Source: https://www.federalregister.gov/documents/2016/12/15/2016-30006/loan-guarantees-for-projects-that-employ-innovative-technologies
Timestamp: 2017-05-23 12:48:34
Document Index: 282615157

Matched Legal Cases: ['§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', 'art 1021', 'art 609', 'art 609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609', '§\u2009609']

:: Loan Guarantees for Projects That Employ Innovative Technologies
A Rule by the Energy Department on 12/15/2016
81 FR 90699
90699-90712
A. Competition With Potential Future Applications
B. Risk-Based Charge
C. Section 609.8(c)(2) and Section 609.8(c)(3)
https://www.federalregister.gov/d/2016-30006
Start Printed Page 90700
The Department of Energy (DOE or the Department) publishes a final rule to amend the existing regulations for the loan guarantee program authorized by Title XVII of the Energy Policy Act of 2005 (Title XVII or the Act). Section 1703 of Title XVII (section 1703) 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. Such projects must also employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued. The two principal goals of section 1703 are to encourage commercial use in the United States of new or significantly improved energy-related technologies and to achieve substantial environmental benefits. Section 1703 also identifies ten categories of technologies and projects that are potentially eligible for loan guarantees. Commercial use of these technologies is expected to help sustain and promote economic growth, produce a more stable and secure energy supply and economy for the United States, and improve the environment.
As a result of experience gained implementing the loan guarantee program authorized by section 1703, and information received from program participants, including applicants, borrowers, sponsors, and lenders, as well as various energy industry groups, DOE finalizes amendments to the existing regulations to provide increased clarity and transparency, reduce paperwork, and provide a more workable interpretation of certain statutory provisions in light of DOE's experience with operation of the Title XVII program.
Mark S. Westergard, Assistant Chief Counsel Regulatory Affairs, Loan Programs Office, United States Department of Energy, 1000 Independence Avenue SW., Washington, DC 20585-0121, (202) 287-5621, email: lgprogram@hq.doe.gov.
This final rule amends the regulations implementing the loan guarantee program authorized by 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 (section 1703) authorizes the Secretary of Energy (Secretary) 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)).
Section 1702 of Title XVII (section 1702) authorizes the Secretary, after consultation with the Secretary of the Treasury, to enter into loan guarantees on such terms and conditions as he or she determines to be appropriate, in accordance with the provisions of section 1702. Section 1702 also directs the Secretary to include in loan guarantees “such detailed terms and conditions as the Secretary determines appropriate to (i) protect the interests of the United States in the case of a default; and (ii) have available all the patents and technology necessary for any person selected, including the Secretary, to complete and operate the project.” (42 U.S.C. 16512(g)(2)(c)).
On October 3, 2016, the Department published a proposed rule and request for comment on amendments to the regulations for the Title XVII loan guarantee program. (81 FR 67924) The proposed rule also provides additional background on DOE's experience in implementing the loan guarantee program and the history of its implementing regulations. In this final rule, DOE adopts the changes set forth in the proposed rule, except where DOE made changes in consideration of comments received on the proposal. In Section II of this final rule, DOE summarizes the comments received, and provides its responses to those comments and a discussion of the changes made to the proposal in this final rule.
In this final rule, DOE adopts the proposed rule changes that clarify the circumstances under which potential applicants may communicate with DOE prior to submitting an application. DOE expects that the changes will increase transparency and result in more applications by qualified applicants with respect to potential eligible projects.
The final rule eliminates the pre-application process and codifies procedures that divide the application into two parts.
The final rule revises the definition of Eligible Project to explicitly state that a project may be located at two or more locations in the United States if the project is comprised of installations or facilities employing a single New or Significantly Improved Technology that is deployed pursuant to an integrated and comprehensive business plan.
The final rule provides for the use of Risk-Based Charges. Use of Risk-Based Charges is permitted pursuant to the grant of authority to the Secretary in Section 1702(a) to determine the terms and conditions of the Title XVII loan guarantee program.
The final rule increases clarity and transparency. For example: Definitions have been clarified, shortened where possible, and added; specific references to the Cargo Preference Act and the Davis Bacon Act have been added; an introductory section on how the rule is to be interpreted has been added; and various provisions of the existing rule have been re-organized to more-appropriate places in the rule.
DOE received comments on the proposed rule, which are summarized in Section II of this final rule. DOE also provides its responses and explains any changes to the proposal made in response to the comments received. (For additional background on DOE's experience in implementing the loan guarantee program and the history of its implementing regulations, please see the proposed rule.)
Public comment: One commenter requests clarification and revision of the proposed changes in § 609.5(a) to the competitive process for evaluating completed Applications, which would require completed Applications to be evaluated against potential projects that may become the subject of an Application. The commenter is concerned that the proposed changed will delay the Application process and put otherwise qualified projects in “limbo” while the DOE awaits the filing of Applications that may be filed on other projects. In the commenter's view, this may result in a longer and more opaque process, because fewer projects would be able to withstand the additional timing delays, as well as in greater market uncertainty about the DOE loan guarantee program.Start Printed Page 90701
DOE Response: DOE notes that applications are reviewed against all other applications filed within the same round. For that reason DOE does not believe the proposed change would delay the application process or put otherwise qualified projects in “limbo.” Nevertheless, DOE agrees that the proposed change could cause a more opaque process and market uncertainty regarding, among other matters, whether a project will be competed against potential projects that may become the subject of an application. The proposal to consider potential future Applications is inconsistent with competing filed Applications against all other Applications filed within the same round. For those reasons DOE has decided to withdraw the proposed change to the competitive process which would allow consideration of potential projects during the competition.
Public comments: Both commenters requested clarification regarding the “Risk-based-charge” which they believe is duplicative of other existing fees. The commenters urge DOE not to impose this additional fee on recipients of DOE's Title XVII loan guarantees.
One commenter also pointed out that the Title XVII loan guarantee program currently charges two fees to compensate DOE for the credit risk it assumes. First, the program charges a “Credit-Based Interest Rate Spread” based on the credit rating of the Applicant's project. Second, the program charges a “Credit Subsidy Fee” to directly compensate the United States for the specific credit risk of the applicant's project. The commenter requested clarification that the reference to a “Risk-based charge” means the “Credit Based Interest Rate Spread”, and that the program is not intending to impose a new fee and increase the interest rate spreads beyond the current spreads.
DOE Response: Section 1702(e) of Title XVII requires the Secretary to establish interest rates that do not exceed a level that the Secretary determines appropriate, taking into account the prevailing rate of interest in the private sector for similar loans and risks. In the proposed rule, DOE proposed a “Risk-Based Charge” that, taking into account all interest and interest-related costs, is intended to make DOE's charges and costs consistent with the commercial markets and other federal credit programs. Thus, the Risk-Based Charge will be used only to the extent the aggregate of other interest-related charges do not sufficiently reflect creditworthiness or specific risks arising from individual transactions. The Risk-Based Charge, while distinct from the fee for the Credit Subsidy Cost, may incidentally affect that fee by increasing expected inflows to the United States that are considered in calculating the amount of the fee. In that respect, taking into account the time value of money, the Risk-Based Charge can be viewed as affecting the time of payment rather than the amount of payment based on the creditworthiness of the borrower and the expectations regarding probability of repayment. After factoring in the Risk-Based Charge, DOE does not expect the present value of the interest amounts expected to be paid by the borrower as the cost of the loan should be significantly different than the interest amounts that would be paid without the Risk-Based Charge.
Public comment: One commenter requested clarification of what it views as an apparent inconsistency between §§ 609.8(c)(2) and 609.8(c)(3) of the proposed rule. The commenter stated that § 609.8(c)(2) appears to require that the guaranteed and nonguaranteed portions of a loan partially guaranteed by DOE be repaid pro rata, and on the same amortization schedule. Section 609.8(c)(3) appears to the commenter to provide for exceptions to this requirement under certain conditions.
The commenter also requested that DOE modify § 609.8 to allow for commercial co-lenders to provide structured loan facilities that would have the same amortization schedule as the guaranteed portion of the facility but with a shorter loan tenor and a related refinancing requirement at maturity of the structured loan facility.
DOE Response: DOE does not view §§ 609.8(c)(2) and 609.8(c)(3) as inconsistent. Section 609.8(c)(2) deals with the guaranteed and nonguaranteed portions of loans partially guaranteed by DOE. Section 609.8(c)(3) deals with financing or credit arrangements not guaranteed by DOE.
The commenter's request for a shorter loan tenor in connection with certain commercial loan products is similar to a comment DOE received in response to a proposed rule to amend the Title XVII regulations published in 2009. (74 FR 39569, Aug. 7, 2009) In the final rule, published on December 4, 2009, DOE made adjustments, retained by the proposed rulemaking and subject to the same conditions set forth in the current rule, to permit shorter or faster amortization schedules for project-related financing or other credit arrangements not guaranteed by DOE. See 74 FR 63544, 63546, Section II.C. Shorter Amortization of Non-Guaranteed Obligations. DOE has reviewed the issue in response to the comment and has determined that the provisions established in the 2009 rule address the concern while at the same time protecting the interests of the United States. For that reason, DOE has determined that no change in the existing language of the final rule is warranted.
Other Changes: While reviewing the proposed rule in response to public comments, DOE found certain areas in the proposed rule that should be modified consistent with DOE's intent to increase transparency and clarity. On further consideration, DOE determined that its treatment of the prohibition in Section 149(b) of the Internal Revenue Code in § 609.8(c)(4) created ambiguity and made application of the provision more complicated. Therefore, DOE eliminated the changes in the proposed rule and restored the language of the existing rule to tie the rule to the requirements of law as they related to tax-exempt debt obligation financing. Finally, DOE clarified a provision relating to communications with applicants by deleting a sentence that was unclear and not required by law.
This final rule has been determined to be a significant regulatory action under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993). Accordingly, this action was subject to review under that Executive Order by the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB).
DOE has determined that this final rule is covered under the Categorical Exclusion found in DOE's National Environmental Policy Act regulations at paragraph A.5 of appendix A to subpart D, 10 CFR part 1021, which applies to rulemaking that amends an existing rule or regulation which does not change the environmental effect of the rule or regulation being amended.
The Regulatory Flexibility Act (5 U.S.C. 601 et 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 Start Printed Page 90702promulgated, 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 General Counsel's Web site: http://www.energy.gov/​gc/​downloads/​executive-order-13272-consideration-small-entities-agency-rulemaking.
DOE is not obligated to prepare a regulatory flexibility analysis for this rulemaking because there is not a requirement to publish a general notice of proposed rulemaking for rules related to loans under the Administrative Procedure Act (5 U.S.C. 553(a)(2)).
Information collection requirements for the DOE regulations at 10 CFR part 609 have been submitted for approval to OMB pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and the procedure implementing that Act (5 CFR 1320.1 et seq.) under OMB Control Number 1910-5134. The revised recordkeeping and reporting requirements associated with this rulemaking are not mandatory until the information collection is approved by OMB.
Public reporting burden for the revised requirements in this final rule is estimated to average 130 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. All responses are expected to be collected electronically.
Notwithstanding any other provision of law, a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.
The Unfunded Mandates Reform Act of 1995 (Act) (Pub. L. 104-4) generally requires Federal agencies to examine closely the impacts of regulatory actions on State, local, and tribal governments. The term “Federal mandate” is defined in the Act to mean a Federal intergovernmental mandate or a Federal private sector mandate. Although the final rule would 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. The final rule would establish 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, the final rule falls under the exceptions in the definitions of “Federal intergovernmental mandate” and “Federal private sector mandate” for requirements that are a condition of Federal assistance or a duty arising from participation in a voluntary program. The Act does not apply to this rulemaking.
Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule that may affect family well-being. The final rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.
Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. DOE has examined this final rule and has determined that it would not preempt State law and would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. No further action is required by Executive Order 13132.
Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that Start Printed Page 90703promulgated or is expected to lead to promulgation of a final rule, and that: (1) Is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. This regulatory action would not have a significant adverse effect on the supply, distribution, or use of energy and has not been designated by OIRA as a significant energy action, and is therefore not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects.
For the reasons stated in the preamble, DOE revises part 609 of chapter II of title 10 of the Code of Federal Regulations as set forth below:
Application means a written submission of materials responsive to a Solicitation that satisfies § 609.4.
Conditional Commitment means a Term Sheet offered by DOE and accepted by the offeree of the Term Sheet, all in accordance with § 609.6(c); 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.
Credit Subsidy Cost has the same meaning as “cost of a loan guarantee” in section 502(5)(C) of the Federal Credit Reform Act of 1990, which is the net present value, at the time the Start Printed Page 90704Loan Guarantee Agreement is executed, of the following estimated cash flows, discounted to the point of disbursement:
Project Costs mean those costs, including escalation and contingencies, that are to be expended or accrued by a 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 § 609.10(a). Project Costs do not include costs for the items set forth in § 609.10(b).
Secretary means the Secretary of Energy or a duly authorized designee or successor in interest.Start Printed Page 90705
Solicitation means an announcement that DOE is accepting Applications that is widely disseminated to the public on the DOE Web site or otherwise, and which satisfies the requirements of § 609.3(b).
(c) Using procedures as may be announced by DOE a potential Applicant may request a meeting with DOE to discuss its potential Application. At its discretion, DOE may meet with a potential Applicant, either in person or electronically, to discuss its potential Application. DOE may provide a potential Applicant with a preliminary response regarding whether its proposed Application may constitute an Eligible Project. DOE's responses to questions from potential Applicants and DOE's statements to potential Applicants are pre-decisional and preliminary in nature. Any such responses and statements are subject in their entirety to any final action by DOE with respect to an Application submitted in accordance with § 609.4.
(7) A detailed description of the engineering and design contractor(s), construction contractor(s), and equipment supplier(s);Start Printed Page 90706
(d) During the Application evaluation process pursuant to § 609.5, DOE may request additional information, potentially including a preliminary credit rating or credit assessment, with respect to the proposed project.
(h) Upon making a determination to engage independent consultants or outside counsel with respect to an Application, DOE will proceed to evaluate and process such Application only following execution by an Applicant or Project Sponsor, as appropriate, of an agreement satisfactory Start Printed Page 90707to DOE to pay the fees and expenses charged by the independent consultants and outside legal counsel.
§ 609.5 Programmatic, technical and financial evaluation of applications.
(c) After DOE completes its review and evaluation of a proposed project pursuant to § 609.5(b) and this part, DOE will notify the Applicant in writing of its determination whether to proceed with due diligence and negotiation of a Term Sheet in accordance with § 609.6. DOE will proceed only if it determines that the proposed project is highly qualified and suitable for a Guarantee. Upon written confirmation from the Applicant that it desires to proceed, DOE and the Applicant will commence negotiations.
§ 609.6 Term sheets and conditional commitments.
(b) DOE shall terminate its negotiations of a Term Sheet if it has not offered a Term Sheet in respect of an Start Printed Page 90708Eligible Project within four years after the date of the written notification set forth in § 609.5(c), unless extended in writing in the discretion of the Contracting Officer.
§ 609.7 Closing on the loan guarantee agreement.
(2) Pursuant to section 1702(h) of the Act, DOE has received from the Applicant the remainder of the Facility Fee referred to in § 609.11(b);
(6) Each holder of the Guaranteed Obligations is an Eligible Lender, and the servicer of the Guaranteed Obligations meets the servicing performance requirements of § 609.9(b);
§ 609.8 Loan guarantee agreement.
(5) The principal amount of the Guaranteed Obligations, when combined with funds from other sources Start Printed Page 90709committed and available to the Borrower, shall be sufficient to pay for expected Project Costs (including adequate contingency amounts), the applicable items specified in § 609.10(b), and otherwise to carry out the Eligible Project;
(e)(1) An Eligible Lender or other Holder may sell, assign or transfer a Guaranteed Obligation to another Eligible Lender that meets the requirements of § 609.9. Such latter Eligible Lender shall be required to assume all servicing, monitoring and reporting requirements as provided in the Loan Guarantee Agreement. Any transfer of the servicing, monitoring, and reporting functions shall be subject to the prior written approval of DOE.
§ 609.9 Lender servicing requirements.
(2) During the operational phase, monitoring and servicing the Guaranteed Obligations and collection of the outstanding principal and accrued interest as well as undertaking to ensure that the collateral package Start Printed Page 90710securing the Guaranteed Obligations remains uncompromised; and
§ 609.10 Project costs.
(10) To the extent required by the Loan Guarantee Agreement and not intended or available for any cost referred to in § 609.10(b), costs of funding any reserve fund, including without limitation, a debt service reserve, a maintenance reserve, and a contingency reserve for cost overruns during construction; provided that proceeds of a Guaranteed Loan deposited to any reserve fund shall not be removed from such fund except to pay Project Costs, to pay principal of the Guaranteed Loan, or otherwise to be used as provided in the Loan Guarantee Agreement;
§ 609.11 Fees and charges.
(f) Each Applicant, Borrower or Project Sponsor, as applicable, shall be responsible for the payment of all fees and expenses charged by DOE's independent consultants and outside legal counsel in connection with an Application, Conditional Commitment or Loan Guarantee Agreement, as applicable. Upon making a determination to engage independent consultants or outside counsel with respect to an Application, DOE will proceed to evaluate and process such Application only following execution by an Applicant or Project Sponsor, as appropriate, of an agreement satisfactory to DOE to pay the fees and expenses charged by the independent consultants and outside legal counsel. Appropriate provisions regarding payment of such fees and expenses shall also be included in each Term Sheet and Loan Guaranty Agreement or, upon a determination by DOE, in other appropriate agreements.Start Printed Page 90711
§ 609.12 Full faith and credit and incontestability.
§ 609.13 Default, demand, payment, and foreclosure on collateral.
(g) No action taken by the Holder or its agent or designee in respect of any collateral will affect the rights of any person, including the Secretary, having an interest in the Guaranteed Obligations or other debt obligations, to pursue, jointly or severally, legal action against the Borrower or other liable Start Printed Page 90712persons, for any amounts owing in respect of the Guaranteed Obligation or other applicable debt obligations.
§ 609.14 Preservation of collateral.
§ 609.16 Deviations.
(ii) A supporting statement briefly describing one or more justifications for such deviation; or (iii) A determination by the Secretary in his discretion to undertake a deviation;
[FR Doc. 2016-30006 Filed 12-14-16; 8:45 am]