DOE Announces Final Rule for Advanced Energy Technology Loan Guarantee Program; Tesla Motors Among 16 Pre-Applicants Invited to Submit Final Applications

5 October 2007

The US Department of Energy (DOE) has issued the final regulations for the loan guarantee program authorized by Title XVII of the Energy Policy Act of 2005 (EPAct). Also today, DOE invited 16 project sponsors, who submitted pre-applications last fall, to submit full applications for loan guarantees.

These projects include advanced technologies involving the uses of biomass, fossil energy, solar, industrial energy efficiency, electricity delivery and energy reliability, hydrogen, and alternative fuel vehicles.

The following is a summary of the 16 projects and sponsors invited to submit full applications.

The final regulation provides that the Department may issue guarantees for up to 100% of the amount of a loan, subject to the EPAct limitation that DOE may not guarantee a debt instrument for more than 80% of the total cost of an eligible project. Under the final rule, if DOE issues a guarantee for 100% of a debt instrument, the loan must be issued and funded by the Treasury Department’s Federal Financing Bank.

While Congress must provide authority in an appropriations act for the loan guarantees that the Department will issue, DOE’s intent is to only issue loan guarantees if borrowers and project sponsors pay the “credit subsidy cost” for any loan guarantee they receive. Therefore, DOE does not plan to use taxpayer funds to pay for the credit subsidy costs of these loan guarantees.

The final regulation also provides for the following:

• The Title XVII loan guarantee program will be implemented through a series of solicitations. The solicitations may target specific technology areas or be general;

• Eligible projects must employ new or significantly improved technologies that avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases as compared to commercial technologies in service in the United States at the time the loan guarantee agreement is executed;

• The guaranteed portion of a partially guaranteed loan may be separated from or "stripped" from the non-guaranteed portion, except in cases where the guarantee exceeds 90 % of the loan amount;

• In the event of a loan default, DOE will have a superior lien on all project assets pledged as collateral for the guaranteed loan; however, the final rule allows for the possibility in a default situation that lenders and holders of the non-guaranteed debt could share proportionately with the Department in proceeds from the sale of project assets pledged as collateral. A pari passu structure will not be permitted to override the Department’s superior right to project assets;

• The Secretary of Energy must determine that there is a “reasonable prospect” of repayment of the guaranteed debt before a loan guarantee may be issued;

• DOE must charge and collect fees sufficient to cover applicable administrative expenses;

• Borrower–paid Credit Subsidy Costs and administrative fees paid to DOE may not be included within total project costs for the purposes of determining the amount of guarantees that DOE can issue for a project;

• A project’s receipt of other governmental assistance does not disqualify a project from receiving a Title XVII loan guarantee; however, when evaluating a project’s application for a Title XVII loan guarantee, DOE will consider the extent to which a project will receive other governmental assistance, (e.g., grants, tax credits, other loan guarantees); and

• The borrower must have a significant equity stake in a project, and proceeds from guaranteed or non-guaranteed debt, and the value of government grants and other assistance, will not be counted as “equity.”

Congress currently is considering the Department’s Fiscal Year (FY) 2008 Budget request for $9 billion in loan guarantee authority and $8.4 million to run the Loan Guarantee office. Both of these actions are important for the successful execution of this program. DOE’s issuance of additional loan guarantee program solicitations is dependent on receiving adequate additional authorization from the Congress and funding for the operation of its Loan Guarantee program office.

The 16 pre-applicants invited today to submit full loan guarantee applications for review must inform DOE by 30 October 2007 if they plan to submit a full application. The full application review will be subject to the final regulations issued today. The decision to issue loan guarantees will depend on the merits and benefits of particular project proposals and their compliance with statutory and regulatory requirements. The pre-applicants not selected to submit full applications from this solicitation can reapply for future solicitations, for which their project is eligible.