|
 | |
|
$38 Billion in U.S. Loan Guarantees for Alternative Energy Technologies – Overview of Selection Process and Financing Terms
|
|
June 23, 2008
|
|
|
|
By Ellen Friedman and Matthew Murphy
Thelen Reid Brown Raysman & Steiner LLP
Statutory and Regulatory Overview
In the next several months, the Department of Energy (DOE) is scheduled to issue two more solicitations for nearly $38 billion in loan guarantees intended to foster innovative alternative energy projects.
This program was authorized in 2005 by the Energy Policy Act. Under it, the federal government assumes part of the financial risk of projects that employ technologies not yet in wide commercial use.
The program supports 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." 42 USC §16513.
(On June 30, DOE formally opened the solicitation process for $30.5 billion in federal loan guarantees. Click here for details on the solicitation from our affiliate, www.ClimateLawUpdate.com.)
This article will highlight key provisions of the loan guarantee program.
The act specifies 10 categories of projects eligible for the program:
|  | Renewable energy systems.
|
| | Advanced fossil energy technology, including certain coal gasification projects.
|
| | Hydrogen fuel cell technology for residential, industrial or transportation applications.
|
| | Advanced nuclear energy facilities.
|
| | Carbon capture and sequestration practices and technologies, including agricultural and forestry practices that store and sequester carbon.
|
| | Efficient electrical generation, transmission and distribution technologies.
|
| | Efficient end-use energy technologies.
|
| | Production facilities for fuel efficient vehicles, including hybrid and advanced diesel vehicles.
|
| | Pollution control equipment.
|
| | Oil refineries.
|
42 USC §16513.
While Title XVII of the act provides the basic framework for loan guarantees, §20320(b) of Public Law 110-5 required DOE to formulate regulations for issuance of loan guarantees.
On May 16, 2007, DOE published a Notice of Proposed Rulemaking and Opportunity for Comment giving interested parties the opportunity to review and comment on regulations proposed for the program. After significant discussion, DOE published final regulations that became effective on October 23, 2007.
The regulations seek to clarify the act's requirements and set out application procedures for loan guarantees, an outline of terms and conditions for loan guarantee agreements, and a list of the records and documents that project participants must maintain and have available for inspection.
The program will be implemented through a series of solicitations (as opposed to allowing for rolling submission of applications). The solicitation may be for general or target-specific types of innovative technology. The initial solicitation for pre-applications was issued in August 2006. This resulted in submission of 143 pre-applications, of which 16 pre-applicants were invited to submit follow-up applications. See, list at Table A.
Congressional Appropriation and Upcoming Solicitations
The 2008 Omnibus Fiscal Appropriations Act extends DOE's loan guarantee authority until September 30, 2009. Congress has appropriated a total of $38.5 billion to be used for guarantees. As indicated in DOE's 2008 fiscal year implementation plan issued in April 2008, DOE will issue a second round of solicitations no later than June 2008 providing for up to $30.5 billion in guarantees in these areas:
The third round of solicitations is expected in late summer 2008 for $8 billion in advanced fossil energy projects, including coal-based power generation facilities, industrial gasification activities at retrofitted and new facilities that incorporate carbon capture and sequestration, and advanced coal gasification facilities.
The solicitations are required to include the programmatic, technical, financial and other factors that DOE will use in evaluating responses and the weighting of those factors. In evaluating pre-applications, DOE has indicated that it will focus on the degree to which the project addresses avoidance of greenhouse gas emissions and other air pollutants; the speed at which the technology can be commercialized; the project's cost-saving potential to consumers; the likelihood of repayment by project sponsors; and the potential for continuing success of the technology in the commercial marketplace.
To respond to a DOE solicitation, a project sponsor must submit a detailed pre-application consistent with §609.4 of the regulations (included at Table B). DOE, after reviewing a pre-application in accordance with §609.5 of the regulations (included at Table C), may invite the project sponsor to submit a comprehensive application (requirements are included at Table D) and fees.
Eligible Projects and Technologies
In addressing Title XVII's requirement that the proposed project must involve "new or significantly improved technology," DOE noted that this means the technology be either new (only recently developed, discovered or learned) or represent a significant improvement in the use of a technology that already is commercially applied in the United States. 10 CFR §609.2. Title XVII defines "Commercial Technologies" as "a technology in general use in the commercial marketplace." 22 USC §16511. The regulations state that 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." 10 CFR §609.2. This five-year period runs from the in-service date of the project or facility employing the technology. 10 CFR §609.2. The regulations make no distinction between nuclear power generation projects and other projects.
Financing Issues Regarding the Loan Guarantee Program
Percentage of Project Costs Supported by DOE Loan Guarantee
Title XVII provides that loan guarantees may not exceed 80 percent of the cost of the project as estimated at the time the guarantee is issued. 22 USC §16512. The regulations similarly provide that the "face value of the debt guaranteed by DOE is limited to no more than 80 percent of total Project Costs." 10 CFR §609.10(d)(3). "Project Costs" are defined as "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." 10 CFR §609.2. They expressly exclude the credit subsidy, discussed below, collected by DOE for issuance of a loan guarantee.
Regarding the 80 percent cap on guarantees, the regulations allow DOE to guarantee up to 100 percent of a loan provided that the guarantee does not amount to guaranteeing more than 80 percent of total project costs. This represents an important shift in position by DOE. However, if a 100 percent guarantee is given, the loan must be funded by the Federal Financing Bank. 10 CFR §609.10(d)(4)(i). The Federal Financing Bank was created by the Federal Financing Bank Act of 1973 and is supervised by the Treasury Secretary. 10 CFR §609.2. For guarantees of less than 100 percent, the regulations allow the loan to be funded by any eligible lender. 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §B.
"Stripping" Guaranteed and Non-Guaranteed Tranches
The regulations allow "stripping" of the guaranteed and non-guaranteed tranches of a loan so the tranches can be separately syndicated to different groups of lenders. Stripping is permitted only if DOE has guaranteed 90 percent or less of a loan. 10 CFR §609.10(d)(4)(iii). When DOE guarantees more than 90 percent of a loan, the guaranteed and non-guaranteed tranches cannot be stripped. 10 CFR §609.10(d)(4)(ii). This prohibition is in response to DOE's concerns that when it guarantees more than 90 percent of a loan, there may an insufficient non-guaranteed debt to prompt reasonable and appropriate debt market due diligence, thereby placing unnecessary risks and costs on taxpayers.
Lien Priority of Guaranteed Loans, Pari Passu Lien Structures
The Energy Secretary must maintain lien priority over assets acquired under a guarantee or related agreements. 22 USC §16512. This requirement was interpreted in the Notice of Proposed Rulemaking to prohibit pari passu structures between multiple interested parties regarding assets pledged as collateral to secure debt. Pari passu structures are common in project financing transactions involving multiple creditors, allowing for multiple parties to share proportionately in the proceeds derived from disposition of pledged assets in the event of a default.
In the final regulations, DOE concluded that although the act requires DOE to maintain first lien priority on all project assets, this requirement does not prohibit the DOE from negotiating intercreditor agreements with other parties as to how the proceeds from the sale of collateral will be shared when DOE has guaranteed less than 100 percent of a loan. 10 CFR §609; Public Comments to Notice of Public Responsibility and DOE Responses, §B. Even so, DOE would retain the "controlling party" position, making decisions in its sole authority, regarding disposition of project assets. When DOE has guaranteed 100 percent of a loan, all other debt for the project must be subordinate. 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §B.
Equity Contribution Requirement
While Title XVII provides that 80 percent of project costs can be guaranteed under the program, it does not specify how a project sponsor may obtain the remaining 20 percent of funding for an eligible project. 1/ In the Notice of Proposed Rulemaking, DOE provided that an application would be rejected if the project sponsor failed to provide a "significant equity interest." This language was not carried over to the final regulations. DOE instead has provided that it will evaluate both the type and degree of equity contribution proposed when considering whether a project sponsor has contributed an appropriate amount of equity. 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §B. When evaluating an equity contribution, DOE will count all cash contributions from the borrower and other project principals as "equity" but will not count proceeds from the non-guaranteed portion of any debt supported by a Title XVII guarantee or proceeds from any other non-guaranteed debt. Similarly, DOE will not include the value of other forms of government assistance as "equity." 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §B.
The final regulations provide that an application will be denied if the applicant "will not provide an equity contribution." 10 CFR §609.7(a)(6). DOE dropped the "significant equity interest" language in the belief that, in many cases, it would be impracticable to evaluate the significance of an equity contribution at the time an application is submitted. Because of the impracticability, DOE concluded it would be unfair to disqualify applications on this basis. However, DOE has kept the amount of equity to be contributed on the list of factors considered in evaluating an application. 10 CFR §609.7(b)(7).
Although the simplest method of determining whether a project includes a proper equity contribution would be to specify a minimum percentage of equity, DOE decided against such an approach, recognizing that a rigid requirement would not square with the wide-range of financing arrangements and differing circumstances for the varying types of technologies and projects eligible for the program.
Impact of Securing Other Government Assistance on the Availability of Loan Guarantees
The regulations state that DOE will consider "[w]hether and to what extent the [a]pplicant 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." 10 CFR §609.7(b)(9). Initially, DOE stated that a project receiving other governmental assistance (be it federal, state or local) would be looked upon negatively when compared with a competing project that was receiving no additional governmental assistance. After public comment, DOE dropped the negative connotation that it had sought to attach to projects that relied on other governmental assistance. This is not to say that DOE may not continue to negatively view projects that receive other governmental funding - only that such a connotation will not automatically be attached to those projects.
Credit Assessment and Credit Rating Requirements
The regulations impose two requirements relating to evaluation of the credit worthiness of projects. First, when estimated total project costs exceed $25 million, the applicant must submit, along with its application, a preliminary credit assessment from a nationally recognized rating agency for the project absent any loan guarantee. 10 CFR §609.6(b)(21). The preliminary assessment must be based on the underlying economic strength of the borrower or project. For projects with estimated total costs of $25 million or less, the assessment is not mandatory. However, DOE retains the right to require a preliminary credit assessment. 10 CFR §609.6(b)(21).
The second requirement calls for applicants to provide "a credit rating from a nationally recognized rating agency reflecting the revised Conditional Commitment (defined to mean the terms provided by DOE to the applicant in a term sheet) for the project without a Federal guarantee." 10 CFR §609.9(f). This requirement is mandatory for projects with estimated total costs of more than $25 million and may be required for projects with estimated total costs of less than $25 million. 10 CFR §609.9(f). Whenever a credit rating is provided, an updated rating must be given to DOE within 30 days before closing. 10 CFR §609.9(f). Both of these requirements were included in order to improve DOE's ability to accurately assess the risks and benefits of projects.
DOE has not provided a range of acceptability for credit risk. However, the indications of risk from credit ratings are valuable to DOE in determining whether the interest rate on a guaranteed obligation is reasonable. This determination of reasonableness is required before DOE may enter into a loan guarantee agreement. 10 CFR §609.10(d)(12). When evaluating the reasonableness of the interest rate imposed on a guaranteed obligation, DOE also will consult with the Treasury Department and compare the interest rate with the range of interest rates prevailing in the private sector for similar obligations of comparable risk guaranteed by the federal government. 10 CFR §609.10(d)(12).
Fitch Ratings recently has reported that loans guaranteed under the program will be evaluated on the same basis as loans that have been guaranteed pursuant to other loan guarantee programs in which Fitch has participated, such as loans guaranteed under the Air Transportation Stabilization Board loan guarantee program of 2001. Fitch will undertake sensitivity analyses to determine the borrower's ability to cope with changes to the construction plan, operating performance, market environment, financing terms, unforeseen contingencies and other potential risks. See, "Fitch's Perspective on the US Department of Energy's Loan Guarantee Program," p. 4.
Fitch will rate qualifying guaranteed loans with the same "AAA" credit-rating that other U.S. government obligations currently receive, "subject to a liquidity source to bridge the 60-day time until payment under the guarantee if the funding source is a private-sector lender." Id. at p. 6. However, when the lending source is the Federal Financing Bank (when the guarantee covers 100 percent of the debt instrument), such a liquidity source will not be required. The other major rating agencies expect to work together with borrowers to develop preliminary credit assessments to be submitted with such borrower's loan guarantee application.
Credit Subsidy Costs
Credit subsidy costs designed to compensate DOE for the risk assumed by issuing the loan guarantee must be paid by in full the borrower. DOE is working to develop a methodology to calculate this cost. It is expected to take into account the terms and conditions of the guaranteed debt and the risks associated with the project, including the timing and risks associated with cash flows.
DOE has taken the position that such cost should be calculated consistent with the Federal Credit Reform Act and OMB Circular A-11. The credit subsidy cost is "defined as "the net present value, at the time the Loan Guarantee Agreement is executed, of the following cash flows, discounted to the point of disbursement: estimated payments by the government to cover defaults and delinquencies, interest subsidies, or other payments (i.e., default claim payments) net of payments to the government (i.e., recoveries). 10 CFR §609.2.
The credit subsidy cost is not included in the estimation of total project costs, and project sponsors are required to pay credit subsidy costs. 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §C. DOE has indicated that although Title XVII allows it to seek appropriations to pay credit subsidy costs, it has no current intention to seek such appropriation for any projects.
By excluding credit subsidy costs from total project costs, DOE eliminated the possibility that these costs could be transferred to the taxpayer in the event of a default. While DOE has pledged to provide project sponsors with an estimate of the credit subsidy costs at the time a term sheet is presented, an accurate calculation of these costs can only be provided at the time of the loan guarantee agreement. DOE notes that applicants are free to withdraw their applications if they decide that the credit subsidy cost is too great. 10 CFR §609, Public Comments to Notice of Proposed Rulemaking and DOE Responses, §E.
Guarantee Terms
The final regulations make clear that both a payment default or a non-payment default can serve as the basis for a claim under a DOE loan guarantee. In the case of a non-payment default, however, DOE must independently determine that such default has materially affected the rights of the parties and find that the guaranteed lenders are entitled to receive payment pursuant to the loan guarantee agreement. After a non-payment default, DOE may cause the principal amount of all guaranteed obligations, accrued interest and all amounts owed by the borrower to the United States under the loan guarantee agreement to be accelerated without consent or other action by the guaranteed lenders. Payment is required under the loan guarantee 60 days after DOE receives written demand for payment, provided that such demand complies with the terms of the loan guarantee agreement. Once DOE makes payment, it becomes subrogated to the rights, including liens and collateral rights, of the guaranteed lenders.
Additional Requirements
Borrowers are required to pay all principal and interest on any guaranteed obligations and other project debt within 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 GAAP. 10 CFR §609.10(d)(6).
The non-guaranteed portion of any guaranteed obligation must be repaid on a pro rata basis. It may not be repaid under a shorter amortization schedule than the guaranteed portion. 10 CFR §609.10(d)(6). Further, the loan guarantee agreement may never finance, directly or indirectly, any tax-exempt debt obligations, consistent with the requirements of §149(b) of the Internal Revenue Code. 10 CFR §609.10(d)(7). Finally, DOE must conclude that the borrower has pledged project assets and other collateral (including non project-related assets) sufficient to secure repayment of the guaranteed obligations. 10 CFR §609.10(d)(10).
If you would like to receive legal reports and updates more quickly, by e-mail, click here and fill out the mailing list form.
For more information about the issues covered in this report, please contact Ellen S. Friedman in our New York office at 212-603-2105 or at efriedman@thelen.com or Matthew Murphy in our New York office at 212-603-8962 or at mmurphy@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
ENDNOTE
1/
| Project sponsor is defined as a person or entity that "assumes substantial responsibility for the development, financing and structuring of [an eligible project] and, if not the applicant, owns or controls, by itself and/or through individuals in common or affiliated business entities, a 5 percent or greater interest in the proposed eligible project, or the applicant." 10 CFR §609.2.
|
TABLE A: Pre-Applicants Selected to Submit Applications for the First Solicitation Round
Source: Department of Energy press release dated October 4, 2007
ADVANCED ENERGY PROJECTS
Mesaba Energy Project (MEP-I, LLC)
Plans to build a state-of-the-art integrated gasification combined cycle plant that would allot space in its design for CO2 capture and storage.
Mississippi Power Co.
Plans to build an integrated gasification combined cycle plant that would commercialize a first-of-its-kind application and allow CO2 capture.
TX Energy, LLC
Plans to commercialize a new polygeneration gasification facility that can isolate a significant concentrated stream of CO2 while producing large amounts of power and methanol.
INDUSTRIAL ENERGY EFFICIENCY PROJECTS
GR Silicate Nanofibers and Carbonates
Plans a highly energy-efficient process for manufacturing paper.
Sage Electrochromics
Plans to develop a manufacturing facility that would produce energy-efficient windows for the commercial and residential building sectors.
SOLAR ENERGY PROJECTS
Luz II
Plans a large-scale power project using concentrated solar-thermal technology.
Solyndra, Inc.
Plans to manufacture highly efficient thin-film photovoltaic modules.
ELECTRICITY DELIVERY AND ENERGY RELIABILITY PROJECT
Beacon Power
Developing a system that will enhance peak performance of electric generation over the power grid.
HYDROGEN PROJECT
Bridgeport Fuel Cell Park, LLC
Plans to build the largest single-site installation of fuel cells in the world.
ALTERNATIVE FUELS VEHICLE PROJECT
Tesla Motors
Plans to build a battery-powered vehicle with enhanced range that can be produced for the consumer market.
BIOMASS PROJECTS
Alico, Inc.
Plans a first-of-a-kind commercial-scale cellulosic ethanol plant that would use multiple feedstocks and produce multiple products.
Blue Fire Ethanol, Inc.
Plans to build a commercial-scale cellulosic ethanol plant using an array of low-cost feedstocks.
Choren USA
Plans to construct an industrial-scale biomass gasification facility for clean synthetic diesel fuels in the United States.
Endicott Biofuels, LLC
Plans to construct a second-generation biodiesel and bio-derived products plant that would feature a high level of feedstock flexibility, allowing for the production of a broad range of biodiesel fuels.
Iogen Biorefinery Partners, LLC
Plans to build a biorefinery to produce ethanol from a wide range of cellulosic feedstocks and produce other byproducts of value to several industries.
Voyager Ethanol, LLC
Plans to build a cellulosic ethanol plant that can accommodate multiple feedstocks in the production of ethanol and higher value byproducts.
TABLE B: Pre-Application Requirements
10 CFR §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;
|
| (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 lifecycle, 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.
|
TABLE C: DOE Evaluation of Pre-Applications
10 CFR §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 § 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.
|
TABLE D: Application Requirements
10 CFR §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;
|
|
| (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.
|
©2008 Thelen Reid Brown Raysman & Steiner LLP
|
|
|
