Source: http://thefederalregister.com/2009/12/04/E9-28883.html
Timestamp: 2019-06-19 23:13:41
Document Index: 370135624

Matched Legal Cases: ['art 609', 'ART 609', '§ 609', '§ 609', '§ 609', '§ 609', '§ 609']

Federal Register | Loan Guarantees for Projects That Employ Innovative Technolog
SUMMARY: On August 7, 2009, the Department of Energy (DOE or the Department) published a Notice of Proposed Rulemaking and Opportunity for Comment (NOPR) to make certain changes to the existing regulations for the loan guarantee program authorized by Section 1703 of Title XVII of the Energy Policy Act of 2005 (Title XVII or the Act). Section 1703 of Title XVII authorizes the Secretary of Energy (Secretary) to make loan guarantees for projects that "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued." Section 1703 of Title XVII also identifies ten categories of technologies and projects that are potentially eligible for loan guarantees. The two principal goals of section 1703 of Title XVII are to encourage commercial use in the United States of new or significantly improved energy-related technologies and to achieve substantial environmental benefits. DOE believes that commercial use of these technologies will help sustain and promote economic growth, produce a more stable and secure energy supply and economy for the United States, and improve the environment.
FOR FURTHER INFORMATION CONTACT: David G. Frantz, Director, Loan Guarantee Program Office, 1000 Independence Avenue, SW., Washington, DC 20585-0121, e-mail:lgprogram@hq.doe.gov;or Susan S. Richardson, Chief Counsel for the Loan Guarantee Program, Office of the General Counsel, 1000 Independence Avenue, SW., Washington, DC 20585-0121, e-mail:lgprogram@hq.doe.gov.
SUPPLEMENTARY INFORMATION: I. Introduction and Background II. Public Comments on the NOPR and DOE's Responses A. Definition of Eligible Project B. Definition of Intercreditor Agreement C. Shorter Amortization for Non-Guaranteed Obligations D. Opposition to the Rule Change III. Regulatory Review A. Executive Order 12866 B. National Environmental Policy Act of 1969 C. Regulatory Flexibility Act D. Paperwork Reduction Act E. Unfunded Mandates Reform Act of 1995 F. Treasury and General Government Appropriations Act, 1999 G. Executive Order 13132 H. Executive Order 12988 I. Treasury and General Government Appropriations Act, 2001 J. Executive Order 13211 K. Congressional Notification L. Approval by the Office of the Secretary of Energy I. Introduction and Background
Today's final rule amends the regulations implementing the loanguarantee program authorized by section 1703 of Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511-16514) (referred to as Title XVII). Section 1703 of Title XVII authorizes the Secretary of Energy (Secretary), after consultation with the Secretary of the Treasury, to make loan guarantees for projects that “(1) avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and (2) employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.” (42 U.S.C. 16513(a))
Moreover, in reviewing applications for projects seeking a loan guarantee under section 1703 of Title XVII, DOE became aware that its original reading of the statute was in tension with the financing structure of many commercial transactions in the energy sector. For example, the tenancy in common ownership structure proposed for the next generation of nuclear generating facilities, under which multiple entities own undivided interests in a single facility, does not lend itself to the unitary project ownership anticipated by the regulations. In fact, tenancy in common is the typical form of ownership of utility grade power plants that are jointly owned by public power agencies, cooperative power systems and investor-owned utilities. Approximately one-third of all currently operating nuclear power reactors, and approximately one-third of all planned nuclear power reactors for which applications are pending at the Nuclear Regulatory Commission are jointly owned through tenancies in common. As such, each owner holds an undivided interest in the physical project assets, and each owner typically finances its investment in the project separately. In this scenario, DOE would not be guaranteeing a direct loan to a project company, and may be guaranteeing the loan obligations of only some but not all of the project owners. As a result, it may not be commercially feasible to obtain a lien on all project assets. Moreover, in certain circumstances, both in large infrastructure projects and in smallerprojects, creditworthy sponsors may be willing to offer a corporate lending structure in which DOE would rely on the balance sheet of the sponsor. In such a case, the credit of the sponsor may be sufficient to support a more modest pledge of assets.
Additionally, in response to prior solicitations, DOE has received expressions of interest from Export Credit Agencies (ECAs) concerning their possible participation in eligible projects as co-lenders, co-guarantors or insurers of loans. ECAs are governmental, quasi-governmental, or private institutions supported by and acting on behalf of their host governments that facilitate financing for home country exporters doing business in other nations. In addition to ECAs, there is a variety of other potential sources of financing for power generation projects, including municipal bond financing. There also could be interest rate or commodity hedging agreements and, after completion, working capital facilities for project companies. The ECAs, and likely the other sources of financing, will expect to share, on apari passubasis, in collateral pledged to secure the borrower's debt obligations.
Thus, the interpretation of the statute contained in the October 23, 2007, final rule effectively disqualifies from participation in Title XVII programs proposed energy production facilities that employ innovative technologies that are jointly owned through a tenants in common structure or where there are appropriate co-lenders or co-guarantors who require apari passustructure. DOE does not believe that a statute intended to encourage commercial use in the United States of new or significantly improved energy-related technologies would be written in a way as to make ineligible such industry participants.
As stated and explained above, DOE has concluded that section 1702 of Title XVII does not mandate that DOE receive a first lien position on all projects assets. In light of this interpretation of section 1702 of Title XVII, DOE is issuing this final rule which amends the existing regulations. Specifically, to ensure that the loan guarantee program has the ability to respond to the kinds of structuring issues discussed above, this final rule deletes the requirement of a first priority lien on all project assets (and other pledged collateral) and leaves to the Secretary the determination of an appropriate collateral package, as well as intercreditor arrangements. Such a determination by the Secretary is contemplated by sections 1702(a) and 1702(g)(2)(C), and remains subject to the requirement of section 1702(d)(3) that the guaranteed obligation not be subordinate to other financing. The Department believes that having the flexibility to determine on a project-by-project basis the scope of the collateral package and whetherpari passulending is in the best interests of the United States, will enable the Department to reduce its exposure on individual projects, diversify its portfolio and maximize the benefits of the resources available for the loan guarantee program.
Public Comments:Section 609.2 of the regulations defines “Eligible Project” to mean “a project located in the United States that employs a New or Significantly Improved Technology that is not a Commercial Technology, and that meets all applicable requirements of section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation and this part.” Several commenters expressed the view that this definition should be amended to clarify that an “Eligible Project” may include an undivided interest (i.e., interest held as a tenant in common) in a project or facility. As mentioned in the preamble, tenancy in common is the typical form of ownership of utility grade power plants that are jointly owned by public power agencies, cooperative power systems and investor-owned utilities.
DOE Response:DOE notes that the term “project”, which is used in the definition of “Eligible Project”, is not defined in Title XVII. DOE believes that the term “project” should be given its plain meaning to include any “planned undertaking”, which would include any project consisting of an undivided interest (i.e., interest held as a tenant in common) in project assets or facilities. As such, DOE believes that it is unnecessary to amend the definition of “Eligible Project” to include any text referring to “undivided interest”, “tenancy in common” or the like. However, DOE has adjusted the rule text in Sections 609.4(b) and 609.6(b)(5) of the regulations to clarify that applicants may submit project proposals with respect to their undivided ownership interests in project assets or facilities.
Public Comments:Several commenters proposed technical changes to the definition of “Intercreditor Agreement” based on a concern that the definition may have been drafted too narrowly to accomplish one of the stated purposes of the rule change, which is to provide DOE with flexibility in the determination of appropriate collateral sharing and related intercreditor arrangements with other project lenders.
DOE Response:DOE has carefully reviewed these proposed technical changes and, based on these comments as well as DOE's further review, has made technical adjustments to the definition of “Intercreditor Agreement”. DOE believes that the modified definition of “Intercreditor Agreement”, as reflected in this final rule, provides the necessary flexibility to DOE while protecting the interests of the United States by requiring that any such agreement be “in form and substance satisfactory to DOE”.
Public Comments:Section 609.10(d)(6) of the regulations provides that “[t]he non-guaranteed portion of any Guaranteed Obligation must be repaid on a pro-rata basis, and may not be repaid on a shorter amortization schedule than the guaranteed portion.” Several commenters expressed concern that this provision may prevent certaincredit providers, including Export Credit Agencies (ECAs) and other financial institutions, from participating in financings of Eligible Projects if such institutions require repayment on a shorter amortization schedule than the DOE-guaranteed loan. As indicated in the preamble, there exists a variety of potential sources of financing for power generation projects, including, but not limited to, ECAs.
DOE Response:DOE has carefully reviewed this issue and recognizes that there may be a diversity of appropriate financing arrangements and circumstances, including but not limited to participation by ECAs and other financial institutions, for the types of projects potentially eligible for DOE loan guarantees. DOE also recognizes that increasing the number of financial institutions that can participate in financings of Eligible Projects may have the effect of diversifying project-related risks. Accordingly, DOE has made adjustments to the text of Section 609.10(d)(6) of the regulations to permit shorter or faster amortization schedules for project-related financing or other credit arrangements (other than the Guaranteed Obligation), if DOE determines that the resulting financing structure of the project (1) allocates to DOE a reasonably proportionate share of the default risk, in light of (i) DOE's share of the total project financing, (ii) risk allocation among the credit providers, and (iii) internal and external credit enhancements; and (2) is appropriate to assure reasonable prospect of repayment of the principal of and interest on the DOE Guaranteed Obligation and to protect the interests of the United States in the case of default.
Public Comments:DOE received comments from a number of commenters opposed to the development of nuclear energy in general. These commenters expressed concern that the rule change appears to be promulgated with only one interest in mind—that of the nuclear power industry—and are opposed to the rule change. These commenters also expressed concern that the rule change will add unnecessary risk, such as the risk that taxpayers' money will be lost by “waiving” DOE's first lien rights to collateral.
DOE Response:As explained in this preamble, DOE has concluded that section 1702 of Title XVII does not mandate that DOE receive a first lien position on all projects assets, and it is in light of this interpretation of section 1702 of Title XVII that DOE is issuing this final rule. DOE believes that the rule change, as reflected in this final rule, is correct as a matter of statutory interpretation and will facilitate the implementation of section 1703 of Title XVII.
(2) DOE believes that, in the preamble to the NOPR and above, it has adequately explained its reasoning behind the rule change, including why the interpretations and rationales provided in the preamble to the 2007 final rule were incorrect. Additionally, DOE believes that its straightforward interpretation of the Act, as expressed in this final rule, renders unnecessary the convoluted reasoning in the preamble to the 2007 final rule which concluded that whilepari passuliens on project assets are prohibited by the statute, DOE may nevertheless agree to share the proceeds of collateral in apari passumanner as long as DOE controls the disposition of all project assets. Under that strained reasoning, DOE may enter into intercreditor or other arrangements to share proceeds from the sale of project collateral with lenders or other holders of the non-guaranteed portion of the DOE-guaranteed loan facility, but without explanation as to why co-lenders or co-guarantors who provide separate credit facilities and do not participate in the DOE-guaranteed loan facility are excluded from making anysuch intercreditor or other arrangements;
With respect to the comment from the environmental group regarding the plain meaning of section 1702(d)(3), DOE notes that the plain meaning of “not X” does not necessarily mean the antonym or opposite of “X”. For example, the phrase “not less than” does not simply mean “greater than” but should more properly be understood to mean “equal to or greater than.” DOE believes that apari passu(a Latin term meaning “with equal step”) obligation is not a subordinate or inferior obligation.
III. Regulatory Review A. Executive Order 12866
The Regulatory Flexibility Act (5 U.S.C. 601et seq.) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990). DOE has made its procedures and policies available on the Office of the General Counsel's Web site:http://www.gc.doe.gov.
Title II of the Unfunded Mandates Reform Act of 1995 (Act) (2 U.S.C. 1531et seq.) requires each Federal agency, to the extent permitted by law, to prepare a written assessment of the effects of any Federal mandate in an agency rule that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. The Act also requires a Federal agency to develop an effective process to permit timely input by elected officials of State, Tribal, or local governments on a proposed “significant intergovernmental mandate,” and requires an agency plan for giving notice and opportunity to provide timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect small governments.
The term “Federal mandate” is defined in the Act to mean a Federal intergovernmental mandate or a Federal private sector mandate (2 U.S.C. 658(6)). Although the rule will impose certain requirements on non-Federal governmental and private sector applicants for loan guarantees, the Act's definitions of the terms “Federal intergovernmental mandate” and “Federal private sector mandate” exclude, among other things, any provision in legislation, statute, or regulation that is a condition of Federal assistance or a duty arising from participation in a voluntary program (2 U.S.C. 658(5) and (7), respectively). Today's final rule establishes requirements that persons voluntarily seeking loan guarantees for projects that would use certain new and improved energy technologies must satisfy as a condition of a Federal loan guarantee. Thus, this final rule falls under the exceptions in the definitions of “Federal intergovernmental mandate” and “Federal private sector mandate” for requirements that are a condition ofFederal assistance or a duty arising from participation in a voluntary program. The Act does not apply to this rulemaking.
Administrative practice and procedure, Energy, Loan programs, and Reporting and recordkeeping requirements.
Issued in Washington, DC, on November 30, 2009. Steve Isakowitz, Chief Financial Officer. For the reasons stated in the preamble, chapter II of title 10 of the Code of Federal Regulations is amended by revising part 609 to read as follows: PART 609—LOAN GUARANTEES FOR PROJECTS THAT EMPLOY INNOVATIVE TECHNOLOGIES Sec. 609.1 Purpose and scope. 609.2 Definitions. 609.3 Solicitations. 609.4 Submission of Pre-Applications. 609.5 Evaluation of Pre-Applications. 609.6 Submission of Applications. 609.7 Programmatic, technical and financial evaluation of Applications. 609.8 Term Sheets and Conditional Commitments. 609.9 Closing on the Loan Guarantee Agreement. 609.10 Loan Guarantee Agreement. 609.11 Lender eligibility and servicing requirements. 609.12 Project costs. 609.13 Principal and interest assistance contract. 609.14 Full faith and credit and incontestability. 609.15 Default, demand, payment, and collateral liquidation. 609.16 Perfection of liens and preservation of collateral. 609.17 Audit and access to records. 609.18 Deviations. Authority:
(a) This part sets forth the policies and procedures that DOE uses for receiving, evaluating, and, after consultation with the Department of the Treasury, approving applications forloan guarantees to support Eligible Projects under Section 1703 of Title XVII of the Energy Policy Act of 2005, as amended.
Actmeans Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511-16514), as amended.
Administrative Cost of Issuing a Loan Guaranteemeans the total of all administrative expenses that DOE incurs during:
Applicantmeans any person, firm, corporation, company, partnership, association, society, trust, joint venture, joint stock company, or other business entity or governmental non-Federal entity that has submitted an Application to DOE and has the authority to enter into a Loan Guarantee Agreement with DOE under the Act.
Applicationmeans a comprehensive written submission in response to a solicitation or a written invitation from DOE to apply for a loan guarantee pursuant to § 609.6 of this part.
Borrowermeans any Applicant who enters into a Loan Guarantee Agreement with DOE and issues Guaranteed Obligations.
Commercial Technologymeans a technology in general use in the commercial marketplace in the United States at the time the Term Sheet is issued by DOE. A technology is in general use if it has been installed in and is being used in three or more commercial projects in the United States in the same general application as in the proposed project, and has been in operation in each such commercial project for a period of at least five years. The five-year period shall be measured, for each project, starting on the in service date of the project or facility employing that particular technology. For purposes of this section, commercial projects include projects that have been the recipients of a loan guarantee from DOE under this part.
Conditional Commitmentmeans a Term Sheet offered by DOE and accepted by the Applicant, with the understanding of the parties that if the Applicant thereafter satisfies all specified and precedent funding obligations and all other contractual, statutory and regulatory requirements, or other requirements, DOE and the Applicant will execute a Loan Guarantee Agreement: Provided that the Secretary may terminate a Conditional Commitment for any reason at any time prior to the execution of the Loan Guarantee Agreement; and Provided further that the Secretary may not delegate this authority to terminate a Conditional Commitment.
Contracting Officermeans the Secretary of Energy or a DOE official authorized by the Secretary to enter into, administer and/or terminate DOE Loan Guarantee Agreements and related contracts on behalf of DOE.
Credit Subsidy Costhas the same meaning as “cost of a loan guarantee” in section 502(5)(C) of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time the Loan Guarantee Agreement is executed, of the following estimated cash flows, discounted to the point of disbursement:
DOEmeans the United States Department of Energy.
Eligible lendermeans:
Eligible projectmeans a project located in the United States that employs a New or Significantly Improved Technology that is not a Commercial Technology, and that meets all applicable requirements of section 1703 of the Act (42 U.S.C. 16513), the applicable solicitation and this part.
Equitymeans cash contributed by the Borrowers and other principals. Equity does not include proceeds from the non-guaranteed portion of Title XVII loans, proceeds from any other non-guaranteed loans, or the value of any form of government assistance or support.
Federal Financing Bankmeans an instrumentality of the United States government created by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281et seq). The Bank is under the general supervision of the Secretary of the Treasury.
Guaranteed Obligationmeans any loan or other debt obligation of the Borrower for an Eligible Project for which DOE guarantees all or any part of the payment of principal and interest under a Loan Guarantee Agreement entered into pursuant to the Act.
Holdermeans any person or legal entity that owns a Guaranteed Obligation or has lawfully succeeded in due course to all or part of the rights, title, and interest in a Guaranteed Obligation, including any nominee or trustee empowered to act for the Holder or Holders.
Intercreditor Agreementmeans any agreement or instrument among DOE and one or more other persons providing financing or other credit arrangements or that otherwise provides for rights of DOE, in each case, in form and substance satisfactory to DOE and entered into or accepted by DOE in connection with a DOE loan guarantee upon a determination by DOE that such agreement or instrument is reasonable and necessary to protect the interests of the United States, and addressing such matters as collateral sharing, priorities (subject always to Section 1702(d)(3) of Title XVII) and voting rights among creditors and other intercreditor arrangements, as such agreement or instrument may be amended ormodified from time to time with the consent of DOE.
Loan Agreementmeans a written agreement between a Borrower and an Eligible Lender or other Holder containing the terms and conditions under which the Eligible Lender or other Holder will make loans to the Borrower to start and complete an Eligible Project.
Loan Guarantee Agreementmeans a written agreement that, when entered into by DOE and a Borrower, an Eligible Lender or other Holder, pursuant to the Act, establishes the obligation of DOE to guarantee the payment of all or a portion of the principal and interest on specified Guaranteed Obligations of a Borrower to Eligible Lenders or other Holders subject to the terms and conditions specified in the Loan Guarantee Agreement.
New or Significantly Improved Technologymeans a technology concerned with the production, consumption or transportation of energy and that is not a Commercial Technology, and that has either:
OMBmeans the Office of Management and Budget in the Executive Office of the President.
Pre-Applicationmeans a written submission in response to a DOE solicitation that broadly describes the project proposal, including the proposed role of a DOE loan guarantee in the project, and the eligibility of the project to receive a loan guarantee under the applicable solicitation, the Act and this part.
Project costsmeans those costs, including escalation and contingencies, that are to be expended or accrued by Borrower and are necessary, reasonable, customary and directly related to the design, engineering, financing, construction, startup, commissioning and shakedown of an Eligible Project, as specified in § 609.12 of this part. Project costs do not include costs for the items set forth in § 609.12(c) of this part.
Project Sponsormeans any person, firm, corporation, company, partnership, association, society, trust, joint venture, joint stock company or other business entity that assumes substantial responsibility for the development, financing, and structuring of a project eligible for a loan guarantee and, if not the Applicant, owns or controls, by itself and/or through individuals in common or affiliated business entities, a five percent or greater interest in the proposed Eligible Project, or the Applicant.
Secretarymeans the Secretary of Energy or a duly authorized designee or successor in interest.
Term Sheetmeans an offering document issued by DOE that specifies the detailed terms and conditions under which DOE may enter into a Conditional Commitment with the Applicant. A Term Sheet imposes no obligation on the Secretary to enter into a Conditional Commitment.
United Statesmeans the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa or any territory or possession of the United States of America.
§ 609.4 Submission of Pre-Applications.
(vii) The manufacturer(s) and licensee(s), if any, authorized to make the technology available in the United States, the potential for replication ofcommercial use of the technology in the United States, and whether and how the technology is or will be made available in the United States for further commercial use;
§ 609.6 Submission of Applications.