial interest in the 
grantee;
    (C) The grantee's governing body officers, employees, or agents;
    (D) Any member of the grantee's Immediate Family or partners in 
paragraphs (e)(1)(iii)(A), (B), or (C) of this section; or
    (E) An entity which employs, or is about to employ, any person in 
paragraph (e)(1)(iii)(A), (B), (C), or (D) of this section.
    (iv) Contract award. Contracts must be made only with responsible 
parties possessing the potential ability to perform successfully under 
the terms and conditions of a proposed procurement. Consideration must 
include, but not be limited to, matters such as integrity, record of 
past performance, financial and technical resources, and accessibility 
to other necessary resources. Contracts must not be made with parties 
who are suspended or debarred.

[[Page 78275]]

    (2) Design/build method. The Design/Build Method, where the same 
person or entity provides design and engineering work, as well as 
construction or installation, may be used with Agency written approval.
    (i) Concurrence information. The Applicant will request Agency 
concurrence by providing the Agency at least the information specified 
in paragraphs (e)(2)(i)(A) through (H) of this section.
    (A) The grantee's written request to use the Design/Build Method 
with a description of the proposed method.
    (B) A proposed scope of work describing in clear, concise terms the 
technical requirements for the contract. It shall include a 
nontechnical statement summarizing the work to be performed by the 
contractor, the results expected, and a proposed construction schedule 
showing the sequence in which the work is to be performed.
    (C) A proposed firm-fixed-price contract for the entire project 
which provides that the contractor will be responsible for any extra 
cost which result from errors or omissions in the services provided 
under the contract, as well as compliance with all Federal, State, 
local, and Tribal requirements effective on the contract execution 
date.
    (D) Where noncompetitive negotiation is proposed and found, by the 
Agency, to be an acceptable procurement method, then the Agency will 
evaluate documents indicating the contractor's performance on previous 
similar projects in which the contractor acted in a similar capacity.
    (E) A detailed listing and cost estimate of equipment and supplies 
not included in the construction contract but which are necessary to 
properly operate the project.
    (F) Evidence that a qualified construction Inspector who is 
independent of the contractor has or will be hired.
    (G) Preliminary plans and outline specifications. However, final 
plans and specifications must be completed and reviewed by the Agency 
prior to the start of construction.
    (H) The grantee's attorney's opinion and comments regarding the 
legal adequacy of the proposed contract documents and evidence that the 
grantee has the legal authority to enter into and fulfill the contract.
    (ii) Agency concurrence of design/build method. The Agency will 
review the material submitted by the Applicant. When all items are 
acceptable, the Agency approval official will concur in the use of the 
Design/Build Method for the proposal.
    (iii) Forms used. Agency approved contract documents must be used 
provided they are customarily used in the area and protect the interest 
of the Applicant and the Agency with respect to compliance with items 
such as the drawings, specifications, payments for work, inspections, 
completion, nondiscrimination in construction work, and acceptance of 
the work. The Agency will not become a party to a construction contract 
or incur any liability under it. No contract shall become effective 
until concurred, in writing, by the Agency. Such concurrence statement 
must be attached to and made a part of the contract.
    (iv) Contract provisions. Contracts will have a listing of 
attachments and must contain the following:
    (A) The contract sum;
    (B) The dates for starting and completing the work;
    (C) The amount of liquidated damages, if any, to be charged;
    (D) The amount, method, and frequency of payment;
    (E) Surety provisions that meet the requirements of paragraph 
(a)(3) of this section;
    (F) The requirement that changes or additions must have prior 
written approval of the Agency as identified in the letter of 
conditions;
    (G) Contract review and concurrence. The grantee's attorney will 
review the executed contract documents, including performance and 
payment bonds, and will certify that they are in compliance with 
Federal, State, or Tribal law, and that the persons executing these 
documents have been properly authorized to do so. The contract 
documents, engineer's recommendation for award, and bid tabulation 
sheets will be forwarded to the Agency for concurrence prior to 
awarding the contract. All contracts will contain a provision that they 
are not effective until they have been concurred, in writing, by the 
Agency;
    (H) This part does not relieve the grantee of any responsibilities 
under its contract. The grantee is responsible for the settlement of 
all contractual and administrative issues arising out of procurement 
entered into in support of Agency funding. These include, but are not 
limited to, source evaluation, protests, disputes, and claims. Matters 
concerning violation of laws are to be referred to the applicable 
local, State, Tribal, or Federal authority; and
    (3) Construction management. Construction managers as a constructor 
(CMc) acts in the capacity of a general contractor and is financially 
and professionally responsible for the construction. This type of 
construction management is also referred to as construction manager 
``At Risk.'' The construction contract is between the grantee and the 
CMc. The CMc in turn subcontracts for some or all of the work. The CMc 
will need to carry the Agency required 100 percent surety and 
insurance, as required under paragraph (a)(3) of this section. Projects 
using construction management must follow the requirements of (e)(2)(i) 
through (iv) of this section.
    (f) Procurement methods. Procurement must be made by one of the 
following methods: competitive sealed bids (formal advertising); 
competitive negotiation; or noncompetitive negotiation. Competitive 
sealed bids (formal advertising) are the preferred procurement method 
for construction contracts.
    (1) Competitive sealed bids. In competitive sealed bids (formal 
advertising), sealed bids are publicly solicited and a firm-fixed-price 
contract (lump sum or unit price) is awarded to the responsible bidder 
whose bid, conforming with all the material terms and conditions of the 
invitation for bids, is lowest, price and other factors considered. 
When using this method, the following will apply:
    (i) At a sufficient time prior to the date set for opening of bids, 
bids must be solicited from an adequate number of qualified sources. In 
addition, the invitation must be publicly advertised.
    (ii) The invitation for bids, including specifications and 
pertinent attachments, must clearly define the items or services needed 
in order for the bidders to properly respond to the invitation under 
paragraph (f)(1) of this section.
    (iii) All bids must be opened publicly at the time and place stated 
in the invitation for bids.
    (iv) A firm-fixed-price contract award must be made by written 
notice to that responsible bidder whose bid, conforming to the 
invitation for bids, is lowest. When specified in the bidding 
documents, factors such as discounts and transportation costs will be 
considered in determining which bid is lowest.
    (v) The Applicant, with the concurrence of the Agency, will 
consider the amount of the bids or proposals, and all conditions listed 
in the invitation. On the basis of these considerations, the Applicant 
will select and notify the lowest responsible bidder. The contract will 
be awarded using an Agency-approved form.
    (vi) Any or all bids may be rejected by the grantee when it is in 
their best interest.

[[Page 78276]]

    (2) Competitive negotiation. In competitive negotiations, proposals 
are requested from a number of sources. Negotiations are normally 
conducted with more than one of the sources submitting offers 
(offerors). Competitive negotiation may be used if conditions are not 
appropriate for the use of formal advertising and where discussions and 
bargaining with a view to reaching agreement on the technical quality, 
price, other terms of the proposed contract and specifications are 
necessary. If competitive negotiation is used for procurement, the 
following requirements will apply:
    (i) Proposals must be solicited from two qualified sources, unless 
otherwise approved by the Agency, to permit reasonable competition 
consistent with the nature and requirements of the procurement.
    (ii) The Request for Proposal must identify all significant 
evaluation factors, including price or cost where required, and their 
relative importance.
    (iii) The grantee must provide mechanisms for technical evaluation 
of the proposals received, determination of responsible offerors for 
the purpose of written or oral discussions, and selection for contract 
award.
    (iv) Award may be made to the responsible offeror whose proposal 
will be most advantageous to the grantee, price and other factors 
considered. Unsuccessful offerors must be promptly notified.
    (v) Owners may utilize competitive negotiation procedures for 
procurement of architectural/engineering and other professional 
services, whereby the offerors' qualifications are evaluated and the 
most qualified offeror is selected, subject to negotiations of fair and 
reasonable compensation.
    (3) Noncompetitive negotiation. Noncompetitive negotiation is 
procurement through solicitation of a proposal from only one source. 
Noncompetitive negotiation may be used when the award of a contract is 
not feasible under small acquisition and construction procedures, 
competitive sealed bids (formal advertising) or competitive negotiation 
procedures. Circumstances under which a contract may be awarded by 
noncompetitive negotiations are limited to the following:
    (i) After solicitation of a number of sources, competition is 
determined inadequate; or
    (ii) No acceptable bids have been received after formal 
advertising.
    (4) Additional procurement methods. The grantee may use additional 
innovative procurement methods provided the grantee receives prior 
written approval from the Agency. Contracts will have a listing of 
attachments and the minimum provisions of the contract will include:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Whether or not surety bonds will be provided; and
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency.
    (g) Contracts awarded prior to applications. Owners awarding 
construction or other procurement contracts prior to filing an 
application, must provide evidence that is satisfactory to the Agency 
that the contract was entered into without intent to circumvent the 
requirements of Agency regulations.
    (1) Modifications. The contract shall be modified to conform to the 
provisions of this subpart. Where this is not possible, modifications 
will be made to the extent practicable and, as a minimum, the contract 
must comply with all State and local laws and regulations as well as 
statutory requirements and executive orders related to the Agency 
financing.
    (2) Consultant's certification. Provide a certification by an 
engineer, licensed in the State where the facility is constructed, that 
any construction performed complies fully with the plans and 
specifications.
    (3) Owner's certification. Provide a certification by the owner 
that the contractor has complied with applicable statutory and 
executive requirements related to Agency financing.
    (h) Contract administration. Contract administration must comply 
with 7 CFR 1780.76. If another authority, such as a Federal, State, or 
Tribal agency, is providing funding and requires oversight of 
inspections, change orders, and pay requests, the Agency will accept 
copies of their reports or forms as meeting oversight requirements of 
the Agency.

Renewable Energy System and Energy Efficiency Improvement Guaranteed 
Loans


Sec.  4280.125  Compliance with Sec. Sec.  4279.29 through 4279.99 of 
this chapter.

    All loans guaranteed under this subpart must comply with the 
provisions found in Sec. Sec.  4279.29 through 4279.99 of this chapter.


Sec.  4280.126  Guarantee/annual renewal fee.

    Except for the conditions for receiving reduced guarantee fee and 
unless otherwise specified in a Federal Register notice, the provisions 
specified in Sec.  4279.107 of this chapter apply to loans guaranteed 
under this subpart.


Sec.  4280.127  Borrower eligibility.

    To receive a RES or EEI guaranteed loan under this subpart, a 
borrower must be eligible under Sec.  4280.112. In addition, borrower 
must meet the requirements of paragraphs (a) through (e) of this 
section. Borrowers who receive a loan guaranteed under this subpart 
must continue to meet the requirements specified in this section.
    (a) Type of borrower. The borrower must be an Agricultural Producer 
or Rural Small Business.
    (b) Ownership. The borrower must:
    (1) Own or be the prospective owner of the project; and
    (2) Own or control the site for the project at the time of 
application and, if the loan is guaranteed under this subpart, for the 
term of the loan.
    (c) Revenues and expenses. The borrower must have available or be 
able to demonstrate, at the time of application, satisfactory sources 
of revenue in an amount sufficient to provide for the operation, 
management, maintenance, and any debt service of the project for the 
term of the loan. In addition, the borrower must control the revenues 
and expenses of the project, including its operation and maintenance, 
for which the loan is sought. Notwithstanding the provisions of this 
paragraph, the borrower may employ a Qualified Consultant under 
contract to manage revenues and expenses of the project and its 
operation and/or maintenance.
    (d) Legal authority and responsibility. Each borrower and lender 
must have the legal authority necessary to apply for and carry out the 
purpose of the guaranteed loan.
    (e) Universal identifier and SAM. Unless exempt under 2 CFR 25.110, 
the borrower must:
    (1) Be registered in the SAM prior to submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times during which it has an active Federal award or an application 
under consideration by the Agency; and
    (3) Provide its DUNS number in each application it submits to the 
Agency.


Sec.  4280.128  Project eligibility.

    For a RES or EEI project to be eligible to receive a guaranteed 
loan under this subpart, the project must meet each criteria specified 
in Sec.  4280.113(a)

[[Page 78277]]

through (f). In addition, the purchase of an existing RES that meets 
the criteria specified in Sec.  4280.113(b) through (f) is an eligible 
project under this section.


Sec.  4280.129  Guaranteed loan funding.

    (a) The amount of the loan that will be made available to an 
eligible project under this subpart will not exceed 75 percent of 
Eligible Project Costs. Eligible Project Costs are specified in 
paragraph (e) of this section. Ineligible project costs are identified 
in paragraph (f) of this section.
    (b) The minimum amount of a guaranteed loan made to a borrower will 
be $5,000, less any program grant amounts. The maximum amount of a 
guaranteed loan made to a borrower is $25 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:
    (1) 85 percent for loans of $600,000 or less;
    (2) 80 percent for loans greater than $600,000 up to and including 
$5 million;
    (3) 70 percent for loans greater than $5 million up to and 
including $10 million; and
    (4) 60 percent for loans greater than $10 million.
    (d) The total amount of the loans guaranteed under this subpart to 
one borrower, including the guaranteed and unguaranteed portion, the 
outstanding principal, and interest balance of any existing loans 
guaranteed under this program and the new loan request, must not exceed 
$25 million.
    (e) Eligible Project Costs are only those costs associated with the 
items identified in Sec.  4280.114(c)(1) through (c)(6) and paragraphs 
(e)(1) through (6) of this section as long as the items identified in 
both sets of paragraphs are directly related to the RES or EEI. The 
Eligible Project Costs identified in paragraphs (e)(1) through (4) of 
this section cannot exceed more than 5 percent of the loan amount.
    (1) Working capital.
    (2) Land acquisition.
    (3) Routine lender fees, as described in Sec.  4279.120(a) of this 
chapter.
    (4) Energy Assessments, Energy Audits, technical reports, business 
plans, and Feasibility Studies completed and acceptable to the Agency, 
except if any portion was financed by any other Federal or State grant 
or payment assistance, including, but not limited to, a REAP Energy 
Assessment or Energy Audit, or REDA grant.
    (5) Building and equipment for an existing RES.
    (6) Refinancing outstanding debt when the original purpose of the 
debt being refinanced meets the eligible project requirements of Sec.  
4280.128. Existing debt may be refinanced provided that:
    (i) The project identified in the application meets the 
requirements of Sec.  4280.128;
    (ii) The debt being refinanced must be less than 50 percent of the 
overall loan;
    (iii) Refinancing is necessary to improve cash flow and viability 
of the project identified in the application;
    (iv) At the time of application, the loan being refinanced has been 
current for at least the past 12 months (unless such status is achieved 
by the lender forgiving the borrower's debt); and
    (v) The lender is providing better rates or terms for the loan 
being refinanced.
    (f) Ineligible project costs include, but are not limited to costs 
identified in Sec. Sec.  4280.114(d)(1), (d)(2), (d)(4) through (d)(9), 
guaranteeing loans made by other Federal agencies, subordinated owner 
debt, and loans made with the proceeds of any obligation the interest 
on which is excludable from income under 26 U.S.C. 103 or a successor 
statute. Funds generated through the issuance of tax-exempt obligations 
may neither be used to purchase the guaranteed portion of any Agency 
guaranteed loan nor may an Agency guaranteed loan serve as collateral 
for a tax-exempt issue. The Agency may guarantee a loan for a project 
which involves tax-exempt financing only when the guaranteed loan funds 
are used to finance a part of the project that is separate and distinct 
from the part which is financed by the tax-exempt obligation, and the 
guaranteed loan has at least a parity security position with the tax-
exempt obligation.
    (g) In determining the amount of a loan awarded, the Agency will 
take into consideration the criteria specified in Sec.  4280.114(e).


Sec.  4280.130  Loan processing.

    (a) Processing RES and EEI guaranteed loans under this subpart must 
comply with the provisions found in Sec. Sec.  4279.120 through 
4279.187 of this chapter, except for those sections specified in 
paragraph (b) of this section, and as provided in Sec. Sec.  4280.131 
through 4280.142.
    (b) The provisions found in Sec. Sec.  4279.150, 4279.155, 
4279.161, and 4279.175 of this chapter do not apply to loans guaranteed 
under this subpart.


Sec.  4280.131  Credit quality.

    Except for Sec.  4279.131(d) of this chapter, the credit quality 
provisions of Sec.  4279.131 of this chapter apply to this subpart. 
Instead of complying with Sec.  4279.131(d), borrowers must demonstrate 
evidence of cash equity injection in the project of not less than 25 
percent of total Eligible Project Costs. Cash equity injection must be 
in the form of cash. For guaranteed loan-only requests, Federal grant 
funds may be counted as cash equity.


Sec.  4280.132  Financial statements.

    All financial statements must be in accordance with Sec.  4279.137 
of this chapter except that, for Agricultural Producers, the borrower 
may provide financial information in the manner that is generally 
required by agricultural commercial lenders.


Sec.  4280.133  [Reserved]


Sec.  4280.134  Personal and corporate guarantees.

    Except for Passive Investors, all personal and corporate guarantees 
must be in accordance with Sec.  4279.149 of this chapter.


Sec.  4280.135  Scoring RES and EEI guaranteed loan-only applications.

    (a) Evaluation criteria. The Agency will score each guaranteed 
loan-only application received using the evaluation criteria specified 
in Sec.  4280.120, except that, in Sec.  4280.120(b)(1), the 
calculation will be made on the loan amount requested and not on the 
grant amount requested.
    (b) Minimum score. The Agency will establish a minimum score that 
guaranteed loan-only applications must meet in order to be considered 
for funding in periodic competitions, as specified in Sec.  
4280.139(a). The minimum score is 50 points, and may be adjusted 
through the publishing of a Notice in the Federal Register. Any 
application that does not meet the applicable minimum score is only 
eligible to compete in a National competition as specified in Sec.  
4280.139(c)(2).
    (c) Notification. The Agency will notify in writing each lender and 
borrower whose application does not meet the applicable minimum score.


Sec.  4280.136  [Reserved]


Sec.  4280.137  Application and documentation.

    The requirements in this section apply to guaranteed loan 
applications for RES and EEI projects under this subpart.
    (a) General. Guaranteed loan applications must be submitted in 
accordance with the guaranteed loan requirements specified in Sec.  
4280.110 and in this section.

[[Page 78278]]

    (b) Application content for guaranteed loans greater than $600,000. 
Each guaranteed loan-only application for greater than $600,000 must 
contain the information specified in paragraphs (b)(1) and (2) of this 
section.
    (1) Application content. Each application submitted under this 
paragraph must contain the information specified in Sec. Sec.  
4280.117(a)(6) through (9) and (b) through (e) and as specified in 
paragraph (b)(2) of this section, and must present the information in 
the same order as shown in Sec.  4280.117.
    (2) Lender forms, certifications, and agreements. Each application 
submitted under paragraph (b) of this section must contain applicable 
forms, certifications, and agreements specified in paragraphs (b)(2)(i) 
through (xi) of this section instead of the forms and certifications 
specified in Sec.  4280.117(a).
    (i) A completed Form RD 4279-1, ``Application for Loan Guarantee.''
    (ii) Form RD 1940-20.
    (iii) Identify the ethnicity, race, and gender of the applicant. 
This information is optional and is not required for a Complete 
Application.
    (iv) A personal credit report from an Agency approved credit 
reporting company for each owner, partner, officer, director, key 
employee, and stockholder owning 20 percent or more interest in the 
borrower's business operation, except Passive Investors and those 
corporations listed on a major stock exchange.
    (v) Appraisals completed in accordance with Sec.  4279.144 of this 
chapter. Completed appraisals should be submitted when the application 
is filed. If the appraisal has not been completed when the application 
is filed, the Lender must submit an estimated appraisal. Agency 
approval in the form of a Conditional Commitment may be issued subject 
to receipt of adequate appraisals. In all cases, a completed appraisal 
must be submitted prior to the loan being closed.
    (vi) Commercial credit reports obtained by the lender on the 
borrower and any parent, affiliate, and subsidiary firms.
    (vii) Current personal and corporate financial statements of any 
guarantors.
    (viii) Financial information is required on the total operation of 
the Agricultural Producer/Rural Small Business and its parent, 
subsidiary, or affiliates. All information submitted under this 
paragraph must be substantiated by authoritative records.
    (A) Historical financial statements. Provide historical financial 
statements, including income statements and balance sheets, according 
to the Annual Receipts time frames specified in paragraphs Sec.  
4280.117(b)(1)(i)(A) through (C), as applicable to the length of time 
that Applicant's Rural Small Business or agricultural operation has 
been in operation. Agricultural Producers may present historical 
financial information in the format that is generally required by 
commercial agriculture lenders.
    (B) Current balance sheet and income statement. Provide a current 
balance sheet and income statement presented in accordance with GAAP 
and dated within 90 days of the application submittal. Agricultural 
Producers may present financial information in the format that is 
generally required by commercial agriculture lenders or in a similar 
format used when submitting the same information in support of the 
borrower's Federal income tax returns.
    (C) Pro forma financial statements. Provide pro forma balance sheet 
at start-up of the borrower's business operation that reflects the use 
of the loan proceeds or grant award; 3 additional years of financial 
statements, 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.
    (ix) Lender's complete comprehensive written analysis in accordance 
with Sec.  4280.131.
    (x) A certification by the lender that 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, 
equity, and the collateral to be obtained.
    (xi) 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:
    (A) Prohibition against assuming liabilities or obligations of 
others;
    (B) Restriction on dividend payments;
    (C) Limitation on the purchase or sale of equipment and fixed 
assets;
    (D) Limitation on compensation of officers and owners;
    (E) Minimum working capital or current ratio requirement;
    (F) Maximum debt-to-net worth ratio;
    (G) Restrictions concerning consolidations, mergers, or other 
circumstances;
    (H) Limitations on selling the business without the concurrence of 
the lender;
    (I) Repayment and amortization provisions of the loan;
    (J) 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 
statements. Financial statements for corporate and personal guarantors 
must be updated at least annually once the guarantee is provided;
    (K) Type and frequency of financial statements to be required from 
the borrower for the duration of the loan;
    (L) The addition of any requirements imposed by the Agency in its 
Conditional Commitment;
    (M) A reserved section for any Agency environmental requirements; 
and
    (N) A provision for the lender or the Agency to have reasonable 
access to the project and its performance information during its useful 
life or the term of the loan, whichever is longer, including the 
periodic inspection of the project by a representative of the lender or 
the Agency.
    (c) Application content for guaranteed loans of $600,000 or Less. 
Each guaranteed loan-only application for $600,000 or less must contain 
the information specified in paragraphs (c)(1) and (2) of this section.
    (1) Application contents. If the application is for less than 
$200,000, but more than $80,000, the application must contain the 
information specified in Sec.  4280.118(b), except as specified in 
paragraph (c)(2) of this section (e.g., the grant forms under Sec.  
4280.117(a) are not required to be submitted), and must present the 
information in the same order as shown in Sec.  4280.118(b). If the 
application is for $200,000 and greater, the application must contain 
the information specified in Sec.  4280.117, except as specified in 
paragraph (c)(2) of this section, and must present the information in 
the same order as shown in Sec.  4280.117.
    (2) Lender forms, certifications, and agreements. Each application 
submitted under paragraph (c) of this section must use Form RD 4279-1A, 
``Application for Loan Guarantee, Short Form,'' and the forms and 
certifications specified in paragraphs (b)(2)(ii), (iii) (if not 
previously submitted), (v), (viii), (ix), (x), and (xi) of this 
section. The lender must have the documentation contained in paragraphs 
(b)(2)(iv), (vi), and (vii) available in its files for the Agency's 
review.


Sec.  4280.138  Evaluation of RES and EEI guaranteed loan applications.

    The provisions of Sec.  4279.165 of this chapter apply to this 
subpart, although the Agency will determine borrower and project 
eligibility in accordance with the provisions of this subpart.

[[Page 78279]]

Sec.  4280.139  Selecting RES and EEI guaranteed loan-only applications 
for award.

    Complete and eligible guaranteed loan-only applications that are 
ready to be approved will be processed according to this section, 
unless otherwise modified by the Agency in a notice published in the 
Federal Register. Guaranteed loan applications that are part of a 
grant-guaranteed loan combination request will be processed according 
to Sec.  4280.165(d).
    (a) Competing applications. On a periodic basis, the Agency will 
compete each eligible application that is ready to be funded and that 
has a priority score, as determined under Sec.  4280.135, that meets or 
exceeds the applicable minimum score. Higher scoring applications will 
receive first consideration. An application that does not meet the 
minimum score will be competed as provided in paragraph (c)(2) of this 
section.
    (b) Funding selected applications. As applications are funded, the 
remaining guaranteed funding authority may be insufficient to fund the 
next highest scoring application or applications in those cases where 
two or more applications receive the same priority score. The 
procedures described in paragraphs (b)(1) and (2) of this section may 
be repeated as necessary in order to consider all applications as 
appropriate.
    (1) If the remaining funds are insufficient to fund the next 
highest scoring project completely, the Agency will notify the lender 
and offer the lender the opportunity to accept the level of funds 
available. If the lender does not accept the offer, the Agency will 
process the next highest scoring application.
    (2) If the remaining funds are insufficient to fund each project 
that receives the same priority score, the Agency will notify each 
lender and offer the lenders the opportunity to accept the level of 
funds available and the level of funds the Agency offers to each such 
lender will be proportional to the amount of the lenders' requests. If 
funds are still remaining, the Agency may consider funding the next 
highest scoring project.
    (3) Any lender offered less than the full amount requested under 
either paragraph (b)(1) or (2) of this section may either accept the 
funds available or can request to compete in the next competition. 
Under no circumstances would there be an assurance that the project(s) 
would be funded in subsequent competitions.
    (4) If a lender agrees to the lower loan funding offered by the 
Agency under either paragraph (b)(1) or (2) of this section, the lender 
must certify that the purpose(s) of the project can still be met at the 
lower funding level and must provide documentation that the borrower 
has obtain the remaining total funds needed to complete the project.
    (c) Handling of ranked applications not funded. How the Agency 
disposes of ranked applications that have not received funding depends 
on whether the application's priority score is equal to or greater than 
the minimum score or is less than the minimum score.
    (1) An application with a priority score equal to or greater than 
the minimum score that is not funded in a periodic competition will be 
retained by the Agency for consideration in subsequent competitions. If 
an application is not selected for funding after 12 months, including 
the first month in which the application was competed, the application 
will be withdrawn by the Agency from further funding consideration.
    (2) An application with a priority score less than the applicable 
minimum priority score will be competed against all other guaranteed 
loan-only applications in a National competition on the first business 
day of September of the Federal Fiscal Year in which the application is 
ready for funding. If the application is not funded, the application 
will be withdrawn by the Agency from further funding consideration.
    (d) Unused funding. After each periodic competition, the Agency 
will roll any remaining guaranteed funding authority into the next 
competition. At the end of each Federal Fiscal Year, the Agency may 
elect at its discretion to allow any remaining multi-year funds to be 
carried over to the next Federal Fiscal Year rather than selecting a 
lower scoring application.
    (e) Commencement of the project. The Applicant assumes all risks if 
the choice is made to purchase the technology proposed or start 
construction of the project to be financed in the guaranteed loan-only 
application after the Complete Application has been received by the 
Agency, but prior to award announcement.


Sec.  4280.140  [Reserved]


Sec.  4280.141  Changes in borrower.

    All changes in borrowers must be in accordance with Sec.  4279.180 
of this chapter, but the eligibility requirements of this subpart 
apply.


Sec.  4280.142  Conditions precedent to issuance of loan note 
guarantee.

    The provisions of Sec.  4279.181 of this chapter apply except for 
Sec.  4279.181(b). In addition, paragraphs (a) and (b) of this section 
must be met.
    (a) The project has been performing at a steady state operating 
level in accordance with the technical requirements, plans, and 
specifications, conforms with applicable Federal, State, and local 
codes, and costs have not exceeded the amount approved by the lender 
and the Agency.
    (b) Where applicable, the lender must provide to the Agency a copy 
of the executed Power Purchase Agreement.


Sec.  4280.143  Requirements after project construction.

    Once the project has been constructed, the lender must provide the 
Agency reports from the borrower in accordance with Sec.  
4280.123(j)(3), as applicable.


Sec. Sec.  4280.144-4280.151  [Reserved]


Sec.  4280.152  Servicing guaranteed loans.

    Except as specified in paragraphs (a) and (b) of this section, all 
loans guaranteed under this subpart must be in compliance with the 
provisions found in Sec.  4287.101(b) and in Sec. Sec.  4287.107 
through 4287.199 of this chapter.
    (a) Documentation of request. In complying with Sec.  4287.134(a) 
of this chapter, all transfers and assumptions must be to eligible 
borrowers in accordance with Sec.  4280.127.
    (b) Additional loan funds. In complying with Sec.  4287.134(e) of 
this chapter, loans to provide additional funds in connection with a 
transfer and assumption must be considered as a new loan application 
under Sec.  4280.137.


Sec. Sec.  4280.153-4280.164  [Reserved]

Combined Funding for Renewable Energy Systems and Energy Efficiency 
Improvements


Sec.  4280.165  Combined grant and guaranteed loan funding 
requirements.

    The requirements for a RES or EEI project for which an Applicant is 
seeking a combined grant and guaranteed loan are specified in this 
section.
    (a) Eligibility. All Applicants must be eligible under the 
requirements specified in Sec.  4280.112. If the Applicant is seeking a 
grant, the Applicant must also meet the Applicant eligibility 
requirements specified in Sec.  4280.112. If the Applicant is seeking a 
loan, the Applicant must also meet the borrower eligibility 
requirements specified in Sec.  4280.127. Projects must meet the 
project eligibility requirements specified in Sec. Sec.  4280.113 and 
4280.128, as applicable.

[[Page 78280]]

    (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 shall not 
exceed 75 percent of Eligible Project Costs and the grant portion shall 
not exceed 25 percent of Eligible Project Costs. For purposes of 
combined funding requests, Eligible Project Costs are based on the 
total costs associated with those items specified in Sec. Sec.  
4280.114(c) and 4280.129(e). The Applicant must provide the remaining 
total funds needed to complete the project.
    (2) The minimum combined funding request allowed is $5,000, with 
the grant portion of the funding request being at least $1,500 for EEI 
projects and at least $2,500 for RES projects.
    (c) Application and documentation. When applying for combined 
funding, the Applicant must submit separate applications for both types 
of assistance (grant and guaranteed loan). The separate applications 
must be submitted simultaneously by the lender.
    (1) Each application must meet the requirements, including the 
requisite forms and certifications, specified in Sec. Sec.  4280.117, 
4280.118, 4280.119, and 4280.137, as applicable, and as follows:
    (i) Notwithstanding Form RD 4279-1, the SAM number and its 
expiration date must be provided prior to obligation of funds;
    (ii) A combined funding request for a guaranteed loan greater than 
$600,000 must contain the information specified in Sec.  
4280.137(b)(1); and
    (iii) A combined funding request for a guaranteed loan of $600,000 
or less must contain the information specified in Sec.  4280.137(c)(1) 
and (2).
    (2) Where both the grant application and the guaranteed loan 
application provisions request the same documentation, form, or 
certification, such documentation, form, or certification may be 
submitted once; that is, the combined application does not need to 
contain duplicate documentation, forms, and certifications.
    (d) Evaluation. The Agency will evaluate each application according 
to Sec.  4280.115(c). The Agency will select applications according to 
applicable procedures specified in Sec.  4280.121(a) unless modified by 
this section. A combination loan and grant request will be selected 
based upon the grant score of the project.
    (e) Interest rate and terms of loan. The interest rate and terms of 
the guaranteed loan for the loan portion of the combined funding 
request will be determined based on the procedures specified in 
Sec. Sec.  4279.125 and 4279.126 of this chapter for guaranteed loans.
    (f) Other provisions. In addition to the requirements specified in 
paragraphs (a) through (e) of this section, the combined funding 
request is subject to the other requirements specified in this subpart, 
including, but not limited to, processing and servicing requirements, 
as applicable, as described in paragraphs (f)(1) through (6) of this 
section.
    (1) All other provisions of Sec. Sec.  4280.101 through 4280.111 
apply to the combined funding request.
    (2) All other provisions of Sec. Sec.  4280.112 through 4280.123 
apply to the grant portion of the combined funding request and Sec.  
4280.124 applies if the project for which the grant is sought has a 
Total Project Cost of $200,000 and greater.
    (3) All other provisions of Sec. Sec.  4280.125 through 4280.152, 
as applicable, apply to the guaranteed loan portion of the combined 
funding request.
    (4) All guarantee loan and grant combination applications that are 
ranked, but not funded, will be processed in accordance with provisions 
found in Sec.  4280.121(d), (e), and (f).
    (5) Applicants whose combination applications are approved for 
funding must utilize both the loan and the grant. The guaranteed loan 
will be closed prior to grant funds being disbursed. The Agency 
reserves the right to reduce the total loan guarantee and grant award, 
as appropriate, if construction costs are less than projected or if 
funding sources differ from those provided in the application.
    (6) Compliance reviews will be conducted on a combined grant and 
guaranteed loan request. The compliance review will encompass the 
entire operation, program, or activity to be funded with Agency 
assistance.


Sec. Sec.  4280.166-4280.185  [Reserved]

Energy Audit and Renewable Energy Development Assistance (REDA) Grants


Sec.  4280.186  Applicant eligibility.

    To be eligible for an Energy Audit grant or a REDA grant under this 
subpart, the Applicant must meet each of the criteria, as applicable, 
specified in paragraphs (a) through (d) of this section. The Agency 
will determine an Applicant's eligibility.
    (a) The Applicant must be one of the following:
    (1) A unit of State, Tribal, or local government;
    (2) A land-grant college or university, or other Institution of 
Higher Education;
    (3) A rural electric cooperative;
    (4) A Public Power Entity;
    (5) An Instrumentality of a State, Tribal, or local government; or
    (6) A Council.
    (b) The Applicant must have sufficient capacity to perform the 
Energy Audit or REDA activities proposed in the application to ensure 
success. The Agency will make this assessment based on the information 
provided in the application.
    (c) The Applicant must have the legal authority necessary to apply 
for and carry out the purpose of the grant.
    (d) The Applicant must:
    (1) Be registered in the SAM prior to submitting an application;
    (2) Maintain an active SAM registration with current information at 
all times during which it has an active Federal award or an application 
under consideration by the Agency; and
    (3) Provide its DUNS number in each application it submits to the 
Agency. Generally, the DUNS number is included on Standard Form-424.


Sec.  4280.187  Project eligibility.

    To be eligible for an Energy Audit or a REDA grant, the grant funds 
for a project must be used by the grantee to assist Agricultural 
Producers or Rural Small Businesses in one or both of the purposes 
specified in paragraphs (a) and (b) of this section, and must also 
comply with paragraphs (c) through (f) of this section.
    (a) Conducting and promoting Energy Audits.
    (b) Conducting and promoting REDA by providing to Agricultural 
Producers and Rural Small Businesses recommendations and information on 
how to improve the energy efficiency of their operations and to use 
Renewable Energy technologies and resources in their operations.
    (c) Energy Audit and REDA can be provided only to a project located 
in a Rural Area unless the grantee of such project is an Agricultural 
Producer. If the project is owned by an Agricultural Producer, the 
project for which such services are being provided may be located in 
either a Rural or non-Rural Area. If the Agricultural Producer's 
project is in a non-Rural Area, then the Energy Audit or REDA can only 
be for an EEI or RES on components that are directly related to and 
their use and purpose is limited to the Agricultural Producer's 
project, such as vertically integrated operations, that are part of and 
co-located with the agricultural production operation.
    (d) The Energy Audit or REDA must be provided to a recipient in a 
State.
    (e) The Applicant must have a place of business in a State.
    (f) The Applicant is cautioned against taking any actions or 
incurring any

[[Page 78281]]

obligations prior to the Agency completing the environmental review 
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. If the Applicant takes any such actions or 
incurs any such obligations, it could result in project ineligibility.


Sec.  4280.188  Grant funding for Energy Audit and Renewable Energy 
Development Assistance.

    (a) Maximum grant amount. The maximum aggregate amount of Energy 
Audit and REDA grants awarded to any one recipient under this subpart 
cannot exceed $100,000 in a Federal Fiscal Year. Grant funds awarded 
for Energy Audit and REDA projects may be used only to pay Eligible 
Project Costs, as described in paragraph (b) of this section. 
Ineligible project costs are listed in paragraph (c) of this section.
    (b) Eligible project costs. Eligible Project Costs for Energy 
Audits and Renewable Energy Development Assistance are those costs 
incurred after the date a Complete Application has been received by the 
Agency and that are directly related to conducting and promoting Energy 
Audits and REDA, which include but are not limited to:
    (1) Salaries;
    (2) Travel expenses;
    (3) Office supplies (e.g., paper, pens, file folders); and
    (4) Expenses charged as a direct cost or as an indirect cost of up 
to a maximum of 5 percent for administering the grant.
    (c) Ineligible project costs. Ineligible project costs for Energy 
Audit and REDA grants include, but are not limited to:
    (1) Payment for any construction-related activities;
    (2) Purchase or lease of equipment;
    (3) Payment of any judgment or debt owed to the United States;
    (4) Any goods or services provided by a person or entity who has a 
conflict of interest as provided in Sec.  4280.106;
    (5) Any costs of preparing the application package for funding 
under this subpart; and
    (6) Funding of political or lobbying activities.
    (d) Energy audits. A grantee that conducts an Energy Audit must 
require that, as a condition of providing the Energy Audit, the 
Agricultural Producer or Rural Small Business pay at least 25 percent 
of the cost of the Energy Audit. Further, the amount paid by the 
Agricultural Producer or Rural Small Business will be retained by the 
grantee as a contribution towards the cost of the Energy Audit and 
considered program income. The grantee may use the program income to 
further the objectives of their project or Energy Audit services 
offered during the grant period in accordance with Departmental 
Regulations.


Sec.  4280.189  [Reserved]


Sec.  4280.190  Energy Audit and REDA grant applications--content.

    (a) Unless otherwise specified in a Federal Register notice, 
Applicants may only submit one Energy Audit grant application and one 
REDA grant application each Federal Fiscal Year. No combination (Energy 
Audit and REDA) applications will be accepted.
    (b) Applicants must submit Complete Applications consisting of the 
elements specified in paragraphs (b)(1) through (7) of this section, 
except that paragraph (b)(4), is optional.
    (1) Form SF-424.
    (2) Form SF-424A.
    (3) Form SF-424B.
    (4) Identify the ethnicity, race, and gender of the applicant. This 
information is optional and is not required for a Complete Application.
    (5) Certification that the Applicant is a legal entity in good 
standing (as applicable), and operating in accordance with the laws of 
the State(s) or Tribe where the Applicant has a place of business.
    (6) The Applicant must identify whether or not the Applicant has a 
known relationship or association with an Agency employee. If there is 
a known relationship, the Applicant must identify each Agency employee 
with whom the Applicant has a known relationship.
    (7) A proposed scope of work to include the following items:
    (i) A brief summary including a project title describing the 
proposed project;
    (ii) Goals of the proposed project;
    (iii) Geographic scope or service area of the proposed project and 
the method and rationale used to select the service area;
    (iv) Identification of the specific needs for the service area and 
the target audience to be served. The number of Agricultural Producers 
and/or Rural Small Businesses to be served must be identified including 
name and contact information, if available, as well as the method and 
rationale used to select the Agricultural Producers and/or Rural Small 
Businesses;
    (v) Timeline describing the proposed tasks to be accomplished and 
the schedule for implementation of each task. Include whether 
organizational staff, consultants, or contractors will be used to 
perform each task. If a project is located in multiple States, 
resources must be sufficient to complete all projects;
    (vi) Marketing strategies to include a discussion on how the 
Applicant will be marketing and providing outreach activities to the 
proposed service area ensuring that Agricultural Producers and/or Rural 
Small Businesses are served;
    (vii) Applicant's experience as follows:
    (A) If applying for a REDA grant, the Applicant's experience in 
completing similar REDA activities, including the number of similar 
projects the Applicant has performed and the number of years the 
Applicant has been performing a similar service.
    (B) If applying for an Energy Audit grant, the number of energy 
audits and energy assessments the Applicant has completed and the 
number of years the Applicant has been performing those services;
    (C) For all Applicants, the amount of experience in administering 
Energy Audit, REDA, or similar activities as applicable to the purpose 
of the proposed project. Provide discussion if the Applicant has any 
existing programs that can demonstrate the achievement of energy 
savings or energy generation with the Agricultural Producers and/or 
Rural Small Businesses the Applicant has served. If the Applicant has 
received one or more awards within the last 5 years in recognition of 
its Renewable Energy, energy savings, or energy-based technical 
assistance, please describe the achievement; and
    (viii) Identify the amount of Matching Funds and other funds and 
the source(s) the Applicant is proposing to use for the project. 
Provide written commitments for Matching Funds and other funds at the 
time the application is submitted.
    (A) If financial resources come from the Applicant, the Applicant 
must submit documentation in the form of a bank statement that 
demonstrates availability of funds.
    (B) If a third party is providing financial assistance to the 
project, the Applicant must submit a commitment letter signed by an 
authorized official of the third party. The letter must be specific to 
the project and identify the dollar amount being provided.


Sec.  4280.191  Evaluation of Energy Audit and REDA grant applications.

    Section 4280.115(c) applies to Energy Audit and REDA grants, except 
for Sec.  4280.115(c)(4).

[[Page 78282]]

Sec.  4280.192  Scoring Energy Audit and REDA grant applications.

    The Agency will score each Energy Audit and REDA application using 
the criteria specified in paragraphs (a) through (f) of this section, 
with a maximum score of 100 points possible.
    (a) Applicant's organizational experience in completing the Energy 
Audit or REDA proposed activity. A maximum of 25 points will be awarded 
for this criterion based on the experience of the organization in 
providing energy audits or renewable energy development assistance as 
applicable to the purpose of the proposed project. The organization 
must have been in business and provided services for the number of 
years as identified in the paragraphs below.
    (1) More than 10 years of experience, 25 points will be awarded.
    (2) At least 5 years and up to and including 10 years of 
experience, 20 points will be awarded.
    (3) At least 2 years and up to and including 5 years of experience, 
10 points will be awarded.
    (4) Less than 2 years of experience, no points will be awarded.?>
    (b) Geographic scope of project in relation to identified need. A 
maximum of 20 points can be awarded.
    (1) If the Applicant's proposed or existing service area is State-
wide or includes all or parts of multiple States, and the scope of work 
has identified needs throughout that service area, 20 points will be 
awarded.
    (2) If the Applicant's proposed or existing service area consists 
of multiple counties in a single State and the scope of work has 
identified needs throughout that service area, 15 points will be 
awarded.
    (3) If the Applicant's service area consists of a single county or 
municipality and the scope of work has identified needs throughout that 
service area, 10 points will be awarded.
    (c) Number of Agricultural Producers/Rural Small Businesses to be 
served. A maximum of 20 points will be awarded for this criterion based 
on the proposed number of ultimate recipients to be assisted and if the 
Applicant has provided the names and contact information for the 
ultimate recipients to be assisted.
    (1) If the Applicant plans to provide Energy Audits or REDA to:
    (i) Up to 10 ultimate recipients, 2 points will be awarded.
    (ii) Between 11 and up to and including 25 ultimate recipients, 5 
points will be awarded.
    (iii) More than 25 ultimate recipients, 10 points will be awarded.
    (2) If the Applicant provides a list of ultimate recipients, 
including their name and contact information, that are ready to be 
assisted, an additional 10 points may be awarded.
    (d) Potential of project to produce energy savings or generation 
and its attending environmental benefits. A maximum of 10 points will 
be awarded for this criterion under both paragraphs (d)(1) and (2) of 
this section
    (1) If the Applicant has an existing program that can demonstrate 
the achievement of energy savings or energy generation with the 
Agricultural Producers and/or Rural Small Businesses it has served, 5 
points will be awarded.
    (2) If the Applicant provides evidence that it has received one or 
more awards within the last 5 years in recognition of its renewable 
energy, energy savings, or energy-based technical assistance, up to a 
maximum of 5 points will be awarded as follows:
    (i) International/national--3 points for each.
    (ii) Regional/State--2 points for each.
    (iii) Local--1 point for each.
    (e) Marketing and outreach plan. A maximum of 5 points will be 
awarded for this criterion. If the scope of work included in the 
application provides a satisfactory discussion of each of the following 
criteria, one point for each can be awarded.
    (1) The goals of the project;
    (2) Identified need;
    (3) Targeted ultimate recipients;
    (4) Timeline and action plan; and
    (5) Marketing and outreach strategies and supporting data for 
strategies.
    (f) Commitment of funds for the total project cost. A maximum of 20 
points will be awarded for this criterion if written documentation from 
each source providing Matching Funds and other funds are submitted with 
the application.
    (1) If the Applicant proposes to match 50 percent or more of the 
grant funds requested, 20 points will be awarded.
    (2) If the Applicant proposes to match 20 percent or more but less 
than 50 percent of the grant funds requested, 15 points will be 
awarded.
    (3) If the Applicant proposes to match 5 percent or more but less 
than 20 percent of the grant funds requested, 10 points will be 
awarded.
    (4) If the Applicant proposes to match less than 5 percent of the 
grant funds requested, no points will be awarded.


Sec.  4280.193  Selecting Energy Audit and REDA grant applications for 
award.

    Unless otherwise provided for in a Federal Register notice, Energy 
Audit and REDA grant applications will be processed in accordance with 
this section.
    (a) Application competition. Complete Energy Audit and REDA 
applications received by the Agency by 4:30 p.m. local time on January 
31 will be competed against each other. If January 31 falls on a 
weekend or a federally-observed holiday, the next Federal business day 
will be considered the last day for receipt of a Complete Application. 
Complete Applications received after 4:30 p.m. local time on January 
31, regardless of the postmark on the application, will be processed in 
the subsequent fiscal year. Unless otherwise specified in a Federal 
Register notice, the two highest scoring applications from each State, 
based on the scoring criteria established under Sec.  4280.192, will 
compete for funding.
    (b) Ranking of applications. All applications submitted to the 
National Office under paragraph (a) of this section will be ranked in 
priority score order. All applications that are ranked will be 
considered for selection for funding.
    (c) Selection of applications for funding. Using the ranking 
created under paragraph (a) of this section, the Agency will consider 
the score an application has received compared to the scores of other 
ranked applications, with higher scoring applications receiving first 
consideration for funding. If two or more applications score the same 
and if remaining funds are insufficient to fund each such application, 
the Agency will distribute the remaining funds to each such application 
on a pro-rata basis. At its discretion, the Agency may also elect to 
allow any remaining multi-year funds to be carried over to the next 
fiscal year rather than funding on a pro-rata basis.
    (d) Handling of ranked applications not funded. Based on the 
availability of funding, a ranked application submitted for Energy 
Audit and/or REDA funds may not be funded. Such ranked applications 
will not be carried forward into the next Federal Fiscal Year's 
competition.


Sec.  4280.194  [Reserved]


Sec.  4280.195  Awarding and administering Energy Audit and REDA 
grants.

    The Agency will award and administer Energy Audit and REDA grants 
in accordance with Departmental Regulations and with the procedures and 
requirements specified in Sec.  4280.122, except as specified in 
paragraphs (a) through (c) of this section.
    (a) Instead of complying with Sec.  4280.122(b), the grantee must 
provide satisfactory evidence to the Agency that all officers of 
grantee organization

[[Page 78283]]

authorized to receive and/or disburse Federal funds are covered by such 
bonding and/or insurance requirements as are normally required by the 
grantee.
    (b) Form RD 400-1 specified in Sec.  4280.122(c)(6) is not 
required.
    (c) The Power Purchase Agreement specified in Sec.  4280.122(h) is 
not required.?>


Sec.  4280.196  Servicing Energy Audit and REDA grants.

    The Agency will service Energy Audit and REDA grants in accordance 
with the requirements specified in Departmental Regulations, the Grant 
Agreement, 7 CFR part 1951, subparts E and O, other than 7 CFR 
1951.709(d)(1)(i)(B)(iv), and the requirements in Sec.  4280.123, 
except as specified in paragraphs (a) through (d) of this section.
    (a) Grant disbursement. The Agency will determine, based on the 
applicable Departmental Regulations, whether disbursement of a grant 
will be by advance or reimbursement. Form SF-270 must be completed by 
the grantee and submitted to the Agency no more often than monthly to 
request either advance or reimbursement of funds.
    (b) Semiannual performance reports. Project performance reports 
shall include, but not be limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period (e.g., the number of Energy Audits 
performed, number of recipients assisted and the type of assistance 
provided for REDA);
    (2) A list of recipients, each recipient's location, and each 
recipient's NAICS code;
    (3) Problems, delays, or adverse conditions, if any, that have in 
the past or will in the future affect attainment of overall project 
objectives, prevent meeting time schedules or objectives, or preclude 
the attainment of particular project work elements during established 
time periods. This disclosure shall be accompanied by a statement of 
the action taken or planned to resolve the situation;
    (4) Objectives and timetable established for the next reporting 
period.
    (c) Final performance report. A final performance report will be 
required with the final Federal financial report within 90 days after 
project completion. The final performance report must contain the 
information specified in paragraphs (c)(2)(i) or (ii), as applicable, 
of this section.
    (1) For Energy Audit projects, the final performance report must 
provide complete information regarding:
    (i) The number of audits conducted,
    (ii) A list of recipients (Agricultural Producers and Rural Small 
Businesses) with each recipient's NAICS code,
    (iii) The location of each recipient,
    (iv) The cost of each audit and documentation showing that the 
recipient of the Energy Audit provided 25 percent of the cost of the 
audit, and
    (v) The expected energy saved for each audit conducted if the audit 
is implemented.
    (2) For REDA projects, the final performance report must provide 
complete information regarding:
    (i) The number of recipients assisted and the type of assistance 
provided,
    (ii) A list of recipients with each recipient's NAICS code,
    (iii) The location of each recipient, and
    (iv) The expected Renewable Energy that would be generated if the 
projects were implemented.
    (d) Outcome project performance report. One year after submittal of 
the final performance report, the grantee will provide the Agency a 
final status report on the number of projects that are proceeding with 
the grantee's recommendations, including the amount of energy saved and 
the amount of Renewable Energy generated, as applicable.


Sec. Sec.  4280.197-4280.199  [Reserved]


Sec.  4280.200  OMB control number.

    The information collection requirements contained in this subpart 
have been approved by the Office of Management and Budget (OMB) and 
have been assigned OMB control number 0570-0067. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.?>

Appendix A to Subpart B of Part 4280--Technical Reports for Energy 
Efficiency Improvement (EEI) Projects

    For all EEI projects with Total Project Costs of more than 
$80,000, provide the information specified in Sections A and D and 
in Section B or Section C, as applicable. If the application is for 
an EEI project with Total Project Costs of $80,000 or less, please 
see Sec.  4280.119(b)(3) for the technical report information to be 
submitted with your application.
    If the application is for an EEI project with Total Project 
Costs of $200,000 and greater, you must conduct an Energy Audit. 
However, if the application is for an EEI project with a Total 
Project Costs of less than $200,000, you may conduct either an 
Energy Assessment or an Energy Audit.
    Section A--Project Information. Describe how all the 
improvements to or replacement of an existing building and/or 
equipment meet the requirements of being Commercially Available. 
Describe how the design, engineering, testing, and monitoring are 
sufficient to demonstrate that the proposed project will meet its 
intended purpose, ensure public safety, and comply with applicable 
laws, regulations, agreements, permits, codes, and standards. 
Describe how all equipment required for the EEI(s) is available and 
able to be procured and delivered within the proposed project 
development schedule. In addition, present information regarding 
component warranties and the availability of spare parts.
    Section B--Energy audit. If conducting an EA, provide the 
following information.
    (1) Situation report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, 
and activity profile. Also include average price per unit of energy 
(electricity, natural gas, propane, fuel oil, renewable energy, 
etc.) paid by the customer for the most recent 12 months, or an 
average of 2, 3, 4, or 5 years, for the building and equipment being 
audited. Any energy conversion should be based on use rather than 
source.
    (2) Potential improvement description. Provide a narrative 
summary of the potential improvement and its ability to reduce 
energy consumption or improve energy efficiency, including a 
discussion of reliability and durability of the improvements.
    (i) Provide preliminary specifications for critical components.
    (ii) Provide preliminary drawings of project layout, including 
any related structural changes.
    (iii) Identify significant changes in future related operations 
and maintenance costs.
    (iv) Describe explicitly how outcomes will be measured.
    (3) Technical analysis. Give consideration to the interactions 
among the potential improvements and the current energy system(s).
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 
5 years, prior to the date the application is submitted, provide 
both the total amount and the total cost of energy used for the 
original building and/or equipment, as applicable, for each 
improvement identified in the potential project. In addition, 
provide for each improvement identified in the potential project an 
estimate of the total amount of energy that would have been used and 
the total cost that would have been incurred if the proposed project 
were in operation for this same time period.
    (ii) Calculate all direct and attendant indirect costs of each 
improvement;
    (iii) Rank potential improvements measures by cost-
effectiveness; and
    (iv) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.
    (4) Qualifications of the auditor. Provide the qualifications of 
the individual or entity which completed the Energy Audit.
    Section C--Energy Assessment. If conducting an Energy 
Assessment, provide the following information.
    (1) Situation report. Provide a narrative description of the 
existing building and/or equipment, its energy system(s) and usage, 
and activity profile. Also include average

[[Page 78284]]

price per unit of energy (electricity, natural gas, propane, fuel 
oil, renewable energy, etc.) paid by the customer for the most 
recent 12 months, or an average of 2, 3, 4, or 5 years, for the 
building and equipment being evaluated. Any energy conversion shall 
be based on use rather than source.
    (2) Potential improvement description. Provide a narrative 
summary of the potential improvement and its ability to reduce 
energy consumption or improve energy efficiency.
    (3) Technical analysis. Giving consideration to the interactions 
among the potential improvements and the current energy system(s), 
provide the information specified in paragraphs C.(3)(i) through 
(iii) of this appendix.
    (i) For the most recent 12 months, or an average of 2, 3, 4, or 
5 years, prior to the date the application is submitted, provide 
both the total amount and the total cost of energy used for the 
original building and/or equipment, as applicable, for each 
improvement identified in the potential project. In addition, 
provide for each improvement identified in the potential project an 
estimate of the total amount of energy that would have been used and 
the total cost that would have been incurred if the proposed project 
were in operation for this same time period.
    (ii) Document baseline data compared to projected consumption, 
together with any explanatory notes on source of the projected 
consumption data. When appropriate, show before-and-after data in 
terms of consumption per unit of production, time, or area.
    (iii) Provide an estimate of Simple Payback, including all 
calculations, documentation, and any assumptions.?>
    (4) Qualifications of the assessor. Provide the qualifications 
of the individual or entity that completed the assessment. If the 
Energy Assessment for a project with Total Project Costs of $80,000 
or less is not conducted by Energy Auditor or Energy Assessor, then 
the individual or entity must have at least 3 years of experience 
and completed at least five Energy Assessments or Energy Audits on 
similar type projects.
    Section D--Qualifications. Provide a resume or other evidence of 
the contractor or installer's qualifications and experience with the 
proposed EEI technology. Any contractor or installer with less than 
2 years of experience may be required to provide additional 
information in order for the Agency to determine if they are 
qualified installer/contractor.

Appendix B to Subpart B of Part 4280--Technical Reports for Renewable 
Energy System (RES) Projects With Total Project Costs of Less Than 
$200,000, but More Than $80,000

    Provide the information specified in Sections A through D for 
each technical report prepared under this appendix. A Renewable 
Energy Site Assessment may be used in lieu of Sections A through C 
if the Renewable Energy Site Assessment contains the information 
requested in Sections A through C. In such instances, the technical 
report would consist of Section D and the Renewable Energy Site 
Assessment.

    Note:  If the Total Project Cost for the RES project is $80,000 
or less, this appendix does not apply. Instead, for such projects, 
please provide the information specified in Sec.  4280.119(b)(4).

    Section A--Project Description. Provide a description of the 
project, including its intended purpose and a summary of how the 
project will be constructed and installed. Describe how the system 
meets the definition of Commercially Available. Identify the 
project's location and describe the project site.
    Section B--Resource Assessment. Describe the quality and 
availability of the renewable resource to the project. Identify the 
amount of Renewable Energy generated that will be generated once the 
proposed project is operating at its steady state operating level. 
If applicable, also identify the percentage of energy being replaced 
by the system.
    If the application is for a Bioenergy Project, provide 
documentation that demonstrates that any and all woody biomass 
feedstock from National Forest System land or public lands cannot be 
used as a higher value wood-based product.
    Section C--Project Economic Assessment. Describe the projected 
financial performance of the proposed project. The description must 
address Total Project Costs, energy savings, and revenues, including 
applicable investment and other production incentives accruing from 
Government entities. Revenues to be considered shall accrue from the 
sale of energy, offset or savings in energy costs, and byproducts. 
Provide an estimate of Simple Payback, including all calculations, 
documentation, and any assumptions.
    Section D--Project Construction and Equipment Information. 
Describe how the design, engineering, testing, and monitoring are 
sufficient to demonstrate that the proposed project will meet its 
intended purpose, ensure public safety, and comply with applicable 
laws, regulations, agreements, permits, codes, and standards. 
Describe how all equipment required for the RES is available and 
able to be procured and delivered within the proposed project 
development schedule. In addition, present information regarding 
component warranties and the availability of spare parts.
    Section E--Qualifications of Key Service Providers. Describe the 
key service providers, including the number of similar systems 
installed and/or manufactured, professional credentials, licenses, 
and relevant experience. When specific numbers are not available for 
similar systems, estimations will be acceptable.

Appendix C to Subpart B of Part 4280--Technical Reports for Renewable 
Energy System (RES) Projects With Total Project Costs of $200,000 and 
Greater

    Provide the information specified in Sections A through G for 
each technical report prepared under this appendix. Provide the 
resource assessment under Section C that is applicable to the 
project.
    Section A--Qualifications of the Project Team. Describe the 
project team, their professional credentials, and relevant 
experience. The description shall support that the project team key 
service providers have the necessary professional credentials, 
licenses, certifications, and relevant experience to develop the 
proposed project.
    Section B--Agreements and Permits. Describe the necessary 
agreements and permits (including any for local zoning requirements) 
required for the project and the anticipated schedule for securing 
those agreements and permits. For example, Interconnection 
Agreements and Power Purchase Agreements are necessary for all 
Renewable Energy projects electrically interconnected to the utility 
grid.?>
    Section C--Resource Assessment. Describe the quality and 
availability of the renewable resource and the amount of Renewable 
Energy generated through the deployment of the proposed system. For 
all Bioenergy Projects, except Anaerobic Digesters Projects, 
complete Section C.3 of this appendix. For Anaerobic Digester 
Projects, complete Section C.6 of this appendix.
    1. Wind. Provide adequate and appropriate data to demonstrate 
the amount of renewable resource available. 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.
    2. Solar. Provide adequate and appropriate data to demonstrate 
the amount of renewable resource available. Indicate the source of 
the solar data and assumptions.
    3. Bioenergy Project. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the Renewable 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. Document 
that any and all woody biomass feedstock from National Forest System 
land or public lands cannot be used as a higher value wood-based 
product.
    4. Geothermal Electric Generation. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. 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.
    5. Geothermal Direct Generation. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. 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

[[Page 78285]]

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.
    6. Anaerobic Digester Project. Provide adequate and appropriate 
data to demonstrate the amount of renewable resource available. 
Indicate the substrates used as digester inputs, including animal 
wastes or other Renewable Biomass 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.
    7. Hydrogen Project. Provide adequate and appropriate data to 
demonstrate the amount of renewable resource available. Indicate the 
type, quantity, quality, and seasonality of the Renewable Biomass 
resource. For solar, wind, or geothermal sources of energy used to 
generate hydrogen, indicate the 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.
    8. Hydroelectric/Ocean Energy Projects. Provide adequate and 
appropriate data to demonstrate the amount of renewable resource 
available. Indicate the quality of the resource, including 
temperature (if applicable), flow, and sustainability of the 
resource, including a summary of the resource evaluation process and 
the specifications of the measurement setup and the date and 
duration of the evaluation process and proximity to the proposed 
site. If less than 1 year of data is used, a Qualified Consultant 
must provide a detailed analysis of the correlation between the site 
data and a nearby, long-term measurement site.
    Section D--Design and Engineering. Describe the intended purpose 
of the project and the design, engineering, testing, and monitoring 
needed for the proposed project. The description shall support that 
the system will be designed, engineered, tested, and monitored so as 
to meet its intended purpose, ensure public safety, and comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. In addition, identify that all major equipment is 
Commercially Available, including proprietary equipment, and justify 
how this unique equipment is needed to meet the requirements of the 
proposed design. In addition, information regarding component 
warranties and the availability of spare parts must be presented.
    Section E--Project Development. Describe the overall project 
development method, including the key project development activities 
and the proposed schedule, including proposed dates for each 
activity. The description shall identify each significant historical 
and projected activity, its beginning and end, and its relationship 
to the time needed to initiate and carry the activity through to 
successful project completion. The description shall address 
Applicant project development cash flow requirements. Details for 
equipment procurement and installation shall be addressed in Section 
F of this appendix.
    Section F--Equipment Procurement and Installation. Describe the 
availability of the equipment required by the system. The 
description shall support that the required equipment is available 
and can be procured and delivered within the proposed project 
development schedule. Describe the plan for site development and 
system installation, including any special equipment requirements. 
In all cases, the system or improvement shall be installed in 
conformance with manufacturer's specifications and design 
requirements, and comply with applicable laws, regulations, 
agreements, permits, codes, and standards.
    Section G--Operations and Maintenance. Describe the operations 
and maintenance requirements of the system, including major rebuilds 
and component replacements necessary for the system to operate as 
designed over its useful life. The warranty must cover and provide 
protection against both breakdown and a degradation of performance. 
The performance of the RES or EEI shall be monitored and recorded as 
appropriate to the specific technology.

    Dated: December 17, 2014.
Lisa Mensah,
Under Secretary, Rural Development.
[FR Doc. 2014-30133 Filed 12-24-14; 8:45 am]
BILLING CODE 3410-XY-P