# Renewable Energy Systems and Energy Efficiency Improvements Grant, Guaranteed Loan, and Direct Loan Program > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A05-13685 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** July 18, 2005 - **Citation:** 70 FR 41264 ## Text DEPARTMENT OF AGRICULTURE Rural Business-Cooperative Service Rural Utilities Service 7 CFR Part 4280 RIN 0570-AA50 Renewable Energy Systems and Energy Efficiency Improvements Grant, Guaranteed Loan, and Direct Loan Program AGENCY: Rural Business-Cooperative Services, USDA. ACTION: Final rule. SUMMARY: The Rural Business-Cooperative Service (RBS) is establishing a program for making grants, loan guarantees, and direct loans to farmers and ranchers (agricultural producers) or rural small businesses to purchase renewable energy systems and make energy efficiency improvements. The Farm Security and Rural Investment Act of 2002 (2002 Act) established the Renewable Energy Systems and Energy Efficiency Improvements Program under Title IX, Section 9006. This program will help farmers, ranchers, and rural small businesses to reduce energy costs and consumption. EFFECTIVE DATE: This rule is effective July 18, 2005. FOR FURTHER INFORMATION CONTACT: Georg A. Shultz, Special Advisor for Renewable Energy Policy and Programs, Office of the Deputy Administrator Business Programs, U.S. Department of Agriculture, Mail Stop 3220, 1400 Independence Ave., SW., Washington, DC 20250-3220, Telephone: (202) 720-2976. SUPPLEMENTARY INFORMATION: The information presented in this preamble is organized as follows: I. Authority II. Background III. Summary of Changes Since Proposal A. Applicant Eligibility B. Project Eligibility C. Funding, Matching Funds, and Terms of Loan D. Eligible Project Costs E. Application F. Documentation G. Evaluation of Applications H. Guaranteed Loan Processing and Servicing I. Construction Planning and Development J. Definitions K. Insurance L. Feasibility Studies M. Energy Audits N. Project Requirements After Construction IV. Discussion of Comments A. Definitions B. Demonstrated Financial Need C. Applicant Eligibility D. Project Eligibility E. Application and Documentation F. Funding G. Evaluation/Scoring of Applications H. Guaranteed Loans I. Direct Loans J. Laws That Contain Other Compliance Requirements K. Construction Funding and Management L. Miscellaneous V. Regulatory Information A. Paperwork Reduction Act B. Intergovernmental Review C. Regulatory Flexibility Act D. Civil Justice Reform E. National Environmental Policy Act F. Unfunded Mandates Reform Act G. Executive Order 13132, Federalism H. Executive Order 12866, Regulatory Planning and Review I. Authority The Farm Security and Rural Investment Act of 2002 (Pub. L. 107-171) (2002 Act) established the Renewable Energy Systems and Energy Efficiency Improvements Program under Title IX, Section 9006 (7 U.S.C. 8106). The 2002 Act mandates that the Secretary of Agriculture create a program to make loans, loan guarantees, and grants to “a farmer, rancher, or rural small business” to purchase renewable energy systems and make energy efficiency improvements. This program implements this mandate. II. Background On October 5, 2004, USDA proposed a loan and grant program for renewable energy systems and energy efficiency improvements under Section 9006 of the 2002 Farm Bill. In response to the Nation's immediate need for a reduction in reliance on foreign oil, and to address the increasing demand for readily available energy, the Agency is waiving the 30-day waiting period between publication of the rule and when it will take effect. Since publication of the proposed rule, energy prices have continued to rise at an aggressive rate, affecting the Nation at every level, due to international events, increasing demand, and low domestic inventories and refinery capacities. Allowing the earliest possible investment in renewable energy production systems and energy efficiency improvements will help the Nation address the current situation. Effecting the rule without the 30-day waiting period will provide maximum application time prior to the end of the fiscal year to ensure the greatest level of investment possible. The 9006 Grant Program has been operational since the 2003 fiscal year and the final rule makes only minor changes to the proposed rule and how the 9006 Grant Program has been operated before. As a result, grant applications are not expected to be disadvantaged by this rule's earlier implementation. Likewise, because the 9006 Guaranteed Loan Program is substantially modeled after the Business and Industry Guaranteed Loan Program and because the Final Rule makes only minor changes to the Proposed Rule, guaranteed loan applications are not expected to be disadvantaged by this rule's earlier implementation. For these reasons, the Agency finds that good cause exists for this rule's immediate implementation. III. Summary of Changes Since Proposal The following paragraphs summarize the major changes in the final rule from the rule proposed on October 5, 2004. A. Applicant Eligibility Under the final rule, a provision has been added that an applicant must have made satisfactory progress, as determined by the Agency, towards the completion of a previously funded project before it will be considered for subsequent funding. Small business headquarters may be in either a rural or non-rural area at the time of application and at the time of grant disbursement. Because the headquarters may be in either location, the proposed rule does not need to address this. B. Project Eligibility A condition has been added to project eligibility that sites must be controlled by the agricultural producer or small business for the proposed financing term of any associated Federal loans or loan guarantees. This concept was in the proposed rule as part of the technical report requirements. The language has been modified concerning control of the system and the role of third parties for clarification, and concerning satisfactory sources of revenues. For guaranteed loans only, we have added capital improvements to an existing renewable energy system as an eligible project. C. Funding, Matching Funds, and Terms of Loan Minimum Funding Levels. Under the final rule, minimum funding level for grants for energy efficiency improvement projects only has been reduced from $2,500 to $1,500. For guaranteed loans, the minimum funding level for all projects has been increased from $2,500 to $5,000 (less any program grant amounts). Maximum Funding Levels. For grants, the final rule clarifies that the $750,000 maximum applied on a per Federal fiscal year basis. Matching funds. Under the final rule, passive third-party contributions are acceptable matching funds for renewable energy system projects eligible for Federal production tax credits, provided the applicant meets the applicant eligibility requirements. The proposed rule did not address passive third-party contributions. Terms of Loan. The maximum term of a loan for equipment has been increased from 15 years to 20 years. The conditions used to determine whether a loan is sound have been modified to add renewable energy subsidies, incentives, tax credits, etc., and the borrower's overall credit quality. A principal plus interest repayment schedule is now permissible. D. Eligible Project Costs The final rule includes the Technical Reports as an eligible cost. Modifications were made concerning the construction of a new facility. E. Application Simplified Application Procedures. Under the final rule, for grants and direct loans, projects with total eligible project costs of $200,000 or less are eligible to submit simplified applications. The final rule provides specific criteria to determine if a project is eligible and certain conditions that must be agreed to by the applicant. For guaranteed loans, the final rule adopts the “short form” (Form RD 4279-1A) used in the Business and Industry Guaranteed Loan (B&I) Program. This form can be used by lenders for projects with total eligible project costs equal to or less than $600,000. Self-Scoring. Applicants are now required to conduct a self-evaluation of their project using the same evaluation criteria that the Agency will use. F. Documentation Technical Reports. The final rule incorporates a new set of technical reports for projects that qualify for simplified applications (see paragraph III E). These technical reports require less information than the technical reports presented in the proposed rule. For projects that do not qualify for simplified applications, the more detailed technical reports are required. Financial Information. For projects that qualify for and use simplified applications, there is much less financial information being requested. Interconnection Agreements. Applicants are not required to submit interconnection agreements with their applications, but instead are required to discuss the interconnection agreements, if applicable to their project. G. Evaluation of Applications Significant changes were made to the evaluation of applications. These changes can be categorized as changes in the evaluation criteria and changes in the points awarded. The overall scoring was also modified to allow all projects the opportunity to score the same total number of points. The following summarizes most of the changes to the criteria between proposal and promulgation (changes in points are not presented for most criteria). 1. The addition of a scoring criterion for the technical merit of proposed projects. 2. The deletion of the management criterion. 3. The addition of a scoring criterion for very small businesses. 4. Modification of the criterion for small agricultural producers by reducing the gross market values at which points can be awarded. 5. The addition of a scoring criterion for submitting simplified applications. 6. Modification of the environmental benefits criterion by replacing “health and sanitation” with “environmental goals” as the basis for this criterion. 7. The deletion of the cost-effectiveness criterion, which was incorporated into the new technical merit criterion. 8. Awarding points for energy replacement, energy savings, or energy generation (at proposal, only energy replacement and energy generation were included) and by reducing the points available for energy generation projects from 20 to 10. 9. Modifying the interest rate criterion to be consistent with the B&I program by reducing the rate from 1.75 percent to 1.5 percent above the prime rate. 10. The addition of a scoring criterion that awards 5 points to an applicant's overall score if the applicant has not been approved to receive funds in the 2 previous Federal fiscal years. 11. The replacement of the “matching funds” criterion for grants with a “readiness” criterion, which looks at the commitments an applicant has received for the matching funds from other sources instead of the amount of the matching funds already received from other sources. H. Guaranteed Loan Processing and Servicing For guaranteed loans, the final rule tracks the B&I program more closely. The most important aspects that have changed are: (1) Expanding the universe of eligible lenders and (2) authorizing the use of multi-notes. Other changes included: Credit Quality. A provision has been added that guaranteed loans made under 7 CFR part 4280, subpart B must have at least parity with guaranteed loans made under the B&I program. In addition, a provision has been added that the current status of the appropriate renewable energy industry will be considered. Personal and Corporate Guarantees. Under the final rule, personal and corporate guarantees are not required from passive investors. I. Construction Planning and Development In the final rule, 7 CFR 1924, subpart A has been replaced with 7 CFR 1780, subpart C. Similarly, for equipment procurement, 7 CFR 1924, subpart A has been replaced with 7 CFR 3015. J. Definitions Small Business. Several changes and modifications were made to this definition to be consistent with the Small Business Administration's (SBA's) definition, deleting the 500 or fewer employees and $20 million or less in total annual receipts cap, and including certain electric utilities. Nonprofit entities that meet SBA's definition of “small business” are now allowed. Demonstrated Financial Need. The major change to this definition was the addition of a “cashflow” test. New Definitions. The final rule adds definitions for each of the renewable technologies and the following terms: Design/build project development method. Energy assessment. Energy assessor. Energy auditor. Feasibility study. Necessary capital improvement. Passive investor. Post application. Qualified consultant. Qualified party. Simplified application. Used equipment. Very small business. Modified Definitions. The definitions of some terms were modified slightly to be consistent with the definition for those terms in the B&I program. Definitions that were modified include: Applicant. Commercially available. Energy efficiency improvement. Interim financing. Renewable energy. Renewable energy system. Deleted Definitions. Several definitions that were identical to the definitions in the B&I program were deleted and are incorporated by reference. K. Insurance Projects with total eligible project costs of $200,000 or less are not required to carry business insurance. L. Feasibility Studies Under the proposed rule, business-level feasibility studies (referred to as project-specific feasibility studies in the proposed rule) were required for all renewable energy projects exceeding $100,000 in costs. Under the final rule, business-level feasibility studies for renewable energy projects will be required for those projects whose total eligible project costs are greater than $200,000. M. Energy Audits Under the proposed rule, energy audits were required for energy efficiency improvement projects with costs greater than $100,000. Under the final rule, energy audits are required for energy efficiency improvement projects with total eligible energy costs greater than $50,000. IV. Discussion of Comments Over 60 comment letters were received from a variety of commenters. The most comment letters were received from various trade organizations and industry groups (over 15 letters) and from State agencies and organizations (over 15 letters). Various public interest groups submitted approximately 11 letters, while financial institutions (credit bureaus and banks) submitted 8 letters. Letters were also received from private individuals, towns and cities, and one Congressman. The following paragraphs summarize the comments and our responses to those comments. Twenty-one responses do not require a response under 5 U.S.C. 553. These responses involve various nonregulatory matters such as expressing support for the program or requesting additional information. Several responses were outside the scope of the regulation and made suggestions that would require changes to other USDA and non-USDA regulations or internal agency administrative matters. For these and similar reasons, these responses are not addressed in this section. A. Definitions Applicant Comment: One commenter stated that the definition of applicant does not include a reference to direct loan applicants and suggested that the definition be amended to include such a reference. Response: USDA agrees with the commenter and has revised the definition to include reference to direct loan applicants. In addition, we have revised the term “applicant” to apply to agricultural producers and rural small businesses seeking a guaranteed loan rather than to the lender that is actually submitting the loan application to USDA. We did this in order to simplify the terminology throughout the rule. Thus, wherever the term “applicant” is used, it is referring to the agricultural producer or rural small business. When the rule applies to the lender, the term “lender” is used. Biomass Comment: One commenter stated that the definition of biomass needs to be clarified. The commenter pointed out that the biomass definition refers to “other waste materials.” The commenter notes that, traditionally, municipal waste for landfill waste has been included in biomass definitions. The commenter believes that, if tires are allowed to be placed in a landfill, they may be deemed municipal waste, biomass, and inevitably renewable. This theory, according to the commenter, appears to be reinforced in the Resource Conservation and Recovery Act of 1976. In addition, the commenter points out that the State of Nevada, Nevada Revised Statute Chapter 704, has classified tires reduced using microwave technology, a very clean process, as renewable because they are part of the municipal waste stream and also because one of the components of all tires is natural rubber coming from trees. The commenter suggests that an administrative bulletin to staff, clarifying the intent of the biomass definition, is needed. Response: USDA agrees that “other waste materials” could lead to confusion. However, due to the nature, scope, and complexity of renewable energy systems using “other waste materials,” USDA cannot anticipate all types of “other waste materials.” Therefore, new materials and technologies will be considered on a case-by-case basis. Comment: One commenter requested that clarification be provided as to the interpretation of “paper that is not commonly recycled.” The commenter stated that, while they want all paper to be recycled that can be recycled, in many rural settings transportation distances to paper recycling purchase points are simply too distant to allow affordable recycling once transportation costs are figured into the equation. The commenter stated that they have evidence in Missouri of how paper pellets can be beneficially utilized as fuel at Northwest Missouri State University but cannot be affordably recycled due to the distance to any buying center. The commenter asked that USDA clarify that if transportation economics preclude affordable recycling of waste paper that this meets the criteria of “not commonly recycled.” Response: USDA agrees that the situation posed by the commenter should meet the criterion of “not commonly recycled.” The situation described arises, at least in part, out of the fact that the paper recycling is occurring in a rural area. USDA will consider this issue on a case-by-case basis. Capacity Comment: One commenter stated the definition of capacity is technically incorrect (load implies use not production of energy e.g. , the electric motor is a three kilowatt load on the system). Capacity should describe energy output in a standard measurement ( e.g. , British thermal units (BTU's), kilowatt-hours (kWh), Megawatts). The commenter suggested that it be defined as follows: “The sustainable energy output of a generation or heating unit as rated by the manufacturer or qualified independent energy organization or individual using commonly accepted standard units of measurement.” Response: The commenter makes three suggestions for revising the definition of “capacity” as follows: First, the commenter suggests that capacity be described as “energy output” and not as “load.” USDA disagrees with this suggestion. Load is equally applicable as “energy output.” Thus, this term has not been changed. Second, the commenter suggests that the definition should require capacity to express using “commonly accepted standard units of measurement.” USDA disagrees with the need to insert this language into the definition. USDA believes that manufacturer ratings will be in the same units of measurement for similar technologies. If not, conversions can be applied. Third, the commenter suggests that the energy output can also be rated by a “qualified independent energy organization or individual.” USDA disagrees with the third suggestion. The ratings assigned by a manufacturer are based on standards and provide a standardized, consistent baseline for comparisons. Some units eligible for this program could be modified by an individual after purchase to change its rating. In such instances, an individual would likely hire a third party to assign a new rating to the unit. USDA does not believe this is a desirable situation, possibly resulting in subjective assessments of the rating. Default Comment: Two commenters pointed out that there is no reference made to grants being in default, and one of the commenters (Flanders 11-04) suggested that “or grant conditions” be inserted after “* * * or more loan covenants * * *” in the third line of the definition. Response: USDA agrees with the commenter and has revised the definition of default as suggested. Demonstrated Financial Need Comment: One commenter suggested that the definition of demonstrated financial need might benefit from a more specific definition or an example—for example, “if the project is otherwise unable to achieve at least a 1.20 debt coverage ratio when a loan for the long term liability portion is amortized over the life expectancy of the project.” Response: USDA disagrees that a more specific definition is needed within the rule. The example offered by the commenter is one way for demonstrating financial need as defined by the regulation. Energy Efficiency Improvement Comment: One commenter pointed out that in the definitions section of the proposed rule, “energy efficiency improvement” is defined as “Improvement to a facility or process that reduces energy consumption.” The commenter then points out that under proposed § 4280.111(d)(10), the definition is expanded to include, “or reduced amount of energy required per unit of production are regarded as energy efficiency projects.” The commenter suggested that the definition under proposed § 4280.103 be expanded to include this concept found in proposed § 4280.111(d)(10). Response: USDA has not revised the definition as requested by the commenter. We have retained the phrase “that reduces energy consumption,” which allows an applicant to express the reduction in energy consumption in a number of ways, including, but not necessarily limited to total reduction in energy consumption, energy saved per square foot or energy saved per unit of production. Comment: One commenter stated that the definition of energy efficiency improvement is not explicit enough and recommended that USDA add language to the existing definition that clarifies that the primary benefit for the improvement must be a reduction in energy consumption. According to the commenter, some applications in 2004 relied on nonenergy benefits, such as increased product quality, as the justification for the project. For some projects, the energy efficiency savings were clearly a secondary benefit and would not have had sufficient payback to pursue on their own. While these additional benefits are valuable and should be factored into the project finances, when nonenergy benefits are the primary benefit of a proposed project, the commenter believes that such projects should not be considered an energy efficiency improvement. Response: USDA believes that no change is necessary; this issue is addressed in the scoring criteria. Projects saving the most energy will score higher. Therefore, USDA expects the primary benefit of the energy efficiency improvement program will be energy reduction. Existing Lender Debt Comment: One commenter asked: What if the same lender had an existing debt to the borrower with a B&I loan guarantee? The commenter suggested striking “not guaranteed by the Agency” from the definition of “existing lender debt.” Response: The definition of “existing lender debt” was removed from this rule because it was not used. Holder Comment: One commenter asked: What about in the case where more than the guaranteed portion of the loan is sold to a holder? The commenter suggested striking “all or” leave the word part and strike “of the guaranteed portion.” Response: As proposed, “holder” was defined as “A person or entity, other than the lender, who owns all or part of the guaranteed portion of the loan, with no servicing responsibilities.” USDA disagrees that the definition of “holder” needs to be revised because only the guaranteed portion of the loan can be sold to a holder; that is, one cannot sell “more than the guaranteed portion of the loan” to a holder. “In-Kind Contributions” Comment: One commenter suggested that use of existing towers, such as cell phone relay towers, to support wind generators be allowed if the towers are certified to be safe and sturdy enough to support the chosen generator by a professional engineer. The commenter suggested that this could be a standard and specification detail rather than a rule component, but that it needs to be allowed. Response: USDA does not believe any change is needed to the rule to address the situation posed by the commenter. As written, the rule allows the use of existing towers as an in-kind contribution if they “directly benefit the project.” Interim Financing Comment: One commenter stated that the words “clear intent” in the definition of “interim financing” in the proposed rule are vague and suggested striking “clear intent” and substituting the words “commitment from a lender that.” Response: USDA disagrees with the commenter's suggestion and has not revised the definition as suggested by the commenter. USDA believes applicants need flexibility in showing they have permanent financing, and applicants should not be limited to lender commitments. Further, USDA does not wish to limit the concept of interim financing to “lenders.” Loan-to-Value Comment: One commenter stated that the definition of loan-to-value is not consistent with standard industry language and recommended that the term be changed to be consistent. The commenter suggested substituting the term “Loan-to-value” with “Loan to discounted value” and then revising the content of the proposed rule to substitute “Loan-to-value” with “Loan to discounted value.” Response: The Agency agrees with the commenter that the rule needs to refer to “discounted value” and has incorporated this change by revising the definition of “loan-to-value” accordingly. However, the Agency disagrees that the term should be “Loan to discounted value,” and has retained the term “loan to value.” Renewable Energy Comment: One commenter suggested adding the word “biomass” into the second clause so that it reads “* * * or hydrogen derived from biomass or water using wind, solar, biomass, or geothermal energy sources.” Response: USDA agrees with the commenter that the word “biomass” needs to be added and has revised the definition for renewable energy as suggested. The lack of the word in the proposed rule was an oversight. Comment: One commenter asked if the Agency would recognize as “renewable energy” that generated from conversion of a renewable fuel into heat, electricity, and/or mechanical power. Response: Yes, USDA would recognize as “renewable” energy generated from the conversion of a renewable fuel into heat, electricity, or mechanical power. USDA revised the definition of “renewable energy system” to read as follows: A system that produces or produces and delivers usable energy from a renewable energy source. We believe this revision specifically addresses the commenter's question. Comment: One commenter asked if a project that manufactures biofuels (biodiesel, ethanol, etc.) from various forms of biomass is eligible, or must that project include energy generation from that renewable fuel to qualify. This commenter also asked if existing on-site energy generation technologies are converted to biofuel usage from diesel or other nonrenewable fuel use, either in part or completely, would this conversion be considered an acceptable “renewable energy project?” Response: A project that solely manufactures biofuels from various forms of biomass is eligible under this program. The project does not need to generate energy. The conversion of existing on-site energy generation technologies to biofuel from diesel or other non-renewable fuel qualifies as a renewable energy project for the purposes of the 9006 program. USDA points out that for purposes of determining the amount of funds available for such conversion, total eligible project costs would be based on the cost of performing the conversion alone, not on the cost of an equivalent replacement unit. Comment: One commenter asked if a project that qualifies at the State level as “renewable”, would automatically be acceptable, based on the state-level determination, for meeting minimum eligibility requirements for Agency support. Conversely, the commenter asked, if mandated compliance with State and local permitting (as a nonrenewable project) would obviate Agency funding if a project is not considered renewable under State guidelines but that project satisfies the criteria in this program. Response: A State-level determination alone would not be acceptable to qualify a project as “renewable” under this program. To be judged renewable under this program, the project must meet the requirements of this program. Any project that is deemed a renewable project under this program is eligible to receive funding under this program regardless of how a State defines the project ( i.e. , as a nonrenewable project), but the project still must be in compliance with all applicable State and local permitting requirements for that project regardless of how it is defined. Comment: One commenter noted that State rules permit various maximum percentages (usually around 25 percent) of nonrenewable fuel that can be used to augment and “firm” energy generation from renewable sources and asked how this would impact Agency assessment of a proposal. The commenter then asked how a prospective applicant or borrower can ascertain this status prior to commitment of resources. Response: USDA understands the commenter's position and is amenable to considering such projects for funding under this program. However, the Agency has decided not to revise the rule, but instead will evaluate each proposed project on a case-by-case basis. This will maximize the number of eligible projects the Agency can consider. USDA will rely on the expertise of the technical experts who review the applications to make the determination as to whether the project qualifies as “renewable” under this program. This review will evaluate the actual renewable energy usage, energy displacement, and energy saving, as applicable. Small Business Comment: A number of commenters suggested making several revisions to the definition of small business. Four commenters suggested that the definition be changed so that the cap of $20 million in annual receipts is removed and a small business is defined only by the number of employees of 500 or less. Two of these commenters believe the $20 million maximum in annual receipts disqualifies and discourages many grain elevators, ethanol producers, biodiesel producers, and other possible business ventures in rural America. The third commenter stated that the definition of small business provided in the rule was duplicative with SBA guidelines and offered a one-size-fits-all dimension to the program. According to this commenter, this penalizes certain small businesses that meet SBA definitions, but not the specific limits outlined in this definition. The commenter was particularly concerned that Rural Electric Cooperatives would be excluded from participation in the program. Finally, the fourth commenter stated that capping the annual revenues at $20 million would eliminate the eligibility of a significant number of companies who could benefit and provide substantial value to the renewable energy program, in particular the ethanol industry. The commenter states that the ethanol industry provides benefits on many fronts and should be allowed to participate in the 9006 program, but the cap would exclude this industry because the majority of plants are in excess of this sales limitation. A fifth commenter recommended that USDA expand eligibility to allow all rural electric utilities to host applications. This commenter pointed out that many rural electric cooperatives and public utility districts fail to meet eligibility requirements because of large annual receipts, even though their profit margins are small and stated that rural utilities are important partners and should be eligible applicants. Two commenters suggested that more explanation as to the definition of an eligible cooperative is needed. One of these commenters stated that referring to the IRS code is not quick helpful information when prospective applicants are trying to figure out whether they are eligible or not. The other commenter requested more description of what type of cooperative is eligible “ perhaps in the definition portion of the proposed regulations. Response: USDA agrees that the definition of “small business” needs to be revised. USDA believes that the definition needs to be consistent with SBA's definition and by doing so, the revised definition simplifies the application process and eligibility determination, provides for greater consistency in eligibility determinations, and increases program access. Therefore, USDA has revised the definition to remove the caps on annual receipts and on the number of employees. In addition, USDA has revised the definition to specifically include electric utilities, including Tribal or governmental electric utilities, that provide services to rural consumers on a cost-of-service basis, without support from public funds or subsidy from the Government authority establishing the district, provided that such utilities meet SBA's definition of small business. Also, the purpose of the parenthetical reference to the IRS code was to minimize the number of questions as to whether cooperatives qualified under section 501(c)(12) (of the Internal Revenue Code) were eligible for this program (which they are), not to limit this program to only those cooperatives qualified under section 501(c)(12). USDA does not believe that it is necessary to remove the reference to the IRS code, because a cooperative would know if the referenced IRS code applied to it or not. Therefore, we have elected not to remove reference to the IRS code. Lastly, USDA disagrees that more description of the type of cooperative is needed, especially in light of the revision to the definition of small business, which allows any cooperative to be eligible as long as it meets the definition of a small business. Comment: One commenter recommended that the receipt and employee “size” threshold be applied only to the location being served by the project. Response: As discussed in the response to the previous comment, USDA has revised the definition of small business to remove the “size” threshold. Thus, this comment is now moot. Qualified Consultant Comment: One commenter noted that there is no definition for “qualified consultant.” The commenter recommended that a “qualified consultant” should be established as a party that has demonstrated with past efforts the ability to compile not only a project assessment but also a comprehensive business model and plan for execution. Response: USDA agrees that a definition of “qualified consultant” is needed and has added it to the definitions section. B. Demonstrated Financial Need Funding From Other Sources Comment: A number of commenters were concerned that including the phrase “other funding sources” in the definition of “demonstrated financial need” would disqualify applicants who can obtain funding elsewhere. One of the commenters recommended that the definition of demonstrated financial need be altered to make clear that State financial assistance for renewable energy systems or energy efficiency improvements will not affect an applicant's eligibility for the 9006 program. Another commenter stated that the proposed definition appears to disqualify applicants who would combine funding from the 9006 program with private and public loan programs. One commenter recommended that State program co-funding, such as State Clean Energy Trust Funds, should be encouraged by USDA, and not disallowed. Response: While USDA does not disagree with the commenters' concerns, we have retained essentially the same concept in the final rule. Specifically, we have replaced the phrase “or other funding sources” with “and commercially available resources.” The final definition adopted in the rule is in alignment with other Rural Development programs, which have a “credit elsewhere” test. Section 9006(b) requires a demonstration of financial need. Comment: One commenter stated that, although requirements for in-kind contributions were reasonable, strictures against any other Federal co-funding could restrict applications. The commenter observed that an applicant could receive funding from Federal sources other than USDA. Rather than impose a blanket ban on other Federal funding, the commenter recommended that USDA develop a specific list of programmatic funding exclusions. Four other commenters suggested that co-funding from State rebate programs be fully allowed. Another commenter stated that USDA should allow full co-funding from State public benefit rebate programs. Response: USDA made an administrative determination that the 25 percent limit for grant funding of a project is applicable to funds received under the 9006 program and all other Federal grants, unless there is statutory authorization permitting the other Federal funding to be used for the grantee's match. No changes have been made in the final program. Financial Need Comment: One commenter stated that the requirement to demonstrate financial need creates a possible catch-22 for applicants. On the one hand, USDA is seeking to safeguard the public's money by requesting significant assurances that every grant project will be financially viable, yet also requires the applicant to prove financial need. When the grant amount is capped at 25 percent (by law), this creates a rather thin margin to work within. The commenter stated that the grant program should be looked at as analogous to soil conservation cost-share programs where the grant amount is a public provision of assistance to a participant for assuming the risk inherent in adopting a new, and in some cases, early commercial and site specific technology. For this reason, the proof of demonstrated financial need should be understood to include the credibility that government support of a new business investment provides to lenders who would not otherwise provide needed gap financing. Response: USDA in general concurs with the commenter. It is our hope that by our willingness to fund projects that have undergone and passed the technical review under the 9006 program would, in turn, encourage lenders to see these projects as worthwhile projects, as well and extend funding to them. Further, the change made to the definition of “demonstrated financial need” that focuses on the need of the project should help address the concerns raised in this comment. Comment: One commenter stated that the demonstration of a financial need should not be a threshold factor for applicant eligibility to participate in this program. According to the commenter, this provision anticipates an applicant that cannot afford the project without the assistance, yet it requires a highly engineered project. If an applicant must demonstrate a financial need as defined, the possibility of assembling the highly technical application diminishes. Response: USDA does not have the discretion to remove the demonstration of financial need as a requirement for receiving a grant under the 9006 program; this is a statutory requirement in section 9006(b). However, USDA has significantly lowered the application requirements for projects with total eligible project costs of $200,000 or less, which significantly reduces the amount of financial information that would be required and by developing less detailed requirements for the Technical Report (see Appendix A). Further, the Agency has added a second component to the definition of “demonstrated financial need” that focuses on the need of the project. Therefore, we have addressed this commenter's concerns as much as possible. Project Versus Applicant Financial Need Comment: One commenter observed that the proposed rule defines financial need as an applicant's need rather than a project's need, and felt that this wording would penalize applicants with good credit or assets. The commenter recommended that USDA redefine “demonstrated financial need” to something like the following: “The demonstration that the project is not economic or would not occur without the grant assistance.” Another commenter stated that there is confusion as to whether “financial need” refers to the proposed project or to the actual assets of the applicant. The commenter recommended that this eligibility criteria be clarified and suggested that financial need be determined by looking at the project itself. According to the commenter, the relevant question is whether a grant is necessary to make this project financially feasible and/or successful. In the current language, the commenter asserts that it is unclear whether applicants with sound personal credit and financial portfolios will be penalized or deemed ineligible. The commenter believes that projects where the participants have sound financial histories are more likely to succeed and should not be put at a disadvantage. Response: The Agency has adopted this suggestion by modifying the definition of “demonstrated financial need.” Comment: Five commenters suggested that USDA base financial need criteria on project payback, not the applicant's financial resources and liquidity. If the 9006 grant will materially reduce the project payback period and similar projects are not commonplace in the applicant's area, the commenter believes there is a de facto financial need. One commenter stated that this seems inconsistent with the overall intent of the program, and favors larger scale projects. Response: USDA disagrees that project payback is a proper criterion for determining financial need. The definition, as proposed, was consistent with USDA policy for a “credit elsewhere” test. Maintaining the same definition across its programs simplifies cross-program requirements easing the burden for program participants and end users and establishes a clear, consistent, and objective standard for demonstrating a financial need for Rural Development grant assistance. Therefore, USDA has not incorporated the commenters' suggestion. In addition, USDA has revised the definition of “demonstrated financial need” to include “that the project proposed by the applicant cannot achieve the income and cashflows to sustain it financially over the long term without grant assistance.” This was added because the large upfront investment often prevents projects from producing sufficient cash flow at current energy prices without outside support. In addition, the scale of many small projects creates diseconomies of scale that further exacerbate this condition. Demonstration of Financial Need Comment: One commenter stated that the subsection 9006(b) of the statute states that a farmer, rancher, or small business shall demonstrate financial need as determined by the Secretary. This provision was included to ensure that assistance is directed to the country's smaller producers and rural small businesses that typically lack the financial resources necessary to purchase renewable energy systems or make energy efficiency improvements. Section 4280.103 of the proposed rule defines “demonstrated financial need” as “(t)he demonstration by an applicant that the applicant is unable to finance the project from its own resources or other funding sources without grant assistance.” This definition is vague. Nowhere does the proposed rule describe how the Secretary assesses the applicant's ability or inability to finance the project without grant assistance. An applicant is required to submit a tremendous amount of financial documentation and, under proposed § 4280.111(a)(3), to describe how it meets the requirement of demonstrated financial need but is given no indication of how need is determined. The proposed rule must be amended to specify precisely how financial need—and thus eligibility under proposed § 4280.107(f)—shall be demonstrated. In the absence of a clearly defined system for assessing financial need, USDA should consider establishing an income or revenue limit for grant eligibility. Only those applicants below a certain income or revenue threshold would be eligible to participate in the grant program. A revenue limit for financial need eligibility has the benefit of clarity and would reduce the burdensome volume of financial documentation required of grant applicants, thereby streamlining the application process. Consistent with the statute, all applicants must remain eligible for loans and loan guarantees. Response: The definition of “demonstrated financial need” has been revised to include two tests under which all applicants will be evaluated as to a demonstration of financial need. The first test is a “creditworthiness” test—the applicant is unable to finance the project from its own and commercially available resources. The second test is the “cashflow” test—the project proposed by the applicant cannot achieve the income and cashflows to sustain it financially over the long term without grant assistance. Under the creditworthiness test, the applicant must certify that they cannot obtain credit elsewhere and provide sufficient information or documentation to permit the Agency to make an independent determination. The Agency has not limited the information or documentation that can be provided to support the applicant's need in order to give the applicant the greatest degree of flexibility in demonstrating this requirement. If the applicant fails to provide sufficient information to meet this requirement, the Agency will contact them for additional information until it can make its own independent determination. In order to provide uniform Agency determinations, the Agency expects to issue additional guidance to its field offices on what has been approved as acceptable evidence of financial need, which will also be made available to the public. Financial Need Criterion Comment: One commenter recommended that applicants for grants not have to demonstrate financial need. According to the commenter, approving and funding a grant application should rest on the quality of the proposal and the scoring criteria and not necessarily on the financial need of the applicant. According to the commenter, it is difficult for applicants to prove that they have enough finances to match 75 percent of the project, but that they financially need the last 25 percent from USDA to get the project off the ground. Response: The 2002 Farm Bill, Section 9006(b), requires a farmer, rancher, or rural small business to demonstrate financial need in order to be eligible for a grant under this program. Thus, USDA does not have the discretion to eliminate this requirement and has not done so in the final rule. Comment: Two commenters stated that the authorizing language for Section 9006 makes clear that financial need is a primary condition for any applicant to receive funding under the program. According to the commenters' interpretation of the law, financial need is the only eligibility requirement, and all other conditions in the program are secondary to it. The commenters believe that the proposed rule does not reflect the primacy of financial need as required by statute. These commenters also expressed the concern that the proposal does not clearly define the extent of the required explanation or its relevance to the application process. The commenters recommended that USDA make it explicit in the rule that demonstrated financial need is an eligibility requirement of the program and create a system by which all applications will be reviewed to confirm that they meet the financial need condition in the statute. The commenters offered examples of possible requirements, including: Requiring all applicants to demonstrate that they otherwise would not be able to pay for or finance the proposed project; an automatic presumption that there is no demonstrable financial need in projects with a payback of 2 years or less by virtue of the sheer profitability of such a project, or in projects which are requesting funding for less than 10 percent of the project cost; or a presumption of demonstrated financial need when the applicant is a small agricultural producer. Response: The commenters made three specific recommendations. The first recommendation was to require all applicants to demonstrate financial need. As provided in the statute, financial need is required only of grant applicants. This eligibility criterion was stated in proposed § 4280.107(f). USDA believes this is explicit. USDA does not believe that this grant eligibility requirement needs to be or should be part of the loan program. The second recommendation was to implement an automatic presumption of no demonstrable financial need for projects with a payback of 2 years or less, or for projects requesting funding of less than 10 percent. As noted in a previous response, USDA does not consider payback to be an adequate measure of financial need. Financial need speaks to having the resources available to put a project in place, not to its projected revenue stream. Therefore, USDA does not consider it appropriate to implement a presumption of financial need on the basis of payback. USDA also does not believe that the amount of a funding request (10 percent or other) is also an adequate measure on which to base a presumption of financial need. Therefore, USDA rejected this suggestion as well. The third suggestion was to base a presumption of financial need when the applicant is a small agricultural producer. Again, USDA does not believe that this is an appropriate measure. C. Applicant Eligibility Comment: One commenter recommended that public-private partnerships be allowed to apply for funds under the 9006 program. Response: The target of this program is private entities (i.e., farmers, ranchers, and small businesses), as stated in the statute authorizing the 9006 program. USDA cannot expand the statutory scope of applicants to include public entities, including those in public-private partnerships. Therefore, USDA has not revised this criterion of applicant eligibility. Comment: One commenter stated that the eligibility of some nonprofits for this program is still not clear. The commenter stated that they have had nonprofits apply which were organized for charitable, educational, and scientific purposes. Technically, according to the proposed definition of a small business, they are eligible because they are not formed solely for charitable purposes. Two other commenters requested that nonprofit organizations be allowed to apply for grants and loans under the 9006 program. Response: USDA agrees that clarification is required, but disagrees that nonprofits, in general, should be allowed. We have revised the definition of small business to allow any of the entities specifically identified in the definition ( e.g. , electric utilities) to participate in the 9006 program if they also happen to be nonprofit entities. Otherwise, nonprofit entities remain excluded. Comment: One commenter encouraged the broadening of the scope of an eligible applicant for loans and guaranteed loans to include a business supplying a service to an agricultural enterprise, such as manure management in the form of an anaerobic digester and power generation plant. Another commenter made a similar comment, recommending that USDA expand eligibility to allow Renewable Energy/Energy Efficiency experts to aggregate projects without ownership requirements. Response: USDA is authorized by the language in the 2002 Farm Bill to provide grants to farmers, ranchers, and rural small businesses for the purchase of renewable energy systems and energy efficiency improvements. If the new, nonagricultural enterprise as presented by the first commenter meets the definition of a small business, then it would be eligible to apply for a grant. As to the second comment, the role of an aggregator is more equivalent to a professional service provider who brings together eligible applicants to assist in project development and implementation. The role of an aggregator is anticipated by the Agency, but the aggregator itself is not an eligible entity. The Agency sees no reason to change the ownership requirements just because an aggregator is being used. Comment: Three commenters requested that USDA consider modifying the rule to allow small business owners who have their headquarters in larger cities to also apply for the program. According to one commenter, the policy of limiting access to renewable energy grants to existing rural companies tends to discourage small businesses that are start-ups or happen to reside outside of a rural area, from using this program to invest, promote renewable energy projects, and create jobs in rural areas. The commenter stated that it is not unreasonable for a company to want to know that it is about to receive a grant before it takes all of the necessary steps to secure its rural location. The commenter requested that, if USDA does not change the rural residency requirement for the applicant, the requirements and the consequences of not meeting it are made clearer in the Notice of Funds Availability (NOFA), which did not clearly require the business headquarters to be in a rural area at the time of application. Response: USDA agrees with the commenter that the proposed requirement for eligible applicant businesses to be located and have their headquarters in a rural area may limit access to start-up companies that are located in a non-rural area from investing in renewable energy systems or energy efficiency improvements. In the final rule, both the rural small business and the project must be located in a rural area. The business headquarters, however, may be located in either a rural or non-rural area. Thus, we do not believe it is necessary to address the location of the rural small business' headquarters in the rule. D. Project Eligibility Comment: Three commenters expressed concern about large commercial wind projects. The commenters provided numerous reasons for their opposition of the use of the proposed program to support large-scale, commercial-wind projects. The comments focused on the commenter's claims of adverse social, environmental, and ecological impacts and the high costs and low economic benefits of wind energy projects. Response: USDA is bound by the statute to include wind projects in the program and does not see the need to differentiate between wind projects based on size or commercialization. Comment: One commenter requested that fuel cells that utilize non-renewable fuels be eligible for funds under the proposed program for the short-term. The commenter believes that labeling fuel cells as renewable energy sources will help speed commercialization and will hasten the process by which the industry can achieve further cost reductions in manufacturing. Like many emerging technologies, cost constraints stand in the way of implementing fuel cell technologies. If USDA allows fuel cell adopters to tap readily existing fuels, farmers will have the ability to demonstrate this technology at a more affordable price, while realizing the tremendous advantages this technology offers. Response: The statute requires eligible projects to utilize renewable energy. USDA cannot expand this requirement to fuel cells that utilize only nonrenewable fuels. As noted in a previous response, USDA is amendable to considering projects that use nonrenewable fuel to some extent. Comment: One commenter suggested that hydropower be added to the list of approved technologies associated with this rule. The commenter requested the addition of small hydroelectric power generating facilities ( i.e. less than 5,000 kW) to the program, perhaps in a manner similar to that included in the proposed HR 6 Energy Policy Act. Response: The statute authorizing the 9006 program does not include hydropower in the definition of “renewable energy,” and, therefore, hydropower projects are not eligible for funds under this program. Comment: One commenter noted that, as proposed, eligible projects for biomass and bioenergy specifically exclude livestock waste. The commenter points out that there are emerging technologies involving thermochemical conversion of animal waste (for example, from livestock processing facilities) to synthetic oil. The commenter believes that these projects should be eligible for funding. Response: USDA agrees with the commenter that all animal waste projects fall into the anaerobic digester category. USDA also agrees that the emerging technology described by the commenter would be eligible for funds under the 9006 program. As these emerging technologies become more mainstream ( i.e. , become pre-commercial or commercial), USDA intends to expand the technical guidance to address new technologies. The final rule incorporates provisions to allow new technologies to apply for funding even if the technology is not addressed in either appendix to the regulation. Comment: One commenter suggested that the projects for solar water pumping and use of solar for hydrogen fuels for farm-based engine generator sets, and photovoltaics to drive farm and food processing compressors, refrigeration, and motors should be allowed as eligible projects. Response: Each of the specific applications identified by the commenter is an eligible project under the 9006 program. Comment: One commenter suggested that for both large and small solar projects, the rule includes as eligible projects those that provide solar air heating and water heating with no active storage. The commenter provided suggested language. Response: USDA agrees with the commenter that projects that provide solar air heating and water heating with no active storage are eligible under the 9006 program. We have revised the definitions of solar projects such that such technologies are implicitly eligible by not addressing the type of heat transfer mechanism. Comment: One commenter believes that the proposed program only gives token support for alternative energy developments and that by restricting most grant and loan support for existing commercial alternative energy systems, no real competition with the petroleum industry is offered. The commenter then goes on to claim that the most promising alternative energy programs are not supported or they are sabotaged as in the case of hydrogen fuels development under the proposed program. While there are many cost-effective sources of hydrogen, Federal programs are requiring the use of petroleum for hydrogen fuels. Response: USDA appreciates the need for alternative energy developments. However, the responsibility for developing and funding such alternative energy systems, including the development of hydrogen-based technologies, does not reside in USDA. The Department of Energy is responsible for bringing research and development opportunities to fruition; that is, to the pre-commercial and commercial stages. Once such technologies reach these phases, there is a high probability of their successful implementation. USDA will use the 9006 programs to fund only those projects for which there is the high probability of success. We believe that this is an appropriate and responsible approach for the distribution of grants and loans under this program. Wind Projects Comment: One commenter found the requirements in the small wind section to be overly burdensome for the applicant, as specifically discussed below: The rules for wind turbines under 100 kW capacity are not clear in regards to the need for use of professional engineers—the proposed rule explicitly states that only projects over $100,000 will require that the services of a professional engineer to be used, yet the description for design and engineering in the proposed rule states: “Small wind systems must be engineered by either the wind turbine manufacture or other qualified party. Systems must be offered as a complete, integrated system with matched components. The engineering must be comprehensive including turbine design and selection, tower design and selection, specification of guy wire anchors and tower foundation, inverter/controller design and selection, energy storage requirements as applicable, and selection of cabling, disconnects and interconnection equipment as well as the engineering data needed to match the wind system output to the application load if applicable.” The commenter expressed concern that this language can easily be interpreted to mean that unless a complete component package including the components required by utility rules for interconnection is purchased from a turbine manufacturer, or the applicant or the system dealer must hire their own professional engineer to certify the system, in fact these rules may require hiring two engineers as there are electrical components, as well as civil or mechanical engineering components. Many components, such as the batteries, inverters, and cabling for small projects can be purchased off-the-shelf from a variety of vendors. Individuals with the necessary technical skills and experience (as documented in the project team section) can safely select these standard components. Signoff by utility staff as to the adequacy of interconnection equipment should also be sufficient for approving those components. The commenter is also concerned that the rule language as written will be interpreted to mean that each project requires a professional engineer to sign off on the entire project. Such requirements could certainly add undo costs to projects. The commenter recommended the following: “Small wind systems must be designed and engineered to assure safety and reliability of the project. For small wind systems, either the wind turbine manufacturer or other qualified party must design and engineer the turbine, tower and tower foundation (including guy wire anchor specification) as a complete and integrated system. As outlined in the proposed § 4280.111(d)(8)(iv), interconnection design and equipment must be approved by the local utility if the turbine is to be interconnected to the electric power distribution grid. Finally, all other components, including energy storage, must be selected and matched by a qualified technician as part of a comprehensive system design.” Response: We agree that for the smaller wind systems, an applicant may purchase certain components off-the-shelf from various vendors. For small wind systems with total eligible project costs equal of $200,000 or less, the rule requires the applicant, in part, to “certify that their project will be designed and engineered so as to meet the intended purpose” and to provide authoritative evidence that the system will be designed and engineered so as to meet its intended purpose. We believe this addresses the commenter's concern. For small wind systems with total eligible project costs greater than $200,000, however, we have retained the same language as in the proposed rule. These larger small wind projects are more likely to require complete packages, and applicants are less likely to “piece together” such a system. Finally, under the final rule, for renewable energy projects with total eligible project costs greater than $400,000, the services of a professional engineer are required. We believe this requirement is more in line with the level of complexity associated with the larger renewable energy projects and appropriate for small wind projects that should exceed this level of cost. Comment: One commenter suggested that, for wind projects, the applicant should also describe whether or not sources of income will include—in addition to annual revenue from electricity sales—the value of Federal or State incentives, such as production tax credits. For methane digesters on dairy farms, the applicant should also state whether or not sources of income will include—in addition to income from sale of electricity—noncash savings from bedding costs, excess bedding sales, carbon and tax credits, heating energy savings (e.g. water), or any other farming efficiencies. Response: For large wind projects, the proposed rule required a description of “annual project revenues including, but not limited to, electricity sales, production tax credits, revenues from green tags, and any other production incentive programs throughout the life of the project.” For small wind projects, the proposed rule required a description of “applicable investment incentives, productivity incentives, loans, and grants.” For anaerobic digesters, the proposed rule required a description of “annual project revenues and expenses” and of “applicable investment incentives, productivity incentives, loan, and grants.” The Agency believes that this language adequately addresses the question of tax credits and production incentive credits. While we have not specifically identified noncash savings from bedding costs, excess bedding sales, heating energy savings, or other farming efficiencies in the final rule, USDA agrees that they can be legitimate “other sources of revenues” provided they are directly related to the project and their value is sufficiently documented. Comment: One commenter referred to the recent General Accounting Office (GAO) report on wind energy (GAO 04-756, Renewable Energy—Wind Power's Contribution to Electric Power Generation and Impact on Farms and Rural Communities, September, 2004), which, according to the commenter, showed that wind energy was not benefiting either the rural economy or farmers in general. The GAO report described the problems that currently exist but did not define a mechanism to deal with the problems other than to call for an implementation of the authorized Section 9006 program and to establish better coordination between government agencies. The commenter provided information related to several issues related to wind energy and also provided the following specific recommendations to address the known issues: • An alternative to large, utility-scale systems that could provide a better strategy would be the use of smaller turbines in “windsheds” that could be structured around cooperative ownership. Smaller turbines require less capital per unit and allow greater distribution and more access points on the transmission grid because of lower output. In partnership with or as a subset of traditional rural electric cooperatives and the private utilities serving rural areas, farmers could own and manage the system, offset individual electrical use, and provide power to the grid. • This approach creates two separate opportunities for diffuse rural networks where the turbine is sized to complement existing grid infrastructure. (a) Farm-scale horizontal axis turbines mounted on tall, self-erecting towers that do not require special roads or large cranes. Here, smaller swept areas can be more effective because blade forces are reduced, particularly in severe events, making for lower costs and simplifying installation/service. (b) Farm-scale vertical axis turbines designed to work efficiently at the lower wind speed and more turbulent flow seen at lower altitudes. • Technical and financial support for these farm-scale systems should be a high priority for a variety of reasons: (a) Diffuse systems are robust, and definitely not susceptible to terrorist attack. (b) Boost farm income and utilize a renewable resource. (c) Enable rural economic development. (d) Opportunity to symbiotically combine wind energy production with other forms of alternative energy production such as methane production. • Create an independent third-party evaluation program via a dedicated grant to evaluate wind turbines that are suitable for on-farm use and capable of producing significant electricity for the grid. No single organization has the resources needed for this organization. This program should be independent of existing government evaluation programs focusing on certification and/or technical development. Existing government programs (such as National Renewable Energy Laboratory (NREL) and Sandia) have inherent conflicts-of-interest when it comes to making specific product evaluations and recommendations. This program should utilize existing government expertise and resources whenever reasonable. The primary award should be made to a proactive nonprofit organization with no technology conflicts. Sub-awards for the comprehensive evaluation of specific components should be made to organizations with existing resources and expertise. This program will also conduct one or more random inspections of the production factory(ies) to evaluate production quality control practices. Evaluations will go beyond minimum specifications and safety issues to include projected operating and maintenance costs, ease of installation, installation costs, quality, etc. As part of the demonstration program, this group should coordinate with the Environmental Protection Agency's Office of Air and Radiation (OAR) to link utilities interested in purchasing power from renewable sources with farm-scale, farmshed cooperatives. • Fund a demonstration project via a dedicated grant which documents the issues and feasibilities associated with actually creating a diffuse, large-scale, regional, on-farm, integrated wind-farm; and which integrates wind energy electricity production with the production of electricity from another form of renewable energy which can be used to offset the inherent variability of wind energy production. Response: USDA appreciates the findings of the GAO report. This regulation considered those findings when promulgating this regulation. The commenter then goes on to identify five specific recommendations, which the Agency addresses below. First, the Agency agrees that use of smaller turbines, rather than large, utility-scale systems, is desirable and encourages applicants to partner with others. Nothing in the proposed rule or in the final rule prohibits the adoption of this type of system or partnership. Second, the commenter identifies two types of turbines that could be used to implement the smaller turbine approach in the first recommendation. To the extent that such turbines have technical merit, this would be determined during the evaluation of the application. Otherwise, there is nothing that needs to be addressed in the final rule with regard to this second recommendation. Third, the commenter recommended that the rule give high priority to these farm-scale systems. In the final rule, there are two mechanisms that are likely to give preference to farm-scale systems because such systems are likely to be lower-cost systems (i.e., total eligible project costs of $200,000 or less). First, the effort required to prepare a grant application for such systems has been reduced. Second, more points are now awarded to the smallest agricultural producers and to very small businesses. To the extent that such farm-scale systems are proposed by these applicants, they would be awarded more points than larger-scale systems. Fourth, the commenter recommended creating an independent third-party evaluation program via a dedicated grant to evaluate wind turbines. The purpose of the 9006 program is to provide funds for the purchase of renewable energy systems and energy efficiency improvement projects. The funding of an independent evaluation program is not part of the scope of the authorizing statute. USDA notes that we are currently working with EPA's OAR to develop assistance in working with utilities on interconnection and power agreements. Fifth and last, the commenter recommended funding a demonstration project via a dedicated grant. As noted in the previous paragraph, the purpose of the 9006 program is to provide funds for the purchase of renewable energy systems and energy efficiency improvement projects. The funding of demonstration projects for any renewable energy system is not part of the scope of the authorizing statute. Miscellaneous Comment: One commenter recommended that specific grants be established to permit the applicant to evaluate local, State, and national regulations and permits and licenses pertaining to the location and construction of facilities producing biofuels, biopower, and biobased products. Response: As stated in the authorizing statute, the 9006 program is for the purchase of renewable energy systems and energy efficiency improvements. The program was not designed to provide funds to stand-alone studies of requisite permits and licenses or evaluations of applicable regulations. However, USDA recognizes that obtaining such permits and licenses are inherent costs to implementing a renewable energy system or an energy efficiency improvement project. Therefore, USDA included such costs as part of the eligible project costs for which funds can be obtained. Comment: One commenter noted an apparent contradiction between eligible project costs in proposed § 4280.109(a)(1)(ii) and (ix) and stated that banks would not finance the item specified in proposed § 4280.109(a)(1)(iii) and (vii). Response: With regard to items specified in proposed § 4280.109(a)(1)(ii) and (ix), the first item refers to construction and project improvement costs that occur after the application has been received by the Agency. The second item refers to costs associated with the construction of a new facility. Projects will incur one or the other of these two costs, not both. This section does not imply that a project would be expected to incur both of the costs or that a project would be expected to incur all of the listed eligible project costs. For example, renewable energy projects would not be expected to incur energy audit or assessment costs. Therefore, we disagree that there is a contradiction. With regard to the items specified in proposed § 4280.109(a)(1)(iii) and (vii), all of these items can be capitalized and are financeable as part of the project. These items are not “stand-alone” items to be individually or collectively financed apart from the project. A lack of interest, on the part of some potential lenders, in financing these costs does not persuade USDA to remove them for the lenders that may be interested. Comment: One commenter recommended that the rule be clarified that “remanufactured” equipment can only qualify where a demonstrated and consistent remanufacturing process is performed on the equipment. The commenter was concerned that USDA not award funding to “refurbished” generators that are likely to fail in several years and cease to operate due to lack of parts and expertise. According to the commenter, this is a small but real problem in the used wind turbine market that USDA should be mindful of in determining which projects are eligible for funding. Response: Under the 9006 program, an applicant may propose to use new, remanufactured, or refurbished parts in their project. Where remanufactured or refurbished parts are proposed to be used, they must be reliable and meet the requirements of their intended application for the project's design life or as would a new piece of equipment. It is USDA's intent that sufficient information is submitted with the Technical Report to allow a thorough evaluation of the project to occur during the technical review to allow the reviewers to assess the likelihood of success for all projects, including those proposing to use refurbished or remanufactured parts. Applicants proposing to use such parts are advised that they may need to provide more information in their Technical Report to justify and support the use of such refurbished or remanufactured parts. Comment: Several commenters inquired as to whether equipment used for wind projects should be restricted to new and unused equipment only, or whether remanufactured or refurbished equipment could also be used. One commenter specifically noted that used equipment not be allowed. Response: As noted in the previous response, remanufactured or refurbished equipment is allowed under the 9006 program. However, USDA does not believe that used equipment should be allowed because the quality of used equipment cannot be determined. Therefore, we have added a definition of “used equipment” to the rule to distinguish “used equipment” from refurbished or remanufactured equipment, which is allowed if such equipment is essentially equivalent to new and unused equipment. Comment: One commenter requested clarification on the role of third-party operators. The commenter notes that the proposed rule specifies that the applicant must be the owner of the project and control the operation and maintenance of the proposed project, and that a qualified third-party operator may be used to manage the operation and/or maintenance of the project. The commenter stated that, as they understood the section, large wind projects using business models that utilize equity investors to take advantage of the Federal production tax credit are eligible. In this case, the applicant remains the “general partner” in the limited liability corporation, while the equity partner is a “limited partner.” Some form of this business model is used by most successful farmer-owner large turbine wind projects. As such, the commenter recommends that USDA not limit an applicant's ability to bring in equity partners to take advantage of tax credits. It appears that the current language is sufficient for this purpose, but the commenter believes it is an issue that merits some scrutiny. Second, some definition or clarification of what constitutes a qualified third-party operator is needed. Clarification of this definition is important because State USDA officials have made different interpretations on what a “qualified third-party operator” is. Response: USDA agrees that the rule should not limit an applicant's ability to bring in equity partners as described by the commenter and has revised the final rule to allow “passive investors” to participate in the 9006 program. The commenter also requested some definition or clarification as to what constitutes a qualified third-party operator, because of the potential for many different interpretations being made by Agency employees. The Agency has included a definition of “qualified party,” which provides general guidance. While this definition has been added, it is USDA's intent that the determination of who actually qualifies as a “qualified party” will be made by the technical reviewers and not by State USDA staff. As the pool of technical reviewers will be small (perhaps two or three per technology), USDA anticipates that different interpretations will not be an issue. In addition, what constitutes a qualified party will vary depending on the specific technology being proposed. USDA believes the best place to deal with this determination is at the technical review stage and not in the regulations implementing the 9006 program. Comment: One commenter suggested that USDA limit loan guarantees (and direct loans, if made available) to farm-scale systems. The commenter referred specifically to wind turbines, where scale should be defined by the ability to provide significant electricity to the grid to meet national needs. The commenter recommended that individual wind turbines should be greater than 50 kW and less than 999kW, but that tower heights should not be limited. According to the commenter, the development of self-erecting towers, which do not require the use of large cranes for installation and maintenance with their specialized infrastructure, make it feasible for farm scale turbines to be deployed on tall towers to efficiently capture the higher speed and less turbulent winds at higher altitudes. Response: USDA disagrees with the commenter. USDA believes that the loan guarantee program should be available to all renewable energy projects regardless of size if the project and the applicant meet the eligibility criteria. Therefore, USDA has not revised the rule as suggested by the commenter. Comment: One commenter stated that by restricting grants and loans to existing commercial energy systems, the proposal acts to impede real progress in renewable energy. The commenter recommended that USDA fund innovative/new types of renewable energy projects at the 75 percent level. Referring to U.S. Code Title 18, Part I, Chapter 105, Sections 2151 and 2156, the commenter stated that it is illegal to interfere with national defense preparations, and claimed that the proposed rule acts to prevent the development of innovative renewable energy technologies, helps to sustain the demand for U.S. petroleum imports from the volatile Middle East, and sabotages efforts to reduce dependence on petroleum imports, as well as homeland security efforts. Response: By statute, USDA is limited to funding projects at the 25 percent level for grants and at the 50 percent level for loans. We cannot increase this to 75 percent as requested. To the extent that the commenter is suggesting that this program be used to fund renewable energy technologies still in the research and development (R&D) stage, as noted in a previous response to this commenter, it is DOE's responsibility, not USDA's, for assisting in the development of innovative and new types of renewable energy projects. Comment: One commenter objected to provisions requiring the applicant or borrower to be the owner of the system and also to control the operation and maintenance of the project. The commenter felt that this would exclude many energy installers and energy service providers. The commenter recommends that USDA should “adjust eligibility criteria or modify the program to allow for rural small business with expertise in renewable energy and energy efficiency installation to aggregate projects and submit applications without ownership requirements.” A second commenter also recommended that rural small businesses with expertise in renewable energy and energy efficiency installation be allowed to aggregate projects and submit applications without being required to retain ownership and control of all systems. Response: USDA disagrees with the commenters. As noted in a previous response, the 9006 program is for the purchase of renewable energy systems and energy efficiency improvements. By purchasing either, one becomes the owner. USDA, therefore, believes ownership requirement is an inherent part of this program and has not revised the rule as requested. E. Application and Documentation General Comment: One commenter recommended that applicants be encouraged to partner with intermediaries that provide “full service” energy assistance, which would include (1) help in applying for Section 9006 awards; (2) conducting energy audits; and (3) project management. Response: USDA concurs that it would be useful to applicants and USDA if applicants partner with “intermediaries” to provide full service energy assistance. However, the approach used by the applicant in developing their application and obtaining other services is a business decision and beyond the scope of the regulation. Therefore, this comment has not been adopted. Comment: Several commenters suggested that USDA allow applications on-line or on a CD-ROM. Two commenters recommended that USDA allow applicants to submit proposals electronically, either on-line or on a CD-ROM. This will enable complete technical review and scoring based on full applications. Three commenters suggested that an on-line application process would reduce redundant and duplicative entries by allowing common information to be populated on required forms. It also would guide applicants through the process and thereby reduce the number of incomplete applications, and it would standardize the final application documents, thereby facilitating application review by Rural Development and NREL staff(s). Rural Development has experience in developing such an online application system for lenders in its B&I Loan Guarantee program. Another commenter discussed a possible online application process, stating that while this is a great option to have, it should not be the only means by which an applicant can apply for the program. High-speed Internet access is not widely available in rural America and dial-up access can make an on-line application process slow and tumultuous. Rural America is in the process of transitioning to computer-based records and applications. If USDA made applying for the program an on-line only process, there is a serious risk that many potential applicants would be inappropriately excluded from the program. We would also suggest that USDA develop application forms and templates that can be downloaded and completed off-line. The forms should be available in formats that are accessible for a variety of operating systems ( i.e. , Mac and Windows) and word processing software ( i.e. , MS Word TM and WordPerfect TM ). Response: USDA policy is to provide electronic application capabilities. This capability will be developed for this program after promulgation of the final regulation. The standard government forms are already available electronically. CD ROMS and faxed information is acceptable at this time. Along with evaluating the possibility of on-line applications, USDA will consider the security of such submittals. Streamline and Simplify Application Process Comment: Many commenters recommended that USDA adopt a less burdensome application process for smaller projects. Some of these commenters suggested the development of a short-form. Commenters felt, for example, that the application process was too complex for energy efficiency improvements, the effort to apply too extensive relative to the benefit obtained, the burden was unreasonable for small producers, and the entire application process was discouraging to potential applicants. Response: USDA agrees with the commenters that a more streamlined approach is needed for smaller projects that will reduce the burden to the applicant, but at the same time provide the Agency with sufficient information to evaluate the merits of the proposed project. To this end, USDA has implemented a simplified application procedure for grant projects with total eligible project costs of $200,000 or less. The simplified application procedure requires significantly less effort on the part of the applicant by requiring less detailed Technical Reports. In addition, the less detailed Technical Reports may also be submitted for guaranteed loans for projects with total eligible project costs of $200,000 or less. Comment: One commenter recommended that USDA simplify the application process for projects less than 200 kW. Response: As noted previously, USDA has implemented a simplified application process for grant projects with total eligible project costs of $200,000 or less and for both grants and guaranteed loan applications, a less detailed Technical Report for projects with total eligible project costs of $200,000 or less. USDA elected to do this based on cost rather than capacity because cost cuts across all technologies (not all projects could be described in terms of kilowatts). Comment: One commenter stated that the burden analysis estimates the annual cost over a 3-year period has been $1.9 million for an estimated 388 applicants. This means an average of about $5,600 per applicant is needed to participate in this program. If a farmer or rancher is netting $25,000 per year, which is generous in many cases, the program is demanding an outlay of 22 percent of annual profits to participate. Also, if the grant received is fairly large, say $25,000 on a $100,000 project, the “burden amount” is still 22 percent of the grant received since application costs are not allowable project amounts. This defacto increases the participants match amount to $80,600 or a 76 percent match ($80,600/$105,600 = 0.763). For medium to smaller sized operations, the estimated burden costs are significant. Response: As noted in an earlier response, USDA is implementing a streamlined application process for projects with total eligible project costs of $200,000 or less. This streamlined application process will result in less burden to those who use it, including the smaller sized operations. Also, USDA cannot accommodate the commenter's request because the statute limits the matching funds for grants to 25 percent and USDA does not have the authority to raise this limit. Direct Rebate Program Comment: Many commenters recommended adding a rebate program to the 9006 program to reduce the burden for commercially viable, proven, and environmentally beneficial technologies to help streamline the application process and reduce the administrative burden to USDA. One commenter suggested that a rebate program be a fixed grant amount for specific off-the-shelf technologies installed. Response: USDA is not authorized to use rebates in implementing this program. In lieu of such a program, USDA is implementing a simplified application process for grants where funds are disbursed at project completion. We believe the simplified application process achieves many of the burden reductions that could be achieved under a direct rebate program. The simplified application process is only available to projects with total eligible project costs of $200,000 or less. In selecting the $200,000 value, USDA first considered the exposure the Agency would incur if a project was approved, but never built—the higher the total eligible costs, the greater the exposure. For example, if USDA selected a value of $1 million to be funded at the maximum level of 25 percent, the Agency could lose $250,000 if the project was never completed, which USDA considers too high of an exposure. USDA then reviewed the type of projects that were funded under the 2003 and 2004 NOFAs. USDA assessed that projects with total eligible project costs of $200,000 or less tended to be smaller projects with a smaller likelihood of not being completed, thereby lowering the Agency's exposure. A $200,000 total eligible cost project at 25 percent would result in a $50,000 exposure by the Agency. While not an insignificant sum, the types of projects that would be built and the desire to open the project to more applicants led the Agency to select this value for the design build program with reimbursement at completion. Pre-Applications Comment: Four commenters suggested that USDA add an optional pre-proposal review step to the application process. They stated that some official department prior review of a one- to three-page Proposal Summary would give applicants an understanding of their eligibility and better guidance, before all of the expenses for a feasibility study are incurred. Pre-proposals are being used in some competitions to minimize the burden on proposal preparer and increase the overall quality of the submitted proposals that the reviewers must process. Pre-proposals are intended to provide intermediate feedback as to whether the applicant is on track in gathering and articulating some of the key information required for a successful project and whether that project would be appropriate for funding. One commenter suggested that the pre-proposal be structured to minimize inputs by the applicant, while providing evaluators and reviewers key information in determining the approval of the application. The pre-proposal could be structured in such a way to give evaluators enough insight on the project design so that more specific direction on the needs of a full proposal could be given to the applicant. The commenter provided specific guidelines on how the pre-proposal process could be implemented. Response: USDA has decided not to formalize a pre-application process within the 9006 program because the Agency does not believe it is the best way to achieve the goals sought by the commenters. Applicants can obtain the same guidance that a pre-application process would provide by contacting their State Offices. USDA advises applicants to work with their State Offices as early in the application process as possible to help assess whether they and their projects are eligible prior to conducting other, more expensive application procedures. USDA will provide implementation and training materials to further help both the State Offices and prospective applicants. By providing this information outside the rulemaking process, USDA maintains greater flexibility in providing assistance to prospective applicants. Technical Review Comment: One commenter suggested modifying and/or minimizing the technical reviews by NREL. If an engineer or engineering firm approves technical feasibility of the proposed project for the applicant, accept the information from the engineer. If NREL must perform a technical concurrence or refutation of the project, a system should be established that allows feedback to the applicants. If there is a bias against a particular technology or approach to renewable energy, communicate that with the States so they can perform better outreach. Response: USDA will review the technical feasibility of any project seeking funds under the 9006 program, regardless of the qualifications of the engineer or engineering firm hired by the applicant. Further, USDA or its designated contractor(s) will conduct the technical reviews in a manner that we deem fit and appropriate to the evaluation of the technical merits of each project. This review will be conducted without any bias on the type of project being proposed. If an applicant believes that his or her project has been unfairly denied, the applicant has the right to appeal that decision to USDA. Application Comment: One commenter stated that in the past, technical reviews had been compromised due to missing portions of the application. The commenter recommended that applicants submit two copies, one to the National Office and one to the appropriate USDA State Office, thereby ensuring that both offices have the complete data required to evaluate the application. Response: USDA agrees with the commenter that two applications should be submitted, and the final rule has been revised to reflect that. However, in the final rule, the two copies will be submitted to the Rural Development State Office, which is the responsible office for implementing the 9006 program, including the scoring of the applications. The State Office will then forward a copy of the application and its score to the National Office, whose role is to establish the procedures for the 9006 program and to rank the applications from all 50 States. Application Content Comment: One commenter stated that there is no mention of submitting organizational documents. The proposal only asks for a description of the business, farm, or ranch operation and ownership. The commenter stated that they had encountered applications stating they had a partnership, but when the reviewer asked for a copy of the partnership agreement—the applicants said it was a verbal agreement. Is that acceptable? What assurance is there that the applicants are a legally formed entity? Also, only by examining the Articles of Incorporation can you determine whether nonprofits were organized solely for charitable purposes. Response: USDA agrees with the comment and the final rule requires applicants, except for sole proprietors, to submit a copy of their legal organizational documents. Comment: One commenter, commenting on proposed § 4280.111(a)(4)(iii)(A), stated that, because the demonstration of a financial need is not an appropriate threshold factor, the explanation of such a need should not be required in the application. Response: Section 9006(b) requires a farmer, rancher, or rural small business to demonstrate financial need in order to be eligible for a grant under this program. Therefore, USDA must include this requirement. In the final rule, all grant applicants must submit a statement certifying that they have financial need. Those grant applicants not using the simplified application process must also submit sufficient information to allow the Agency to make its own determination of the applicant's financial need. For those grant applicants using the simplified application process, the Agency may request the applicant to provide supplemental information that will allow the Agency to make its own determination of the applicant's financial need. Comment: One commenter requested clarification on how USDA intends to use the information provided in the application by agricultural producers on the gross market value of their agricultural products for the calendar year preceding the year in which they submit their application. The commenter stated that if this information is to be used to document a producer as a true agricultural producer for program eligibility, this is fine. However, if a single year's crop gross market value is used by USDA to determine financial need, the commenter stated that this is inappropriate, noting that crop year 2004 is a rare year in which farmers in many States are realizing record yields in concert with steady crop prices. The commenter believes that this rare year of plenty should not be used to restrict eligibility for grants under the 9006 program. Response: USDA will use this information to determine whether an applicant qualifies as a “small agricultural producer” when it scores applications. While it will not be used to determine if an applicant is an agricultural producer, it will be supporting evidence that the applicant is an agricultural producer. Finally, it will not be used to determine an applicant's financial need. USDA does not believe the final rule needs any modification or clarification. Comment: One commenter asked whether applicants will be required to have a Federal tax ID number at the time of application, along with the DUNS number. Response: Yes, both are required. Comment: One commenter made the following points: • The Table of Contents is superfluous and has not been helpful when it has been included. • Pro forma balance sheet—only the cashflow statement has provided useful information when the application was for a grant only. • Business market information is not really needed for renewable energy systems if the applicant has a power purchase agreement or letter of intent to do so. Response: In the final rule, the Agency has elected to keep the Table of Contents. It assists the applicant in organizing its application materials to its best advantage. It itemizes requested data to ensure complete information at the outset. It acts as an organizer of information for more efficient and timely review. With regard to the pro forma balance sheet, we have elected not to require it for projects with total eligible project costs equal of $200,000 or less. For very small businesses, pro formas are not always as accurate or helpful as they are for larger projects. Therefore, we have eliminated the requirement for pro forma balance sheets for smaller projects. However, we have retained it for larger projects ( i.e. , those projects with total eligible project costs greater than $200,000) due to the nature, scope and complexity, and financial risk. Finally, the specific requirement for business market information from the general application section has been removed, but is still required in the Technical Reports for certain projects where such information is important to the feasibility of the project. In addition, such information would be provided in the business-level feasibility study, if one is required. Comment: One commenter referred to the credit reports required for those owning more than 20 percent and suggested an exception for nonlocal financial owners making use of Federal tax credits. Response: USDA has revised the rule to make it easier for passive investors, which would include nonlocal financial owners making use of Federal tax credits, to participate in renewable energy projects. To this end, we have revised the credit report requirement such that credit reports are not required for passive investors (and for those corporations listed on a major stock exchange). Power Purchase Agreement (PPA) and Interconnection Agreements Comment: Five commenters recommended that USDA exempt 100 kW or less renewable energy projects from the requirement of having a PPA or interconnection agreement. According to the commenters, renewable generators up to 100 kW are guaranteed the right to interconnect under Section 210 of Public Utilities Regulatory Policies Act (PURPA), 1978. In most States the interconnection rules, including net metering availability, are spelled out. No PPA or, according to one commenter, a project-specific interconnection agreement, is required. One of the commenters stated further that, in most States, the interconnection rules, including net metering availability, are spelled out and that no PPA or project-specific interconnect agreement, which can take considerable time and expense to obtain, is required. Response: USDA disagrees that projects funded under the 9006 program should not be required to obtain a PPA or an interconnection agreement when the applicant intends to sell power generated by the proposed project. For many of these projects, the ability to sell power makes them financially feasible. If the project is interconnected with an electric power system, it is inherent that an interconnection agreement and a PPA must be made. These agreements and arrangements are covered by different regulations and policies (State, Federal, public utility) that are beyond the scope of the regulation. Agreements with the utility buying the power will help ensure USDA that it is funding projects that will come to fruition. Comment: One commenter stated that requiring the applicant to provide an interconnection agreement or a letter of intent for an interconnection agreement should not be an application requirement for any project pursuant to this program. The commenter stated that this provision forces the applicant to rely upon the third-party utility to provide assistance or information that may not be required of that utility by law. While all utilities must interconnect in Iowa, the law does not currently provide a time in which the utility must interconnect, and the applicant may not be able to obtain such a letter from the utility in order to meet the requirements of the application process. Second, utilities do not often enter into interconnection agreements until the engineering plans are submitted, potentially amended, and approved by the utility, and the regional transmission operator if necessary; and so unless a project is ready for the installation and construction phase, it is unlikely that the applicant would be able to obtain an interconnection agreement or even a letter of intent. Response: As noted in the previous response, USDA is still requiring applicants to obtain the necessary PPA and/or interconnection agreements prior to USDA obligating funds to a project. We concur with the commenters that an agreement or letter of intent may be beyond the applicant's ability to obtain at the time of application. Therefore, USDA has revised what is required at the time an application is submitted. Under the final rule, an applicant is required in the application to demonstrate familiarity with the regulations and utility policies. In order to do this, it is necessary that the applicant be knowledgeable of the interconnection and power purchase arrangement available to them, and that they demonstrate to USDA that they have a working knowledge of these requirements for their project. In addition, in the Technical Report, the applicant is required to describe the utility system's interconnection, requirements, power purchase agreements, or licenses where required. USDA advises applicants to provide sufficient information in this regard because the interconnection and PPA are critical elements in determining whether the project has technical merit. Because USDA considers these agreements to be critical, the scoring of applications for those projects that are proposed for interconnection will receive the maximum available points if the necessary agreements or letters of intent to award these agreements are submitted with the applications. Comment: One commenter stated that applicants are required to provide an economic impact analysis for their project. The commenter feels this is an additional area to streamline, improve, and simplify the application process by eliminating this requirement for agricultural producers and small businesses. Response: An economic impact study is part of the business-level feasibility study. As noted in a later response, the business-level feasibility study is mandatory for renewable energy projects with total eligible project costs greater than $200,000 under the 9006 program. When a business-level feasibility study is required, the economic impact study is still a part of such a study. Comment: One commenter requested that renewable energy systems that the exemption for providing a feasibility study conducted by a professional engineer (PE) be raised to more than $100,000. The commenter observed that his organization had forgone project applications because the feasibility study would have cost more than $25,000. Response: Business-level feasibility studies prepared by an independent, qualified consultant, not necessarily a PE, will be required for renewable energy projects with total eligible project costs greater than $200,000. Comment: Several commenters expressed concern regarding consistency with the $100,000 threshold throughout the rule and the units associated with it, as it related to the proposed feasibility studies and other requirements. One commenter stated that the proposed rule's requirements for a feasibility study were inconsistent. In this section, a feasibility study is required for projects with a total cost above $100,000, while in the SUPPLEMENTARY INFORMATION section, a feasibility study is defined as being required for grant requests over $100,000. Commenter stated that these inconsistencies would confuse the reader and recommended that the wording be changed so that a feasibility study was required when the total project cost was above $250,000. Another commenter recommended that feasibility studies be required only for projects over 100 kW. A third commenter stated that the threshold for requiring a feasibility study for renewable energy projects is not consistent between the preamble discussion and the proposed regulation. In the preamble, it refers to projects in excess of $100,000, and in the regulations, it refers to requests in excess of $100,000. As the request cannot exceed 50 percent of the total project, this is a significant difference. The commenter recommended the threshold be based on the size of the project and not the size of the request (this is a more consistent value to base the requirement on); however, the threshold should be increased to $500,000. The Rural Development Office should have the ability to waive this requirement if the application is for an existing business and the renewable energy system does not have a significant impact on their operation (similar to the ability to waive feasibility studies in the current B&I program). A fourth commenter requested clarification of $100,000 threshold for additional requirements. The multiple references to the $100,000 threshold for “feasibility study for renewable energy systems,” “services of professional engineer,” and “energy audits” is unclear in the proposed rule and needs clarification (i.e., either total project request or total project cost). The commenter recommended a return to the language and requirements as stated in the 2004 NOFA published in the Federal Register (69 FR 25234-25259, May 5, 2004) for “feasibility study for renewable energy systems.” —Feasibility study for renewable energy systems. Each application for a renewable energy system project, except for requests of $50,000 or less, must include a project-specific feasibility study prepared by a qualified independent consultant.” If stating thresholds in terms of total project costs, it would read: —Each application for a renewable energy system project, except for projects costing $200,000 or less, must include a project-specific feasibility study prepared by a qualified independent consultant.” For the use of the services of a PE, the proposed rules reads: “Projects costing more than $100,000 require the services of a professional engineer (PE).” This requirement would no longer fit the above statement on requirements for a feasibility study; thus, we suggest a change of threshold for the requirement of a PE. The commenter suggested the following language: “Project requests of more than $50,000 will be required to employ the services of a professional engineer (PE).” If stating thresholds in terms of total project, costs, it would read: “Project costing more than $200,000 will be required to employ the services of a professional engineer (PE)” The energy audit requirement is a good requirement for any energy efficiency project. The commenter suggested the following language if all thresholds are stated in the amount requested: “For energy efficiency improvement projects with a request in excess of $25,000, an energy audit is required.” A fifth commenter stated that using the word “request” is unclear. A question remains as to whether feasibility studies are required for projects with a total cost of $100,000 or if they are required for those projects in which the Federal share or Federal request will be $100,000. The latter would provide for feasibility studies required for those projects that cost $400,000 or above. Response: First, an explanation of the thresholds used by USDA is discussed in other comments in this preamble. Second, as noted previously, the requirement for a stand-alone, business-level feasibility study will be required for renewable energy projects with total eligible project costs greater than $200,000. Third, in the final rule, with two exceptions, all levels at which certain requirements are incurred ( e.g. , energy audits, use of a PE) are now consistently expressed in terms of “total eligible project costs.” The first exception is under the loan program, where certain requirements are associated with “loan requests.” The second exception is under § 4280.115, where certain requirements are based on the cost of the contract. Business-Level Feasibility Study for Renewable Energy Systems Comment: One commenter stated that according to the proposed rule, “because of factors of cost and complexity for renewable energy system projects of more than $100,000 a project-specific feasibility study will be required.” It is our understanding that feasibility studies that are completed prior to the award are eligible for reimbursement under this program. If feasibility studies completed prior to the award are not eligible for reimbursement, the commenter recommended that two phases of the program be implemented. One phase for the feasibility study/business plan/planning phase and one phase for project implementation. The commenter proposed that this could be similar to the Value-Added Producer Grant program. By allowing applicants to conduct a feasibility study with program funds before implementing their project, USDA can ensure that the implemented projects are of high quality and have a high probability for success. Response: In the proposed rule, the requirement for a project-specific feasibility study (renamed as a business-level feasibility study in the final rule to better characterize the type of study and to distinguish from the Technical Report) was mandatory for renewable energy projects of more than $100,000. In the final rule, the Agency has revised this position to reflect that a business-level feasibility study will be required for renewable energy projects with total eligible project costs greater than $200,000. As noted in a previous response, the 9006 program is for the purchase of renewable energy systems and energy efficiency projects. The preparation of the Technical Reports are legitimate project costs and thus, are eligible costs for reimbursement provided the project is awarded a grant or loan. USDA will not pay for the costs of a study that are incurred for a project that is not successful or for “stand alone” studies. Technical Reports Comment: Two commenters recommended streamlining the application process for small projects by reducing the technical requirements or by incorporating this information into the project narrative. One of the commenters was specifically concerned about the requirements for small wind and small solar projects. Response: As noted in previous responses, USDA has provided a simplified application process for grants for projects with total eligible project costs of $200,000 or less. The Agency believes most small solar and small wind projects will be eligible for this simplified application process. Part of the simplified application process is the development of a “reduced” technical report for these smaller projects. The Agency believes that the reduced technical reports will significantly streamline the application process and reduce the burden to the applicant. Comment: One commenter recommended including the general requirements in the regulation while developing more specific requirements in a guidance document that can be updated periodically. Response: USDA, in general, agrees with the commenter on both comments. First, the rule has been revised to include the general requirements for the Technical Report in the body of the rule, but with more specific requirements in the appendices to the regulation, not as guidance documents. Comment: One commenter suggested that identifying the schedule of utilities and regional transmission operators, where necessary, is not always possible. According to the commenter, the requirement for applicants not interconnecting to identify the interconnection and PPAs and schedules thereof is not necessary for those applicants not interconnecting. The commenter pointed out that many utilities do not require interconnection agreements for projects installed on the customer side of the meter, but the utility may require some safety equipment assurances and so simple proof of that investigation should be appropriate. Response: USDA agrees with the commenter that such agreements are not applicable to applicants who are not interconnecting. The revised rule language now uses these agreements as an illustration of one of the types of agreements that may be necessary. Comment: One commenter stated that the last sentence in proposed § 4280.111(d) should be removed or explained further. The proposed rule does not clearly establish a threshold level, beyond those projects that cost more than $100,000, at which projects will require a professional engineer. The proposed rule does not establish who will decide what level of engineering is required or what kind of public safety issues will require the assistance of an engineer. Response: The sentence the commenter is referring to says: “Depending on the level of engineering required for the specific project or if necessary to ensure public safety, the services of a PE may be required for smaller projects.” In general, the level of engineering required for smaller projects can widely vary. It is not practicable within this rulemaking to address each situation that may arise. Each project will have its own specific circumstances—the nature of the project itself, the site where the project is located, and the State and local requirements ( e.g. , public safety issues) that apply to the project. It is the proper role of the applicant to ensure public safety. It is the applicant's responsibility to determine what are the proper measures to be put into place. These measures may require the services of a PE. The language is included so as not to transfer the applicant's responsibility to USDA. The Agency will evaluate the technical merit of each project. Certain projects, especially those using pre-commercial technologies or those not pre-engineered, may be determined by USDA to need the services of a PE to assure technical viability. USDA advises all applicants to work with their State Office and other knowledgeable technical entities to determine whether their project requires the use of a PE and the type of PE. For these reasons, the Agency has not changed this language (although in the final rule the level at which a PE is required has been raised to $200,000 total eligible project costs). Comment: One commenter also referred to the last sentence in proposed § 4280.111(d). This commenter noted that there could be many engineers involved on one project that oversee many different areas of the project that could hold responsibility for the design (civil, structural, mechanical, process, and electrical). The commenter believes that the requirement should state something along the lines of: “Projects costing more than $100,000 will be required to employ the services of a professional engineer (PE), or a team of Professional Engineers that will ensure that all aspects of the project conform to National, State, and local codes.” Response: USDA agrees that a team of professional engineers can be used, and has revised the wording accordingly. With regards to referencing national, State, and local codes, compliance with these codes is addressed in the Technical Report requirement and USDA does not believe it necessary to repeat it here. We point out that, as installed, all projects have to meet all applicable national, State, and local codes. If the project is not compliant with applicable codes, it is not eligible for funds under the 9006 program. Comment: One commenter asked about the use of foreign engineering. Questions raised by the commenter were: What if the project is designed by an engineer in Germany? Other countries do not have the same licensing requirements for engineers as the United States does, so there cannot be a “PE” certifying the technology. How are foreign engineers going to be able to ensure their technology meets or exceeds U.S. regulations when they are not even able to review documents without the use of an interpreter? Response: There is nothing in the rule that prohibits an applicant from employing the services of a foreign engineer, as long as the foreign engineer is licensed in the area in which the project will be built. This is required of any engineer, American or foreign—the engineer must be licensed in the jurisdiction in which the project is located regardless of where the person resides or what country the engineer is a citizen of. USDA notes, however, that an applicant does not need a PE to certify the technology. If an applicant uses foreign engineers who are not appropriately licensed, then someone who is properly licensed will have to be employed. USDA expects that most foreign engineers that an applicant would use for renewable technologies have done [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A05-13685. Public record. Not legal advice.