[Federal Register Volume 70, Number 136 (Monday, July 18, 2005)]
[Rules and Regulations]
[Pages 41264-41338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-13685]



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Part II





Department of Agriculture





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Rural Business-Cooperative Service



Rural Utilities Service



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7 CFR Part 4280



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

  Federal Register / Vol. 70, No. 136 / Monday, July 18, 2005 / Rules 
and Regulations  

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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA50


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

AGENCY: Rural Business-Cooperative Services, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Business-Cooperative Service (RBS) is establishing a 
program for making grants, loan guarantees, and direct loans to farmers 
and ranchers (agricultural producers) or rural small businesses to 
purchase renewable energy systems and make energy efficiency 
improvements. The Farm Security and Rural Investment Act of 2002 (2002 
Act) established the Renewable Energy Systems and Energy Efficiency 
Improvements Program under Title IX, Section 9006. This program will 
help farmers, ranchers, and rural small businesses to reduce energy 
costs and consumption.

EFFECTIVE DATE: This rule is effective July 18, 2005.

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

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

I. Authority
II. Background
III. Summary of Changes Since Proposal
    A. Applicant Eligibility
    B. Project Eligibility
    C. Funding, Matching Funds, and Terms of Loan
    D. Eligible Project Costs
    E. Application
    F. Documentation
    G. Evaluation of Applications
    H. Guaranteed Loan Processing and Servicing
    I. Construction Planning and Development
    J. Definitions
    K. Insurance
    L. Feasibility Studies
    M. Energy Audits
    N. Project Requirements After Construction
IV. Discussion of Comments
    A. Definitions
    B. Demonstrated Financial Need
    C. Applicant Eligibility
    D. Project Eligibility
    E. Application and Documentation
    F. Funding
    G. Evaluation/Scoring of Applications
    H. Guaranteed Loans
    I. Direct Loans
    J. Laws That Contain Other Compliance Requirements
    K. Construction Funding and Management
    L. Miscellaneous
V. Regulatory Information
    A. Paperwork Reduction Act
    B. Intergovernmental Review
    C. Regulatory Flexibility Act
    D. Civil Justice Reform
    E. National Environmental Policy Act
    F. Unfunded Mandates Reform Act
    G. Executive Order 13132, Federalism
    H. Executive Order 12866, Regulatory Planning and Review

I. Authority

    The Farm Security and Rural Investment Act of 2002 (Pub. L. 107-
171) (2002 Act) established the Renewable Energy Systems and Energy 
Efficiency Improvements Program under Title IX, Section 9006 (7 U.S.C. 
8106). The 2002 Act mandates that the Secretary of Agriculture create a 
program to make loans, loan guarantees, and grants to ``a farmer, 
rancher, or rural small business'' to purchase renewable energy systems 
and make energy efficiency improvements. This program implements this 
mandate.

II. Background

    On October 5, 2004, USDA proposed a loan and grant program for 
renewable energy systems and energy efficiency improvements under 
Section 9006 of the 2002 Farm Bill.
    In response to the Nation's immediate need for a reduction in 
reliance on foreign oil, and to address the increasing demand for 
readily available energy, the Agency is waiving the 30-day waiting 
period between publication of the rule and when it will take effect. 
Since publication of the proposed rule, energy prices have continued to 
rise at an aggressive rate, affecting the Nation at every level, due to 
international events, increasing demand, and low domestic inventories 
and refinery capacities. Allowing the earliest possible investment in 
renewable energy production systems and energy efficiency improvements 
will help the Nation address the current situation. Effecting the rule 
without the 30-day waiting period will provide maximum application time 
prior to the end of the fiscal year to ensure the greatest level of 
investment possible.
    The 9006 Grant Program has been operational since the 2003 fiscal 
year and the final rule makes only minor changes to the proposed rule 
and how the 9006 Grant Program has been operated before. As a result, 
grant applications are not expected to be disadvantaged by this rule's 
earlier implementation. Likewise, because the 9006 Guaranteed Loan 
Program is substantially modeled after the Business and Industry 
Guaranteed Loan Program and because the Final Rule makes only minor 
changes to the Proposed Rule, guaranteed loan applications are not 
expected to be disadvantaged by this rule's earlier implementation.
    For these reasons, the Agency finds that good cause exists for this 
rule's immediate implementation.

III. Summary of Changes Since Proposal

    The following paragraphs summarize the major changes in the final 
rule from the rule proposed on October 5, 2004.

A. Applicant Eligibility

    Under the final rule, a provision has been added that an applicant 
must have made satisfactory progress, as determined by the Agency, 
towards the completion of a previously funded project before it will be 
considered for subsequent funding.
    Small business headquarters may be in either a rural or non-rural 
area at the time of application and at the time of grant disbursement. 
Because the headquarters may be in either location, the proposed rule 
does not need to address this.

B. Project Eligibility

    A condition has been added to project eligibility that sites must 
be controlled by the agricultural producer or small business for the 
proposed financing term of any associated Federal loans or loan 
guarantees. This concept was in the proposed rule as part of the 
technical report requirements. The language has been modified 
concerning control of the system and the role of third parties for 
clarification, and concerning satisfactory sources of revenues.
    For guaranteed loans only, we have added capital improvements to an 
existing renewable energy system as an eligible project.

C. Funding, Matching Funds, and Terms of Loan

    Minimum Funding Levels. Under the final rule, minimum funding level 
for grants for energy efficiency improvement projects only has been 
reduced from $2,500 to $1,500. For guaranteed loans, the minimum 
funding level for all projects has been increased from $2,500 to $5,000 
(less any program grant amounts).

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    Maximum Funding Levels. For grants, the final rule clarifies that 
the $750,000 maximum applied on a per Federal fiscal year basis.
    Matching funds. Under the final rule, passive third-party 
contributions are acceptable matching funds for renewable energy system 
projects eligible for Federal production tax credits, provided the 
applicant meets the applicant eligibility requirements. The proposed 
rule did not address passive third-party contributions.
    Terms of Loan. The maximum term of a loan for equipment has been 
increased from 15 years to 20 years.
    The conditions used to determine whether a loan is sound have been 
modified to add renewable energy subsidies, incentives, tax credits, 
etc., and the borrower's overall credit quality.
    A principal plus interest repayment schedule is now permissible.

D. Eligible Project Costs

    The final rule includes the Technical Reports as an eligible cost. 
Modifications were made concerning the construction of a new facility.

E. Application

    Simplified Application Procedures. Under the final rule, for grants 
and direct loans, projects with total eligible project costs of 
$200,000 or less are eligible to submit simplified applications. The 
final rule provides specific criteria to determine if a project is 
eligible and certain conditions that must be agreed to by the 
applicant.
    For guaranteed loans, the final rule adopts the ``short form'' 
(Form RD 4279-1A) used in the Business and Industry Guaranteed Loan 
(B&I) Program. This form can be used by lenders for projects with total 
eligible project costs equal to or less than $600,000.
    Self-Scoring. Applicants are now required to conduct a self-
evaluation of their project using the same evaluation criteria that the 
Agency will use.

F. Documentation

    Technical Reports. The final rule incorporates a new set of 
technical reports for projects that qualify for simplified applications 
(see paragraph III E). These technical reports require less information 
than the technical reports presented in the proposed rule. For projects 
that do not qualify for simplified applications, the more detailed 
technical reports are required.
    Financial Information. For projects that qualify for and use 
simplified applications, there is much less financial information being 
requested.
    Interconnection Agreements. Applicants are not required to submit 
interconnection agreements with their applications, but instead are 
required to discuss the interconnection agreements, if applicable to 
their project.

G. Evaluation of Applications

    Significant changes were made to the evaluation of applications. 
These changes can be categorized as changes in the evaluation criteria 
and changes in the points awarded. The overall scoring was also 
modified to allow all projects the opportunity to score the same total 
number of points. The following summarizes most of the changes to the 
criteria between proposal and promulgation (changes in points are not 
presented for most criteria).
    1. The addition of a scoring criterion for the technical merit of 
proposed projects.
    2. The deletion of the management criterion.
    3. The addition of a scoring criterion for very small businesses.
    4. Modification of the criterion for small agricultural producers 
by reducing the gross market values at which points can be awarded.
    5. The addition of a scoring criterion for submitting simplified 
applications.
    6. Modification of the environmental benefits criterion by 
replacing ``health and sanitation'' with ``environmental goals'' as the 
basis for this criterion.
    7. The deletion of the cost-effectiveness criterion, which was 
incorporated into the new technical merit criterion.
    8. Awarding points for energy replacement, energy savings, or 
energy generation (at proposal, only energy replacement and energy 
generation were included) and by reducing the points available for 
energy generation projects from 20 to 10.
    9. Modifying the interest rate criterion to be consistent with the 
B&I program by reducing the rate from 1.75 percent to 1.5 percent above 
the prime rate.
    10. The addition of a scoring criterion that awards 5 points to an 
applicant's overall score if the applicant has not been approved to 
receive funds in the 2 previous Federal fiscal years.
    11. The replacement of the ``matching funds'' criterion for grants 
with a ``readiness'' criterion, which looks at the commitments an 
applicant has received for the matching funds from other sources 
instead of the amount of the matching funds already received from other 
sources.

H. Guaranteed Loan Processing and Servicing

    For guaranteed loans, the final rule tracks the B&I program more 
closely. The most important aspects that have changed are: (1) 
Expanding the universe of eligible lenders and (2) authorizing the use 
of multi-notes. Other changes included:
    Credit Quality. A provision has been added that guaranteed loans 
made under 7 CFR part 4280, subpart B must have at least parity with 
guaranteed loans made under the B&I program.
    In addition, a provision has been added that the current status of 
the appropriate renewable energy industry will be considered.
    Personal and Corporate Guarantees. Under the final rule, personal 
and corporate guarantees are not required from passive investors.

I. Construction Planning and Development

    In the final rule, 7 CFR 1924, subpart A has been replaced with 7 
CFR 1780, subpart C. Similarly, for equipment procurement, 7 CFR 1924, 
subpart A has been replaced with 7 CFR 3015.

J. Definitions

    Small Business. Several changes and modifications were made to this 
definition to be consistent with the Small Business Administration's 
(SBA's) definition, deleting the 500 or fewer employees and $20 million 
or less in total annual receipts cap, and including certain electric 
utilities. Nonprofit entities that meet SBA's definition of ``small 
business'' are now allowed.
    Demonstrated Financial Need. The major change to this definition 
was the addition of a ``cashflow'' test.
    New Definitions. The final rule adds definitions for each of the 
renewable technologies and the following terms:
    Design/build project development method.
    Energy assessment.
    Energy assessor.
    Energy auditor.
    Feasibility study.
    Necessary capital improvement.
    Passive investor.
    Post application.
    Qualified consultant.
    Qualified party.
    Simplified application.
    Used equipment.
    Very small business.
    Modified Definitions. The definitions of some terms were modified 
slightly to be consistent with the definition for those terms in the 
B&I program. Definitions that were modified include:
    Applicant.
    Commercially available.
    Energy efficiency improvement.
    Interim financing.
    Renewable energy.

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    Renewable energy system.
    Deleted Definitions. Several definitions that were identical to the 
definitions in the B&I program were deleted and are incorporated by 
reference.

K. Insurance

    Projects with total eligible project costs of $200,000 or less are 
not required to carry business insurance.

L. Feasibility Studies

    Under the proposed rule, business-level feasibility studies 
(referred to as project-specific feasibility studies in the proposed 
rule) were required for all renewable energy projects exceeding 
$100,000 in costs. Under the final rule, business-level feasibility 
studies for renewable energy projects will be required for those 
projects whose total eligible project costs are greater than $200,000.

M. Energy Audits

    Under the proposed rule, energy audits were required for energy 
efficiency improvement projects with costs greater than $100,000. Under 
the final rule, energy audits are required for energy efficiency 
improvement projects with total eligible energy costs greater than 
$50,000.

IV. Discussion of Comments

    Over 60 comment letters were received from a variety of commenters. 
The most comment letters were received from various trade organizations 
and industry groups (over 15 letters) and from State agencies and 
organizations (over 15 letters). Various public interest groups 
submitted approximately 11 letters, while financial institutions 
(credit bureaus and banks) submitted 8 letters. Letters were also 
received from private individuals, towns and cities, and one 
Congressman.
    The following paragraphs summarize the comments and our responses 
to those comments. Twenty-one responses do not require a response under 
5 U.S.C. 553. These responses involve various nonregulatory matters 
such as expressing support for the program or requesting additional 
information. Several responses were outside the scope of the regulation 
and made suggestions that would require changes to other USDA and non-
USDA regulations or internal agency administrative matters. For these 
and similar reasons, these responses are not addressed in this section.

A. Definitions

Applicant
    Comment: One commenter stated that the definition of applicant does 
not include a reference to direct loan applicants and suggested that 
the definition be amended to include such a reference.
    Response: USDA agrees with the commenter and has revised the 
definition to include reference to direct loan applicants.
    In addition, we have revised the term ``applicant'' to apply to 
agricultural producers and rural small businesses seeking a guaranteed 
loan rather than to the lender that is actually submitting the loan 
application to USDA. We did this in order to simplify the terminology 
throughout the rule. Thus, wherever the term ``applicant'' is used, it 
is referring to the agricultural producer or rural small business. When 
the rule applies to the lender, the term ``lender'' is used.
Biomass
    Comment: One commenter stated that the definition of biomass needs 
to be clarified. The commenter pointed out that the biomass definition 
refers to ``other waste materials.'' The commenter notes that, 
traditionally, municipal waste for landfill waste has been included in 
biomass definitions. The commenter believes that, if tires are allowed 
to be placed in a landfill, they may be deemed municipal waste, 
biomass, and inevitably renewable. This theory, according to the 
commenter, appears to be reinforced in the Resource Conservation and 
Recovery Act of 1976. In addition, the commenter points out that the 
State of Nevada, Nevada Revised Statute Chapter 704, has classified 
tires reduced using microwave technology, a very clean process, as 
renewable because they are part of the municipal waste stream and also 
because one of the components of all tires is natural rubber coming 
from trees. The commenter suggests that an administrative bulletin to 
staff, clarifying the intent of the biomass definition, is needed.
    Response: USDA agrees that ``other waste materials'' could lead to 
confusion. However, due to the nature, scope, and complexity of 
renewable energy systems using ``other waste materials,'' USDA cannot 
anticipate all types of ``other waste materials.'' Therefore, new 
materials and technologies will be considered on a case-by-case basis.
    Comment: One commenter requested that clarification be provided as 
to the interpretation of ``paper that is not commonly recycled.'' The 
commenter stated that, while they want all paper to be recycled that 
can be recycled, in many rural settings transportation distances to 
paper recycling purchase points are simply too distant to allow 
affordable recycling once transportation costs are figured into the 
equation. The commenter stated that they have evidence in Missouri of 
how paper pellets can be beneficially utilized as fuel at Northwest 
Missouri State University but cannot be affordably recycled due to the 
distance to any buying center. The commenter asked that USDA clarify 
that if transportation economics preclude affordable recycling of waste 
paper that this meets the criteria of ``not commonly recycled.''
    Response: USDA agrees that the situation posed by the commenter 
should meet the criterion of ``not commonly recycled.'' The situation 
described arises, at least in part, out of the fact that the paper 
recycling is occurring in a rural area. USDA will consider this issue 
on a case-by-case basis.
Capacity
    Comment: One commenter stated the definition of capacity is 
technically incorrect (load implies use not production of energy e.g., 
the electric motor is a three kilowatt load on the system). Capacity 
should describe energy output in a standard measurement (e.g., British 
thermal units (BTU's), kilowatt-hours (kWh), Megawatts). The commenter 
suggested that it be defined as follows:
    ``The sustainable energy output of a generation or heating unit as 
rated by the manufacturer or qualified independent energy organization 
or individual using commonly accepted standard units of measurement.''
    Response: The commenter makes three suggestions for revising the 
definition of ``capacity'' as follows:
    First, the commenter suggests that capacity be described as 
``energy output'' and not as ``load.'' USDA disagrees with this 
suggestion. Load is equally applicable as ``energy output.'' Thus, this 
term has not been changed.
    Second, the commenter suggests that the definition should require 
capacity to express using ``commonly accepted standard units of 
measurement.'' USDA disagrees with the need to insert this language 
into the definition. USDA believes that manufacturer ratings will be in 
the same units of measurement for similar technologies. If not, 
conversions can be applied.
    Third, the commenter suggests that the energy output can also be 
rated by a ``qualified independent energy organization or individual.'' 
USDA

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disagrees with the third suggestion. The ratings assigned by a 
manufacturer are based on standards and provide a standardized, 
consistent baseline for comparisons. Some units eligible for this 
program could be modified by an individual after purchase to change its 
rating. In such instances, an individual would likely hire a third 
party to assign a new rating to the unit. USDA does not believe this is 
a desirable situation, possibly resulting in subjective assessments of 
the rating.
Default
    Comment: Two commenters pointed out that there is no reference made 
to grants being in default, and one of the commenters (Flanders 11-04) 
suggested that ``or grant conditions'' be inserted after ``* * * or 
more loan covenants * * *'' in the third line of the definition.
    Response: USDA agrees with the commenter and has revised the 
definition of default as suggested.
Demonstrated Financial Need
    Comment: One commenter suggested that the definition of 
demonstrated financial need might benefit from a more specific 
definition or an example--for example, ``if the project is otherwise 
unable to achieve at least a 1.20 debt coverage ratio when a loan for 
the long term liability portion is amortized over the life expectancy 
of the project.''
    Response: USDA disagrees that a more specific definition is needed 
within the rule. The example offered by the commenter is one way for 
demonstrating financial need as defined by the regulation.
Energy Efficiency Improvement
    Comment: One commenter pointed out that in the definitions section 
of the proposed rule, ``energy efficiency improvement'' is defined as 
``Improvement to a facility or process that reduces energy 
consumption.'' The commenter then points out that under proposed Sec.  
4280.111(d)(10), the definition is expanded to include, ``or reduced 
amount of energy required per unit of production are regarded as energy 
efficiency projects.'' The commenter suggested that the definition 
under proposed Sec.  4280.103 be expanded to include this concept found 
in proposed Sec.  4280.111(d)(10).
    Response: USDA has not revised the definition as requested by the 
commenter. We have retained the phrase ``that reduces energy 
consumption,'' which allows an applicant to express the reduction in 
energy consumption in a number of ways, including, but not necessarily 
limited to total reduction in energy consumption, energy saved per 
square foot or energy saved per unit of production.
    Comment: One commenter stated that the definition of energy 
efficiency improvement is not explicit enough and recommended that USDA 
add language to the existing definition that clarifies that the primary 
benefit for the improvement must be a reduction in energy consumption. 
According to the commenter, some applications in 2004 relied on 
nonenergy benefits, such as increased product quality, as the 
justification for the project. For some projects, the energy efficiency 
savings were clearly a secondary benefit and would not have had 
sufficient payback to pursue on their own. While these additional 
benefits are valuable and should be factored into the project finances, 
when nonenergy benefits are the primary benefit of a proposed project, 
the commenter believes that such projects should not be considered an 
energy efficiency improvement.
    Response: USDA believes that no change is necessary; this issue is 
addressed in the scoring criteria. Projects saving the most energy will 
score higher. Therefore, USDA expects the primary benefit of the energy 
efficiency improvement program will be energy reduction.
Existing Lender Debt
    Comment: One commenter asked: What if the same lender had an 
existing debt to the borrower with a B&I loan guarantee? The commenter 
suggested striking ``not guaranteed by the Agency'' from the definition 
of ``existing lender debt.''
    Response: The definition of ``existing lender debt'' was removed 
from this rule because it was not used.
Holder
    Comment: One commenter asked: What about in the case where more 
than the guaranteed portion of the loan is sold to a holder? The 
commenter suggested striking ``all or'' leave the word part and strike 
``of the guaranteed portion.''
    Response: As proposed, ``holder'' was defined as ``A person or 
entity, other than the lender, who owns all or part of the guaranteed 
portion of the loan, with no servicing responsibilities.'' USDA 
disagrees that the definition of ``holder'' needs to be revised because 
only the guaranteed portion of the loan can be sold to a holder; that 
is, one cannot sell ``more than the guaranteed portion of the loan'' to 
a holder.
``In-Kind Contributions''
    Comment: One commenter suggested that use of existing towers, such 
as cell phone relay towers, to support wind generators be allowed if 
the towers are certified to be safe and sturdy enough to support the 
chosen generator by a professional engineer. The commenter suggested 
that this could be a standard and specification detail rather than a 
rule component, but that it needs to be allowed.
    Response: USDA does not believe any change is needed to the rule to 
address the situation posed by the commenter. As written, the rule 
allows the use of existing towers as an in-kind contribution if they 
``directly benefit the project.''
Interim Financing
    Comment: One commenter stated that the words ``clear intent'' in 
the definition of ``interim financing'' in the proposed rule are vague 
and suggested striking ``clear intent'' and substituting the words 
``commitment from a lender that.''
    Response: USDA disagrees with the commenter's suggestion and has 
not revised the definition as suggested by the commenter. USDA believes 
applicants need flexibility in showing they have permanent financing, 
and applicants should not be limited to lender commitments. Further, 
USDA does not wish to limit the concept of interim financing to 
``lenders.''
Loan-to-Value
    Comment: One commenter stated that the definition of loan-to-value 
is not consistent with standard industry language and recommended that 
the term be changed to be consistent. The commenter suggested 
substituting the term ``Loan-to-value'' with ``Loan to discounted 
value'' and then revising the content of the proposed rule to 
substitute ``Loan-to-value'' with ``Loan to discounted value.''
    Response: The Agency agrees with the commenter that the rule needs 
to refer to ``discounted value'' and has incorporated this change by 
revising the definition of ``loan-to-value'' accordingly. However, the 
Agency disagrees that the term should be ``Loan to discounted value,'' 
and has retained the term ``loan to value.''
Renewable Energy
    Comment: One commenter suggested adding the word ``biomass'' into 
the second clause so that it reads ``* * * or hydrogen derived from 
biomass or water using wind, solar, biomass, or geothermal energy 
sources.''

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    Response: USDA agrees with the commenter that the word ``biomass'' 
needs to be added and has revised the definition for renewable energy 
as suggested. The lack of the word in the proposed rule was an 
oversight.
    Comment: One commenter asked if the Agency would recognize as 
``renewable energy'' that generated from conversion of a renewable fuel 
into heat, electricity, and/or mechanical power.
    Response: Yes, USDA would recognize as ``renewable'' energy 
generated from the conversion of a renewable fuel into heat, 
electricity, or mechanical power. USDA revised the definition of 
``renewable energy system'' to read as follows: A system that produces 
or produces and delivers usable energy from a renewable energy source. 
We believe this revision specifically addresses the commenter's 
question.
    Comment: One commenter asked if a project that manufactures 
biofuels (biodiesel, ethanol, etc.) from various forms of biomass is 
eligible, or must that project include energy generation from that 
renewable fuel to qualify. This commenter also asked if existing on-
site energy generation technologies are converted to biofuel usage from 
diesel or other nonrenewable fuel use, either in part or completely, 
would this conversion be considered an acceptable ``renewable energy 
project?''
    Response: A project that solely manufactures biofuels from various 
forms of biomass is eligible under this program. The project does not 
need to generate energy.
    The conversion of existing on-site energy generation technologies 
to biofuel from diesel or other non-renewable fuel qualifies as a 
renewable energy project for the purposes of the 9006 program. USDA 
points out that for purposes of determining the amount of funds 
available for such conversion, total eligible project costs would be 
based on the cost of performing the conversion alone, not on the cost 
of an equivalent replacement unit.
    Comment: One commenter asked if a project that qualifies at the 
State level as ``renewable'', would automatically be acceptable, based 
on the state-level determination, for meeting minimum eligibility 
requirements for Agency support. Conversely, the commenter asked, if 
mandated compliance with State and local permitting (as a nonrenewable 
project) would obviate Agency funding if a project is not considered 
renewable under State guidelines but that project satisfies the 
criteria in this program.
    Response: A State-level determination alone would not be acceptable 
to qualify a project as ``renewable'' under this program. To be judged 
renewable under this program, the project must meet the requirements of 
this program.
    Any project that is deemed a renewable project under this program 
is eligible to receive funding under this program regardless of how a 
State defines the project (i.e., as a nonrenewable project), but the 
project still must be in compliance with all applicable State and local 
permitting requirements for that project regardless of how it is 
defined.
    Comment: One commenter noted that State rules permit various 
maximum percentages (usually around 25 percent) of nonrenewable fuel 
that can be used to augment and ``firm'' energy generation from 
renewable sources and asked how this would impact Agency assessment of 
a proposal. The commenter then asked how a prospective applicant or 
borrower can ascertain this status prior to commitment of resources.
    Response: USDA understands the commenter's position and is amenable 
to considering such projects for funding under this program. However, 
the Agency has decided not to revise the rule, but instead will 
evaluate each proposed project on a case-by-case basis. This will 
maximize the number of eligible projects the Agency can consider. USDA 
will rely on the expertise of the technical experts who review the 
applications to make the determination as to whether the project 
qualifies as ``renewable'' under this program. This review will 
evaluate the actual renewable energy usage, energy displacement, and 
energy saving, as applicable.
Small Business
    Comment: A number of commenters suggested making several revisions 
to the definition of small business. Four commenters suggested that the 
definition be changed so that the cap of $20 million in annual receipts 
is removed and a small business is defined only by the number of 
employees of 500 or less. Two of these commenters believe the $20 
million maximum in annual receipts disqualifies and discourages many 
grain elevators, ethanol producers, biodiesel producers, and other 
possible business ventures in rural America.
    The third commenter stated that the definition of small business 
provided in the rule was duplicative with SBA guidelines and offered a 
one-size-fits-all dimension to the program. According to this 
commenter, this penalizes certain small businesses that meet SBA 
definitions, but not the specific limits outlined in this definition. 
The commenter was particularly concerned that Rural Electric 
Cooperatives would be excluded from participation in the program.
    Finally, the fourth commenter stated that capping the annual 
revenues at $20 million would eliminate the eligibility of a 
significant number of companies who could benefit and provide 
substantial value to the renewable energy program, in particular the 
ethanol industry. The commenter states that the ethanol industry 
provides benefits on many fronts and should be allowed to participate 
in the 9006 program, but the cap would exclude this industry because 
the majority of plants are in excess of this sales limitation.
    A fifth commenter recommended that USDA expand eligibility to allow 
all rural electric utilities to host applications. This commenter 
pointed out that many rural electric cooperatives and public utility 
districts fail to meet eligibility requirements because of large annual 
receipts, even though their profit margins are small and stated that 
rural utilities are important partners and should be eligible 
applicants.
    Two commenters suggested that more explanation as to the definition 
of an eligible cooperative is needed. One of these commenters stated 
that referring to the IRS code is not quick helpful information when 
prospective applicants are trying to figure out whether they are 
eligible or not. The other commenter requested more description of what 
type of cooperative is eligible `` perhaps in the definition portion of 
the proposed regulations.
    Response: USDA agrees that the definition of ``small business'' 
needs to be revised. USDA believes that the definition needs to be 
consistent with SBA's definition and by doing so, the revised 
definition simplifies the application process and eligibility 
determination, provides for greater consistency in eligibility 
determinations, and increases program access. Therefore, USDA has 
revised the definition to remove the caps on annual receipts and on the 
number of employees.
    In addition, USDA has revised the definition to specifically 
include electric utilities, including Tribal or governmental electric 
utilities, that provide services to rural consumers on a cost-of-
service basis, without support from public funds or subsidy from the 
Government authority establishing the district, provided that such 
utilities meet SBA's definition of small business.
    Also, the purpose of the parenthetical reference to the IRS code 
was to minimize the number of questions as to

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whether cooperatives qualified under section 501(c)(12) (of the 
Internal Revenue Code) were eligible for this program (which they are), 
not to limit this program to only those cooperatives qualified under 
section 501(c)(12). USDA does not believe that it is necessary to 
remove the reference to the IRS code, because a cooperative would know 
if the referenced IRS code applied to it or not. Therefore, we have 
elected not to remove reference to the IRS code.
    Lastly, USDA disagrees that more description of the type of 
cooperative is needed, especially in light of the revision to the 
definition of small business, which allows any cooperative to be 
eligible as long as it meets the definition of a small business.
    Comment: One commenter recommended that the receipt and employee 
``size'' threshold be applied only to the location being served by the 
project.
    Response: As discussed in the response to the previous comment, 
USDA has revised the definition of small business to remove the 
``size'' threshold. Thus, this comment is now moot.
Qualified Consultant
    Comment: One commenter noted that there is no definition for 
``qualified consultant.'' The commenter recommended that a ``qualified 
consultant'' should be established as a party that has demonstrated 
with past efforts the ability to compile not only a project assessment 
but also a comprehensive business model and plan for execution.
    Response: USDA agrees that a definition of ``qualified consultant'' 
is needed and has added it to the definitions section.

B. Demonstrated Financial Need

Funding From Other Sources
    Comment: A number of commenters were concerned that including the 
phrase ``other funding sources'' in the definition of ``demonstrated 
financial need'' would disqualify applicants who can obtain funding 
elsewhere. One of the commenters recommended that the definition of 
demonstrated financial need be altered to make clear that State 
financial assistance for renewable energy systems or energy efficiency 
improvements will not affect an applicant's eligibility for the 9006 
program.
    Another commenter stated that the proposed definition appears to 
disqualify applicants who would combine funding from the 9006 program 
with private and public loan programs.
    One commenter recommended that State program co-funding, such as 
State Clean Energy Trust Funds, should be encouraged by USDA, and not 
disallowed.
    Response: While USDA does not disagree with the commenters' 
concerns, we have retained essentially the same concept in the final 
rule. Specifically, we have replaced the phrase ``or other funding 
sources'' with ``and commercially available resources.'' The final 
definition adopted in the rule is in alignment with other Rural 
Development programs, which have a ``credit elsewhere'' test. Section 
9006(b) requires a demonstration of financial need.
    Comment: One commenter stated that, although requirements for in-
kind contributions were reasonable, strictures against any other 
Federal co-funding could restrict applications. The commenter observed 
that an applicant could receive funding from Federal sources other than 
USDA. Rather than impose a blanket ban on other Federal funding, the 
commenter recommended that USDA develop a specific list of programmatic 
funding exclusions. Four other commenters suggested that co-funding 
from State rebate programs be fully allowed. Another commenter stated 
that USDA should allow full co-funding from State public benefit rebate 
programs.
    Response: USDA made an administrative determination that the 25 
percent limit for grant funding of a project is applicable to funds 
received under the 9006 program and all other Federal grants, unless 
there is statutory authorization permitting the other Federal funding 
to be used for the grantee's match. No changes have been made in the 
final program.
Financial Need
    Comment: One commenter stated that the requirement to demonstrate 
financial need creates a possible catch-22 for applicants. On the one 
hand, USDA is seeking to safeguard the public's money by requesting 
significant assurances that every grant project will be financially 
viable, yet also requires the applicant to prove financial need. When 
the grant amount is capped at 25 percent (by law), this creates a 
rather thin margin to work within. The commenter stated that the grant 
program should be looked at as analogous to soil conservation cost-
share programs where the grant amount is a public provision of 
assistance to a participant for assuming the risk inherent in adopting 
a new, and in some cases, early commercial and site specific 
technology. For this reason, the proof of demonstrated financial need 
should be understood to include the credibility that government support 
of a new business investment provides to lenders who would not 
otherwise provide needed gap financing.
    Response: USDA in general concurs with the commenter. It is our 
hope that by our willingness to fund projects that have undergone and 
passed the technical review under the 9006 program would, in turn, 
encourage lenders to see these projects as worthwhile projects, as well 
and extend funding to them. Further, the change made to the definition 
of ``demonstrated financial need'' that focuses on the need of the 
project should help address the concerns raised in this comment.
    Comment: One commenter stated that the demonstration of a financial 
need should not be a threshold factor for applicant eligibility to 
participate in this program. According to the commenter, this provision 
anticipates an applicant that cannot afford the project without the 
assistance, yet it requires a highly engineered project. If an 
applicant must demonstrate a financial need as defined, the possibility 
of assembling the highly technical application diminishes.
    Response: USDA does not have the discretion to remove the 
demonstration of financial need as a requirement for receiving a grant 
under the 9006 program; this is a statutory requirement in section 
9006(b). However, USDA has significantly lowered the application 
requirements for projects with total eligible project costs of $200,000 
or less, which significantly reduces the amount of financial 
information that would be required and by developing less detailed 
requirements for the Technical Report (see Appendix A). Further, the 
Agency has added a second component to the definition of ``demonstrated 
financial need'' that focuses on the need of the project. Therefore, we 
have addressed this commenter's concerns as much as possible.
Project Versus Applicant Financial Need
    Comment: One commenter observed that the proposed rule defines 
financial need as an applicant's need rather than a project's need, and 
felt that this wording would penalize applicants with good credit or 
assets. The commenter recommended that USDA redefine ``demonstrated 
financial need'' to something like the following: ``The demonstration 
that the project is not economic or would not occur without the grant 
assistance.''
    Another commenter stated that there is confusion as to whether 
``financial need'' refers to the proposed project or

[[Page 41270]]

to the actual assets of the applicant. The commenter recommended that 
this eligibility criteria be clarified and suggested that financial 
need be determined by looking at the project itself. According to the 
commenter, the relevant question is whether a grant is necessary to 
make this project financially feasible and/or successful. In the 
current language, the commenter asserts that it is unclear whether 
applicants with sound personal credit and financial portfolios will be 
penalized or deemed ineligible. The commenter believes that projects 
where the participants have sound financial histories are more likely 
to succeed and should not be put at a disadvantage.
    Response: The Agency has adopted this suggestion by modifying the 
definition of ``demonstrated financial need.''
    Comment: Five commenters suggested that USDA base financial need 
criteria on project payback, not the applicant's financial resources 
and liquidity. If the 9006 grant will materially reduce the project 
payback period and similar projects are not commonplace in the 
applicant's area, the commenter believes there is a de facto financial 
need. One commenter stated that this seems inconsistent with the 
overall intent of the program, and favors larger scale projects.
    Response: USDA disagrees that project payback is a proper criterion 
for determining financial need. The definition, as proposed, was 
consistent with USDA policy for a ``credit elsewhere'' test. 
Maintaining the same definition across its programs simplifies cross-
program requirements easing the burden for program participants and end 
users and establishes a clear, consistent, and objective standard for 
demonstrating a financial need for Rural Development grant assistance. 
Therefore, USDA has not incorporated the commenters' suggestion.
    In addition, USDA has revised the definition of ``demonstrated 
financial need'' to include ``that the project proposed by the 
applicant cannot achieve the income and cashflows to sustain it 
financially over the long term without grant assistance.'' This was 
added because the large upfront investment often prevents projects from 
producing sufficient cash flow at current energy prices without outside 
support. In addition, the scale of many small projects creates 
diseconomies of scale that further exacerbate this condition.
Demonstration of Financial Need
    Comment: One commenter stated that the subsection 9006(b) of the 
statute states that a farmer, rancher, or small business shall 
demonstrate financial need as determined by the Secretary. This 
provision was included to ensure that assistance is directed to the 
country's smaller producers and rural small businesses that typically 
lack the financial resources necessary to purchase renewable energy 
systems or make energy efficiency improvements.
    Section 4280.103 of the proposed rule defines ``demonstrated 
financial need'' as ``(t)he demonstration by an applicant that the 
applicant is unable to finance the project from its own resources or 
other funding sources without grant assistance.'' This definition is 
vague. Nowhere does the proposed rule describe how the Secretary 
assesses the applicant's ability or inability to finance the project 
without grant assistance.
    An applicant is required to submit a tremendous amount of financial 
documentation and, under proposed Sec.  4280.111(a)(3), to describe how 
it meets the requirement of demonstrated financial need but is given no 
indication of how need is determined.
    The proposed rule must be amended to specify precisely how 
financial need--and thus eligibility under proposed Sec.  4280.107(f)--
shall be demonstrated.
    In the absence of a clearly defined system for assessing financial 
need, USDA should consider establishing an income or revenue limit for 
grant eligibility. Only those applicants below a certain income or 
revenue threshold would be eligible to participate in the grant 
program. A revenue limit for financial need eligibility has the benefit 
of clarity and would reduce the burdensome volume of financial 
documentation required of grant applicants, thereby streamlining the 
application process. Consistent with the statute, all applicants must 
remain eligible for loans and loan guarantees.
    Response: The definition of ``demonstrated financial need'' has 
been revised to include two tests under which all applicants will be 
evaluated as to a demonstration of financial need. The first test is a 
``creditworthiness'' test--the applicant is unable to finance the 
project from its own and commercially available resources. The second 
test is the ``cashflow'' test--the project proposed by the applicant 
cannot achieve the income and cashflows to sustain it financially over 
the long term without grant assistance.
    Under the creditworthiness test, the applicant must certify that 
they cannot obtain credit elsewhere and provide sufficient information 
or documentation to permit the Agency to make an independent 
determination. The Agency has not limited the information or 
documentation that can be provided to support the applicant's need in 
order to give the applicant the greatest degree of flexibility in 
demonstrating this requirement. If the applicant fails to provide 
sufficient information to meet this requirement, the Agency will 
contact them for additional information until it can make its own 
independent determination. In order to provide uniform Agency 
determinations, the Agency expects to issue additional guidance to its 
field offices on what has been approved as acceptable evidence of 
financial need, which will also be made available to the public.
Financial Need Criterion
    Comment: One commenter recommended that applicants for grants not 
have to demonstrate financial need. According to the commenter, 
approving and funding a grant application should rest on the quality of 
the proposal and the scoring criteria and not necessarily on the 
financial need of the applicant. According to the commenter, it is 
difficult for applicants to prove that they have enough finances to 
match 75 percent of the project, but that they financially need the 
last 25 percent from USDA to get the project off the ground.
    Response: The 2002 Farm Bill, Section 9006(b), requires a farmer, 
rancher, or rural small business to demonstrate financial need in order 
to be eligible for a grant under this program. Thus, USDA does not have 
the discretion to eliminate this requirement and has not done so in the 
final rule.
    Comment: Two commenters stated that the authorizing language for 
Section 9006 makes clear that financial need is a primary condition for 
any applicant to receive funding under the program. According to the 
commenters' interpretation of the law, financial need is the only 
eligibility requirement, and all other conditions in the program are 
secondary to it. The commenters believe that the proposed rule does not 
reflect the primacy of financial need as required by statute.
    These commenters also expressed the concern that the proposal does 
not clearly define the extent of the required explanation or its 
relevance to the application process. The commenters recommended that 
USDA make it explicit in the rule that demonstrated financial need is 
an eligibility requirement of the program and create a system by which 
all applications will be reviewed to confirm that they meet the 
financial need condition in the statute. The commenters offered 
examples of possible requirements, including: Requiring all applicants 
to

[[Page 41271]]

demonstrate that they otherwise would not be able to pay for or finance 
the proposed project; an automatic presumption that there is no 
demonstrable financial need in projects with a payback of 2 years or 
less by virtue of the sheer profitability of such a project, or in 
projects which are requesting funding for less than 10 percent of the 
project cost; or a presumption of demonstrated financial need when the 
applicant is a small agricultural producer.
    Response: The commenters made three specific recommendations. The 
first recommendation was to require all applicants to demonstrate 
financial need. As provided in the statute, financial need is required 
only of grant applicants. This eligibility criterion was stated in 
proposed Sec.  4280.107(f). USDA believes this is explicit. USDA does 
not believe that this grant eligibility requirement needs to be or 
should be part of the loan program.
    The second recommendation was to implement an automatic presumption 
of no demonstrable financial need for projects with a payback of 2 
years or less, or for projects requesting funding of less than 10 
percent. As noted in a previous response, USDA does not consider 
payback to be an adequate measure of financial need. Financial need 
speaks to having the resources available to put a project in place, not 
to its projected revenue stream. Therefore, USDA does not consider it 
appropriate to implement a presumption of financial need on the basis 
of payback. USDA also does not believe that the amount of a funding 
request (10 percent or other) is also an adequate measure on which to 
base a presumption of financial need. Therefore, USDA rejected this 
suggestion as well.
    The third suggestion was to base a presumption of financial need 
when the applicant is a small agricultural producer. Again, USDA does 
not believe that this is an appropriate measure.

C. Applicant Eligibility

    Comment: One commenter recommended that public-private partnerships 
be allowed to apply for funds under the 9006 program.
    Response: The target of this program is private entities (i.e., 
farmers, ranchers, and small businesses), as stated in the statute 
authorizing the 9006 program. USDA cannot expand the statutory scope of 
applicants to include public entities, including those in public-
private partnerships. Therefore, USDA has not revised this criterion of 
applicant eligibility.
    Comment: One commenter stated that the eligibility of some 
nonprofits for this program is still not clear. The commenter stated 
that they have had nonprofits apply which were organized for 
charitable, educational, and scientific purposes. Technically, 
according to the proposed definition of a small business, they are 
eligible because they are not formed solely for charitable purposes.
    Two other commenters requested that nonprofit organizations be 
allowed to apply for grants and loans under the 9006 program.
    Response: USDA agrees that clarification is required, but disagrees 
that nonprofits, in general, should be allowed. We have revised the 
definition of small business to allow any of the entities specifically 
identified in the definition (e.g., electric utilities) to participate 
in the 9006 program if they also happen to be nonprofit entities. 
Otherwise, nonprofit entities remain excluded.
    Comment: One commenter encouraged the broadening of the scope of an 
eligible applicant for loans and guaranteed loans to include a business 
supplying a service to an agricultural enterprise, such as manure 
management in the form of an anaerobic digester and power generation 
plant. Another commenter made a similar comment, recommending that USDA 
expand eligibility to allow Renewable Energy/Energy Efficiency experts 
to aggregate projects without ownership requirements.
    Response: USDA is authorized by the language in the 2002 Farm Bill 
to provide grants to farmers, ranchers, and rural small businesses for 
the purchase of renewable energy systems and energy efficiency 
improvements. If the new, nonagricultural enterprise as presented by 
the first commenter meets the definition of a small business, then it 
would be eligible to apply for a grant.
    As to the second comment, the role of an aggregator is more 
equivalent to a professional service provider who brings together 
eligible applicants to assist in project development and 
implementation. The role of an aggregator is anticipated by the Agency, 
but the aggregator itself is not an eligible entity. The Agency sees no 
reason to change the ownership requirements just because an aggregator 
is being used.
    Comment: Three commenters requested that USDA consider modifying 
the rule to allow small business owners who have their headquarters in 
larger cities to also apply for the program. According to one 
commenter, the policy of limiting access to renewable energy grants to 
existing rural companies tends to discourage small businesses that are 
start-ups or happen to reside outside of a rural area, from using this 
program to invest, promote renewable energy projects, and create jobs 
in rural areas. The commenter stated that it is not unreasonable for a 
company to want to know that it is about to receive a grant before it 
takes all of the necessary steps to secure its rural location. The 
commenter requested that, if USDA does not change the rural residency 
requirement for the applicant, the requirements and the consequences of 
not meeting it are made clearer in the Notice of Funds Availability 
(NOFA), which did not clearly require the business headquarters to be 
in a rural area at the time of application.
    Response: USDA agrees with the commenter that the proposed 
requirement for eligible applicant businesses to be located and have 
their headquarters in a rural area may limit access to start-up 
companies that are located in a non-rural area from investing in 
renewable energy systems or energy efficiency improvements. In the 
final rule, both the rural small business and the project must be 
located in a rural area. The business headquarters, however, may be 
located in either a rural or non-rural area. Thus, we do not believe it 
is necessary to address the location of the rural small business' 
headquarters in the rule.

D. Project Eligibility

    Comment: Three commenters expressed concern about large commercial 
wind projects. The commenters provided numerous reasons for their 
opposition of the use of the proposed program to support large-scale, 
commercial-wind projects. The comments focused on the commenter's 
claims of adverse social, environmental, and ecological impacts and the 
high costs and low economic benefits of wind energy projects.
    Response: USDA is bound by the statute to include wind projects in 
the program and does not see the need to differentiate between wind 
projects based on size or commercialization.
    Comment: One commenter requested that fuel cells that utilize non-
renewable fuels be eligible for funds under the proposed program for 
the short-term. The commenter believes that labeling fuel cells as 
renewable energy sources will help speed commercialization and will 
hasten the process by which the industry can achieve further cost 
reductions in manufacturing. Like many emerging technologies, cost 
constraints stand in the way of implementing fuel cell technologies. If 
USDA allows fuel

[[Page 41272]]

cell adopters to tap readily existing fuels, farmers will have the 
ability to demonstrate this technology at a more affordable price, 
while realizing the tremendous advantages this technology offers.
    Response: The statute requires eligible projects to utilize 
renewable energy. USDA cannot expand this requirement to fuel cells 
that utilize only nonrenewable fuels. As noted in a previous response, 
USDA is amendable to considering projects that use nonrenewable fuel to 
some extent.
    Comment: One commenter suggested that hydropower be added to the 
list of approved technologies associated with this rule. The commenter 
requested the addition of small hydroelectric power generating 
facilities (i.e. less than 5,000 kW) to the program, perhaps in a 
manner similar to that included in the proposed HR 6 Energy Policy Act.
    Response: The statute authorizing the 9006 program does not include 
hydropower in the definition of ``renewable energy,'' and, therefore, 
hydropower projects are not eligible for funds under this program.
    Comment: One commenter noted that, as proposed, eligible projects 
for biomass and bioenergy specifically exclude livestock waste. The 
commenter points out that there are emerging technologies involving 
thermochemical conversion of animal waste (for example, from livestock 
processing facilities) to synthetic oil. The commenter believes that 
these projects should be eligible for funding.
    Response: USDA agrees with the commenter that all animal waste 
projects fall into the anaerobic digester category. USDA also agrees 
that the emerging technology described by the commenter would be 
eligible for funds under the 9006 program. As these emerging 
technologies become more mainstream (i.e., become pre-commercial or 
commercial), USDA intends to expand the technical guidance to address 
new technologies. The final rule incorporates provisions to allow new 
technologies to apply for funding even if the technology is not 
addressed in either appendix to the regulation.
    Comment: One commenter suggested that the projects for solar water 
pumping and use of solar for hydrogen fuels for farm-based engine 
generator sets, and photovoltaics to drive farm and food processing 
compressors, refrigeration, and motors should be allowed as eligible 
projects.
    Response: Each of the specific applications identified by the 
commenter is an eligible project under the 9006 program.
    Comment: One commenter suggested that for both large and small 
solar projects, the rule includes as eligible projects those that 
provide solar air heating and water heating with no active storage. The 
commenter provided suggested language.
    Response: USDA agrees with the commenter that projects that provide 
solar air heating and water heating with no active storage are eligible 
under the 9006 program. We have revised the definitions of solar 
projects such that such technologies are implicitly eligible by not 
addressing the type of heat transfer mechanism.
    Comment: One commenter believes that the proposed program only 
gives token support for alternative energy developments and that by 
restricting most grant and loan support for existing commercial 
alternative energy systems, no real competition with the petroleum 
industry is offered. The commenter then goes on to claim that the most 
promising alternative energy programs are not supported or they are 
sabotaged as in the case of hydrogen fuels development under the 
proposed program. While there are many cost-effective sources of 
hydrogen, Federal programs are requiring the use of petroleum for 
hydrogen fuels.
    Response: USDA appreciates the need for alternative energy 
developments. However, the responsibility for developing and funding 
such alternative energy systems, including the development of hydrogen-
based technologies, does not reside in USDA. The Department of Energy 
is responsible for bringing research and development opportunities to 
fruition; that is, to the pre-commercial and commercial stages. Once 
such technologies reach these phases, there is a high probability of 
their successful implementation. USDA will use the 9006 programs to 
fund only those projects for which there is the high probability of 
success. We believe that this is an appropriate and responsible 
approach for the distribution of grants and loans under this program.
Wind Projects
    Comment: One commenter found the requirements in the small wind 
section to be overly burdensome for the applicant, as specifically 
discussed below:
    The rules for wind turbines under 100 kW capacity are not clear in 
regards to the need for use of professional engineers--the proposed 
rule explicitly states that only projects over $100,000 will require 
that the services of a professional engineer to be used, yet the 
description for design and engineering in the proposed rule states:
    ``Small wind systems must be engineered by either the wind turbine 
manufacture or other qualified party. Systems must be offered as a 
complete, integrated system with matched components. The engineering 
must be comprehensive including turbine design and selection, tower 
design and selection, specification of guy wire anchors and tower 
foundation, inverter/controller design and selection, energy storage 
requirements as applicable, and selection of cabling, disconnects and 
interconnection equipment as well as the engineering data needed to 
match the wind system output to the application load if applicable.''
    The commenter expressed concern that this language can easily be 
interpreted to mean that unless a complete component package including 
the components required by utility rules for interconnection is 
purchased from a turbine manufacturer, or the applicant or the system 
dealer must hire their own professional engineer to certify the system, 
in fact these rules may require hiring two engineers as there are 
electrical components, as well as civil or mechanical engineering 
components. Many components, such as the batteries, inverters, and 
cabling for small projects can be purchased off-the-shelf from a 
variety of vendors. Individuals with the necessary technical skills and 
experience (as documented in the project team section) can safely 
select these standard components. Signoff by utility staff as to the 
adequacy of interconnection equipment should also be sufficient for 
approving those components. The commenter is also concerned that the 
rule language as written will be interpreted to mean that each project 
requires a professional engineer to sign off on the entire project. 
Such requirements could certainly add undo costs to projects.
    The commenter recommended the following:
    ``Small wind systems must be designed and engineered to assure 
safety and reliability of the project. For small wind systems, either 
the wind turbine manufacturer or other qualified party must design and 
engineer the turbine, tower and tower foundation (including guy wire 
anchor specification) as a complete and integrated system. As outlined 
in the proposed Sec.  4280.111(d)(8)(iv), interconnection design and 
equipment must be approved by the local utility if the turbine is to be 
interconnected to the electric power distribution grid. Finally, all 
other components, including energy storage, must be selected and 
matched

[[Page 41273]]

by a qualified technician as part of a comprehensive system design.''
    Response: We agree that for the smaller wind systems, an applicant 
may purchase certain components off-the-shelf from various vendors. For 
small wind systems with total eligible project costs equal of $200,000 
or less, the rule requires the applicant, in part, to ``certify that 
their project will be designed and engineered so as to meet the 
intended purpose'' and to provide authoritative evidence that the 
system will be designed and engineered so as to meet its intended 
purpose. We believe this addresses the commenter's concern.
    For small wind systems with total eligible project costs greater 
than $200,000, however, we have retained the same language as in the 
proposed rule. These larger small wind projects are more likely to 
require complete packages, and applicants are less likely to ``piece 
together'' such a system.
    Finally, under the final rule, for renewable energy projects with 
total eligible project costs greater than $400,000, the services of a 
professional engineer are required. We believe this requirement is more 
in line with the level of complexity associated with the larger 
renewable energy projects and appropriate for small wind projects that 
should exceed this level of cost.
    Comment: One commenter suggested that, for wind projects, the 
applicant should also describe whether or not sources of income will 
include--in addition to annual revenue from electricity sales--the 
value of Federal or State incentives, such as production tax credits. 
For methane digesters on dairy farms, the applicant should also state 
whether or not sources of income will include--in addition to income 
from sale of electricity--noncash savings from bedding costs, excess 
bedding sales, carbon and tax credits, heating energy savings (e.g. 
water), or any other farming efficiencies.
    Response: For large wind projects, the proposed rule required a 
description of ``annual project revenues including, but not limited to, 
electricity sales, production tax credits, revenues from green tags, 
and any other production incentive programs throughout the life of the 
project.'' For small wind projects, the proposed rule required a 
description of ``applicable investment incentives, productivity 
incentives, loans, and grants.'' For anaerobic digesters, the proposed 
rule required a description of ``annual project revenues and expenses'' 
and of ``applicable investment incentives, productivity incentives, 
loan, and grants.''
    The Agency believes that this language adequately addresses the 
question of tax credits and production incentive credits. While we have 
not specifically identified noncash savings from bedding costs, excess 
bedding sales, heating energy savings, or other farming efficiencies in 
the final rule, USDA agrees that they can be legitimate ``other sources 
of revenues'' provided they are directly related to the project and 
their value is sufficiently documented.
    Comment: One commenter referred to the recent General Accounting 
Office (GAO) report on wind energy (GAO 04-756, Renewable Energy--Wind 
Power's Contribution to Electric Power Generation and Impact on Farms 
and Rural Communities, September, 2004), which, according to the 
commenter, showed that wind energy was not benefiting either the rural 
economy or farmers in general.
    The GAO report described the problems that currently exist but did 
not define a mechanism to deal with the problems other than to call for 
an implementation of the authorized Section 9006 program and to 
establish better coordination between government agencies.
    The commenter provided information related to several issues 
related to wind energy and also provided the following specific 
recommendations to address the known issues:
     An alternative to large, utility-scale systems that could 
provide a better strategy would be the use of smaller turbines in 
``windsheds'' that could be structured around cooperative ownership. 
Smaller turbines require less capital per unit and allow greater 
distribution and more access points on the transmission grid because of 
lower output. In partnership with or as a subset of traditional rural 
electric cooperatives and the private utilities serving rural areas, 
farmers could own and manage the system, offset individual electrical 
use, and provide power to the grid.
     This approach creates two separate opportunities for 
diffuse rural networks where the turbine is sized to complement 
existing grid infrastructure.
    (a) Farm-scale horizontal axis turbines mounted on tall, self-
erecting towers that do not require special roads or large cranes. 
Here, smaller swept areas can be more effective because blade forces 
are reduced, particularly in severe events, making for lower costs and 
simplifying installation/service.
    (b) Farm-scale vertical axis turbines designed to work efficiently 
at the lower wind speed and more turbulent flow seen at lower 
altitudes.
     Technical and financial support for these farm-scale 
systems should be a high priority for a variety of reasons:
    (a) Diffuse systems are robust, and definitely not susceptible to 
terrorist attack.
    (b) Boost farm income and utilize a renewable resource.
    (c) Enable rural economic development.
    (d) Opportunity to symbiotically combine wind energy production 
with other forms of alternative energy production such as methane 
production.
     Create an independent third-party evaluation program via a 
dedicated grant to evaluate wind turbines that are suitable for on-farm 
use and capable of producing significant electricity for the grid. No 
single organization has the resources needed for this organization. 
This program should be independent of existing government evaluation 
programs focusing on certification and/or technical development. 
Existing government programs (such as National Renewable Energy 
Laboratory (NREL) and Sandia) have inherent conflicts-of-interest when 
it comes to making specific product evaluations and recommendations. 
This program should utilize existing government expertise and resources 
whenever reasonable. The primary award should be made to a proactive 
nonprofit organization with no technology conflicts. Sub-awards for the 
comprehensive evaluation of specific components should be made to 
organizations with existing resources and expertise. This program will 
also conduct one or more random inspections of the production 
factory(ies) to evaluate production quality control practices. 
Evaluations will go beyond minimum specifications and safety issues to 
include projected operating and maintenance costs, ease of 
installation, installation costs, quality, etc. As part of the 
demonstration program, this group should coordinate with the 
Environmental Protection Agency's Office of Air and Radiation (OAR) to 
link utilities interested in purchasing power from renewable sources 
with farm-scale, farmshed cooperatives.
     Fund a demonstration project via a dedicated grant which 
documents the issues and feasibilities associated with actually 
creating a diffuse, large-scale, regional, on-farm, integrated wind-
farm; and which integrates wind energy electricity production with the 
production of electricity from another form of renewable energy which 
can be used to offset the inherent variability of wind energy 
production.
    Response: USDA appreciates the findings of the GAO report. This

[[Page 41274]]

regulation considered those findings when promulgating this regulation. 
The commenter then goes on to identify five specific recommendations, 
which the Agency addresses below.
    First, the Agency agrees that use of smaller turbines, rather than 
large, utility-scale systems, is desirable and encourages applicants to 
partner with others. Nothing in the proposed rule or in the final rule 
prohibits the adoption of this type of system or partnership.
    Second, the commenter identifies two types of turbines that could 
be used to implement the smaller turbine approach in the first 
recommendation. To the extent that such turbines have technical merit, 
this would be determined during the evaluation of the application. 
Otherwise, there is nothing that needs to be addressed in the final 
rule with regard to this second recommendation.
    Third, the commenter recommended that the rule give high priority 
to these farm-scale systems. In the final rule, there are two 
mechanisms that are likely to give preference to farm-scale systems 
because such systems are likely to be lower-cost systems (i.e., total 
eligible project costs of $200,000 or less). First, the effort required 
to prepare a grant application for such systems has been reduced. 
Second, more points are now awarded to the smallest agricultural 
producers and to very small businesses. To the extent that such farm-
scale systems are proposed by these applicants, they would be awarded 
more points than larger-scale systems.
    Fourth, the commenter recommended creating an independent third-
party evaluation program via a dedicated grant to evaluate wind 
turbines. The purpose of the 9006 program is to provide funds for the 
purchase of renewable energy systems and energy efficiency improvement 
projects. The funding of an independent evaluation program is not part 
of the scope of the authorizing statute. USDA notes that we are 
currently working with EPA's OAR to develop assistance in working with 
utilities on interconnection and power agreements.
    Fifth and last, the commenter recommended funding a demonstration 
project via a dedicated grant. As noted in the previous paragraph, the 
purpose of the 9006 program is to provide funds for the purchase of 
renewable energy systems and energy efficiency improvement projects. 
The funding of demonstration projects for any renewable energy system 
is not part of the scope of the authorizing statute.
Miscellaneous
    Comment: One commenter recommended that specific grants be 
established to permit the applicant to evaluate local, State, and 
national regulations and permits and licenses pertaining to the 
location and construction of facilities producing biofuels, biopower, 
and biobased products.
    Response: As stated in the authorizing statute, the 9006 program is 
for the purchase of renewable energy systems and energy efficiency 
improvements. The program was not designed to provide funds to stand-
alone studies of requisite permits and licenses or evaluations of 
applicable regulations. However, USDA recognizes that obtaining such 
permits and licenses are inherent costs to implementing a renewable 
energy system or an energy efficiency improvement project. Therefore, 
USDA included such costs as part of the eligible project costs for 
which funds can be obtained.
    Comment: One commenter noted an apparent contradiction between 
eligible project costs in proposed Sec.  4280.109(a)(1)(ii) and (ix) 
and stated that banks would not finance the item specified in proposed 
Sec.  4280.109(a)(1)(iii) and (vii).
    Response: With regard to items specified in proposed Sec.  
4280.109(a)(1)(ii) and (ix), the first item refers to construction and 
project improvement costs that occur after the application has been 
received by the Agency. The second item refers to costs associated with 
the construction of a new facility. Projects will incur one or the 
other of these two costs, not both. This section does not imply that a 
project would be expected to incur both of the costs or that a project 
would be expected to incur all of the listed eligible project costs. 
For example, renewable energy projects would not be expected to incur 
energy audit or assessment costs. Therefore, we disagree that there is 
a contradiction.
    With regard to the items specified in proposed Sec.  
4280.109(a)(1)(iii) and (vii), all of these items can be capitalized 
and are financeable as part of the project. These items are not 
``stand-alone'' items to be individually or collectively financed apart 
from the project. A lack of interest, on the part of some potential 
lenders, in financing these costs does not persuade USDA to remove them 
for the lenders that may be interested.
    Comment: One commenter recommended that the rule be clarified that 
``remanufactured'' equipment can only qualify where a demonstrated and 
consistent remanufacturing process is performed on the equipment. The 
commenter was concerned that USDA not award funding to ``refurbished'' 
generators that are likely to fail in several years and cease to 
operate due to lack of parts and expertise. According to the commenter, 
this is a small but real problem in the used wind turbine market that 
USDA should be mindful of in determining which projects are eligible 
for funding.
    Response: Under the 9006 program, an applicant may propose to use 
new, remanufactured, or refurbished parts in their project. Where 
remanufactured or refurbished parts are proposed to be used, they must 
be reliable and meet the requirements of their intended application for 
the project's design life or as would a new piece of equipment. It is 
USDA's intent that sufficient information is submitted with the 
Technical Report to allow a thorough evaluation of the project to occur 
during the technical review to allow the reviewers to assess the 
likelihood of success for all projects, including those proposing to 
use refurbished or remanufactured parts. Applicants proposing to use 
such parts are advised that they may need to provide more information 
in their Technical Report to justify and support the use of such 
refurbished or remanufactured parts.
    Comment: Several commenters inquired as to whether equipment used 
for wind projects should be restricted to new and unused equipment 
only, or whether remanufactured or refurbished equipment could also be 
used. One commenter specifically noted that used equipment not be 
allowed.
    Response: As noted in the previous response, remanufactured or 
refurbished equipment is allowed under the 9006 program. However, USDA 
does not believe that used equipment should be allowed because the 
quality of used equipment cannot be determined. Therefore, we have 
added a definition of ``used equipment'' to the rule to distinguish 
``used equipment'' from refurbished or remanufactured equipment, which 
is allowed if such equipment is essentially equivalent to new and 
unused equipment.
    Comment: One commenter requested clarification on the role of 
third-party operators. The commenter notes that the proposed rule 
specifies that the applicant must be the owner of the project and 
control the operation and maintenance of the proposed project, and that 
a qualified third-party operator may be used to manage the operation 
and/or maintenance of the project. The commenter stated that, as they 
understood the section, large wind projects using business models that 
utilize equity investors to take advantage of the Federal production 
tax credit are eligible. In this case, the applicant remains the 
``general partner''

[[Page 41275]]

in the limited liability corporation, while the equity partner is a 
``limited partner.'' Some form of this business model is used by most 
successful farmer-owner large turbine wind projects. As such, the 
commenter recommends that USDA not limit an applicant's ability to 
bring in equity partners to take advantage of tax credits. It appears 
that the current language is sufficient for this purpose, but the 
commenter believes it is an issue that merits some scrutiny.
    Second, some definition or clarification of what constitutes a 
qualified third-party operator is needed. Clarification of this 
definition is important because State USDA officials have made 
different interpretations on what a ``qualified third-party operator'' 
is.
    Response: USDA agrees that the rule should not limit an applicant's 
ability to bring in equity partners as described by the commenter and 
has revised the final rule to allow ``passive investors'' to 
participate in the 9006 program.
    The commenter also requested some definition or clarification as to 
what constitutes a qualified third-party operator, because of the 
potential for many different interpretations being made by Agency 
employees. The Agency has included a definition of ``qualified party,'' 
which provides general guidance.
    While this definition has been added, it is USDA's intent that the 
determination of who actually qualifies as a ``qualified party'' will 
be made by the technical reviewers and not by State USDA staff. As the 
pool of technical reviewers will be small (perhaps two or three per 
technology), USDA anticipates that different interpretations will not 
be an issue. In addition, what constitutes a qualified party will vary 
depending on the specific technology being proposed. USDA believes the 
best place to deal with this determination is at the technical review 
stage and not in the regulations implementing the 9006 program.
    Comment: One commenter suggested that USDA limit loan guarantees 
(and direct loans, if made available) to farm-scale systems. The 
commenter referred specifically to wind turbines, where scale should be 
defined by the ability to provide significant electricity to the grid 
to meet national needs. The commenter recommended that individual wind 
turbines should be greater than 50 kW and less than 999kW, but that 
tower heights should not be limited. According to the commenter, the 
development of self-erecting towers, which do not require the use of 
large cranes for installation and maintenance with their specialized 
infrastructure, make it feasible for farm scale turbines to be deployed 
on tall towers to efficiently capture the higher speed and less 
turbulent winds at higher altitudes.
    Response: USDA disagrees with the commenter. USDA believes that the 
loan guarantee program should be available to all renewable energy 
projects regardless of size if the project and the applicant meet the 
eligibility criteria. Therefore, USDA has not revised the rule as 
suggested by the commenter.
    Comment: One commenter stated that by restricting grants and loans 
to existing commercial energy systems, the proposal acts to impede real 
progress in renewable energy. The commenter recommended that USDA fund 
innovative/new types of renewable energy projects at the 75 percent 
level. Referring to U.S. Code Title 18, Part I, Chapter 105, Sections 
2151 and 2156, the commenter stated that it is illegal to interfere 
with national defense preparations, and claimed that the proposed rule 
acts to prevent the development of innovative renewable energy 
technologies, helps to sustain the demand for U.S. petroleum imports 
from the volatile Middle East, and sabotages efforts to reduce 
dependence on petroleum imports, as well as homeland security efforts.
    Response: By statute, USDA is limited to funding projects at the 25 
percent level for grants and at the 50 percent level for loans. We 
cannot increase this to 75 percent as requested. To the extent that the 
commenter is suggesting that this program be used to fund renewable 
energy technologies still in the research and development (R&D) stage, 
as noted in a previous response to this commenter, it is DOE's 
responsibility, not USDA's, for assisting in the development of 
innovative and new types of renewable energy projects.
    Comment: One commenter objected to provisions requiring the 
applicant or borrower to be the owner of the system and also to control 
the operation and maintenance of the project. The commenter felt that 
this would exclude many energy installers and energy service providers. 
The commenter recommends that USDA should ``adjust eligibility criteria 
or modify the program to allow for rural small business with expertise 
in renewable energy and energy efficiency installation to aggregate 
projects and submit applications without ownership requirements.'' A 
second commenter also recommended that rural small businesses with 
expertise in renewable energy and energy efficiency installation be 
allowed to aggregate projects and submit applications without being 
required to retain ownership and control of all systems.
    Response: USDA disagrees with the commenters. As noted in a 
previous response, the 9006 program is for the purchase of renewable 
energy systems and energy efficiency improvements. By purchasing 
either, one becomes the owner. USDA, therefore, believes ownership 
requirement is an inherent part of this program and has not revised the 
rule as requested.

E. Application and Documentation

General
    Comment: One commenter recommended that applicants be encouraged to 
partner with intermediaries that provide ``full service'' energy 
assistance, which would include (1) help in applying for Section 9006 
awards; (2) conducting energy audits; and (3) project management.
    Response: USDA concurs that it would be useful to applicants and 
USDA if applicants partner with ``intermediaries'' to provide full 
service energy assistance. However, the approach used by the applicant 
in developing their application and obtaining other services is a 
business decision and beyond the scope of the regulation. Therefore, 
this comment has not been adopted.
    Comment: Several commenters suggested that USDA allow applications 
on-line or on a CD-ROM.
    Two commenters recommended that USDA allow applicants to submit 
proposals electronically, either on-line or on a CD-ROM. This will 
enable complete technical review and scoring based on full 
applications.
    Three commenters suggested that an on-line application process 
would reduce redundant and duplicative entries by allowing common 
information to be populated on required forms. It also would guide 
applicants through the process and thereby reduce the number of 
incomplete applications, and it would standardize the final application 
documents, thereby facilitating application review by Rural Development 
and NREL staff(s). Rural Development has experience in developing such 
an online application system for lenders in its B&I Loan Guarantee 
program.
    Another commenter discussed a possible online application process, 
stating that while this is a great option to have, it should not be the 
only means by which an applicant can apply for the program. High-speed 
Internet access is not widely available in rural America and dial-up 
access can make an on-line application process slow and

[[Page 41276]]

tumultuous. Rural America is in the process of transitioning to 
computer-based records and applications. If USDA made applying for the 
program an on-line only process, there is a serious risk that many 
potential applicants would be inappropriately excluded from the 
program. We would also suggest that USDA develop application forms and 
templates that can be downloaded and completed off-line. The forms 
should be available in formats that are accessible for a variety of 
operating systems (i.e., Mac and Windows) and word processing software 
(i.e., MS WordTM and WordPerfectTM).
    Response: USDA policy is to provide electronic application 
capabilities. This capability will be developed for this program after 
promulgation of the final regulation. The standard government forms are 
already available electronically. CD ROMS and faxed information is 
acceptable at this time. Along with evaluating the possibility of on-
line applications, USDA will consider the security of such submittals.
Streamline and Simplify Application Process
    Comment: Many commenters recommended that USDA adopt a less 
burdensome application process for smaller projects. Some of these 
commenters suggested the development of a short-form. Commenters felt, 
for example, that the application process was too complex for energy 
efficiency improvements, the effort to apply too extensive relative to 
the benefit obtained, the burden was unreasonable for small producers, 
and the entire application process was discouraging to potential 
applicants.
    Response: USDA agrees with the commenters that a more streamlined 
approach is needed for smaller projects that will reduce the burden to 
the applicant, but at the same time provide the Agency with sufficient 
information to evaluate the merits of the proposed project. To this 
end, USDA has implemented a simplified application procedure for grant 
projects with total eligible project costs of $200,000 or less. The 
simplified application procedure requires significantly less effort on 
the part of the applicant by requiring less detailed Technical Reports. 
In addition, the less detailed Technical Reports may also be submitted 
for guaranteed loans for projects with total eligible project costs of 
$200,000 or less.
    Comment: One commenter recommended that USDA simplify the 
application process for projects less than 200 kW.
    Response: As noted previously, USDA has implemented a simplified 
application process for grant projects with total eligible project 
costs of $200,000 or less and for both grants and guaranteed loan 
applications, a less detailed Technical Report for projects with total 
eligible project costs of $200,000 or less. USDA elected to do this 
based on cost rather than capacity because cost cuts across all 
technologies (not all projects could be described in terms of 
kilowatts).
    Comment: One commenter stated that the burden analysis estimates 
the annual cost over a 3-year period has been $1.9 million for an 
estimated 388 applicants. This means an average of about $5,600 per 
applicant is needed to participate in this program. If a farmer or 
rancher is netting $25,000 per year, which is generous in many cases, 
the program is demanding an outlay of 22 percent of annual profits to 
participate. Also, if the grant received is fairly large, say $25,000 
on a $100,000 project, the ``burden amount'' is still 22 percent of the 
grant received since application costs are not allowable project 
amounts. This defacto increases the participants match amount to 
$80,600 or a 76 percent match ($80,600/$105,600 = 0.763). For medium to 
smaller sized operations, the estimated burden costs are significant.
    Response: As noted in an earlier response, USDA is implementing a 
streamlined application process for projects with total eligible 
project costs of $200,000 or less. This streamlined application process 
will result in less burden to those who use it, including the smaller 
sized operations. Also, USDA cannot accommodate the commenter's request 
because the statute limits the matching funds for grants to 25 percent 
and USDA does not have the authority to raise this limit.
Direct Rebate Program
    Comment: Many commenters recommended adding a rebate program to the 
9006 program to reduce the burden for commercially viable, proven, and 
environmentally beneficial technologies to help streamline the 
application process and reduce the administrative burden to USDA. One 
commenter suggested that a rebate program be a fixed grant amount for 
specific off-the-shelf technologies installed.
    Response: USDA is not authorized to use rebates in implementing 
this program. In lieu of such a program, USDA is implementing a 
simplified application process for grants where funds are disbursed at 
project completion. We believe the simplified application process 
achieves many of the burden reductions that could be achieved under a 
direct rebate program.
    The simplified application process is only available to projects 
with total eligible project costs of $200,000 or less. In selecting the 
$200,000 value, USDA first considered the exposure the Agency would 
incur if a project was approved, but never built--the higher the total 
eligible costs, the greater the exposure. For example, if USDA selected 
a value of $1 million to be funded at the maximum level of 25 percent, 
the Agency could lose $250,000 if the project was never completed, 
which USDA considers too high of an exposure. USDA then reviewed the 
type of projects that were funded under the 2003 and 2004 NOFAs. USDA 
assessed that projects with total eligible project costs of $200,000 or 
less tended to be smaller projects with a smaller likelihood of not 
being completed, thereby lowering the Agency's exposure. A $200,000 
total eligible cost project at 25 percent would result in a $50,000 
exposure by the Agency. While not an insignificant sum, the types of 
projects that would be built and the desire to open the project to more 
applicants led the Agency to select this value for the design build 
program with reimbursement at completion.
Pre-Applications
    Comment: Four commenters suggested that USDA add an optional pre-
proposal review step to the application process. They stated that some 
official department prior review of a one- to three-page Proposal 
Summary would give applicants an understanding of their eligibility and 
better guidance, before all of the expenses for a feasibility study are 
incurred. Pre-proposals are being used in some competitions to minimize 
the burden on proposal preparer and increase the overall quality of the 
submitted proposals that the reviewers must process. Pre-proposals are 
intended to provide intermediate feedback as to whether the applicant 
is on track in gathering and articulating some of the key information 
required for a successful project and whether that project would be 
appropriate for funding.
    One commenter suggested that the pre-proposal be structured to 
minimize inputs by the applicant, while providing evaluators and 
reviewers key information in determining the approval of the 
application. The pre-proposal could be structured in such a way to give 
evaluators enough insight on the project design so that more specific 
direction on the needs of a full proposal could be given to the 
applicant. The

[[Page 41277]]

commenter provided specific guidelines on how the pre-proposal process 
could be implemented.
    Response: USDA has decided not to formalize a pre-application 
process within the 9006 program because the Agency does not believe it 
is the best way to achieve the goals sought by the commenters. 
Applicants can obtain the same guidance that a pre-application process 
would provide by contacting their State Offices. USDA advises 
applicants to work with their State Offices as early in the application 
process as possible to help assess whether they and their projects are 
eligible prior to conducting other, more expensive application 
procedures. USDA will provide implementation and training materials to 
further help both the State Offices and prospective applicants. By 
providing this information outside the rulemaking process, USDA 
maintains greater flexibility in providing assistance to prospective 
applicants.
Technical Review
    Comment: One commenter suggested modifying and/or minimizing the 
technical reviews by NREL. If an engineer or engineering firm approves 
technical feasibility of the proposed project for the applicant, accept 
the information from the engineer. If NREL must perform a technical 
concurrence or refutation of the project, a system should be 
established that allows feedback to the applicants. If there is a bias 
against a particular technology or approach to renewable energy, 
communicate that with the States so they can perform better outreach.
    Response: USDA will review the technical feasibility of any project 
seeking funds under the 9006 program, regardless of the qualifications 
of the engineer or engineering firm hired by the applicant. Further, 
USDA or its designated contractor(s) will conduct the technical reviews 
in a manner that we deem fit and appropriate to the evaluation of the 
technical merits of each project. This review will be conducted without 
any bias on the type of project being proposed. If an applicant 
believes that his or her project has been unfairly denied, the 
applicant has the right to appeal that decision to USDA.
Application
    Comment: One commenter stated that in the past, technical reviews 
had been compromised due to missing portions of the application. The 
commenter recommended that applicants submit two copies, one to the 
National Office and one to the appropriate USDA State Office, thereby 
ensuring that both offices have the complete data required to evaluate 
the application.
    Response: USDA agrees with the commenter that two applications 
should be submitted, and the final rule has been revised to reflect 
that. However, in the final rule, the two copies will be submitted to 
the Rural Development State Office, which is the responsible office for 
implementing the 9006 program, including the scoring of the 
applications. The State Office will then forward a copy of the 
application and its score to the National Office, whose role is to 
establish the procedures for the 9006 program and to rank the 
applications from all 50 States.
Application Content
    Comment: One commenter stated that there is no mention of 
submitting organizational documents. The proposal only asks for a 
description of the business, farm, or ranch operation and ownership. 
The commenter stated that they had encountered applications stating 
they had a partnership, but when the reviewer asked for a copy of the 
partnership agreement--the applicants said it was a verbal agreement. 
Is that acceptable? What assurance is there that the applicants are a 
legally formed entity? Also, only by examining the Articles of 
Incorporation can you determine whether nonprofits were organized 
solely for charitable purposes.
    Response: USDA agrees with the comment and the final rule requires 
applicants, except for sole proprietors, to submit a copy of their 
legal organizational documents.
    Comment: One commenter, commenting on proposed Sec.  
4280.111(a)(4)(iii)(A), stated that, because the demonstration of a 
financial need is not an appropriate threshold factor, the explanation 
of such a need should not be required in the application.
    Response: Section 9006(b) requires a farmer, rancher, or rural 
small business to demonstrate financial need in order to be eligible 
for a grant under this program. Therefore, USDA must include this 
requirement. In the final rule, all grant applicants must submit a 
statement certifying that they have financial need. Those grant 
applicants not using the simplified application process must also 
submit sufficient information to allow the Agency to make its own 
determination of the applicant's financial need. For those grant 
applicants using the simplified application process, the Agency may 
request the applicant to provide supplemental information that will 
allow the Agency to make its own determination of the applicant's 
financial need.
    Comment: One commenter requested clarification on how USDA intends 
to use the information provided in the application by agricultural 
producers on the gross market value of their agricultural products for 
the calendar year preceding the year in which they submit their 
application. The commenter stated that if this information is to be 
used to document a producer as a true agricultural producer for program 
eligibility, this is fine. However, if a single year's crop gross 
market value is used by USDA to determine financial need, the commenter 
stated that this is inappropriate, noting that crop year 2004 is a rare 
year in which farmers in many States are realizing record yields in 
concert with steady crop prices. The commenter believes that this rare 
year of plenty should not be used to restrict eligibility for grants 
under the 9006 program.
    Response: USDA will use this information to determine whether an 
applicant qualifies as a ``small agricultural producer'' when it scores 
applications. While it will not be used to determine if an applicant is 
an agricultural producer, it will be supporting evidence that the 
applicant is an agricultural producer. Finally, it will not be used to 
determine an applicant's financial need. USDA does not believe the 
final rule needs any modification or clarification.
    Comment: One commenter asked whether applicants will be required to 
have a Federal tax ID number at the time of application, along with the 
DUNS number.
    Response: Yes, both are required.
    Comment: One commenter made the following points:
     The Table of Contents is superfluous and has not been 
helpful when it has been included.
     Pro forma balance sheet--only the cashflow statement has 
provided useful information when the application was for a grant only.
     Business market information is not really needed for 
renewable energy systems if the applicant has a power purchase 
agreement or letter of intent to do so.
    Response: In the final rule, the Agency has elected to keep the 
Table of Contents. It assists the applicant in organizing its 
application materials to its best advantage. It itemizes requested data 
to ensure complete information at the outset. It acts as an organizer 
of information for more efficient and timely review.

[[Page 41278]]

    With regard to the pro forma balance sheet, we have elected not to 
require it for projects with total eligible project costs equal of 
$200,000 or less. For very small businesses, pro formas are not always 
as accurate or helpful as they are for larger projects. Therefore, we 
have eliminated the requirement for pro forma balance sheets for 
smaller projects. However, we have retained it for larger projects 
(i.e., those projects with total eligible project costs greater than 
$200,000) due to the nature, scope and complexity, and financial risk.
    Finally, the specific requirement for business market information 
from the general application section has been removed, but is still 
required in the Technical Reports for certain projects where such 
information is important to the feasibility of the project. In 
addition, such information would be provided in the business-level 
feasibility study, if one is required.
    Comment: One commenter referred to the credit reports required for 
those owning more than 20 percent and suggested an exception for 
nonlocal financial owners making use of Federal tax credits.
    Response: USDA has revised the rule to make it easier for passive 
investors, which would include nonlocal financial owners making use of 
Federal tax credits, to participate in renewable energy projects. To 
this end, we have revised the credit report requirement such that 
credit reports are not required for passive investors (and for those 
corporations listed on a major stock exchange).
Power Purchase Agreement (PPA) and Interconnection Agreements
    Comment: Five commenters recommended that USDA exempt 100 kW or 
less renewable energy projects from the requirement of having a PPA or 
interconnection agreement. According to the commenters, renewable 
generators up to 100 kW are guaranteed the right to interconnect under 
Section 210 of Public Utilities Regulatory Policies Act (PURPA), 1978. 
In most States the interconnection rules, including net metering 
availability, are spelled out. No PPA or, according to one commenter, a 
project-specific interconnection agreement, is required. One of the 
commenters stated further that, in most States, the interconnection 
rules, including net metering availability, are spelled out and that no 
PPA or project-specific interconnect agreement, which can take 
considerable time and expense to obtain, is required.
    Response: USDA disagrees that projects funded under the 9006 
program should not be required to obtain a PPA or an interconnection 
agreement when the applicant intends to sell power generated by the 
proposed project. For many of these projects, the ability to sell power 
makes them financially feasible. If the project is interconnected with 
an electric power system, it is inherent that an interconnection 
agreement and a PPA must be made. These agreements and arrangements are 
covered by different regulations and policies (State, Federal, public 
utility) that are beyond the scope of the regulation. Agreements with 
the utility buying the power will help ensure USDA that it is funding 
projects that will come to fruition.
    Comment: One commenter stated that requiring the applicant to 
provide an interconnection agreement or a letter of intent for an 
interconnection agreement should not be an application requirement for 
any project pursuant to this program. The commenter stated that this 
provision forces the applicant to rely upon the third-party utility to 
provide assistance or information that may not be required of that 
utility by law. While all utilities must interconnect in Iowa, the law 
does not currently provide a time in which the utility must 
interconnect, and the applicant may not be able to obtain such a letter 
from the utility in order to meet the requirements of the application 
process. Second, utilities do not often enter into interconnection 
agreements until the engineering plans are submitted, potentially 
amended, and approved by the utility, and the regional transmission 
operator if necessary; and so unless a project is ready for the 
installation and construction phase, it is unlikely that the applicant 
would be able to obtain an interconnection agreement or even a letter 
of intent.
    Response: As noted in the previous response, USDA is still 
requiring applicants to obtain the necessary PPA and/or interconnection 
agreements prior to USDA obligating funds to a project. We concur with 
the commenters that an agreement or letter of intent may be beyond the 
applicant's ability to obtain at the time of application. Therefore, 
USDA has revised what is required at the time an application is 
submitted. Under the final rule, an applicant is required in the 
application to demonstrate familiarity with the regulations and utility 
policies. In order to do this, it is necessary that the applicant be 
knowledgeable of the interconnection and power purchase arrangement 
available to them, and that they demonstrate to USDA that they have a 
working knowledge of these requirements for their project. In addition, 
in the Technical Report, the applicant is required to describe the 
utility system's interconnection, requirements, power purchase 
agreements, or licenses where required. USDA advises applicants to 
provide sufficient information in this regard because the 
interconnection and PPA are critical elements in determining whether 
the project has technical merit.
    Because USDA considers these agreements to be critical, the scoring 
of applications for those projects that are proposed for 
interconnection will receive the maximum available points if the 
necessary agreements or letters of intent to award these agreements are 
submitted with the applications.
    Comment: One commenter stated that applicants are required to 
provide an economic impact analysis for their project. The commenter 
feels this is an additional area to streamline, improve, and simplify 
the application process by eliminating this requirement for 
agricultural producers and small businesses.
    Response: An economic impact study is part of the business-level 
feasibility study. As noted in a later response, the business-level 
feasibility study is mandatory for renewable energy projects with total 
eligible project costs greater than $200,000 under the 9006 program. 
When a business-level feasibility study is required, the economic 
impact study is still a part of such a study.
    Comment: One commenter requested that renewable energy systems that 
the exemption for providing a feasibility study conducted by a 
professional engineer (PE) be raised to more than $100,000. The 
commenter observed that his organization had forgone project 
applications because the feasibility study would have cost more than 
$25,000.
    Response: Business-level feasibility studies prepared by an 
independent, qualified consultant, not necessarily a PE, will be 
required for renewable energy projects with total eligible project 
costs greater than $200,000.
    Comment: Several commenters expressed concern regarding consistency 
with the $100,000 threshold throughout the rule and the units 
associated with it, as it related to the proposed feasibility studies 
and other requirements.
    One commenter stated that the proposed rule's requirements for a 
feasibility study were inconsistent. In this section, a feasibility 
study is required for projects with a total cost above $100,000, while 
in the SUPPLEMENTARY INFORMATION section, a feasibility study is 
defined as being required for grant requests over $100,000. Commenter 
stated that these

[[Page 41279]]

inconsistencies would confuse the reader and recommended that the 
wording be changed so that a feasibility study was required when the 
total project cost was above $250,000.
    Another commenter recommended that feasibility studies be required 
only for projects over 100 kW.
    A third commenter stated that the threshold for requiring a 
feasibility study for renewable energy projects is not consistent 
between the preamble discussion and the proposed regulation. In the 
preamble, it refers to projects in excess of $100,000, and in the 
regulations, it refers to requests in excess of $100,000. As the 
request cannot exceed 50 percent of the total project, this is a 
significant difference. The commenter recommended the threshold be 
based on the size of the project and not the size of the request (this 
is a more consistent value to base the requirement on); however, the 
threshold should be increased to $500,000. The Rural Development Office 
should have the ability to waive this requirement if the application is 
for an existing business and the renewable energy system does not have 
a significant impact on their operation (similar to the ability to 
waive feasibility studies in the current B&I program).
    A fourth commenter requested clarification of $100,000 threshold 
for additional requirements. The multiple references to the $100,000 
threshold for ``feasibility study for renewable energy systems,'' 
``services of professional engineer,'' and ``energy audits'' is unclear 
in the proposed rule and needs clarification (i.e., either total 
project request or total project cost). The commenter recommended a 
return to the language and requirements as stated in the 2004 NOFA 
published in the Federal Register (69 FR 25234-25259, May 5, 2004) for 
``feasibility study for renewable energy systems.''

--Feasibility study for renewable energy systems. Each application for 
a renewable energy system project, except for requests of $50,000 or 
less, must include a project-specific feasibility study prepared by a 
qualified independent consultant.''

    If stating thresholds in terms of total project costs, it would 
read:

--Each application for a renewable energy system project, except for 
projects costing $200,000 or less, must include a project-specific 
feasibility study prepared by a qualified independent consultant.''

    For the use of the services of a PE, the proposed rules reads: 
``Projects costing more than $100,000 require the services of a 
professional engineer (PE).'' This requirement would no longer fit the 
above statement on requirements for a feasibility study; thus, we 
suggest a change of threshold for the requirement of a PE.
    The commenter suggested the following language:
    ``Project requests of more than $50,000 will be required to employ 
the services of a professional engineer (PE).''
    If stating thresholds in terms of total project, costs, it would 
read:
    ``Project costing more than $200,000 will be required to employ the 
services of a professional engineer (PE)''
    The energy audit requirement is a good requirement for any energy 
efficiency project. The commenter suggested the following language if 
all thresholds are stated in the amount requested:
    ``For energy efficiency improvement projects with a request in 
excess of $25,000, an energy audit is required.''
    A fifth commenter stated that using the word ``request'' is 
unclear. A question remains as to whether feasibility studies are 
required for projects with a total cost of $100,000 or if they are 
required for those projects in which the Federal share or Federal 
request will be $100,000. The latter would provide for feasibility 
studies required for those projects that cost $400,000 or above.
    Response: First, an explanation of the thresholds used by USDA is 
discussed in other comments in this preamble.
    Second, as noted previously, the requirement for a stand-alone, 
business-level feasibility study will be required for renewable energy 
projects with total eligible project costs greater than $200,000.
    Third, in the final rule, with two exceptions, all levels at which 
certain requirements are incurred (e.g., energy audits, use of a PE) 
are now consistently expressed in terms of ``total eligible project 
costs.'' The first exception is under the loan program, where certain 
requirements are associated with ``loan requests.'' The second 
exception is under Sec.  4280.115, where certain requirements are based 
on the cost of the contract.
Business-Level Feasibility Study for Renewable Energy Systems
    Comment: One commenter stated that according to the proposed rule, 
``because of factors of cost and complexity for renewable energy system 
projects of more than $100,000 a project-specific feasibility study 
will be required.'' It is our understanding that feasibility studies 
that are completed prior to the award are eligible for reimbursement 
under this program. If feasibility studies completed prior to the award 
are not eligible for reimbursement, the commenter recommended that two 
phases of the program be implemented. One phase for the feasibility 
study/business plan/planning phase and one phase for project 
implementation. The commenter proposed that this could be similar to 
the Value-Added Producer Grant program. By allowing applicants to 
conduct a feasibility study with program funds before implementing 
their project, USDA can ensure that the implemented projects are of 
high quality and have a high probability for success.
    Response: In the proposed rule, the requirement for a project-
specific feasibility study (renamed as a business-level feasibility 
study in the final rule to better characterize the type of study and to 
distinguish from the Technical Report) was mandatory for renewable 
energy projects of more than $100,000. In the final rule, the Agency 
has revised this position to reflect that a business-level feasibility 
study will be required for renewable energy projects with total 
eligible project costs greater than $200,000.
    As noted in a previous response, the 9006 program is for the 
purchase of renewable energy systems and energy efficiency projects. 
The preparation of the Technical Reports are legitimate project costs 
and thus, are eligible costs for reimbursement provided the project is 
awarded a grant or loan. USDA will not pay for the costs of a study 
that are incurred for a project that is not successful or for ``stand 
alone'' studies.
Technical Reports
    Comment: Two commenters recommended streamlining the application 
process for small projects by reducing the technical requirements or by 
incorporating this information into the project narrative. One of the 
commenters was specifically concerned about the requirements for small 
wind and small solar projects.
    Response: As noted in previous responses, USDA has provided a 
simplified application process for grants for projects with total 
eligible project costs of $200,000 or less. The Agency believes most 
small solar and small wind projects will be eligible for this 
simplified application process. Part of the simplified application 
process is the development of a ``reduced'' technical report for these 
smaller projects. The Agency believes that the reduced technical 
reports will significantly streamline the application process and 
reduce the burden to the applicant.

[[Page 41280]]

    Comment: One commenter recommended including the general 
requirements in the regulation while developing more specific 
requirements in a guidance document that can be updated periodically.
    Response: USDA, in general, agrees with the commenter on both 
comments. First, the rule has been revised to include the general 
requirements for the Technical Report in the body of the rule, but with 
more specific requirements in the appendices to the regulation, not as 
guidance documents.
    Comment: One commenter suggested that identifying the schedule of 
utilities and regional transmission operators, where necessary, is not 
always possible. According to the commenter, the requirement for 
applicants not interconnecting to identify the interconnection and PPAs 
and schedules thereof is not necessary for those applicants not 
interconnecting. The commenter pointed out that many utilities do not 
require interconnection agreements for projects installed on the 
customer side of the meter, but the utility may require some safety 
equipment assurances and so simple proof of that investigation should 
be appropriate.
    Response: USDA agrees with the commenter that such agreements are 
not applicable to applicants who are not interconnecting. The revised 
rule language now uses these agreements as an illustration of one of 
the types of agreements that may be necessary.
    Comment: One commenter stated that the last sentence in proposed 
Sec.  4280.111(d) should be removed or explained further. The proposed 
rule does not clearly establish a threshold level, beyond those 
projects that cost more than $100,000, at which projects will require a 
professional engineer. The proposed rule does not establish who will 
decide what level of engineering is required or what kind of public 
safety issues will require the assistance of an engineer.
    Response: The sentence the commenter is referring to says: 
``Depending on the level of engineering required for the specific 
project or if necessary to ensure public safety, the services of a PE 
may be required for smaller projects.'' In general, the level of 
engineering required for smaller projects can widely vary. It is not 
practicable within this rulemaking to address each situation that may 
arise. Each project will have its own specific circumstances--the 
nature of the project itself, the site where the project is located, 
and the State and local requirements (e.g., public safety issues) that 
apply to the project.
    It is the proper role of the applicant to ensure public safety. It 
is the applicant's responsibility to determine what are the proper 
measures to be put into place. These measures may require the services 
of a PE. The language is included so as not to transfer the applicant's 
responsibility to USDA. The Agency will evaluate the technical merit of 
each project. Certain projects, especially those using pre-commercial 
technologies or those not pre-engineered, may be determined by USDA to 
need the services of a PE to assure technical viability.
    USDA advises all applicants to work with their State Office and 
other knowledgeable technical entities to determine whether their 
project requires the use of a PE and the type of PE. For these reasons, 
the Agency has not changed this language (although in the final rule 
the level at which a PE is required has been raised to $200,000 total 
eligible project costs).
    Comment: One commenter also referred to the last sentence in 
proposed Sec.  4280.111(d). This commenter noted that there could be 
many engineers involved on one project that oversee many different 
areas of the project that could hold responsibility for the design 
(civil, structural, mechanical, process, and electrical).
    The commenter believes that the requirement should state something 
along the lines of: ``Projects costing more than $100,000 will be 
required to employ the services of a professional engineer (PE), or a 
team of Professional Engineers that will ensure that all aspects of the 
project conform to National, State, and local codes.''
    Response: USDA agrees that a team of professional engineers can be 
used, and has revised the wording accordingly.
    With regards to referencing national, State, and local codes, 
compliance with these codes is addressed in the Technical Report 
requirement and USDA does not believe it necessary to repeat it here. 
We point out that, as installed, all projects have to meet all 
applicable national, State, and local codes. If the project is not 
compliant with applicable codes, it is not eligible for funds under the 
9006 program.
    Comment: One commenter asked about the use of foreign engineering. 
Questions raised by the commenter were: What if the project is designed 
by an engineer in Germany? Other countries do not have the same 
licensing requirements for engineers as the United States does, so 
there cannot be a ``PE'' certifying the technology. How are foreign 
engineers going to be able to ensure their technology meets or exceeds 
U.S. regulations when they are not even able to review documents 
without the use of an interpreter?
    Response: There is nothing in the rule that prohibits an applicant 
from employing the services of a foreign engineer, as long as the 
foreign engineer is licensed in the area in which the project will be 
built. This is required of any engineer, American or foreign--the 
engineer must be licensed in the jurisdiction in which the project is 
located regardless of where the person resides or what country the 
engineer is a citizen of. USDA notes, however, that an applicant does 
not need a PE to certify the technology. If an applicant uses foreign 
engineers who are not appropriately licensed, then someone who is 
properly licensed will have to be employed. USDA expects that most 
foreign engineers that an applicant would use for renewable 
technologies have done business in the United States and are familiar 
with the necessary licensing requirements. Thus, we do not expect the 
use of foreign engineers on projects under this program will be a major 
issue.
    Comment: One commenter stated that applicants not planning to sell 
the excess energy generated should not be required to provide data 
identifying existing demand, supply, and the market niche for the 
energy produced.
    Response: USDA agrees with the commenter. Further, the Agency 
believes that these data are not required of any applicant, except as 
they would be needed when a business-level feasibility study is 
required. The final rule has been revised accordingly.
    Comment: One commenter, commenting on proposed Sec.  
4280.111(d)(1)(i), suggested removing the first sentence completely or 
providing some parameters as to how USDA will qualify project teams.
    Response: The sentence referred to by the commenter states ``The 
biomass project team will vary according to the complexity and scale of 
the project.'' While USDA has removed this sentence in the main body of 
the rule, we have retained it for the Technical Reports in Appendix B. 
We point out that it is the applicant's responsibility to assemble a 
qualified project team, the exact composition of which will vary from 
project to project. If an applicant is unsure of what constitutes a 
qualified project team, USDA advises the applicant to contact their 
State Office, trade associations, and other knowledgeable persons in 
the renewable technology field. It is our intent to ensure that 
applicants adopt good engineering and business practices in developing 
their projects; it is not our intent to define what those practices 
are.

[[Page 41281]]

Once an application has been received, it will be reviewed by experts 
in the technology for that project. These experts will be able to 
assess the qualifications of the proposed project team.
    Comment: One commenter, commenting on several sections of the rule 
(e.g., proposed Sec. Sec.  4280.111(d)(1)(ii)(A), (C), and (F) and 
(d)(2)(ii)(F)) suggested inserting the word ``anticipated'' before 
``schedule.'' According to the commenter, identifying the schedule of 
local zoning boards or other governing or adjudicatory councils is not 
always possible.
    Response: USDA agrees with the commenter that there are activities 
outside the control of the applicant and that the addition of the word 
``anticipated'' schedule is acceptable. Therefore, the change has been 
made.
    Comment: One commenter referred to proposed Sec.  
4280.111(d)(2)(ii), which states: ``Anaerobic digesters must also be 
designed and constructed in accordance with USDA anaerobic digester 
standards.'' The commenter could not locate the standards being 
referred to and recommended that the actual required USDA standards be 
listed in the regulation so that the standards are clearly defined.
    Response: The standards USDA is referring to are in the process of 
being developed by USDA's Natural Resources Conservation Service (NRCS) 
and are not yet available. Because of this, the Agency has elected to 
remove this requirement from the rule. USDA may revisit this issue once 
the NRCS standards are available.
    Comment: One commenter recommended that applications identify all 
the major equipment that is proprietary equipment and justify how this 
unique equipment is needed to meet the requirements of the proposed 
design. The reviewing team can then determine if the use of this 
equipment is justified and therefore meets the test of free and open 
competition prior to the award of grant or loan. In the case of limited 
competition, the applicant would be required to provide information as 
to the pre-selection process used to select the designer/manufacturer 
for their proposal.
    The commenter states that the application process addresses the 
need to provide very specific and detailed information on equipment 
(many times this involves proprietary equipment), technology, 
availability of equipment, and vender servicing of equipment 
information. As stated in proposed Sec.  4280.111(d)(1)(i)(A), ``The 
applicant must also provide authoritative evidence that vendors of 
proprietary components can provide necessary equipment and spare parts 
for the system to operate over its design life.''
    From a procurement side, this many times conflicts with the Federal 
requirements to comply with ``maximum free and open competition.'' 
These free and open competition requirements have their roots in OMB 
Circular A-110 and the Grants Management Common Rule and are passed 
along to individual agencies via 7 CFR parts 3019 and 3016. One way to 
minimize problems is to have the applicant pre-qualify equipment, such 
as outlined in 40 CFR 33.230 (FR 3/28/83) or to utilize the RUS policy 
statement dated March 28, 2002, as it related to the preselection of 
equipment:
     Sometimes the selection of a major equipment item can 
significantly impact the remainder of the project. It is still 
important to maintain an environment of free and open competition in 
these circumstances. In cases like this, it may be best to conduct a 
``preselection'' process. Two preselection methods can be used. The 
first method is simply a pre-bid type of competitive negotiation in 
which manufacturers are requested to submit proposals to the owner on 
technical merit and prices. The owner and engineer analyze the pre-bids 
and select the equipment based on price and other factors. The name and 
price of the major equipment item is included in the construction 
contract documents used for the competitive bidding of the general 
contracts. The price of the pre-selected equipment is included in the 
general contract bid documents to prevent this ``preselection'' process 
from turning into a sole-source specification.''
     The second preselection method is a phased-bid approach in 
which the major equipment bid is conducted before the general contracts 
are bid. The first phase would be a competitive bid for the major 
equipment item based on technical requirements. One of the selection 
criteria in this phase may include a pilot test to confirm the 
equipment can perform as required. After the major equipment item 
manufacturer is selected, the project design can be finalized, and the 
remaining contracts bid competitively. Any first-phase contracts are 
bid with a hold period sufficient to allow for completing design of the 
remainder of the project and bidding the remaining contracts with the 
understanding that the first-phase contract(s) will be assigned to a 
general contractor when the second-phase contract is awarded. The owner 
discloses the name and price of the first-phase preselected contractor 
in the second-phase contract bidding documents.''
    A proprietary specification is not consistent with free and open 
competition and should be used only when project requirements are 
unique, as documented by the design engineer and concurred in by Rural 
Development, or needed for interchangeability of parts or equipment.
    Response: USDA agrees that the application should identify all the 
major equipment that is proprietary equipment and justify how this 
unique equipment is needed to meet the requirements of the proposed 
design. USDA has revised the rule to reflect this for Technical Reports 
prepared in accordance with Appendix B. In addition, the Agency has 
made it clear that applicants will use ``open and free'' competition 
for the procurement of project components in a manner consistent with 
the requirements of 7 CFR part 3015 of this title.
Energy Audits and Assessments
    Comment: Four commenters requested that a minimum project size 
requirement for an energy audit be $50,000. Commenters were in general 
agreement that energy audits are valuable at projects at this level of 
costs. One of the commenters suggested that USDA consider lowering the 
project cost for which an energy audit is required to below $50,000. 
Two commenters felt that the proposed rule did not clearly state when 
an energy audit and an energy assessment were required.
    Response: USDA agrees with the majority of commenters and is 
requiring projects with total eligible project costs greater than 
$50,000 to conduct an energy audit. In addition, these energy audits 
must be conducted or reviewed by an energy auditor. This requirement is 
being implemented for all applications. USDA is not lowering it further 
under this program, but will encourage applicants to utilize an energy 
audit on all such projects when implementing this program.
    The energy audit is a useful tool regardless of the size of the 
project. USDA believes that, given its cost, it should be required only 
for projects with total eligible project costs greater than $50,000. 
Energy audits on lower cost projects are still useful and USDA does not 
want to discourage applicants of lower cost projects from conducting an 
energy audit. Therefore, USDA is not requiring energy audits for 
projects with total eligible project costs of $50,000 or less, but 
wants to allow those projects the option of using an energy

[[Page 41282]]

assessment in lieu of an energy audit. In summary, the sections have 
been rephrased to make clear our intent--that an applicant is required 
to conduct an energy audit for projects with total eligible project 
costs greater than $50,000 and that, for projects with total eligible 
project costs of $50,000 or less, the applicant is required to conduct 
either an energy audit or an energy assessment.
    Comment: One commenter stated that rule needs to clearly state that 
an energy audit is required on all energy efficiency projects under the 
documentation portion of the regulations.
    Response: As noted in the previous response, energy audits are not 
required for all energy efficiency projects. The rule has been 
clarified to clearly indicate when energy audits are required and when 
they or energy assessments may be used.
    Comment: One commenter stated that USDA may wish to consider the 
requirements of the project team for energy efficiency improvement 
projects. The commenter points out that, in the technical report for 
energy efficiency improvement projects, an energy auditor is a required 
part of the project team, but an energy audit is not required for 
projects under $100,000. The commenter recommended that the title of 
energy auditor be changed to energy auditor/assessor in order to be 
clear as to how the requirements of an energy audit or assessment for 
energy efficiency improvement projects would be affected.
    Response: USDA has revised the rule to reflect that, for energy 
efficiency improvement projects with total eligible project cost 
greater than $200,000, the project team should include ``an energy 
auditor or other service provider,'' where other service provider can 
include an energy assessor. For energy efficiency improvement projects 
with total eligible project costs of $200,000 or less, the final rule 
requires the applicant to list ``all key service providers,'' which 
would include an energy auditor or assessor.
    The final rule requires either an energy assessment or an energy 
audit for energy efficiency improvement projects. For energy efficiency 
improvement projects with total eligible project costs greater than 
$50,000, an energy audit must be conducted by or reviewed and certified 
by an energy auditor. For energy efficiency improvement projects with 
total eligible project costs equal to or less than $50,000, an energy 
assessment or an energy audit may be conducted by either an energy 
assessor or an energy auditor.
Self-Scoring
    Comment: One commenter recommended that USDA allow applicants to 
provide preliminary self-scoring to enable complete technical review 
and scoring based on full applications. Another commenter felt that 
self-evaluations in which the applicant would review which aspects of 
their projects needed the most attention and to understand the funding 
projects would be helpful both to USDA and the applicant. The commenter 
stated that USDA could then compare their score calculations to the 
applicant's self-evaluation and confer with the applicant if they 
differ significantly.
    Response: USDA agrees with both commenters. The final rule requires 
applicants to submit a self-score.

F. Funding

Distribution of Funds
    Comment: Several commenters made suggestions on how funds should be 
distributed between the grant and loan programs. One commenter 
recommended that a portion of the funds be specifically set aside for 
grants initially, to be transferred to the loan programs if there are 
not enough high scoring grant projects available to use all set-aside 
funding. The commenter recommended that a loose guideline be added to 
the regulations regarding the amount of money allotted for each type of 
program. The commenter wants to ensure that the comparatively small 
energy efficiency project proposals have equal access to funding as 
larger renewable energy projects. Because of their lower cost, energy 
efficiency projects are most likely to apply for grant funding, instead 
of the loan guarantee or (in the future) a direct loan program. The 
commenter believes that available funds should be distributed evenly 
between the programs sections.
    Another commenter suggested a split of funds between renewable 
energy and energy efficiency projects. The commenter pointed out that 
the proposed rule did not elaborate on the policy used in the last two 
NOFAs of setting aside 50 percent of the funds for energy efficiency 
projects until all proposals were reviewed. The commenter recommended 
including the same language from the past two NOFAs in the final rule.
    Response: First, this comment is outside the scope of the 9006 
program regulation specifically. This comment deals with how USDA will 
allocate the funds provided to the program by Congress each year. USDA 
believes that all projects eligible under the 9006 program should have 
equal access to funds. Each year, USDA will determine what percentage 
of funds will be allocated to each of the funding programs. In making 
this determination, USDA will consider these comments and other similar 
comments with regard to allocations. It is USDA's intent that, if the 
funds set aside for either grants or guaranteed loans are not entirely 
obligated, the remaining funds will be made available to the other 
program.
    Comment: One commenter requested that USDA reserve at least 50 
percent of the available funds in a program year for direct grants. 
While loans and loan guarantees provide leverage of Federal dollars, 
the commenter believes that these will have limited appeal to smaller 
agricultural producers and rural small businesses and wants to ensure 
that there are sufficient funds available to support smaller applicants 
and smaller projects.
    Response: As noted in the previous response, USDA will consider 
this comment each year when we make the initial allocation of funds 
between the various funding programs. USDA points out that the scoring 
criteria will result in higher scores for those applications from 
smaller agricultural producers, which will assist in directing funds to 
these producers. USDA does not believe we should specifically set aside 
funds for smaller projects.
    Comment: One commenter stated that ``in the alternative, loan 
guarantees and grants under the proposed rule should be allowed to 
cover up to 80 percent of the cost of a qualified System.'' The 
availability of long-term, low interest Federal loans and project 
suitable grants would significantly increase the number of 
agricultural-based energy systems and encourage economic development 
and diversity within the agricultural community.
    Response: With regard to the percentage of the loan or grant to be 
made available to the applicant, the statute sets the limits and USDA 
cannot increase it to either the requested 80 percent or 100 percent. 
Therefore, no change to the rule has been made in this regard.
    Comment: Five commenters stated that USDA should set aside 10 
percent of available 9006 funds, or approximately $2.3 million, for the 
grant program and allow applications to be made throughout the year 
until funds are exhausted. Any unused funds could be rolled over to the 
next year with a corresponding reduction in replenishment funding.
    Response: As noted in previous responses, USDA will issue an 
announcement each year identifying the

[[Page 41283]]

amount of funds available and the initial allocation of those funds 
among grants, guaranteed loans, and direct loans. USDA will consider 
this and other comments when making those allocations. If funds 
initially allocated for one funding type (e.g., grants) are not 
obligated within the fiscal year, USDA may make those funds available 
to one of the other funding types (e.g., guaranteed loans) within the 
9006 program. USDA does not plan to otherwise ``set aside'' any 
specific amount of funds for any of the funding programs.
    Lastly, the commenters suggested that any unused funds be rolled 
over to the next year. While USDA would like to have this flexibility, 
Congress determines whether the 9006 program funds must be spent in a 
given year or can be carried forward.
    Comment: One commenter suggested that more of the money be 
allocated to small farmers and not just large corporations.
    Response: The scoring system awards extra points to small 
agricultural producers and to very small rural businesses, providing 
the applicants with the opportunity to score higher than larger 
agricultural producers. USDA believes this is the appropriate method 
for directing funds to smaller applicants rather than allocating a 
specific level of funds to small farmers.
    Comment: One commenter suggested that grants for emerging 
applications should be raised up to 50 percent of the installed 
application of up to 5.0 megawatts (MW) for renewable energy 
distributed applications.
    Response: USDA cannot accommodate the commenter's request because 
the statute limits the matching funds for grants to 25 percent and USDA 
does not have the authority to raise this limit.
    Comment: One commenter asked why energy audits or assessments, 
feasibility studies, and business plans are included in this listing of 
eligible project costs and whether these activities need to be 
completed before the application is submitted and therefore becomes 
ineligible. The commenter stated that if these activities do not need 
to be completed, their applicability needs to be more clearly 
explained.
    Response: The final rule requires energy audits or assessments and 
Technical Reports. Business-level feasibility studies will be required 
for renewable energy projects with total eligible project costs greater 
than $200,000. (In the proposed rule, business-level feasibility 
studies were required for renewable energy projects with total eligible 
project costs greater than $100,000.) These activities are included in 
the list of eligible project costs because they are clearly part of 
normal project development. Further, these activities must be completed 
prior to submitting the application because the technical evaluation 
and scoring of the application cannot be made without this information. 
Failure to supply this information at the time of the application makes 
the application incomplete, not necessarily ineligible. USDA will not 
evaluate or score applications that are not essentially complete. 
Therefore, applicants are advised not to submit applications without 
these items, as applicable.
    Comment: Two commenters stated that, in FY 2003 and FY 2004, 
anaerobic digesters were awarded disproportionately funds compared to 
other renewable energy systems during the same funding periods. A total 
of $43 million in grant awards were made in FY 03 and FY 04. However, 
during the same time period, anaerobic digesters were awarded $16 
million in grant funds out of the total $43 million over 2 years. A 
reason contributing to the higher portion of grant funds awarded to 
anaerobic digesters is due to the high capital costs inherent to the 
technology.
    Anaerobic digesters systems are not solely renewable energy systems 
in and of themselves. It is only after the investment is made in 
generator sets, that an anaerobic digester serves the purpose of 
generating electricity. The main benefits provided for by an anaerobic 
digester are more effective onfarm manure management and odor control, 
especially for facilities with large numbers of animal units. Not until 
the investment is made in the electrical generation equipment does a 
digester become a renewable energy system. Therefore, awarding one-
quarter of a total project cost for a system that serves multiple 
purposes besides renewable energy generation is not consistent with the 
intent of the statute.
    Commenter recommended considering total project costs associated 
with the anaerobic digester and energy recovery systems when 
determining total project costs, but to allow as eligible only those 
costs directly associated with energy use or production, such as 
engines, boilers, generators, fuel preparation and delivery systems, 
electrical interconnections, etc.
    Response: The commenter refers to the distribution of funds to the 
various technologies made under the 2003 and 2004 NOFAs and states that 
anaerobic digesters were awarded a disproportionate share of the funds. 
USDA points out that all projects for which funds were sought under 
these two NOFAs were accepted. Thus, to the extent any one technology 
received more funds than another reflects the types of applications 
received and not any bias on the part of USDA to fund one technology 
over another. In addition, the scoring in the final rule is intended to 
be technology ``neutral.''
    Finally, USDA disagrees with the commenter's recommendation that 
only those costs associated with the energy use or production be 
eligible costs. It is USDA's intent that all costs associated with the 
development of any renewable energy technology project, from the 
``ground up,'' and as specified in the rule are eligible costs.
Post-Application
    Comment: One commenter noted that project funding is allowed for 
post application construction or project improvements, except 
residential. The commenter suggested that USDA add in parentheses after 
residential (single family or multi-family) or simply say housing 
landlords are not eligible for assistance.
    Response: USDA does not agree that further clarification is needed 
within the regulation. USDA believes that the phrase ``residential'' 
plainly includes single family and multi-family residences. If 
additional clarification is needed, USDA will revise its regulations.
    Comment: One commenter expressed concerns that grant funding could 
not be used for residential projects. The commenter stated that 
residential and business areas are inseparable on many farms and that 
forcing farmers to separate such activities would be an undue burden. 
The commenter recommended that the rule be changed to allow 
residential-related expenditures when they are clearly business-related 
expenses or when they cannot be distinguished from business expenses.
    Three other commenters recommended that farm-based systems sharing 
a single meter for residential and business purposes should be allowed.
    Response: USDA recognizes that there will be instances where it is 
impossible to distinguish between residential and business areas. The 
decision to exclude residential projects was a policy decision on the 
part of USDA, and we have decided not to make a change as requested by 
the commenter. USDA made this decision, in part, on the basis of the 
availability of other Federal programs for residential projects and the 
availability of numerous State programs for residential projects. USDA 
believes that it is an unnecessary duplication to

[[Page 41284]]

include residential projects under the 9006 program. In conclusion, if 
an applicant cannot separate residential from business, the project 
will not be eligible under the 9006 program. Therefore, a single meter 
measuring residential and business usage is not allowed.
    Comment: Two commenters requested that the ``post-application'' 
period be better defined. One of the commenters stated that it is not 
entirely clear exactly when the ``post-application'' period begins. The 
commenter recommended that ``post-application'' be defined as after the 
date when the USDA officer receives the completed application.
    The other commenter believes that there needs to be a clarification 
of when the project is considered post-application purchase and post-
application construction. The commenter questioned whether the 
applicant cannot initiate any construction until the application is 
filed, or if the applicant is expected to wait to initiate construction 
until the application is filed and approved by the Agency (even if the 
project will move forward regardless if it receives funding). This 
commenter also suggested using the term ``post-award'' rather than 
post-application to further clarify and reinforce the concept that the 
project should not start until funding has been awarded and the 
necessary environmental review has been done.
    Response: USDA agrees that the date the post-application period 
begins needs to be better defined and further agrees with the commenter 
that the post-application period begins when the Agency receives an 
``essentially'' complete application. An ``essentially'' complete 
application is one that has all parts necessary for USDA to determine 
applicant and project eligibility, to score the application, and to 
conduct the technical evaluation. USDA has incorporated this concept in 
the definition of ``post-application.''
    With the date of the post-application period beginning when the 
Agency has received the completed application, the rule allows an 
applicant to incur costs once an essentially complete application has 
been received by the Agency. The applicant does not have to wait until 
the application is approved to begin construction. However, if the 
applicant takes any action that would limit the range of environmental 
alternatives to be considered or that would have an adverse effect on 
the environment, the project will be ineligible. Also, if the applicant 
begins construction prior to submitting a completed application, those 
costs are not eligible.
    Finally, USDA does not see the need to substitute the term ``post-
award'' for ``post-application.'' The main difference is that 
environmental clearance would have been completed by the Agency post-
award. Therefore, the applicant would not have to guess, as they do 
post-application and pre-award, whether their construction would 
potentially limit the range of environmental alternatives to be 
considered or have an adverse impact on the environment and thereby 
make the project ineligible. USDA believes that education of those 
implementing the program and clarification of this point here is 
sufficient. Therefore, USDA has not revised the terminology as 
suggested.
New Construction
    Comment: One commenter recommended that the proposed rule, which 
currently excludes new building construction, unless it replaces a 
virtually identical facility, be changed such that the incremental cost 
of energy efficiency and renewable energy relative to standard new 
building construction could be considered an eligible expense.
    Response: USDA believes that there is no objective way to implement 
the commenter's suggestion and is concerned that to try to implement 
the commenter's suggestion could lead to abuse. Therefore, USDA has not 
revised the regulation per the commenter's suggestion.
In-Kind Contributions
    Comment: Several commenters were concerned about limiting the in-
kind contribution to 10 percent, with most suggesting that it be raised 
to 25 percent. Commenters generally felt that limiting in-kind 
contributions would unnecessarily hamper collaboration efforts with 
such entities as universities, private foundations, and research 
partners.
    Response: USDA believes that 10 percent is a large enough 
``window'' to allow universities and other parties to provide the type 
of assistance they are capable of providing. Nothing in the rule 
precludes such entities from assisting applicants, and the applicant 
still benefits at the 10 percent limit. Therefore, USDA has retained 
the 10 percent limit on in-kind contributions in the final rule.
    Comment: One commenter felt that provisions within these sections 
did not make it easy for the farmer or small business to serve as 
contractor. The commenter felt that USDA should allow in-kind 
contributions by farmers or small businesses and should allow farmers 
and small businesses to serve as contractors ``without so much red tape 
to save cost and to help leverage Federal funds.''
    Response: The scope and complexity of many of the projects that 
would be funded under the 9006 program would require the use of third-
party entities that possess the requisite expertise to construct 
renewable energy projects and make energy efficiency improvements. 
Further, if a project is not properly constructed and installed, the 
applicant can hold the contractor responsible for completing the 
project satisfactorily. This level of accountability is lost if the 
applicant is also the contractor. Therefore, except as discussed below, 
USDA has decided that it is in the best interest of the 9006 program as 
a whole to prohibit applicants from also being the contractor.
    Under the final rule, applicants will be allowed to perform part of 
the work themselves provided they meet the expertise requirements 
contained in Sec.  1780.67. As noted above, however, the applicant's 
in-kind service will not be counted towards the matching fund 
requirement and will reduce the total eligible costs associated with 
the project (thereby reducing the maximum amount of funds that could be 
requested).
    Comment: One commenter stated that, although requirements for in-
kind contributions were reasonable, strictures against any other 
Federal co-funding could restrict applications. The commenter observed 
that an applicant could receive funding from Federal sources other than 
USDA. Rather than impose a blanket ban on other Federal funding, the 
commenter recommended that USDA develop a specific list of programmatic 
funding exclusions.
    Four other commenters suggested that co-funding from State rebate 
programs be fully allowed. Another commenter stated that USDA should 
allow full co-funding from State public benefit rebate programs.
    Response: USDA made an administrative determination that the 25 
percent limit for grant funding of a project is applicable to funds 
received under the 9006 program and all other Federal grants. No 
changes have been made in the final program. State funding, regardless 
of source, is an acceptable source of matching funds.
Funding Levels
    Comment: One commenter requested clarification of the $750,000 
grant limitation per entity. The commenter asked if the limit applies 
to a single fiscal year. The commenter also asked if the same 
individual or entity can apply

[[Page 41285]]

for that amount the following year as well.
    Response: USDA has clarified in the regulation that the $750,000 
grant limitation applies to the Federal fiscal year. Applicants may 
apply for grants (or loans) in successive years, with no limitation. 
However, if a grantee (or borrower) has not made satisfactory progress 
towards the completion of projects previously funded under the 9006 
program, as determined by USDA, USDA will deny further grant or loan 
assistance.
    Comment: One commenter requested clarification on the relationship 
of the B&I program and the proposed rule. The commenter asked whether 
the B&I program guaranteed 50 percent of the loan or 80 percent to 100 
percent.
    Response: Under the 9006 program, an applicant may request 
guaranteed loans under both the 9006 program and the B&I program for 
the same project. In this instance, two loans would be established--one 
under the 9006 program and the other under the B&I program. The percent 
guarantee for each loan would be determined based on the respective 
program. For the 9006 program loan, the percent of guarantee would 
range from 70 to 85 percent depending on the amount of funds being 
requested for the 9006 program loan (see Sec.  4280.123(c)). For the 
B&I program loan, the percent guarantee would range from 60 to 80 
percent, unless the Administrator grants an exception in which case the 
loan guarantee could be as high as 90 percent (see Sec.  4279.119(b)).
    Comment: Two commenters suggested that the grants be limited to 
certain size (kilowatt) restrictions. One of the commenter suggested 
that grants be limited to systems of 10 kW or less, with the 25 percent 
grants capped at $15,000. The other commenter suggested that grants 
would be limited to systems of 200 kW or less, with the 25 percent 
grants capped at $50,000.
    Response: USDA believes there should be an emphasis on small 
projects. However, USDA believes it is important for the program to be 
available to as many eligible projects as possible. Consequently, USDA 
disagrees with the approach used in this comment to place emphasis on 
small projects. Instead of adopting the size limitations suggested by 
the commenter, USDA has decided to emphasize small projects by awarding 
them priority points. Although the approach is different, we believe 
this captures the concern of the commenter.
    Comment: Several commenters commented on the minimum funding level 
proposed for grant applications.
    Several of the commenters supported the minimum funding amount of 
$2,500. In general, these commenters stated that this level will 
encourage small agricultural producers or rural small businesses to 
apply for funding, that projects requiring additional assistance under 
$2,500 are not likely to benefit in any sustainable way from the 
additional assistance, and that the $2,500 amount also potentially 
allows additional leverage for a larger number of projects to be 
funded.
    Two commenters, on the other hand, requested that USDA lower the 
minimum funding level. One of these commenters stated that the majority 
of their company's audit reports recommend installing a mix of 
equipment that costs between $6,000 and $10,000. Since there is a 
$10,000 minimum equipment cost that farmers must reach in order to be 
eligible for Section 9006 grants, many small farms that can achieve 
significant energy savings are not eligible to apply for any 
assistance. These small farmers comprise the group targeted by Section 
9006 as needing the most assistance, yet with the proposed rule they 
are left out. One of the commenters recommends that, in order to best 
serve the small, possibly struggling farms, USDA consider lowering the 
minimum equipment cost.
    The other of the two commenters requested USDA to clarify these 
criteria to allow applications that combine small energy efficiency 
projects. Although energy-efficiency projects can take the form of 
large capital projects, they are often improvements and upgrades to 
existing equipment and facilities. As such, energy-efficiency projects 
do not always involve large capital expenditures. Given that small 
farms and other rural small businesses are a major target audience, it 
is likely that total project costs for many individual energy-
efficiency projects will fall under $10,000 (making them ineligible for 
grants assuming a minimum grant of $2,500 with a 75 percent cost-share) 
or even $5,000 (making them ineligible for guaranteed loans, assuming a 
minimum loan of $2,500 with a 50 percent cost-share).
    Response: USDA proposed the $2,500 minimum funding level because 
the Agency recognized the application process, as proposed, was such 
that it would be unlikely that projects costing less than $10,000 would 
apply for funds under this program. However, with the simplified 
application process that allows applicants to submit a less detailed 
application, we believe that the minimum funding level can be reduced 
to help attract additional, worthwhile projects. Based on the 
commenters' suggestions, we have set the minimum funding level at 
$1,500 (equivalent to $6,000 in total eligible project costs at the 25 
percent funding level) for energy efficiency improvement projects.
    Comment: Two commenters expressed concern over the minimum funding 
amount of $2,500 for guaranteed loans. Both commenters stated that it 
is not practical or economical to complete the paperwork process for 
that small of a loan. One of the commenters recommended that the 
minimum funding level be raised to $100,000. The other commenter 
recommended at least $50,000. According to this commenter, it is 
generally not worth anyone's effort for the documentation and costs 
associated with a guaranteed loan to look at anything less than 
$100,000.
    Response: In the final rule, USDA has raised the minimum amount for 
a guaranteed loan from $2,500 to $5,000. If the new minimum amount is 
still not practical or economical to complete the paperwork process for 
that size loan, then a lender is not required to participate in that 
loan.
    Comment: One commenter requested additional clarification to 
determine the collateral positions/requirements if the maximum loan 
request was applied for under this rule and another loan was requested 
under the regular B&I program.
    Response: Where joint financing is being secured by the same 
assets, a parity lien position will be taken.
Other Funding Mechanisms
    Comment: One commenter suggested that commercialized systems should 
also be eligible for the USDA loan program either under Section 9006 or 
Farmers Loans or via the Rural Utility Service (RUS).
    Response: Commercialized renewable systems are eligible under the 
9006 program. Commercial systems producing electricity are eligible for 
funding under the RUS programs. However, the Farmers Home 
Administration is no longer in existence. To determine whether or not 
RUS programs are of interest to an entity, that entity should contact 
RUS directly.

G. Evaluation/Scoring of Applications

General
    Comment: Three commenters stated that, in FY 04, USDA awarded 
several grants to applicants who also received grants in FY 03. The 
commenters recommended that the rules discourage multiple applications 
by the same

[[Page 41286]]

entities by awarding 5 points to applicants that have not been previous 
funding recipients and by limiting funding for all project phases at a 
single site to 2 years. According to the commenters, these two 
conditions would help to spread the Section 9006 funding resources 
among the broadest possible number of applicants and in broader 
geographic areas.
    Response: USDA has revised the regulation to award 10 points to 
applicants who have not received funding in the 2 previous Federal 
fiscal years. USDA, however, disagrees that funding at a single site 
should be limited to 2 years or to any number of years. USDA believes 
that each application should be evaluated on its own merit without 
regard to previous applications made for projects at the same site. By 
evaluating each application on its own merit, USDA ensures that funds 
will only go to projects with significant merit.
    Comment: One commenter felt that the evaluation criteria were not 
detailed enough and did not account for the noneconomic benefits of any 
particular project. The commenter recommended incorporating the 
following weighted considerations into evaluation criteria:
     Business Impact, 25 percent.
     Technical Merit, 35 percent.
     Environmental Benefits, 10 percent.
     Replicability, 10 percent.
     Small Applicant, 10 percent.
     Rural Economic Development, 10 percent.
The commenter also provided extensive justification for his 
recommendations.
    Response: USDA has modified the criteria for scoring in the final 
rule, taking into account this comment and others. In terms of this 
commenter's suggestions, we have added or modified the criteria for 
technical merit, environmental benefits, commercial availability 
(replicability), and small applicants. We have not added a criterion 
for business impact, although within the technical merit criterion we 
have included a subcategory on financial and market assessment. Lastly, 
we have not included a rural economic criterion. Eligible projects must 
be located in rural areas and thus, we did not see this suggested 
criterion as adding value to the scoring process.
    With regard to the weighting suggestions, USDA has re-scored the 
criteria as we deemed appropriate, to give higher weighting to 
applications from smaller agricultural producers, very small 
businesses, and small projects. We think this is appropriate to further 
the goals of the authorizing statute.
    Comment: One commenter expressed two concerns with the evaluation 
of grant applications: Inconsistencies in how the evaluation criteria 
are applied; and a disconnect between the kinds of projects that score 
well based on these criteria and projects that have a good chance for 
success or even being built. The commenter provided suggestions for 
procedures and language to address the scoring inconsistencies and ways 
that the evaluation criteria can be improved in order to better reward 
stronger projects, including ensuring that State Offices submit the 
entire application along with the assigned scores, providing more 
training to State Offices responsible for administering the program, 
and implementing a system to compare scores between renewable energy 
and energy efficiency projects. With regard to the last suggestion, the 
commenter stated that because the evaluation criteria for the two 
categories of grant applications are different, it is important that 
USDA have the ability to compare the projects to each other when 
distributing the last bit of funding each year. The commenter believes 
that a low-scoring energy efficiency project should not be funded over 
a relatively higher scoring renewable energy project if funds for 
renewable energy projects are exhausted more quickly (and vice versa). 
The commenter suggested one possible method for comparing scores: 
calculate a percentage of points earned by an applicant by dividing 
points awarded by the total points possible. This percentage could be 
used to compare renewable energy and energy efficiency projects when 
allocating the last of the funds available each year.
    Response: In order to ensure consistent results, USDA is 
standardizing its evaluation materials and providing for a review of 
all initial scoring. With regard to the assertion that there is a 
``disconnect'' between projects that score well and those that have a 
good chance for success or even being built, USDA has implemented in 
the final rule a scoring criterion on technical merit. This should 
alleviate the asserted disconnect for projects ``that have a good 
chance for success.'' However, it is nearly impossible to establish 
within a regulation whether or not a funded project will actually be 
built by an applicant. USDA believes that only applicants who actually 
intend to build their projects will expend the effort to submit an 
application.
    Finally, with regard to scoring between renewable energy projects 
and energy efficiency improvement projects, in the final rule, USDA has 
revised the points to equalize the maximum points that can be scored by 
the two project types. This change puts all projects on equal footing 
and allows a direct comparison of scores. USDA notes that an applicant 
is allowed to submit applications for a combined renewable energy 
project and energy efficiency improvement, and each application will be 
evaluated separately based on its own merit.
    Comment: One commenter suggested that innovative projects 
leveraging different sources of funding (loans, guarantees, and grants) 
should receive the highest priority eligible for grants.
    Response: USDA disagrees that different types of funding should 
serve as a criterion for scoring applications. USDA does not believe 
that combining different sources of funding is important in determining 
which projects receive funding, and therefore has not adopted the 
commenter's suggestion.
    Comment: One commenter recommended that USDA recognize and utilize 
existing support infrastructure to assist in grant and loan 
evaluations. Existing programs within USDA could be tapped to promote 
prequalification screening, build grants-response assistance, and 
supply project development workshops with necessary materials.
    Response: USDA plans to develop training and assistance material to 
help applicants utilize the 9006 program. However, we have not included 
pre-qualification screening to the program because applicants can and 
are encouraged to seek advice from their State Office prior to 
beginning the application process to assess their project.
    Comment: One commenter noted that, as proposed, the applicant is 
required to create financial projections for a proposed project. In 
doing this, there are no required formats and no checks on whether a 
given set of projections is reasonable. As a result, two similar 
projects could have very different financial projections and paybacks. 
For example, one wind project might have a realistic assumption for 
maintenance and insurance costs while another might have underestimated 
these. The State Rural Development staffs do not have the knowledge to 
catch these inconsistencies. Similarly, the technical reviewers at NREL 
might only catch these discrepancies if they were way out of line, for 
example, by a factor of two or more for significant expenses.
    To address this evaluation problem, the commenter recommends that 
USDA, with the assistance of NREL, develop standard industry metrics 
and financial templates for the most common project types. Based on the 
first 2 years of the

[[Page 41287]]

program, these project types should be small wind, utility-scale wind, 
and anaerobic digesters. By having these metrics and templates, a 
project with unrealistic assumptions would be easily `red flagged' by 
reviewing staffs and, potentially, receiving either a revised score or 
a qualified evaluation by reviewing staffs.
    Response: The Agency agrees with the concept put forward by the 
commenter. We do not believe, however, it is necessary to have these 
incorporated into the rule implementing the 9006 program. We believe 
that such industry metrics and financial template would be better 
developed by experts in the industry with input from the U.S. 
Department of Energy (DOE), the U.S. Environmental Protection Agency 
(EPA), and USDA. Such material could then become part of the 
implementation tools being developed to assist in the implementation of 
the 9006 program.
    Comment: One commenter stated that, currently, State Rural 
Development staffs score an application based solely on information 
provided by the applicant. It is our understanding that Rural 
Development staffs then document how these scores were derived and 
forward this annotated score sheet to DOE/EPA technical reviewers, 
along with the technical feasibility study. They do not, however, 
forward the complete application package including financial pro 
formas. As a result, technical reviewers must rely on State staffs to 
evaluate the projects on financial grounds. The commenter recommended 
that USDA State Offices forward the complete application packet to 
technical reviewers so that financial information can be evaluated in 
more detail.
    This same commenter stated that Rural Development staffs assigned 
to this program are, for the most part, not trained to evaluate 
renewable energy and energy efficiency projects, either on technical or 
financial grounds. Yet they are being asked to provide preliminary 
scoring for these projects before forwarding applications on to NREL 
and then USDA headquarters. The commenter believes that the role of the 
State Offices in reviewing applications should be solely to verify that 
applications are complete, applicants and projects are eligible for 
funding, and additional sources of funding, interconnection agreements, 
and other qualifying conditions have been documented. At that point, 
complete applications should be forwarded to NREL or other assisting 
agencies for technical and financial review, as well as project 
scoring. In addition, NREL should be provided discretion to adjust 
scoring up or down from what an applicant claims based on their expert 
judgment of realistic energy and financial performance of the proposed 
project.
    Response: Under the 9006 program, it is the Agency's intent that 
State Office staffs review the application to determine applicant 
eligibility, project eligibility, application completeness, 
environmental assessment, and other qualifying conditions, and to 
assign a preliminary score to the project. The Agency believes that 
State Office staffs are competent to provide preliminary scoring of the 
applications.
    The State Office will then forward the entire application, 
including financial information, to the technical reviewers (e.g., 
NREL, DOE). The technical reviewers will evaluate financial and 
technical information separately and in tandem. The technical reviewers 
will be responsible for scoring the project on their own. Under this 
process, the technical reviewers will not adjust the State Office's 
preliminary scoring, but will provide USDA with a recommendation based 
on a comprehensive evaluation.
    Once the technical reviewers have completed their review of the 
application, they will return the entire application with their 
recommended score for the application to the State Office. The State 
Office will then forward the entire application to the National Office. 
The National Office will make the final determination of the score to 
be assigned to each application. The National Office will use a 
committee composed of experienced business and financial people to make 
adjustments to the score. USDA is the Agency responsible for the 9006 
program and its allocation of funds to projects.
    Comment: One commenter stated that the regulation language was 
unclear as to how the technical review would be conducted. The 
commenter did not feel that traditional lenders would be capable of 
performing a technical review and recommended that USDA retain the 
technical review function.
    Response: While it is unclear to the Agency as to why the commenter 
thought this would be conducted by a lender, as stated in the previous 
response, USDA intends to retain the technical review function for all 
proposed projects.
    Comment: One commenter asked USDA to clarify whether the criteria 
to be ``* * * individually addressed in narrative form on a separate 
sheet of paper'' are to be addressed by the Agency or the applicant.
    Response: The sentence referenced by the commenter should have 
referred to the applicant. In the final rule, this has been replaced 
with the requirement for the applicant to self-score the project.
    Comment: One commenter suggested that scoring be geared toward 
capturing measures that are easily replicated.
    Response: We agree with the commenter that scoring should be geared 
toward measures that are easily replicated because this provides for 
objective scoring. We have changed some of the scoring criteria 
significantly since the proposal. We believe that the scoring criteria 
included in the final rule are necessary from both a statutory 
perspective and an evaluative perspective. We have tried to make each 
measure as replicable as possible, but recognize that for some criteria 
(e.g., technical merit), this is essentially not practicable.
Ineligible or Incomplete Applications
    Comment: One commenter stated that as written, it leads to the 
conclusion that a decision that an application is incomplete can be 
appealed when in fact it may be a decision subject to review rather 
than appeal. The commenter, therefore, suggested that between the words 
``any'' and ``appeal'' add the phrase ``applicable review or.''
    Response: A determination by USDA that an application is incomplete 
is subject to 7 CFR part 11, and we believe this is sufficiently clear 
so that no change is necessary.
Energy Efficiency Techniques and Practices
    Comment: One commenter suggested that additional points be given to 
applications for renewable energy systems that specify energy-efficient 
procedures and behaviors in their management plans. The commenter 
believes that energy-efficient techniques and practices developed with 
today's farming equipment can improve a farm's receptiveness to new 
technologies and, therefore, improve the eventual payback of renewable 
energy projects. The commenter further maintains that behavioral and 
procedural project elements require no capital investment, and can be 
incorporated into project management plans for renewable energy 
systems.
    Response: While USDA agrees that management plans that incorporate 
specific energy-efficient procedures and behaviors are to be applauded, 
such measures cannot be measured at the time an application is 
submitted. It is possible that a management plan incorporating specific 
energy-efficient procedures and behavior is never fully

[[Page 41288]]

implemented, while a management plan that does not address these items 
is implemented in a fashion that incorporates these measures. USDA does 
not believe, in the end, that these measures can be objectively 
evaluated at the time of application scoring and, therefore, has 
decided not to incorporate this suggestion in the final rule.
Energy Replacement and Generation
    Comment: One commenter pointed out that producers who seek to 
provide energy directly to their operators can earn at most 20 points 
for the quantity of energy produced. According to the commenter, the 
program was written to benefit both larger and smaller systems. The 
commenter urged the Department to increase the opportunity for smaller 
systems to compete by reducing the points awarded to systems intended 
primarily for sale to no more than 10.
    Another commenter recommended that USDA adjust the scoring system 
to reward higher value on-site generation, which offsets retail energy 
costs, rather than commercial generation of electricity sold at 
wholesale rates.
    Response: USDA agrees with the commenters and has reduced the 
points associated with the generation of energy.
    Comment: One commenter requested that case-based optimization and 
integration be used and be better developed in this rule. According to 
the commenter, the proposed point weightings arbitrarily establish an 
``either-or'' condition not stemming from the 2002 Act. The commenter 
states that, for most onsite energy projects, strict dedication to 
electric generation may be only marginally economical as stand-alone 
applications, while economies and efficiencies can be improved through 
better combined heat and power (CHP) integration to serve both facility 
thermal and electric loads. This ``case-optimized'' level of project 
improvement couples design-based energy efficiency with installation of 
a renewable energy generation package but requires a different 
weighting of criteria.
    Response: USDA generally agrees with the commenter and the 
revisions we have made to the final rule should address most of the 
commenter's concern. In the final rule, applicants can receive points 
based on one of three scenarios--energy replacement, energy saving, or 
energy generation. These scenarios are not focused on electric 
generation. CHP projects that are installed primarily for self-use by 
the agricultural producer or small business should score well under the 
energy replacement scenario compared to projects that are strictly 
electric generation projects.
    Comment: One commenter asked if a renewable energy project can be 
shown to offer significant increases in energy efficiency through 
optimal use of thermal energy in addition to electrical energy, will 
preference for CHP integration be given over ``electric-only'' project 
design.
    Response: While USDA acknowledges that CHP integration projects are 
inherently more efficient than electric-only project designs (producing 
more energy per unit input), we have not given direct preference to CHP 
integration projects in the final rule. Instead, because they are 
inherently more efficient, such projects will score higher than 
electric-only projects during the scoring of applications. USDA 
believes this is the best way of encouraging such designs within the 
overall framework of the 9006 program.
    Comment: One commenter suggested changing the last two words in 
proposed Sec.  4280.112(d)(1)(i)(A) from ``utility company'' to 
``current energy supplier'' because some projects may be replacing 
propane and the propane company will not necessarily be a ``utility 
company.''
    Response: USDA has deleted the last sentence in the referenced 
paragraph, because we deemed it to be only guidance and, thus, not 
necessary to the final rule. USDA notes that we agree with the 
commenter's point that some projects may be replacing propane, but with 
the elimination of the sentence, we do not need to further address this 
comment.
    Comment: Four commenters stated that USDA should clarify whether 
``energy replacement'' refers to total use for the farm/business or 
replacement of just one source of energy consumption (e.g., hot water 
or irrigation pumping). This is important, as a potential project could 
significantly replace the energy used in one farm or business activity 
while having less of an impact on the enterprise's overall energy use. 
As long as the renewable energy project is related to a measurable use 
and specified application of energy (e.g., propane consumption for hot 
water or electricity consumed for irrigation), then the applicant 
should not have to measure energy replacement against overall energy 
use but just against that specified source of energy consumption.
    Another commenter stated that clarification is needed regarding the 
base of energy use against which the energy replacement will be 
measured. That is, if a farmer is planning on generating electricity, 
is the base amount the energy bill for the entire farm enterprise, for 
only the farmstead, or for only one grain elevator? This commenter felt 
that either of these could be a legitimate base.
    Response: USDA agrees with the commenters that energy replacement 
should be measured against the energy consumption of the specific 
source being replaced and not against the overall energy consumption of 
the business. USDA, therefore, has reworded this criterion to reflect 
the commenters' suggestion. In the final rule, we have indicated that 
the base is the: ``estimated quantity of energy consumed over the same 
12-month period during the previous year by the applicable energy 
application.''
    Comment: One commenter suggested that a definition of what 
constitutes the ``baseline'' for baseline energy usage as discussed in 
proposed Sec.  4280.111(d)(10)(iii)(A), may be helpful to applicants 
and reviewers in evaluating a project. The commenter asked if the 
``baseline'' is considered as the current energy usage and if the 
baseline can be considered for a production improvement project. In 
many cases, according to the commenter, energy efficiency projects are 
implemented in conjunction with production increases. This may result 
in a net increase of energy usage but allows for a reduced amount of 
energy required per unit of production. The commenter suggested that 
``baseline'' be defined as: Total energy consumption during production 
by a process or facility.
    Response: While we have not added a specific definition to the rule 
for ``baseline'' energy usage, we have clarified in the evaluation 
criterion, as noted in the previous response for energy replacement, 
that the baseline is the ``estimated quantity of energy consumed over 
the same 12-month period during the previous year by the applicable 
energy application.'' We believe this provides sufficient guidance for 
determining baseline energy usage for energy efficiency improvement 
projects.
    As noted in a previous response, while we have not revised the 
definition of energy efficiency improvement, we have retained the 
phrase ``that reduces energy consumption.'' This allows an applicant to 
express the reduction in energy consumption in a number of ways, 
including, but not necessarily limited to, energy saved per unit of 
production.
Environmental Benefits Criterion
    Comment: Several commenters suggested that this criterion 
specifically identify environmental standards (in addition to health 
and sanitation standards) and that additional points be

[[Page 41289]]

given to projects that exceed applicable environmental, health, and 
sanitation standards. Some commenters objected to the awarding of 
points to applicants whose projects end up just meeting the applicable 
standards.
    Response: USDA has determined that this criterion should focus on 
environmental goals, as suggested by the commenters, but should not 
address health and sanitary standards. Therefore, USDA has revised this 
criterion to address only environmental goals, which awards points to 
those projects that contribute to the environmental goals and 
objectives of other Federal, State, or local programs.
    Comment: One commenter stated that the criteria listed in the 
proposed rule, ``to upgrade an existing facility or construct a new 
facility required to meet sanitary standards,'' limits greatly the 
amount of environmental benefit that could be reported as required by 
the statute. Some suggestions would be to report the amount of nitrogen 
oxides, sulfur oxides, hydrogen sulfide, and other pollutants 
prevented, as well as the reduction of fossil fuels consumed due to the 
installation of the system. Other environmental criteria may also 
examine the potential impact on local water quality and wildlife.
    Response: As noted in the previous response, USDA has revised this 
criterion to only address ``environmental goals.'' The environmental 
goals are intentionally worded broadly to allow applicants the 
flexibility of determining which goals and objectives can be 
considered, including emission reductions. In order to obtain the 
points associated with ``environmental goals,'' the applicant must 
provide documentation from an appropriate authority supporting the 
applicant's claim.
    Comment: Three commenters pointed out that Congress specified that 
USDA should take into account ``the expected environmental benefits of 
the renewable energy system'' in considering the amount of a grant or a 
loan. The Department proposes to assign points for environmental 
benefits only if the project is helping an operator to comply with an 
existing law or regulation (``to upgrade an existing facility or 
construct a new facility to meet applicable health or sanitary 
standards''). The commenters suggested that the Department should 
reconsider this criterion in the proposed rules. Since everyone is 
subject to the same laws, we believe the Section 9006 program should 
not subsidize compliance with the laws. The commenters believe that the 
government should not be in the business of paying entities to comply 
with the law. To resolve these concerns, the Department should make 
clear that the term ``environmental benefits'' in the statute means the 
expected or likely quantifiable pollution reduction or other 
environmental gains by a particular project.
    Response: In revising this criterion, USDA believes that projects 
that ``contribute'' to environmental goals and objectives should 
receive points. USDA does not believe this contribution needs to be 
limited to exceeding such goals and objectives.
    Comment: One commenter recommended changing the end of the last 
sentence from ``is needed and required to meet the standard'' to read 
``will result in the standard being met.'' Many environmental 
regulatory agencies will not proscribe a single means to attain a 
standard so the suggested wording allows for the ``more than one way to 
skin a cat'' approach to be allowed.
    Response: Because of the change in this criterion, as noted in 
previous responses, this suggestion is no longer valid.
Commercial Availability Criterion
    Comment: One commenter asked why the project would gain an 
additional 10 points when a project is not even eligible for the 9006 
program if it is not replicable and commercially available. The 
commenter also asked what the appropriate way would be to address the 
use of foreign technology. For example, the commenter asked if a 
renewable energy system in use in Germany, but never has been utilized 
in the United States, is considered commercially available and 
replicable for the 9006 program. Lastly, the commenter asked if there 
any regulations restricting the use of foreign technology, engineering, 
and imported products.
    Response: The project eligibility criteria include the requirement 
that a project be either pre-commercially available or commercially 
available. This criterion provides points for those projects that are 
commercially available, whereas a pre-commercial project would not 
receive any points under this criterion. USDA has decided to keep this 
criterion in the final program.
    Commercial availability and replicability of technology in a 
foreign country does not translate to commercial availability and 
replicability in the United States. To meet these requirements in the 
United States it will be necessary for the foreign firm to have a 
business presence in the United States to support the applicant in the 
design, purchase, operation, and maintenance of the technology 
provided, and there will need to be sufficient operating experience by 
U.S. operators. If there are no operating units in the United States, 
the technology will normally be considered pre-commercial without 
adequate and serviceable performance and service guarantees from the 
foreign supplier. Otherwise, there are no restrictions in this 
regulation on the use of foreign technology, engineering, or imported 
products.
Small Agricultural Producer
    Comment: Several commenters stated that the criterion for small 
agricultural producers needed to be revised to provide more points and 
to reduce the gross market value associated with this criterion.
    Response: USDA agrees with the commenters that more points need to 
be given to small agricultural producers and that the threshold for 
obtaining the points needs to be adjusted. In the proposed rule, 
agricultural producers with less than $1 million in gross market value 
would have received 10 points. In the final rule, we have reduced the 
gross market value to $600,000 and the awarded points to 5. In 
addition, we have added one additional condition under which additional 
points can be awarded. Specifically, if the gross market value is less 
than $200,000, the applicant will be awarded 10 points. In the final 
rule, we also award 10 points to rural small businesses that meet the 
definition of ``very small business'' (i.e., a business with fewer than 
15 employees and less than $1 million in annual receipts).
Cost Effectiveness Criterion
    Comment: One commenter recommended considering simple payback and 
simple payback periods when granting loans. The payback considers the 
initial investment costs and the resulting annual cashflow. The payback 
time (period) is the length of time needed before an investment makes 
enough to recoup the initial investment. But the payback method does 
not account for savings after the initial investment is paid back from 
the profits (cashflow) generated by the investment (project). This 
method is a ``first-cut'' analysis to evaluate the viability of 
investment.
    Response: The Agency agrees with the commenter and has retained the 
simply pay-back criterion under return on investment in the final rule. 
In addition, applicants are required to provide in their Technical 
Report an analysis of the proposed project's financial performance, 
including the calculation

[[Page 41290]]

of simple payback. This financial performance analysis includes, but is 
not limited to, investment and production incentives, loans, grants, 
expected energy offsets, and ``other information necessary to assess 
the project's cost effectiveness.'' Thus, the applicant has the 
opportunity in the financial performance analysis to address savings 
after the initial investment is paid back.
    Comment: One commenter recommended altering the evaluation points 
system for cost effectiveness to give greatest priority to energy-
efficiency projects with payback of 2 to 5 years. The commenter states 
that projects with payback under 2 years are financially strong 
inherently, and, therefore, may not require subsidy. The commenter 
points out that many energy-efficiency projects display 2 to 5 year 
paybacks, yet sustain savings well beyond year 5, with a large 
potential for energy savings.
    Response: USDA agrees that the length of payback is important. In 
fact, USDA is encouraged by the 9006 statute to focus on payback. USDA 
also agrees that projects with different paybacks should be treated 
differently. However, USDA differs on how those with different paybacks 
should be treated. In the final rule, USDA gives higher priority points 
to projects with the paybacks of less than 4 years, a lesser priority 
to projects with paybacks of between 4 and 7 years, and even less 
priority to projects with an 8 to 11 year payback. USDA believes that 
projects with very short paybacks will not likely need to participate 
in this program and consequently the concern raised by the commenter 
will be reduced, if not eliminated.
Matching Funds Criterion
    Comment: One of the commenters suggested that USDA should correct 
the apparent discrepancy in requiring applicants to exhibit financial 
need while awarding higher points if the applicant is able to provide 
greater than 85 percent of the total project cost.
    Two other commenters also believe that the rule seems to 
discriminate against applicants with financial need because applicants 
receive more points for requesting a smaller share of total project 
costs.
    Response: The availability of matching funds is a key indicator of 
an applicant's readiness to proceed with the proposed project. However, 
USDA agrees with the commenters that the approach used in the proposed 
rule seemed inconsistent and discriminatory as described by the 
commenters. Therefore, we have made two significant changes to this 
criterion in the final rule. (Note: In the final rule, this criterion 
has been renamed ``Readiness.'')
    First, in the proposed rule, this criterion awarded points based on 
the matching funds provided by the agricultural producer or the small 
business. In the final rule, this criterion awards points based on 
matching funds to be provided by sources other than the agricultural 
producer or small business.
    Second, in the proposed rule, this criterion awarded points based 
on the amount of matching funds being provided by the applicant. In the 
final rule, points will be awarded on the basis of the percentage of 
the matching funds for which an applicant has received commitments from 
the sources providing those funds prior to receipt of the complete 
application by the Agency. For example, an applicant who has received 
commitments for 100 percent of the matching funds is awarded more 
points than an applicant who has received commitments for 75 percent of 
the matching funds.
    Note that the revised criterion does not address the percent of 
matching funds as in the proposed rule. Thus, for example, an applicant 
providing 50 percent of the matching funds and an applicant providing 
85 percent of the matching funds both receive the same number of points 
if they both demonstrate they have 100 percent commitments of the 
sources providing the matching funds.
Management Criterion
    Comment: Several commenters expressed concern with this criterion 
and recommended that USDA eliminate it. One of the commenters pointed 
out that it is important for USDA to focus funding on projects with a 
high likelihood of success, but awarding points to professionally 
managed projects is misguided and unnecessary to further this 
objective. Providing additional points to projects utilizing 
professional managers favor larger projects for which such management 
is a necessity. This goes against a program goal to support modestly 
sized projects and discourages the active participation of individual 
farmers and small businesses in managing their systems. Farmers who are 
active in the management of their own systems see the benefits first-
hand and serve as a vital conduit for communicating the benefits of 
such systems to other farmers, thus helping to increase their adoption. 
The commenter urges USDA to remove the management criterion for the 
evaluation criteria, and suggests that the likelihood of success of an 
application can be adequately determined from other criteria.
    Three of the commenters stated that the Department proposes to 
award 10 points to renewable energy projects managed by third-party 
operators. The commenters recommended that the Department eliminate 
this criterion. First, this proposal penalizes applications for smaller 
modular systems (for example, solar hot water and photovoltaic systems, 
small wind turbines) that may require occasional third-party 
maintenance but which certainly do not require ongoing outside 
management. Second, this evaluation criterion is contrary to the 
Section 45 Federal Production Tax Credit rules which require a 
renewable energy project owner to be ``actively involved'' in day-to-
day management of the project (or have sufficient passive income) in 
order to be eligible to utilize the credits. Third, only the largest 
projects are likely to involve outside contractors or managers. The 
commenters feel this criterion is a ``one size fits all'' condition 
that discriminates against good projects that do not require outside 
management.
    Another of the commenters stated that he would not give 10 points 
here. The commenter's experience over 2 years of applications shows 
that almost all applicants are given these points, if for no other 
reason than by merely stating they will have a third party do the 
monitoring. This criterion does not distinguish one application from 
another, and the quality of the management team is not something one 
could easily evaluate in a review of these applications anyway.
    Two other commenters expressed concern with awarding 10 points if a 
renewable energy system will be monitored and managed by a qualified 
third-party operator. One commenter stated that they had a wind farm 
application last year that was not funded. The applicant has owned, 
operated, and maintained wind turbines for about 10 years, and they are 
qualified to monitor and manage their own wind turbines. However, they 
lost 10 points because they did not hire a third party. The other 
commenter stated that this stipulation will penalize applications for 
smaller projects that may require occasional third-party maintenance, 
but do not need ongoing outside project management. Only the largest 
projects are likely to have third-party management, and third-party 
management is no guarantee for a more effective, efficient run project 
compared to a farm operator or small business owner. This criterion is 
also contrary to the Section 45 Federal Production Tax

[[Page 41291]]

Credit rules which require a renewable energy project owner to be 
``actively involved'' in the day-to-day management of the project.
    Response: USDA agrees with the commenters and has removed this 
criterion.
    Comment: One commenter stated that management is another evaluation 
criterion that was subject to the interpretation of the scorer as to 
what constitutes a ``qualified third-party operator.'' For example: The 
best option for providing construction, operations, and maintenance 
services for large wind turbines is often the company that manufactures 
the wind turbine. In FY 2004, there was at least one case where an 
application received zero points for using the turbine manufacturer as 
a third-party operator. In at least two other States, very similar 
applications using this same management plan (and the same turbine 
manufacturer) received the full 10 points. The commenter recommends 
that for wind energy proposals, the turbine manufacturer should be 
considered a ``qualified third-party operator.'' More direction on 
which entities can be considered a ``qualified third-party operator'' 
is necessary. This section also does not specify how long of a contract 
the applicant needs to have with the third-party operator, which could 
be a source of some confusion. The commenter suggested requiring 5 
years in order to qualify for full points.
    The commenter also expressed concern that this category seems to 
penalize smaller projects where third-party management might not have 
any particular benefit or even be available. The commenter recommends 
that this category at least be clarified so that points are awarded for 
projects with well-qualified third-party managers appropriate for their 
technology. This category should award points for any project that 
presents a good management plan as determined by the technical review 
committee. If a fair system for awarding points across technologies is 
not practical, USDA should consider eliminating it altogether. The goal 
of awarding projects with a high probability for success might be 
better served by a category based on technical merit.
    Response: As noted in the previous response, USDA has eliminated 
this criterion from the final rule. Therefore, there is no need to 
address the specific comments raised by this commenter.
    Comment: One commenter suggested that the ``project management'' 
criterion should be applicable to energy efficiency activities that 
support renewable energy projects.
    Response: As noted above, USDA has elected to drop this criterion 
for renewable energy projects and, therefore, does not deem it 
reasonable to include it now for energy efficiency improvement 
projects. Therefore, USDA has not included project management as a 
criterion in the final program for energy efficiency improvement 
projects.
Interest Rate Criterion
    Comment: Three commenters recommended deleting this evaluation 
criterion. According to the commenters, assigning points based on lower 
loan rates disadvantages applicants who are not able to get these terms 
from their lenders. While an inability to get these favorable interest 
rates may reflect the perceived underlying risk of a borrower or 
project, the commenters point out that it may also reflect the 
unfamiliarity with renewable energy and energy efficiency systems by 
rural lenders. Because the borrower is already paying these higher 
rates, commenters do not believe that the borrower should also be 
handicapped by not qualifying for these points in USDA's evaluation 
criteria.
    Response: USDA has retained this criterion because it provides some 
incentive to lenders to keep their rates low. In addition, we have 
revised the threshold for receiving points for a low interest rate from 
1.75 to 1.5 points above the prime rate (to be consistent with the B&I 
program).
    Comment: One commenter noted that, in evaluating loans, the 
proposal recommended giving the same number of points (5) for rates 
below the prime rate plus 1.75 percent and for rates below the prime 
rate plus 1 percent.
    Response: The commenter is not correct. A total of 10 points was 
possible under the proposed rule--5 points if the first condition is 
met plus an additional 5 points if both conditions are met. While this 
is still the case, we have revised the language in the final rule to 
make this clearer.
New Criteria
    Comment: Several commenters suggested USDA adopt additional scoring 
criteria.
    One commenter suggested that USDA award bonus points for projects 
which use wind turbine designs evaluated by an independent third-party 
program.
    One commenter suggested that USDA award bonus points for programs 
which integrate dispatchable energy generating schemes with wind energy 
generation to increase total reliability and value and for programs 
which create diffuse, large-scale, regional, on-farm, integrated wind-
farms. The bonus points should be sufficient to ensure that farmers 
choose to collaborate in a ``cooperative'' program.
    Three commenters suggested that USDA consider adding scoring 
provisions that consider geographic diversity to assist the Agency in 
cases of otherwise equal application scores.
    One commenter recommended that projects which benefit low-income 
families should be awarded additional points.
    Response: As discussed below, USDA does not consider it necessary 
to include these criteria in the scoring of an application.
    USDA does not believe that scoring criteria should favor one 
technology or design over another, but each project should be evaluated 
based on its own technical merit; therefore, USDA has decided not to 
award points for projects that use wind turbine designs evaluated by an 
independent third-party program. However, project designs with strong 
technical merit will receive additional priority points.
    USDA agrees with the second commenter's first comment that 
proposals that integrate interruptible energy generating schemes with 
wind energy generation to increase total reliability and value are 
desirable. However, USDA has decided that such schemes are adequately 
addressed when evaluating the overall technical merit of a proposed 
project and has decided not to award points strictly on the commenter's 
suggested basis.
    USDA agrees that the model suggested by the second comment of the 
second commenter can be a successful business model. However, USDA does 
not believe that it should be the purpose of the 9006 program to favor 
one business model over another and, therefore, the suggested criterion 
has not been adopted.
    USDA does not believe the scoring criteria for applications should 
favor one region of the country over another, but should remain focused 
on the quality of the proposed projects. Therefore, the suggested 
criterion has not been adopted.
    USDA has not incorporated a specific criterion for low-income 
families. The criterion that provides points for small agricultural 
producers and very small businesses addresses, to some extent, the 
income level of the applicant.
    Comment: Three commenters suggested that USDA include a criterion 
that considers the technical or overall merit of the project, which 
would help further USDA's goal of funding projects with a high 
likelihood of success. One of the commenters provided a sample of how 
this category could be

[[Page 41292]]

quantitatively scored by the technical review team.
    Response: USDA agrees with the commenters and has included a 
``technical merit'' criterion in the scoring for both renewable energy 
projects and energy efficiency improvement projects.
    Comment: One commenter suggested that criteria be expanded to 
encourage diversity of awardees in terms of the type of farm operation 
and scale of operation.
    Response: USDA does not believe the scoring criteria for 
applications should favor one type of farm operation over another, but 
should remain focused on the quality of the proposed projects. 
Therefore, the suggested criterion has not been adopted.
    With regard to the scale of operation, the rule already takes scale 
into consideration by awarding additional points to small agricultural 
producers and to very small businesses.
    Comment: One commenter noted that the proposed rule makes no 
distinction between applicants who have received previous funds through 
the 9006 program and those seeking funds for the first time. To achieve 
the program goal of assisting the greatest number of farmers and small 
businesses in need, the commenter suggested that points be awarded to 
applicants who have not received prior funding through the 9006 
program.
    Response: USDA agrees with the commenter that one of the goals of 
the 9006 program is to provide access to as many different applicants 
as possible. As noted previously, USDA has revised the regulation by 
awarding 10 points to applicants who have not received a grant award 
(or loan) within the previous 2 Federal fiscal years.
    Comment: One commenter noted that States with local expertise have 
received a disproportionate number of grants. To help correct this, the 
commenter recommended that USDA encourage participation from regions 
that have received limited funding by awarding 5 points for 
applications from an underrepresented State.
    Response: USDA has not incorporated this commenter's suggestion. As 
noted previously, USDA will work with State Offices to help them 
implement this program and conduct outreach. USDA believes this will 
correct any ``underrepresentation'' and that it is not appropriate for 
the scoring criteria to assume that responsibility.
    Comment: One commenter suggested that USDA award bonus points for 
projects which use wind turbine designs evaluated by an independent 
third-party program. The bonus points should be sufficient to ensure 
that farmers choose the best options available.
    Response: USDA does not consider it necessary to include this 
criterion in the scoring of application and has not adopted it. USDA 
will score the Technical Merit of each proposed project on the basis of 
the proposed technology and the information in the application, not on 
the basis of who has reviewed the proposed project prior to USDA 
receiving the application. To ensure the highest technical merit score, 
USDA encourages all applicants to select the best available 
technologies in the marketplace and to the extent an applicant believes 
it is necessary to use technical experts to review the project to 
ensure the applicant has not overlooked any elements that would affect 
the technical merit of the project. However, USDA will not award points 
on the basis of a third-party review.

H. Guaranteed Loans

General
    Comment: Several commenters questioned whether the B&I guaranteed 
loan program was a good model for the 9006 program.
    Response: The commenters did not specify why they felt that the B&I 
program was not a good model. Without specific reasons, USDA cannot 
further respond other than to say we disagree and have continued to 
model much of the 9006 Guaranteed Loan program on the B&I program. 
While there are programmatic and policy differences, the 9006 program 
is designed to complement, not compete with, the B&I program.
    Comment: Two commenters stated that they believe that the Section 
9006 Guaranteed Loan program imposes review, application, and reporting 
burdens on the lender well above those for the B&I program or the 
Guaranteed Loan programs offered by SBA. The commenters maintained that 
few lenders would be willing to go through this effort in order to 
close loans through this program and are more likely to use the B&I 
program, which does not exclude guarantees for renewable energy systems 
and still has capacity for additional loan guarantees.
    Response: USDA disagrees with the commenters that the requirements 
associated with the Guaranteed Loan program under the 9006 program are 
more onerous than those under the B&I program. For the final rule, we 
reviewed the requirements associated with the guaranteed loan portion 
of the 9006 program and have included those elements from the B&I 
program that are the minimum necessary to ensure technically feasible 
renewable energy projects and energy efficiency improvement projects 
are funded. We have modified the B&I program requirements only to the 
extent necessary to make the 9006 program statutorily consistent and to 
address the requirements associated with the particular technologies to 
be funded under the 9006 program. As noted in the previous response, 
the 9006 Guaranteed Loan program is meant to complement, not compete 
with, the B&I program.
    Comment: One commenter recommended that the application process 
under the 9006 program be more streamlined than the B&I program to make 
them worthwhile and encouraged USDA to look at patterning the rules on 
the SBA loan guarantee program. This commenter encouraged the 
Department to retain the guaranteed loan section in the final rule 
because such a program might encourage lenders to add renewable energy 
projects to their portfolios but without the risks and uncertainty of 
the market that would otherwise discourage their involvement.
    Response: We have retained the guaranteed loan program. In 
addition, the 9006 program has simplified the application process for 
applications for guaranteed loans of $600,000 or less, by incorporating 
the use of Form RD 4279-1A and, for those applications for projects 
with total eligible project costs of $200,000 or less, by allowing the 
use of a ``reduced'' Technical Report. No other streamlining has been 
done because any further streamlining would jeopardize USDA's ability 
to ensure project viability and compliance.
    Comment: One commenter suggested that only those exceptions to the 
B&I program be noted in this section in order to keep the rule short.
    Response: USDA agrees with the commenter and has revised this 
section, and others, to identify which sections of the B&I program are 
applicable and any and all differences.
    Comment: Three commenters stated that many of the application, 
documentation, loan structure, and loan servicing requirements 
applicable to the FSA guaranteed loan program could also apply to the 
renewable energy loan program and continue to protect the Government's 
interests.
    Response: USDA has not adopted this comment. USDA felt that it is 
more important for the 9006 program to be consistent with other Rural 
Development programs for ease of administration. This consistency 
should help borrowers and applicants become familiar with and meet 
Rural

[[Page 41293]]

Development requirements across multiple Rural Development programs.
    Comment: Two commenters suggested that the rule allow for a 
streamlined and simplified process for lenders that have been approved 
as preferred lenders by the USDA Farm Services Agency (FSA).
    Response: USDA has not incorporated this suggestion in the final 
rule. The types of projects funded under the 9006 program are likely to 
be significantly different than those under FSA programs. FSA programs 
address agricultural production, while the 9006 program addresses 
commercial energy production projects. Lenders approved under the FSA 
program may not be experienced with the nature and scope of the 
technologies associated with the projects that would be funded under 
the 9006 program. Therefore, we have not incorporated the commenters' 
suggestion.
    Comment: Several commenters were concerned about the inclusion of 
the guaranteed loan program in the Renewable Energy Systems and Energy 
Efficiency Improvements Program. Two of the commenters were concerned 
that the inclusion of the loan guarantees will reduce funding available 
for the grant and direct loan elements of the program. One of these 
commenters pointed out that the 9006 program is one of the few Federal 
assistance grant programs (versus guaranteed loans) that provides money 
to individuals to install renewable energy or energy efficiency 
systems. Without information on how USDA will distribute the funds 
(what percentage goes to grants and what percentage goes to guaranteed 
loans), this commenter stated that his office cannot support the 
guaranteed loan aspect of the program. The other commenter stated that 
a loan default could put the grant program at risk and recommended the 
use of direct loans rather than guaranteed loans.
    Another commenter stated they have significant concerns about the 
proposed loan guarantee program and urged USDA to postpone 
implementation until higher levels of funding can be appropriated, or 
else substantially restrict the amount of funding available for loan 
guarantees compared to grants. This commenter asserted that 
implementing the loan guarantee program without additional funding may 
put the successful grant program in jeopardy. Adding the administrative 
responsibilities of a loan guarantee program to the already demanding 
grant program in the early years of implementation may prove to be too 
much for the overstretched USDA staffs, likely requiring resources to 
be diverted from limited project funds to cover administrative costs. 
Loans and loan guarantees will not accomplish the program's intended 
goal of offsetting the high initial capital costs of renewable energy 
technologies for rural communities as effectively as grants, and we 
respectfully request that USDA allow another comment period before a 
loan guarantee program is tested to further examine its efficacy. 
Section 9006 is the sole direct grant program for renewable energy and 
energy efficiency installations, but these projects are already 
eligible for other USDA loan programs such as the B&I loan guarantees.
    Response: USDA believes that the guaranteed loan program will 
complement, not compete with, the grant program by guaranteeing loans 
made by commercial lenders to agricultural producers and rural small 
businesses to support renewable energy systems and energy efficiency 
improvements. Therefore, we are maintaining the guaranteed loan program 
in the rule.
    Comment: One commenter claimed that the guaranteed loan program, as 
written, provides the lender with too much control of the project. The 
commenter maintains that the purpose of rural development is lost when 
the lender, which may be a large financial institution headquartered 
far from the actual project, is responsible for the oversight of the 
construction and operation of the system.
    Response: The Agency feels the regulations provide sufficient 
oversight to ensure regulatory compliance and prudent servicing by 
lenders. Under the 9006 Guaranteed Loan program, lenders must 
demonstrate they have the capacity and expertise to effectively 
underwrite, process, and service all loans in a prudent manner. In 
addition, the lenders are required to provide to the Agency periodic 
loan status and financial reports on the borrower's operation, 
including trends, strengths, weaknesses, extraordinary transactions, 
and other indications of the financial condition of the borrower. 
Lastly, the Agency will meet with the lender periodically to ascertain 
how the guaranteed loan is being serviced and that the conditions and 
covenants of the Loan Agreement are being enforced.
    Comment: One commenter stated that they believe that a loan 
guarantee program will not be overwhelmingly successful with regard to 
energy efficiency projects because of the small funding requests for 
energy efficiency projects. For this reason, the commenter supports 
both the grant program and the direct loan program (while also 
supporting the loan guarantee program for larger, often renewable 
projects).
    Response: While the commenter may be right in terms of the types of 
funding that will be most likely utilized by the various types of 
projects, there is no need to change the structure of the 9006 program 
as proposed. Adjustments can be made in 9006 grant or loan allocations 
to respond to unexpected demand.
    Comment: One commenter recommended that, with the exception of 
direct, intermediary or nontraditional lender guaranteed loans, USDA 
should utilize grants rather than loans because the B&I program already 
allows renewable energy and energy efficiency projects.
    Response: As noted in previous responses, the 9006 program is 
designed to complement the B&I program, and the guaranteed loan program 
within the 9006 program is one of the funding mechanisms required by 
the 2002 Farm Bill. For these reasons, USDA is maintaining the 
guaranteed loan program in the 9006 program.
    Comment: One commenter presented summaries of conversations with 
two lenders experienced with wind energy projects who questioned how 
effective a loan guarantee program would be. The lenders, in general, 
indicated that the amount of funding currently available for the loan 
guarantee program would not warrant all the work and risk of applying 
for this loan guarantee. The lenders pointed out that banks would do 
their own due diligence for a loan and projects qualifying for a loan 
would receive the loan with or without the USDA loan guarantee. One of 
the lenders indicated that his bank does not collateralize a farmer's 
land. He said, ``A 50 percent loan guarantee would not bring anything 
further to the table.'' Lastly, this lender described how his bank's 
past usage of loan guarantees has been more as ``a last ditch effort'' 
to keep a farmer around rather than as a new business prospect. In 
summary, the commenter believes that the loan guarantee program, as 
presented, does not appear to offer much to the current business models 
being used for farmer-owned large wind projects in Minnesota. The 
commenter does acknowledge that this program may have something to 
offer different kinds of banks or as yet undeveloped business models 
for farmer-owned renewable energy projects. However, the commenter is 
concerned about how well this program will be used given this 
assessment from representatives that are already ``up to speed'' on 
wind energy.
    Response: As noted in previous responses, the guaranteed loan 
program

[[Page 41294]]

within the 9006 program is one of the funding mechanisms required by 
the 2002 Farm Bill. Therefore, USDA is maintaining the guaranteed loan 
program in the 9006 program. Also as previously noted, the 9006 program 
is designed to complement, not compete with, the B&I program. Thus, 
funds from both programs can be used.
    Comment: One commenter stated that they are concerned about the 
potential cost and returns that a lender would experience under the 
guaranteed program making it less attractive as proposed. The commenter 
states that the expenses lenders would incur relative to the 
application and servicing requirements, especially as it concerns 
engaging outside technical experts and monitoring construction 
activities, could be significant when the loan is originated, 
especially for projects an individual producer could utilize in his/her 
operation on a small scale. According to the commenter, the regulations 
and requirements are geared toward large scale, multi-million dollar 
projects undertaken by alliances of producers. The commenter 
illustrates his concern by noting that, for a lender with a net 
interest margin of 3.0 percent, each $100,000 guarantee commitment 
($200,000 loan funds) results in $6,000 available to pay for the 
origination and first year servicing of the loan. The fee, if not 
passed on to the borrower, would reduce this amount to $5,000 in this 
scenario. The expenses related to engaging technical experts to review 
the project requirements and environmental impacts, supervising and 
monitoring the construction of any facilities, and ongoing reporting to 
the Agency could greatly exceed the net interest income available to 
cover these expenses. Lenders with low net interest margins will lose 
money unless the project is of sufficient size to be profitable for the 
lender. Such a break-even size may represent too large of a project for 
moderate-sized producers to develop, and they would not be able to 
benefit from the program.
    This commenter was also concerned that, as written, the guaranteed 
loan program would discourage lenders from participating. Specifically, 
the commenter made two recommendations to encourage lender 
participation. First, the commenter recommended that USDA relax its 
underwriting requirements in order to encourage lender participation in 
the program. Due to the limited guarantee percentage for any given 
project, lenders have a significant exposure in a project and this 
should provide Rural Development staff with sufficient flexibility to 
relax its requirements and still protect the government's interest. The 
preamble states that smaller projects, or projects with a mature 
technology, will require less information. The apparent threshold for a 
``small'' project is less than $100,000 in project costs. The commenter 
recommended that USDA raise this threshold significantly in order to 
encourage lenders to utilize the program and be able to benefit small 
operations.
    Second, the commenter recommended that USDA require customary loan 
analysis and documentation relative to projects under $1,000,000 (a 
$500,000 guarantee), especially for lenders with FSA preferred lender 
status, and that loan servicing be prudent and at all times protect the 
Government's interest in the loan.
    The commenter believes that having these two requirements for 
originating and servicing loans would greatly simplify the regulations 
that lenders are required to follow for small projects. While this 
would result in differences between loan guarantee applications and 
lenders, according to the commenter, the burdensome expenses would be 
minimized and the returns to lenders from participating in the program 
could be sufficient to encourage participation.
    Response: USDA has not adopted these recommendations because the 
various requirements in the 9006 program are consistent with other 
Federal guaranteed loan programs' commercial underwriting and servicing 
standards. Therefore, we have not revised the final rule with regards 
to these aspects. On the other hand, as noted previously, small 
projects (i.e., those with total eligible project costs of $200,000 or 
less) now have less burden associated with their applications by being 
able to submit less detailed Technical Reports. In addition, 
applications for guaranteed loans of $600,000 or less may submit the 
short application form for guaranteed loans (i.e., Form RD 4279-1a).]
    Comment: One commenter stated that little effort had been made to 
develop a guaranteed loan program tailored to individual farmers and 
rural small businesses. The commenter stated that the level of 
documentation required in the proposed rule is too cumbersome for most 
applicants. The commenter stated that while the B&I program on which 
the proposed program is modeled is a good program, it is intended for 
larger businesses, with loan levels often in the tens of millions of 
dollars. The level of financial screening for these large loan 
guarantees is excessive if applied to the smaller loans that should be 
offered under the 9006 program. The commenter also noted that potential 
lenders have indicated that they are reasonably unlikely to participate 
in such a cumbersome application approval and lending process. The 
commenter then pointed to the SBA and the FSA guaranteed loan programs 
as potential models for the 9006 guaranteed loan program and urged USDA 
to reconfigure the 9006 guaranteed loan program along these lines. For 
example, applications could be modeled on SBA's LowDoc program for 
small guaranteed loans, which are substantially streamlined relative to 
the proposed 9006 application.
    Response: Based on the commenter's concerns, we have adopted a 
reduced Technical Report for guaranteed loan applications for projects 
with total eligible project costs of $200,000 or less. We believe that 
this will facilitate access to the guaranteed loan program for small 
agricultural producers and small rural businesses.
Term of Loan
    Comment: Two commenters recommended increasing the term of the 
loan. One of the commenters stated that, for some projects, an 
equipment lending term of 15 years may be low. This commenter requested 
expanding the term of loan for at least some technologies to 25-30 
years. The other commenter stated that ``it is our belief that the USDA 
would be most helpful to farmers and agricultural producers if it would 
offer long-term (20 to 30 year), low interest loans for up to 100 
percent of the equipment cost of farm-sited thermophilic anaerobic 
digester based renewable energy systems that produce electrical energy 
for export to the local power grid or biogas available for heating, 
cooling, drying or other agricultural processed on the farm.''
    Response: USDA agrees with the commenter that the term of loan 
needs to be lengthened because of the nature of the technologies being 
funded under the 9006 program and, therefore, has increased for 
equipment and machinery the maximum term of loan to 20 years. By 
statute (9006(c)(1)(B)), USDA cannot offer loans in excess of 50 
percent of the cost of the activity.
Guarantee/Annual Renewal Fee Percentages
    Comment: One commenter noted that, as proposed, the initial 
guarantee fee is 1 percent and in subsequent years it is 0.5 percent 
per year. The commenter recommended deleting the use of a guarantee fee 
in subsequent years because having this fee will discourage any lenders 
from participating in this program.

[[Page 41295]]

    Response: USDA has retained these provisions in the final rule. 
USDA does not have to charge the annual renewal fee. We will identify 
if the annual renewal fee will be charged when we issue the 
announcements for each fiscal year.
Lien Priority
    Comment: One commenter, referring to the list of collateral and 
lien priority, stated that perhaps some suggestions could be made as to 
the appropriate relative lien priority (e.g. first, second, parity) 
between two USDA guaranteed loans--one under this program, the other 
under the B&I program.
    Response: At minimum, the 9006 program must have parity. USDA will 
not accept a junior lien position under the 9006 program. Section 
4280.139(b) has been revised to indicate this.
Eligible Lenders
Nontraditional Lenders
    Comment: Commenters recommended allowing non-traditional lenders to 
participate in the guaranteed loan portion of the program and made 
suggestions for allowing certain entities to be eligible lenders. Some 
of the commenters suggested that nontraditional lenders may have more 
``expertise'' with the renewable energy industry. Commenters identified 
energy service companies and rural electric cooperatives as two 
potential ``nontraditional'' lenders who should be allowed to 
participate in the 9006 program. One of the commenters recommended 
allowing non-traditional lenders for loans of up to $250,000. According 
to this commenter, this will allow some State lending authorities and 
Catalogue of Domestic Federal Assistance (CDFA) organizations access to 
the program, and many of these groups are targeting energy efficiency/
renewable projects.
    Response: USDA agrees with the commenters that nontraditional 
lenders should be allowed. Therefore, USDA has revised the regulation 
to allow lenders as they are allowed under the Agency's B&I program, 
except for mortgage companies that are part of a holding company.
    Comment: One commenter noted that the USDA should allow 
intermediaries and recommended that USDA consider a loan program like 
the Intermediary Relending Loan Program for States who use their 
renewable energy or energy efficiency funds to make USDA guaranteed 
loans.
    Response: The Agency has no statutory authority to implement an 
intermediary relending program (revolved loan funds) under this 
program.
Lender's Functions and Responsibilities
Environmental Information
    Comment: One commenter felt that this section put too much 
responsibility on the lender for the environmental compliance and 
notification for the project. The commenter recommended changing the 
responsible party to the applicant (borrower). If the lender must be 
responsible for alerting the Agency about environmental problems with 
the project, the commenter contends that lenders will likely not want 
to be involved with the loan guarantee program. According to the 
commenter, most lenders, for example, would balk at the idea of being 
responsible for a large wind turbine harming an endangered species.
    Response: USDA does not agree with this comment. The 9006 program 
is using the same procedures as specified in the B&I program. USDA 
believes that this responsibility is appropriately placed with the 
lender and has not revised it in the final rule.
Construction, Planning, and Performing Development
    Comment: One commenter believes that proposed Sec.  4280.131(d), 
which requires that all projects are designed according to accepted 
practices, needs clarification on what the intent is. The commenter 
maintains that this should be the responsibility of the engineer or 
project designer and not the lender.
    Response: The 9006 program is simply requiring the same level of 
performance from a lender as is currently being required under the B&I 
program. USDA sees no reason to change that level of performance.
    Comment: One commenter felt that the following requirement put too 
much responsibility on the lender: ``The lender must monitor the 
progress and construction and undertake the reviews and inspections 
necessary to ensure that construction conforms to applicable Federal, 
state and local code requirements. * * *'' The commenter recommended 
amending the language such that the applicant would provide project 
oversight and provide the information for the lenders' records.
    Response: Under the guaranteed lending portion of the 9006 program, 
USDA must rely on the lender to make prudent lending decisions and 
monitor the progress of the project. The lenders' proximity to the 
project, its interest in the collateral aspect of the project, and its 
knowledge of the interested parties are invaluable in ensuring 
appropriate oversight of progress. Additionally, as with the B&I 
program, the 9006 program requires the lender to ensure that all 
project facilities are designed utilizing accepted architectural and 
engineering practices that conform to the requirements of this subpart. 
USDA believes that this responsibility is appropriately placed with the 
lender and has not revised it in the final rule.
Replacement of Document
    Comment: One commenter noted that, under the proposed Sec.  
4280.138, USDA may issue a replacement Loan Note Guarantee or 
Assignment Guarantee Agreement that was ``lost, stolen, destroyed, 
mutilated or defaced.'' Along with a certificate of loss, the party 
seeking the replacement document must provide an indemnity bond that 
holds the USDA harmless from damage or loss incurred by reason of 
replacing the document. The bond must be in an amount not less than the 
unpaid principal and interest. The bond must be underwritten by a 
qualified surety company listed in Treasury Department Circular 570 
only when the principal balance and interest due on the note is $1 
million or more. Therefore, bonds with amounts of less than $1 million 
may be provided by other than a corporate surety.
    The commenter encouraged USDA to reconsider this approach. 
Corporate sureties, with extensive financial resources supporting them, 
provide USDA the best assurance that the financial obligations under 
the bond will be fulfilled. At a threshold of $1 million, USDA is 
exposed to the risk that noncorporate sureties, such as an individual 
surety, will have insufficient resources to protect the government from 
significant loss. Because of the financial reporting requirements 
established by the Treasury Department for corporate sureties, the 
government knows that the surety has the financial ability to perform. 
There are no such reporting requirements for individual sureties. In 
light of the increased risk, we recommend that the proposed regulation 
should be revised to require that all indemnity bonds provided under 
Sec.  4280.138 must be provided by a surety company listed on the 
Treasury Department Circular 570.
    If USDA were to maintain the current $1 million threshold for the 
corporate surety requirement, we recommend that it adopt requirements 
similar to those in the Federal Acquisition Regulations (FAR) regarding 
acceptable types of alternate security. The FAR sets forth the 
acceptable types of security that may be posted by individual sureties 
(see FAR Sec.  28-203-2). These include:

[[Page 41296]]

     Cash, or certificates of deposit, or other cash 
equivalents with a federally insured financial institution;
     United States Government securities at market value;
     Stocks and bonds actively traded on a national U.S. 
security;
     Real property owned in fee simple by the surety and 
located within the United States or its outlying areas; and
     Irrevocable letters of credit (ILC) issued by a federally 
insured financial institution.
    Thus, USDA is assured that quality assets are supporting the 
guarantee.
    Response: USDA agrees that it is essential to protect the interests 
of the taxpayer. The practice of issuing replacement documentation 
under specified circumstances is consistent with other Agency lending 
programs, and broadens the scope by including ``defacement'' and 
``mutilation'' as circumstances necessitating replacement.
    Indemnity bond requirements are also consistent with other Agency 
lending programs. We believe the 9006 program is not sufficiently 
different to warrant a different approach. USDA requires corporate 
bonding for larger projects without excluding noncorporate sureties 
from smaller projects, providing the broadest range of opportunity for 
the greatest number of potential sureties.
Credit Quality
    Comment: One commenter asked how cash equity is defined. The 
commenter is not concerned with the source of the asset, but with the 
nature of how it's booked on the balance sheet. The commenter would 
prefer the phrase ``tangible balance sheet equity.''
    Response: Cash equity must be in the form of cash and should be on 
deposit in a federally insured depository account. Cash differs from 
``tangible balance sheet equity'' in that cash only includes liquid 
funds. Tangible balance sheet equity may include other items of value 
that are not cash. The final rule has not been revised.
Appraisals
    Comment: One commenter requested clarification on what appraisals 
USDA would require because the commenter believes the rule does not 
clearly define what is to be appraised. The commenter suggested that, 
if the applicant is a rural small business (i.e., an LLC), newly formed 
for this project, the appraisal would be limited to the equipment they 
wish to purchase. To illustrate, the commenter stated that in a case 
where only a generator and associated equipment need to be appraised, a 
simple formula might be useful. The formula could determine the value 
of equipment that could be reused later to be worth 70 percent of the 
equipment new.
    Response: Under the 9006 program, appraisals for loans greater than 
$600,000 are to be conducted in the same manner as for loans under the 
B&I program. For loans of $600,000 or less, self-appraisals may be 
used. In neither case are we addressing the appraisal process itself. 
This provides the borrower/grantee with the greatest level of 
flexibility in determining that level of investment it will request of 
the Government. A specific formula, or series thereof, is not included 
in the Regulation. However, guidance will be provided in support 
training documentation that is outside the regulatory process. 
Therefore, we have not revised the rule with regards to the manner in 
which appraisals are to be conducted.
Personal and Corporate Guarantees
    Comment: Several commenters recommended removing the provisions for 
unconditional personal and corporate guarantees because of the 
potential to discourage investors and applicants. For example, one of 
the commenters noted that many applicants do not want to have to put 
themselves or their farm up for collateral for their loan because the 
farmer does not want to lose the farm if the project defaults on the 
loan. Another commenter noted that investors in wind projects were 
willing to invest money in such projects due to the production tax 
credits available and the accelerated depreciation benefits. Such 
investors would have no say in management or the operation of the 
company. But such investors are not willing to guarantee the 
transaction--their desire to be involved with the project is driven by 
tax benefit reasons only. Finally, another commenter recommended that a 
personal guarantee should not be required for those non-local investors 
who are only buying tax credits and recommended an exception to the 
requirement for a personal guarantee for non-local financial owners of 
renewable energy projects, such as wind turbines.
    Response: While USDA is sensitive to those who are concerned about 
their personal liability and, for instance, using their farms as 
collateral, nevertheless it is customary credit practice to require the 
borrower to pledge personal and corporate guarantees sufficient to 
protect the lender's and the Agency's interest. The situations noted by 
the commenters involve ``passive'' investors; that is, those who only 
invest in a project without any active participation in the management 
or operation decisions. USDA agrees that to further promote renewable 
energy projects, the rule should not discourage such investors. 
Therefore, we have revised the rule to exclude passive investors from 
the requirement to provide personal or corporate guarantees. However, 
to the extent that investors and applicants have solely a nonpassive, 
beneficial interest in the project, USDA believes it is necessary to 
protect the public fisc to continue requiring unconditional personal 
and corporate guarantees.
Requirements After Project Construction
    Comment: Two commenters remarked on the reporting requirement for 
energy efficiency improvement projects after project construction. One 
of the commenters encouraged USDA to structure post-project reporting 
requirements to collect data that will enhance industry understanding 
of energy efficiency performance impacts. The other commenter stated 
that the requirement to report the actual amount of energy produced by 
the renewable energy system would be onerous for smaller projects that 
lack metering. This commenter recommended exempting smaller projects 
from this requirement and allowing qualitative system performance 
reporting.
    Response: The energy audit or assessment required for energy 
efficiency improvement projects will provide most of the information 
identified by the first commenter, including an estimate of energy 
savings. While difficult, USDA believes it is necessary to keep this 
reporting requirement for energy efficiency improvement projects, in 
part to help evaluate the program's success.
Exception Authority
    Comment: One commenter requested that, at a minimum, a lender with 
an FSA preferred lender status be granted additional preference and 
discretion under proposed Sec.  4280.104 with respect to loan guarantee 
applications and servicing. The commenter stated that this could also 
be allowed under Section 9006(c)(2)(G) of the 2002 Farm Bill where the 
Secretary shall take into consideration ``other factors as 
appropriate'' relative to application requirements. According to the 
commenter, this would provide some separation between the loan and 
grant programs since the grant program is a direct relationship with a 
producer and the loan guarantee program is a direct relationship with a 
lender. In addition, the commenter believes that this approach would 
help to ``ensure that

[[Page 41297]]

loan programs are based on sound financial principles'' as stated in 
the preamble relative to one of the main components for developing the 
proposed regulations.
    Response: USDA disagrees with the commenter's request. USDA 
believes that all lenders must be treated equally and, therefore, has 
not revised the rule as requested.

I. Direct Loans

Need for Program
    Comment: A number of commenters objected, for a number of reasons, 
to USDA not offering a direct loan program and urged USDA to 
institutionalize a loan program as part of the final rule for Section 
9006.
    Commenters, for example, pointed out that the statute authorizing 
the 9006 program calls for a direct loan program, that USDA has the in-
house capability for underwriting and servicing direct loans, that a 
direct loan program would help leverage the available funds, and that 
USDA in conjunction with the DOE has expertise and ability to evaluate 
the financial and technical feasibility of these projects.
    Two of the commenters further suggested that a direct loan program 
would be easier to manage than a guaranteed loan program. One commenter 
suggested that it would also be less costly to manage.
    One of the commenters stated that if USDA is unable to issue a 
final rule that includes the direct loan program for FY 2005, it should 
include a supplemental rulemaking for the direct loan program later in 
2005.
    Response: USDA is still evaluating the resources necessary for 
implementing a direct loan program. Assuming a positive evaluation, 
USDA would expect to issue a rule proposing a direct loan program to 
complement the grant and guaranteed loan program. In this final rule, 
USDA has not modified the direct loan process that was in the proposed 
rule.
    Comment: One commenter stated that they agree with the Agency's 
decision to not promulgate a regulation for the direct loan program 
under Section 9006 at this time. This will allow for consideration of 
changes in both program demand and technical innovation over time while 
not unduly restricting the Agency's options in the short run.
    Response: As noted in the previous response, USDA is still 
evaluating the resources necessary for implementing a direct loan 
program. USDA will also take into consideration the experience it gains 
in implementing the grant and guaranteed loan program in developing any 
direct loan program.

J. Laws That Contain Other Compliance Requirements

Environmental
    Comment: Many commenters recommended that USDA either eliminate the 
requirement for an environmental impact assessment or significantly 
reduce the requirement for environmental assessments. One of the 
commenters stated that because small projects by definition have a very 
limited impact on the local environment and local government siting and 
permitting processes are sufficient to ensure environmental protection. 
Another of the commenters recommended removing specific environmental 
requirements from the rule and instead issuing requirements annually.
    Response: Projects funded under the 9006 program must comply with 
all environmental requirements, including Federal, State, and local 
requirements. All applicants must comply with the environmental 
requirements applicable to their project. Funding a grant or loan or 
providing a loan guarantee is a Federal action requiring compliance 
with the National Environmental Policy Act (NEPA). While small projects 
are likely to have fewer adverse environmental impacts than similar 
larger projects, USDA cannot predetermine that all small projects will 
have very limited impacts. USDA believes it is appropriate for 
environmental evaluations prepared for projects to analyze the nature 
and extent of a project's environmental impact. For these reasons, USDA 
is not able to accommodate the commenter's request.
    Comment: One commenter stated that the language ``identify all 
environmental issues'' in the technical reports is not specific. The 
commenter suggested that USDA make references to central environmental 
review requirements for all types of energy systems such as proposed 
Sec.  4280.114(d) and/or reference 7 CFR part 1940, subpart G, of this 
title. Describe requirements for Class I or Class II environmental 
reviews.
    Response: As revised, the Technical Report requirements address the 
need to identify environmental issues through Form RD 1940-20. However, 
we have not made reference to other requirements (e.g., Class I or II 
environmental reviews) because such requirements will be specific to 
individual projects and cannot be addressed fully through specific 
language in the rule. USDA advises all applicants to consult experts in 
the development of their proposed project's technology to identify all 
environmental issues that are associated with the applicant's proposed 
project so that the Agency can make its environmental evaluation.
    Comment: Two commenters were concerned that these requirements 
placed an undue burden on the applicant. One of the commenters stated 
that conducting an environmental impact assessment and initiating 
consultation with other State agencies placed an undue burden on the 
applicant. This commenter, therefore, recommended assigning the 
responsibility for conducting the environmental assessment and informal 
consultation with other agencies to the USDA State Offices. The other 
commenter noted that applicants are asked to initiate the environmental 
review process with such contacts as their State historical 
preservation agencies on their own and, according to the commenter, 
without having project funding in place, this shifts a substantial 
burden to the applicants.
    Response: Ultimately, the responsibility for environmental 
evaluations rests on the Agency. Some applicants make arrangements to 
assist the Agency with supporting documentation to speed the process. 
USDA appreciates that this effort can be significant. Because such 
efforts can be costly, USDA has included environmental assessment as an 
eligible project cost (as part of professional services). USDA cannot 
provide funds to applicants prior to a project being evaluated and 
selected for an award.
    Comment: One commenter stated that Rural Development Program 
Support Staff have issued guidance that predetermines the level of 
environmental review based on technology type, and that this ``one-
size-fits-all'' pre-classification places undue burdens on specific 
projects. Instead, the commenter recommended that USDA draft a 
programmatic environmental assessment and use that to develop pre-
classifications.
    Another commenter stated that the environmental review process 
should be simplified. According to the commenter, many of the approved 
project activities, especially with energy efficiency projects, could 
be categorically excluded from environmental review.
    Response: Although not a part of this rule, USDA has identified 
classes of action and established a minimum level of environmental 
review for each category of action. For example, energy efficiency 
projects are classified as categorical exclusions.

[[Page 41298]]

    Comment: Several commenters felt that the environmental assessment 
has been a particularly confusing area for applicants, who are often 
unsure of the level of environmental review required and underestimate 
the effort needed to complete the assessment. The commenters, 
therefore, recommended that USDA place extensive, complete, and clear 
information either in the final rule or on its Web site so that 
applicants have a better understanding of what is required based on the 
type and scope of their project. One of the commenters recommended 
that, rather than referring applicants to Form RD 1940-20 or 
regulations, USDA place extensive information either in the final rule 
or on its Web site explaining the requirements.
    Another commenter recommended that USDA provide a more clear 
explanation of what is needed for the National Environmental Policy Act 
approval including example completed checklists for various project 
configurations, and should not require the applicant to initiate 
consultation with State agencies and prepare a full environmental 
impact analysis, unless a USDA review determines these steps are 
necessary.
    Response: USDA agrees with the commenters that the requirement for 
environmental information can be confusing because it involves numerous 
laws, regulations, and Executive Orders. The majority of these 
requirements exist in 7 CFR part 1901, subpart F, 7 CFR part 1940, 
subpart G, and 7 CFR part 3015, subpart V, and associated 
Administrative Notices and Procedural Notices. USDA strongly advises 
all potential applicants to seek assistance in this area when preparing 
their applications.
    USDA continues to refer to Form RD 1940-20 in the final rule 
because that is the tool the Agency uses to collect the necessary 
environmental information. USDA cannot in this rulemaking set forth 
conditions to cover every potential circumstance under which full 
environmental reviews and analyses are or are not required. Further, it 
is not the intent of this program to usurp the requirements for such 
assessments.
    Comment: One commenter stated that somewhere in the rule, USDA 
should allow for operational policies to be implemented and updated 
without revisiting the rule. The commenter referred to the National 
Environmental Policy Act (NEPA) requirements for projects as an area 
that might be covered outside the rule. EPA allows categorical 
exclusions from NEPA requirements. USDA does not at this time have a 
complete list of technologies and energy efficiency improvements that 
will fit under a categorical exclusion, but many probably will. By 
authorizing in the rule the development of such a list as a legitimate 
Agency policy responsibility, USDA can remove a significant 
disincentive to applicants. The commenter claimed that farmers are 
accustomed to going into their county USDA offices, whether Natural 
Resources Conservation Service, Farm Service Agency or Rural 
Development, and having the county office staff be able to refer to 
their respective standards and specifications manuals and transparently 
provide service and approval in a relatively short amount of time. Such 
reference materials do not yet exist for the Renewable Energy Systems 
and Energy Efficiency Improvements Program. At this time, the program 
implementation process is transferring this technical requirement to 
the farmer/rancher/rural small business. The commenter urged USDA not 
to create a rule that precludes development of field office technical 
guides that will be able to reduce the paperwork load on future program 
participants.
    Response: While not a formal comment on the rule, USDA responds by 
stating it evaluated the proposed rule to identify which, if any, 
portions could be implemented other than as a rule, in order to 
facilitate updating. As noted previously, USDA intends to develop 
implementation tools and training materials for the State Offices to 
facilitate the implementation of the 9006 program.
    However, as noted earlier, there are some aspects to the 9006 
program which USDA cannot change. For example, projects are required to 
comply with NEPA and other regulations, which are outside of the scope 
of the 9006 program. USDA has provided for the development of various 
forms of environmental reviews, which will serve as documentation of 
environmental compliance.
Civil Rights Compliance
    Comment: One commenter asked when the compliance reviews required 
under Civil Rights (Title VI) compliance stop. The commenter points out 
that the proposed regulation states ``Initial reviews will be conducted 
after Form RD 400-4 is signed and all subsequent reviews every 3 years 
after.'' The commenter then notes that the grant agreement states that 
a compliance review will be done initially and the final will be done 3 
years from the date of loan closing or when final disbursement of grant 
funds has occurred.
    Response: We agree with the commenter that the rule needs to 
identify when compliance reviews stop. We have revised the rule 
language based on the language in the grant agreement.
    Comment: One commenter asked whether energy grants are subject to 
Title VI.
    Response: Energy grants are subject to Title VI, which was 
indicated in the proposed rule, and the final rule retains the 
language.
Insurance Requirements
    Comment: One commenter stated that the insurance required may 
preclude those seeking smaller awards from applying, as these premiums 
may ultimately be more than the grant award. The commenter points out 
that the proposed provisions allow for this requirement to be modified 
or waived by USDA. The commenter, however, believes that these 
provisions would be clearer if the regulation indicated those 
situations to which those waivers or modifications applied.
    Response: While USDA agrees with the commenter that insurance 
requirements may be an obstacle to those seeking smaller awards, these 
requirements are necessary to ensure the stability of the 9006 program 
and to protect the Agency's interest and the public funding being made 
available under this program. USDA believes that, given the variety of 
circumstances that could present themselves, applying the waiver on a 
case-by-case basis will be more equitable that establishing rigid 
parameters for the use of waivers.
    Comment: One commenter stated that they have a strong objection 
from a member of the public to the insurance requirement of business 
interruption insurance.
    Response: USDA believes that business interruption insurance is 
necessary for most projects, and is a requirement consistent with other 
Federal grant and loan programs (e.g., the B&I program). USDA also 
believes, however, that for smaller projects ($200,000 or less in total 
eligible project costs), the cost of business interruption insurance 
outweighs the benefit so it is not necessary. Therefore, USDA has 
retained the requirement of business interruption insurance for all 
projects with total eligible project costs greater than $200,000 and 
has exempted this requirement for all projects with total eligible 
project costs of $200,000 or less.

K. Construction Funding and Management

    Comment: One commenter stated that the proposed rule disallows 
applicants from any involvement in construction of

[[Page 41299]]

the system (in Sec.  4280.109(a)(2)--second sentence and in 
4280.115(b)). The commenter recommended that the program be modified to 
allow applicant construction, if ``the project has a third-party 
contractor with principal responsibility for the design, installation 
and construction of the system and where the applicant's ability to 
perform the task is validated by the technical review team.''
    A second commenter recommended that, provided applicants are 
working under the supervision of a qualified installer, construction 
services provided by the project owner be allowed, particularly 
trenching, foundation digging and pouring, and other site preparation 
activities with which many farmers are familiar.
    Response: Under the final rule, an applicant is allowed to serve as 
the prime contractor for projects built under the simplified 
application process, which uses the reimbursement method, provided a 
qualified consultant certifies the work performed. USDA notes that any 
work performed by the applicant does not qualify as an in-kind 
contribution and will lead to a reduction in eligible project costs for 
that project.
    Comment: A number of commenters questioned the use of 7 CFR part 
1924 for the 9006 program, pointing out that 7 CFR part 1924 was 
developed for residential construction and, thus, was not appropriate 
for the 9006 program. Other comments were made concerning how the 
proposed rule for the 9006 program intended to incorporate 7 CFR part 
1924. The commenter pointed out that 7 CFR part 1924 is designed for 
multi-family housing projects in which the Agency is the primary 
lender. One of the commenters recommended reducing procurement 
requirements to only what is required in 7 CFR parts 3015, 3016, and 
3019.
    Response: USDA agrees with the commenters that 7 CFR part 1924 is 
not the best standard to use, and has replaced 7 CFR part 1924 with 7 
CFR part 1780, while equipment procurement must be made in compliance 
with 7 CFR part 3015.
    Comment: One commenter stated that the procurement regulations are 
excessive for an Agency participation of 25 to 50 percent in any given 
project.
    Response: As stewards of Federal funds, the Agency must determine 
that program funds are used prudently. To meet this goal, all Federal 
supported procurement must meet open and free competition procurement 
standards. The final rule outlines project development and procurement 
requirements based on the nature, scope, and complexity of the project 
to allow the appropriate standards to be applied.
    Comment: One commenter raised numerous issues on how the proposed 
rule would implement 7 CFR part 1924. The commenter states that 7 CFR 
part 1924, subpart A fails to address procedures and requirements for 
the design/build method, the most common form of proposed procurement 
being requested in the renewable energy and energy efficiency projects. 
The commenter stated that procedures need to be developed to address 
this situation and pointed out that RUS currently has a draft 
regulation to cover this issue. The commenter, therefore, recommended 
that the modified draft RUS requirements be incorporated into 7 CFR 
1924, subpart A, under proposed Sec.  4280.115 along with utilizing the 
Engineering Joint Contract Documents Committee (EJCDC) design-build 
document set with the addition of the Federal Requirements section of 
EJCDC, Funding Agency Edition, General Conditions C-710.
    The commenter stated that proposed Sec.  4280.115(a)(5) should not 
delete the applicability of 1924.5.(d)(4)(iv) to this rule. The 
commenter noted that effective January 10, 1997, FSA, RHS, RBS, and RUS 
amended their regulations regarding construction and other development 
for farm, housing, community, and business programs to comply with the 
National Earthquake Hazard Reduction Program's (NEHRP) Recommended 
Provisions for the Development of Seismic Regulations for New 
Buildings. According to the commenter, a PN was issued January 10, 
1997, which amended the following sections of the regulations: 1924-A, 
1942-A, 1948-C, and 1980-A. These regulations require that all new 
building construction shall be designed and constructed in accordance 
with earthquake (seismic) provisions of the codes listed in the 
appropriate regulations.
    The commenter stated that proposed Sec.  4280.115(a)(5) should not 
delete the applicability of Sec.  1924.5(d)(4)(i) through (iv). 
According to the commenter, 7 CFR part 1924, subpart A requires the 
``Acknowledgment of compliance with the applicable seismic safety 
requirements for new construction will be contained in the 
certification of final plans and specification on the appropriate 
Agency form.'' The commenter further states that these requirements 
must remain to be in compliance with building safety provisions of the 
Earthquake Hazards Reduction Act of 1977, (42 U.S.C. 7701 et seq.) as 
implemented pursuant to Executive Order 12699.
    The commenter stated that the deletion of the applicability of 
Sec.  1924.13(e)(1) appears to be in error. According to the commenter, 
Sec.  1924.13(e)(1) is for complex contracts requiring performance and 
payment bonds. By deleting this section, the commenter points out, the 
only complex contracting method that remains is Sec.  1924.13(e)(2), 
which the commenter claims would be in violation of proposed Sec.  
4280.115(b) which states: ``Recipients of grants under this subpart are 
not authorized to construct the facility, project, or improvement in 
total, or in part, or utilize their own personnel and/or equipment.'' 
Therefore the commenter recommended that, while Sec.  1924.13(e)(2) 
should not apply and Sec.  1924.13(e)(1) should remain and that, based 
on the types of projects being proposed, the EJCDC Funding Agency 2002 
Edition (as outlined in RUS Bulletin 1780-26) needs to be added as an 
alternative option to the American Institute of Architects (AIA) 
documents.
    Response: As noted in the previous response, the revised rule no 
longer references 7 CFR part 1924. Thus, the issues and concerns raised 
by this commenter are moot.
    Comment: Two commenters expressed concern over the requirement to 
use AIA documents.
    According to one of the commenters, 7 CFR part 1924, subpart A, 
requires the use of AIA documents, which are very seldom if ever used 
in industrial construction. In addition, these documents are all 
copyrighted and require originals to be purchased either in minimum 
orders or bulk use licenses which must be renewed every year by the 
designers. This commenter noted that USDA's Rural Development RUS has 
done extensive work and development with EJCDC to develop a funding 
Agency Edition of selected standard documents. These documents, 
according to the commenter, were developed to provide information and 
guidance to applicants and professional consultants in developing 
engineering agreements and construction contracts that are legally 
sufficient, ensure appropriate services are provided for a reasonable 
fee, and expedite the achievement of the applicant's goals. These 
documents are used for the construction of Wastewater Treatment Plants, 
Water Treatment Plants, and related site utilities, including water and 
sewer transmission lines and electric power lines. In all reality these 
documents, according to the commenter, should replace the references to 
the AIA documents in 7

[[Page 41300]]

CFR part 1924, subpart A but, at the least, the EJCDC Funding Agency 
2002 Edition as outlined in RUS Bulletin 1780-26 need to be added as an 
alternative option to the AIA documents. The commenter, therefore, 
suggested that these requirements be incorporated under proposed Sec.  
4280.115.
    The other commenter stated that it does not seem appropriate to use 
AIA documents for this program because there are few items in the 
energy program that would utilize the services of an architect. 
According to the commenter, the National Office is encouraging the use 
of EJCDC documents for other programs for engineering and construction 
contracts. The engineers have purchased these, and it does not make 
sense to make them also purchase the AIA documents. In addition, the 
use of EJCDC documents allows the engineer to pay a subscription fee to 
use the documents, not a fee for every project that the documents are 
used for. The AIA documents require a fee for each project that the 
documents are used for.
    Response: As noted in the previous responses in this section, the 
final rule has been revised considerably regarding the basis for 
construction planning and performing development. The final rule 
retains reference to the use of selected AIA forms, but also allows 
other contract documents as provided in the final rule.
    Comment: Three commenters recommended that performance bonds should 
not be required for projects below 100 kW.
    Response: USDA agrees that performance bonds should not be required 
for smaller projects. As such, surety (performance) bonds are not 
required in the final rule for projects with total eligible costs of 
$200,000 or less. If total eligible project costs are greater than 
$200,000, performance bonds are required regardless of the capacity of 
the project.

L. Miscellaneous

    Comment: One commenter noted that Section 9006 of the Farm Bill was 
intended to benefit independent family farms and ranches and their 
rural communities, to increase energy security and to promote a healthy 
environment for years to come. The commenter stated that USDA should 
change the proposed rules to better reflect these benefits. The 
commenter pointed out that sustainable agriculture and community 
development is very important to Missouri Farmers Union and stated that 
any incentives in this section should help family farmers and ranchers 
conserve fuel, fertilizer, and other resources. The commenter also 
stated that incentive projects should be farmer and community 
controlled.
    Response: USDA believes the 9006 program, as proposed, met the 
goals set out for it in the authorizing statute. Under the final rule, 
we have further increased meeting these goals by modifying the scoring 
criteria to award more points than at proposal to smaller agricultural 
producers and to include points for very small businesses.
    With regard to ``incentive'' projects, USDA believes that the 
commenter is referring to demonstration projects. The 9006 program is 
not authorized to fund such types of projects, whether they are farmer 
controlled or community controlled. Furthermore, the 9006 program is 
available, by statute, only to agricultural producers and rural small 
businesses. Community-controlled projects would be ``publicly owned'' 
projects and such projects are not eligible for funds under the 9006 
program.
Timing of the Program
    Comment: Many commenters expressed concern over the lack of amount 
of time available to apply for funds and the timing of when the 
applications were due, often recommending a year-round application 
process or a late spring period. A sixth commenter also suggested 
extending the duration of the application period.
    Several other commenters stated that applicants have a very narrow 
time window after receiving a provisional award to complete all 
outstanding environmental and historical preservation reviews. Two of 
these commenters expressed concern over the ``relatively short'' period 
of time allowed to complete a full environmental assessment once the 
project is selected to receive financial assistance. According to one 
of the commenters, it has proven difficult for successful applicants to 
accomplish the public input process and other required reviews before 
the end of USDA's fiscal year. This commenter felt that moving the 
program release date to the fall would help alleviate timing issues 
associated with this review process. One of the commenters felt that 
USDA did not make the requirements available early enough in the 
process.
    Response: The 9006 program in itself does not have deadlines 
associated with the filing of applications. Application deadlines and 
timeframes are identified in the announcements that USDA issues. It is 
USDA's intent to issue future announcements earlier in the fiscal year 
to allow applicants greater opportunity to prepare their applications 
and to provide longer timeframes for application submittal.
    Comment: One commenter stated that the time period for completing 
the environmental assessment is very short and could result in 
otherwise eligible projects being denied funding. The commenter 
recommended adopting one of the following possible solutions:
     Define the disbursement of funds as a major (irreversible) 
Federal Action, rather than obligation, allowing funds to be obligated 
prior to environmental assessment determination, while putting a 
maximum time limit before funds were de-obligated.
     Decouple extra-agency determinations and public hearing 
and comment periods with obligation required by September 30 (the end 
of the Federal fiscal year).
     Make 9006 program funds no year money.
    Response: USDA is not able to implement any of the commenter's 
suggestions because we do not have the authority to implement them. 
USDA cannot make the funds appropriated for the 9006 program ``no year 
money;'' only Congress can do that. In addition, we cannot override the 
requirements associated with the National Environmental Protection Act. 
On the other hand, as noted in the previous response, USDA plans to 
issue its announcements for the 9006 program in a more timely manner to 
provide applicants more opportunity to prepare and submit their 
applications.
Program Implementation, Awareness, and Tools
    Comment: Several commenters recommended that USDA implement tools 
to provide instruction to State and local offices to ensure consistent 
implementation of the 9006 program and to conduct outreach to offices 
and applicants concerning this program and other similar programs. For 
example, one commenter stated that to the extent possible, USDA should 
develop guidance documents for preparing information for small wind, 
solar, biomass, and geothermal projects.
    Response: While this is not a formal comment on the proposed rule, 
USDA responds by agreeing with the commenters and is developing 
implementation tools and programs to ensure consistency in the 
implementation of the 9006 program and to conduct outreach to offices 
and applicants.
Other
    Comment: One commenter stated that USDA should focus all of its 
financial

[[Page 41301]]

resources on diffuse, large-scale, regional, on-farm, integrated 
windsheds. Within a windshed, individual wind turbines and 
complementary biomass energy systems must be large enough that they can 
contribute significant electricity to the regional/national grid but 
small enough so that they do not require the development of a dedicated 
electricity transmission infrastructure.
    The commenter supported the recommendation by stating that, in 
general, loan guarantees are preferred because loan guarantees maximize 
the creation of production capacity. However, the loan guarantee 
conditions (percentage of loan and percentage of guarantee) may need to 
be modified initially during the first year or two until there is an 
established pattern which can be used by lenders for loan evaluation.
    Response: The model presented by the commenter is an acceptable 
business model. However, the statute authorizing the 9006 program is to 
be applied to more than just wind energy technologies. USDA does not 
have authority to change the loan limits provided in the statute. 
Therefore, USDA has rejected the commenter's suggestion.
    Comment: Several commenters stated that currently very few 
potential beneficiaries have been able to secure funding for solar or 
small wind turbine projects. The USDA has also noted the very limited 
number of small renewable energy projects. The commenters believe that 
to provide maximum economic benefit to rural America, the program 
should aim for a better balance of small and large projects and that 
achieving this objective will require a radical departure from the 
current NOFA procurement structure.
    One commenter recommended that USDA streamline the administrative 
compliance requirements for projects less than 200 kW in size. This 
commenter also stated that they know there were many other potential 
project applicants who were intimidated by the application process and 
did not apply for funds even though their sites were well suited for 
wind energy production from a technical, regulatory, and resource 
perspective.
    Points raised concerning the NOFA process by these commenters were:
     Complex proposal requirements, cumbersome length and 
redundancy, and preparation time burden discouraged numerous potential 
small project applicants from applying;
     An application and approval schedule that lacked the 
flexibility needed to coordinate with the State rebate programs and 
grant opportunities also needed to make the projects economically 
attractive (i.e., some farmers did not want to apply for 9006 funds 
until they were assured of also receiving additional subsidies, but 
they would not get that answer until after the 9006 submission 
deadline). For most small scale renewable energy projects the USDA 
grants are necessary, but not sufficient;
     Scoring that favored shorter payback period projects;
     Scoring that favored applications in which 9006 funds were 
a smaller percentage of total project cost;
     Scoring that favored ``managed'' systems over owner-
operated systems;
     Scoring that favored projects using renewable energy and 
energy efficiency to help with environmental compliance, including pre-
existing compliance issues;
     Scoring that favored energy sales over higher value on-
site consumption;
     Requiring an interconnect agreement (or PPA) in advance of 
project implementation, when most net metered projects do not require 
such agreements. Two of the commenters noted that some State program 
managers require an interconnect agreement (or PPA) in advance of 
project implementation, when most net metered projects do not require 
such agreements;
     Allowing used or rebuilt equipment. One commenter 
suggested that used equipment be allowed with no standards for 
remanufacturing. One of the commenters pointed out that there were no 
guidelines concerning the use of remanufactured equipment; and
     Limiting in-kind match allowance. One of the commenters 
also noted that the program did not allow the value of construction 
work performed by project owners to count as match.
    The combined effects of these problems discourage participation in 
a program that should have much higher participation from small 
renewable energy systems. For 2004, there were just 13 awards to small 
wind and solar projects with combined funding of $590,226 or 2.6 
percent of total funds awarded.
    Response: All of the points raised by these commenters as 
shortcomings of the NOFA process and to the extent they were carried 
over into the proposed 9006 program have been addressed earlier in this 
document.
    Most of the commenter's concerns, which for the most part we agree 
with, have been addressed in a ``favorable'' fashion. A simplified 
application process is now available, the scoring criteria have been 
adjusted to address the concerns raised by the commenters, 
interconnection agreements have been addressed, streamlining (although 
based on project size) has been addressed and the rule specifically 
addresses used, remanufactured, and rebuilt equipment. The final rule, 
however, does not differ with regard to in-kind contributions. In 
addition, USDA plans to publish its announcements for grants and loan 
applications in a more timely fashion.
    In summary, the 9006 program has been revised from the proposed 
rule and contains differences from the NOFA procurement procedures that 
we believe will encourage applications for small projects, including 
solar and wind, by awarding points for such projects. We believe the 
revised scoring criteria bring about a better balance among projects of 
all sizes.
    Comment: One commenter, commenting on proposed Sec.  
4280.111(d)(3)(ix)(D), suggested that the use of the word unanticipated 
in the third line is a non sequitur. The purpose of the risk plan is to 
anticipate potential major component failure. The commenter suggested 
substituting ``unanticipated'' with ``potential.''
    Response: USDA agrees with the commenter and has revised the rule, 
here and elsewhere, accordingly.
    Comment: One commenter, commenting on proposed Sec.  
4280.111(d)(5)(i)(C), suggested striking the term ``bodies.''
    Response: USDA agrees with the commenter and has revised the rule, 
here and elsewhere, accordingly.

V. Regulatory Information

A. Paperwork Reduction Act

    The information collection and recordkeeping requirements contained 
in this regulation have been approved by the Office of Management and 
Budget (OMB) under the provisions of 44 U.S.C. chapter 35 and were 
assigned OMB control number 0570-0050 in accordance with the Paperwork 
Reduction Act of 1995. Under the Paperwork Reduction Act of 1995, no 
person is required to respond to a collection of information unless it 
displays a valid OMB number. The revisions in this rulemaking for part 
4280 required an amendment to the burden package and this modification 
has been approved by OMB.

B. Intergovernmental Review

    The Rural Development Grant, Guaranteed Loan, and Direct Loan 
Program is subject to the provisions of Executive Order 12372, which 
requires intergovernmental consultation with State and local officials. 
Rural Development will conduct intergovernmental consultation in the

[[Page 41302]]

manner delineated in RD Instruction 1940-J, ``Intergovernmental Review 
of Department of Agriculture Programs and Activities,'' in 7 CFR part 
3015, subpart V.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires Federal agencies to 
prepare a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements under the Administrative Procedures 
Act or any other statute, unless the Agency certifies that the rule 
will not have a significant economic impact on a substantial number of 
small entities. Small entities include small businesses, small 
organizations, and small governments. The major purpose of the RFA is 
to keep paperwork and regulatory requirements from getting out of 
proportion to the scale of the entities being regulated, without 
compromising the objectives of the Act.
    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), the undersigned has determined and certified by signature of this 
document that this final rule would not have a significant economic 
impact on a substantial number of small entities. This action impacts 
those who choose to participate in the grant, guaranteed loan, and 
direct loan program and requires only minimum information/paperwork to 
evaluate an application. Therefore, a regulatory flexibility analysis 
was not performed.
    Although a regulatory flexibility analysis was not performed, the 
Agency conducted a cost-benefit analysis and an initial regulatory 
flexibility analysis (IRFA) that examines the impact on small entities. 
The cost-benefit analysis and the IRFA (referred to as the Unified 
Analysis) are available for review in the docket and the results are 
summarized below.
    The program targets rural small businesses and agricultural 
producers. The vast majority of these agricultural producers also 
qualify as small businesses. Based on data compiled by the USDA 
Economic Research Service and the SBA, approximately 3 million entities 
would qualify under this program.
    The cost-benefit analysis reflects a large net beneficial impact. 
The expenditure of slightly less than $100 million in nominal USDA 
funds over 5 years (approximately $23 million per year for FY 2003 
through FY 2005 and approximately $11 million per year for FY 2006 and 
FY 2007) from FY 2003 through FY 2007 represents a present value cost 
in constant year 2000 dollars of approximately $69 million. This sum in 
turn supports total program funding (USDA funds and private funds) of 
over $1 billion. The cumulative cashflow benefits through 2007 are $261 
million in comparison to the $69 million cost. The cashflow benefits 
based upon life-cycle analysis are $1.4 billion, again based upon this 
$69 million cost.
    Given that almost the entire program is directed at small 
businesses, the burden analysis is a representative measure for small 
businesses of the reporting, recordkeeping, and other compliance costs. 
The burden analysis estimated an annual (3-year average) cost of $1.8 
million for an estimated 469 applicants per year.
    As noted above, the rule is directed almost entirely at small 
businesses. Therefore, the cost-benefit analysis represents the results 
as it affects small businesses.

D. Civil Justice Reform

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

E. National Environmental Policy Act

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G. Rural Development has determined that this action does not 
constitute a major Federal action significantly affecting the quality 
of the human environment, and, in accordance with the National 
Environmental Policy Act of 1969, Pub. L. 91-190, an Environmental 
Impact Statement is not required.

F. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments, and the private sector. Under section 202 of the UMRA, 
Rural Development must prepare a written statement, including a 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 1 year. When such a statement is needed for a rule, 
section 205 of UMRA generally requires Rural Development to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, more cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This 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 UMRA.

G. Executive Order 13132, Federalism

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

H. Executive Order 12866, Regulatory Planning and Review

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

List of Subjects in 7 CFR Part 4280

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


0
For the reasons stated in the preamble, chapter XLII, title 7, of the 
Code of Federal Regulations is amended as follows:

[[Page 41303]]

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

0
1. Part 4280 is added to read as follows:

PART 4280--LOANS AND GRANTS

Subpart A--[Reserved]
Subpart B--Renewable Energy Systems and Energy Efficiency Improvements 
Program
Sec.
4280.101 Purpose.
4280.102 General.
4280.103 Definitions.
4280.104 Exception authority.
4280.105 Appeals.
4280.106 Conflict of interest.
4280.107 Applicant eligibility.
4280.108 Project eligibility.

Section A. Grants

4280.109 Qualification for simplified applications.
4280.110 Grant funding.
4280.111 Application and documentation.
4280.112 Evaluation of grant applications.
4280.113 Insurance requirements.
4280.114 Laws that contain other compliance requirements.
4280.115 Construction planning and performing development.
4280.116 Grantee requirements.
4280.117 Servicing grants.
4280.118-4280.120 [Reserved]

Section B. Guaranteed Loans

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

Section C. Direct Loans

4280.161 Direct loan process.
4280.162-.192 [Reserved]

Section D. Combined Funding

4280.193 Combined funding.
4280.194-.199 [Reserved]
4280.200 OMB control number.
Appendix A to Part 4280--Technical Reports for Projects with Total 
Eligible Project Costs of $200,000 or Less
Appendix B to Part 4280--Technical Reports for Projects with Total 
Eligible Project Costs of Greater than $200,000

Subpart A--[Reserved]

Subpart B--Renewable Energy Systems and Energy Efficiency 
Improvements Program


Sec.  4280.101  Purpose.

    (a) The purpose of this subpart is to provide financial assistance 
to agricultural producers and rural small businesses for the purpose of 
purchasing and installing renewable energy systems and energy 
efficiency improvements in rural areas. Financial assistance to any 
single entity may be provided as a direct loan, guaranteed loan or 
grant, or a combination of a loan and grant. This subpart contains the 
procedures and requirements for providing such financial assistance.
    (b) The Agency will allocate funds between the direct, guaranteed, 
and grant programs each year, including any other terms such as the 
transfer of funds between these allocations.


Sec.  4280.102  General.

    (a) Sections 4280.103 through 4280.106 discuss definitions, 
exception authority, appeals, and conflict of interest, which are 
applicable to all of the funding programs under this subpart.
    (b) Eligibility is discussed in terms of both applicants and 
projects. Section 4280.107 contains the eligibility requirements for 
applicants and Sec.  4280.108 contains the eligibility requirements for 
projects.
    (c) Section A, Sec. Sec.  4280.109 through 4280.117, discusses 
grants. Section 4280.109 discusses the circumstances under which an 
applicant may qualify to submit a simplified application for a grant. 
Sections 4280.110 through 4280.114 address grant funding, grant 
application procedures, required documentation, the evaluation process, 
and post-grant Federal requirements for both the simplified and full 
application processes. Sections 4280.115 through 4280.117 address 
project planning, development, and completion as related to grant 
servicing.
    (d) Section B, Sec. Sec.  4280.121 through 4280.160, discusses 
guaranteed loans. Sections 4280.121 through 4280.126 discuss procedures 
and requirements for making and processing loans guaranteed by the 
Agency. Section 4280.128 addresses the application and documentation 
requirements, separating the requirements for loans over $600,000 and 
for loans of $600,000 or less. Section 4280.129 addresses the 
evaluation of guaranteed loan applications. Sections 4280.130 through 
4280.160 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.
    (e) Section D presents the process by which the Agency will make 
direct loans.
    (f) Section E presents the process by which the Agency will make 
combined loan and grant funding available.
    (g) Appendix A contains the Technical Report requirements for 
projects with total eligible project costs of $200,000 or less and 
Appendix B contains the Technical Report requirements for projects with 
total eligible project costs greater than $200,000.


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.
    Agency. The Rural Business-Cooperative Service or successor Agency 
assigned by the Secretary of Agriculture to administer the 9006 
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

[[Page 41304]]

greater of their gross income is derived from the operations.
    Anaerobic digester project. A renewable energy system that uses 
animal waste and other organic substrates to produce thermal or 
electrical energy via anaerobic digestion.
    Annual receipts. The total income or gross income (sole 
proprietorship) plus cost of goods sold.
    Applicant. The agricultural producer or rural small business that 
is seeking a grant, guaranteed loan, or direct loan, or a combination 
of a grant and loan, under this subpart.
    Assignment guarantee agreement (Form RD 4279-6) or successor form. 
A 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.
    Bioenergy project. A renewable energy system that produces fuel, 
thermal energy, or electric power from a biomass source, other than an 
anaerobic digester project.
    Biogas. Biomass converted to gaseous fuels.
    Biomass. Any organic material that is available on a renewable or 
recurring basis, including agricultural crops; trees grown for energy 
production; wood waste and wood residues; plants, including aquatic 
plants and grasses; fibers; animal waste and other waste materials; and 
fats, oils, and greases, including recycled fats, oils, and greases. It 
does not include paper that is commonly recycled or unsegregated solid 
waste.
    Borrower. Any party or parties liable for a direct or guaranteed 
loan made under this subpart except guarantors.
    Capacity. The maximum load that an apparatus or heating unit is 
able to meet on a sustained basis as rated by the manufacturer.
    Commercially available. A system that has a proven operating 
history specific to the proposed application. Such a system is based on 
established design, and installation procedures and practices. 
Professional service providers, trades, large construction equipment 
providers, and labor are familiar with installation procedures and 
practices. Proprietary and balance of system equipment and spare parts 
are readily available. Service is readily available to properly 
maintain and operate the system. An established warranty exists for 
parts, labor, and performance.
    Conditional Commitment (Form RD 4279-3) or successor form. Agency 
notice to the lender that the loan guarantee is approved subject to the 
completion of all conditions and requirements set forth by the Agency.
    Default. The condition where a borrower or grantee is not in 
compliance with one or more loan covenants or grant conditions as 
stipulated in the Letter of Conditions, Conditional Commitment, or Loan 
or Grant Agreement.
    Delinquent loan. A loan for which a scheduled loan payment has not 
been received by the due date or within any grace period as stipulated 
in the promissory note and loan agreement.
    Demonstrated financial need. The demonstration by an applicant that 
the applicant is unable to finance the project from its own and 
commercially available resources without grant assistance, or that the 
project proposed by the applicant cannot achieve the income and 
cashflows to sustain it financially over the long term without grant 
assistance.
    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 prime 
contractor is solely responsible and accountable for successful 
delivery of the project to the owner.
    Eligible project costs. The total project costs that are eligible 
to be paid with program funds.
    Energy assessment. A report conducted by an experienced energy 
assessor, certified energy manager or professional engineer assessing 
energy cost and efficiency by analyzing energy bills and briefly 
surveying the target building, machinery, or system. The report 
identifies and provides a savings and cost analysis of low-cost/no-cost 
measures. The report will estimate the overall costs and expected 
energy savings from these improvements, and dollars saved per year. The 
report will estimate weighted-average payback period in years.
    Energy assessor. An individual or entity that conducts an energy 
assessment.
    Energy audit. A report conducted by a Certified Energy Manager or 
Professional Engineer that focuses on potential capital-intensive 
projects and involves detailed gathering of field data and engineering 
analysis. The report will provide detailed project costs and savings 
information with a high level of confidence sufficient for major 
capital investment decisions. It will estimate costs, expected energy 
savings from the subject improvements, and dollars saved per year. The 
report will estimate weighted-average payback period in years.
    Energy auditor. An individual or entity that conducts an energy 
audit.
    Energy efficiency improvement. Improvements to a facility, 
building, or process that reduces energy consumption, or reduces energy 
consumed per square foot.
    Existing business. A business that has completed at least one full 
business cycle.
    Fair market value of equity in real property. Fair market value of 
real property, as established by appraisal, less the outstanding 
balance of any mortgages, liens, or encumbrances.
    Feasibility study. An analysis of the economic, market, technical, 
financial, and management feasibility of a proposed project or 
business.
    Financial feasibility. The ability of a project or business to 
achieve the income, credit, and cashflows 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, and the adequacy of raw 
materials and supplies.
    Geothermal, direct use. A system that uses thermal energy directly 
from a geothermal source.
    Geothermal, electric generation. A system that uses geothermal 
energy to produce high pressure steam for electric power production.
    Holder. A person or entity, other than the lender, who owns all or 
part of the guaranteed portion of the loan with no servicing 
responsibilities. When the single note option is used and the lender 
assigns a part of the guaranteed note to an assignee, the assignee 
becomes a holder only when the Agency receives notice and the 
transaction is completed through the use of Form RD 4279-6.
    Hydrogen project. A renewable energy system that produces hydrogen 
or, a renewable energy system that uses mechanical or electric power or 
thermal energy from a renewable resource using hydrogen as an energy 
transport medium.
    In-kind contributions. Applicant or third-party real or personal 
property or services benefiting the Federally assisted project or 
program that are contributed by the applicant or a third-party entity. 
The identifiable value of goods and services must directly benefit the 
project.
    Interconnection agreement. The terms and conditions governing the 
interconnection and parallel operation of the grantee's or borrower's 
electric generation equipment and the utility's electric power system.

[[Page 41305]]

    Interim financing. A temporary or short-term loan made with the 
clear intent that it will be repaid through another loan, cash, or 
other financing mechanism. Interim financing is frequently used to pay 
construction and other costs associated with a planned project, with 
permanent financing to be obtained after project completion.
    Large solar, electric. Large solar electric systems are those for 
which the rated power of the system is larger than 10 kilowatts (kW). 
Large solar electric systems are either stand-alone (off grid) or 
interconnected to the grid (on grid).
    Large solar, thermal. Large solar thermal systems are those for 
which the rated storage volume of the system is greater than 240 
gallons or that have a collector area of more than 1,000 square feet.
    Large wind system. A wind energy project for which the rated power 
of the individual wind turbine(s) is larger than 100kW.
    Lender. The organization making, servicing, and collecting the loan 
that is guaranteed under the provisions of this subpart.
    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. Issued and 
executed by the Agency containing the terms and conditions of the 
guarantee.
    Loan-to-value. The ratio of the dollar amount of a loan to the 
dollar value of the discounted collateral pledged as security for the 
loan.
    Matching funds. The funds needed to pay for the portion of the 
eligible project costs not funded or guaranteed by the Agency through a 
grant, direct loan, or guaranteed loan under this program. Unless 
authorized by statute, matching funds cannot include grants from any 
Federal grant program.
    Necessary capital improvement. A capital improvement required to 
keep an existing system in compliance with regulations or to maintain 
technical or operational feasibility.
    Parity. A lien position whereby two or more lenders share a 
security interest of equal priority in collateral. In the event of 
default, each lender is affected on a pro rata basis.
    Participation. The sale of interest in a loan by the lender wherein 
the lender retains the note, collateral securing the note, and all 
responsibility for loan servicing and liquidation.
    Passive investor. An equity investor that does not actively 
participate in management and operation decisions of the business 
entity as evidenced by a contractual arrangement.
    Post-application. The date that the Agency receives an essentially 
completed application. An ``essentially completed'' application is an 
application that contains all parts necessary for the Department of 
Agriculture (USDA) to determine applicant and project eligibility, to 
score the application, and to conduct the technical evaluation.
    Power purchase arrangement. The terms and conditions governing the 
sale and transportation of electricity produced by the grantee or 
borrower to another party.
    Pre-commercial technology. 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.
    Promissory Note. Evidence of debt. A note that a borrower signs 
promising to pay a specific amount of money at a stated time or on 
demand.
    Qualified consultant. A third-party entity possessing the 
knowledge, expertise, and experience to perform in an efficient, 
effective, and authoritative manner the specific task required.
    Qualified party. An entity possessing the knowledge, expertise, and 
experience to perform a specific task.
    Renewable energy. Energy derived from a wind, solar, biomass, or 
geothermal source; or hydrogen derived from biomass or water using 
wind, solar, biomass, or geothermal energy sources.
    Renewable energy system. A system that produces or produces and 
delivers usable energy from a renewable energy source.
    Rural. Any area other than a city or town that has a population of 
greater than 50,000 inhabitants and the urbanized area contiguous and 
adjacent to such a city or town according to the latest decennial 
census of the United States.
    Simplified application. An application that conforms to the 
criteria and procedures specified in Sec.  4280.109.
    Small business. An entity is considered a small business in 
accordance with the Small Business Administration's (SBA) small 
business size standards by the North American Industry Classification 
System (NAICS) found in Title 13 CFR part 121. A private entity, 
including a sole proprietorship, partnership, corporation, cooperative 
(including a cooperative qualified under section 501(c)(12) of the 
Internal Revenue Code), and an electric utility, including a Tribal or 
governmental electric utility, that provides service to rural consumers 
on a cost-of-service basis without support from public funds or subsidy 
from the Government authority establishing the district, provided such 
utilities meet SBA's definition of small business. These entities must 
operate independent of direct Government control. With the exception of 
the entities described above, all other non-profit entities are 
excluded.
    Small solar, electric. Small solar electric projects are those for 
which the rated power of the system is 10kW or smaller. Small solar 
electric projects are either stand-alone (off grid) or interconnected 
to the grid at less than 600 volts (on grid).
    Small solar, thermal. Small solar thermal projects are those for 
which the rated storage volume of the system is 240 gallons or smaller 
or that have a collector area of 1,000 square feet or less.
    Small wind system. Wind energy system for which the rated power of 
the wind turbine is 100kW or smaller and with a generator hub height of 
120 feet or less. A small wind system is either stand-alone or 
connected to the local electrical system at less than 600 volts.
    Spreadsheet. A table containing data from a series of financial 
statements of a business over a period of time. Financial statement 
analysis normally contains spreadsheets for balance sheets and income 
statements and may include cashflow statement data and commonly used 
ratios. The spreadsheets enable a reviewer to easily scan the data, 
spot trends, and make comparisons.
    State. Any of the 50 States, the Commonwealth of Puerto Rico, the 
District of Columbia, the Virgin Islands of the United States, Guam, 
American Samoa, the Commonwealth of the Northern Mariana Islands, the 
Republic of Palau, the Federated States of Micronesia, and the Republic 
of the Marshall Islands.
    Total project cost. 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.
    Very small business. A business with fewer than 15 employees and 
less than $1 million in annual receipts.


Sec.  4280.104  Exception authority.

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

[[Page 41306]]

Sec.  4280.105  Appeals.

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


Sec.  4280.106  Conflict of interest.

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


Sec.  4280.107  Applicant eligibility.

    (a) To receive a grant or loan under this subpart, an applicant 
must meet each of the criteria, as applicable, as set forth in 
paragraphs (a)(1) through (5) of this section.
    (1) The applicant must be an agricultural producer or rural small 
business.
    (2) Individuals must be citizens of the United States (U.S.) or 
reside in the U.S. after being legally admitted for permanent 
residence.
    (3) Entities must be at least 51 percent owned, directly or 
indirectly, by individuals who are either citizens of the U.S. or 
reside in the U.S. after being legally admitted for permanent 
residence.
    (4) Applicants and owners will be ineligible to receive funds under 
this subpart as discussed in paragraphs (a)(4)(i) and (ii) of this 
section.
    (i) If an applicant 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 is not eligible to receive 
a grant, direct loan, or guaranteed loan until the judgment is paid in 
full or otherwise satisfied or the delinquency is resolved.
    (ii) If an applicant has been debarred from receiving Federal 
assistance, the applicant is not eligible to receive a grant, direct 
loan, or guaranteed loan under this subpart.
    (5) A grant applicant must have demonstrated financial need.
    (b) An applicant that has received one or more grants and/or loans 
under this program must make satisfactory progress, as determined by 
the Agency, toward completion of any previously funded projects before 
it will be considered for subsequent funding.


Sec.  4280.108  Project eligibility.

    For a renewable energy system or energy efficiency improvement 
project to be eligible to receive a grant or loan under this subpart, 
the proposed project must meet each of the criteria, as applicable, in 
paragraphs (a) through (g) of this section.
    (a) The project must be for the purchase of a renewable energy 
system or to make energy efficiency improvements.
    (b) The project must be for a pre-commercial or commercially 
available, and replicable technology.
    (c) The project must have technical merit, as determined using the 
procedures specified in Sec.  4280.112(d).
    (d) The project must be located in a rural area, as defined in 
Sec.  4280.103.
    (e) The applicant must be the owner of the project and control the 
revenues and expenses of the project, including operation and 
maintenance. A third-party under contract to the owner may be used to 
control revenues and expenses and manage the operation and/or 
maintenance of the project.
    (f) Sites must be controlled by the agricultural producer or small 
business for the financing term of any associated Federal loans or loan 
guarantees.
    (g) Satisfactory sources of revenue in an amount sufficient to 
provide for the operation, management, maintenance, and debt service of 
the project must be available for the life of the project.

Section A. Grants


Sec.  4280.109  Qualification for simplified applications.

    When applying for a grant, applicants may qualify for the 
simplified application process. In order to use the simplified 
application process, each of the conditions specified in paragraphs 
(a)(1) through (8) of this section must be met.
    (a) Simplified application criteria. (1) The applicant must be 
eligible in accordance with Sec.  4280.107.
    (2) The project must be eligible in accordance with Sec.  4280.108.
    (3) Total eligible project costs must be $200,000 or less.
    (4) The proposed project must use commercially available renewable 
energy systems or energy efficiency improvements.
    (5) Construction planning and performing development must be 
performed in compliance with Sec.  4280.115. The applicant or the 
applicant's prime contractor must assume all risks and responsibilities 
of project development.
    (6) The applicant or the applicant's prime contractor is 
responsible for all interim financing.
    (7) The proposed project is scheduled to be completed within 24 
months after entering into a grant agreement. The Agency may extend 
this period if the Agency determines, at its sole discretion, that the 
applicant is unable to complete the project for reasons beyond the 
applicant's control.
    (8) The applicant agrees not to request reimbursement from funds 
obligated under this program until after project completion, including 
all operational testing and certifications acceptable to the Agency.
    (b) Application processing and administration. (1) Application 
documents. Application documents shall be submitted in accordance with 
Sec.  4280.111 or, if applying for a combined grant and loan, also in 
accordance with Sec.  4280.193(c).
    (2) Demonstrated financial need. The applicant must certify that it 
meets the definition of demonstrated financial need, as defined in 
Sec.  4280.103. The Agency may require the applicant to provide 
supplemental information that will allow the Agency to make its own 
determination of the applicant's financial need.
    (3) Project development. Section 4280.115 applies, except as 
follows:
    (i) Any grantee may participate in project development without 
direct compensation subject to the approval in writing by the prime 
contractor, provided that all applicable construction practices, 
manufacturer instructions, and all safety codes and standards are 
followed during construction and testing, and the work product meets 
all applicable manufacture specifications, and all applicable codes and 
standards. The prime contractor remains responsible for all the overall 
successful completion of the project, including any work done by the 
grantee, or

[[Page 41307]]

    (ii) A grantee who can demonstrate to the Agency that the grantee 
has the necessary experience and other resources to successfully 
complete the project may serve as the prime contractor/installer. 
Projects where the grantee serves as the prime contractor will need to 
secure the services of an independent, professionally responsible, 
qualified consultant to certify testing specifications, procedures, and 
testing results.
    (4) Project completion. The project is complete when the applicant 
has provided a written final project development, testing, and 
performance report acceptable to the Agency. Upon notification of 
receipt of an acceptable project completion report, the applicant may 
request grant reimbursement. The Agency reserves the right to observe 
the testing.
    (5) Insurance. Section 4280.113 applies, except business 
interruption insurance is not required.


Sec.  4280.110  Grant funding.

    (a) The amount of grant funds that will be made available to an 
eligible project under this subpart will not exceed 25 percent of total 
eligible project costs. Eligible project costs are specified in 
paragraph (c) of this section.
    (b) The applicant is responsible in securing the remainder of the 
total eligible project costs not covered by grant funds. The amount 
secured by the applicant must be the remainder of total eligible 
project costs.
    (1) Without specific statutory authority, other Federal grant funds 
and applicant in-kind contributions cannot be used to meet the matching 
fund requirement. Third-party, in-kind contributions are limited to 10 
percent of the matching fund requirement of the grant. The Agency will 
advise if the proposed third-party, in-kind contributions are 
acceptable in accordance with 7 CFR part 3015 of this title.
    (2) Passive third-party equity contributions are acceptable for 
renewable energy system projects, including those that are eligible for 
Federal production tax credits, provided the applicant meets the 
requirements of Sec.  4280.107.
    (c) Eligible project costs are only those costs associated with the 
items identified in paragraphs (c)(1) through (9) of this section, as 
long as the items are an integral and necessary part of the renewable 
energy system or energy efficiency improvement.
    (1) Post-application purchase and installation of equipment (new, 
refurbished, or remanufactured), except agricultural tillage equipment, 
used equipment, and vehicles.
    (2) Post-application construction or improvements, except 
residential.
    (3) Energy audits or assessments.
    (4) Permit and license fees.
    (5) Professional service fees, except for application preparation.
    (6) Feasibility studies and Technical Reports.
    (7) Business plans.
    (8) Retrofitting.
    (9) Construction of a new energy efficient facility only when the 
facility is used for the same purpose, is approximately the same size, 
and based on the energy audit will provide more energy savings than 
improving an existing facility. Only costs identified in the energy 
audit for energy efficiency improvements are allowed.
    (d) The maximum amount of grant assistance to one individual or 
entity will not exceed $750,000 per Federal fiscal year. For those 
applicants that have not received a grant award during the previous 2 
Federal fiscal years, additional points will be added to their priority 
score.
    (e) Applications for renewable energy system grants will be 
accepted for a minimum grant request of $2,500 up to a maximum of 
$500,000.
    (f) Applications for energy efficiency improvement grants will be 
accepted for a minimum grant request of $1,500 up to a maximum of 
$250,000.
    (g) In determining the amount of a grant awarded, the Agency will 
take into consideration the following six criteria:
    (1) The type of renewable energy system to be purchased;
    (2) The estimated quantity of energy to be generated by the 
renewable energy system;
    (3) The expected environmental benefits of the renewable energy 
system;
    (4) The extent to which the renewable energy system will be 
replicable;
    (5) The amount of energy savings expected to be derived from the 
activity, as demonstrated by an energy audit comparable to an energy 
audit under 7 U.S.C. 8105; and
    (6) The estimated length of time it would take for the energy 
savings generated by the activity to equal the cost of the activity.


Sec.  4280.111  Application and documentation.

    The requirements in this section apply to grant applications under 
this subpart.
    (a) General. Separate applications must be submitted for renewable 
energy system and energy efficiency improvement projects. Applicants 
may only submit one application for each type of project per Federal 
fiscal year. An original and one complete copy of each application are 
required that follow the outline below. Each application must include a 
Table of Contents with clear pagination and chapter identification.
    (b) Grant application content. Applications and documentation for 
projects using the simplified application process, as described in 
Sec.  4280.109, must provide the required information organized 
pursuant to the Table of Contents in a chapter format presented in the 
order shown in paragraphs (b)(1) through (3) and (b)(5) through (7) of 
this section; paragraph (b)(4) of this section does not apply for 
projects using the simplified application process. Applications and 
documentation for projects not using the simplified application process 
must provide the required information organized pursuant to the Table 
of Contents in a chapter format presented in the order shown in 
paragraphs (b)(1) through (8) of this section.
    (1) Forms, certifications, and organizational documents. Each 
application must contain the items identified in paragraphs (b)(1)(i) 
through (iii) in this section.
    (i) Project specific forms.
    (A) Form SF-424, ``Application for Federal Assistance.''
    (B) Form SF-424C, ``Budget Information--Construction Programs.'' A 
more detailed budget breakdown is required in the Technical Report.
    (C) Form SF-424D, ``Assurances--Construction Programs.''
    (D) Form RD 1940-20, ``Request for Environmental Information.''
    (ii) Certifications.
    (A) AD-1049, ``Certification Regarding Drug-Free Workplace 
Requirements (Grants) Alternative 1--For Grantees Other than 
Individuals.''
    (B) AD-1048, ``Certification Regarding Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tiered Covered 
Transactions.''
    (C) Exhibit A-1 of RD Instruction 1940-Q, ``Certification for 
Contracts, Grants and Loans,'' required by 7 CFR 3018.110 if the grant 
exceeds $100,000.
    (D) Form SF-LLL, ``Disclosure of Lobbying Activities,'' must be 
completed if the applicant or borrower has made or agreed to make 
payment using funds other than Federal appropriated funds to influence 
or attempt to influence a decision in connection with the application.
    (E) AD-1047, ``Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions.''

[[Page 41308]]

    (F) Form RD 400-1, ``Equal Opportunity Agreement.''
    (G) Form RD 400-4, ``Assurance Agreement.''
    (H) Intergovernmental consultation comments in accordance with 7 
CFR part 3015, subpart V, of this title.
    (I) Applicants and borrowers must provide a certification 
indicating whether or not there is a known relationship or association 
with an Agency employee.
    (J) Applicants must provide certification that they meet the 
definition of demonstrated financial need, as defined in Sec.  
4280.103.
    (iii) Organizational documents. Except for sole proprietors, each 
applicant must submit, with the application, a copy of the legal 
organizational documents.
    (2) Table of Contents. Include page numbers for each component of 
the application in the table of contents. Begin pagination immediately 
following the Table of Contents.
    (3) Project Summary. Provide a concise summary of the project 
proposal and applicant information, project purpose and need, and 
project goals that includes the following:
    (i) Title. Provide a descriptive title of the project (identified 
on SF 424).
    (ii) Applicant eligibility. Describe how each of the applicable 
criteria identified in Sec.  4280.107(a)(1) through (5) is met.
    (iii) Project eligibility. Describe how each of the criteria, as 
applicable, in Sec.  4280.108(a) through (g) is met. Clearly state 
whether the application is for the purchase of a renewable energy 
system or to make energy efficiency improvements. The response to Sec.  
4280.108(a) must include a brief description of the system or 
improvement. This description must be sufficient to provide the reader 
with a frame of reference when reviewing the rest of the application. 
Additional project description information may be needed later in the 
application.
    (iv) Operation description. Describe the applicant's total farm/
ranch/business operation and the relationship of the proposed project 
to the applicant's total farm/ranch/business operation. Provide a 
description of the ownership of the applicant, including a list of 
individuals and/or entities with ownership interest, names of any 
corporate parents, affiliates, and subsidiaries, as well as a 
description of the relationship, including products, between these 
entities.
    (v) Financial information for size determination. Provide financial 
information to allow the Agency to determine the applicant's size. All 
information submitted under this paragraph must be substantiated by 
authoritative records.
    (A) Rural small businesses. Provide sufficient information to 
determine total annual receipts for and number of employees of the 
business and any parent, subsidiary, or affiliates at other locations. 
Voluntarily providing tax returns is one means of satisfying this 
requirement. The information provided must be sufficient for the Agency 
to make a determination of business size as defined by SBA.
    (B) Agricultural producers. Provide the gross market value of your 
agricultural products, gross agricultural income, and gross nonfarm 
income of the applicant for the calendar year preceding the year in 
which you submit your application.
    (4) Financial information. Financial information is required on the 
total operation of the agricultural producer/rural small business and 
its parent, subsidiary, or affiliates at other locations. 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 for the past years in the format that is generally required 
by commercial agriculture lenders.
    (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 should 
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 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 cashflow and 
income statements for 3 years supported by a list of assumptions 
showing the basis for the projections.
    (iv) Demonstration of Financial Need. Provide sufficient 
information or documentation that allows the Agency to make its own 
determination of the applicant's financial need.
    (5) Matching funds. Submit a spreadsheet identifying sources of 
matching funds, amounts, and status of matching funds. The spreadsheet 
must also include a directory of matching funds source contact 
information. Attach any applications, correspondence, or other written 
communication between applicant and matching fund source.
    (6) Self-Evaluation Score. Self-score the project using the 
evaluation criteria in Sec.  4280.112(e). To justify the score, submit 
the total score along with appropriate calculations and attached 
documentation, or specific cross-references to information elsewhere in 
the application.
    (7) Renewable Energy and Energy Efficiency Improvements Technical 
Report. A Technical Report must be submitted as part of the application 
to allow the Agency to determine the overall technical merit of the 
renewable energy system or energy efficiency improvement project.
    (i) Simplified applications. Simplified applications, which are 
submitted for renewable energy projects or energy efficiency 
improvement projects with total eligible project costs of $200,000 or 
less, must include a Technical Report prepared in accordance with the 
requirements specified in paragraphs (b)(7)(i)(A) through (C) of this 
section.
    (A) The Technical Report must be prepared in accordance with 
Appendix A of this subpart. If a renewable energy project does not fit 
one of the technologies identified in Appendix A, the applicant must 
submit a Technical Report in accordance with paragraph (b)(7)(ii) of 
this section. The information in all Technical Reports must be of 
sufficient detail to allow the Agency to score the project and evaluate 
its technical feasibility.
    (B) Either an energy assessment or an energy audit is required for 
energy efficiency improvement projects. For energy efficiency 
improvement projects with total eligible project costs greater than 
$50,000, an energy audit must be conducted; it must be conducted by or 
reviewed and certified by an energy auditor. For energy efficiency 
improvement projects with total eligible project costs of $50,000 or 
less, an energy assessment or an energy audit may be conducted by 
either an energy assessor or an energy auditor.
    (C) Technical Reports prepared prior to the applicant's selection 
of a prime contractor may be modified after selection, pursuant to 
input from the prime contractor, and submitted to the Agency, provided 
the overall scope of the project is not materially changed as 
determined by the Agency. Changes in the report must be accompanied by 
an updated Form RD 1940-20.

[[Page 41309]]

    (ii) Full applications. Full applications, which must be submitted 
for applications for renewable energy projects or energy efficiency 
improvement projects with total eligible project costs greater than 
$200,000, must include a full Technical Report prepared in accordance 
with Appendix B of this subpart and with paragraphs (b)(7)(ii)(A) 
through (G) of this section, as applicable.
    (A) The Technical Report must demonstrate that the renewable energy 
system or energy efficiency improvement project can be installed and 
perform as intended in a reliable, safe, cost-effective, and legally 
compliant manner.
    (B) Either an energy assessment or an energy audit is required for 
energy efficiency improvement projects. For energy efficiency 
improvement projects with total eligible project costs greater than 
$50,000, an energy audit must be conducted; it must be conducted by or 
reviewed and certified by an energy auditor. For energy efficiency 
improvement projects with total eligible project costs of $50,000 or 
less, an energy assessment or an energy audit may be conducted by 
either an energy assessor or an energy auditor.
    (C) For renewable energy projects with total eligible project costs 
greater than $400,000 and for energy efficiency improvement projects 
with total eligible project costs greater than $200,000, the design 
review, installation monitoring, testing prior to commercial operation, 
and project completion certification will require the services of a 
licensed professional engineer (PE) or team of licensed PEs.
    (D) For projects with total eligible project costs greater than 
$1,200,000, the Technical Report must be reviewed and include an 
opinion and recommendation by an independent qualified consultant.
    (E) Technical Reports prepared prior to the applicant's selection 
of a final design, equipment vendor, or prime contractor, or other 
significant decision may be modified and resubmitted to the Agency, 
provided the overall scope of the project is not materially changed as 
determined by the Agency. Changes in the Technical Report must be 
accompanied by an updated Form RD 1940-20.
    (F) All information provided in the Technical Report will be 
evaluated against the requirements provided in Appendix B of this 
subpart. Any Technical Report not prepared in the following format and 
in accordance with Appendix B, where applicable, will be penalized 
under scoring for technical merit.
    (G) All Technical Reports shall follow the outline presented below 
and shall contain the information described in paragraphs 
(b)(7)(ii)(G)(1) through (10) of this section and Appendix B, if the 
technology is identified in Appendix B for the particular project. If 
none of the Technical Reports in Appendix B apply to the proposed 
technology, the applicant may submit a Technical Report that conforms 
to the overall outline and subjects specified in paragraph 
(b)(7)(ii)(G) of this section. For Technical Reports prepared for 
technologies not identified in Appendix B, the Agency will review the 
reports and notify, in writing, the applicant of the changes to the 
report required in order for the Agency to accept the report.
    (1) Qualifications of the project team. Describe the project team, 
their professional credentials, and relevant experience. The 
description must support that the project team service, equipment, and 
installation providers have the necessary professional credentials, 
licenses, certifications, or relevant experience to develop the 
proposed project.
    (2) Agreements and permits. Describe the necessary agreements and 
permits required for the project and the anticipated schedule for 
securing those agreements and permits. For example, interconnection 
agreements and purchase power arrangements are necessary for all 
renewable energy projects electrically interconnected to the utility 
grid. The applicant must demonstrate that the applicant is familiar 
with the regulations and utility policies and that these arrangements 
will be secured in a reasonable timeframe.
    (3) Energy or resource assessment. Describe the quality and 
availability of the renewable resource, and an assessment of expected 
energy savings through the deployment of the proposed system or 
increased production created by the system.
    (4) Design and engineering. Describe the intended purpose of the 
project and the design, engineering, testing, and monitoring needed for 
the proposed project. The description must 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, the applicant must identify all the major equipment that is 
proprietary equipment and justify how this unique equipment is needed 
to meet the requirements of the proposed design.
    (5) Project development. Describe the overall project development 
method, including the key project development activities and the 
proposed schedule for each activity. The description must 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 must 
address applicant project development cashflow requirements. Details 
for equipment procurement and installation shall be addressed in 
paragraphs (b)(7)(ii)(G)(7) and (8) of this section.
    (6) Project economic assessment. Describe the financial performance 
of the proposed project. The description must address project costs, 
energy savings, and revenues, including applicable investment and 
production incentives. Cost centers include, but are not limited to, 
administrative and general, fuel supply, operations and maintenance, 
product delivery and debt service. Revenues to be considered must 
accrue from the sale of energy, offset or savings in energy costs, 
byproducts, and green tags. Incentives to be considered must accrue 
from government entities.
    (7) Equipment procurement. Describe the availability of the 
equipment required by the system. The description must support that the 
required equipment is available and can be procured and delivered 
within the proposed project development schedule.
    (8) Equipment installation. Describe the plan for site development 
and system installation, including any special equipment requirements. 
In all cases, the system or improvement must be installed in 
conformance with manufacturer's specifications and design requirements, 
and comply with applicable laws, regulations, agreements, permits, 
codes, and standards.
    (9) 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 the design life. All systems or improvements must have a warranty. 
The warranty must cover and provide protection against both breakdown 
and a degradation of performance. The performance of the renewable 
energy system or energy efficiency improvement must be monitored and 
recorded as appropriate to the specific technology.
    (10) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and associated 
wastes at

[[Page 41310]]

the end of their useful lives. The budget for and any unique concerns 
associated with the dismantling and disposal of project components and 
their wastes must also be described.
    (8) Business-level feasibility study for renewable energy systems. 
For each application for a renewable energy system project, with total 
eligible project costs greater than $200,000, a business-level 
feasibility study by an independent, qualified consultant will be 
required by the Agency for start-up businesses or existing businesses. 
An acceptable business-level feasibility study must at least include an 
evaluation of economic, market, technical, financial, and management 
feasibility.


Sec.  4280.112  Evaluation of grant applications.

    (a) General review. The Agency will evaluate each application and 
make a determination as to whether the applicant is eligible, the 
proposed grant is for an eligible project, and the proposed grant 
complies with all applicable statutes and regulations.
    (b) Ineligible applications. If either the applicant or the project 
is ineligible, the Agency will inform the applicant in writing of the 
decision, reasons therefore, and any appeal rights. No further 
evaluation of the application will occur.
    (c) Incomplete applications. If the application is incomplete, the 
Agency will return it to the applicant to provide the applicant the 
opportunity to resubmit the application. The Agency will identify those 
parts of the application that are incomplete. Upon receipt of a 
complete application, the Agency will complete its evaluation of the 
application.
    (d) Technical merit. The Agency's determination of a project's 
technical merit will be based on the information provided by the 
applicant. 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 
application. The Agency may use this evaluation and rating to determine 
the level of technical merit of the proposed project. Projects that the 
Agency determines are without technical merit shall be deemed 
ineligible.
    (e) Evaluation criteria. Agency personnel will score and fund each 
application based on the evaluation criteria specified in paragraphs 
(e)(1) through (9) of this section.
    (1) Quantity of energy replaced, produced, or saved. 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 renewable energy system is 
intended primarily for self-use by the agricultural producer or rural 
small business and will provide energy replacement of greater than 
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 a 12-month 
period by the estimated quantity of energy consumed over the same 12-
month period during the previous year by the applicable energy 
application. The estimated quantities of energy must be converted to 
either British thermal units (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 
by the installation of the energy efficiency improvements will be from 
20 percent up to, but not including 30 percent, 5 points will be 
awarded; 30 percent up to, but not including 35 percent, 10 points will 
be awarded; or, 35 percent or greater, 15 points will be awarded. 
Energy savings will be determined by the projections in an energy 
assessment or audit. Projects with total eligible project costs of 
$50,000 or less that opt to obtain a professional energy audit will be 
awarded an additional 5 points.
    (iii) Energy generation. If the proposed renewable energy system is 
intended primarily for production of energy for sale, 10 points will be 
awarded.
    (2) Environmental benefits. If the purpose of the proposed system 
contributes to the environmental goals and objectives of other Federal, 
State, or local programs, 10 points will be awarded. Points will only 
be awarded for this paragraph if the applicant is able to provide 
documentation from an appropriate authority supporting this claim.
    (3) Commercial availability. If the proposed system or improvement 
is currently commercially available and replicable, 5 points will be 
awarded. If the proposed system or improvement is commercially 
available and replicable and is also provided with a 5-year or longer 
warranty providing the purchaser protection against system degradation 
or breakdown or component breakdown, 10 points will be awarded.
    (4) Technical merit score. The Technical Merit of each project will 
be determined using the procedures specified in paragraphs (e)(4)(i) 
and (ii) of this section. The procedures specified in paragraph 
(e)(4)(i) will be used to score paragraphs (e)(4)(i)(A) through (J) of 
this section. The final score awarded will be calculated using the 
procedures described in paragraph (e)(4)(ii) of this section.
    (i) Technical merit. Each subparagraph has its own maximum possible 
score and will be scored according to the following criteria: If the 
description in the subparagraph has no significant weaknesses and 
exceeds the requirements of the subparagraph, 100 percent of the total 
possible score for the subparagraph will be awarded. If the description 
has one or more significant strengths and meets the requirements of the 
subparagraph, 80 percent of the total possible score will be awarded 
for the subparagraph. If the description meets the basic requirements 
of the subparagraph, but also has several weaknesses, 60 percent of the 
points will be awarded. If the description is lacking in one or more 
critical aspects, key issues have not been addressed, but the 
description demonstrates some merit or strengths, 40 percent of the 
total possible score will be awarded. If the description has serious 
deficiencies, internal inconsistencies, or is missing information, 20 
percent of the total possible score will be awarded. If the description 
has no merit in this area, 0 percent of the total possible score will 
be awarded. The total possible points for Technical Merit is 35 points.
    (A) Qualifications of the project team (maximum score of 10 
points). The applicant has described the project team service 
providers, their professional credentials, and relevant experience. The 
description supports that the project team service, equipment, and 
installation providers have the necessary professional credentials, 
licenses, certifications, or relevant experience to develop the 
proposed project.
    (B) Agreements and permits (maximum score of 5 points). The 
applicant has described the necessary agreements and permits required 
for the project and the schedule for securing those agreements and 
permits.
    (C) Energy or resource assessment (maximum score of 10 points). The 
applicant has described the quality and availability of a suitable 
renewable resource or an assessment of expected energy savings for the 
proposed system.

[[Page 41311]]

    (D) Design and engineering (maximum score of 30 points). The 
applicant has described the design, engineering, and testing needed for 
the proposed project. The description supports that the system will be 
designed, engineered, and tested so as to meet its intended purpose, 
ensure public safety, and comply with applicable laws, regulations, 
agreements, permits, codes, and standards.
    (E) Project development schedule (maximum score of 5 points). The 
applicant has described the development method, including the key 
project development activities and the proposed schedule for each 
activity. The description identifies each significant task, its 
beginning and end, and its relationship to the time needed to initiate 
and carry the project through to successful completion. The description 
addresses grantee or borrower project development cashflow 
requirements.
    (F) Project economic assessment (maximum score of 20 points). The 
applicant has described the financial performance of the proposed 
project, including the calculation of simple payback. The description 
addresses project costs and revenues, such as applicable investment and 
production incentives, and other information to allow the assessment of 
the project's cost effectiveness.
    (G) Equipment procurement (maximum score of 5 points). The 
applicant has described the availability of the equipment required by 
the system. The description supports that the required equipment is 
available, and can be procured and delivered within the proposed 
project development schedule.
    (H) Equipment installation (maximum score of 5 points). The 
applicant has described the plan for site development and system 
installation.
    (I) Operation and maintenance (maximum score of 5 points). The 
applicant has described the operations and maintenance requirements of 
the system necessary for the system to operate as designed over the 
design life.
    (J) Dismantling and disposal of project components (maximum score 
of 5 points). The applicant has described the requirements for 
dismantling and disposing of project components at the end of their 
useful life and associated wastes.
    (ii) Calculation of Technical Merit Score. To determine the actual 
points awarded a project for Technical Merit, the following procedure 
will be used: The score awarded for paragraphs (e)(4)(i)(A) through (J) 
of this section will be added together and then divided by 100, the 
maximum possible score, to achieve a percentage. This percentage will 
then be multiplied by the total possible points of 35 to achieve the 
points awarded for the proposed project for Technical Merit.
    (5) Readiness. If the applicant has written commitments from the 
source(s) confirming commitment of 50 percent up to but not including 
75 percent of the matching funds prior to the Agency receiving the 
complete application, 5 points will be awarded. If the applicant has 
written commitments from the source(s) confirming commitment of 75 
percent up to but not including 100 percent of the matching funds prior 
to the Agency receiving the complete application, 10 points will be 
awarded. If the applicant has written commitments from the source(s) of 
matching funds confirming commitment of 100 percent of the matching 
funds prior to the Agency receiving the complete application, 15 points 
will be awarded.
    (6) Small agricultural producer/very small business. If the 
applicant is an agricultural producer producing agricultural products 
with a gross market value of less than $600,000 in the preceding year, 
5 points will be awarded. If the applicant is an agricultural producer 
producing agricultural products with a gross market value of less than 
$200,000 in the preceding year or is a very small business, as defined 
in Sec.  4280.103, 10 points will be awarded.
    (7) Simplified application/low cost projects. If the applicant is 
eligible for and uses the simplified application process or the project 
has total eligible project costs of $200,000 or less, 5 points will be 
awarded.
    (8) Previous grantees and borrowers. If an applicant has not been 
awarded a grant or loan under this program within the 2 previous 
Federal fiscal years, 5 points will be awarded.
    (9) Return on investment. If the proposed project will return the 
cost of the investment in less than 4 years, 10 points will be awarded; 
4 years up to but not including 8 years, 4 points will be awarded; or 8 
years up to 11 years, 2 point will be awarded.


Sec.  4280.113  Insurance requirements.

    Agency approved insurance coverage must be maintained for the life 
of the grant unless this requirement is waived or modified by the 
Agency in writing.
    (a) National flood insurance is required in accordance with 7 CFR 
part 1806, subpart B, of this title, if applicable.
    (b) Business interruption insurance is required except for projects 
with total eligible project costs of $200,000 or less.


Sec.  4280.114  Laws that contain other compliance requirements.

    (a) 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 as 
supplemented by applicable Department of Labor regulations (41 CFR part 
60). The applicant is responsible for ensuring that the contractor 
complies with these requirements.
    (b) Equal opportunity and nondiscrimination. The Agency will ensure 
that equal opportunity and nondiscriminatory requirements are met in 
accordance with the Equal Credit Opportunity Act and 7 CFR 15d, 
Nondiscrimination in Programs and Activities, conducted by USDA. 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); to the fact that all 
or part of the applicant's income derives from public assistance 
program; or to the fact that the applicant has in good faith exercised 
any right under the Consumer Credit Protection Act.
    (c) Civil rights compliance. Recipients of grants must comply with 
the Americans with Disabilities Act of 1990, Title VI of the Civil 
Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. 
This may include collection and maintenance of data on the race, sex, 
and national origin of the recipient's membership/ownership and 
employees. These data must be available to conduct compliance reviews 
in accordance with 7 CFR part 1901, subpart E, Sec.  1901.204 of this 
title. Initial reviews will be conducted after Form RD 400-4 is signed 
and all subsequent reviews every 3 years thereafter for loans. The last 
review shall occur 3 years after the date of loan closing. Grants will 
require one subsequent compliance review after the last disbursement of 
grant funds have been made, and the facility has been in full operation 
for 90 days.
    (d) Environmental analysis. Subpart G of part 1940 of this title 
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

[[Page 41312]]

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.
    (4) The applicant taking any actions or incurring any obligations 
during the time of application or application review and processing 
that would either limit the range of alternatives to be considered or 
that would have an adverse effect on the environment, such as the 
initiation of construction, will result in project ineligibility.
    (e) Executive Order 12898. When a project is proposed and financial 
assistance requested, the Agency will conduct a Civil Rights Impact 
Analysis (CRIA) with regards to environmental justice. The CRIA must be 
conducted and the analysis documented utilizing Form RD 2006-38, 
``Civil Rights Impact Analysis Certification.'' This certification must 
be done prior to loan approval, obligation of funds, or other 
commitments of Agency resources, including issuance of a Letter of 
Conditions or Form RD 4279-3 of guarantee, whichever occurs first.
    (f) Uniform Federal assistance regulations. Grants will be 
administered in accordance with 7 CFR part 3015 of this title.


Sec.  4280.115  Construction planning and performing development.

    The requirements of this section apply for planning, designing, 
bidding, contracting, and constructing renewable energy systems and 
energy efficiency improvement projects as applicable. For contracts of 
$200,000 or less, the simple contract method, as specified in paragraph 
(e) of this section, may be used. Contracts greater than $200,000 shall 
use the contract method specified in paragraph (g) of this section.
    (a) Technical services. Applicants are responsible for providing 
the engineering, architectural, and environmental services necessary 
for planning, designing, bidding, contracting, inspecting, and 
constructing their facilities. Services may be provided by the 
applicant's ``in-house'' engineer or architect or through contract, 
subject to Agency concurrence. Engineers and architects must be 
licensed in the State where the facility is to be constructed.
    (b) Design policies. Facilities funded by the Agency will meet the 
requirements of 7 CFR subpart C of part 1780, Sec.  1780.57(b), (c), 
(d), and (o) of this title. Final plans and specifications must be 
reviewed by the Agency and approved prior to the start of construction.
    (c) Owners accomplishing work. In some instances, owners may wish 
to perform a part of the work themselves. For an owner to perform 
project development work, the owner must meet the experience 
requirements of 7 CFR subpart C of part 1780, Sec.  1780.67 of this 
title. For an owner to provide a portion of the work, with the 
remainder to be completed by a contractor, a clear understanding of the 
division of work must be established and delineated in the contract. In 
such cases, the contractor will be required to inspect the owner's work 
and accept it. Owners are not eligible for payment for their own work 
as it is not an eligible project cost. See Sec.  4280.110(c) of this 
subpart for further details on eligible project costs.
    (d) Equipment purchases. Equipment purchases of less than $200,000 
will not require a performance and payment bond, unless required by the 
applicant, as long as the contract purchase is a lump sum payment and 
the manufacturer provides the required warranties on the equipment as 
outlined in paragraph (i) in the applicable section found in Appendices 
A and B of this subpart. Payment shall be certified by copies of the 
Manufacturer's paid invoices and warranty documents.
    (e) Simple contract method. The simple contract method may be used 
for small projects with a contract not greater than $200,000. In 
smaller projects, Agency funds will typically be used to reimburse 
project costs upon completion of the work as a lump sum payment. 
Partial payments will be made in accordance with Form RD 4280-2, 
``Grant Agreement,'' and Form RD 1924-6, ``Construction Contract,'' or 
other Agency approved contract. All construction work will be performed 
under a written contract, as described below. A design/build method, 
where the same person or entity provides design and engineering work, 
as well as construction or installation, may be used under this method.
    (1) Contracting requirements threshold. For contracts above 
$100,000, certain Federal requirements, including surety, must be met. 
An attachment to the contract may be used to incorporate language for 
these requirements.
    (2) Forms used. Form RD 1924-6 or other Agency approved contract 
must be used. Other contracts 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 
shall become effective until concurred in writing by the Agency. Such 
concurrence statement shall be attached to and made a part of the 
contract.
    (3) Contract provisions. 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. If not, a latent 
defects bond may be required, as described in paragraph (e)(4) of this 
section;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency; and
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i)(1).
    (4) Surety. Surety per 7 CFR subpart C of part 1780, Sec.  
1780.75(c) of this title will be required, and made a part of the 
contract, if the applicant requests it, or if the contractor requests 
partial payments for construction work. If the contractor will receive 
a lump sum payment at the end of work, the Agency will not require 
surety. In such cases where no surety is provided and the project 
involves pre-commercial technology, first of its type in the U.S., or 
new designs without sufficient operating hours to prove their merit, a 
latent defects bond may be required to cover the work.
    (5) Equal opportunity. Section 1901.205 of subpart E of part 1901 
of this title applies to all financial assistance involving 
construction contracts and subcontracts in excess of $10,000. Language 
for this requirement is included in Form RD 1924-6. If this form is not 
used, such language must be made a part of the Agency approved 
contract.
    (6) Obtaining bids and selecting a contractor. (i) The applicant 
may select

[[Page 41313]]

a contractor and negotiate a contract or contact several contractors 
and request each to submit a bid. The applicant will provide a 
statement to the Agency describing the process for obtaining the bid(s) 
and what alternatives were considered.
    (ii) When a price has already been negotiated by an applicant and a 
contractor, the Agency will review the proposed contract. If the 
contractor is qualified to perform the development and provide a 
warranty of the work and the price compares favorably with the cost of 
similar construction in the area, further negotiation is unnecessary. 
If the Agency determines the price is too high or otherwise 
unreasonable, the applicant will be required to negotiate further with 
the contractor. If a reasonable price cannot be negotiated or if the 
contractor is not qualified, the applicant will be required to 
negotiate with another contractor.
    (iii) When an applicant has proposed development with no contractor 
in mind, competition will be required. The applicant must obtain bids 
from as many qualified contractors, dealers, or trades people as 
feasible depending on the method and type of construction.
    (iv) If the award of the contract is by competitive bidding, Form 
RD 1924-5, ``Invitation for Bid (Construction Contract),'' or another 
similar Agency approved invitation bid form containing the requirements 
of subpart E of part 1901 of this title may be used. All contractors 
from whom bids are requested should be informed of all conditions of 
the contract, including the time and place of opening bids. Conditions 
shall not be established which would give preference to a specific 
bidder or type of bidder. When applicable, copies of Forms RD 1924-6 
and RD 400-6, ``Compliance Statement,'' also should be provided to the 
prospective bidders.
    (7) Awarding the contract. 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 Form RD 1924-6 
or similar Agency approved document as described in this section.
    (8) Final payments. Prior to making final payment on the contract 
when a surety bond is not used, the Agency will be provided with Form 
RD 1924-9, ``Certificate of Contractor's Release,'' and Form RD 1924-
10, ``Release by Claimants,'' executed by all persons who furnished 
materials or labor in connection with the contract. The applicant 
should furnish the contractor with a copy of Form RD 1924-10 at the 
beginning of the work in order that the contractor may obtain these 
releases as the work progresses.
    (f) Design/build contracts. 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. 
If the design/build contract amount is $200,000 or less, development 
and contracting will follow paragraph (e) of this section. If the 
design/build contract amount is greater than $200,000, Agency prior 
concurrence must be obtained as described below, and the remaining 
requirements of this section apply.
    (1) Concurrence information. The applicant will request Agency 
concurrence by providing the Agency at least the information specified 
in paragraphs (f)(1)(i) through (viii) of this section.
    (i) The owner's written request to use the design/build method with 
a description of the proposed method.
    (ii) A proposed scope of work describing in clear, concise terms 
the technical requirements for the contract. It should include a 
nontechnical statement summarizing the work to be performed by the 
contractor and the results expected, and a proposed construction 
schedule showing the sequence in which the work is to be performed.
    (iii) A proposed firm-fixed-price contract for the entire project 
which provides that the contractor shall be responsible for any extra 
cost which may result from errors or omissions in the services provided 
under the contract, as well as compliance with all Federal, State, and 
local requirements effective on the contract execution date.
    (iv) Where noncompetitive negotiation is proposed, an evaluation of 
the contractor's performance on previous similar projects in which the 
contractor acted in a similar capacity.
    (v) A detailed listing and cost estimate of equipment and supplies 
not included in the construction contract but which are necessary to 
properly operate the facility.
    (vi) Evidence that a qualified construction inspector who is 
independent of the contractor has or will be hired.
    (vii) Preliminary plans and outline specifications. However, final 
plans and specifications must be completed and reviewed by the Agency 
prior to the start of construction.
    (viii) The owner's attorney's opinion and comments regarding the 
legal adequacy of the proposed contract documents and evidence that the 
owner has the legal authority to enter into and fulfill the contract.
    (2) Agency concurrence of design/build method. The Agency shall 
review the material submitted by the applicant. When all items are 
acceptable, the loan approval official will concur in the use of the 
design/build method for the proposal.
    (3) Forms used. The American Institute of Architects (AIA) Form 
A191, ``Standard Form of Agreement Between Owner and Design/Builder,'' 
should be used. Other Agency approved contract documents may 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 
shall be attached to and made a part of the contract.
    (4) Contract provisions. Contracts will have a listing of 
attachments and shall meet the following requirements:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages, if any, to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Surety provisions that meet the requirements of 7 CFR subpart C 
of part 1780, Sec.  1780.75(c) of this title;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency;
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i);
    (viii) Contract review and concurrence in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.61(b) of this title;
    (ix) Owner's contractual responsibility in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.68 of this title; and
    (x) Further contract provisions concerning remedies, termination, 
surety, equal employment opportunity, anti-kickback, records, State 
energy conservation plan, change orders, Agency concurrence, retainage, 
and other compliance requirements must be met in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.75 of this title.

[[Page 41314]]

    (5) Obtaining bids and selecting a contractor. The applicant may 
select a contractor based on competitive sealed bids, competitive 
negotiation, or noncompetitive negotiation as described in 7 CFR 
subpart C of part 1780, Sec.  1780.72(b), (c), or (d) of this title.
    (g) Contract method. If the contract amount is greater than 
$200,000 and is not of the design/build method, the following 
conditions must be met:
    (1) Procurement method. Procurement method shall comply with the 
requirements of 7 CFR subpart C of part 1780, Sec. Sec.  1780.72, 
1780.75, and 1780.76 of this title.
    (2) Forms used. The AIA Form A101, ``Standard Form of Agreement 
Between Owner/Contractor,'' or Engineering Joint Counsel Document 
Committee (EJCDC) Form C-521, ``Suggested Form of Agreement Between 
Owner and Contractor (Stipulated Price) Funding Agency Edition,'' 
should be used. Other Agency approved contract documents may 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 
shall be attached to and made a part of the contract.
    (3) Contract provisions. Contracts will have a listing of 
attachments and shall meet the requirements of 7 CFR subpart C of part 
1780, Sec.  1780.75 of this title and the following requirements:
    (i) The contract sum;
    (ii) The dates for starting and completing the work;
    (iii) The amount of liquidated damages, if any, to be charged;
    (iv) The amount, method, and frequency of payment;
    (v) Surety provisions that meet the requirements of 7 CFR subpart C 
of part 1780, Sec.  1780.75(c) of this title;
    (vi) The requirement that changes or additions must have prior 
written approval of the Agency;
    (vii) The warranty period to be provided in accordance with 
Appendices A and B, sections 1 through 10, paragraph (i);
    (viii) Contract review and concurrence in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.61(b) of this title;
    (ix) Owner's contractual responsibility in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.68 of this title; and
    (x) Further contract provisions concerning remedies, termination, 
surety, equal employment opportunity, anti-kickback, records, State 
energy conservation plan, change orders, Agency concurrence, retainage, 
and other compliance requirements must be met in accordance with 7 CFR 
subpart C of part 1780, Sec.  1780.75 of this title.
    (4) Obtaining bids and selecting a contractor. The applicant may 
select a contractor based on competitive sealed bids, competitive 
negotiation, or noncompetitive negotiation as described in 7 CFR 
subpart C of part 1780, Sec.  1780.72(b), (c), or (d) of this title.
    (5) Contract award. Applicants awarding contracts must comply with 
7 CFR subpart C of part 1780, Sec.  1780.70(h) of this title.
    (6) Contracts awarded prior to applications. Applicants awarding 
contracts prior to filing an application must comply with 7 CFR subpart 
C of part 1780, Sec.  1780.74 of this title.
    (7) Contract administration. Contract administration must comply 
with 7 CFR subpart C of part 1780, Sec.  1780.76 of this title. If 
another authority, such as a Federal or State Agency, is providing 
funding and requires oversight of inspections, change orders, and pay 
requests, the Agency may accept copies of their reports or forms as 
meeting oversight requirements of the Agency.


Sec.  4280.116  Grantee requirements.

    (a) A Letter of Conditions will be prepared by the Agency, 
establishing conditions that must be understood and agreed to by the 
applicant before any obligation of funds can occur. The applicant must 
sign a ``Letter of Intent to Meet Conditions'' and Form RD 1940-1, 
``Request for Obligation of Funds,'' if they accept the conditions of 
the grant.
    (b) The grantee must sign and abide by all requirements contained 
in Form RD 4280-2 and this subpart.


Sec.  4280.117  Servicing grants.

    Grants will be serviced in accordance with subparts E and O of part 
1951 of this title and Form RD 4280-2.


Sec. Sec.  4280.118--4280.120  [Reserved]

Section B. Guaranteed Loans


Sec.  4280.121  Borrower eligibility.

    To receive a guaranteed loan under this subpart, a borrower must 
meet each of the criteria, as applicable, identified in Sec.  
4280.107(a)(1) through (4).


Sec.  4280.122  Project eligibility.

    For a project to be eligible to receive a guaranteed loan under 
this subpart, the project must meet each of the criteria, as 
applicable, in Sec.  4280.108(a) through (g). In addition, guaranteed 
loan funds may be used for necessary capital improvements to an 
existing renewable energy system.


Sec.  4280.123  Guaranteed loan funding.

    (a) The amount of the loan that will be made available to an 
eligible project under this subpart will not exceed 50 percent of total 
eligible project costs. Eligible project costs are specified in 
paragraph (e) 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 $10 million.
    (c) The percentage of guarantee, up to the maximum allowed by this 
section, will be negotiated between the lender and the Agency. The 
maximum percentage of guarantee is 85 percent for loans of $600,000 or 
less; 80 percent for loans greater than $600,000 up to and including $5 
million; and 70 percent for loans greater than $5 million up to and 
including $10 million.
    (d) The total amount of the loans guaranteed by the Agency under 
this program to one borrower, including the outstanding principal and 
interest balance of any existing loans guaranteed by the Agency under 
this program, and new loan request, must not exceed $10 million.
    (e) Eligible project costs are only those costs associated with the 
items identified in paragraphs (e)(1) through (11) of this section, as 
long as the items are an integral and necessary part of the renewable 
energy system or energy efficiency improvement.
    (1) Post-application purchase and installation of equipment (new, 
refurbished, or remanufactured), except agricultural tillage equipment, 
used equipment, and vehicles.
    (2) Post-application construction or improvements, except 
residential.
    (3) Energy audits or assessments.
    (4) Permit and license fees.
    (5) Professional service fees, except for application preparation.
    (6) Feasibility studies and technical reports.
    (7) Business plans.
    (8) Retrofitting.
    (9) Construction of a new energy efficient facility only when the 
facility is used for the same purpose, is approximately the same size, 
and based on the energy audit will provide more energy savings than 
improving an existing facility. Only costs identified in the energy 
audit for energy efficiency improvements are allowed.

[[Page 41315]]

    (10) Working capital.
    (11) Land acquisition.
    (f) In determining the amount of a loan awarded, the Agency will 
take into consideration the following six criteria:
    (1) The type of renewable energy system to be purchased;
    (2) The estimated quantity of energy to be generated by the 
renewable energy system;
    (3) The expected environmental benefits of the renewable energy 
system;
    (4) The extent to which the renewable energy system will be 
replicable;
    (5) The amount of energy savings expected to be derived from the 
activity, as demonstrated by an energy audit comparable to an energy 
audit under 7 U.S.C. 8105; and
    (6) The estimated length of time it would take for the energy 
savings generated by the activity to equal the cost of the activity.


Sec.  4280.124  Interest rates.

    (a) The interest rate for the guaranteed loan will be negotiated 
between the lender and the applicant and may be either fixed or 
variable as long as it is a legal rate. The variable rate must be based 
on published indices, such as money market indices. In no case, 
however, shall the rate be more than the rate customarily charged 
borrowers in similar circumstances in the ordinary course of business. 
The interest rate charged is subject to Agency review and approval.
    (b) Comply with Sec.  4279.125(a), (b), and (d) of this chapter.


Sec.  4280.125  Terms of loan.

    (a) The repayment term for a loan for:
    (1) Real estate must not exceed 30 years;
    (2) Machinery and equipment must not exceed 20 years, or the useful 
life, including major rebuilds and component replacement, whichever is 
less;
    (3) Combined loans on real estate and equipment must not exceed 30 
years; and
    (4) Working capital loans must not exceed 7 years.
    (b) The first installment of principal and interest will, if 
possible, be scheduled for payment after the project is operational and 
has begun to generate income.
    (c) Payment terms must comply with Sec.  4279.126(c) of this 
chapter.
    (d) The maturity of a loan will be based on the use of proceeds, 
the useful life of the assets being financed, and the borrower's 
ability to repay.
    (e) All loans guaranteed through this program must be sound, with 
reasonably assured repayment.
    (f) Guarantees must be provided only after consideration is given 
to the borrower's overall credit quality and to the terms and 
conditions of renewable energy and energy efficiency subsidies, tax 
credits, and other such incentives.
    (g) A principal plus interest repayment schedule is permissible.


Sec.  4280.126  Guarantee/annual renewal fee percentages.

    (a) Fee ceilings. The maximum guarantee fee that may be charged is 
1 percent. The maximum annual renewal fee that may be charged is 0.5 
percent. The Agency will establish each year the guarantee fee and 
annual renewal fee and a notice will be published in the Federal 
Register.
    (b) Guarantee fee. The guarantee fee will be paid to the Agency by 
the lender and is nonrefundable. The guarantee fee may be passed on to 
the borrower. The guarantee fee must be paid at the time the Loan Note 
Guarantee is issued.
    (c) Annual renewal fee. The annual renewal fee will be calculated 
on the unpaid principal balance as of close of business on December 31 
of each year. It will be calculated by multiplying the outstanding 
principal balance times the percent of guarantee times the annual 
renewal fee. The fee will be billed to the lender in accordance with 
the Federal Register publication. The annual renewal fee may not be 
passed on to the borrower.


Sec.  4280.127  [Reserved]


Sec.  4280.128  Application and documentation.

    The requirements in this section apply to guaranteed loan 
applications under this subpart.
    (a) General. Applications must be submitted in accordance with the 
requirements specified in Sec.  4280.111(a).
    (b) Application content for guaranteed loans greater than $600,000. 
Applications and documentation for guaranteed loans greater than 
$600,000 must provide the required information organized pursuant to a 
Table of Contents in a chapter format presented in the order shown in 
paragraphs (b)(1) and (2) of this section.
    (1) Guaranteed loan application content. (i) Table of Contents. 
Include page numbers for each component of the application in the table 
of contents. Begin pagination immediately following the Table of 
Contents.
    (ii) Project Summary. Provide a concise summary of the proposed 
project and applicant information, project purpose and need, and 
project goals, including the following:
    (A) Title. Provide a descriptive title of the project (identified 
on SF 424).
    (B) Borrower eligibility. Describe how each of the criteria, 
identified in Sec.  4280.107(a)(1) through (4), is met.
    (C) Project eligibility. Describe how each of the criteria, as 
applicable in Sec.  4280.108(a) through (g), is met. Clearly state 
whether the application is for the purchase of a renewable energy 
system (including making necessary capital improvements to an existing 
renewable energy system) or to make energy efficiency improvements. The 
response to Sec.  4280.108(a) must include a brief description of the 
system or improvement. This description is to provide the reader with a 
frame of reference for reviewing the rest of application. Additional 
project description information will be needed later in the 
application.
    (D) Operation description. Describe the applicant's total farm/
ranch/business operation and the relationship of the proposed project 
to the applicant's total farm/ranch/business operation as specified in 
Sec.  4280.111(b)(3)(iv).
    (iii) Financial information for size determination. Provide 
financial information to allow the Agency to determine the applicant's 
size as specified in Sec.  4280.111(b)(3)(v).
    (iv) Matching funds. Submit a spreadsheet identifying sources, 
amounts, and status of matching funds as specified in Sec.  
4280.111(b)(5).
    (v) Self-evaluation score. Self-score the project using the 
evaluation criteria in Sec.  4280.112(e) as specified in Sec.  
4280.111(b)(6).
    (vi) Renewable energy and energy efficiency technical report. For 
both renewable energy projects and energy efficiency improvement 
projects, submit a Technical Report in accordance with applicable 
provisions of Appendix B of this subpart and as specified in Sec.  
4280.111(b)(7)(ii). For loan requests in excess of $600,000, the 
services of a licensed professional engineer (P.E.) or a team of 
licensed P.E.'s is required. If none of the Technology Reports in 
Appendix B apply to the proposed technology, the applicant may submit a 
Technical Report that conforms to the overall outline and subjects 
specified in applicable provisions of Sec.  4280.111(b)(7)(ii)(A) 
through (G).
    (vii) Business-level feasibility study for renewable energy 
systems. For each application for a renewable energy system project 
submitted by a start-up or existing business, a business-level 
feasibility study by an independent qualified consultant will be 
required by the Agency. An acceptable business-level feasibility study 
must at least include an evaluation of economic,

[[Page 41316]]

market, technical, financial, and management feasibility.
    (2) Lender forms, certifications, and agreements. Each application 
submitted under paragraph (b)(1) of this section must contain 
applicable items described in paragraphs (b)(2)(i) through (xii) of 
this section.
    (i) A completed Form RD 4279-1, ``Application for Loan Guarantee.''
    (ii) Form RD 1940-20.
    (iii) 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, except passive investors and those corporations 
listed on a major stock exchange.
    (iv) Appraisals completed in accordance with Sec.  4280.141. 
Completed appraisals should be submitted when the application is filed. 
If the appraisal has not been completed when the application is filed, 
the applicant must submit an estimated appraisal. In all cases, a 
completed appraisal must be submitted prior to the loan being closed.
    (v) Commercial credit reports obtained by the lender on the 
borrower and any parent, affiliate, and subsidiary firms.
    (vi) Current personal and corporate financial statements of any 
guarantors.
    (vii) Intergovernmental consultation comments in accordance with 7 
CFR part 3015, subpart V, of this title.
    (viii) Financial statements as specified in Sec.  4280.111(b)(4)(i) 
through (iii). Financial information is required on the total operation 
of the agricultural producer/rural small business and its parent, 
subsidiary, or affiliates at other locations. All information submitted 
under this paragraph must be substantiated by authoritative records.
    (ix) Business-level feasibility study.
    (x) Lender's complete comprehensive written analysis in accordance 
with Sec.  4280.139.
    (xi) A certification by the lender that it has completed a 
comprehensive written analysis of the proposal, the borrower is 
eligible, the loan is for authorized purposes with technical merit, and 
there is reasonable assurance of repayment ability based on the 
borrower's history, projections, equity, and the collateral to be 
obtained.
    (xii) 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 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 Form 
RD 4279-3;
    (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. 
Applications and documentation for guaranteed loans $600,000 or less 
must comply with paragraphs (c)(1) and (2) of this section.
    (1) Application Contents. Applications and documentation for 
guaranteed loans $600,000 or less must provide the required information 
organized pursuant to a Table of Contents in a chapter format presented 
in the order shown in Sec.  4280.111(b)(2) through (8), except as 
specified in paragraphs (c)(1)(i) through (iii) of this section.
    (i) Section 4280.111(b)(7)(i) does not apply.
    (ii) Technical Reports must be submitted according to paragraph 
(c)(1)(ii)(A) or (B) of this section, as applicable.
    (A) For renewable energy projects and energy efficiency projects 
utilizing commercially available systems or improvements and with total 
eligible project costs of $200,000 or less, submit a Technical Report 
as described in Appendix A of this subpart. If a renewable energy 
project does not fit on of the technologies identified in Appendix A, 
the applicant must submit a Technical Report that conforms to the 
overall outline and subjects specified in Sec.  4280.111(b)(7)(ii)(G).
    (B) For renewable energy projects and energy efficiency projects 
utilizing pre-commercial technology or with total eligible project 
costs greater than $200,000, submit a Technical Report as described in 
Appendix B of this subpart and as specified in Sec.  
4280.111(b)(7)(ii)(G)(1) through (10), as applicable.
    (iii) Business-level feasibility study for renewable energy 
systems. For each application for a renewable energy system project 
submitted by a start-up or existing business, a business-level 
feasibility study by an independent qualified consultant will be 
required by the Agency. An acceptable business-level feasibility study 
must at least include an evaluation of economic, market, technical, 
financial, and management feasibility. Renewable energy projects with 
total eligible project costs of $200,000 or less are exempt from the 
feasibility study requirement.
    (2) Lender forms, certifications, and agreements. Applications 
submitted under paragraph (c) of this section must use Form RD 4279-1A, 
``Application for Loan Guarantee, Short Form,'' and include the 
documentation contained in paragraphs (b)(2)(ii), (vii), (viii), (ix), 
(x), and (xii) of this section. The lender must have the documentation 
contained in paragraphs (b)(2)(iii), (iv), (v), (vi), and (xi) 
available in its files for the Agency's review.


Sec.  4280.129  Evaluation of guaranteed loan applications.

    (a) General review. The Agency will evaluate each application to 
confirm that both the borrower and project are eligible, the project 
has technical merit, there is reasonable assurance of repayment, there 
is sufficient collateral and equity, and the proposed loan complies 
with all applicable statutes and regulations. If the Agency determines 
it is unable to guarantee the loan, the lender will be informed in 
writing. Such notification will include the reasons for denial of the 
guarantee.
    (b) Ineligible applications. If either the borrower or the project 
is ineligible, the Agency will inform the lender in writing of the 
reasons and provide any appeal rights. No further evaluation of the 
application will occur.
    (c) Incomplete applications. If the application is incomplete, the 
Agency will identify those parts of the application that are incomplete 
and return it, with a written explanation, to

[[Page 41317]]

the lender for possible future resubmission. Upon receipt of a complete 
application, the Agency will complete its evaluation.
    (d) Technical merit determination. The Agency's determination of a 
project's technical merit will be based on the information provided by 
the applicant. The Agency may engage the services of other government 
agencies or recognized industry experts in the applicable technology 
field, at its discretion, to evaluate and rate the application. The 
Agency may use this evaluation and rating to determine the level of 
technical merit of the proposed project. Projects determined by the 
Agency to be without technical merit shall be deemed ineligible.
    (e) Evaluation criteria. The Agency will score each application 
based on the evaluation criteria specified in Sec.  4280.112(e) (except 
for the criteria specified in Sec.  4280.112(e)(5)) and in paragraphs 
(e)(1) and (2) of this section. Points will be awarded for either 
paragraph (e)(1) or (2) of this section, but not both.
    (1) If the interest rate on the loan is to be below the prime rate 
(as published in The Wall Street Journal) plus 1.5 percent, 5 points 
will be awarded.
    (2) If the interest rate on the loan is to be below the prime rate 
(as published in The Wall Street Journal) plus 1 percent, 10 points 
will be awarded.


Sec.  4280.130  Eligible lenders.

    Eligible lenders are those identified in Sec.  4279.29 of this 
chapter, excluding mortgage companies that are part of a bank-holding 
company.


Sec.  4280.131  Lender's functions and responsibilities.

    (a) General. Lenders are responsible for implementing the 
guaranteed loan program under this subpart. All lenders requesting or 
obtaining a loan guarantee must comply with Sec.  4279.30(a)(1)(i) 
through (ix) of this chapter.
    (b) Credit evaluation. The lender's credit evaluation must comply 
with Sec.  4279.30(b) of this chapter.
    (c) Environmental information. Lenders must ensure that borrowers 
furnish all environmental information required under 7 CFR part 1940, 
subpart G, of this title and must comply with Sec.  4279.30(c) of this 
chapter.
    (d) Construction planning and performing development. The lender 
must comply with Sec.  4279.156(a) and (b) of this chapter, except 
under paragraph Sec.  4279.156(a) of this chapter, the lender must also 
ensure that all project facilities are designed utilizing accepted 
architectural and engineering practices that conform to the 
requirements of this subpart.
    (e) Loan closing. The loan closing must be in compliance with Sec.  
4279.30(d) of this chapter.


Sec.  4280.132  Access to records.

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


Sec.  4280.133  Conditions of guarantee.

    All loan guarantees will be subject to Sec.  4279.72 of this 
chapter.


Sec.  4280.134  Sale or assignment of guaranteed loan.

    Any sale or assignment of the guaranteed loan must be in accordance 
with Sec.  4279.75 of this chapter.


Sec.  4280.135  Participation.

    All participation must be in accordance with Sec.  4279.76 of this 
chapter.


Sec.  4280.136  Minimum retention.

    Minimum retention must be in accordance with Sec.  4279.77 of this 
chapter.


Sec.  4280.137  Repurchase from holder.

    Any repurchase from a holder must be in accordance with Sec.  
4279.78 of this chapter.


Sec.  4280.138  Replacement of document.

    Documents must be replaced in accordance with Sec.  4279.84 of this 
chapter, except, in Sec.  4279.84(b)(1)(v), a full statement of the 
circumstances of any defacement or mutilation of the Loan Note 
Guarantee or Assignment Guarantee Agreement would also need to be 
provided.


Sec.  4280.139  Credit quality.

    The lender must determine credit quality and must address all of 
the elements of credit quality in a written credit analysis, including 
adequacy of equity, cashflow, collateral, history, management, and the 
current status of the industry for which credit is to be extended.
    (a) Cashflow. All efforts will be made to structure debt so that 
the business has adequate debt coverage and the ability to accommodate 
expansion.
    (b) Collateral. Collateral must have documented value sufficient to 
protect the interest of the lender and the Agency. The discounted 
collateral value will normally be at least equal to the loan amount. 
Lenders will discount collateral consistent with sound loan-to-value 
policy. Guaranteed loans made under this subpart shall have at least 
parity position with guaranteed loans made under subpart B of part 4279 
of this title.
    (c) Industry. The current status of the industry will be 
considered. Borrowers developing well established commercially 
available renewable energy systems with significant support 
infrastructure may be considered for better terms and conditions than 
those borrowers developing systems with limited infrastructure.
    (d) Equity. In determining the adequacy of equity, the lender must 
meet the criteria specified in paragraph (d)(1) of this section for 
loans over $600,000 and the criteria in paragraph (d)(2) of this 
section for loans of $600,000 or less. Cash equity injection, as 
discussed in paragraphs (d)(1) and (2) of this section, must be in the 
form of cash. Federal grant funds may be counted as cash equity.
    (1) For loans over $600,000, borrowers shall demonstrate evidence 
of cash equity injection in the project of not less than 25 percent of 
eligible project costs. The fair market value of equity in real 
property that is to be pledged as collateral for the loan may be 
substituted in whole or in part to meet the cash equity requirement. 
However, the appraisal completed to establish the fair market value of 
the real property must not be more than 1 year old and must meet Agency 
appraisal standards.
    (2) For loans of $600,000 or less, borrowers shall demonstrate 
evidence of cash equity injection in the project of not less than 15 
percent of eligible project costs. The fair market value of equity in 
real property that is to be pledged as collateral for the loan may be 
substituted in whole or in part to meet the cash equity requirement. 
However, the appraisal completed to establish the fair market value of 
the real property must not be more than 1 year old and must meet Agency 
appraisal standards.
    (e) Lien priorities. The entire loan will be secured by the same 
security with equal lien priority for the guaranteed and unguaranteed 
portions of the loan. The unguaranteed portion of the loan will neither 
be paid first nor given any preference or priority over the guaranteed 
portion. A parity or junior position may be considered provided that 
discounted collateral values are adequate to secure the loan in 
accordance with paragraph (b) of this section after considering prior 
liens.


Sec.  4280.140  Financial statements.

    (a) The financial information required in Sec.  4280.111(b)(3)(v) 
and (b)(4) is

[[Page 41318]]

required for the guaranteed loan program.
    (b) If the proposed guaranteed loan exceeds $3 million, the Agency 
may require annual audited financial statements, at its sole discretion 
when the Agency is concerned about the applicant's credit risk.


Sec.  4280.141  Appraisals.

    (a) Conduct of appraisals. All appraisals must be in accordance 
with Sec.  4279.144 of this chapter.
    (1) For loans of $600,000 or more, a complete self-contained 
appraisal must be conducted. Lenders must complete at least a 
Transaction Screen Questionnaire for any undeveloped sites and a Phase 
I environmental site assessment on existing business sites, which 
should be provided to the appraiser for completion of the self-
contained appraisal.
    (2) For loans for less than $600,000, a complete summary appraisal 
may be conducted in lieu of a complete self-contained appraisal as 
required under paragraph (a)(1) of this section. Summary appraisals 
must be conducted in accordance with Uniform Standards of Professional 
Appraisal Practice (USPAP).
    (b) Specialized appraisers. Specialized appraisers will be required 
to complete appraisals in accordance with paragraphs (a)(1) and (2) of 
this section. The Agency may approve a waiver of this requirement only 
if a specialized appraiser does not exist in a specific industry or 
hiring one would cause an undue financial burden to the borrower.


Sec.  4280.142  Personal and corporate guarantees.

    (a) All personal and corporate guarantees must be in accordance 
with Sec.  4279.149(a) of this chapter.
    (b) Except for passive investors, unconditional personal and 
corporate guarantees for those owners with a beneficial interest 
greater than 20 percent of the borrower will be required where legally 
permissible.


Sec.  4280.143  Loan approval and obligation of funds.

    The lender and applicant must comply with Sec.  4279.173 of this 
chapter, except that either or both parties may also propose alternate 
conditions to the Conditional Commitment if certain conditions cannot 
be met.


Sec.  4280.144  Transfer of lenders.

    All transfers of lenders must be in accordance with Sec.  4279.174 
of this chapter, except that it will be the Agency rather than the loan 
approval official who may approve the substitution of a new eligible 
lender.


Sec.  4280.145  Changes in borrower.

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


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

    (a) The Loan Note Guarantee will not be issued until the lender 
certifies to the conditions identified in paragraphs Sec.  4279.181(a) 
through (o) of this chapter and paragraph (b) of this section.
    (b) All planned property acquisitions and development have 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.


Sec.  4280.147  Issuance of the guarantee.

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


Sec.  4280.148  Refusal to execute Loan Note Guarantee.

    If the Agency determines that it cannot execute the Loan Note 
Guarantee, Sec.  4279.187 of this chapter will apply.


Sec.  4280.149  Requirements after project construction.

    Once the project has been constructed, the lender must provide the 
Agency periodic reports from the borrower. The borrower's reports will 
include the information specified in paragraphs (a) and (b) of this 
section, as applicable.
    (a) Renewable energy projects. For renewable energy 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 information specified in paragraphs 
(a)(1) through (7) of this section.
    (1) The actual amount of energy produced in BTUs, kilowatt-hours, 
or similar energy equivalents.
    (2) If applicable, documentation that any identified health and/or 
sanitation problem has been solved.
    (3) The annual income and/or energy savings of the renewable energy 
system.
    (4) A summary of the cost of operating and maintaining the 
facility.
    (5) A description of any maintenance or operational problems 
associated with the facility.
    (6) Recommendations for development of future similar projects.
    (7) Actual jobs created or saved.
    (b) Energy efficiency improvement projects. For energy efficiency 
improvement projects, commencing the first full calendar year following 
the year in which project construction was completed and continuing for 
2 full years, provide a report detailing the actual amount of energy 
saved due to the energy efficiency improvements.


Sec.  4280.150  Insurance requirements.

    Each borrower must obtain the insurance required in Sec.  4280.113. 
The coverage required by this section must be maintained for the life 
of the loan unless this requirement is waived or modified by the Agency 
in writing.


Sec.  4280.151  Laws that contain other compliance requirements.

    Each lender and borrower must comply with the requirements 
specified in Sec.  4280.114(d), Sec. Sec.  4279.58, and 4279.156(c) and 
(d) of this chapter.


Sec.  4280.152  Servicing guaranteed loans.

    The lender must service the entire loan and must remain mortgagee 
and secured party of record notwithstanding the fact that another party 
may hold a portion of the loan. The entire loan must be secured by the 
same security with equal lien priority for the guaranteed and 
unguaranteed portions of the loan. The unguaranteed portion of a loan 
will neither be paid first nor given any

[[Page 41319]]

preference or priority over the guaranteed portion of the loan.
    (a) Routine servicing. Comply with Sec.  4287.107 of this chapter, 
except that all notifications from the lender to the Agency shall be in 
writing and all actions by the lender in servicing the entire loan must 
be consistent with the servicing actions that a reasonable, prudent 
lender would perform in servicing its own portfolio.
    (b) Interest rate adjustments. Comply with Sec.  4287.112 of this 
chapter, except that under Sec.  4287.112(a)(3) of this chapter the 
interest rates, after adjustments, must comply with the requirements 
for interest rates on new loans as established by Sec.  4280.124.
    (c) Release of collateral. (1) Collateral may only be released in 
accordance with Sec.  4287.113(a) and (b) of this chapter and paragraph 
(c)(2) of this section.
    (2) Within the parameters of paragraph (c)(1) of this section, 
lenders may, over the life of the loan, release collateral (other than 
personal and corporate guarantees) with a cumulative value of up to 20 
percent of the original loan amount without Agency concurrence, if the 
proceeds generated are used to reduce the guaranteed loan or to buy 
replacement collateral or real estate equal to or greater than the 
collateral being replaced.
    (d) Subordination of lien position. All subordinations of the 
lender's lien position must comply with Sec.  4287.123 of this chapter.
    (e) Alterations of loan instruments. All alterations of loan 
instruments must comply with Sec.  4287.124 of this chapter.
    (f) Loan transfer and assumption. All loan transfers and 
assumptions must comply with Sec.  4287.134(c), (d), (f), (g), and (i) 
through (k) of this chapter in addition to the following:
    (1) Documentation of request. All transfers and assumptions must be 
approved in writing by the Agency and must be to eligible applicants in 
accordance with Sec.  4280.121. An individual credit report must be 
provided for transferee proprietors, partners, offices, directors, and 
stockholders with 20 percent or more interest in the business, along 
with such other documentation as the Agency may request to determine 
eligibility.
    (2) Terms. Loan terms must not be changed unless the change is 
approved in writing by the Agency with the concurrence of any holder 
and the transferor (including guarantors), if they have not been or 
will not be released from liability. Any new loan terms must be within 
the terms authorized by Sec.  4280.125. The lender's request for 
approval of new loan terms will be supported by an explanation of the 
reasons for the proposed change in loan terms.
    (3) Additional loans. Loans to provide additional funds in 
connection with a transfer and assumption must be considered as a new 
loan application under Sec.  4280.128.
    (4) Loss resulting from transfer. If a loss should occur upon 
consummation of a complete transfer and assumption for less than the 
full amount of the debt and the transferor (including personal 
guarantors) is released from liability, the lender, if it holds the 
guaranteed portion, may file Form RD 449-30, ``Loan Note Guaranteed 
Loss of Report,'' to recover its pro rata share of the actual loss. If 
a holder owns any of the guaranteed portion, such portion must be 
repurchased by the lender or the Agency in accordance with Sec.  
4279.78(c) of this chapter. In completing the report of loss, the 
amount of the debt assumed will be entered as net collateral 
(recovery). Approved protective advances and accrued interest thereon 
made during the arrangement of a transfer and assumption will be 
included in the calculations.


Sec.  4280.153  Substitution of lender.

    (a) All substitutions of lenders must comply with Sec.  
4287.135(a)(2) and (b) of this chapter and paragraph (b) of this 
section.
    (b) The Agency may approve the substitution of a new lender if the 
proposed substitute lender:
    (1) Is an eligible lender in accordance with Sec.  4280.130;
    (2) Is able to service the loan in accordance with the original 
loan documents; and
    (3) Acquires title to the unguaranteed portion of the loan held by 
the original lender and assumes all original loan requirements, 
including liabilities and servicing responsibilities.


Sec.  4280.154  Default by borrower.

    If the loan goes into default, the lender must comply with Sec.  
4287.145 of this chapter.


Sec.  4280.155  Protective advances.

    All protective advances made by the lender must comply with Sec.  
4287.156 of this chapter.


Sec.  4280.156  Liquidation.

    All liquidations must comply with Sec.  4287.157 of this chapter, 
except as follows:
    (a) Under Sec.  4287.157(d)(13) of this chapter, whenever $200,000 
is used substitute $100,000; and
    (b) Under Sec.  4287.157(d)(13) of this chapter, replace the 
sentence ``The appraisal shall consider this aspect'' with ``Both the 
estimate and the appraisal shall consider this aspect.''


Sec.  4280.157  Determination of loss and payment.

    Loss and payments will be determined in accordance with Sec.  
4287.158 of this chapter.


Sec.  4280.158  Future recovery.

    Future recoveries will be conducted in accordance with Sec.  
4287.169 of this chapter.


Sec.  4280.159  Bankruptcy.

    Bankruptcies will be handled in accordance with Sec.  4287.170 of 
this chapter, except that the notification required under Sec.  
4287.170(b)(4) of this chapter shall be made in writing.


Sec.  4280.160  Termination of guarantee.

    Guarantees will be terminated in accordance with Sec.  4287.180 of 
this chapter.

Section C. Direct Loans


Sec.  4280.161  Direct Loan Process.

    (a) The Agency will determine each year whether or not direct loan 
funds are available. For each year in which direct loan funds are 
available, the Agency will publish a Notice of Funds Availability 
(NOFA) in the Federal Register.
    (b) In each direct loan NOFA, the Agency will identify the 
following:
    (1) The amount of funds available for direct loans;
    (2) Applicant and project eligibility criteria;
    (3) Minimum and maximum loan amounts;
    (4) Interest rates;
    (5) Terms of loan;
    (6) Application and documentation requirements;
    (7) Evaluation of applications;
    (8) Actions required of the applicant/borrower (e.g., appraisals, 
land and property acquisition);
    (9) Insurance requirements;
    (10) Laws that contain other compliance requirements;
    (11) Construction planning and performing development;
    (12) Requirements after project construction;
    (13) Letter of Conditions, loan agreement, and loan closing 
process;
    (14) Processing and servicing of direct loans by the Agency; and
    (15) Any applicable definitions.


Sec.  4280.162-4280.192  [Reserved]

Section D. Combined Funding


Sec.  4280.193  Combined funding.

    The requirements for a project for which an applicant is seeking a

[[Page 41320]]

combined grant and guaranteed loan are defined as follows:
    (a) Eligibility. Applicants must meet the applicant eligibility 
requirements specified in Sec.  4280.107 and the borrower eligibility 
requirements specified in Sec.  4280.121. Projects must meet the 
project eligibility requirements specified in Sec. Sec.  4280.108 and 
4280.122. Applicants may submit simplified applications if the project 
meets the requirements specified in Sec.  4280.109.
    (b) Funding. Funding provided under this section is subject to the 
limits described in paragraphs (b)(1) through (3) of this section.
    (1) The amount of any combined grant and guaranteed loan must not 
exceed 50 percent of total eligible project costs. For purposes of 
combined funding requests, total eligible project costs are based on 
the total costs associated with those items specified in Sec. Sec.  
4280.110(c) and 4280.123(e). The applicant must provide the remaining 
total funds needed to complete the project.
    (2) Third-party, in-kind contributions will be limited to 10 
percent of the matching fund requirement of any financial assistance 
provided to the applicant.
    (3) The minimum combined funding request allowed is $5,000, with 
the grant portion of the funding request being at least $1,500.
    (c) Application and documentation. When applying for combined 
funding, the applicant must submit separate applications for both types 
of assistance (grant and guaranteed loan). Each application must meet 
the requirements, including the requisite forms and certifications, 
specified in Sec. Sec.  4280.111 and 4280.128. The separate 
applications must be submitted simultaneously. The applicant must 
submit at least one set of documentation, but does not need to submit 
duplicate forms or certifications.
    (d) Evaluation. The Agency will evaluate each application according 
to applicable procedures specified in Sec. Sec.  4280.112 and 4280.129.
    (e) Interest rate and terms of loan. The interest rate and terms of 
the loan for the loan portion of the combined funding request will be 
determined based on the procedures specified in Sec. Sec.  4280.124 and 
4280.125 for guaranteed loans.
    (f) Other provisions. In addition to the requirements specified in 
paragraphs (a) through (e) of this section, the combined funding 
request shall be subject to the other requirements specified in this 
subpart, including, but not limited to, processing and servicing 
requirements, as applicable, as described in paragraphs (f)(1) and (2) 
of this section.
    (1) All other provisions of Section A of this subpart shall apply 
to the grant portion of the combined funding request.
    (2) All other provisions of Section B of this subpart shall apply 
to the guaranteed loan portion of the combined funding request.


Sec. Sec.  4280.194-4280.199  [Reserved]


Sec.  4280.200  OMB control number.

    The information collection requirements contained in the regulation 
have been approved by the Office of Management and Budget (OMB) and 
have been assigned OMB control number 0570-0050. A person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB control number.

Appendix A to Part 4280

Technical Reports for Projects With Total Eligible Project Costs of 
$200,000 or Less

    The Technical Report for projects with total eligible project 
costs of $200,000 or less must demonstrate that the project design, 
procurement, installation, startup, operation, and maintenance of 
the renewable energy system or energy efficiency improvement will 
operate or perform as specified over its design life in a reliable 
and a cost-effective manner. The Technical Report must also identify 
all necessary project agreements, demonstrate that those agreements 
will be in place, and that necessary project equipment and services 
are available over the design life.
    All technical information provided must follow the format 
specified in Sections 1 through 10 of this appendix. Supporting 
information may be submitted in other formats. Design drawings and 
process flowcharts are encouraged as exhibits. A discussion of each 
topic is not necessary if the topic is not applicable to the 
specific project. Questions identified in the Agency's technical 
review of the project must be answered to the Agency's satisfaction 
before the application will be approved. The applicant must submit 
the original technical report plus one copy to the Rural Development 
State Office. Depending on the level of engineering required for the 
specific project or if necessary to ensure public safety, the 
services of a licensed professional engineer or a team of licensed 
professional engineers may be required.

Section 1. Bioenergy

    The technical requirements specified in this section apply to 
bioenergy projects, which are, as defined in Sec.  4280.103, 
renewable energy systems that produce fuel, thermal energy, or 
electric power from a biomass source, other than an anaerobic 
digester project.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate 
evidence of the availability of the renewable resource required for 
the system to operate as designed. Indicate the type, quantity, 
quality, and seasonality of the biomass resource, including harvest 
and storage, where applicable. Where applicable, indicate shipping 
or receiving method and required infrastructure for shipping. For 
proposed projects with an established resource, provide a summary of 
the resource.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. For systems with a capacity of 
more than 20 tons per day of biomass, address performance on a 
monthly and annual basis. For small projects such as a commercial 
biomass furnace or pelletizer of up to 5 tons daily capacity, 
proven, commercially available devices need not be addressed in 
detail. Describe the uses of or the market for electricity, heat, or 
fuel produced by the system;
    (6) Discuss the impact of reduced or interrupted biomass 
availability on the system process; and
    (7) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.

[[Page 41321]]

    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate that the 
project can be adequately managed and be able to identify impacts of 
any delays on the project completion. The applicant must submit a 
statement certifying that the project will be completed within 2 
years from the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 2. Anaerobic Digester Projects

    The technical requirements specified in this section apply to 
anaerobic digester projects, which are, as defined in Sec.  
4280.103, renewable energy systems that use animal waste and other 
organic substrates to produce thermal or electrical energy via 
anaerobic digestion.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of digestible substrate resource 
available. Indicate the source of the data and assumptions. Indicate 
the substrates used as digester inputs, including animal wastes, 
food-processing wastes, or other organic wastes in terms of type, 
quantity, seasonality, and frequency of collection. Describe any 
special handling of feedstock that may be necessary. Describe the 
process for determining the feedstock resource. Show the digestion 
conversion factors and calculations used to estimate biogas 
production and heat or power production.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. Describe the uses of or the 
market for electricity, heat, or fuel produced by the system; and
    (6) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying ``open and free'' competition will be used for 
the procurement of project components in a manner consistent with 
the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 3. Geothermal, Electric Generation

    The technical requirements specified in this section apply to 
electric generation geothermal projects, which are, as defined in 
Sec.  4280.103, systems that use geothermal energy to produce high 
pressure steam for electric power production.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credential for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits, including any permits or agreements required 
for well construction and for disposal or re-injection of cooled 
geothermal waters and the schedule for securing those agreements and 
permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on

[[Page 41322]]

Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate 
evidence of the availability of the renewable resource required for 
the system to operate as designed. Indicate the quality of the 
geothermal resource, including temperature, flow, and sustainability 
and what conversion system is to be installed. Describe any special 
handling of cooled geothermal waters that may be necessary. Describe 
the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource 
data. For proposed projects with an established resource, provide a 
summary of the resource and the specifications of the measurement 
setup.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system;
    (5) Describe the expected electric power, fuel production, or 
thermal energy production of the proposed system as rated and as 
expected in actual field conditions. Describe the uses of or the 
market for electricity, heat, or fuel produced by the system; and
    (6) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate that the 
project can be adequately managed and be able to identify impacts of 
any delays on the project completion. The applicant must submit a 
statement certifying that the project will be completed within 2 
years from the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 4. Geothermal, Direct Use

    The technical requirements specified in this section apply to 
direct use geothermal projects, which are, as defined in Sec.  
4280.103, systems that use thermal energy directly from a geothermal 
source.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits, including any permits or agreements required 
for well construction and for disposal or re-injection of cooled 
geothermal waters and the schedule for securing those agreements and 
permits.
    (2) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate 
evidence of the availability of the renewable resource required for 
the system to operate as designed. Indicate the quality of the 
geothermal resource, including temperature, flow, and sustainability 
and what direct use system is to be installed. Describe any special 
handling of cooled geothermal waters that may be necessary. Describe 
the process for determining the geothermal resource, including 
measurement setup for the collection of the geothermal resource 
data. For proposed projects with an established resource, provide a 
summary of the resource and the specifications of the measurement 
setup.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major 
installed structural, mechanical, and electrical components of the 
system;
    (5) Describe the expected thermal energy production of the 
proposed system as rated and as expected in actual field conditions. 
Describe the uses of, or the market for, heat produced by the 
system; and
    (6) Describe the project site and address issues such as 
proximity to the load, unique safety concerns, and whether special 
circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling

[[Page 41323]]

and disposing of project components and associated wastes at the end 
of their useful lives.

Section 5. Hydrogen

    The technical requirements specified in this section apply to 
hydrogen projects, which are, as defined in Sec.  4280.103, 
renewable energy systems that produce hydrogen, or a renewable 
energy system that uses mechanical or electric power or thermal 
energy from a renewable resource using hydrogen as an energy 
transport medium.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the type, quantity, quality, and seasonality of the 
local renewable resource that will be used to produce the hydrogen.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system; and
    (5) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 6. Solar, Small

    The technical requirements specified in this section apply to 
small solar electric projects and small solar thermal projects, as 
defined in Sec.  4280.103.
    Small solar electric projects are those for which the rated 
power of the system is 10kW or smaller. Small solar electric 
projects are either stand-alone (off grid) or interconnected to the 
grid at less than 600 volts (on grid).
    Small solar thermal projects are those for which the rated 
storage volume of the system is 240 gallons or smaller, or which 
have a collector area of 1,000 square feet or less.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of solar resource available. Indicate the 
source of the solar data and assumptions.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system; and
    (5) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
unique safety concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate that the 
project can be adequately managed and be able to identify impacts of 
any delays on the project completion. The applicant must submit a 
statement certifying that the project will be completed within 2 
years from the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building

[[Page 41324]]

and electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 7. Solar, Large

    The technical requirements specified in this section apply to 
large solar electric projects and large solar thermal projects, as 
defined in Sec.  4280.103.
    Large solar electric systems are those for which the rated power 
of the system is larger than 10kW. Large solar electric systems are 
either stand-alone (off grid) or interconnected to the grid (on 
grid).
    Large solar thermal systems are those for which the rated 
storage volume of the system is greater than 240 gallons or that 
have a collector area of more than 1,000 square feet.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credential for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of solar resource available. Indicate the 
source of the solar data and assumptions.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system; and
    (5) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
unique safety concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 8. Wind, Small

    The technical requirements specified in this section apply to 
small wind systems, which are, as defined in Sec.  4280.103, wind 
energy systems for which the rated power of the wind turbine is 
100kW or smaller and with a generator hub height of 120 feet or 
less. Small wind systems are either stand-alone or connected to the 
local electrical system at less than 600 volts.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of local wind resource where the small 
wind turbine is to be installed. Indicate the source of the wind 
data and assumptions.
    (d) Design and engineering. Applicants must certify that their 
project will be designed and engineered so as to meet the intended 
purpose, will ensure public safety, and will comply with applicable 
laws, regulations, agreements, permits, codes, and standards. In 
addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide a one-line diagram for the electrical 
interconnection. Provide diagrams or schematics as required showing 
all major installed structural, mechanical, and electrical 
components of the system; and
    (5) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.

[[Page 41325]]

    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 9. Wind, Large

    The technical requirements specified in this section apply to 
large wind systems, which are, as defined in Sec.  4280.103, wind 
energy projects for which the rated power of the individual wind 
turbine(s) is larger than 100kW.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional.
    (b) Agreements, permits, and certifications.
    (1) Identify all necessary agreements and permits required for 
the project and the status and schedule for securing those 
agreements and permits.
    (2) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (3) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of local wind resource where the large 
wind turbine is to be installed. Indicate the source of the wind 
data and assumptions. Projects greater than 500kW must obtain wind 
data from the proposed project site. For such projects, describe the 
proposed measurement setup for the collection of the wind resource 
data. For proposed projects with an established wind resource, 
provide a summary of the wind resource and the specifications of the 
measurement setup. Large wind systems larger than 500kW in size will 
typically require at least 1 year of on-site monitoring. If less 
than 1 year of data is used, the qualified meteorological consultant 
must provide a detailed analysis of correlation between the site 
data and a nearby long-term measurement site.
    (d) Design and engineering. Applicants must submit a statement 
certifying that their project will be designed and engineered so as 
to meet the intended purpose, will ensure public safety, and will 
comply with applicable laws, regulations, agreements, permits, 
codes, and standards. In addition, applicants must:
    (1) Provide authoritative evidence that the system will be 
designed and engineered so as to meet its intended purpose;
    (2) List possible suppliers and models of major pieces of 
equipment;
    (3) Provide a description of the components, materials, or 
systems to be installed. Include the location of the project;
    (4) Provide one-line diagram for the electrical interconnection. 
Provide diagrams or schematics as required showing all major 
installed structural, mechanical, and electrical components of the 
system; and
    (5) Describe the project site and address issues such as 
proximity to the load or the electrical grid, unique safety 
concerns, and whether special circumstances exist.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed and be able to identify impacts of any delays 
on the project completion. The applicant must submit a statement 
certifying that the project will be completed within 3 years from 
the date of approval.
    (f) Project economic assessment. Provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the system 
to operate as designed over the design life. State the design life 
of the system.
    (1) Provide information on all system warranties. A minimum 3-
year warranty for equipment and a 10-year warranty on design are 
expected.
    (2) If the project has any unique operation and maintenance 
issues, describe them.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives.

Section 10. Energy Efficiency Improvements

    The technical requirements specified in this section apply to 
energy efficiency improvement projects, which are, as defined in 
Sec.  4280.103, improvements to a facility, building, or process 
that reduces energy consumption.
    (a) Qualifications of key project service providers. List all 
key project service providers. If one or more licensed professionals 
are involved in the project, provide the credentials for each 
professional. For projects with total eligible project costs greater 
than $50,000, also discuss the qualifications of the energy auditor, 
including any relevant certifications by recognized organizations or 
bodies.
    (b) Agreements, permits, and certifications.
    (1) The applicant must certify that they will comply with all 
necessary agreements and permits required for the project. Indicate 
the status and schedule for securing those agreements and permits.
    (2) Identify all environmental issues, including any compliance 
issues associated with or expected as a result of the project on 
Form RD 1940-20, ``Request for Environmental Information,'' and in 
compliance with 7 CFR part 1940, subpart G, of this title.
    (c) Energy assessment.
    (1) For all energy efficiency improvement projects, provide 
adequate and appropriate evidence of energy savings expected when 
the system is operated as designed.
    (2) For energy efficiency improvement projects with total 
eligible project costs greater than $50,000, an energy audit must be 
conducted. An energy audit is a written report by an independent, 
qualified party that documents current energy usage, recommended 
potential improvements and their costs, energy savings from these 
improvements, dollars saved per year, and simple payback period in 
years (total costs divided by annual dollars of energy savings). The 
methodology of the energy audit must meet professional and industry 
standards. The energy audit must cover the following:

[[Page 41326]]

    (i) Situation report. Provide a narrative description of the 
facility or process, its energy system(s) and usage, and activity 
profile. Also include price per unit of energy (electricity, natural 
gas, propane, fuel oil, renewable energy, etc.,) paid by the 
customer on the date of the audit. Any energy conversion should be 
based on use rather than source.
    (ii) Potential improvements. List specific information on all 
potential energy-saving opportunities and their costs.
    (iii) Technical analysis. Discuss the interactions among the 
potential improvements and other energy systems.
    (A) Estimate the annual energy and energy costs savings expected 
from each improvement identified in the potential project.
    (B) Calculate all direct and attendant indirect costs of each 
improvement.
    (C) Rank potential improvement measures by cost-effectiveness.
    (iv) Potential improvement description. Provide a narrative 
summary of the potential improvement and its ability to provide 
needed benefits, including a discussion of nonenergy benefits such 
as project reliability and durability.
    (A) Provide preliminary specifications for critical components.
    (B) Provide preliminary drawings of project layout, including 
any related structural changes.
    (C) Document baseline data compared to projected consumption, 
together with any explanatory notes. When appropriate, show before-
and-after data in terms of consumption per unit of production, time 
or area. Include at least 1 year's bills for those energy sources/
fuel types affected by this project. Also submit utility rate 
schedules, if appropriate.
    (D) Identify significant changes in future related operations 
and maintenance costs.
    (E) Describe explicitly how outcomes will be measured.
    (d) Design and engineering. The applicant must submit a 
statement certifying that their project will be designed and 
engineered so as to meet the intended purpose, will ensure public 
safety, and will comply with applicable laws, regulations, 
agreements, permits, codes, and standards.
    (1) Identify possible suppliers and models of major pieces of 
equipment.
    (2) Describe the components, materials, or systems to be 
installed. Include the location of the project.
    (e) Project development schedule. Provide a project schedule in 
an appropriate level of detail that will demonstrate the project can 
be adequately managed. The applicant must submit a statement 
certifying that the project will be completed within 2 years from 
the date of approval.
    (f) Project economic assessment. For projects with total 
eligible project costs greater than $50,000, provide an analysis of 
the proposed project to demonstrate its financial performance, 
including the calculation of simple payback. The analysis should 
include applicable investment incentives, productivity incentives, 
loans and grants, and expected energy offsets or sales on a monthly 
and annual basis. In addition, provide other information necessary 
to assess the project's cost effectiveness.
    (g) Equipment procurement. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. The project must be installed in 
accordance with applicable local, State, and national building and 
electrical codes and regulations. Include a statement from the 
applicant certifying that equipment installation will be made in 
accordance with all applicable safety and work rules. Upon 
successful system installation and following established operation, 
the successful applicant must deliver invoices and evidence of 
payment.
    (i) Operations and maintenance. Identify any unique operations 
and maintenance requirements of the project necessary for the 
improvement(s) to perform as designed over the design life. State 
the design life of the improvement(s). Provide information regarding 
component warranties.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and proper disposal of the project components 
and associated wastes at the end of their useful lives.

Appendix B to Part 4280

Technical Reports for Projects With Total Eligible Project Costs 
Greater Than $200,000

    The Technical Report for projects with total eligible project 
costs greater than $200,000 (and for any other project that must 
submit a Technical Report under this appendix) must demonstrate that 
the project design, procurement, installation, startup, operation, 
and maintenance of the renewable energy system or energy efficiency 
improvement will operate or perform as specified over its design 
life in a reliable and a cost-effective manner. The Technical Report 
must also identify all necessary project agreements, demonstrate 
that those agreements will be in place, and that necessary project 
equipment and services are available over the design life.
    All technical information provided must follow the format 
specified in Sections 1 through 10 of this appendix. Supporting 
information may be submitted in other formats. Design drawings and 
process flowcharts are encouraged as exhibits. A discussion of each 
topic is not necessary if the topic is not applicable to the 
specific project. Questions identified in the Agency's technical 
review of the project must be answered to the Agency's satisfaction 
before the application will be approved. The applicant must submit 
the original technical report plus one copy to the Rural Development 
State Office. Renewable energy projects with total eligible project 
costs greater than $400,000 and for energy efficiency improvement 
projects with total eligible project costs greater than $200,000 
require the services of a licensed professional engineer (PE) or 
team of PEs. Depending on the level of engineering required for the 
specific project or if necessary to ensure public safety, the 
services of a licensed PE or a team of licensed PEs may be required 
for smaller projects.

Section 1. Bioenergy

    The technical requirements specified in this section apply to 
bioenergy projects, which are, as defined in Sec.  4280.103, 
renewable energy systems that produce fuel, thermal energy, or 
electric power from a biomass source, other than an anaerobic 
digester project.
    (a) Qualifications of project team. The bioenergy project team 
will vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project 
engineer, a construction contractor or system installer, and a 
system operator and maintainer. One individual or entity may serve 
more than one role. The project team must have demonstrated 
expertise in similar bioenergy systems development, engineering, 
installation, and maintenance. Authoritative evidence that project 
team service providers have the necessary professional credentials 
or relevant experience to perform the required services must be 
provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developer's risk;
    (2) Discuss the bioenergy system equipment manufacturers of 
major components being considered in terms of the length of time in 
business and the number of units installed at the capacity and scale 
being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor 
qualifications for engineering, designing, and installing bioenergy 
systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available; and
    (4) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining bioenergy renewable energy 
equipment or projects. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating 
with references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and code issues, and required permits and 
the anticipated schedule for meeting those requirements and securing 
those permits.

[[Page 41327]]

    (2) Identify licenses where required and the schedule for 
obtaining those licenses.
    (3) Identify land use agreements required for the project and 
the anticipated schedule for securing the agreements and the term of 
those agreements.
    (4) Identify any permits or agreements required for solid, 
liquid, and gaseous emissions or effluents and the schedule for 
securing those permits and agreements.
    (5) Identify available component warranties for the specific 
project location and size.
    (6) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate 
the type, quantity, quality, and seasonality of the biomass 
resource, including harvest and storage, where applicable. Where 
applicable, also indicate shipping or receiving method and required 
infrastructure for shipping. For proposed projects with an 
established resource, provide a summary of the resource.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Projects shall be engineered by a qualified party. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive, including 
site selection, system and component selections, and system 
monitoring equipment. Systems must be constructed by a qualified 
party.
    (1) Provide a concise but complete description of the bioenergy 
project, including location of the project, resource 
characteristics, system specifications, electric power system 
interconnection, and monitoring equipment. Identify possible vendors 
and models of major system components. Describe the expected 
electric power, fuel production, or thermal energy production of the 
proposed system as rated and as expected in actual field conditions. 
For systems with a capacity of more than 20 tons per day of biomass, 
address performance on a monthly and annual basis. For small 
projects such as a commercial biomass furnace or pelletizer of up to 
5 tons daily capacity, proven, commercially available devices need 
not be addressed in detail. Describe the uses of or the market for 
electricity, heat, or fuel produced by the system. Discuss the 
impact of reduced or interrupted biomass availability on the system 
process.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and 
environmental concerns with emphasis on land use, air quality, water 
quality, soil degradation, habitat fragmentation, land use, 
visibility, odor, noise, construction, and installation issues. 
Identify any unique construction and installation issues.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
resource assessment, system and site design, permits and agreements, 
equipment procurement, and system installation from excavation 
through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including project management, resource assessment, 
project design, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, and operations and 
maintenance costs. Provide a detailed analysis and description of 
annual project revenues and expenses. Provide a detailed description 
of applicable investment incentives, productivity incentives, loans, 
and grants. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Bioenergy systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Identify all the major equipment that is proprietary and 
justify how this unique equipment is needed to meet the requirements 
of the proposed design. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Fully describe the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for 
the system as a whole. Include a statement from the applicant 
certifying that equipment installation will be made in accordance 
with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. In addition:
    (1) Provide information regarding available system and component 
warranties and availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed system, including maintenance schedule for the 
mechanical, piping, and electrical systems and system monitoring and 
control requirements. Provide information that supports expected 
design life of the system and timing of major component replacement 
or rebuilds. Discuss the costs and labor associated with the 
operation and maintenance of the system, and plans for in-sourcing 
or out-sourcing. Describe opportunities for technology transfer for 
long-term project operations and maintenance by a local entity or 
owner/operator; and
    (3) For systems having a biomass input capacity exceeding 10 
tons of biomass per day, provide and discuss the risk management 
plan for handling large, potential failures of major components.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 2. Anaerobic Digester Projects

    The technical requirements specified in this section apply to 
anaerobic digester projects, which are, as defined in Sec.  
4280.103, renewable energy systems that use animal waste and other 
organic substrates to produce thermal or electrical energy via 
anaerobic digestion.
    (a) Qualifications of project team. The anaerobic digester 
project team should consist of a system designer, a project manager, 
an equipment supplier, a project engineer, a construction 
contractor, and a system operator or maintainer. One individual or 
entity may serve more than one role. The project team must have 
demonstrated commercial-scale expertise in anaerobic digester 
systems development, engineering, installation, and maintenance as 
related to the organic materials and operating mode of the system. 
Authoritative evidence that project team service providers have the 
necessary professional credentials or relevant experience to perform 
the required services must be provided. Authoritative evidence that 
vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must 
also be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the

[[Page 41328]]

project at the applicant's risk, and a design/build method, often 
referred to as turnkey, where the applicant establishes the 
specifications for the project and secures the services of a 
developer who will design and build the project at the developer's 
risk;
    (2) Discuss the anaerobic digester system equipment 
manufacturers of major components being considered in terms of the 
length of time in business and the number of units installed at the 
capacity and scale being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor 
qualifications for engineering, designing, and installing anaerobic 
digester systems, including any relevant certifications by 
recognized organizations. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating 
consistent with the substrate material with references, if 
available; and
    (4) For regional or centralized digester plants, describe the 
system operator's qualifications and experience for servicing, 
operating, and maintaining similar projects. Farm scale systems may 
not require operator experience as the developer is typically 
required to provide operational training during system startup and 
shakedown. Provide a list of the same or similar projects designed, 
installed, or supplied and currently operating consistent with the 
substrate material with references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and code issues, and required permits and 
the anticipated schedule for meeting those requirements and securing 
those permits.
    (2) Identify licenses where required and the schedule for 
obtaining those licenses.
    (3) For regional or centralized digester plants, identify 
feedstock access agreements required for the project and the 
anticipated schedule for securing those agreements and the term of 
those agreements.
    (4) Identify any permits or agreements required for transport 
and ultimate waste disposal and the schedule for securing those 
agreements and permits.
    (5) Identify available component warranties for the specific 
project location and size.
    (6) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate 
the substrates used as digester inputs, including animal wastes, 
food processing wastes, or other organic wastes in terms of type, 
quantity, seasonality, and frequency of collection. Describe any 
special handling of feedstock that may be necessary. Describe the 
process for determining the feedstock resource. Provide either 
tabular values or laboratory analysis of representative samples that 
include biodegradability studies to produce gas production estimates 
for the project on daily, monthly, and seasonal basis.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Projects shall be engineered by a qualified party. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive, including 
site selection, digester component selection, gas handling component 
selection, and gas use component selection. Systems must be 
constructed by a qualified party.
    (1) Provide a concise but complete description of the anaerobic 
digester project, including location of the project, farm 
description, feedstock characteristics, a step-by-step flowchart of 
unit operations, electric power system interconnection equipment, 
and any required monitoring equipment. Identify possible vendors and 
models of major system components. Provide the expected system 
energy production, heat balances, and material balances as part of 
the unit operations flowchart.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and 
environmental concerns with emphasis on land use, air quality, water 
quality, soil degradation, habitat degradation, land use, 
visibility, odor, noise, construction, and installation issues. 
Identify any unique construction and installation issues.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
feedstock assessment, system and site designs, permits and 
agreements, equipment procurement, system installation from 
excavation through startup and shakedown, and operator training.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including project management, feedstock assessment, 
project design, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, training and 
operations, and maintenance costs of both the digester and the gas 
use systems. Provide a detailed analysis and description of annual 
project revenues and expenses. Provide a detailed description of 
applicable investment incentives, productivity incentives, loans, 
and grants. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Anaerobic digester 
systems may be constructed of components manufactured in more than 
one location. Provide a description of any unique equipment 
procurement issues such as scheduling and timing of component 
manufacture and delivery, ordering, warranties, shipping, receiving, 
and on-site storage or inventory. Identify all the major equipment 
that is proprietary and justify how this unique equipment is needed 
to meet the requirements of the proposed design. Include a statement 
from the applicant certifying that ``open and free'' competition 
will be used for the procurement of project components in a manner 
consistent with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for 
the system as a whole. Include a statement from the applicant 
certifying that equipment installation will be made in accordance 
with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment and a 10-year warranty on design. Provide information 
regarding system warranties and availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed project, including maintenance for the digester, the 
gas handling equipment, and the gas use systems. Describe any 
maintenance requirements for system monitoring and control 
equipment;
    (3) Provide information that supports the expected design life 
of the system and the timing of major component replacement or 
rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-
sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and

[[Page 41329]]

maintenance by a local entity or owner/operator.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 3. Geothermal, Electric Generation

    The technical requirements specified in this section apply to 
electric generation geothermal projects, which are, as defined in 
Sec.  4280.103, systems that use geothermal energy to produce high 
pressure steam for electric power production.
    (a) Qualifications of project team. The electric generating 
geothermal plant project team should consist of a system designer, a 
project manager, an equipment supplier, a project engineer, a 
construction contractor, and a system operator and maintainer. One 
individual or entity may serve more than one role. The project team 
must have demonstrated expertise in geothermal electric generation 
systems development, engineering, installation, and maintenance. 
Authoritative evidence that project team service providers have the 
necessary professional credentials or relevant experience to perform 
the required services must be provided. Authoritative evidence that 
vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must 
also be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developer's risk;
    (2) Discuss the geothermal plant equipment manufacturers of 
major components being considered in terms of the length of time in 
business and the number of units installed at the capacity and scale 
being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor 
qualifications for engineering, designing, and installing geothermal 
electric generation systems, including any relevant certifications 
by recognized organizations. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating 
with references, if available; and
    (4) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining electric generating 
geothermal projects. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (7).
    (1) Identify zoning and code issues and required permits and the 
anticipated schedule for meeting those requirements and securing 
those permits.
    (2) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the schedule for securing those agreements and permits.
    (3) Identify land use or access to the resource agreements 
required for the project and the anticipated schedule for securing 
the agreements and the term of those agreements.
    (4) Identify available component warranties for the specific 
project location and size.
    (5) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements.
    (6) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (7) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. 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.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Projects shall be engineered by a qualified party. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive, including 
site selection, system and component selection, conversion system 
component and selection, design of the local collection grid, 
interconnection equipment selection, and system monitoring 
equipment. Systems must be constructed by a qualified party.
    (1) Provide a concise but complete description of the geothermal 
project, including location of the project, resource 
characteristics, thermal system specifications, electric power 
system interconnection equipment and project monitoring equipment. 
Identify possible vendors and models of major system components. 
Provide the expected system energy production on a monthly and 
annual basis.
    (2) Describe the project site and address issues such as site 
access, proximity to the electrical grid, environmental concerns 
with emphasis on land use, air quality, water quality, habitat 
fragmentation, visibility, noise, construction, and installation 
issues. Identify any unique construction and installation issues.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
resource assessment, system and site design, permits and agreements, 
equipment procurement, and system installation from excavation 
through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including project management, resource assessment, 
project design, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, and operations and 
maintenance costs. Provide a detailed analysis and description of 
annual project revenues, including electricity sales, production tax 
credits, revenues from green tags, and any other production 
incentive programs throughout the life of the project. Provide a 
detailed description of applicable investment incentives, 
productivity incentives, loans, and grants. In addition, provide 
other information necessary to assess the project's cost 
effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Geothermal systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Identify all the major equipment that is proprietary and 
justify how this unique equipment is needed to meet the requirements 
of the proposed design. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup or shakedown for each equipment item individually and for 
the system as a whole. Include a statement from the applicant 
certifying that equipment installation will be made in accordance 
with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance

[[Page 41330]]

requirements of the system necessary for the system to operate as 
designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed project, including maintenance for the mechanical 
and electrical systems and system monitoring and control 
requirements;
    (3) Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components such as the turbine. 
Include in the discussion, costs and labor associated with the 
operation and maintenance of the system, and plans for in-sourcing 
or out-sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/
operator.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 4. Geothermal, Direct Use

    The technical requirements specified in this section apply to 
direct use geothermal projects, which are, as defined in Sec.  
4280.103, systems that use thermal energy directly from a geothermal 
source.
    (a) Qualifications of project team. The geothermal project team 
should consist of a system designer, a project manager, an equipment 
supplier, a project engineer, a construction contractor, and a 
system operator and maintainer. One individual or entity may serve 
more than one role. The project team must have demonstrated 
expertise in geothermal heating systems development, engineering, 
installation, and maintenance. Authoritative evidence that project 
team service providers have the necessary professional credentials 
or relevant experience to perform the required services must be 
provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developer's risk;
    (2) Discuss the geothermal system equipment manufacturers of 
major components being considered in terms of the length of time in 
business and the number of units installed at the capacity and scale 
being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor 
qualifications for engineering, designing, and installing direct use 
geothermal systems, including any relevant certifications by 
recognized organizations. Provide a list of the same or similar 
projects designed, installed, or supplied and currently operating 
with references, if available; and
    (4) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining direct use generating 
geothermal projects. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (7).
    (1) Identify zoning and code issues, and required permits and 
the anticipated schedule for meeting those requirements and securing 
those permits.
    (2) Identify licenses where required and the schedule for 
obtaining those licenses.
    (3) Identify land use or access to the resource agreements 
required for the project and the anticipated schedule for securing 
the agreements and the term of those agreements.
    (4) Identify any permits or agreements required for well 
construction and for disposal or re-injection of cooled geothermal 
waters and the anticipated schedule for securing those permits and 
agreements.
    (5) Identify available component warranties for the specific 
project location and size.
    (6) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (7) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. 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 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.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Projects shall be engineered by a qualified party. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive, including 
site selection, system and component selection, thermal system 
component selection, and system monitoring equipment. Systems must 
be constructed by a qualified party.
    (1) Provide a concise but complete description of the geothermal 
project, including location of the project, resource 
characteristics, thermal system specifications, and monitoring 
equipment. Identify possible vendors and models of major system 
components. Provide the expected system energy production on a 
monthly and annual basis.
    (2) Describe the project site and address issues such as site 
access, thermal backup equipment, environmental concerns with 
emphasis on land use, air quality, water quality, habitat 
fragmentation, visibility, noise, construction, and installation 
issues. Identify any unique construction and installation issues.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
resource assessment, system and site design, permits and agreements, 
equipment procurement, and system installation from excavation 
through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including project management, resource assessment, 
project design, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, and operations and 
maintenance costs. Provide a detailed analysis and description of 
annual project revenues and expenses. Provide a detailed description 
of applicable investment incentives, productivity incentives, loans, 
and grants. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Geothermal systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Identify all the major equipment that is proprietary and 
justify how this unique equipment is needed to meet the requirements 
of the proposed design. Include a statement from the applicant 
certifying that ``open and free'' competition will be used for the 
procurement of project components in a manner consistent with the 
requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation,

[[Page 41331]]

provide details regarding the scheduling of major installation 
equipment needed for project construction, and provide a description 
of the startup and shakedownspecifications and process and the 
conditions required for startup and shakedown for each equipment 
item individually and for the system as a whole. Include a statement 
from the applicant certifying that equipment installation will be 
made in accordance with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding system warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed project, including maintenance for the mechanical 
and electrical systems and system monitoring and control 
requirements;
    (3) Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-
sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/
operator.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 5. Hydrogen Projects

    The technical requirements specified in this section apply to 
hydrogen projects, which are, as defined in Sec.  4280.103, 
renewable energy systems that produce hydrogen or, a renewable 
energy system that uses mechanical or electric power or thermal 
energy from a renewable resource using hydrogen as an energy 
transport medium.
    (a) Qualifications of project team. The hydrogen project team 
will vary according to the complexity and scale of the project. For 
engineered systems, the project team should consist of a system 
designer, a project manager, an equipment supplier, a project 
engineer, a construction contractor or system installer, and a 
system operator and maintainer. One individual or entity may serve 
more than one role. The project team must have demonstrated 
expertise in similar hydrogen systems development, engineering, 
installation, and maintenance. Authoritative evidence that project 
team service providers have the necessary professional credentials 
or relevant experience to perform the required services must be 
provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developer's risk;
    (2) Discuss the hydrogen system equipment manufacturers of major 
components for the hydrogen system being considered in terms of the 
length of time in the business and the number of units installed at 
the capacity and scale being considered;
    (3) Discuss the project manager, equipment supplier, system 
designer, project engineer, and construction contractor 
qualifications for engineering, designing, and installing hydrogen 
systems, including any relevant certifications by recognized 
organizations. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available; and
    (4) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining hydrogen system equipment 
or projects. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (8).
    (1) Identify zoning and building code issues, and required 
permits and the anticipated schedule for meeting those requirements 
and securing those permits.
    (2) Identify licenses where required and the schedule for 
obtaining those licenses.
    (3) Identify land use agreements required for the project and 
the anticipated schedule for securing the agreements and the term of 
those agreements.
    (4) Identify any permits or agreements required for solid, 
liquid, and gaseous emissions or effluents and the anticipated 
schedule for securing those permits and agreements.
    (5) Identify available component warranties for the specific 
project location and size.
    (6) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (7) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (8) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate 
the type, quantity, quality, and seasonality of the biomass 
resource. For solar, wind, or geothermal sources of energy used to 
generate hydrogen, indicate the local renewable resource where the 
hydrogen system is to be installed. Local resource maps may be used 
as an acceptable preliminary source of renewable resource data. For 
proposed projects with an established renewable resource, provide a 
summary of the resource.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Projects shall be engineered by a qualified party. 
Systems must be engineered as a complete, integrated system with 
matched components. The engineering must be comprehensive, including 
site selection, system and component selection, and system 
monitoring equipment. Systems must be constructed by a qualified 
party.
    (1) Provide a concise but complete description of the hydrogen 
project, including location of the project, resource 
characteristics, system specifications, electric power system 
interconnection equipment, and monitoring equipment. Identify 
possible vendors and models of major system components. Describe the 
expected electric power, fuel production, or thermal energy 
production of the proposed system. Address performance on a monthly 
and annual basis. Describe the uses of or the market for 
electricity, heat, or fuel produced by the system. Discuss the 
impact of reduced or interrupted resource availability on the system 
process.
    (2) Describe the project site and address issues such as site 
access, foundations, backup equipment when applicable, and any 
environmental and safety concerns with emphasis on land use, air 
quality, water quality, and safety hazards. Identify any unique 
construction and installation issues.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
resource assessment, system and site design, permits and agreements, 
equipment procurement, and system installation from excavation 
through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including project management, resource assessment, 
project design and

[[Page 41332]]

engineering, project permitting, land agreements, equipment, site 
preparation, system installation, startup and shakedown, warranties, 
insurance, financing, professional services, and operations and 
maintenance costs. Provide a detailed analysis and description of 
annual project revenues and expenses. Provide a detailed description 
of applicable investment incentives, productivity incentives, loans, 
and grants. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Hydrogen systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues, 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, and receiving, and on-site storage 
or inventory. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for 
the system as a whole. Include a statement from the applicant 
certifying that equipment installation will be made in accordance 
with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Provide information regarding system warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed project, including maintenance of the reformer, 
electrolyzer, or fuel cell as appropriate, and other mechanical, 
piping, and electrical systems and system monitoring and control 
requirements;
    (3) Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-
sourcing; and
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/
operator.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 6. Solar, Small

    The technical requirements specified in this section apply to 
small solar electric projects and small solar thermal projects, as 
defined in Sec.  4280.103.
    Small solar electric projects are those for which the rated 
power of the system is 10kW or smaller. Small solar electric 
projects are either stand-alone (off grid) or interconnected to the 
grid at less than 600 volts (on grid).
    Small solar thermal projects are those for which the rated 
storage volume of the system is 240 gallons or smaller, or which 
have a collector area of 1,000 square feet or less.
    (a) Qualifications of project team. The small solar project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity 
may serve more than one role. Authoritative evidence that project 
team service providers have the necessary professional credentials 
or relevant experience to perform the required services must be 
provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the qualifications of the suppliers of major 
components being considered;
    (2) Describe the knowledge, skills, and abilities needed to 
service, operate, and maintain the system for the proposed 
application; and
    (3) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small solar systems, including any relevant certifications by 
recognized organizations. Provide a list of the same or similar 
systems designed or installed by the design and installation team 
and currently operating with references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific 
project location and size.
    (3) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate 
the source of the solar data and assumptions.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. For small solar electric systems, the engineering must be 
comprehensive, including solar collector design and selection, 
support structure design and selection, power conditioning design 
and selection, surface or submersible water pumps and energy storage 
requirements as applicable, and selection of cabling, disconnects 
and interconnection equipment. For small solar thermal systems, the 
engineering must be comprehensive, including solar collector design 
and selection, support structure design and selection, pump and 
piping design and selection, and energy storage design and 
selection.
    (1) Provide a concise but complete description of the small 
solar system, including location of the project and proposed 
equipment specifications. Identify possible vendors and models of 
major system components. Provide the expected system energy 
production based on available solar resource data on a monthly (when 
possible) and annual basis and how the energy produced by the system 
will be used.
    (2) Describe the project site and address issues such as solar 
access, orientation, proximity to the load or the electrical grid, 
environmental concerns such as water quality and land use, unique 
safety concerns such as hazardous materials handling, construction, 
and installation issues, and whether special circumstances exist.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of

[[Page 41333]]

project costs, including design, permitting, equipment, site 
preparation, system installation, system startup and shakedown, 
warranties, insurance, financing, professional services, and 
operations and maintenance costs. Provide a detailed description of 
applicable investment incentives, productivity incentives, loans, 
and grants. Provide a detailed description of historic or expected 
energy use and expected energy offsets or sales on a monthly and 
annual basis. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Small solar systems may 
be constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Provide a detailed description of equipment 
certification. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment needed for 
project construction, and provide a description of the startup and 
shakedown specifications and process and the conditions required for 
startup and shakedown for each equipment item individually and for 
the system as a whole. Include a statement from the applicant 
certifying that equipment installation will be made in accordance 
with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed system, including maintenance schedules for the 
mechanical and electrical and software systems;
    (3) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations 
or maintenance; and
    (4) Provide information regarding expected system design life 
and timing of major component replacement or rebuilds. Include in 
the discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-
sourcing.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes. Describe any 
environmental compliance requirements such as proper disposal or 
recycling procedures to reduce potential impact from any hazardous 
chemicals.

Section 7. Solar, Large

    The technical requirements specified in this section apply to 
large solar electric projects and large solar thermal projects, as 
defined in Sec.  4280.103.
    Large solar electric systems are those for which the rated power 
of the system is larger than 10kW. Large solar electric systems are 
either stand-alone (off grid) or interconnected to the grid (on 
grid).
    Large solar thermal systems are those for which the rated 
storage volume of the system is greater than 240 gallons or that 
have a collector area of more than 1,000 square feet.
    (a) Qualifications of project team. The large solar project team 
should consist of an equipment supplier of major components, a 
project manager, general contractor, system engineer, system 
installer, and system maintainer. One individual or entity may serve 
more than one role. Authoritative evidence that project team service 
providers have the necessary professional credentials or relevant 
experience to perform the required services must be provided. 
Authoritative evidence that vendors of proprietary components can 
provide necessary equipment and spare parts for the system to 
operate over its design life must also be provided. The application 
must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developer's risk;
    (2) Discuss the qualifications of the suppliers of major 
components being considered;
    (3) Discuss the project manager, general contractor, system 
engineer, and system installer qualifications for engineering, 
designing, and installing large solar systems, including any 
relevant certifications by recognized organizations. Provide a list 
of the same or similar systems designed or installed by the design, 
engineering, and installation team and currently operating with 
references, if available; and
    (4) Describe the system operator's qualifications and experience 
for servicing, operating, and maintaining the system for the 
proposed application. Provide a list of the same or similar systems 
designed or installed by the design, engineering, and installation 
team and currently operating with references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific 
project location and size.
    (3) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Indicate 
the source of the solar data and assumptions.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards.
    (1) For large solar electric systems, the engineering must be 
comprehensive, including solar collector design and selection, 
support structure design and selection, power conditioning design 
and selection, surface or submersible water pumps and energy storage 
requirements as applicable, and selection of cabling, disconnects, 
and interconnection equipment. A complete set of engineering 
drawings, stamped by a professional engineer, must be provided.
    (2) For large solar thermal systems, the engineering must be 
comprehensive, including solar collector design and selection, 
support structure design and selection, pump and piping design and 
selection, and energy storage design and selection. Provide a 
complete set of engineering drawings stamped by a professional 
engineer.
    (3) For either type of system, provide a concise but complete 
description of the large solar system, including location of the 
project and proposed equipment and system specifications. Identify 
possible vendors and models of major system components. Provide the 
expected system energy production based on available solar resource 
data on a monthly (when possible) and annual basis and how the 
energy produced by the system will be used.

[[Page 41334]]

    (4) For either type of system, provide a description of the 
project site and address issues such as solar access, orientation, 
proximity to the load or the electrical grid, environmental concerns 
such as land use, water quality, habitat fragmentation, and 
aesthetics, unique safety concerns, construction, and installation 
issues, and whether special circumstances exist.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including design and engineering, permitting, 
equipment, site preparation, system installation, system startup and 
shakedown, warranties, insurance, financing, professional services, 
and operations and maintenance costs. Provide a detailed description 
of applicable investment incentives, productivity incentives, loans, 
and grants. Provide a detailed description of historic or expected 
energy use and expected energy offsets or sales on a monthly and 
annual basis. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Large solar systems may 
be constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Provide a detailed description of equipment 
certification. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes and other devices needed for project construction, and 
provide a description of the startup and shakedown specifications 
and process and the conditions required for startup and shakedown 
for each equipment item individually and for the system as a whole. 
Include a statement from the applicant certifying that equipment 
installation will be made in accordance with all applicable safety 
and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed system, including maintenance schedules for the 
mechanical, electrical, and software systems;
    (3) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations 
or maintenance; and
    (4) Provide information regarding expected system design life 
and timing of major component replacement or rebuilds. Include in 
the discussion, costs and labor associated with the operation and 
maintenance of the system, and plans for in-sourcing or out-
sourcing.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes. Describe any 
environmental compliance requirements such as proper disposal or 
recycling procedures to reduce any potential impact from hazardous 
chemicals.

Section 8. Wind, Small

    The technical requirements specified in this section apply to 
small wind systems, which are, as defined in Sec.  4280.103, wind 
energy systems for which the rated power of the wind turbine is 
100kW or smaller and with a generator hub height of 120 ft or less. 
Small wind systems are either stand-alone or connected to the local 
electrical system at less than 600 volts.
    (a) Qualifications of project team. The small wind project team 
should consist of a system designer, a project manager or general 
contractor, an equipment supplier of major components, a system 
installer, a system maintainer, and, in some cases, the owner of the 
application or load served by the system. One individual or entity 
may serve more than one role. Authoritative evidence that project 
team service providers have the necessary professional credentials 
or relevant experience to perform the required services must be 
provided. Authoritative evidence that vendors of proprietary 
components can provide necessary equipment and spare parts for the 
system to operate over its design life must also be provided. The 
application must:
    (1) Discuss the small wind turbine manufacturers and other 
equipment suppliers of major components being considered in terms of 
their length of time in business and the number of units installed 
at the capacity and scale being considered;
    (2) Describe the knowledge, skills, and abilities needed to 
service, operate, and maintain the system for the proposed 
application; and
    (3) Discuss the project manager, system designer, and system 
installer qualifications for engineering, designing, and installing 
small wind systems, including any relevant certifications by 
recognized organizations. Provide a list of the same or similar 
systems designed, installed, or supplied and currently operating 
with references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (5).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify available component warranties for the specific 
project location and size.
    (3) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses, where required, and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements. This is required even if the system is installed 
on the customer side of the utility meter. For systems planning to 
utilize a local net metering program as their interconnection 
agreement, describe the applicable local net metering program.
    (4) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (5) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. 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.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Small wind systems must be engineered by either the wind 
turbine manufacturer or other qualified party. Systems must be 
offered as a complete, integrated system with matched components. 
The engineering must be comprehensive, including turbine design and 
selection, tower design and selection, specification of guy wire 
anchors and tower foundation, inverter/controller design and 
selection, energy storage requirements as applicable, and selection 
of cabling, disconnects, and interconnection equipment, as well as 
the engineering data needed to match the wind system output to the 
application load, if applicable.
    (1) Provide a concise but complete description of the small wind 
system, including location of the project, proposed turbine 
specifications, tower height and type of tower, type of energy 
storage and location of storage if applicable, proposed inverter

[[Page 41335]]

manufacturer and model, electric power system interconnection 
equipment, and application load and load interconnection equipment 
as applicable. Identify possible vendors and models of major system 
components. Provide the expected system energy production based on 
available wind resource data on a monthly (when possible) and annual 
basis and how the energy produced by the system will be used.
    (2) Describe the project site and address issues such as access 
to the wind resource, proximity to the electrical grid or 
application load, environmental concerns with emphasis on historic 
properties, visibility, noise, bird and bat populations, and 
wildlife habitat destruction and/or fragmentation, construction, and 
installation issues and whether special circumstances such as 
proximity to airports exist. Provide a 360-degree panoramic 
photograph of the proposed site, including indication of prevailing 
winds when possible.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
system and site design, permits and agreements, equipment 
procurement, and system installation from excavation through startup 
and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the project, including the calculation of 
simple payback. Provide a detailed analysis and description of 
project costs, including design, permitting, equipment, site 
preparation, system installation, system startup and shakedown, 
warranties, insurance, financing, professional services, and 
operations and maintenance costs. Provide a detailed description of 
applicable investment incentives, productivity incentives, loans, 
and grants. Provide a detailed description of historic or expected 
energy use and expected energy offsets or sales on a monthly and 
annual basis. In addition, provide other information necessary to 
assess the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Small wind systems may be 
constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Provide a detailed description of equipment 
certification. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes and other devices needed for project construction, and 
provide a description of the startup and shakedown specifications 
and process and the conditions required for startup and shakedown 
for each equipment item individually and for the system as a whole. 
Include a statement from the applicant certifying that equipment 
installation will be made in accordance with all applicable safety 
and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 5-year warranty for 
equipment and a commitment from the supplier to have spare parts 
available. Provide information regarding system warranty and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed system, including maintenance schedules for the 
mechanical, electrical, and software systems;
    (3) Provide historical or engineering information that supports 
expected design life of the system and timing of major component 
replacement or rebuilds. Include in the discussion, costs and labor 
associated with the operation and maintenance of the system, and 
plans for in-sourcing or out-sourcing; and
    (4) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations 
or maintenance.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 9. Wind, Large

    The technical requirements specified in this section apply to 
wind energy systems, which are, as defined in Sec.  4280.103, wind 
energy projects for which the rated power of the individual wind 
turbine(s) is larger than 100kW.
    (a) Qualifications of project team. The large wind project team 
should consist of a project manager, a meteorologist, an equipment 
supplier, a project engineer, a primary or general contractor, 
construction contractor, and a system operator and maintainer, and 
in some cases, the owner of the application or load served by the 
system. One individual or entity may serve more than one role. 
Authoritative evidence that project team service providers have the 
necessary professional credentials or relevant experience to perform 
the required services must be provided. Authoritative evidence that 
vendors of proprietary components can provide necessary equipment 
and spare parts for the system to operate over its design life must 
also be provided. The application must:
    (1) Discuss the proposed project delivery method. Such methods 
include a design, bid, build where a separate engineering firm may 
design the project and prepare a request for bids and the successful 
bidder constructs the project at the applicant's risk, and a design/
build method, often referred to as turnkey, where the applicant 
establishes the specifications for the project and secures the 
services of a developer who will design and build the project at the 
developers risk;
    (2) Discuss the large wind turbine manufacturers and other 
equipment suppliers of major components being considered in terms of 
the length of time in business and the number of units installed at 
the capacity and scale being considered;
    (3) Discuss the project manager, equipment supplier, project 
engineer, and construction contractor qualifications for 
engineering, designing, and installing large wind systems, including 
any relevant certifications by recognized organizations. Provide a 
list of the same or similar projects designed, installed, or 
supplied and currently operating with references, if available;
    (4) Discuss the qualifications of the meteorologist, including 
references; and
    (5) Describe system operator's qualifications and experience for 
servicing, operating, and maintaining the system for the proposed 
application. Provide a list of the same or similar projects 
designed, installed, or supplied and currently operating with 
references, if available.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the project and the 
status and schedule for securing those agreements and permits, 
including the items specified in paragraphs (b)(1) through (6).
    (1) Identify zoning, building, and electrical code issues, and 
required permits and the anticipated schedule for meeting those 
requirements and securing those permits.
    (2) Identify land use agreements required for the project and 
the anticipated schedule for securing the agreements and the term of 
those agreements.
    (3) Identify available component warranties for the specific 
project location and size.
    (4) For systems planning to interconnect with a utility, 
describe the utility's system interconnection requirements, power 
purchase arrangements, or licenses where required and the 
anticipated schedule for meeting those requirements and obtaining 
those agreements.
    (5) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (6) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Resource assessment. Provide adequate and appropriate data 
to demonstrate the amount of renewable resource available. Projects 
greater than 500kW must obtain wind data from the proposed project 
site. For such projects, describe the proposed measurement setup for 
the collection of the wind resource data. For proposed projects with 
an established wind resource, provide a

[[Page 41336]]

summary of the wind resource and the specifications of the 
measurement setup. Large wind systems larger than 500kW in size will 
typically require at least 1 year of on-site monitoring. If less 
than 1 year of data is used, the qualified meteorological consultant 
must provide a detailed analysis of the correlation between the site 
data and a nearby, long-term measurement site.
    (d) Design and engineering. Provide authoritative evidence that 
the system will be designed and engineered so as to meet its 
intended purpose, will ensure public safety, and will comply with 
applicable laws, regulations, agreements, permits, codes, and 
standards. Large wind systems must be engineered by a qualified 
party. Systems must be engineered as complete, integrated systems 
with matched components. The engineering must be comprehensive, 
including site selection, turbine selection, tower selection, tower 
foundation, design of the local collection grid, interconnection 
equipment selection, and system monitoring equipment. For stand-
alone, non-grid applications, engineering information must be 
provided that demonstrates appropriate matching of wind turbine and 
load.
    (1) Provide a concise, but complete, description of the large 
wind project, including location of the project, proposed turbine 
specifications, tower height and type of tower, the collection grid, 
interconnection equipment, and monitoring equipment. Identify 
possible vendors and models of major system components. Provide the 
expected system energy production based on available wind resource 
data on a monthly and annual basis. For wind projects larger than 
500kW in size, provide the expected system energy production over 
the life of the project, including a discussion on inter-annual 
variation using a comparison of the on-site monitoring data with 
long-term meteorological data from a nearby monitored site.
    (2) Describe the project site and address issues such as site 
access, proximity to the electrical grid or application load, 
environmental concerns with emphasis on historic properties, 
visibility, noise, bird and bat populations, and wildlife habitat 
destruction and/or fragmentation, construction, and installation 
issues and whether special circumstances such as proximity to 
airports exist.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
resource assessment, system and site design, permits and agreements, 
equipment procurement, and system installation from excavation 
through startup and shakedown.
    (f) Project economic assessment. Provide a study that describes 
the costs and revenues of the proposed project to demonstrate the 
financial performance of the proposed project. Provide a detailed 
analysis and description of project costs, including project 
management, resource assessment, project design, project permitting, 
land agreements, equipment, site preparation, system installation, 
startup and shakedown, warranties, insurance, financing, 
professional services, and operations and maintenance costs. Provide 
a detailed description of applicable investment incentives, 
productivity incentives, loans, and grants. Provide a detailed 
analysis and description of annual project revenues, including 
electricity sales, production tax credits, revenues from green tags, 
and any other production incentive programs throughout the life of 
the project. Provide a description of planned contingency fees or 
reserve funds to be used for unexpected large component replacement 
or repairs and for low productivity periods. In addition, provide 
other information necessary to assess the project's cost 
effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
by the system is available and can be procured and delivered within 
the proposed project development schedule. Large wind turbines may 
be constructed of components manufactured in more than one location. 
Provide a description of any unique equipment procurement issues 
such as scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Provide a detailed description of equipment 
certification. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for site development and system installation, provide details 
regarding the scheduling of major installation equipment, including 
cranes or other devices, needed for project construction, and 
provide a description of the startup and shakedown specifications 
and process and the conditions required for startup and shakedown 
for each equipment item individually and for the system as a whole. 
Include a statement from the applicant certifying that equipment 
installation will be made in accordance with all applicable safety 
and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the system necessary for the system to 
operate as designed over the design life. The application must:
    (1) Ensure that systems must have at least a 3-year warranty for 
equipment. Provide information regarding turbine warranties and 
availability of spare parts;
    (2) Describe the routine operations and maintenance requirements 
of the proposed project, including maintenance schedules for the 
mechanical and electrical systems and system monitoring and control 
requirements;
    (3) Provide information that supports expected design life of 
the system and timing of major component replacement or rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components such as the turbine 
gearbox or rotor. Include in the discussion, costs and labor 
associated with the operation and maintenance of the system, and 
plans for in-sourcing or out-sourcing;
    (5) Describe opportunities for technology transfer for long-term 
project operations and maintenance by a local entity or owner/
operator; and
    (6) For owner maintained portions of the system, describe any 
unique knowledge, skills, or abilities needed for service operations 
or maintenance.
    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

Section 10. Energy Efficiency Improvements

    The technical requirements specified in this section apply to 
projects that involve energy efficiency improvements, which are, as 
defined in Sec.  4280.103, improvements to a facility, building, or 
process that reduces energy consumption. The system engineering for 
such projects must be performed by a qualified party or certified 
Professional Engineer.
    (a) Qualifications of project team. The energy efficiency 
project team is expected to consist of an energy auditor or other 
service provider, a project manager, an equipment supplier of major 
components, a project engineer, and a construction contractor or 
system installer. One individual or entity may serve more than one 
role. Authoritative evidence that project team service providers 
have the necessary professional credentials or relevant experience 
to perform the required services must be provided. Authoritative 
evidence that vendors of proprietary components can provide 
necessary equipment and spare parts for the system to operate over 
its design life must also be provided. The application must:
    (1) Discuss the qualifications of the various project team 
members, including any relevant certifications by recognized 
organizations;
    (2) Describe qualifications or experience of the team as related 
to installation, service, operation and maintenance of the project;
    (3) Provide a list of the same or similarly engineered projects 
designed, installed, or supplied by the team or by team members and 
currently operating. Provide references if available; and
    (4) Discuss the manufacturers of major energy efficiency 
equipment being considered, including length of time in business.
    (b) Agreements, permits, and certifications. Identify all 
necessary agreements and permits required for the energy efficiency 
improvement(s) and the status and anticipated schedule for securing 
those agreements and permits, including the items specified in 
paragraphs (b)(1) through (4). The applicant must also submit a 
statement certifying that the applicant will comply with all 
necessary agreements and permits for the energy efficiency 
improvement(s).
    (1) Identify building code, electrical code, and zoning issues 
and required permits, and the anticipated schedule for meeting those 
requirements and securing those permits.

[[Page 41337]]

    (2) Identify available component warranties for the specific 
project location and size.
    (3) Identify all environmental issues, including environmental 
compliance issues, associated with the project on Form RD 1940-20, 
``Request for Environmental Information,'' and in compliance with 7 
CFR part 1940, subpart G, of this title.
    (4) Submit a statement certifying that the project will be 
installed in accordance with applicable local, State, and national 
codes and regulations.
    (c) Energy assessment. Provide adequate and appropriate evidence 
of energy savings expected when the system is operated as designed.
    (1) Provide information on baseline energy usage (preferably 
including energy bills for at least 1 year), expected energy savings 
based on manufacturers specifications or other estimates, estimated 
dollars saved per year, and payback period in years (total 
investment cost equal to cumulative total dollars of energy 
savings). Calculation of energy savings should follow accepted 
methodology and practices. System interactions should be considered 
and discussed.
    (2) For energy efficiency improvement projects with total 
eligible project costs greater than $50,000, an energy audit is 
required. An energy audit is a written report by an independent, 
qualified party that documents current energy usage, recommended 
potential improvements and their costs, energy savings from these 
improvements, dollars saved per year, and simple payback period in 
years (total costs divided by annual dollars of energy savings). The 
methodology of the energy audit must meet professional and industry 
standards. The energy audit must cover the following:
    (i) Situation report. Provide a narrative description of the 
facility or process, its energy system(s) and usage, and activity 
profile. Also include price per unit of energy (electricity, natural 
gas, propane, fuel oil, renewable energy, etc.,) paid by the 
customer on the date of the audit. Any energy conversion should be 
based on use rather than source.
    (ii) Potential improvements. List specific information on all 
potential energy-saving opportunities and their costs.
    (iii) Technical analysis. Give consideration to the interactions 
among the potential improvements and other energy systems:
    (A) Estimate the annual energy and energy costs savings expected 
from each improvement identified in the potential project;
    (B) Calculate all direct and attendant indirect costs of each 
improvement; and
    (C) Rank potential improvements measures by cost-effectiveness.
    (iv) Potential improvement description. Provide a narrative 
summary of the potential improvement and its ability to provide 
needed benefits, including a discussion of nonenergy benefits such 
as project reliability and durability.
    (A) Provide preliminary specifications for critical components.
    (B) Provide preliminary drawings of project layout, including 
any related structural changes.
    (C) Document baseline data compared to projected consumption, 
together with any explanatory notes. When appropriate, show before-
and-after data in terms of consumption per unit of production, time 
or area. Include at least 1 year's bills for those energy sources/
fuel types affected by this project. Also submit utility rate 
schedules, if appropriate.
    (D) Identify significant changes in future related operations 
and maintenance costs.
    (E) Describe explicitly how outcomes will be measured.
    (3) For energy efficiency improvement projects with total 
eligible project costs equal to or less than $50,000, an energy 
assessment or energy audit is required. If an energy assessment is 
performed, provide adequate and appropriate evidence of energy 
savings expected when the system is operated as designed. If an 
energy audit is performed, it must follow the requirements specified 
in paragraph (c)(2).
    (d) Design and engineering. Provide authoritative evidence that 
the energy efficiency improvement(s) will be designed and engineered 
so as to meet its intended purpose, will ensure public safety, and 
will comply with applicable laws, regulations, agreements, permits, 
codes, and standards.
    (1) Energy efficiency improvement projects in excess of $50,000 
must be engineered by a qualified party. Systems must be engineered 
as a complete, integrated system with matched components.
    (2) For all energy efficiency improvement projects, identify and 
itemize major energy efficiency improvements, including associated 
project costs. Specifically delineate which costs of the project are 
directly associated with energy efficiency improvements. Describe 
the components, materials or systems to be installed and how they 
improve the energy efficiency of the process or facility being 
modified. Discuss passive improvements that reduce energy loads, 
such as improving the thermal efficiency of a storage facility, and 
active improvements that directly reduce energy consumption, such as 
replacing existing energy consuming equipment with high efficiency 
equipment, as separate topics. Discuss any anticipated synergy 
between active and passive improvements or other energy systems. 
Include in the discussion any change in on-site effluents, 
pollutants, or other by-products.
    (3) Identify possible suppliers and models of major pieces of 
equipment.
    (e) Project development schedule. Identify each significant 
task, its beginning and end, and its relationship to the time needed 
to initiate and carry the project through startup and shakedown. 
Provide a detailed description of the project timeline, including 
energy audit (if applicable), system and site design, permits and 
agreements, equipment procurement, and system installation from site 
preparation through startup and shakedown.
    (f) Project economic assessment. For projects whose total 
eligible costs are greater than $50,000, provide an analysis of the 
proposed project to demonstrate its financial performance, including 
the calculation of simple payback. The analysis should include 
applicable investment incentives, productivity incentives, loans and 
grants, and expected energy offsets or sales on a monthly and annual 
basis. In addition, provide other information necessary to assess 
the project's cost effectiveness.
    (g) Equipment procurement. Demonstrate that equipment required 
for the energy efficiency improvement(s) is available and can be 
procured and delivered within the proposed project development 
schedule. Energy efficiency improvements may be constructed of 
components manufactured in more than one location. Provide a 
description of any unique equipment procurement issues such as 
scheduling and timing of component manufacture and delivery, 
ordering, warranties, shipping, receiving, and on-site storage or 
inventory. Provide a detailed description of equipment 
certification. Identify all the major equipment that is proprietary 
and justify how this unique equipment is needed to meet the 
requirements of the proposed design. Include a statement from the 
applicant certifying that ``open and free'' competition will be used 
for the procurement of project components in a manner consistent 
with the requirements of 7 CFR part 3015 of this title.
    (h) Equipment installation. Describe fully the management of and 
plan for installation of the energy efficiency improvement(s), 
identify specific issues associated with installation, provide 
details regarding the scheduling of major installation equipment 
needed for project discussion, and provide a description of the 
startup and shakedown specifications and process and the conditions 
required for startup and shakedown for each equipment item 
individually and for the system as a whole. Include in this 
discussion any unique concerns, such as the effects of energy 
efficiency improvements on system power quality. Include a statement 
from the applicant certifying that equipment installation will be 
made in accordance with all applicable safety and work rules.
    (i) Operations and maintenance. Identify the operations and 
maintenance requirements of the energy efficiency improvement(s) 
necessary for the energy efficiency improvement(s) to perform as 
designed over the design life. The application must:
    (1) Provide information regarding component warranties and the 
availability of spare parts;
    (2) Describe the routine operation and maintenance requirements 
of the proposed project, including maintenance schedules for the 
mechanical and electrical systems and system monitoring and control 
requirements;
    (3) Provide information that supports expected design life of 
the improvement(s) and timing of major component replacement or 
rebuilds;
    (4) Provide and discuss the risk management plan for handling 
large, potential failures of major components. Include in the 
discussion, costs and labor associated with the operation and 
maintenance of the improvement(s), and plans for in-sourcing or out-
sourcing; and
    (5) For owner maintained portions of the improvement(s), 
describe any unique knowledge, skills, or abilities needed for 
service operations or maintenance.

[[Page 41338]]

    (j) Dismantling and disposal of project components. Describe a 
plan for dismantling and disposing of project components and 
associated wastes at the end of their useful lives. Describe the 
budget for and any unique concerns associated with the dismantling 
and disposal of project components and their wastes.

    Dated: July 6, 2005.
Gilbert G. Gonzalez, Jr.,
Acting Under Secretary, Rural Development.
[FR Doc. 05-13685 Filed 7-15-05; 8:45 am]
BILLING CODE 3410-XY-P