[Federal Register Volume 72, Number 204 (Tuesday, October 23, 2007)]
[Rules and Regulations]
[Pages 60116-60145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-20552]



[[Page 60115]]

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Part III





Department of Energy





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10 CFR Part 609



Loan Guarantees for Projects That Employ Innovative Technologies; Final 
Rule

  Federal Register / Vol. 72, No. 204 / Tuesday, October 23, 2007 / 
Rules and Regulations  

[[Page 60116]]


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DEPARTMENT OF ENERGY

10 CFR Part 609

RIN 1901-AB21


Loan Guarantees for Projects That Employ Innovative Technologies

AGENCY: Office of the Chief Financial Officer, Department of Energy.

ACTION: Final rule.

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SUMMARY: On May 16, 2007, the Department of Energy (DOE or the 
Department) published a Notice of Proposed Rulemaking and opportunity 
for comment (NOPR) to establish regulations for the loan guarantee 
program authorized by Title XVII of the Energy Policy Act of 2005 
(Title XVII or the Act). Title XVII authorizes the Secretary of Energy 
(Secretary) to make loan guarantees for projects that ``avoid, reduce, 
or sequester air pollutants or anthropogenic emissions of greenhouse 
gases; and employ new or significantly improved technologies as 
compared to commercial technologies in service in the United States at 
the time the guarantee is issued.'' Title XVII also identifies ten 
categories of technologies and projects that are potentially eligible 
for loan guarantees. The two principal goals of Title XVII are to 
encourage commercial use in the United States of new or significantly 
improved energy-related technologies and to achieve substantial 
environmental benefits. DOE believes that commercial use of these 
technologies will help sustain and promote economic growth, produce a 
more stable and secure energy supply and economy for the United States, 
and improve the environment. Having considered all of the comments 
submitted to DOE in response to the NOPR, the Department today is 
issuing this final rule.

DATES: Effective Date: This rule is effective upon October 23, 2007.

FOR FURTHER INFORMATION CONTACT: David G. Frantz, Director, Loan 
Guarantee Program Office, Office of the Chief Financial Officer, 1000 
Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-8336, e-
mail: [email protected]; or Warren Belmar, Deputy General Counsel 
for Energy Policy, Office of the General Counsel, 1000 Independence 
Avenue, SW., Washington, DC 20585-0121, (202) 586-6758, e-mail: 
[email protected]; or Lawrence R. Oliver, Assistant General 
Counsel for Fossil Energy and Energy Efficiency, Office of the General 
Counsel, 1000 Independence Avenue, SW., Washington, DC 20585-0121, 
(202) 586-9521, e-mail: [email protected].

SUPPLEMENTARY INFORMATION:
I. Introduction and Background
II. Public Comments on the Notice of Proposed Rulemaking and DOE's 
Responses
    A. Technologies
    1. Definition of New or Significantly Improved Technologies
    2. Definition of Technologies in General Use
    3. Nuclear Generation Projects
    B. Financial Structure Issues
    1. Lender Risk, Stripping and Pari Passu
    2. Equity Requirements for Project Sponsors
    3. Other Governmental Assistance
    4. Credit Assessment and Rating Requirements
    C. Project Costs
    D. Solicitation
    E. Payment of the Credit Subsidy Cost
    F. Assessment of Fees
    G. Eligible Lenders and Servicing Requirements
    H. Federal Credit Reform Act of 1990 (FCRA)
    I. Default and Audit Provisions
    J. Tax Exempt Debt
    K. Full Faith and Credit
    L. Responses to August 2006 Solicitation
    M. Other Issues Raised in the Public Comments
III. Regulatory Review
    A. Executive Order 12866
    B. National Environmental Policy Act of 1969
    C. The Regulatory Flexibility Act
    D. Paperwork Reduction Act
    E. Unfunded Mandates Reform Act of 1995
    F. Treasury and General Government Appropriations Act, 1999
    G. Executive Order 13132
    H. Executive Order 12988
    I. Treasury and General Government Appropriations Act, 2001
    J. Executive Order 13211
    K. Congressional Notification
    L. Approval by the Office of the Secretary of Energy

I. Introduction and Background

    Today's final rule establishes policies, procedures and 
requirements for the loan guarantee program authorized by Title XVII of 
the Energy Policy Act of 2005 (42 U.S.C. 16511-16514). Title XVII 
authorizes the Secretary of Energy, after consultation with the 
Secretary of the Treasury, to make loan guarantees for projects that 
``(1) avoid, reduce, or sequester air pollutants or anthropogenic 
emissions of greenhouse gases; and (2) employ new or significantly 
improved technologies as compared to commercial technologies in service 
in the United States at the time the guarantee is issued.'' (42 U.S.C. 
16513(a))
    On May 16, 2007, the Department published a Notice of Proposed 
Rulemaking and Opportunity for Comment (NOPR, 72 FR 27471) to establish 
regulations for the Title XVII loan guarantee program. DOE held a 
public meeting on the NOPR in Washington, DC on June 15, 2007.
    Section 20320(a) of Public Law 110-5, the Revised Continuing 
Appropriations Resolution, 2007 (Pub. L. 110-5) authorized DOE to issue 
guarantees under the Title XVII program for loans in the ``total 
principal amount, any part of which is to be guaranteed, of 
$4,000,000,000.'' Section 20320(b) of Public Law 110-5 further provides 
that no loan guarantees may be issued under the Title XVII program 
until DOE promulgates final regulations that include ``(1) 
programmatic, technical, and financial factors the Secretary will use 
to select projects for loan guarantees; (2) policies and procedures for 
selecting and monitoring lenders and loan performance; and (3) any 
other policies, procedures, or information necessary to implement Title 
XVII of the Energy Policy Act of 2005.'' The regulations being 
finalized today fulfill that requirement.
    Section 1702 of the Act outlines general terms and conditions for 
Loan Guarantee Agreements and directs the Secretary to include in Loan 
Guarantee Agreements ``such detailed terms and conditions as the 
Secretary determines appropriate to ``(i) protect the interests of the 
United States in case of a default [as defined in regulations issued by 
the Secretary]; and (ii) have available all the patents and technology 
necessary for any person selected, including the Secretary, to complete 
and operate the project.'' (42 U.S.C. 16512(g)(2)(c)) Section 1702(i) 
requires the Secretary to prescribe regulations outlining record-
keeping and audit requirements. This final rule sets forth application 
procedures, outlines terms and conditions for Loan Guarantee 
Agreements, and lists records and documents that project participants 
must keep and make available upon request.

II. Public Comments on the NOPR and DOE's Responses

    DOE received comments on the NOPR from 47 interested parties. 
Twenty interested parties presented oral comments and/or submitted 
written comments for the record at the public meeting. DOE summarizes 
below the major areas of the NOPR on which it received public comment, 
and discusses the Department's responses to those comments. Only major 
areas of the NOPR are discussed here, although DOE carefully reviewed 
all comments it received on the NOPR, and in some cases made 
adjustments to the rule text

[[Page 60117]]

that are not discussed at length in this preamble.

A. Technologies

    A principal purpose of the Title XVII loan guarantee program is to 
support ``innovative technology'' projects in the United States that 
``employ new or significantly improved technologies as compared to 
commercial technologies in service in the United States at the time the 
guarantee is issued.'' (42 U.S.C. 16513(a)(2)) Section 1701(1) (A) of 
the Act defines ``commercial technology'' as ``a technology in general 
use in the commercial marketplace.'' (42 U.S.C. 16511(1)(A))
    Title XVII does not require, but on the other hand does not 
prohibit, different treatment for different eligible technologies or 
projects in the Title XVII program. Furthermore, the Act does not 
explain or define the phrase ``new or significantly improved'' in 
section 1703(a)(2), nor does it explain or define the terms ``general 
use'' or ``commercial marketplace.'' In the NOPR, DOE proposed to 
define the term ``new or significantly improved technology'' to mean 
``a technology concerned with the production, consumption, or 
transportation of energy, and that has either only recently been 
discovered or learned, or that involves or constitutes one or more 
meaningful and important improvements in the productivity or value of 
the technology.'' (72 FR 27480)
    Because Title XVII focuses on encouraging and incentivizing 
innovative technologies not already in ``general use'' in the U.S. 
commercial marketplace, DOE stated in the NOPR that the Title XVII loan 
guarantee program should only be open to projects that employ a 
technology that has been used in a very limited number of U.S. 
commercial projects or used in a commercial project for only a limited 
period of time. Therefore, DOE proposed two possible ways of 
interpreting ``general use'': it could mean ``ordered for, installed 
in, or used in five or more commercial projects in the United States,'' 
or ``in operation in a commercial project in the United States for a 
period of five years, as measured beginning on the date the technology 
was commissioned on a project.'' (72 FR 27480) DOE requested comment on 
these alternatives, and also on whether the same definition should 
apply to all types of projects and technologies eligible for loan 
guarantees. (72 FR 27474) As DOE stated in the NOPR, a project may be 
eligible for a Title XVII loan guarantee if it uses technology that has 
been used in any number of projects and for any period of time outside 
the United States, so long as the technology is not in ``general use'' 
in the United States.
1. Definition of New or Significantly Improved Technology
    Public Comments: Section 609.2 of the proposed regulations defined 
``new or significantly improved technology'' to mean ``a technology 
concerned with the production, consumption or transportation of energy, 
and that has either only recently been discovered or learned, or that 
involves or constitutes one or more meaningful and important 
improvements in the productivity or value of the technology.'' Several 
commenters expressed the view that this definition is too narrow 
because it does not include improvements in ``new systems or system 
integration.'' Other commenters stated that the definition should 
reference or include the term ``commercial use.'' Some commenters 
stated that the definition was appropriate.
    Parson & Whittemore Incorporated (P&W) and Forest Energy System, 
LLC (FES), for example, assert that the proposed definition of new or 
significantly improved fails to capture the potential value of 
``systems'' rather than individual technologies. They recommend 
expanding the definition to include improvements from new systems or 
systems integration. (P&W at 1; FES at 1).
    The Nuclear Energy Institute (NEI) and Bechtel Corporation 
(Bechtel) challenged the NOPR's proposal to require that the technology 
be both new or significantly improved and not in general use in the 
commercial marketplace in the United States. They maintain that Title 
XVII only requires that a technology be new or significantly improved 
``as compared to'' commercial technologies in service in the U.S. at 
the time the guarantee is issued. (NEI at 25; Bechtel at 5).
    The Verenium Corporation (Verenium) stated that it is possible that 
a technology has been in existence for some time but has never been 
commercially applied for some reason, such as a technology that was not 
viable when competing with oil at $20 a barrel but is competitive with 
oil at $60 a barrel. Verenium stated that DOE should focus on 
technologies ``not yet in'' use and therefore should make the 
definition of New or Significantly Improved Technology refer to the 
defined term ``Commercial Technology.'' (Verenium at 10).
    The Union of Concerned Scientists (UCS), however, stated that ``DOE 
needs to develop objective criteria to demarcate `new' or 
`significantly improved' technologies from the sprucing up and 
recycling of current technologies,'' and asserted that the approach of 
the NOPR relied upon ``subjective judgments concerning the definition 
rather than employing more objective, quantitative measures of novelty 
and significant improvement.'' (UCS at 1). UCS did not, however, offer 
any suggestions as to what sort of ``objective, quantitative measures 
of novelty and significant improvement'' would be appropriate for 
adoption in the rule. TXU Generation Development Company LLC (TXU) 
argued that the rule should adopt a ``flexible definition'' with DOE 
and expert consultants making decisions on particular technologies at 
the preliminary application stage. (TXU at 7).
    Eastman Chemical Company (Eastman) supported the NOPR's proposed 
disqualification of projects solely in the research, development, or 
demonstration phase as long as the criteria is applied ``to the overall 
project and does not make a project ineligible just because one 
subsection of technology is new.'' Eastman adds: ``Arguably, a use of 
proven or commercial technologies in a new or novel configuration, 
combination, or implementation method, such as polygeneration should 
qualify as a `new or significantly improved technology.' '' (Eastman at 
3).
    Beacon Power Corporation (Beacon) recommends broadening the 
definition by adding the following italicized phrase so that the 
definition would read: ``technologies concerned with the * * * 
productivity or value of the technology or an improvement over an 
existing technology that will perform the same function.'' (Beacon at 
3). Ameren Services Company (Ameren) supported the proposed definition 
of new or significantly improved technologies, subject to the addition 
of the following phrase: ``in service in the United States at the time 
the guarantee is issued,'' which is part of the statutory definition in 
Sec.  1703(a)(2) of the Act. (Ameren at 2).
    DOE Response: There is no one universally accepted or agreed upon 
definition of the term ``technology.'' Generally, technology is thought 
to be the practical application of science to industrial or commercial 
objectives. Technology may also include electronic or digital products 
and systems considered as a group. DOE believes that the term 
``technology'' in Title XVII was intended to have a very broad meaning, 
given the purposes of Title XVII, and therefore does not believe it is 
advisable to set down by rule a narrow definition of what will be 
considered a ``technology'' for purposes of this program.

[[Page 60118]]

    However, the Department believes it is important to establish what 
may enable a particular technology to be considered ``new or 
significantly improved''. By its explicit terms, the Title XVII loan 
guarantee program is not open to all technologies and projects, but 
only those that are new or significantly improved in comparison to 
commercial technologies in use in the United States.
    Several commenters asserted that the proposed definition of ``new 
and significantly improved technology'' in the NOPR mistakenly requires 
that in order to be eligible for a loan guarantee, a project must 
employ a technology that is both new and improved and is not in 
commercial use in the United States. They argue that the regulatory 
definition should be clarified to make clear that the test is new or 
significantly improved as compared to commercial technologies in 
service in the United States. They correctly quote Title XVII, but are 
mistaken as to the import of that language and the language in the 
NOPR. Either a technology is in general use in the U.S. commercial 
marketplace or it is not. If it is in general use, then the same 
technology could not possibly be ``new or significantly improved'' in 
comparison to technology in general use in the U.S. commercial 
marketplace, and it is ineligible for a Title XVII loan guarantee. Yet 
a technology does not automatically become eligible for a Title XVII 
loan guarantee merely because it is not a U.S. commercial technology; 
rather, it must be ``new or significantly improved'' in comparison to 
such commercial technology. If the statute required only that it be 
``new'' or ``different'' in comparison to commercial technologies, then 
it might well be that in order to become eligible for a Title XVII 
guarantee, all a project sponsor would need to show is that it was 
using a technology currently not in commercial use in the United 
States. But such an interpretation of Title XVII would render as 
surplusage the words ``or significantly improved'' in section 
1703(a)(2) of the Act. As a result, the term ``new or significantly 
improved'' cannot simply mean not currently in commercial use in the 
United States; it must mean that the technology itself is either newly 
developed, or it must constitute a significant improvement over 
technologies currently in U.S. commercial use. Notably, in order to be 
eligible for a loan guarantee a technology need not be both new and 
significantly improved, but must only be one or the other.
    DOE does believe it is useful to clarify that while a ``new'' 
technology must be newly developed, discovered or learned, a 
``significantly improved'' technology may in fact be ``old'' but a 
significant improvement over technologies currently in commercial use 
in the United States. Thus, and as noted in the NOPR, DOE agrees with 
the assertions by some commenters that a technology could be eligible 
for a loan guarantee even if it was developed long ago and even if it 
is used in the same commercial application outside the United States, 
as long as that technology is not in general commercial use for that 
application in the United States at the time the loan guarantee is 
issued. Consistent with DOE's interpretation of section 1703(a)(2) of 
the Act, section 609.2 of the final rule provides, in part, as follows:

    New or significantly improved technology means a technology 
concerned with the production, consumption or transportation of 
energy that is not a Commercial Technology, and that has either: (i) 
Only recently been developed, discovered or learned; or (ii) 
involves or constitutes one or more meaningful and important 
improvements in productivity or value, in comparison to Commercial 
Technologies in use in the United States at the time the Term Sheet 
is issued.
2. Definition of Technologies in General Use
    Public Comments: Under section 1703(a)(2) of the Act, projects are 
eligible for Title XVII loan guarantees only if they employ new or 
significantly improved technologies as compared to ``commercial 
technologies'' that are ``in service in the United States'' when 
guarantees are issued. Section 1701(1)(A) defines ``commercial 
technology'' to mean ``a technology in general use in the commercial 
marketplace.'' The NOPR proposed two alternative definitions of 
``general use'': A technology would be considered to be in ``general 
use'' if it had been ``ordered for, installed in, or used in five or 
more [commercial] projects in the United States''; or alternatively, if 
it had been ``in operation in a commercial project in the United States 
for a period of five or more years as measured beginning on the date 
the technology was commission[ed] on a project.'' This definition is 
important because, as noted above, a proposed technology cannot qualify 
a project for a Title XVII loan guarantee if it is in ``general use'' 
in the U.S. commercial marketplace.\1\
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    \1\ Notably, the existence of technology in a project that is in 
general commercial use in the United States does not in itself 
disqualify a project from eligibility for a Title XVII loan 
guarantee. Most if not all projects that are eligible for loan 
guarantees will employ some technologies that are in such general 
use.
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    Several commenters stated that the first of the alternatives set 
forth in the NOPR was acceptable, but the second alternative definition 
should not be an option or should be revised. On the other hand, 
several commenters stated that the second alternative definition would 
be appropriate for nuclear projects because the early operational phase 
is more useful in determining whether a technology is workable and 
acceptable. Other commenters stated that the second alternative should 
not be adopted because it likely would lead to a very large number of 
nuclear projects being eligible for loan guarantees since there is a 
long period of time between initiation of work on a nuclear generation 
facility and the completion of five years of operation, and during this 
time a large number of projects using the same technology could apply 
for and be granted loan guarantees. Still other commenters were of the 
view that it is impossible to adequately define ``general use'' and 
asserted that DOE therefore should approve or disapprove loan guarantee 
proposals to use technologies on a case-by-case basis. Commenters also 
expressed the view that the two alternative definitions for ``general 
use'' should be combined into one definition.
    More specifically, in their joint comments Constellation Nuclear 
Utilities, Inc., Entergy Corporation, Exelon Corporation, and NRG 
Energy, Inc. (Nuclear Utilities) asserted that for nuclear technologies 
the definition of a technology that is in ``general use'' should be 
based upon five or more years of operation of any given new design 
(e.g., an advanced reactor design that is separately certified by the 
Nuclear Regulatory Commission (NRC)). They argued that if DOE were to 
use the ``five or more projects'' alternative for defining what 
constituted ``general use,'' it would be essential that the phrase 
``order for, installed in, or used in'' should be changed to ``ordered 
for, installed in, and used in,'' since for nuclear plants, ordering 
would take place many years before use. (Nuclear Utilities at 19-20). 
NEI, Dominion Resources Services, Inc. (Dominion) and Excelsior Energy, 
Inc. (Excelsior) submitted similar comments. (NEI at 24, Dominion at 
12, Excelsior at 2-3).
    Southern Company Services, Inc., (Southern) stated that technology 
should be considered in ``general use'' when financing has been 
established for five or more projects in the United States. Southern 
stated that its proposed interpretation of ``general use'' would assist 
DOE's effort in having a broad portfolio of large and small projects 
with a wide variety of technologies

[[Page 60119]]

supported by the Title XVII program, because it would limit the number 
of project participants that employ the same technology. Southern also 
asserted that the successful implementation of five projects employing 
a particular technology should greatly reduce the concerns of the 
credit markets, and stated that not considering a technology to be in 
``general use'' until it has been in operation in a commercial project 
in the United States for five years could result in an unlimited number 
of projects utilizing the same technology. (Southern at 1).
    Verenium stated that if over a five-year period a technology has 
been used in fewer than five projects, the technology is probably not 
in general use because it would indicate there is some barrier to 
competitiveness. The restriction to five projects, according to 
Verenium, should be stated as only a ``presumption,'' so that DOE could 
deviate from it in appropriate circumstances. Verenium further argued 
that the term ``ordered for'' may be ambiguous, and thus suggested the 
use of ``in the process of being installed'' if DOE adopts an 
alternative employing this concept, and thus suggested the following 
language for the definition of Commercial Technology:

    ``Commercial Technology means a technology in general use in the 
commercial marketplace in the United States, but does not include a 
technology solely by use of such technology in a demonstration 
project funded by DOE. A technology is presumed to be in general use 
if it has been installed or used or is in the process of being 
installed in five commercial projects in the United States.''

(Verenium at 12-13).
    Standard & Poor's (S&P) stated that projects involving integrated 
gasification combined cycle (IGCC) and coal-to-liquids (CTL) 
technologies currently lack a commercial track record and therefore 
would be assigned a risk premium by that rating agency. However, S&P 
said that if there are at least five operational projects using a 
particular technology, and as long as there was a material track record 
of operations, the perceived risk and thus the risk premium associated 
with the technology would be substantially reduced. (S&P at 2). The 
Iogen Corporation (Iogen), believes that the definition proposed in the 
NOPR is too restrictive and notes that the financial community has 
displayed great reticence to providing debt financing at reasonable 
commercial rates for new technologies that have not been widely 
demonstrated. Iogen would prefer that DOE not adopt a single ``bright 
line'' test and that the Department instead rely on market forces to 
determine the need for a guarantee. However, if the Department is going 
to develop a test, Iogen proposes to combine the two alternatives into 
one modified definition, so that a particular technology would be 
considered to be in general use if it had been installed or used in 
five or more projects in the United States for a period of five years. 
(Iogen at 2-3).
    The Coal Utilization Research Council (CURC) stated that the 
``proposed definition of general use is not suitable as it relates to 
projects that will use technologies that have been in commercial use 
for other applications,'' and that ``size, process configurations, and 
technology modifications are among the several general characteristics 
of projects that need to be considered when applying the general use 
definition.'' (CURC at 5). Baard Energy L.L.C. (Baard) proposed that, 
with respect to CTL projects, ``general use'' should be defined by the 
first alternative set forth in the NOPR, i.e., technologies that have 
been installed and used in five or more commercial projects in the 
United States. Baard asserts that the second alternative, five years, 
is too short. In order to accommodate construction schedules for CTL 
plants and to allow for innovations and improvements, Baard maintains 
that the second alternative should be extended to ten years. (Baard at 
3).
    Bechtel Power Corporation (Bechtel) recommends combining the two 
alternatives for determining ``general use'' proposed in the NOPR, as 
follows:

    The technology or combination of technologies have been ordered 
for, installed in, and used in five or more projects in the U.S., 
each for a period of five years, measured from date of 
commissioning.

Bechtel's other comments regarding ``general use'' are focused on new 
nuclear technologies that have never been built in the United States. 
According to Bechtel, the technologies in question (``Gen III'' and 
``Gen III+'' nuclear designs) should be judged individually for 
purposes of determining whether either of the alternative meanings of 
``general use'' proposed in the NOPR apply to them. Bechtel states that 
the ``general use'' language in the rule must clearly distinguish new 
generations or new applications of a technology such as Gen III or Gen 
III+ in order to assure that they are not excluded from loan guarantee 
eligibility by the fact that over 100 nuclear plants have been built in 
the United States, when those plants used different designs and were 
constructed in a much different industry and regulatory environment. 
(Bechtel at 4).
    CPS supports the second alternative definition set forth in the 
NOPR, and submits that the five to seven year construction period for a 
nuclear project means that starting the ``clock'' from the time the 
technology is commissioned on a project, may mean that the project is 
disqualified at or prior to the technology's in-service date. CPS 
asserts that guarantees should be available, to the extent of 
appropriations, until each distinct technology is in full commercial 
operation. (CPS at 7). Abengoa Bioenergy New Technologies (ABNT) 
recommends that DOE select the definition which utilizes time from 
first commercialization as the basis for defining ``general use.'' ABNT 
argues that if the other alternative is selected, DOE will be 
discouraging competition and applications from a number of projects 
which are eligible under a given solicitation or invitation, and that 
by determining eligibility on the basis of ``a fixed window of time,'' 
DOE will provide certainty that a project will remain eligible for a 
loan guarantee at some future time regardless of intervening events 
with other projects or technologies. ABNT does not dispute the NOPR's 
proposal of a five-year time frame, but suggests that a superior 
approach may be to establish a time frame according to the commercial 
technology defined in each solicitation or invitation. (ABNT at 1).
    DOE Response: DOE agrees with concerns expressed by many commenters 
about the ``five project'' alternative proposed in the NOPR. These 
commenters were concerned that a definition that did not include an 
operational component, which lenders need to develop confidence that a 
technology is proven and is viable in actual commercial operation, may 
not be workable for this program, and may not result in effective 
reduction of commercial risk and effective increased commercial 
marketplace acceptance prior to the closing of loan guarantee program 
eligibility. DOE believes that other entities considering incorporation 
of a particular technology into their planning want to see technologies 
proven in actual practice before investing substantial sums on that 
technology and incorporating it into large-scale capital expenditure 
plans. Furthermore, operational experience reduces risk from the 
standpoint of the credit and debt markets, and can lead to increased 
access to capital markets at lower rates. We particularly note and find 
persuasive S&P's comment that if there were at least five operational 
projects in a particular technology

[[Page 60120]]

within the United States, the perceived risk premium associated with 
the technology should be substantially reduced. We also note that 
adoption of the ``five projects'' proposal in the NOPR but without 
including an operational period could result in technologies or 
projects involving very long development and construction times being 
disqualified from receiving additional loan guarantees before even one 
project had commenced commercial operations, or in extreme cases, 
before any projects employing the technology had even commenced 
construction.
    After review and evaluation of the comments, DOE accordingly has 
revised section 609.2 of the NOPR as follows:

    Commercial Technology means a technology in general use in the 
commercial marketplace in the United States at the time the Term 
Sheet is issued by DOE. A technology is in general use if it has 
been installed in and is being used in three or more commercial 
projects in the United States, in the same general application as in 
the proposed project, and has been in operation in each such 
commercial project for a period of at least five years. The five 
year period shall be measured, for each project, starting on the in 
service date of the project or facility employing that particular 
technology. For purposes of this section, commercial projects 
include projects that have been the recipients of loan guarantees 
from DOE under this part.

DOE believes this definition reasonably addresses the concerns that DOE 
considers persuasive. By referring to the ``same general application'' 
as the proposed project, the definition provides that a technology is 
not necessarily considered in ``general use'' if it has been used for 
completely different projects or applications than in the proposed 
project. For example, the fact that fuel cells have been used in some 
small-scale applications for flashlights would not disqualify an 
application for a project that proposed to use fuel cells to power a 
motor vehicle. The definition also makes clear that it is only use of a 
technology in a project in the United States that can potentially 
render it in ``general use'' for the purposes of this program. The 
definition provides that each of three projects using a particular 
technology must be in service for five years before the technology is 
considered to be in general use. Thus, this definition deals with the 
concern expressed by some commenters that technologies should be barred 
from program eligibility only if there has been substantial actual 
operational experience with them. Finally, the definition clarifies 
that projects that have received loan guarantees will be counted when 
determining whether technologies have been used in a sufficient number 
of projects to render them no longer eligible for the program. DOE 
believes this is consistent with the overall purpose of the program in 
encouraging the introduction of new and improved technologies into the 
commercial marketplace, but ensuring that technologies do not remain 
forever dependent on loan guarantee support in order to be commercially 
viable. The Title XVII program should help introduce technologies to 
the commercial marketplace, but it should be up to those technologies 
and to the commercial marketplace as to whether the technologies 
continue to be economically and technologically viable, or not.
    DOE notes that even though the definition of ``commercial 
technology'' it is adopting in this rule may permit multiple projects 
using the same technology to be eligible for a Title XVII guarantee, 
DOE is under no obligation to seek authority for, or to issue 
solicitations for, all or any particular technology that may fall 
within the outer limits of eligibility for a loan guarantee, as that 
eligibility is prescribed by Title XVII and this rule. Indeed, it is 
perfectly possible that DOE may decide not to issue a solicitation 
covering a certain technology, even though projects using that 
technology would be eligible under this rule for a loan guarantee. 
Furthermore, this definition of ``commercial technology'' in no way 
limits DOE's ability to include within a solicitation a selection 
criterion, and assign a weighting for that criterion, based on the 
number of projects already in service using that technology.
3. Nuclear Generation Projects
    Public Comments: Comments from the nuclear industry asserted that 
regulations proposed in the NOPR were not appropriate or workable for 
commercial nuclear power projects because of the size and unique 
regulatory and litigation-related risks surrounding these projects. The 
industry's stated primary concern is the ability of industry 
participants to access the capital markets at what they view as 
reasonable rates, terms and conditions.
    CPS Energy (CPS), on behalf of itself and the Large Public Power 
Conference, a group of utility companies with nuclear power facilities, 
recommended that new nuclear technology should be defined separately 
and differently from other technologies eligible for Title XVII loan 
guarantees. CPS cited two principal factors supporting this 
recommendation: (1) The capital intensive nature of new nuclear 
development; and (2) the different technologies proposed represent 
vastly different scales of new technology, as compared with other types 
of eligible projects. CPS stated that the cost of new nuclear 
generating capability is in the neighborhood of $2,000 per kilowatt and 
the capacity of the plants is in excess of 1,300 megawatts, that five 
different reactor technologies are being proposed, and that none of the 
technologies currently are in operation in the United States. 
Therefore, CPS asserted that each of the five technologies should be 
treated as a distinct new technology eligible for loan guarantees. (CPS 
at 7).
    Iogen, however, strongly opposed DOE making the loan guarantee 
program more favorable for larger projects involving electricity 
generation from nuclear power or coal combustion/gasification than for 
other types of projects, such as those that would advance the 
President's ``20 in Ten'' initiative, which Iogen said depends on the 
widespread deployment of advanced biofuels refineries. (Iogen at 1). 
The American Council on Global Nuclear Competitiveness (ACGNC) stated 
that DOE should look beyond nuclear power plants when defining the term 
``advanced nuclear energy facilities'' that appear in section 1703 of 
the Act. ACGNC stated that this language is broad enough to allow DOE 
to issue loan guarantees to projects that will restore the domestic 
nuclear energy design, manufacturing, service and supply industry, such 
as uranium mining and milling operations; uranium conversion and 
enrichment facilities; reactor component fabrication facilities; and 
used fuel recycling plants. (ACGNC at 2-3). Goldman and Sachs & Co. 
(Goldman Sachs) recommended that the final rule expressly include 
nuclear power generating stations and advanced technology low enriched 
uranium (LEU) production facilities in the definition of what could 
constitute an eligible project. Goldman Sachs emphasized that the 
described facilities are essential to fostering the domestic 
development of emissions-free, affordable base-load nuclear power 
generation, and that advanced nuclear energy facilities are one of the 
ten categories of projects specifically addressed in the Act. (Goldman 
Sachs at 5).
    DOE Response: Nuclear projects were the only type of projects for 
which some commenters asserted the final rule should accord different 
treatment than other technologies. However, most if not all of those 
comments argued that different treatment was appropriate because of the 
very large cost and long construction and permitting/licensing time for 
such projects. And yet, similar

[[Page 60121]]

arguments could be made in support of some other types of potentially 
eligible projects, such as refineries, IGCC facilities, or CTL 
projects. No commenters argued that nuclear technology per se makes 
nuclear projects deserving of different and more favorable treatment 
than the final rule affords to other projects that have large capital 
requirements and difficult regulatory environments. Moreover, DOE 
believes it has dealt appropriately with many if not most of the 
concerns expressed by nuclear industry participants regarding the 
issues of ``general use'' and other matters discussed elsewhere in this 
preamble and in the final rule text. Therefore, the final rule does not 
differentiate between nuclear power generation projects and all other 
projects.

B. Financial Structure Issues

    The Act imposes certain limitations on the financial structure of 
proposed projects, including that a loan guarantee ``shall not exceed 
an amount equal to 80 percent of the project cost of the facility that 
is the subject of the guarantee as estimated at the time at which the 
guarantee is issued.'' (42 U.S.C. 16512(c)) Section 1702(g)(2)(B) of 
the Act further requires that ``with respect to any property acquired 
pursuant to a guarantee or related agreements, [DOE's rights] shall be 
superior to the rights of any other person with respect to the 
property.'' In the NOPR, the Department interpreted this statutory 
provision to require that DOE possess a first lien priority in the 
assets of the project and other assets pledged as security, and stated 
that because DOE believed it is not permitted by Title XVII to adopt a 
pari passu security structure, Holders of the non-guaranteed portion of 
a loan or debt instrument supported by a Title XVII guarantee would 
have a subordinate claim to DOE in the event of default.
    DOE proposed in the NOPR that it only would issue a guarantee for 
up to 90 percent of a particular debt instrument or loan obligation for 
an Eligible Project. This limitation was subject to the overriding 
statutory requirement that DOE's guarantees for a particular project 
could not exceed 80 percent of Project Costs. Furthermore, in 
connection with any loan guaranteed by DOE that may be participated, 
syndicated, traded, or otherwise sold on the secondary market, DOE 
proposed to require that the guaranteed portion and the non-guaranteed 
portion of the debt instrument or loan be sold on a pro-rata basis. In 
the NOPR, DOE proposed not to allow the guaranteed portion of the debt 
to be ``stripped'' from the non-guaranteed portion, i.e., sold 
separately as an instrument fully guaranteed by the Federal government.
    The Act does not mandate a specific equity contribution to a 
project that receives a Title XVII loan guarantee, but DOE proposed in 
the NOPR that in order to receive a loan guarantee, Project Sponsors 
must have a significant equity stake in the proposed project. DOE 
solicited comments on the merits of adopting a minimum equity 
percentage requirement for projects, and stated that in evaluating loan 
guarantee applications, the Department would consider whether and to 
what extent a Project Sponsor will rely upon other government 
assistance (e.g., grants, tax credits, other loan guarantees, etc.) to 
support financing, construction or operation of a project.
    Finally, DOE proposed to require with submission of an application 
for a loan guarantee a ``credit assessment'' for the project without a 
loan guarantee from a nationally recognized rating agency, where the 
size and estimated cost of the project justify such an assessment. 
Additionally, DOE proposed to require that not later than 30 days prior 
to closing, Applicants must provide a ``credit rating'' from a 
nationally recognized rating agency reflecting the Final Term Sheet for 
the project without a Federal guarantee. The Department requested 
comments as to whether it should establish a project size (dollar) 
threshold below which DOE could waive the credit assessment and rating 
requirements.
    Public Comments:
1. Lender Risk, Stripping and Pari Passu
    Commenters that addressed the 90 percent, no stripping, and pari 
passu provisions in the NOPR were generally opposed to these 
restrictions. S&P commented on the 90 percent guarantee limitation in 
combination with the stripping prohibition stating that ``[t]his is the 
provision [sic] that has the greatest credit consequence. The rating 
associated with a partially guaranteed obligation will be substantially 
lower than the `AAA' rating of a fully guaranteed instrument . . . 
[and] will result in a significantly higher cost of debt for the 
project than if it was fully guaranteed.'' (S&P at 5). S&P also stated 
that ``[t]he disadvantage created by the partial guarantee can be 
overcome if the loan can be `stripped', effectively creating two 
tranches of debt, one with a `AAA' rating and the second rated much 
lower.'' (S&P at 5).
    NEI asserted that allowing 90 percent guaranteed loans, instead of 
placing the limit at 80 percent as did the August 2006 Guidelines, did 
not improve what NEI viewed as a limitation adversely affecting the 
overall viability of the Title XVII program for nuclear projects. NEI 
stated that the NOPR would create a financing structure that is not 
workable. It would create, according to NEI, a hybrid loan facility for 
which there is no market, a debt instrument with a guaranteed portion 
and a non-guaranteed potion which cannot be stripped, and would render 
the unsecured, non-guaranteed portion of the debt ``quasi-equity.'' The 
impact, according to NEI, would be to compromise project economics, 
increase debt service requirements, and increase costs to electricity 
consumers.
    NEI further said if DOE's proposal were adopted, the Title XVII 
loan guarantee program would not operate like other successful Federal 
loan guarantee programs. NEI stated that those other programs generally 
provide for 100 percent Federal guarantee coverage of the loan amount; 
allow pari passu treatment of non-guaranteed commercial debt; and 
permit stripping of guaranteed debt from non-guaranteed debt and follow 
standard practice in determining eligible project costs. NEI said that 
DOE's NOPR was deficient on all four of these issues. (NEI at 2-3).
    In a set of joint comments, Citigroup, Credit Suisse, Goldman 
Sachs, Lehman Brothers, Morgan Stanley and Merrill Lynch (Investment 
Bankers) stated that investors or lenders in the fixed income markets 
will be acutely concerned about a number of political, regulatory and 
litigation-related risks surrounding nuclear power, including the 
possibility of delays in commercial operation of a completed plant. The 
Investment Bankers also stated that these risks, combined with the 
higher capital costs and longer construction schedules of nuclear 
plants, as compared to other electric generation facilities, may make 
lenders unwilling to make long-term loans to such projects on 
commercially viable terms. (Investment Bankers at 1).
    The Nuclear Utilities also stated that the Title XVII loan 
guarantee program must guarantee debt through workable financing 
instruments. They asserted that limiting guarantee coverage to 90 
percent, prohibiting pari passu security structures, and prohibiting 
``stripping,'' would result in a program that would not support the 
financing of new nuclear plants in the United States. The Nuclear 
Utilities said that their primary concern relates to the percentage of 
a project's debt the loan guarantee will cover. They believe that DOE 
would be fully justified in guaranteeing 100 percent of a Guaranteed 
Obligation, up to 80 percent of project cost. Moreover, the Nuclear 
Utilities stated that

[[Page 60122]]

providing 100 percent guarantee coverage of a debt instrument is not 
only necessary because commercially viable financing is not available 
on an non-guaranteed basis, but also because a 100 percent U.S. 
government guarantee will enable lenders and borrowers to maximize the 
efficiency of the existing, well-established marketplace for government 
guaranteed debt. The Nuclear Utilities also believe that the ``no 
stripping'' requirement combined with the prohibition on pari passu 
security structures, creates a form of ``hybrid'' debt for which there 
is no natural, existing market. According to the nuclear industry, the 
market participants would incur a significantly higher average cost of 
financing, as well as unnecessary transaction costs to achieve project 
structures that would enable the project's debt to be placed with its 
appropriate constituents in the existing marketplace. The Nuclear 
Utilities stated that such structures could lead to a form of 
``synthetic'' stripping that undercuts the purpose of the no stripping 
requirement. (Nuclear Utilities at 5-8). They recommended that any 
concern about lender due diligence should be addressed by DOE retaining 
outside legal, technical, and financial experts to supplement its 
internal expertise in performing the necessary project due diligence 
and assessing project risks, and that the reasonable costs and expenses 
of these experts should normally be borne by the sponsors and 
constitute part of project costs. (Nuclear Utilities at 10-11).
    The Investment Bankers expressed views that are generally 
consistent with those of the Nuclear Utilities. They also noted that in 
some cases, investors in the AAA government-guaranteed market are 
restricted, legally or otherwise, from investing in the sub-debt 
market. They said that requiring investors to own interests through a 
mandated hybrid instrument in both AAA paper and deeply subordinated 
``quasi-equity'' paper removes both of these financing instruments from 
their natural market. (Investment Bankers at 1). The Investment Bankers 
stated that ``[t]here is a deep and highly efficient market for `AAA' 
government guaranteed paper. Investors in that market are distinctly 
different from those investors who participate in the sub-debt market. 
Requiring investors to own interests through a mandated hybrid 
instrument in both AAA paper and deeply subordinated `quasi-equity' 
paper removes both of these financing instruments from their natural 
markets.'' (Investment Bankers at 1). The 100 percent Government 
guaranteed debt instruments are purchased by investors who are more 
risk averse. Investors in non-guaranteed debt instruments are willing 
to take more risk for the prospect of greater returns on their 
investments. Verenium also expressed concern about the 90 percent 
guarantee limitation and the prohibition on ``stripping'' that are 
similar to the concerns expressed by the Investment Bankers and the 
Nuclear Utilities. (Verenium at 4). Verenium suggested that one 
alternative to 100 percent guarantees would be to allow the non-
guaranteed loan to be repaid on a shorter amortization schedule than 
the guaranteed loan. (Verenium at 6).
    According to JP Morgan Securities, Inc. (JP Morgan) it is unclear 
how lenders would fund the non-guaranteed portions of a partially 
guaranteed loan on which stripping was prohibited since banks rarely 
lend for tenures beyond eight to ten years, particularly when the debt 
is subordinated. JP Morgan further stated that an expectation that 
lenders would maintain the non-guaranteed portions for the life of such 
loans is unrealistic, and that by taking a second lien interest, a 
lender's participation is tantamount to an equity investment. (JP 
Morgan at 1).
    Bechtel contended that a commercially viable market does not exist 
for a hybrid instrument for which stripping is barred. Eliminating 
stripping, according to Bechtel, is not in line with other Federal loan 
guarantee programs and would increase the cost of project debt by 
eliminating a bank's ability to utilize various securitization 
vehicles, such as the Private Export Funding Corporation (PEFCO) or 
Govco, Inc., the special purpose lending vehicle of Citigroup, which 
provide efficient and cost effective vehicles to fund federally 
guaranteed loans. Bechtel further agreed that the first lien 
requirement in the NOPR is inconsistent with established norms in 
project lending and that the Export Import Bank of the United States, 
the Overseas Private Investment Corporation, and the Transportation 
Infrastructure Finance and Innovation Act of 1998 (TIFIA) program at 
the Department of Transportation treat any non-guaranteed debt as pari 
passu in terms of both payment and security. (Bechtel at 2).
    Power Holdings of Illinois LLC (Illinois), however, supported the 
90 percent loan guarantee limitation in the NOPR, and the proposed 
prohibition on stripping. (Illinois at 1). Baard also agreed with the 
90 percent limitation. Baard said that this limit was an improvement 
over the 80 percent of debt instrument guarantee limit set forth in the 
August 2006 Guidelines, and that it would be an effective mechanism for 
ensuring that investors/lenders perform rigorous due diligence prior to 
committing their money for a project. (Baard at 5).
2. Equity Requirements for Project Sponsors
    Almost all parties that submitted comments on this issue were 
opposed to a fixed numeric minimum equity requirement. Illinois agreed 
with the concept that Project Sponsors should be required to have a 
significant equity stake in a project, but said DOE should not adopt a 
fixed, numeric minimum equity percentage, threshold, or requirement. 
Illinois asserted that equity structure in a given project can vary 
with a number of factors, including technology used and the market for 
the project's products, and that imposing a fixed, numeric minimum 
equity percentage threshold or requirement for projects that might for 
good reason fall below such a threshold could result in the exclusion 
of otherwise worthy projects. (Illinois at 2). NEI also stated that DOE 
should not mandate a specific minimum equity percentage for eligible 
projects. The appropriate debt/equity ratio, according to NEI, will 
vary across technologies and sectors and among projects, and should be 
determined by project economics. (NEI at 23). Bechtel offered similar 
comments. (Bechtel at 2).
3. Other Governmental Assistance
    Most parties commenting on this issue stated that other 
governmental assistance to a project should be considered beneficial to 
the project and to DOE, and should not be used to exclude projects from 
consideration for the Title XVII program or regarded as a negative 
factor when evaluating the merits of particular projects. With respect 
to DOE's consideration of the ``extent the Applicant will rely on other 
federal and non-federal governmental assistance'' (section 609.7(b)(9) 
of the proposed regulations), Iogen agreed that this factor should be 
considered, but a primary consideration should be whether there was 
significant private equity involvement in a proposed project. Iogen 
stated that under no circumstances should Federal government assistance 
be counted toward any equity contribution requirement. Iogen agreed 
that DOE should include Federal government assistance only as an 
evaluation factor, and not as one of the six disqualifying conditions 
listed at section 609.7(a) of the proposed regulations because, among 
other things, government assistance reduces total project costs, thus 
reducing the size of any loan

[[Page 60123]]

guarantee, increases the likelihood of debt repayment, allows DOE to 
better leverage its participation in a variety of projects, and is an 
indicator of strong political and community support. Iogen also stated 
that presence of Federal government assistance does not, in itself, 
limit the level of private commitment. For example, Iogen stated that a 
project with 20% federal assistance, a 50% loan guarantee, and 30% 
equity, could reasonably be preferred over a project with an 80% loan 
guarantee and 20% equity. (Iogen at 4-5).
    Bechtel stated that multiple forms of governmental assistance 
should not be a negative factor because tax and other incentives are 
intended to be complementary, not exclusive, and multiple forms of 
governmental assistance could enhance a project's economics and 
creditworthiness. Therefore, Bechtel asserted that subsidy costs should 
be adjusted to reflect the reduced risk of default where there are 
multiple forms of governmental assistance. (Bechtel at 6). The Nuclear 
Utilities also expressed the view that other forms of governmental 
assistance should be viewed positively. (Nuclear Utilities at 20-23). 
CURC stated that if a project obtains other forms of governmental 
assistance, the cost of the loan guarantee should be adjusted to 
reflect the reduced risk of default on the underlying debt obligation 
as a result of the other support. CURC said that DOE should not limit a 
project's ability to receive more than one form of federal assistance. 
(CURC at 5).
4. Credit Assessment and Rating Requirements
    The NOPR proposed that a project sponsor must obtain a preliminary 
credit assessment and subsequent credit rating for a project without a 
loan guarantee from a recognized credit rating agency. (609.6(b)(21) 
and 609.9(f)). Most commenters that expressed a view on this issue 
stated that a credit assessment or rating was not very useful, and too 
expensive and that a better value could be obtained from entities other 
than established rating agencies.
    USEC Inc. (USEC) stated that it does not understand the purpose of 
proposed Sec.  609.9(f) which required that applicants obtain a credit 
rating from a nationally recognized rating agency reflecting the final 
term sheet without a Federal guarantee. USEC said that such a 
requirement would add to the cost of the application process with 
little benefit since the credit rating agencies are ill-equipped to 
evaluate the technical risks associated with new or emerging 
technologies. USEC stated that credit rating agencies look to 
historical data--not clearly relevant to new or emerging technologies. 
On the other hand, USEC said that DOE is positioned to conduct such an 
evaluation on its own with the other information provided in the 
application. (USEC at 5).
    S&P stated that the credit assessments provided at the time of 
application will likely have to be limited to a rating category (with 
the `+' and `-' signs that normally accompany S&P ratings), because 
project documentation will likely be in a very preliminary state at 
this point. (S&P at 8). Goldman Sachs recommended that the requirement 
for a credit assessment as part of the application submission be 
eliminated from the final rule although sponsors should be able to 
elect to obtain a credit assessment as part of their application 
submission if they wish to do so. Goldman Sachs stated that obtaining a 
credit assessment is a long process that ``frequently consumes valuable 
time and resources during the most critical stages of negotiation.'' 
Also, Goldman Sachs asserted that ``the primary rating agencies often 
do not provide a final rating until all documents have been negotiated 
and closing is imminent'' and that the rating will ``be highly 
dependent on the existence of the loan guarantee, and thus a rating 
without the guarantee will be of little substantive value.'' (Goldman 
Sachs at 9).
    FES and P&W proposed that DOE set a project cost threshold of $25 
million for waiving the credit rating requirement. (FES at 3, P&W at 
2). Illinois also stated that DOE generally should have authority to 
waive any credit rating requirement. However, according to Illinois, a 
simple project size threshold for waiving the requirement would 
oversimplify the circumstances under which DOE would consider such 
waivers. Illinois stated that rather than a simple project size 
threshold, DOE should set forth other criteria, such as a ratio of 
project debt to sponsor equity, the duration of the loan guarantee or 
the credit subsidy cost, in addition to the project size. (Illinois at 
2).
    DOE Response:
1. Lender Risk, Stripping and Pari Passu
    The primary goals of the Title XVII loan guarantee program are to 
encourage and incentivize the commercial use in the United States of 
new or significantly improved energy-related technologies and to 
achieve substantial environmental benefits.
    Sections 609.10(d)(3), (4) and (13) of the NOPR provided, in sum, 
that (1) DOE could guarantee no more than 90 percent of any debt 
instrument for an eligible project, (2) the guaranteed portion of any 
debt instrument could not be stripped from the non-guaranteed portion, 
and (3) DOE must have a first lien on all project assets pledged as 
collateral for a guaranteed loan. The vast majority of comments DOE 
received were in opposition to those provisions.
    DOE is persuaded by the comments it received that identified a 
number of problems and difficulties with proposed sections 609.10(d)(3) 
and (4), and therefore is revising those sections in the final rule. 
Because the program focuses on innovative technologies, for which there 
often is not readily available private market financing at reasonable 
terms, and thus there is not always a readily available commercial 
market substitute for debt that does not receive a Title XVII 
guarantee, DOE has determined that an alternative approach is more 
appropriate.
    Sections 609.10(d)(3) and (4) now provide that DOE may guarantee up 
to 100 percent of the amount of a loan for a project that receives a 
Title XVII loan guarantee, so long as all loan guarantees DOE issues 
for a particular project do not exceed 80 percent of Project Costs, 
which is a limitation imposed by Title XVII itself. As provided in the 
NOPR, section 609.7, DOE will evaluate the extent to which the 
requested amount of the loan guarantee, and the requested amount of 
guaranteed obligations are reasonable, relative to the nature and scope 
of the project.
    In accordance with Federal credit policy, DOE will issue 100 
percent loan guarantees only if the loan is issued and funded by the 
Treasury Department's Federal Financing Bank. DOE also will issue loan 
guarantees for loans from private lenders where the guarantee sought is 
for less than 100 percent of the loan amount, and the final rule 
provides that if DOE guarantees 90 percent or less of a Guaranteed 
Obligation, the Eligible Lenders and other Holders will not be 
prohibited from separating the guaranteed portion from the non-
guaranteed portion of the debt instrument. Thus, in cases where a 
lender issues a loan and receives a guarantee for more than 90 percent 
of the loan amount, the non-guaranteed portion cannot be stripped from 
the guaranteed portion.
    If a loan is not 100 percent guaranteed, it can be obtained from an 
approved Eligible Lender. Moreover, if 90 percent or less of a loan is 
guaranteed by DOE, the Department is allowing Eligible Lenders and 
other Holders to strip the guaranteed portion of a Guaranteed 
Obligation from the non-

[[Page 60124]]

guaranteed portion. DOE believes that in such circumstances, DOE still 
will gain the benefit of private sector debt market underwriting, but 
at the same time will ensure that Eligible Projects are able to obtain 
necessary financing, and be able to do so on reasonable terms.
    In the unique context of loan guarantees for innovative energy 
projects, DOE believes that the changes made from the NOPR will assist 
projects in obtaining financing on reasonable terms. DOE recognizes 
that Federal credit policy generally encourages Federal credit programs 
to require that guaranteed obligations have a non-guaranteed portion. 
As noted above, the program focuses on innovative technologies for 
which there is often not readily available private market financing at 
reasonable terms, and thus there may not always be a readily available 
commercial market substitute for debt that does not receive a Title 
XVII guarantee. Therefore, the Department has concluded that these 
terms are necessary and appropriate to carry out the purposes of this 
program.
    DOE has determined that it should allow stripping on some partially 
guaranteed loans--i.e., only those on which DOE has guaranteed 90 
percent or less of the Guaranteed Obligation. As noted above, the Title 
XVII program presents a unique situation--one in which loan guarantees 
will be issued for projects that otherwise might have little or no 
access to financing on reasonable terms, primarily because of the 
innovative nature of the eligible technologies and projects.
    Where DOE guarantees more than 90 percent of the amount of a 
Guaranteed Obligation, the guaranteed portion cannot be stripped from 
the non-guaranteed portion of the loan. In such situations, DOE is 
concerned that there may not be a sufficient amount of non-guaranteed 
debt to cause reasonable and appropriate debt market due diligence 
being performed.
    DOE notes that several of the commenters cited other Federal credit 
programs as justification for removing taxpayer protections proposed in 
the NOPR; in several cases Title XVII is significantly different from 
the programs cited. For example, financing under the TIFIA program is 
statutorily limited to 33 percent of eligible project costs, and 
therefore there is significant equity and lender participation. The 
Title XVII program is likely to be extremely large, with $4 billion of 
loan volume already provided under the 2007 Continuing Resolution, and 
$9 billion requested in the 2008 President's Budget. DOE already has 
pre-applications from the first solicitation requesting in excess of 
$25 billion in loan guarantees. The Title XVII program involves 
advanced technologies, which by nature are riskier than technologies 
already in commercial operation.
    DOE believes its resolution of the issues addressed above will help 
ensure that eligible projects of all sizes can gain access to credit on 
reasonable terms. DOE is concerned about project access to capital 
markets at reasonable interest rates and on reasonable terms and 
conditions, and believes that the modifications it has made to the 
regulations in this final rule address the commenters' concerns, while 
reducing the chance that unnecessary risks and costs are placed on the 
Federal taxpayers.
    It is customary and common practice in project financing for 
multiple lenders to enter into a pari passu structure with respect to 
assets pledged as collateral to secure debt. If such a structure were 
employed for the Title XVII program, DOE, pursuant to its Loan 
Guarantee Agreement, and lenders that held non-guaranteed debt, could 
share proportionately in the proceeds from the sale of project assets 
pledged as collateral if there were a default and the collateral was 
sold. In the NOPR, DOE interpreted Title XVII's requirement that DOE 
have a superior right to project assets pledged as collateral to 
prohibit pari passu structures, and as requiring all other lenders to 
be subordinate to DOE.
    In the final rule, DOE has modified its regulations to provide that 
DOE and the Holders of the non-guaranteed portion of the Guaranteed 
Obligations may share the proceeds received from the sale of project 
assets. The Department interprets the Title XVII provision requiring 
DOE to have a superior right to project assets pledged as collateral to 
mean that DOE retains superior rights within the meaning of the statute 
even if the Department shares the proceeds from the sale of project 
assets with the Holders of the non-guaranteed debt as long as DOE 
controls the disposition of all project assets. Under this 
interpretation, it is solely within DOE's authority to determine 
whether, and under what terms, the project assets will be sold at all. 
For example, DOE retains--as a superior right--the ability, even over 
the objections of other parties, to decide against the liquidation of 
project assets and instead to complete construction of the project, 
subject to appropriations, or to sell an incomplete project to an 
entity that will complete the project.
    The Department views this interpretation as being consistent with 
section 1702(g)(2)(A) of the Act, which provides that if DOE makes a 
payment on the guaranteed debt, the Department is subrogated to the 
rights of the Holder, including the right to ``complete, maintain, 
operate, lease, or otherwise dispose of any property acquired pursuant 
to such guaranteed or related agreements, or permit the borrower * * * 
to continue to pursue the purposes of the project.'' The Secretary 
cannot do any of those things unless the Secretary owns or controls the 
entire project. There is no provision, for example, for the Secretary 
to purchase the interest of the non-guaranteed lenders or holders of 
debt that is not supported by a Title XVII guarantee. Furthermore, 
section 1702(g)(2)(B) provides that the rights of the Secretary, with 
respect to any property acquired pursuant to a guarantee or related 
agreements, shall be superior to the rights of any other person with 
respect to the property, and this provision limits DOE's rights to the 
collateral to ``property acquired pursuant to a guarantee.''
    Insofar as it is applicable here, the Department reaffirms the view 
it expressed in 1980 in connection with the loan guarantee program for 
alternative fuels, that while DOE is required under section 
1702(g)(2)(B) to have a first lien on all project assets, the 
Department is not prohibited from negotiating and agreeing with parties 
about how the proceeds from the sale of collateral will be shared. 
Section 19 of the Federal Nonnuclear Energy Research and Development 
Act of 1974, Loan Guarantees for Alternative Fuel Demonstration 
Facilities, Pub. L. No. 93-577, as amended, (Alternative Fuels Act), 
contained provisions similar to section 1702(g)(2)(B).\2\ Section 
19(g)(2) of the Alternative Fuels Act provided, in part, that:
---------------------------------------------------------------------------

    \2\ Section 19 appeared at 42 U.S.C. section 5919 and was 
repealed by Pub. L. No. 109-58, the Energy Policy Act of 2005, at 
section 1009(b)(12).

    The rights of the Secretary with respect to any property 
acquired pursuant to such guarantee or related agreements shall be 
superior to the rights of any other person with respect to such 
---------------------------------------------------------------------------
property.

    In the preamble to the final rule implementing section 19(g)(2) of 
the Alternative Fuels Act and in response to arguments by commenters 
concerning the issue of pari passu sharing of the project collateral, 
DOE stated as follows:

    Subsection 796.11(a)(9) of the proposed regulation required that 
the guaranteed loan not be subordinate to any other loan for the 
project and that the guaranteed loan be in a first lien position 
with respect to assets of the project and other collateral which are 
pledged as security for repayment of the

[[Page 60125]]

guaranteed loan. DOE construes the Act to require this, and that 
only with regard to assets not directly related to the project, but 
which may be pledged as collateral, may a less than first lien 
position be acceptable to DOE.

(45 FR 15468, 15471).
    DOE today adopts the same interpretation of Title XVII as it 
adopted in regard to nearly identical language in section 19(g)(2) of 
the Alternative Fuels Act. Thus, DOE interprets the language in Title 
XVII as requiring a first lien on all project assets, but as allowing 
DOE to treat assets pledged to secure a project loan that are not 
project assets the same as project assets. Consistent with the 
regulations concerning the disposition of proceeds from the sale of 
assets pursuant to the Alternative Fuels Act (section 796(f) and (k)), 
section 609.15 of today's final rule also provides that where DOE only 
guarantees a portion of a Guaranteed Obligation, the Secretary may 
enter into inter-creditor or other arrangements to share the proceeds 
from the sale of project collateral with lenders or other holders of 
the non-guaranteed portion of the Guaranteed Obligation. DOE may, at 
the discretion of the Secretary, share the proceeds from the sale of 
collateral. DOE is limited, however, to no greater than a pro rata 
share for the non-guaranteed Holder. However, in cases where DOE 
guarantees 100 percent of a loan, the loan must be issued to and funded 
by the Federal Financing Bank. In those circumstances, DOE will have a 
first lien priority on project assets pledged as collateral and all 
other debt for the project at issue must be subordinate to the 
Guaranteed Obligation.
2. Equity Requirements for Project Sponsors
    Title XVII does not itself impose any minimum equity contribution 
requirement on projects that receive Title XVII loan guarantees. 
Section 1702(c) provides that DOE can guarantee loans for no more than 
80 percent of the cost of a project, but does not place any 
requirements on where or how a Project Sponsor may obtain other funds 
for an Eligible Project. Nonetheless, in the NOPR, the Department 
explained that DOE believed it was prudent to require Project Sponsors 
to have a substantial equity stake in a project before the project 
could receive a Title XVII loan guarantee. Thus, DOE proposed (in 
section 609.7(a)(6) of the proposed regulations) that applications 
would be denied if ``[t]he applicant will not provide a significant 
equity contribution.''
    Most commenters agreed that the regulations should contain an 
equity contribution requirement, and that the regulations should not 
set a fixed numeric minimum equity percentage threshold or requirement. 
Commenters said some projects might have good reasons for not meeting 
some numeric threshold, and that a specific numeric threshold might 
result in the rejection of otherwise meritorious projects. Some 
commenters objected even to DOE requiring by rule that projects have a 
``significant'' equity contribution.
    A Title XVII loan guarantee will be offered only to projects where 
the project sponsors make a significant equity contribution toward the 
Project Cost. If private investors or project sponsors do not see fit 
to make any significant equity investment in a capital project, it is 
hard to see why DOE should back loans for the project with a Federal 
guarantee. Such projects might well be appropriate for grant money or 
research and development assistance, but in light of the overall 
purposes of Title XVII and the statutory requirement that DOE can issue 
loan guarantees for no more than 80 percent of project cost, the 
Department believes it would not be prudent to eliminate any equity 
requirement for the program. It is in the interest of the Federal 
government to ensure that borrowers have a significant equity interest 
in the assets to ensure the financial success of the project. 
Eliminating the requirement might result in project sponsors financing 
a project entirely through a combination of government-backed loans, 
and other loans and government assistance. The Department does not 
believe such an approach would be consistent with the establishment of 
an overall sound Title XVII program.
    Furthermore, DOE will consider the type and degree of equity 
contribution proposed for an eligible project for a Title XVII loan 
guarantee to determine whether such contribution is significant and 
meets the eligibility requirements for a loan guarantee agreement. In 
evaluating whether a borrower or project sponsor is contributing 
significant equity to a project, the Department will consider 
``equity'' to be cash contributed by the Borrowers or other principals. 
Equity does not include proceeds from the non-guaranteed portion of any 
debt supported by a Title XVII loan guarantee or from any other non-
guaranteed debt. The value of other forms of government financial 
assistance or support also does not constitute ``equity.'' The 
Department has set forth this definition of ``equity'' in section 609.2 
of the final rule.
    At the same time, DOE agrees with commenters that the Department 
should not by regulation establish a specified numerical minimum on the 
equity contribution to an Eligible Project. There likely will be a 
myriad of financing arrangements and differing circumstances for the 
disparate types of technologies and projects potentially eligible for 
Title XVII loan guarantees. The Department believes, based on the 
record before it, that it should not set at this time a numerical 
minimum for the equity contribution to an eligible project.
    The determination of the significance of the equity contribution 
cannot practicably be made at the time that the loan application is 
filed. Thus, DOE has revised section 609.7(a)(6) of the NOPR which 
stated that an Application will be disqualified if ``[t]he applicant 
will not provide a significant equity contribution'' by deleting the 
words ``a significant'' and inserting the word ``an.'' DOE has retained 
section 609.7(b)(7) which provides that DOE will consider ``[t]he 
amount of equity commitment to the project by the Applicant and other 
principals involved in the project'' when evaluating Applications for 
Title XVII loan guarantees. DOE will evaluate the amount of equity that 
will be contributed to a project when evaluating a project against 
other projects. Section 609.10(d)(5) of today's final rule, however, 
provides that the Project Sponsors must, at a minimum, have a 
significant equity investment in a project.
3. Other Governmental Assistance
    Section 609.7(b)(9) of the NOPR provided that DOE will consider 
``whether and to what extent the Applicant will rely on other 
governmental assistance'' when evaluating Applications for Title XVII 
loan guarantees. In the NOPR preamble, the Department noted that the 
receipt of other government assistance generally would be viewed 
negatively. (72 FR 27476).
    Several commenters stated that DOE should consider other 
governmental assistance as a positive and not a negative evaluation 
factor. As noted above, those commenters asserted that the receipt of 
other assistance from Federal, state or local governments should be 
viewed as indicating support for a project and thus adding to its 
commercial viability, rather than reflecting financial and commercial 
weakness. Most commenters that expressed a view did believe that it 
would be appropriate for DOE to at least consider the receipt of other 
government

[[Page 60126]]

assistance in evaluating Applications. See e.g. Bechtel at 6, Eastman 
at 3; and Goldman Sachs at 9.
    DOE has retained section 609.7(b)(9) in the final rule as it was 
proposed in the NOPR. As DOE stated in the NOPR, we recognize that in 
certain circumstances, multiple forms of Federal assistance to the same 
project could enhance important national energy policy priorities. We 
believe the current language in section 609.7(b)(9) is sufficient to 
address these circumstances.
4. Credit Assessment and Rating Requirements
    Section 609.6(b)(21) of the NOPR required the Applicant to submit 
with its Application a credit assessment for the project without a loan 
guarantee ``where the size and estimated cost of the project justify 
such an assessment.'' Section 609.9(f) of the NOPR proposed to require 
that not ``later than 30 days prior to closing, the applicant must 
provide a credit rating from a nationally recognized rating agency 
reflecting the Final Term Sheet for the project without a Federal 
guarantee.''
    Most commenters complained that the rating agency requirements 
proposed in the NOPR would impose unnecessary costs and burdens on 
project sponsors, with little corresponding benefit to the Department. 
(Bechtel, at p. 2-3) Other commenters suggested that the requirement 
for a credit assessment be eliminated from the final rule. (e.g. 
Goldman Sachs at p. 9) Two commenters proposed a threshold of $25 
million for waiving the credit rating requirement. Another expressed 
the view that DOE should be able to waive the requirement where 
appropriate. Two commenters thought that a waiver should not depend on 
project size, but rather should depend on other factors as well such as 
the ratio of project debt to sponsor equity.
    DOE has retained the credit assessment and rating requirement 
provisions, 609.6(b)(21) and 609.9(f). DOE believes that these 
requirements will be beneficial in aiding the Department when it 
determines the credit subsidy scores for particular projects, and when 
it assesses and evaluates the risks and benefits of particular 
projects.
    DOE notes the distinction between the credit rating on the overall 
project debt which lenders or project sponsors may wish to obtain for 
pricing the debt; and the credit rating without considering the benefit 
of the guarantee, which will inform DOE's evaluation of the project and 
estimation of the Credit Subsidy Cost.
    DOE agrees that in some circumstances, it may be desirable to waive 
a credit rating requirement. For example, projects for which project 
costs fall below a certain level may not warrant the cost of a credit 
rating, should the cost prove large in comparison to the overall cost 
of the project. Therefore, in the final rule DOE has added to section 
609.9(f) the following language: ``where the total Project Cost for an 
Eligible Project is projected to exceed $25 million.'' The Department 
selected this number because it believes any project that costs below 
that amount may find it uneconomic to obtain a credit rating and to 
participate in the Title XVII program. By putting this threshold in 
place, DOE seeks to support smaller projects.

C. Project Costs

    Sections 609.2 and 609.12 of the proposed regulations defined 
``Project Costs'' as those costs, including escalation and 
contingencies, that are necessary, reasonable, customary, and directly 
related to the design, engineering, financing, construction, startup, 
commissioning and shake down of an Eligible Project. Conversely, costs 
excluded from the definition of Project Costs included initial research 
and development costs, the Credit Subsidy Costs, any administrative 
fees paid by the Project Sponsors, and operating costs after the 
facility has been placed in service.
    Public Comments: As noted above, the Department intends to 
implement Title XVII through the ``self-pay'' authority provided in the 
Act. Thus, DOE has no current intention to seek appropriations to pay 
for the Credit Subsidy Costs of any Title XVII loan guarantees, but 
rather project sponsors will be required to pay those costs before DOE 
enters into a loan guarantee agreement. Pursuant to FCRA, the Credit 
Subsidy Cost reflects the net present value of the estimated payments 
to or from the Government. It is impossible to tell at this point what 
the Credit Subsidy Cost will be for any particular project.
    Most commenters argued that Credit Subsidy Costs and Title XVII 
administrative fees that are paid by a project sponsor should be 
treated as Project Costs. These commenters maintain that the exclusion 
of Credit Subsidy Costs and administrative fees from Project Cost is 
inconsistent with the treatment of similar costs in commercial project 
financing and in other Federal programs. These commenters also state 
that there is no provision in either FCRA or in OMB Circular No. A-129 
that prohibits the inclusion of these costs in a project's financing 
package. They contend that the inclusion of such fees or costs in the 
financing package neither increases project risk, nor diminishes the 
reasonable prospect of repayment of the loan. (See e.g. NEI at pp. 18-
19; Nuclear Utilities, at p. 18; and FES at p. 2)
    TXU similarly supported the inclusion of Credit Subsidy Costs and 
administrative fees in total Project Costs and supported making them 
eligible, at least in part, for the federal loan guarantee. TXU added 
that total project costs should include 100 percent of the costs to 
bring a plant into commercial operation, including all financing and 
start-up costs. (TXU at 7).
    S&P, however, took a different position from most commenters, and 
asserted that DOE's proposed definition of the project's total costs is 
consistent with general market practice, except that, if projects 
obtain a guarantee from a monoline insurer, the premium paid for such a 
wrap is generally included in the total cost of the project to be 
financed. However, its exclusion here appears consistent with the 
intent of [Title XVII], namely to prevent the subsidy fee itself from 
potentially becoming a taxpayer liability in the event of default. (S&P 
at 2).
    USEC also asserted that Credit Subsidy Costs and administrative 
fees should be counted as Project Costs. USEC's comments also 
identified other costs that should be specifically considered to be 
Project Costs. These include: general and administrative costs; 
performance incentives paid to employees or officers working on the 
project (because the project is benefiting from the increased 
performance); research, development, and demonstration costs that are 
directly related to the project; and expenses incurred after start-up. 
USEC said that by excluding potentially large, post-start-up costs, DOE 
would essentially be requiring an additional equity investment by the 
project sponsor. USEC argued that DOE should allow these costs as part 
of Project Costs and evaluate them on a case by case basis when 
reviewing the economics of a project. (USEC at 6-7).
    Beacon recommended that the final rule allow ``as an option'' the 
inclusion of Credit Subsidy Costs and administrative fees in the 
definition of Project Costs. Beacon said that such costs could pose a 
substantial burden on small businesses and development stage companies 
unless they are included in Project Costs. (Beacon at 1). Goldman Sachs 
also recommended that Project Costs be defined to include Credit 
Subsidy Costs and the administrative cost of issuing a loan guarantee.

[[Page 60127]]

Goldman Sachs further recommended that Project Costs be defined to 
include the costs of administrative services provided by affiliates; 
development expenses; pre-completion operation and maintenance costs; 
and costs of procurement and testing. Project financings, according to 
Goldman Sachs, customarily cover all costs associated with the 
construction of the project, including fees and expenses. To require 
the project sponsor to cover these costs, in Goldman Sachs' view, would 
either eliminate the non-recourse nature of the financing or mean that 
the lenders would have to cover these amounts with a non-guaranteed 
loan. Moreover, whereas the proposed rule states that the loan 
guarantee will cover only principal and interest, Goldman Sachs 
asserted that the loan guarantee should cover all borrower obligations, 
including without limitation default interest and post-petition 
interest, reimbursement of letter of credit drawings, prepayment 
premiums, payments under interest rate hedging agreements, fees, 
expenses, and indemnification payments. Goldman Sachs said this would 
be consistent with the definition of ``obligations'' in project finance 
loan agreements. (Goldman Sachs at 6). Ameren too opposed the NOPR's 
exclusion of certain categories of costs from the definition of Project 
Costs. The NOPR, in Ameren's view, does not explain why the excluded 
categories are less suitable for a guarantee and Ameren said that the 
exclusions are ``not conducive to encouraging innovation.'' (Ameren at 
3-4).
    DOE Response: For any project that is granted a Title XVII loan 
guarantee, the Credit Subsidy Cost and administrative costs charged by 
DOE, are costs that must be paid by the borrower and are necessary 
terms and conditions of receiving the guarantee. As stated in the S&P 
comments, the DOE position is consistent with the intent of Congress to 
require such costs be paid by the borrower. Allowing these fees to be 
included in the Project Costs would increase the amount of debt that 
could be supported by a Title XVII loan guarantee. As funding is 
fungible, allowing the Credit Subsidy and Administrative Costs to be 
financed with the Title XVII loan guarantee could in effect transfer 
these costs to the taxpayer in the event of default. Furthermore, 
consistent with the requirements of Public Law 110-5 and as in the 
NOPR, the final regulations prohibit a Borrower from paying any Title 
XVII Credit Subsidy Cost with funds obtained from the Federal 
government, or from a federally guaranteed loan.
    While some commenters asserted that other Federal agencies permit 
items such as Credit Subsidy Costs or similar expenses and 
administrative fees to be covered by the Federal guarantee issued 
pursuant to their loan guarantee programs, the Credit Subsidy Cost 
under Title XVII reflects the subsidy cost of the loan guarantee, as 
defined in FCRA. It is important to note that this is not comparable to 
the fees cited in comments which may offset, but do not reflect the 
explicit subsidy cost for the individual loan guarantee.
    To the extent commenters recommended other costs that are not 
specifically listed in the final regulations for inclusion in the 
definition of eligible Project Costs, the Department rejects those 
comments. The Department sees no adequate basis for further revising 
the rule's definition of Project Costs except as otherwise provided in 
the final rule.
    However, DOE again stresses, just as it did in the NOPR, that the 
purpose of the Title XVII Loan Guarantee Program is to foster the 
deployment of qualified innovative technologies that would reduce or 
sequester air pollutants or anthropogenic greenhouse gas emissions; it 
is not to assist or support high-risk research into or development of 
new technologies. Nor is it to assist in the ongoing commercial 
operations of successful projects. Therefore, costs related to the 
initial research and development of a new technology or to operating 
costs will not be accepted as Project Costs for purposes of such 
guarantees.

D. Solicitation

    Section 609.3 of the proposed regulations required DOE to issue a 
solicitation to start the process of accepting, reviewing, and 
ultimately granting applications for Title XVII loan guarantees. This 
section also set forth certain minimum requirements for each 
solicitation, including the fees that would be required of persons 
invited to submit Applications and the criteria that the Department 
would use to weigh competing Pre-Applications and Applications and to 
make ultimate selections for loan guarantees. The proposed regulations 
set forth programmatic, technical, and financial factors, including the 
percentage of the loan guarantee requested, to be used by DOE to select 
projects for loan guarantees.
    Public Comments: Several commenters stated that DOE should use a 
``rolling'' or ``open'' application process, as opposed to only 
accepting Applications for a limited time in response to a particular 
solicitation. Commenters from the nuclear industry supported this 
recommendation by pointing to difficulties that may be faced by nuclear 
project sponsors with a project development timetable that does not 
match a DOE solicitation. These commenters also noted that DOE is not 
in a position to assess with precision the market forces that will 
govern the number of new projects potentially eligible for loan 
guarantees, or when those projects will need loan guarantees, and 
contended that other major federal loan guarantee programs--including 
TIFIA, Ex-Im Bank and OPIC--operate with an open or ongoing (rolling) 
application process. (NEI at pp. 28-29; Nuclear Utilities at p. 17)
    The Nuclear Utilities ask that DOE adopt a flexible ``open'' 
application process for large multi-year projects involving more than 
$2 billion and/or 1,000 MW of generating capacity. (Nuclear Utilities 
at p. 17) Citi stated that ``[b]y accepting applications only in 
response to a particular solicitation, the DOE loan guarantee process 
would be unduly prejudicial to projects that happened to have matured 
to produce the required pre-application materials in the narrow 
timeframe of a solicitation.'' Citi requested clarification that DOE 
will accept and review applications for eligible projects at any time 
when sponsors believe that the markets are ready for their investment. 
This allegedly would not preclude DOE from opening or closing the 
program for specific technologies at various times. (Citi at 5). 
Goldman Sachs, Bechtel and USEC likewise recommended an open 
application process but also supported a simplified three-step process 
(application, followed by a conditional commitment, followed by 
negotiation and execution of a loan guarantee agreement). (Goldman 
Sachs at 8, Bechtel at 7, and USEC at 6) (Bechtel at 6-7). Bechtel 
indicated that this three-step process is used by other federal 
agencies. (Bechtel at 7)
    Beacon further recommended that language in proposed Sec.  609.4 
stating that the Pre-Application must meet all requirements in the 
solicitation and in the final rule should be modified by changing 
``must'' to ``should'' or ``is expected to.'' This change would prevent 
pre-applications from automatic disqualification if they are missing 
one item, and would make Sec.  609.4 consistent with Sec.  609.5. 
(Beacon at 3)
    DOE Response: While DOE agrees that an ``open'' or ``rolling'' 
process for Title XVII loan guarantee program applications would give 
applicants greater flexibility in deciding when, or

[[Page 60128]]

if, to submit an application to DOE, adopting such a structure at this 
time would interfere with the Department's ability to select which of 
the technologies that Title XVII makes statutorily eligible for loan 
guarantees should be the focus of any such authority made available by 
Congress. If DOE were to adopt the ``window is always open'' and 
``first come first served'' approach to Title XVII, as some commenters 
appear to advocate, then it is possible that all loan guarantee 
authority provided by Congress at any particular time could be absorbed 
by only one or a few very large projects, to the exclusion of smaller 
projects. This could have the result of the program focusing heavily on 
only certain eligible technologies merely through operation of the rule 
itself. Moreover, there is no certainty that the projects first through 
the application door would be in the areas that either the Department 
or Congress wished to promote at the particular time. DOE should be 
able to tailor loan guarantee availability to particular technologies 
and particular projects that are the most promising and that in the 
Department's judgment will most benefit the Nation. Finally, adopting 
the open application approach could eliminate the Department's ability 
to have projects compete against one another for the available loan 
guarantee authority. Especially in the situation where available 
authority is likely to be insufficient to satisfy all loan guarantee 
requests, DOE believes it is desirable for there to be competition 
among projects for the available loan guarantees, rather than for the 
authority to be used up on a first come first served basis regardless 
of the relative merits of potentially eligible projects.
    At some future time, after substantial experience has been gained 
in the administration of the Title XVII program, it may be appropriate 
and possible for the Department to reconsider this position. In the 
meantime, however, DOE believes it is appropriate to implement the 
program by requiring the Department to issue a solicitation for 
projects, tailored broadly or narrowly as the Department sees fit at 
the time and in light of programmatic objectives.
    The Department thus has decided to adopt a solicitation-based 
approach to the implementation of Title XVII, as was proposed in the 
NOPR. The rule provides that each solicitation must set forth relative 
weighting criteria specifying the factors that will be used to evaluate 
applications and the relative weighting assigned to each criterion. DOE 
has considered, but has decided not to require by rule, competitive 
procedures or requirements to be employed when the Department evaluates 
applications for loan guarantees. As a practical matter, loan guarantee 
applications submitted in response to solicitations will be competing 
against each other for available loan guarantee authority. This enables 
and indeed requires competition to take place by requiring that each 
solicitation set forth relative weighting criteria by which 
applications for loan guarantees will be judged. In that manner, 
applications will not necessarily be ``competed'' one against the 
other, but the evaluation process nonetheless will result in the 
applications being ranked in such a manner that the applications that 
best fulfill statutory and solicitation criteria from the Department's 
perspective will receive higher scores.
    DOE is mindful that certain projects, e.g. nuclear power plants, 
require long lead times prior to the submission of a loan guarantee 
application, but believes that solicitations can be devised and 
tailored to particular technologies that accommodate such long lead 
time requirements consistent with the overarching legislative purpose 
of promoting technologies that further Title XVII policy goals. 
Additionally, DOE does not believe it is appropriate to make the 
language change requested by Beacon to section 609.4 of the final 
regulations. The listed items to be included with Pre-Application 
submissions are intended to be mandatory. However, the Department 
clarifies that a Pre-Application will not necessarily be rejected 
simply because one or even a few items are not in final form when they 
are submitted with the initial Pre-Application submission. The 
Department will exercise reasonable discretion in giving Applicants an 
opportunity to complete their Pre-Application submissions in a timely 
manner within the open period provided by a solicitation. DOE, of 
course, may reject any Pre-Application or Application that it considers 
incomplete.

E. Payment of the Credit Subsidy Cost

    Section 1702(b) of the Act states that: ``No guarantee shall be 
made unless (1) an appropriation for the cost has been made; or (2) the 
Secretary has received from the borrower a payment in full for the cost 
of the obligation and deposited the payment into the Treasury.'' (42 
U.S.C. 16512) Section 20320(a) of P.L. 110-5, however, only authorized 
DOE to accept Credit Subsidy Cost payments from Borrowers to pay the 
full Credit Subsidy Costs of loan guarantees with respect to the $4 
billion in loan guarantee authority authorized by the CR. Moreover, 
DOE's intent continues to be to implement the Title XVII program only 
through the self-pay authority of section 1702(b)(2). As stated in the 
NOPR, DOE interprets section 1702(b) as authorizing either an 
appropriation or payment of the credit subsidy cost in full by the 
Borrower, but Title XVII does not allow and DOE will not allow partial 
payment of the Credit Subsidy Cost by the Borrower with the remainder 
covered by a Congressional appropriation.
    Public Comments: Several commenters recommended a transparent 
formula for the calculation of each project's Credit Subsidy Cost. They 
contend that project sponsors need a reasonably accurate estimate of 
the subsidy cost early in the development process in order to support 
multi-billion dollar investment decisions. Otherwise, project sponsors 
will be forced to engage in lengthy negotiations before they know the 
amount of the Credit Subsidy Costs they will be required to pay, and 
before they can properly assess their interest in the Title XVII 
program. (e.g., Dominion at 9; Southern at 2) For regulated electric 
companies in particular, negotiation with state regulatory bodies 
concerning recovery of project costs arguably will be impossible 
without some reasonable estimate of the Credit Subsidy Cost.
    NEI suggested that DOE develop written guidance providing the 
specific considerations that will enter into the determination of the 
Credit Subsidy Cost for a project and modify the proposed rule to: (1) 
Provide for early disclosure to an applicant of how DOE expects to 
apply those considerations in determining the Credit Subsidy Cost for 
the applicant's project; and (2) afford the applicant an opportunity to 
respond in writing for the purpose of allowing DOE to determine whether 
additional considerations and analysis warrant a re-estimate. (NEI at 
17-18).
    Other commenters seek clarification that when determining subsidy 
costs, DOE and OMB will evaluate the entire risk profile of the 
project, including but not limited to creditworthiness of the project 
and, to the extent of the equity contribution, the project sponsor; the 
Borrower's exposure to market and commodity risks; and the Borrower's 
exposure to vendor cost increases or construction delays. According to 
these commenters, the Department should consider that the more 
creditworthy the project is, the lower the subsidy cost should be. They 
ask that the final regulations recognize that greater equity 
investment, liquidity, and management experience reduce default risk 
and,

[[Page 60129]]

therefore, should result in lower subsidy cost. (NEI at 17-18; and 
Southern at 2)
    JP Morgan maintained that the magnitude of the subsidy cost could 
have a significant impact on a borrower's interest in a loan and a 
lender's willingness to provide the financing. Given the uncertainty of 
the Credit Subsidy Cost calculation, JP Morgan recommended that DOE 
provide borrowers with an option to withdraw their applications upon 
DOE's notification to the borrower of the subsidy cost to be charged. 
Similarly, JP Morgan asserted that lenders should be permitted to 
withdraw any commitments upon notification of the subsidy cost, and 
that DOE's interpretation of Sec.  1702(b) in the NOPR should be 
reconsidered in order to permit borrowers to pay part of the Credit 
Subsidy Costs where there has been a congressional appropriation. (JP 
Morgan at 2)
    USEC asserted that the Credit Subsidy Cost should be small in order 
to ensure repayment (commensurate with other federal loan guarantees). 
Apparently in order to keep the Applicant's share of Credit Subsidy 
Costs small, USEC recommended that DOE seek appropriations for credit 
subsidy costs because the overall purpose of the Title XVII program is 
to foster commercial deployment of new and innovative technologies. 
(USEC at 5). Beacon also maintained that Sec.  609.9(d)(1) of the 
proposed rule should be modified to permit partial self-funding/partial 
appropriation of the Credit Subsidy Cost. Specifically, Beacon 
recommended that DOE should change the parenthetical ``(but not from a 
combination)'' in Sec.  609.9(d)(1) to ``(including a combination)''. 
(Beacon at 6). Ameren, too, contended that the NOPR should be revised 
to allow for the possibility that Congress will appropriate money for 
payment of the Credit Subsidy Cost. Ameren stated that the regulations 
should not always require applicants to pay the Credit Subsidy Costs 
for a guaranteed loan, and encouraged DOE to follow the flexible 
approach used by Ex-Im Bank. (Ameren at 4-5).
    DOE Response: The Department has decided not to alter the proposed 
regulation dealing with the calculation of Credit Subsidy Costs. With 
respect to the issue of transparency, the Department certainly 
understands the need for and importance of a mechanism to allow 
potential participants in the Title XVII program to calculate an 
approximate Credit Subsidy Cost for the loan guarantee they are seeking 
from DOE. The Department currently is working to develop a methodology 
that can be used to calculate the Credit Subsidy Cost for individual 
projects under this program. With respect to the comment indicating 
that the credit subsidy cost should be small, DOE must calculate the 
Credit Subsidy Cost in accordance with the Federal Credit Reform Act. 
DOE will calculate the Credit Subsidy Cost of any loan guarantee on a 
case-by-case basis in accordance with FCRA and OMB Circular A-11. Per 
the definition in FCRA, the credit subsidy cost reflects the net 
present value of estimated payments from the government (e.g. default 
claim payments) and to the government (e.g., recoveries), discounted to 
the point of disbursement. For any project, the terms and conditions of 
the guaranteed debt, the risks associated with the project, and any 
other factor that affects the amount and timing of such cash flows will 
affect the credit subsidy cost calculation. Factors that mitigate risks 
will generally lower the credit subsidy cost. We note that the approach 
used by Ex-Im and recommended by Ameren does not apply here because the 
fees charged by Ex-Im do not reflect the subsidy cost for the loan 
guarantee.
    The Department and the Office of Management and Budget (OMB) 
recognize the value to project sponsors and lenders of knowing the 
earliest reasonable time the appropriate credit subsidy cost for the 
sponsor's desired loan guarantee. The Department and OMB further 
recognize that the two agencies must work together to produce any 
preliminary credit subsidy cost estimate. Accordingly, the Department 
and OMB are committed to making every effort to agree upon and provide 
to project sponsors, at the time a Term Sheet is provided, a 
preliminary credit subsidy cost estimate for the desired loan 
guarantee, based on information available to the Department and OMB at 
that time. The final credit subsidy cost determination can only be made 
at the time of the Loan Guarantee Agreement, and may be different from 
the preliminary credit subsidy cost estimate, depending on project-
specific and other relevant factors including final structure, the 
terms and conditions of the debt supported by the Title XVII guarantee, 
and risk characteristics of the project.
    We note that Applicants are free to withdraw their Applications at 
any time if they find that the Credit Subsidy Cost is more than the 
Applicant is willing to pay. The right of an Applicant to withdraw its 
application does not relieve the Applicant of any obligations to DOE at 
the time of the withdrawal (including, for example, the payment of 
outstanding or accrued administrative fees).
    On the other hand, we do not agree that lenders in all 
circumstances should similarly be permitted to withdraw their 
commitments upon notification of the Credit Subsidy Cost, as 
recommended by some commenters. The rights of lenders to withdraw will 
turn on the nature of the commitment that the lender has given to the 
Borrower.
    We also reject the recommendation that Applicants should be able to 
make partial payment of the Credit Subsidy Cost and rely on 
appropriations for the remainder of the Credit Subsidy Cost for a 
particular project. As indicated in the NOPR, DOE interprets section 
1702(b)(2) of the Act as not permitting partial payment of the Credit 
Subsidy Cost by the Borrower, with the remainder coming from an 
appropriation. DOE believes the statutory language is clear in that 
regard, but even if it were determined to be ambiguous, DOE would 
exercise its policy discretion to interpret the statutory provision in 
the manner set forth herein. Consequently, DOE adheres to the 
interpretation of this provision set forth in the NOPR, and retains in 
the final rule the all or none principle with respect to the payment of 
Credit Subsidy Costs, unless otherwise provided by statute. The 
Department notes that the final rule does not prohibit the use of 
appropriations to pay for those Credit Subsidy Costs--indeed, Title 
XVII explicitly allows that. But DOE has no current intention to seek 
appropriations to pay Credit Subsidy Costs for any projects.

F. Assessment of Fees

    Section 1702(h) of the Act requires DOE to ``charge and collect 
fees for guarantees'' to cover the administrative cost of issuing a 
Loan Guarantee. Proposed sections 609.6, 609.8, and 609.10 provided 
that DOE would collect fees for administrative expenses covering all 
phases of an Eligible Project. As defined in proposed section 609.2, 
these fees consist of the administrative expenses that DOE incurs 
during: (1) The evaluation of both the Pre-Application, if a Pre-
Application is requested in a solicitation, and the Application for a 
loan guarantee; (2) the offering of a Conditional Commitment, the 
execution of the Term Sheet, and the negotiation and closing of a Loan 
Guarantee Agreement; and (3) the servicing and monitoring of the Loan 
Guarantee Agreement, including during construction, start-up, 
commissioning, shakedown, and the operational phases of an Eligible 
Project.

[[Page 60130]]

    Public Comments: Several commenters stated that administrative fees 
should be known, quantified, and/or fixed at the time an application is 
submitted to DOE. Beacon, for example, recommended that all fees should 
be quantified in advance as a percentage of the loan amount or in a 
formula based on the loan amount, and said DOE should make a conforming 
change to the proposed rule. Beacon commented that knowing the basis of 
fee amounts arguably would facilitate the calculation of project costs 
and alleviate the burden of cost uncertainties on small businesses and 
development stage companies. (Beacon at 1). Ameren sought clarification 
as to how DOE anticipates recovering the costs associated with 
evaluation of Pre-Applications that progress no farther in the process. 
Ameren asserted that the costs should be borne by DOE rather than from 
funds made available for the issuance of loan guarantees. Ameren stated 
that ``[i]t would be inappropriate to reduce funds specifically 
appropriated for loan guarantees to cover Department administrative 
expenses that the Department has chosen to bear.'' (Ameren at 5-6).
    DOE Response: DOE recognizes the concern of several commenters on 
the advantages of a well-understood formula for calculating 
administrative fees. The Department may at some future time take action 
with respect to administrative fees but is not doing so now. The fees 
are intended to recover only DOE's administrative costs in managing the 
Loan Guarantee Program. A fee schedule will be published by DOE in the 
near future.
    We reject Ameren's recommendation that the costs of administering 
the Loan Guarantee Program should be borne by DOE. Section 1702(h) of 
the Act calls for DOE to ``charge and collect fees * * * sufficient to 
cover applicable administrative expenses'' of the Title XVII program. 
Therefore, while DOE does have discretion to determine which 
administrative expenses should be properly deemed ``applicable'' to 
this program and/or to particular applications and thus recovered from 
program applicants or participants, the Department certainly is not 
free to determine that it will recover none of its administrative costs 
from applicants or participants and, instead, fund the costs of the 
program through appropriations from Congress.

G. Eligible Lenders and Servicing Requirements

    The NOPR stated that participating Eligible Lenders or other 
servicers must meet certain eligibility, monitoring, and performance 
requirements. These requirements, which were set forth in sections 
609.2 and 609.11 of the proposed regulations, were intended to ensure 
that the Eligible Lender or other servicer had the financial 
wherewithal and appropriate experience and expertise to meet its 
fiduciary obligations in connection with the debt guaranteed by DOE. 
Section 609.10(g) of the proposed regulations also provided that a 
lender must provide written notification to DOE prior to the assignment 
or transfer of any portion of a Guaranteed Obligation.
    Public Comments: TXU stated that ``[a]ny lender providing debt 
capital to a project on a limited recourse basis would be performing an 
exhaustive due-diligence process, using appropriate expertise to 
analyze the risks.'' TXU asserted, therefore, that the duty of care 
specified in the regulations is unnecessarily duplicative of the 
process that the lender will use irrespective of the Department's 
involvement as guarantor. Additionally, TXU contended that any specific 
duties such as notice requirements should be assigned to an 
Administrative Agent or Lending Agent and that debt held by other 
lenders should be freely marketable without administrative burden on 
all lenders. (TXU at 8). WMPI Pty., LLC (WMPI) recommended that DOE 
revise the requirements proposed for lenders to take into account that 
eligible projects are more likely to be financed in capital markets by 
a group of bondholders through a public offering than by a single 
lender. Specifically, WMPI pointed out that a commitment letter would 
not be issued where there is a bond issuance and recommended that DOE 
recognize this fact in the final rule. WMPI also asserted that the 
final regulations should be revised to take account of the fact that 
interest charges and repayment schedules are not known in advance of a 
bond sale and, therefore, regulations calling for copies of loan 
documents containing all of the terms and conditions of the loan, 
including interest charges and principal repayment schedules, will be 
inapplicable if the financing is done through a bond public offering. 
(WMPI at 11-13).
    Beacon recommended that the language ``including a qualified 
retirement plan, or governmental plan'' be deleted from the definition 
of Eligible Lender in proposed section 609.11(a)(1) because small 
businesses and development stage companies may need to approach 
financial institutions that may not have the specified plans. Beacon 
also recommended the entirety of proposed section 609.11(a)(6) be 
deleted. That language would require eligible lenders to have 
experience as the lead lender or underwriter by presenting evidence of 
its participation in other energy-related projects. Beacon maintains 
that this requirement is unduly restrictive because not many lenders 
have such experience and it is also generally irrelevant since the loan 
guarantee program is limited to new or significantly improved 
technologies. (Beacon at 7).
    Goldman Sachs asserted that, except for certain critical 
requirements (e.g., eligible lenders are disqualified if they have been 
disbarred from participation in a Federal government contract), the 
provisions in the NOPR regarding the eligible lender should apply only 
to the lead lender. This is necessary, Goldman Sachs argued, because 
only a small number of lenders will be able to meet the standards set 
forth in the NOPR, e.g., will have the experience originating and 
servicing loans similar in size and scope to the projects that will be 
the subject of loan guarantee applications; or be able to demonstrate 
experience as the lead lender in other energy-related projects. 
Particularly as regards the expected financing needs of nuclear power 
projects, Goldman Sachs maintained that the potential lending pool 
should be kept as large as possible. (Goldman Sachs at 8).
    DOE Response: The Department endorses the idea of maximizing the 
pool of Eligible Lenders and of allowing the use of loan servicers that 
may not be Eligible Lenders but that otherwise meet all applicable 
standards.
    In addition, in response to comments that DOE finds persuasive, the 
Department has eliminated proposed section 609.11(a)(1) from the final 
rule. Furthermore, while DOE rejects Beacon's suggestion that the 
Department delete the entirety of section 609.11(a)(6) of the proposed 
regulations, we did expand the definition. While it is arguably true 
that the pool of servicers might be increased even further if section 
609.11(a)(6) were completely eliminated, deletion of this provision 
altogether would not be consistent with DOE's desire to establish a 
program where there was a reasonable assurance of repayment in 
connection with guaranteed loans. We note, however, that in the final 
rule, section 609.11(a) and (b) do not apply to a loan servicer unless 
the servicer is also the Eligible Lender.
    In response to WMPI's comments, DOE believes that today's final 
rule is flexible enough to support bond financing. Among other things, 
the definition of ``Holder'' is sufficiently

[[Page 60131]]

broad to cover the issuers of that type of debt.

H. Federal Credit Reform Act of 1990 (FCRA)

    FCRA provides that for any federal credit program, new direct loans 
and loan guarantees may not be made unless authority has been provided 
in advance in appropriations act(s). See 2 U.S.C. 661c(b). Title XVII 
authorizes the issuance of loan guarantees where the credit subsidy 
cost, calculated in accordance with FCRA, is paid either through 
appropriations or by the borrower receiving the loan guarantee from the 
Department. On February 15, 2007, Public Law 110-5 was enacted. That 
statute provides DOE with the necessary authority, consistent with FCRA 
and section 1702, to guarantee in the aggregate up to $4 billion in 
loans for Title XVII projects. The authority to issue guarantees, 
however, was limited to Borrowers who pay the applicable Credit Subsidy 
Cost. No general funds are available to pay Credit Subsidy Costs.
    Public Comments: A number of commenters questioned DOE's view that 
authority in an appropriations act is needed for the issuance of Title 
XVII loan guarantees. These commenters pointed to a statement by the 
Government Accountability Office (GAO) that Title XVII itself provides 
adequate authority for DOE to issue loan guarantees without the need 
for any additional authority in an appropriations act, provided DOE 
employs the Title XVII ``self-pay'' authority. Specifically, by letter 
dated April 20, 2007, GAO indicated its belief that because Title XVII 
allows for Credit Subsidy Costs to be covered by appropriations or by a 
payment from the borrower, where the recipient of a loan guarantee 
fully funds the Credit Subsidy Cost for its loan guarantee, no 
appropriations act authority should be required. Some commenters added 
that if DOE plans to adhere to the view that appropriations act 
authority is required for all Title XVII loan guarantees, it must seek 
and obtain an amendment to Title XVII or sufficient appropriations act 
authority to allow the Title XVII loan guarantee program to succeed.
    DOE Response: The Department does not interpret section 1702(b) of 
the Act as providing either budget authority or other authority to make 
any individual loan guarantee, as is required by FCRA. Instead, DOE 
reads the Act and FCRA in harmony, which means that while Title XVII 
authorizes DOE to carry out the loan guarantee program, the Department 
may not issue any loan guarantees until it has received budget 
authority or is otherwise provided authority to make guarantees in an 
appropriations act. While the Act authorizes payment from a borrower as 
an alternative source of funding, any such alternative source of 
funding does not relieve DOE from the necessity of obtaining authority 
in an appropriations act for the issuance of any loan guarantees, even 
in cases where the Credit Subsidy Cost will be paid by the borrower or 
project sponsor and no appropriations are used to pay such costs. 
Congress acted consistent with this interpretation of Title XVII and 
section 504 of FCRA when, in section 20320 of Public Law 110-5, it 
authorized a $4 billion loan guarantee limitation and required the use 
of the self-pay authority of Title XVII for the loan guarantee 
authority provided by Public Law 110-5.
    In the absence of the Title XVII authorization for DOE to receive 
borrower-paid funds to pay for the Credit Subsidy Cost of a particular 
loan guarantee, DOE would not have the ability to defray the Credit 
Subsidy Costs for loan guarantees in that manner. Title XVII clearly 
authorizes those costs to be covered either with appropriated funds or 
with borrower paid funds. Furthermore, Title XVII and FCRA, read 
together, require DOE to obtain authority in an appropriations act to 
issue loan guarantees, even when employing the Title XVII self-pay 
authority.
    Section 20320 of Public Law 110-5 does three things: (1) It 
provides a loan guarantee volume limitation of $4 billion; (2) it 
requires that borrower self-pay the Credit Subsidy Cost; and (3) it 
prohibits the use of general fund appropriations for such costs. In 
enacting Public Law 110-5, Congress acted consistently with the 
Administration's view that authority in appropriations acts is required 
in advance before a loan guarantee can be issued. Therefore, for the $4 
billion authorized by Public Law 110-5, DOE will implement the program 
with self-pay authority. Furthermore, DOE intends to continue to 
implement the Title XVII program through the self-pay authority 
provided by the Act and has no current intention to seek appropriations 
to pay Credit Subsidy Costs for any project.

I. Default and Audit Provisions

    Title XVII, sections 1702(g) and 1702(i), require DOE to promulgate 
regulations to address default and audit requirements (42 U.S.C. 
16512(g), (i)). Sections 609.15 and 609.17 of DOE's regulations, 
respectively, address these requirements. These provisions will apply 
to all loan guarantees issued under the Title XVII program.
    Public Comments: USEC expressed concern that the Department's 
assertion of audit authority could be interpreted as requiring 
application of the Federal Acquisition Regulations (FAR). (USEC at 6) 
Other parties were concerned that after-the-fact audits could reduce 
the amount of project costs and the extent of the guarantee coverage. 
According to Bechtel, in particular, such a requirement would make the 
guarantee a conditional commitment. (Bechtel at 5-6) These parties 
pointed out that in project financing, an independent engineer is 
customarily used to review and certify costs prior to each loan 
disbursement and they recommended this approach be adopted in DOE's 
regulations. In Bechtel's view, once a disbursement is made, the 
guarantee should be unconditional and not subject to reduction in a 
post-disbursement audit. (Bechtel at 5-6).
    Goldman Sachs recommended that the final rule clearly provide for 
the guarantee to be available in the case of defaults other than non-
payment of principal and interest without the need for a DOE 
determination of material effect. Goldman Sachs maintained that as 
proposed, the rule would prevent lenders from making a demand on the 
guarantee in the case of defaults other than non-payment of principal 
and interest unless DOE agrees, and would potentially decrease the pool 
of lenders willing to participate. Goldman Sachs also recommended the 
adoption of a ``well-defined, market-based, and court-tested'' 
mechanism for handling default and suggested that DOE look to the 
monoline insurance market which provides credit enhancement to capital 
markets transactions. (Goldman Sachs at 4-5)
    DOE Response: DOE clarifies that the final rule and the Title XVII 
loan guarantee program are not subject to the FAR. The Department also 
clarifies that the audit provisions do not render the loan guarantees 
conditional, but that the need to retain audit authority is necessary 
to prevent fraud and abuse and should in no way be construed as 
limiting the enforceability of the Title XVII Loan Guarantee.
    DOE does not accept Goldman Sachs' recommendation that DOE give up 
its right to approve claims on the guarantees in the event of defaults 
for circumstances other than non-payment of principal and interest. 
Inasmuch as DOE likely will be the largest risk taker in any project 
receiving a Title XVII guarantee, the Department is not being 
unreasonable in insisting that it have a say about what event can 
accelerate

[[Page 60132]]

payments under the Loan Guarantee Agreement.
    However, the Department has revised section 609.15(e), which 
requires lenders to provide supporting documentation to justify a 
payment demand, to specify that requirements will be provided in the 
Loan Guarantee Agreement. Also, DOE clarifies that proposed section 
609.15(b) is not intended and should not be read to preclude demands 
for failure to pay principal and interest where there has been a 
default other than a payment default. A non-payment default can become 
a payment default if such default is not cured within the time 
specified in the Loan Guarantee Agreement and the debt is accelerated 
and thus causes the entire amount of the loan to become immediately due 
and payable. DOE will retain the audit provision in section 609.17(b) 
which permits DOE, in the course of conducting an audit, to exclude 
from or reduce project costs that are determined to be unnecessary or 
excessive. As indicated above, such an audit provision is necessary in 
order to protect the Federal government against the possibility of 
fraud or abuse.

J. Tax Exempt Debt

    Section 103(a) of the Internal Revenue Code (IRC), 26 U.S.C. 
103(a), provides that ``gross income'' does not include interest on any 
state or local bond, with certain exceptions. Section 149(b) of the 
IRC, 26 U.S.C. 149(b), provides that the section 103(a) exclusion from 
gross income ``shall not apply to a state or local bond if such bond is 
federally guaranteed.'' Section 149(b) in effect converts tax exempt 
debt to taxable debt when such debt is guaranteed by the Federal 
government. Accordingly, DOE proposed in section 609.10 of the NOPR to 
prohibit the Department from directly or indirectly guaranteeing tax 
exempt obligations.
    Public Comments: The Nuclear Utilities stated that section 609.10's 
prohibition against issuing any loan guarantees that finance directly 
or indirectly any tax exempt debt is unnecessarily broad, and appears 
to establish new policy that negates provisions of current law on tax 
exempt financing. The Nuclear Utilities focused on several exceptions 
in 26 U.S.C. 149(b)(3)(A), which permit loan guarantees to apply to tax 
exempt debt obligations under certain conditions, and request that the 
final rule provide that loan guarantees may be issued for debt 
obligations if they qualify under such a statutory exception in 
existence at the time of loan guarantee agreement is executed. 
Specifically, they request that the prohibition in section 609.10(d)(7) 
of the NOPR should be amended by adding the proviso, ``unless such debt 
obligations fall within one of the exceptions enumerated in 26 U.S.C. 
149(b)(3)(A), or other similar law.'' (Nuclear Utilities at 15).
    Bechtel recommended the deletion of the proposed requirement that 
prior to the execution of the loan, DOE must ensure that the guarantee 
does not finance tax exempt debt because it might exclude many 
municipal and cooperative electric utility companies that rely heavily 
on tax exempt financing. (Bechtel at 6). CPS sought elimination of the 
prohibition on grounds that it is duplicative of IRC section 149(b). 
(CPS at 3)
    DOE Response: The prohibition on municipalities issuing tax-exempt 
obligations that are also guaranteed by the Federal government is set 
forth in Federal law, and DOE cannot change the statutory prohibition, 
regardless of whether or not a similar prohibition is expressed in 
Title XVII regulations. DOE believes, however, that in the interests of 
clarity and completeness, the rule should contain such a prohibition. 
Nonetheless, we are persuaded that the prohibition in the final rule 
should be expressly coextensive with the statutory prohibition such 
that any statutory exceptions in effect at the time that a guarantee is 
issued will also be deemed exceptions from the regulation, because it 
is not DOE's intent to prohibit by rule, except to the extent 
prohibited by statute, loan guarantees from being issued for projects 
employing tax exempt debt. We have modified section 609.10(d)(7) of the 
final rule accordingly.

K. Full Faith and Credit

    Section 609.14 of the proposed regulations provided that the full 
faith and credit of the United States would be pledged to the payment 
of all Guaranteed Obligations. It further provided that the guarantee 
shall be conclusive evidence that it has been properly obtained, that 
the underlying loan qualified for the guarantee, and that but for fraud 
or material misrepresentation by the Holder, is presumed to be valid, 
legal, and enforceable. DOE stated that it maintains a strong interest 
in ensuring that the debt incurred in order to finance innovative 
projects can be financed and sold in secondary markets.
    Public Comments: The commenters addressing this issue stressed the 
need to ensure that the guarantees issued by the Department are 
completely unconditional and obtain a ``AAA'' credit rating. The 
Investment Bankers focused on several provisions that appear to weaken 
the unconditional nature of the guarantee. For example, the NOPR sought 
to impose on Eligible Lenders a duty of care and other duties that are 
arguably more onerous than is required in commercial markets and in 
other Federal loan guarantee programs. According to the Investment 
Bankers, these provisions make the guarantee conditional and put 
lenders at risk disproportionate to any potential returns, especially 
in the case of collateral agents or other agents who receive minimal 
fees for such functions. The Investment Bankers contend that these 
provisions will further reduce interest in the lender community in this 
program and, therefore, the availability of financing. (Investment 
Bankers at 2). Citi, in addressing the need for a ``AAA'' credit 
rating, argued that the exception for fraud or material 
misrepresentation by the holder of the guarantee, as proposed in the 
NOPR, is not necessary. (Citi at 4).
    DOE Response: Subject only to fraud or material misrepresentation 
by the Holder, the guarantee is absolute. For the reasons discussed 
elsewhere in this preamble in connection with the Department's 
authority to conduct audits, we reject the argument of Citi and the 
Investment Bankers that the right to audit for fraud or abuse is 
unnecessary or would compromise the unconditional nature of Title XVII 
loan guarantees. The right to audit is vital to the Department's effort 
to protect against fraud or abuse and to protect the government and the 
taxpayer; in any event, Title XVII requires the Department to have 
regulations addressing audit requirements. DOE also does not agree that 
the duty of care required of Eligible Lenders is too strict. These 
standards and the duty of care required of Eligible Lenders, as 
proposed in the NOPR, do not compromise the unconditional nature of the 
guarantees but are intended to support the government's need to assure 
a reasonable prospect of repayment. So, these requirements should not 
in any sense restrict or reduce the viability of the Title XVII 
program.

L. Responses to August 2006 Solicitation

    In the NOPR, DOE proposed that in order to ensure that the 
Department complies with Public Law 110-5 but does not prejudice Pre-
Applicants that responded to the First Solicitation, the Title XVII 
regulations should specify that they do not apply to the Pre-
Applications, Applications, Conditional Commitments, and Loan Guarantee 
Agreements issued or entered into pursuant to the First Solicitation. 
The

[[Page 60133]]

only exceptions would be with respect to the default, recordkeeping, 
and audit requirements in proposed sections 609.15 and 609.17, which 
Title XVII requires be established by rule. The NOPR also proposed to 
permit DOE and an Applicant to agree in a Loan Guarantee Agreement 
entered into pursuant to the First Solicitation that additional 
provisions of DOE's regulations would apply to the particular project.
    Public Comments: Synergistic Dynamics, Inc. (Synergistic) submits 
that DOE's proposed waiver of regulatory requirements for the Pre-
Applications received in response to the First Solicitation will 
prejudice subsequent applicants who fully comply with the final 
regulations. The only other comment DOE received on this aspect of the 
NOPR was a letter submitted by two members of Congress, which asserted 
that DOE's proposal was not consistent with Congress's intent in Public 
Law 110-5, which required that DOE promulgate final regulations before 
issuing any loan guarantees under the Title XVII program. (Synergistic 
at 3)
    DOE Response: The final rule generally adopts the approach set 
forth in the NOPR, but specifies additional provisions of the 
regulations that will be applicable to all pre-applications, 
applications, and loan guarantees, including those under the First 
Solicitation. The Department still believes it is important not to 
prejudice Pre-Applicants who responded to the First Solicitation. For 
example, the final rule establishes requirements for Title XVII 
solicitations that are not consistent with the content of the August 
2006 First Solicitation issued by DOE, and if all provisions of the 
final rule were made to apply to the First Solicitation and the 
submissions in response to it, it is difficult to see how DOE could 
proceed other than to reject all of the Pre-Applications that were 
submitted and start the program over from scratch. The Department and 
the Pre-Applicants have spent too much time responding to the First 
Solicitation to throw that work away and start over.
    At the same time, many portions of the final rule can be fairly 
applied to those entities that responded to the First Solicitation, and 
the process of considering those responses is at a stage where many of 
the final rule's requirements can and should be made to apply to them. 
In fact, the Department believes that it will benefit both Pre-
Applicants and the Department to make additional provisions of this 
rule applicable to them. Because, as DOE noted in the NOPR, section 
20320 of Public Law 110-5 does not state whether or to what extent the 
final rules that Public Law 110-5 requires to be issued must apply to 
any matters in connection with the First Solicitation, DOE therefore 
must make a policy judgment about the extent to which this final rule 
should be so applicable.
    In section 609.1 of the final rule, DOE specifies which sections of 
the regulations are not applicable to Pre-Applicants and projects being 
considered in response to the First Solicitation. Except as specified 
in that section, these regulations apply to all projects and loan 
guarantees pursuant to Title XVII, including those pursuant to the 
First Solicitation.

M. Other Issues Raised in the Public Comments

1. Non-Recourse Financing.
    The NOPR proposed to require the borrower to pledge all project 
assets and other collateral to obtain a loan guarantee. 
(609.10(d)(10)). Some commenters sought clarification that in the event 
of default, the loan guarantee is non-recourse, i.e., liquidation or 
sale of assets after default is limited to project assets pledged as 
collateral. The commenters noted that a sponsor may, at its discretion, 
offer other collateral to reduce the cost of the subsidy and that this 
is the substance of the collateral pool that lenders would and will 
require in a limited-recourse financing. However, one commenter 
observed that in such a collateral pool, the government would be in a 
second lien position until it paid, in part or in whole, the project 
loans--at which time the government would subrogate to a first lien 
position. (TXU at 6).
    Pursuant to the final rule and Title XVII itself, loan guarantees 
will be secured by all project assets, including, contracts, 
agreements, and other pledged collateral. Other than pledged project 
assets and other pledged collateral, however, the loan guarantee is 
non-recourse as to all persons and entities. The issue of lien position 
is discussed elsewhere in this preamble.
2. Timeline for Processing Application.
    P&W recommended that in order for an Applicant to effectively plan 
its project development life cycle, DOE should clearly define a 
timeline for application processing and loan awards. P&W said there are 
sensitivities around time to market that might preclude engagement with 
the loan guarantee program if the timeline moves too slowly. (P&W at 
3). Dominion asked DOE to consider offering priority processing to 
applicants that wish to enter into loan guarantees of shorter terms 
than the statutorily allowed maximum, because a reduced loan guarantee 
term reduces risk to the government, and contended that priority 
processing of such lower risk projects would further the President's 
Advanced Energy Initiative. (Dominion at 4).
    The Department believes that given the breadth, diversity, and 
innovative nature of the technologies that are potentially eligible for 
Title XVII loan guarantees and for which loan guarantees will be 
sought, it is not feasible at this point to establish by rule firm 
timelines for the processing of applications. This issue may be 
revisited at some point in the future, after DOE and participants have 
gained more experience with the program. The Department may, in the 
context of a particular solicitation, establish specific timelines for 
various phases of the application and consideration process for that 
solicitation. DOE also is not persuaded that it should attempt, in 
these regulations, to provide a sort of higher priority in the 
processing or granting of loan guarantees for potentially lower risk or 
reduced loan term applications. Such a rule might be inconsistent with 
particular Departmental objectives if DOE wished to focus a particular 
solicitation on high-risk technologies. Moreover, it likely would be 
difficult, early in the process of reviewing an application, to 
determine with any certainty which applications presented lower risk 
than others.
    As for the issue of shorter-term loans--for example, loans that 
only have a five-year term, or on which the DOE guarantee expires after 
five years, the term may or may not weigh into the consideration of the 
application. DOE does not believe it is appropriate to provide by rule 
for priority processing of requests for shorter-term guarantees. In 
individual solicitations, the Department may set forth priorities for 
processing applications, consistent with the final rule.
3. Conditional Commitment
    Section 609.8(c) of the NOPR provided in part that ``[w]hen and if 
all of the terms and conditions specified in the Conditional Commitment 
have been met, DOE and the Applicant may enter into a Loan Guarantee 
Agreement, but neither party is legally obligated to do so.'' (emphasis 
added) The Nuclear Utilities stated that DOE should allow flexibility 
in the type of ``commitment'' provided by the Department in advance of 
the planned financial close of guaranteed debt. (Nuclear Utilities at 
18). On the other hand, TXU stated that once the Sponsor submits the

[[Page 60134]]

Application package, DOE should issue a Conditional Commitment and, as 
long as the sponsor meets all of the conditions set forth in the 
Commitment, the sponsor should be assured that the federal loan 
guarantee will be forthcoming. According to TXU, the need for assurance 
that a guarantee will be issued where all conditions are met is 
essential because the costs of securing a guarantee, providing all the 
necessary documents, licenses and permits, etc., could cost in the 
hundreds of millions of dollars, especially in the case of nuclear 
plants or other capital intensive projects. TXU maintained that 
following the preliminary application stage, a sponsor should not have 
to be concerned about making these expenditures and not receiving a 
federal guarantee unless the sponsor fails to fulfill all the 
conditions precedent to the loan program. (TXU at 8-9).
    DOE agrees with the concerns expressed, and therefore has revised 
sections 609.2 and 609.8 to indicate that a Conditional Commitment is 
an agreement to pursue the execution of a Loan Guarantee Agreement. The 
Secretary may terminate a Conditional Commitment for any reason at any 
time prior to execution of the Loan Guarantee Agreement. To ensure that 
no Conditional Commitment binds DOE to enter into a Loan Guarantee 
Agreement without both adequate legal authority to do so and payment 
into the Treasury of required fees and costs, the final rule provides 
that DOE's obligations under each Conditional Commitment are 
conditional upon Congress having provided in advance of the execution 
of the loan guarantee sufficient authority under FCRA and Title XVII 
for DOE to execute the Loan Guarantee Agreement, and either an 
appropriation has been made or a borrower has paid into the Treasury 
sufficient funds to cover the full Credit Subsidy Cost for the loan 
guarantee that is the subject of the Conditional Commitment. These 
conditions are made applicable by rule to each Conditional Commitment, 
and are applicable whether or not they are specifically stated in the 
text of a Conditional Commitment.
4. Restrictions on the Transferability of Guaranteed Obligations
    Goldman Sachs recommended that the final rule not include 
restrictions on transferability of guaranteed loans, and that DOE 
clarify that the provisions regarding the eligible lender apply only to 
the lead lender. Goldman Sachs said that section 609.10(g)(1) of the 
proposed rule, which would have required the eligible lender to provide 
written notification of any assignment, transfer, pledge, or use of a 
guaranteed obligation, renders such actions subject to DOE consent are 
not practical because the lead lender will need to assign and/or 
participate the loans to a large number of institutions very quickly. 
This flexibility is particularly important, according to Goldman Sachs, 
given the significant capital needed for construction of a nuclear 
power facility and the need for lenders in the secondary market for the 
ability to freely trade their loans. Bank of America Securities, LLC 
(BOA) also objected to this section. (BOA at 8)
    The Department has an interest in ensuring that any Guaranteed 
Obligation presented to it for payment is valid. Accordingly, revised 
section 609.10(g) states that DOE will provide in the Loan Guarantee 
Agreement and related documents, procedures for identifying Holders of 
the Guaranteed Obligations, including for the purpose of payments 
pursuant to the guarantee in the event of default.

III. Regulatory Review

A. Executive Order 12866

    Today's final rule has been determined to be a significant 
regulatory action under Executive Order 12866, ``Regulatory Planning 
and Review,'' 58 FR 51735 (October 4, 1993). Accordingly, this action 
was subject to review under that Executive Order by the Office of 
Information and Regulatory Affairs at Office of Management and Budget 
(OMB).

B. National Environmental Policy Act of 1969

    Through the issuance of this rule, DOE is making no decision 
relative to the approval of a loan guarantee for a particular proposed 
project. DOE has, therefore, determined that publication of the final 
rule is covered under the Categorical Exclusion found at paragraph A.6 
of Appendix A to Subpart D, 10 CFR part 1021, which applies to the 
establishment of procedural rulemakings. Accordingly, neither an 
environmental assessment nor an environmental impact statement is 
required at this time. However, appropriate NEPA project review will be 
conducted prior to execution of a Loan Guarantee Agreement.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis for any rule 
that by law must be proposed for public comment, unless the agency 
certifies that the rule, if promulgated, will not have a significant 
economic impact on a substantial number of small entities. As required 
by Executive Order 13272, ``Proper Consideration of Small Entities in 
Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE published 
procedures and policies on February 19, 2003, to ensure that the 
potential impacts of its rules on small entities are properly 
considered during the rulemaking process (68 FR 7990). DOE has made its 
procedures and policies available on the Office of the General 
Counsel's Web site: http://www.gc.doe.gov.
    DOE is not obliged to prepare a regulatory flexibility analysis for 
this rulemaking because there is no requirement to publish a general 
notice of proposed rulemaking for rules related to loans under the 
Administrative Procedure Act (5 U.S.C. 553).

D. Paperwork Reduction Act

    Sections 609.4 and 609.6 of this rule provide that Pre-Applications 
and Applications for loan guarantees submitted to DOE in response to a 
solicitation must contain certain information. This information will be 
used by DOE to determine if a project sponsor who submits a Pre-
Application will be invited to submit an Application for a loan 
guarantee; to determine if a project is eligible for a loan guarantee; 
and to evaluate Applications under criteria specified in the rule. 
Section 609.17 provides that borrowers must submit to DOE annual 
project performance reports and audited financial statements along with 
other information. DOE will use this information to evaluate the 
progress of projects for which loan guarantees are issued. DOE 
submitted this collection of information to OMB for approval pursuant 
to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and the 
procedures implementing that Act, 5 CFR 1320.1 et seq. OMB approved 
this collection of information and assigned it OMB Control No. 1910-
5134.

E. Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (Act) (2 
U.S.C. 1531 et seq.) requires each federal agency, to the extent 
permitted by law, to prepare a written assessment of the effects of any 
federal mandate in an agency rule that may result in the expenditure by 
state, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. The Act also requires a Federal agency to 
develop an effective process to permit timely input by elected 
officials of State,

[[Page 60135]]

tribal, or local governments on a proposed ``significant 
intergovernmental mandate,'' and requires an agency plan for giving 
notice and opportunity to provide timely input to potentially affected 
small governments before establishing any requirements that might 
significantly or uniquely affect small governments.
    The term ``federal mandate'' is defined in the Act to mean a 
federal intergovernmental mandate or a federal private sector mandate 
(2 U.S.C. 658(6)). Although the rule will impose certain requirements 
on non-federal governmental and private sector applicants for loan 
guarantees, the Act's definitions of the terms ``federal 
intergovernmental mandate'' and ``federal private sector mandate'' 
exclude, among other things, any provision in legislation, statute, or 
regulation that is a condition of Federal assistance or a duty arising 
from participation in a voluntary program (2 U.S.C. 658(5) and (7), 
respectively). Today's rule establishes requirements that persons 
voluntarily seeking loan guarantees for projects that would use certain 
new and improved energy technologies must satisfy as a condition of a 
federal loan guarantee. Thus, the rule falls under the exceptions in 
the definitions of ``federal intergovernmental mandate'' and ``federal 
private sector mandate'' for requirements that are a condition of 
Federal assistance or a duty arising from participation in a voluntary 
program. The Act does not apply to this rulemaking.

F. Treasury and General Government Appropriations Act, 1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any proposed rule that may affect family 
well being. This rule would not have any impact on the autonomy or 
integrity of the family as an institution. Accordingly, DOE has 
concluded that it is not necessary to prepare a Family Policymaking 
Assessment.

G. Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999) 
imposes certain requirements on agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. Agencies are required to examine the constitutional and 
statutory authority supporting any action that would limit the 
policymaking discretion of the States and carefully assess the 
necessity for such actions. DOE has examined this rule and has 
determined that it would not preempt State law and would not have a 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government. No further 
action is required by Executive Order 13132.

H. Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by section 3(a), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) Clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. DOE has completed the 
required review and determined that, to the extent permitted by law, 
this rule meets the relevant standards of Executive Order 12988.

I. Treasury and General Government Appropriations Act, 2001

    The Treasury and General Government Appropriations Act, 2001 (44 
U.S.C. 3516 note) provides for agencies to review most disseminations 
of information to the public under guidelines established by each 
agency pursuant to general guidelines issued by OMB.
    OMB's guidelines were published at 67 FR 8452 (February 22, 2002), 
and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). 
DOE has reviewed today's final rule under the OMB and DOE guidelines 
and has concluded that it is consistent with applicable policies in 
those guidelines.

J. Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001) requires Federal agencies to prepare and submit to the 
OMB, a Statement of Energy Effects for any proposed significant energy 
action. A ``significant energy action'' is defined as any action by an 
agency that promulgated or is expected to lead to promulgation of a 
final rule, and that: (1) Is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use. Today's regulatory 
action would not have a significant adverse effect on the supply, 
distribution, or use of energy and is therefore not a significant 
energy action. Accordingly, DOE has not prepared a Statement of Energy 
Effects.

K. Congressional Notification

    As required by 5 U.S.C. 801, DOE will submit to Congress a report 
regarding the issuance of today's final rule prior to the effective 
date set forth at the outset of this notice. The report will state that 
it has been determined that the rule is not a ``major rule'' as defined 
by 5 U.S.C. 804(2).

L. Approval by the Office of the Secretary of Energy

    The Secretary of Energy has approved the issuance of this final 
rule.

List of Subjects in 10 CFR Part 609

    Administrative practice and procedure, Energy, Loan programs, and 
Reporting and recordkeeping requirements.

    Issued in Washington, DC, on October 12, 2007.
Steve Isakowitz,
Chief Financial Officer.

0
For the reasons stated in the Preamble, chapter II of title 10 of the 
Code of Federal Regulations is amended by

[[Page 60136]]

adding a new part 609 as set forth below.

PART 609--LOAN GUARANTEES FOR PROJECTS THAT EMPLOY INNOVATIVE 
TECHNOLOGIES

Sec.
609.1 Purpose and scope.
609.2 Definitions.
609.3 Solicitations.
609.4 Submission of pre-applications.
609.5 Evaluation of pre-applications.
609.6 Submission of applications.
609.7 Programmatic, technical and financial evaluation of 
applications.
609.8 Term sheets and conditional commitments.
609.9 Closing on the loan guarantee agreement.
609.10 Loan Guarantee Agreement.
609.11 Lender eligibility and servicing requirements.
609.12 Project costs.
609.13 Principal and interest assistance contract.
609.14 Full faith and credit and incontestability.
609.15 Default, demand, payment, and collateral liquidation.
609.16 Perfection of liens and preservation of collateral.
609.17 Audit and access to records.
609.18 Deviations.

    Authority: 42 U.S.C. 7254, 16511-16514.


Sec.  609.1  Purpose and scope.

    (a) This part sets forth the policies and procedures that DOE uses 
for receiving, evaluating, and, after consultation with the Department 
of the Treasury, approving applications for loan guarantees to support 
Eligible Projects under Title XVII of the Energy Policy Act of 2005.
    (b) Except as set forth in paragraph (c) of this section, this part 
applies to all Pre-Applications, Applications, Conditional Commitments 
and Loan Guarantee Agreements to support Eligible Projects under Title 
XVII of the Energy Policy Act of 2005.
    (c) (1) Sections 609.3, 609.4 and 609.5 of this part shall not 
apply to any Pre-Applications, Applications, Conditional Commitments or 
Loan Guarantee Agreements under the Guidelines issued by DOE on August 
8, 2006, which were published in the Federal Register on August 14, 
2006 (71 FR 46451) and the solicitation issued on August 8, 2006 under 
Title XVII of the Energy Policy Act of 2005, provided the Pre-
Application is accepted under the Guidelines and an Application is 
invited pursuant to such Pre-Application no later than December 31, 
2007.
    (2) Except as provided in paragraph (c)(1) of this section, DOE and 
any Applicant who submitted an Application under the August 8, 2006 
solicitation may agree to make additional provisions of this part 
applicable to the particular project.
    (d) Part 1024 of chapter X of title 10 of the Code of Federal 
Regulations shall not apply to actions taken under this part.


Sec.  609.2  Definitions.

    Act means Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 
16511-16514).
    Administrative Cost of Issuing a Loan Guarantee means the total of 
all administrative expenses that DOE incurs during:
    (1) The evaluation of a Pre-Application, if a Pre-Application is 
requested in a solicitation, and an Application for a loan guarantee;
    (2) The offering of a Term Sheet, executing the Conditional 
Commitment, negotiation, and closing of a Loan Guarantee Agreement; and
    (3) The servicing and monitoring of a Loan Guarantee Agreement, 
including during the construction, startup, commissioning, shakedown, 
and operational phases of an Eligible Project.
    Applicant means any person, firm, corporation, company, 
partnership, association, society, trust, joint venture, joint stock 
company, or other business entity or governmental non-Federal entity 
that has submitted an Application to DOE and has the authority to enter 
into a Loan Guarantee Agreement with DOE under the Act.
    Application means a comprehensive written submission in response to 
a solicitation or a written invitation from DOE to apply for a loan 
guarantee pursuant to Sec.  609.6 of this part.
    Borrower means any Applicant who enters into a Loan Guarantee 
Agreement with DOE and issues Guaranteed Obligations.
    Commercial Technology means a technology in general use in the 
commercial marketplace in the United States at the time the Term Sheet 
is issued by DOE. A technology is in general use if it has been 
installed in and is being used in three or more commercial projects in 
the United States in the same general application as in the proposed 
project, and has been in operation in each such commercial project for 
a period of at least five years. The five year period shall be 
measured, for each project, starting on the in service date of the 
project or facility employing that particular technology. For purposes 
of this section, commercial projects include projects that have been 
the recipients of a loan guarantee from DOE under this part.
    Conditional Commitment means a Term Sheet offered by DOE and 
accepted by the Applicant, with the understanding of the parties that 
if the Applicant thereafter satisfies all specified and precedent 
funding obligations and all other contractual, statutory and regulatory 
requirements, or other requirements, DOE and the Applicant will execute 
a Loan Guarantee Agreement: Provided that the Secretary may terminate a 
Conditional Commitment for any reason at any time prior to the 
execution of the Loan Guarantee Agreement; and Provided further that 
the Secretary may not delegate this authority to terminate a 
Conditional Commitment.
    Contracting Officer means the Secretary of Energy or a DOE official 
authorized by the Secretary to enter into, administer and/or terminate 
DOE Loan Guarantee Agreements and related contracts on behalf of DOE.
    Credit Subsidy Cost has the same meaning as ``cost of a loan 
guarantee'' in section 502(5)(C) of the Federal Credit Reform Act of 
1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time 
the Loan Guarantee Agreement is executed, of the following estimated 
cash flows, discounted to the point of disbursement:
    (1) Payments by the Government to cover defaults and delinquencies, 
interest subsidies, or other payments; less
    (2) Payments to the Government including origination and other 
fees, penalties, and recoveries; including the effects of changes in 
loan or debt terms resulting from the exercise by the Borrower, 
Eligible Lender or other Holder of an option included in the Loan 
Guarantee Agreement.
    DOE means the United States Department of Energy.
    Eligible Lender means:
    (1) Any person or legal entity formed for the purpose of, or 
engaged in the business of, lending money, including, but not limited 
to, commercial banks, savings and loan institutions, insurance 
companies, factoring companies, investment banks, institutional 
investors, venture capital investment companies, trusts, or other 
entities designated as trustees or agents acting on behalf of 
bondholders or other lenders; and
    (2) Any person or legal entity that meets the requirements of Sec.  
609.11 of this part, as determined by DOE; or
    (3) The Federal Financing Bank.
    Eligible Project means a project located in the United States that 
employs a New or Significantly Improved Technology that is not a 
Commercial Technology, and that meets all applicable requirements of 
section

[[Page 60137]]

1703 of the Act (42 U.S.C. 16513), the applicable solicitation and this 
part.
    Equity means cash contributed by the Borrowers and other 
principals. Equity does not include proceeds from the non-guaranteed 
portion of Title XVII loans, proceeds from any other non-guaranteed 
loans, or the value of any form of government assistance or support.
    Federal Financing Bank means an instrumentality of the United 
States government created by the Federal Financing Bank Act of 1973 (12 
U.S.C. 2281 et seq.). The Bank is under the general supervision of the 
Secretary of the Treasury.
    Guaranteed Obligation means any loan or other debt obligation of 
the Borrower for an Eligible Project for which DOE guarantees all or 
any part of the payment of principal and interest under a Loan 
Guarantee Agreement entered into pursuant to the Act.
    Holder means any person or legal entity that owns a Guaranteed 
Obligation or has lawfully succeeded in due course to all or part of 
the rights, title, and interest in a Guaranteed Obligation, including 
any nominee or trustee empowered to act for the Holder or Holders.
    Loan Agreement means a written agreement between a Borrower and an 
Eligible Lender or other Holder containing the terms and conditions 
under which the Eligible Lender or other Holder will make loans to the 
Borrower to start and complete an Eligible Project.
    Loan Guarantee Agreement means a written agreement that, when 
entered into by DOE and a Borrower, an Eligible Lender or other Holder, 
pursuant to the Act, establishes the obligation of DOE to guarantee the 
payment of all or a portion of the principal and interest on specified 
Guaranteed Obligations of a Borrower to Eligible Lenders or other 
Holders subject to the terms and conditions specified in the Loan 
Guarantee Agreement.
    New or Significantly Improved Technology means a technology 
concerned with the production, consumption or transportation of energy 
and that is not a Commercial Technology, and that has either only 
recently been developed, discovered or learned; or involves or 
constitutes one or more meaningful and important improvements in 
productivity or value, in comparison to Commercial Technologies in use 
in the United States at the time the Term Sheet is issued.
    OMB means the Office of Management and Budget in the Executive 
Office of the President.
    Pre-Application means a written submission in response to a DOE 
solicitation that broadly describes the project proposal, including the 
proposed role of a DOE loan guarantee in the project, and the 
eligibility of the project to receive a loan guarantee under the 
applicable solicitation, the Act and this part.
    Project Costs means those costs, including escalation and 
contingencies, that are to be expended or accrued by Borrower and are 
necessary, reasonable, customary and directly related to the design, 
engineering, financing, construction, startup, commissioning and 
shakedown of an Eligible Project, as specified in Sec.  609.12 of this 
part. Project costs do not include costs for the items set forth in 
Sec.  609.12(c) of this part.
    Project Sponsor means any person, firm, corporation, company, 
partnership, association, society, trust, joint venture, joint stock 
company or other business entity that assumes substantial 
responsibility for the development, financing, and structuring of a 
project eligible for a loan guarantee and, if not the Applicant, owns 
or controls, by itself and/or through individuals in common or 
affiliated business entities, a five percent or greater interest in the 
proposed Eligible Project, or the Applicant.
    Secretary means the Secretary of Energy or a duly authorized 
designee or successor in interest.
    Term Sheet means an offering document issued by DOE that specifies 
the detailed terms and conditions under which DOE may enter into a 
Conditional Commitment with the Applicant. A Term Sheet imposes no 
obligation on the Secretary to enter into a Conditional Commitment.
    United States means the several states, the District of Columbia, 
the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American 
Samoa or any territory or possession of the United States of America.


Sec.  609.3  Solicitations.

    (a) DOE may issue solicitations to invite the submission of Pre-
Applications or Applications for loan guarantees for Eligible Projects. 
DOE must issue a solicitation before proceeding with other steps in the 
loan guarantee process including issuance of a loan guarantee. A 
Project Sponsor or Applicant may only submit one Pre-Application or 
Application for one project using a particular technology. A Project 
Sponsor or Applicant, in other words, may not submit a Pre-Application 
or Application for multiple projects using the same technology.
    (b) Each solicitation must include, at a minimum, the following 
information:
    (1) The dollar amount of loan guarantee authority potentially being 
made available by DOE in that solicitation;
    (2) The place and time for response submission;
    (3) The name and address of the DOE representative whom a potential 
Project Sponsor may contact to receive further information and a copy 
of the solicitation;
    (4) The form, format, and page limits applicable to the response 
submission;
    (5) The amount of the application fee (First Fee), if any, that 
will be required;
    (6) The programmatic, technical, financial and other factors the 
Secretary will use to evaluate response submissions, including the loan 
guarantee percentage requested by the Applicant and the relative 
weightings that DOE will use when evaluating those factors; and
    (7) Such other information as DOE may deem appropriate.


Sec.  609.4  Submission of pre-applications.

    In response to a solicitation requesting the submission of Pre-
Applications, either Project Sponsors or Applicants may submit Pre-
Applications to DOE. Pre-Applications must meet all requirements 
specified in the solicitation and this part. At a minimum, each Pre-
Application must contain all of the following:
    (a) A cover page signed by an individual with full authority to 
bind the Project Sponsor or Applicant that attests to the accuracy of 
the information in the Pre-Application, and that binds the Project 
Sponsor(s) or Applicant to the commitments made in the Pre-Application. 
In addition, the information requested in paragraphs (b) and (c) of 
this section should be submitted in a volume one and the information 
requested in paragraphs (d) through (h) of this section should be 
submitted in a volume two, to expedite the DOE review process.
    (b) An executive summary briefly encapsulating the key project 
features and attributes of the proposed project;
    (c) A business plan which includes an overview of the proposed 
project, including:
    (1) A description of the Project Sponsor, including all entities 
involved, and its experience in project investment, development, 
construction, operation and maintenance;
    (2) A description of the new or significantly improved technology 
to be employed in the project, including:
    (i) A report detailing its successes and failures during the pilot 
and demonstration phases;
    (ii) The technology's commercial applications;

[[Page 60138]]

    (iii) The significance of the technology to energy use or emission 
control;
    (iv) How and why the technology is ``new'' or ``significantly 
improved'' compared to technology already in general use in the 
commercial marketplace in the United States;
    (v) Why the technology to be employed in the project is not in 
``general use;''
    (vi) The owners or controllers of the intellectual property 
incorporated in and utilized by such technologies; and
    (vii) The manufacturer(s) and licensee(s), if any, authorized to 
make the technology available in the United States, the potential for 
replication of commercial use of the technology in the United States, 
and whether and how the technology is or will be made available in the 
United States for further commercial use;
    (3) The estimated amount, in reasonable detail, of the total 
Project Costs;
    (4) The timeframe required for construction and commissioning of 
the project;
    (5) A description of any primary off-take or other revenue-
generating agreements that will provide the primary sources of revenues 
for the project, including repayment of the debt obligations for which 
a guarantee is sought.
    (6) An overview of how the project complies with the eligibility 
requirements in section 1703 of the Act (42 U.S.C. 16513);
    (7) An outline of the potential environmental impacts of the 
project and how these impacts will be mitigated;
    (8) A description of the anticipated air pollution and/or 
anthropogenic greenhouse gas reduction benefits and how these benefits 
will be measured and validated; and
    (9) A list of all of the requirements contained in this part and 
the solicitation and where in the Pre-Application these requirements 
are addressed;
    (d) A financing plan overview describing:
    (1) The amount of equity to be invested and the sources of such 
equity;
    (2) The amount of the total debt obligations to be incurred and the 
funding sources of all such debt if available;
    (3) The amount of the Guaranteed Obligation as a percentage of 
total project debt; and as a percentage of total project cost; and
    (4) A financial model detailing the investments in and the cash 
flows generated and anticipated from the project over the project's 
expected life-cycle, including a complete explanation of the facts, 
assumptions, and methodologies in the financial model;
    (e) An explanation of what estimated impact the loan guarantee will 
have on the interest rate, debt term, and overall financial structure 
of the project;
    (f) Where the Federal Financing Bank is not the lender, a copy of a 
letter from an Eligible Lender or other Holder(s) expressing its 
commitment to provide, or interest in providing, the required debt 
financing necessary to construct and fully commission the project;
    (g) A copy of the equity commitment letter(s) from each of the 
Project Sponsors and a description of the sources for such equity; and
    (h) A commitment to pay the Application fee (First Fee), if invited 
to submit an Application.


Sec.  609.5  Evaluation of pre-applications.

    (a) Where Pre-Applications are requested in a solicitation, DOE 
will conduct an initial review of the Pre-Application to determine 
whether:
    (1) The proposal is for an Eligible Project;
    (2) The submission contains the information required by Sec.  609.4 
of this part; and
    (3) The submission meets all other requirements of the applicable 
solicitation.
    (b) If a Pre-Application fails to meet the requirements of 
paragraph (a) of this section, DOE may deem it non-responsive and 
eliminate it from further review.
    (c) If DOE deems a Pre-Application responsive, DOE will evaluate:
    (1) The commercial viability of the proposed project;
    (2) The technology to be employed in the project;
    (3) The relevant experience of the principal(s); and
    (4) The financial capability of the Project Sponsor (including 
personal and/or business credit information of the principal(s)).
    (d) After the evaluation described in paragraph (c) of this 
section, DOE will determine if there is sufficient information in the 
Pre-Application to assess the technical and commercial viability of the 
proposed project and/or the financial capability of the Project Sponsor 
and to assess other aspects of the Pre-Application. DOE may ask for 
additional information from the Project Sponsor during the review 
process and may request one or more meetings with the Project Sponsor.
    (e) After reviewing a Pre-Application and other information 
acquired under paragraph (c) of this section, DOE may provide a written 
response to the Project Sponsor or Applicant either inviting the 
Applicant to submit an Application for a loan guarantee and specifying 
the amount of the Application filing fee (First Fee) or advising the 
Project Sponsor that the project proposal will not receive further 
consideration. Neither the Pre-Application nor any written or other 
feedback that DOE may provide in response to the Pre-Application 
eliminates the requirement for an Application.
    (f) No response by DOE to, or communication by DOE with, a Project 
Sponsor, or an Applicant submitting a Pre-Application or subsequent 
Application shall impose any obligation on DOE to enter into a Loan 
Guarantee Agreement.


Sec.  609.6  Submission of applications.

    (a) In response to a solicitation or written invitation to submit 
an Application, an Applicant submitting an Application must meet all 
requirements and provide all information specified in the solicitation 
and/or invitation and this part.
    (b) An Application must include, at a minimum, the following 
information and materials:
    (1) A completed Application form signed by an individual with full 
authority to bind the Applicant and the Project Sponsors;
    (2) Payment of the Application filing fee (First Fee) for the Pre-
Application, if any, and Application phase;
    (3) A detailed description of all material amendments, 
modifications, and additions made to the information and documentation 
provided in the Pre-Application, if a Pre-Application was requested in 
the solicitation, including any changes in the proposed project's 
financing structure or other terms;
    (4) A description of how and to what measurable extent the project 
avoids, reduces, or sequesters air pollutants and/or anthropogenic 
emissions of greenhouse gases, including how to measure and verify 
those benefits;
    (5) A description of the nature and scope of the proposed project, 
including:
    (i) Key milestones;
    (ii) Location of the project;
    (iii) Identification and commercial feasibility of the new or 
significantly improved technology(ies) to be employed in the project;
    (iv) How the Applicant intends to employ such technology(ies) in 
the project; and
    (v) How the Applicant intends to assure, to the extent possible, 
the further commercial availability of the technology(ies) in the 
United States;

[[Page 60139]]

    (6) A detailed explanation of how the proposed project qualifies as 
an Eligible Project;
    (7) A detailed estimate of the total Project Costs together with a 
description of the methodology and assumptions used;
    (8) A detailed description of the engineering and design 
contractor(s), construction contractor(s), equipment supplier(s), and 
construction schedules for the project, including major activity and 
cost milestones as well as the performance guarantees, performance 
bonds, liquidated damages provisions, and equipment warranties to be 
provided;
    (9) A detailed description of the operations and maintenance 
provider(s), the plant operating plan, estimated staffing requirements, 
parts inventory, major maintenance schedule, estimated annual downtime, 
and performance guarantees and related liquidated damage provisions, if 
any;
    (10) A description of the management plan of operations to be 
employed in carrying out the project, and information concerning the 
management experience of each officer or key person associated with the 
project;
    (11) A detailed description of the project decommissioning, 
deconstruction, and disposal plan, and the anticipated costs associated 
therewith;
    (12) An analysis of the market for any product to be produced by 
the project, including relevant economics justifying the analysis, and 
copies of any contractual agreements for the sale of these products or 
assurance of the revenues to be generated from sale of these products;
    (13) A detailed description of the overall financial plan for the 
proposed project, including all sources and uses of funding, equity and 
debt, and the liability of parties associated with the project over the 
term of the Loan Guarantee Agreement;
    (14) A copy of all material agreements, whether entered into or 
proposed, relevant to the investment, design, engineering, financing, 
construction, startup commissioning, shakedown, operations and 
maintenance of the project;
    (15) A copy of the financial closing checklist for the equity and 
debt to the extent available;
    (16) Applicant's business plan on which the project is based and 
Applicant's financial model presenting project pro forma statements for 
the proposed term of the Guaranteed Obligations including income 
statements, balance sheets, and cash flows. All such information and 
data must include assumptions made in their preparation and the range 
of revenue, operating cost, and credit assumptions considered;
    (17) Financial statements for the past three years, or less if the 
Applicant has been in operation less than three years, that have been 
audited by an independent certified public accountant, including all 
associated notes, as well as interim financial statements and notes for 
the current fiscal year, of Applicant and parties providing Applicant's 
financial backing, together with business and financial interests of 
controlling or commonly controlled organizations or persons, including 
parent, subsidiary and other affiliated corporations or partners of the 
Applicant;
    (18) A copy of all legal opinions, and other material reports, 
analyses, and reviews related to the project;
    (19) An independent engineering report prepared by an engineer with 
experience in the industry and familiarity with similar projects. The 
report should address: the project's siting and permitting, engineering 
and design, contractual requirements, environmental compliance, testing 
and commissioning and operations and maintenance;
    (20) Credit history of the Applicant and, if appropriate, any party 
who owns or controls, by itself and/or through individuals in common or 
affiliated business entities, a five percent or greater interest in the 
project or the Applicant;
    (21) A preliminary credit assessment for the project without a loan 
guarantee from a nationally recognized rating agency for projects where 
the estimated total Project Costs exceed $25 million. For projects 
where the total estimated Project Costs are less than $25 million and 
where conditions justify, in the sole discretion of the Secretary, DOE 
may require such an assessment;
    (22) A list showing the status of and estimated completion date of 
Applicant's required project-related applications or approvals for 
Federal, state, and local permits and authorizations to site, 
construct, and operate the project;
    (23) A report containing an analysis of the potential environmental 
impacts of the project that will enable DOE to assess whether the 
project will comply with all applicable environmental requirements, and 
that will enable DOE to undertake and complete any necessary reviews 
under the National Environmental Policy Act of 1969;
    (24) A listing and description of assets associated, or to be 
associated, with the project and any other asset that will serve as 
collateral for the Guaranteed Obligations, including appropriate data 
as to the value of the assets and the useful life of any physical 
assets. With respect to real property assets listed, an appraisal that 
is consistent with the ``Uniform Standards of Professional Appraisal 
Practice,'' promulgated by the Appraisal Standards Board of the 
Appraisal Foundation, and performed by licensed or certified 
appraisers, is required;
    (25) An analysis demonstrating that, at the time of the 
Application, there is a reasonable prospect that Borrower will be able 
to repay the Guaranteed Obligations (including interest) according to 
their terms, and a complete description of the operational and 
financial assumptions and methodologies on which this demonstration is 
based;
    (26) Written affirmation from an officer of the Eligible Lender or 
other Holder confirming that it is in good standing with DOE's and 
other Federal agencies' loan guarantee programs;
    (27) A list of all of the requirements contained in this part and 
the solicitation and where in the Application these requirements are 
addressed;
    (28) A statement from the Applicant that it believes that there is 
``reasonable prospect'' that the Guaranteed Obligations will be fully 
paid from project revenue; and
    (29) Any other information requested in the invitation to submit an 
Application or requests from DOE in order to clarify an Application;
    (c) DOE will not consider any Application complete unless the 
Applicant has paid the First Fee and the Application is signed by the 
appropriate entity or entities with the authority to bind the Applicant 
to the commitments and representations made in the Application.


Sec.  609.7  Programmatic, technical and financial evaluation of 
applications.

    (a) In reviewing completed Applications, and in prioritizing and 
selecting those to whom a Term Sheet should be offered, DOE will apply 
the criteria set forth in the Act, the applicable solicitation, and 
this part. Applications will be considered in a competitive process, 
i.e. each Application will be evaluated against other Applications 
responsive to the Solicitation. Greater weight will be given to 
applications that rely upon a smaller guarantee percentage, all else 
being equal. Concurrent with its review process, DOE will consult with 
the Secretary of the Treasury regarding the terms and conditions of the 
potential

[[Page 60140]]

loan guarantee. Applications will be denied if:
    (1) The project will be built or operated outside the United 
States;
    (2) The project is not ready to be employed commercially in the 
United States, cannot yield a commercially viable product or service in 
the use proposed in the project, does not have the potential to be 
employed in other commercial projects in the United States, and is not 
or will not be available for further commercial use in the United 
States;
    (3) The entity or person issuing the loan or other debt obligations 
subject to the loan guarantee is not an Eligible Lender or other 
Holder, as defined in Sec.  609.11 of this part;
    (4) The project is for demonstration, research, or development.
    (5) The project does not avoid, reduce or sequester air pollutants 
or anthropogenic emissions of greenhouse gases; or
    (6) The Applicant will not provide an equity contribution.
    (b) In evaluating Applications, DOE will consider the following 
factors:
    (1) To what measurable extent the project avoids, reduces, or 
sequesters air pollutants or anthropogenic emissions of greenhouses 
gases;
    (2) To what extent the new or significantly improved technology to 
be employed in the project, as compared to Commercial Technology in 
general use in the United States, is ready to be employed commercially 
in the United States, can be replicated, yields a commercial viable 
project or service in the use proposed in the project, has potential to 
be employed in other commercial projects in the United States, and is 
or will be available for further commercial use in the United States;
    (3) To the extent that the new or significantly improved technology 
used in the project constitutes an important improvement in technology, 
as compared to Commercial Technology, used to avoid, reduce or 
sequester air pollutants or anthropogenic emissions of greenhouse 
gases, and the Applicant has a plan to advance or assist in the 
advancement of that technology into the commercial marketplace;
    (4) The extent to which the requested amount of the loan guarantee, 
and requested amount of Guaranteed Obligations are reasonable relative 
to the nature and scope of the project;
    (5) The total amount and nature of the Eligible Project Costs and 
the extent to which Project Costs are funded by Guaranteed Obligations;
    (6) The likelihood that the project will be ready for full 
commercial operations in the time frame stated in the Application;
    (7) The amount of equity commitment to the project by the Applicant 
and other principals involved in the project;
    (8) Whether there is sufficient evidence that the Applicant will 
diligently pursue the project, including initiating and completing the 
project in a timely manner;
    (9) Whether and to what extent the Applicant will rely upon other 
Federal and non-Federal governmental assistance such as grants, tax 
credits, or other loan guarantees to support the financing, 
construction, and operation of the project and how such assistance will 
impact the project;
    (10) The feasibility of the project and likelihood that the project 
will produce sufficient revenues to service the project's debt 
obligations over the life of the loan guarantee and assure timely 
repayment of Guaranteed Obligations;
    (11) The levels of safeguards provided to the Federal government in 
the event of default through collateral, warranties, and other 
assurance of repayment described in the Application;
    (12) The Applicant's capacity and expertise to successfully operate 
the project, based on factors such as financial soundness, management 
organization, and the nature and extent of corporate and personal 
experience;
    (13) The ability of the applicant to ensure that the project will 
comply with all applicable laws and regulations, including all 
applicable environmental statutes and regulations;
    (14) The levels of market, regulatory, legal, financial, 
technological, and other risks associated with the project and their 
appropriateness for a loan guarantee provided by DOE;
    (15) Whether the Application contains sufficient information, 
including a detailed description of the nature and scope of the project 
and the nature, scope, and risk coverage of the loan guarantee sought 
to enable DOE to perform a thorough assessment of the project; and
    (16) Such other criteria that DOE deems relevant in evaluating the 
merits of an Application.
    (c) During the Application review process DOE may raise issues or 
concerns that were not raised during the Pre-Application review process 
where a Pre-Application was requested in the applicable solicitation.
    (d) If DOE determines that a project may be suitable for a loan 
guarantee, DOE will notify the Applicant and Eligible Lender or other 
Holder in writing and provide them with a Term Sheet. If DOE reviews an 
Application and decides not to proceed further with the issuance of a 
Term Sheet, DOE will inform the Applicant in writing of the reason(s) 
for denial.


Sec.  609.8  Term sheets and conditional commitments.

    (a) DOE, after review and evaluation of the Application, additional 
information requested and received by DOE, potentially including a 
preliminary credit rating or credit assessment, and information 
obtained as the result of meeting with the Applicant and the Eligible 
Lender or other Holder, may offer to an Applicant and the Eligible 
Lender or other Holder detailed terms and conditions that must be met, 
including terms and conditions that must be met by the Applicant and 
the Eligible Lender or other Holder.
    (b) The terms and conditions required by DOE will be expressed in a 
written Term Sheet signed by a Contracting Officer and addressed to the 
Applicant and the Eligible Lender or other Holder, where appropriate. 
The Term Sheet will request that the Project Sponsor and the Eligible 
Lender or other Holder express agreement with the terms and conditions 
contained in the Term Sheet by signing the Term Sheet in the designated 
place. Each person signing the Term Sheet must be a duly authorized 
official or officer of the Applicant and Eligible Lender or other 
Holder. The Term Sheet will include an expiration date on which the 
terms offered will expire unless the Contracting Officer agrees in 
writing to extend the expiration date.
    (c) The Applicant and/or the Eligible Lender or other Holder may 
respond to the Term Sheet offer in writing or may request discussions 
or meetings on the terms and conditions contained in the Term Sheet, 
including requests for clarifications or revisions. When DOE, the 
Applicant, and the Eligible Lender or other Holder agree on all of the 
final terms and conditions and all parties sign the Term Sheet, the 
Term Sheet becomes a Conditional Commitment. When and if all of the 
terms and conditions specified in the Conditional Commitment have been 
met, DOE and the Applicant may enter into a Loan Guarantee Agreement.
    (d) DOE's obligations under each Conditional Commitment are 
conditional upon statutory authority having been provided in advance of 
the execution of the Loan Guarantee Agreement sufficient under FCRA and 
Title XVII for DOE to execute the Loan Guarantee Agreement, and either 
an appropriation has been made or a borrower has paid into the Treasury 
sufficient funds to cover the full Credit Subsidy Cost for the loan 
guarantee that

[[Page 60141]]

is the subject of the Conditional Commitment.
    (e) The Applicant is required to pay fees to DOE to cover the 
Administrative Cost of Issuing a Loan Guarantee for the period of the 
Term Sheet through the closing of the Loan Guarantee Agreement (Second 
Fee).


Sec.  609.9  Closing on the loan guarantee agreement.

    (a) Subsequent to entering into a Conditional Commitment with an 
Applicant, DOE, after consultation with the Applicant, will set a 
closing date for execution of Loan Guarantee Agreement.
    (b) By the closing date, the Applicant and the Eligible Lender or 
other Holder must have satisfied all of the detailed terms and 
conditions contained in the Conditional Commitment and other related 
documents and all other contractual, statutory, and regulatory 
requirements. If the Applicant and the Eligible Lender or other Holder 
has not satisfied all such terms and conditions by the closing date, 
the Secretary may, in his/her sole discretion, set a new closing date 
or terminate the Conditional Commitment.
    (c) In order to enter into a Loan Guarantee Agreement at closing:
    (1) DOE must have received authority in an appropriations act for 
the loan guarantee; and
    (2) All other applicable statutory, regulatory, or other 
requirements must be fulfilled.
    (d) Prior to, or on, the closing date, DOE will ensure that:
    (1) Pursuant to section 1702(b) of the Act, DOE has received 
payment of the Credit Subsidy Cost of the loan guarantee, as defined in 
Sec.  609.2 of this part from either (but not from a combination) of 
the following:
    (i) A Congressional appropriation of funds; or
    (ii) A payment from the Borrower.
    (2) Pursuant to section 1702(h) of the Act, DOE has received from 
the Borrower the First and Second Fees and, if applicable, the Third 
fee, or portions thereof, for the Administrative Cost of Issuing the 
Loan Guarantee, as specified in the Loan Guarantee Agreement;
    (3) OMB has reviewed and approved DOE's calculation of the Credit 
Subsidy Cost of the loan guarantee.;
    (4) The Department of the Treasury has been consulted as to the 
terms and conditions of the Loan Guarantee Agreement;
    (5) The Loan Guarantee Agreement and related documents contain all 
terms and conditions DOE deems reasonable and necessary to protect the 
interest of the United States; and
    (6) All conditions precedent specified in the Conditional 
Commitment are either satisfied or waived by a Contracting Officer and 
all other applicable contractual, statutory, and regulatory 
requirements are satisfied.
    (e) Not later than the period approved in writing by the 
Contracting Officer, which may not be less than 30 days prior to the 
closing date, the Applicant must provide in writing updated project 
financing information if the terms and conditions of the financing 
arrangements changed between execution of the Conditional Commitment 
and that date. The Conditional Commitment must be updated to reflect 
the revised terms and conditions.
    (f) Where the total Project Costs for an Eligible Project are 
projected to exceed $25 million, the Applicant must provide a credit 
rating from a nationally recognized rating agency reflecting the 
revised Conditional Commitment for the project without a Federal 
guarantee. Where total Project Costs are projected to be less than $25 
million, the Secretary may, on a case-by-case basis, require a credit 
rating. If a rating is required, an updated rating must be provided to 
the Secretary not later than 30 days prior to closing.
    (g) Changes in the terms and conditions of the financing 
arrangements will affect the Credit Subsidy Cost for the Loan Guarantee 
Agreement. DOE may postpone the expected closing date pursuant to any 
changes submitted under paragraph (e) and (f) of this section. In 
addition, DOE may choose to terminate the Conditional Commitment.


Sec.  609.10  Loan Guarantee Agreement.

    (a) Only a Loan Guarantee Agreement executed by a duly authorized 
DOE Contracting Officer can contractually obligate DOE to guarantee 
loans or other debt obligations.
    (b) DOE is not bound by oral representations made during the Pre-
Application stage, if Pre-Applications were solicited, or Application 
stage, or during any negotiation process.
    (c) Except if explicitly authorized by an Act of Congress, no funds 
obtained from the Federal Government, or from a loan or other 
instrument guaranteed by the Federal Government, may be used to pay for 
Credit Subsidy Costs, administrative fees, or other fees charged by or 
paid to DOE relating to the Title XVII program or any loan guarantee 
there under.
    (d) Prior to the execution by DOE of a Loan Guarantee Agreement, 
DOE must ensure that the following requirements and conditions, which 
must be specified in the Loan Guarantee Agreement, are satisfied:
    (1) The project qualifies as an Eligible Project under the Act and 
is not a research, development, or demonstration project or a project 
that employs Commercial Technologies in service in the United States;
    (2) The project will be constructed and operated in the United 
States, the employment of the new or significantly improved technology 
in the project has the potential to be replicated in other commercial 
projects in the United States, and this technology is or is likely to 
be available in the United States for further commercial application;
    (3) The face value of the debt guaranteed by DOE is limited to no 
more than 80 percent of total Project Costs.
    (4) (i) Where DOE guarantees 100 percent of the Guaranteed 
Obligation, the loan shall be funded by the Federal Financing Bank;
    (ii) Where DOE guarantees more than 90 percent of the Guaranteed 
Obligation, the guaranteed portion cannot be separated from or 
``stripped'' from the non-guaranteed portion of the Guaranteed 
Obligation if the loan is participated, syndicated or otherwise resold 
in the secondary market;
    (iii) Where DOE guarantees 90 percent or less of the Guaranteed 
Obligation, the guaranteed portion may be separated from or 
``stripped'' from the non-guaranteed portion of the Guaranteed 
Obligation, if the loan is participated, syndicated or otherwise resold 
in the secondary debt market;
    (5) The Borrower and other principals involved in the project have 
made or will make a significant equity investment in the project;
    (6) The Borrower is obligated to make full repayment of the 
principal and interest on the Guaranteed Obligations and other project 
debt over a period of up to the lesser of 30 years or 90 percent of the 
projected useful life of the project's major physical assets, as 
calculated in accordance with generally accepted accounting principles 
and practices. The non-guaranteed portion of any Guaranteed Obligation 
must be repaid on a pro-rata basis, and may not be repaid on a shorter 
amortization schedule than the guaranteed portion;
    (7) The loan guarantee does not finance, either directly or 
indirectly, tax-exempt debt obligations, consistent with the 
requirements of section 149(b) of the Internal Revenue Code;
    (8) The amount of the loan guaranteed, when combined with other 
funds committed to the project, will be sufficient to carry out the 
project, including adequate contingency funds;

[[Page 60142]]

    (9) There is a reasonable prospect of repayment by Borrower of the 
principal of and interest on the Guaranteed Obligations and other 
project debt;
    (10) The Borrower has pledged project assets and other collateral 
or surety, including non project-related assets, determined by DOE to 
be necessary to secure the repayment of the Guaranteed Obligations;
    (11) The Loan Guarantee Agreement and related documents include 
detailed terms and conditions necessary and appropriate to protect the 
interest of the United States in the case of default, including 
ensuring availability of all the intellectual property rights, 
technical data including software, and physical assets necessary for 
any person or entity, including DOE, to complete, operate, convey, and 
dispose of the defaulted project;
    (12) The interest rate on any Guaranteed Obligation is determined 
by DOE, after consultation with the Treasury Department, to be 
reasonable, taking into account the range of interest rates prevailing 
in the private sector for similar obligations of comparable risk 
guaranteed by the Federal government;
    (13) Any Guaranteed Obligation is not subordinate to any loan or 
other debt obligation and is in a first lien position on all assets of 
the project and all additional collateral pledged as security for the 
Guaranteed Obligations and other project debt;
    (14) There is satisfactory evidence that Borrower and Eligible 
Lenders or other Holders are willing, competent, and capable of 
performing the terms and conditions of the Guaranteed Obligations and 
other debt obligation and the Loan Guarantee Agreement, and will 
diligently pursue the project;
    (15) The Borrower has made the initial (or total) payment of fees 
for the Administrative Cost of Issuing a Loan Guarantee for the 
construction and operational phases of the project (Third Fee), as 
specified in the Conditional Commitment;
    (16) The Eligible Lender, other Holder or servicer has taken and is 
obligated to continue to take those actions necessary to perfect and 
maintain liens on assets which are pledged as collateral for the 
Guaranteed Obligation;
    (17) If Borrower is to make payment in full for the Credit Subsidy 
Cost of the loan guarantee pursuant to section 1702(b)(2) of the Act, 
such payment must be received by DOE prior to, or at the time of, 
closing;
    (18) DOE or its representatives have access to the project site at 
all reasonable times in order to monitor the performance of the 
project;
    (19) DOE, the Eligible Lender, or other Holder and Borrower have 
reached an agreement as to the information that will be made available 
to DOE and the information that will be made publicly available;
    (20) The prospective Borrower has filed applications for or 
obtained any required regulatory approvals for the project and is in 
compliance, or promptly will be in compliance, where appropriate, with 
all Federal, state, and local regulatory requirements;
    (21) Borrower has no delinquent Federal debt, including tax 
liabilities, unless the delinquency has been resolved with the 
appropriate Federal agency in accordance with the standards of the Debt 
Collection Improvement Act of 1996;
    (22) The Loan Guarantee Agreement contains such other terms and 
conditions as DOE deems reasonable and necessary to protect the 
interest of the United States; and
    (23) (i) The Lender is an Eligible Lender, as defined in Sec.  
609.2 of this part, and meets DOE's lender eligibility and performance 
requirement contained in Sec. Sec.  609.11 (a) and (b) of this part; 
and
    (ii) The servicer meets the servicing performance requirements of 
Sec.  609.11(c) of this part.
    (e) The Loan Guarantee Agreement must provide that, in the event of 
a default by the Borrower:
    (1) Interest accrues on the Guaranteed Obligations at the rate 
stated in the Loan Guarantee Agreement or Loan Agreement, until DOE 
makes full payment of the defaulted Guaranteed Obligations and, except 
when debt is funded through the Federal Financing Bank, DOE is not 
required to pay any premium, default penalties, or prepayment 
penalties;
    (2) Upon payment of the Guaranteed Obligations by DOE, DOE is 
subrogated to the rights of the Holders of the debt, including all 
related liens, security, and collateral rights and has superior rights 
in and to the property acquired from the recipient of the payment as 
provided in Sec.  609.15 of this part.
    (3) The Eligible Lender or other servicer acting on DOE's behalf is 
obligated to take those actions necessary to perfect and maintain liens 
on assets which are pledged as collateral for the Guaranteed 
Obligations.
    (4) The holder of pledged collateral is obligated to take such 
actions as DOE may reasonably require to provide for the care, 
preservation, protection, and maintenance of such collateral so as to 
enable the United States to achieve maximum recovery upon default by 
Borrower on the Guaranteed Obligations.
    (f) The Loan Guarantee Agreement must contain audit provisions 
which provide, in substance, as follows:
    (1) The Eligible Lender or other Holder or other party servicing 
the Guaranteed Obligations, as applicable, and the Borrower, must keep 
such records concerning the project as are necessary to facilitate an 
effective and accurate audit and performance evaluation of the project 
as required in Sec.  609.17 of this part.
    (2) DOE and the Comptroller General, or their duly authorized 
representatives, must have access, for the purpose of audit and 
examination, to any pertinent books, documents, papers, and records of 
the Borrower, Eligible Lender or other Holder, or other party servicing 
the Guaranteed Obligations, as applicable. Examination of records may 
be made during the regular business hours of the Borrower, Eligible 
Lender or other Holder, or other party servicing the Guaranteed 
Obligations, or at any other time mutually convenient as required in 
Sec.  609.17 of this part.
    (g)(1) An Eligible Lender or other Holder may sell, assign or 
transfer a Guaranteed Obligation to another Eligible Lender that meets 
the requirements of Sec.  609.11 of this part. Such Eligible Lender to 
which a Guaranteed Obligation is assigned or transferred, is required 
to fulfill all servicing, monitoring, and reporting requirements 
contained in the Loan Guarantee Agreement and these regulations if the 
transferring Eligible Lender was performing these functions and 
transfer such functions to the new Eligible Lender. Any assignment or 
transfer, however, of the servicing, monitoring, and reporting 
functions must be approved by DOE in writing in advance of such 
assignment.
    (2) The Secretary, or the Secretary's designee or contractual 
agent, for the purpose of identifying Holders with the right to receive 
payment under the guarantees shall include in the Loan Guarantee 
Agreement or related documents a procedure for tracking and identifying 
Holders of Guarantee Obligations. These duties usually will be 
performed by the servicer. Any contractual agent approved by the 
Secretary to perform this function cannot transfer or assign this 
responsibility without the prior written consent of the Secretary.


Sec.  609.11  Lender eligibility and servicing requirements.

    (a) An Eligible Lender shall meet the following requirements:
    (1) Not be debarred or suspended from participation in a Federal 
government contract (under 48 CFR part

[[Page 60143]]

9.4) or participation in a non-procurement activity (under a set of 
uniform regulations implemented for numerous agencies, such as DOE, at 
2 CFR part 180);
    (2) Not be delinquent on any Federal debt or loan;
    (3) Be legally authorized to enter into loan guarantee transactions 
authorized by the Act and these regulations and is in good standing 
with DOE and other Federal agency loan guarantee programs;
    (4) Be able to demonstrate, or has access to, experience in 
originating and servicing loans for commercial projects similar in size 
and scope to the project under consideration; and
    (5) Be able to demonstrate experience or capability as the lead 
lender or underwriter by presenting evidence of its participation in 
large commercial projects or energy-related projects or other relevant 
experience; or
    (6) Be the Federal Financing Bank.
    (b) When performing its duties to review and evaluate a proposed 
Eligible Project prior to the submission of a Pre-Application or 
Application, as appropriate, by the Project Sponsor through the 
execution of a Loan Guarantee Agreement, the Eligible Lender or DOE if 
loans are funded by the Federal Financing Bank, shall exercise the 
level of care and diligence that a reasonable and prudent lender would 
exercise when reviewing, evaluating and disbursing a loan made by it 
without a Federal guarantee.
    (c) The servicing duties shall be performed by the Eligible Lender, 
DOE or other servicer if approved by the Secretary. When performing the 
servicing duties the Eligible Lender, DOE or other servicer shall 
exercise the level of care and diligence that a reasonable and prudent 
lender would exercise when servicing a loan made without a Federal 
guarantee, including:
    (1) During the construction period, enforcing all of the conditions 
precedent to all loan disbursements, as provided in the Loan Guarantee 
Agreement, Loan Agreement and related documents;
    (2) During the operational phase, monitoring and servicing the Debt 
Obligations and collection of the outstanding principal and accrued 
interest as well as ensuring that the collateral package securing the 
Guaranteed Obligations remains uncompromised; and
    (3) As specified by DOE, providing annual or more frequent 
financial and other reports on the status and condition of the 
Guaranteed Obligations and the Eligible Project, and promptly notifying 
DOE if it becomes aware of any problems or irregularities concerning 
the Eligible Project or the ability of the Borrower to make payment on 
the Guaranteed Obligations or other debt obligations.
    (d) With regard to partial guarantees, even though DOE may in part 
rely on the Eligible Lender or other servicer to service and monitor 
the Guaranteed Obligation, DOE will also conduct its own independent 
monitoring and review of the Eligible Project.


Sec.  609.12  Project costs.

    (a) Before entering into a Loan Guarantee Agreement, DOE shall 
determine the estimated Project Costs for the project that is the 
subject of the agreement. To assist the Department in making that 
determination, the Applicant must estimate, calculate and record all 
such costs incurred in the design, engineering, financing, 
construction, startup, commissioning and shakedown of the project in 
accordance with generally accepted accounting principles and practices. 
Among other things, the Applicant must calculate the sum of necessary, 
reasonable and customary costs that it has paid and expects to pay, 
which are directly related to the project, including costs for 
escalation and contingencies, to estimate the total Project Costs.
    (b) Project Costs include:
    (1) Costs of acquisition, lease, or rental of real property, 
including engineering fees, surveys, title insurance, recording fees, 
and legal fees incurred in connection with land acquisition, lease or 
rental, site improvements, site restoration, access roads, and fencing;
    (2) Costs of engineering, architectural, legal and bond fees, and 
insurance paid in connection with construction of the facility; and 
materials, labor, services, travel and transportation for facility 
design, construction, startup, commissioning and shakedown;
    (3) Costs of equipment purchases;
    (4) Costs to provide equipment, facilities, and services related to 
safety and environmental protection;
    (5) Financial and legal services costs, including other 
professional services and fees necessary to obtain required licenses 
and permits and to prepare environmental reports and data;
    (6) The cost of issuing project debt, such as fees, transaction and 
legal costs and other normal charges imposed by Eligible Lenders and 
other Holders;
    (7) Costs of necessary and appropriate insurance and bonds of all 
types;
    (8) Costs of design, engineering, startup, commissioning and 
shakedown;
    (9) Costs of obtaining licenses to intellectual property necessary 
to design, construct, and operate the project;
    (10) A reasonable contingency reserve for cost overruns during 
construction; and
    (11) Capitalized interest necessary to meet market requirements, 
reasonably required reserve funds and other carrying costs during 
construction; and
    (12) Other necessary and reasonable costs.
    (c) Project Costs do not include:
    (1) Fees and commissions charged to Borrower, including finder's 
fees, for obtaining Federal or other funds;
    (2) Parent corporation or other affiliated entity's general and 
administrative expenses, and non-project related parent corporation or 
affiliated entity assessments, including organizational expenses;
    (3) Goodwill, franchise, trade, or brand name costs;
    (4) Dividends and profit sharing to stockholders, employees, and 
officers;
    (5) Research, development, and demonstration costs of readying the 
innovative energy or environmental technology for employment in a 
commercial project;
    (6) Costs that are excessive or are not directly required to carry 
out the project, as determined by DOE, including but not limited to the 
cost of hedging instruments;
    (7) Expenses incurred after startup, commissioning, and shakedown 
before the facility has been placed in service;
    (8) Borrower-paid Credit Subsidy Costs and Administrative Costs of 
Issuing a Loan Guarantee; and
    (9) Operating costs.


Sec.  609.13  Principal and interest assistance contract.

    With respect to the guaranteed portion of any Guaranteed 
Obligation, and subject to the availability of appropriations, DOE may 
enter into a contract to pay Holders, for and on behalf of Borrower, 
from funds appropriated for that purpose, the principal and interest 
charges that become due and payable on the unpaid balance of the 
guaranteed portion of the Guaranteed Obligation, if DOE finds that:
    (a) The Borrower:
    (1) Is unable to make the payments and is not in default; and
    (2) Will, and is financially able to, continue to make the 
scheduled payments on the remaining portion of the principal and 
interest due under the non-guaranteed portion of the debt obligation, 
if any, and other debt obligations of the project, or an agreement, 
approved by DOE, has otherwise been reached in order to

[[Page 60144]]

avoid a payment default on non-guaranteed debt.
    (b) It is in the public interest to permit Borrower to continue to 
pursue the purposes of the project;
    (c) In paying the principal and interest, the Federal government 
expects a probable net benefit to the Government will be greater than 
that which would result in the event of a default;
    (d) The payment authorized is no greater than the amount of 
principal and interest that Borrower is obligated to pay under the 
terms of the Loan Guarantee Agreement; and
    (e) Borrower agrees to reimburse DOE for the payment (including 
interest) on terms and conditions that are satisfactory to DOE and 
executes all written contracts required by DOE for such purpose.


Sec.  609.14  Full faith and credit and incontestability.

    The full faith and credit of the United States is pledged to the 
payment of all Guaranteed Obligations issued in accordance with this 
part with respect to principal and interest. Such guarantee shall be 
conclusive evidence that it has been properly obtained; that the 
underlying loan qualified for such guarantee; and that, but for fraud 
or material misrepresentation by the Holder, such guarantee will be 
presumed to be valid, legal, and enforceable.


Sec.  609.15  Default, demand, payment, and collateral liquidation.

    (a) In the event that the Borrower has defaulted in the making of 
required payments of principal or interest on any portion of a 
Guaranteed Obligation, and such default has not been cured within the 
period of grace provided in the Loan Guarantee Agreement and/or the 
Loan Agreement, the Eligible Lender or other Holder, or nominee or 
trustee empowered to act for the Eligible Lender or other Holder 
(referred to in this section collectively as ``Holder''), may make 
written demand upon the Secretary for payment pursuant to the 
provisions of the Loan Guarantee Agreement.
    (b) In the event that the Borrower is in default as a result of a 
breach of one or more of the terms and conditions of the Loan Guarantee 
Agreement, note, mortgage, Loan Agreement, or other contractual 
obligations related to the transaction, other than the Borrower's 
obligation to pay principal or interest on the Guaranteed Obligation, 
as provided in paragraph (a) of this section, the Holder will not be 
entitled to make demand for payment pursuant to the Loan Guarantee 
Agreement, unless the Secretary agrees in writing that such default has 
materially affected the rights of the parties, and finds that the 
Holder should be entitled to receive payment pursuant to the Loan 
Guarantee Agreement.
    (c) In the event that the Borrower has defaulted as described in 
paragraph (a) of this section and such default is not cured during the 
grace period provided in the Loan Guarantee Agreement, the Secretary 
shall notify the U.S. Attorney General and may cause the principal 
amount of all Guaranteed Obligations, together with accrued interest 
thereon, and all amounts owed to the United States by Borrower pursuant 
to the Loan Guarantee Agreement, to become immediately due and payable 
by giving the Borrower written notice to such effect (without the need 
for consent or other action on the part of the Holders of the 
Guaranteed Obligations). In the event the Borrower is in default as 
described in paragraph (b) of this section, where the Secretary 
determines in writing that such a default has materially affected the 
rights of the parties, the Borrower shall be given the period of grace 
provided in the Loan Guarantee Agreement to cure such default. If the 
default is not cured during the period of grace, the Secretary may 
cause the principal amount of all Guaranteed Obligations, together with 
accrued interest thereon, and all amounts owed to the United States by 
Borrower pursuant to the Loan Guarantee Agreement, to become 
immediately due and payable by giving the Borrower written notice to 
such effect (without any need for consent or other action on the part 
of the Holders of the Guaranteed Obligations).
    (d) No provision of this regulation shall be construed to preclude 
forbearance by the Holder with the consent of the Secretary for the 
benefit of the Borrower.
    (e) Upon the making of demand for payment as provided in paragraph 
(a) or (b) of this section, the Holder shall provide, in conjunction 
with such demand or immediately thereafter, at the request of the 
Secretary, the supporting documentation specified in the Loan Guarantee 
Agreement and any other supporting documentation as may reasonably be 
required to justify such demand.
    (f) Payment as required by the Loan Guarantee Agreement of the 
Guaranteed Obligation shall be made 60 days after receipt by the 
Secretary of written demand for payment, provided that the demand 
complies with the terms of the Loan Guarantee Agreement. The Loan 
Guarantee Agreement shall provide that interest shall accrue to the 
Holder at the rate stated in the Loan Guarantee Agreement until the 
Guaranteed Obligation has been fully paid by the Federal government.
    (g) The Loan Guarantee Agreement shall provide that, upon payment 
of the Guaranteed Obligations, the Secretary shall be subrogated to the 
rights of the Holders and shall have superior rights in and to the 
property acquired from the Holders. The Holder shall transfer and 
assign to the Secretary all rights held by the Holder of the Guaranteed 
Obligation. Such assignment shall include all related liens, security, 
and collateral rights to the extent held by the Holder.
    (h) Where the Loan Guarantee Agreement so provides, the Eligible 
Lender or other Holder, or other servicer, as appropriate, and the 
Secretary may jointly agree to a plan of liquidation of the assets 
pledged to secure the Guaranteed Obligation.
    (i) Where payment of the Guaranteed Obligation has been made and 
the Eligible Lender or other Holder or other servicer has not 
undertaken a plan of liquidation, the Secretary, in accordance with the 
rights received through subrogation and acting through the U.S. 
Attorney General, may seek to foreclose on the collateral assets and/or 
take such other legal action as necessary for the protection of the 
Government.
    (j) If the Secretary is awarded title to collateral assets pursuant 
to a foreclosure proceeding, the Secretary may take action to complete, 
maintain, operate, or lease the project facilities, or otherwise 
dispose of any property acquired pursuant to the Loan Guarantee 
Agreement or take any other necessary action which the Secretary deems 
appropriate, in order that the original goals and objectives of the 
project will, to the extent possible, be realized.
    (k) In addition to foreclosure and sale of collateral pursuant 
thereto, the U.S. Attorney General shall take appropriate action in 
accordance with rights contained in the Loan Guarantee Agreement to 
recover costs incurred by the Government as a result of the defaulted 
loan or other defaulted obligation. Any recovery so received by the 
U.S. Attorney General on behalf of the Government shall be applied in 
the following manner: First to the expenses incurred by the U.S. 
Attorney General and DOE in effecting such recovery; second, to 
reimbursement of any amounts paid by DOE as a result of the defaulted 
obligation; third, to any amounts owed to DOE under related principal 
and interest assistance contracts; and fourth, to any other

[[Page 60145]]

lawful claims held by the Government on such process. Any sums 
remaining after full payment of the foregoing shall be available for 
the benefit of other parties lawfully entitled to claim them.
    (l) If there was a partial guarantee of the Guaranteed Obligation 
by DOE, the remaining funds received as a result of the liquidation of 
project assets may, if so agreed in advance, be applied as follows:
    (1) First, to the payment of reasonable and customary fees and 
expenses incurred in the liquidation; and
    (2) Second, distributed among the Holders of the debt on no greater 
than a pro rata share basis.
    (m) No action taken by the Eligible Lender or other Holder or other 
servicer in the liquidation of any pledged assets will affect the 
rights of any party, including the Secretary, having an interest in the 
loan or other debt obligations, to pursue, jointly or severally, to the 
extent provided in the Loan Guarantee Agreement, legal action against 
the Borrower or other liable parties, for any deficiencies owing on the 
balance of the Guaranteed Obligations or other debt obligations after 
application of the proceeds received upon liquidation.
    (n) In the event that the Secretary considers it necessary or 
desirable to protect or further the interest of the United States in 
connection with the liquidation of collateral or recovery of 
deficiencies due under the loan, the Secretary will take such action as 
may be appropriate under the circumstances.
    (o) Nothing in this part precludes the Secretary from purchasing 
the Holder's interest in the project upon liquidation.


Sec.  609.16  Perfection of liens and preservation of collateral.

    (a) The Loan Guarantee Agreement and other documents related 
thereto shall provide that:
    (1) The Eligible Lender or, or DOE in conjunction with the Federal 
Financing Bank where the loan is funded by the Federal Financing Bank, 
or other Holder or other servicer will take those actions necessary to 
perfect and maintain liens, as applicable, on assets which are pledged 
as collateral for the guaranteed portion of the loan; and
    (2) Upon default by the Borrower, the holder of pledged collateral 
shall take such actions as the Secretary may reasonably require to 
provide for the care, preservation, protection, and maintenance of such 
collateral so as to enable the United States to achieve maximum 
recovery from the pledged assets. The Secretary shall reimburse the 
holder of collateral for reasonable and appropriate expenses incurred 
in taking actions required by the Secretary. Except as provided in 
Sec.  609.15, no party may waive or relinquish, without the consent of 
the Secretary, any collateral securing the Guaranteed Obligation to 
which the United States would be subrogated upon payment under the Loan 
Guarantee Agreement.
    (b) In the event of a default, the Secretary may enter into such 
contracts as the Secretary determines are required to preserve the 
collateral. The cost of such contracts may be charged to the Borrower.


Sec.  609.17  Audit and access to records.

    (a) The Loan Guarantee Agreement and related documents shall 
provide that:
    (1) The Eligible Lender, or DOE in conjunction with the Federal 
Financing Bank where loans are funded by the Federal Financing Bank or 
other Holder or other party servicing the Guaranteed Obligations, as 
applicable, and the Borrower, shall keep such records concerning the 
project as is necessary, including the Pre-Application, Application, 
Term Sheet, Conditional Commitment, Loan Guarantee Agreement, Credit 
Agreement, mortgage, note, disbursement requests and supporting 
documentation, financial statements, audit reports of independent 
accounting firms, lists of all project assets and non-project assets 
pledged as security for the Guaranteed Obligations, all off-take and 
other revenue producing agreements, documentation for all project 
indebtedness, income tax returns, technology agreements, documentation 
for all permits and regulatory approvals and all other documents and 
records relating to the Eligible Project, as determined by the 
Secretary, to facilitate an effective audit and performance evaluation 
of the project; and
    (2) The Secretary and the Comptroller General, or their duly 
authorized representatives, shall have access, for the purpose of audit 
and examination, to any pertinent books, documents, papers and records 
of the Borrower, Eligible Lender or DOE or other Holder or other party 
servicing the Guaranteed Obligation, as applicable. Such inspection may 
be made during regular office hours of the Borrower, Eligible Lender or 
DOE or other Holder, or other party servicing the Eligible Project and 
the Guaranteed Obligations, as applicable, or at any other time 
mutually convenient.
    (b) The Secretary may from time to time audit any or all items of 
costs included as Project Costs in statements or certificates submitted 
to the Secretary or the servicer or otherwise, and may exclude or 
reduce the amount of any item which the Secretary determines to be 
unnecessary or excessive, or otherwise not to be an item of Project 
Costs. The Borrower will make available to the Secretary all books and 
records and other data available to the Borrower in order to permit the 
Secretary to carry out such audits. The Borrower should represent that 
it has within its rights access to all financial and operational 
records and data relating to Project Costs, and agrees that it will, 
upon request by the Secretary, exercise such rights in order to make 
such financial and operational records and data available to the 
Secretary. In exercising its rights hereunder, the Secretary may 
utilize employees of other Federal agencies, independent accountants, 
or other persons.


Sec.  609.18  Deviations.

    To the extent that such requirements are not specified by the Act 
or other applicable statutes, DOE may authorize deviations on an 
individual request basis from the requirements of this part upon a 
finding that such deviation is essential to program objectives and the 
special circumstances stated in the request make such deviation clearly 
in the best interest of the Government. DOE will consult with OMB and 
the Secretary of the Treasury before DOE grants any deviation that 
would constitute a substantial change in the financial terms of the 
Loan Guarantee Agreement and related documents. Any deviation, however, 
that was not captured in the Credit Subsidy Cost will require either 
additional fees or discretionary appropriations. A recommendation for 
any deviation shall be submitted in writing to DOE. Such recommendation 
must include a supporting statement, which indicates briefly the nature 
of the deviation requested and the reasons in support thereof.

 [FR Doc. E7-20552 Filed 10-22-07; 8:45 am]
BILLING CODE 6450-01-P