Rural Energy for America Program

DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4280

RIN 0570-AA76

Rural Energy for America Program

AGENCY:

Rural Business-Cooperative Service and Rural Utilities Service, USDA.

ACTION:

Final rule.

SUMMARY:

The Rural Business-Cooperative Service (Agency) is publishing this final rule for the Rural Energy for America Program (REAP). This final rule modifies REAP based on comments received on the interim rule, which was published on April 14, 2011, and the proposed rule, which was published on April 12, 2013. The final rule establishes provisions for the grants and loan guarantees available for renewable energy systems (RES) and energy efficiency improvements (EEI) and for the grants available for energy audits and for renewable energy development assistance.

DATES:

This final rule is effective February 12, 2015.

FOR FURTHER INFORMATION CONTACT:

Kelley Oehler, Energy Branch, U.S. Department of Agriculture, 1400 Independence Avenue SW., Stop 3225, Washington, DC 20250-3201; telephone (202) 720-6819.

SUPPLEMENTARY INFORMATION:

Executive Summary

The Farm Security and Rural Investment Act of 2002 (FSRIA), established the renewable energy systems (RES) and energy efficiency improvements (EEI) program under Title IX, Section 9006, 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.

Section 9001 of the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill) amended Title IX of the FSRIA. Under the 2008 Farm Bill, Section 9007 of the amended FSRIA authorized the Agency to continue providing to agricultural producers and rural small businesses loan guarantees and grants for the development and construction of RES and EEI projects, but removed the ability to provide direct loans. The 2008 Farm Bill also expanded the types of RES technologies eligible for funding to include hydroelectric and ocean energy. Further, the 2008 Farm Bill authorizes the Agency to provide grants specifically for energy audits (EA), renewable energy development assistance (REDA), and RES feasibility studies. The 2008 Farm Bill also changed the name of the program to the Rural Energy for America Program (REAP).

REAP's authority is continued in the Agricultural Act of 2014 (2014 Farm Bill), with several specific changes: (1) Removing RES feasibility study grants, (2) removing the ability to provide assistance for flexible fuel pumps, adding councils as define in 16 U.S.C. 3451, to be an eligible applicant for EA and REDA grants, and (4) creating a three tier application process for RES and EEI projects.

REAP seeks to promote energy efficiency and renewable energy development for agricultural producers and rural small businesses by providing grants and guaranteed loans for eight different categories of renewable energy production (

e.g.,

wind, solar, anaerobic digestion, hydro, and geothermal) as well as for EEI.

Eligible applicants for RES and EEI financial assistance are agricultural producers and rural small businesses. For EA and REDA grants, eligible entities are units of a state tribal or local government; land-grant colleges and universities, and other institution of higher education; rural electric cooperatives; councils, as define in 16 U.S.C. 3451; public power entities; and instrumentalities of a state, tribal, or local government.

Purpose of the Regulatory Action

This final rule revises 7 CFR part 4280, subpart B to implement the provisions contained in the 2014 Farm Bill and addresses comments received on both the interim rule, published in the

Federal Register

on April 14, 2011, and the proposed rule, published in the

Federal Register

on April 12, 2013.

Summary of the Major Changes

For RES and EEI projects, the final rule implements a three-tier application process based on total project cost; reduces the technical reports requirements; removes pre-commercial technologies as eligible technologies; and modifies several scoring criteria for RES and EEI. For EA and REDA projects, the final rule removes the scoring criterion regarding contracting. The final rule also incorporates grant and guaranteed loan application deadline dates that allow the Agency to meet the statutory deadlines for funding the EA and REDA grants and RES and EEI grants of $20,000 or less.

Costs and Benefits

For a typical fiscal year, the Agency estimates that approximately 1,393 REAP awards will be made as follows: 487 RES awards, 884 EEI awards, and 22 EA/REDA awards. Of the RES awards, the vast majority are expected to be associated with solar, followed by wind and biomass projects. The awardees are expected to be mostly businesses, including sole proprietors, with relatively few state, local, and tribal government entities.

The Regulatory Impact Analysis (RIA) completed for this final rule calculates a net costs savings of approximately $10 million as the result of improvements in the implementation of the REAP program. The cost savings achieved by the rule are attributed to the decreased costs estimated for the changes in program implementation. In addition the reduction in burden meets the reporting requirements of the retrospective review report which provided a specific percentage reduction in application burden, specifically the time it takes to complete the narrative portion of the application, which was reduced from 40 hours in the baseline, down to 20 hours in the final rule, a 50 percent reduction.

Executive Order 12866

This final rule has been reviewed under Executive Order (EO) 12866 and has been determined to be economically significant by the Office of Management and Budget (OMB). The EO defines a “significant regulatory action” as one that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this EO. The Agency conducted a benefit-cost analysis to fulfill the requirements of EO 12866.

Executive Order 13563

The agency has reviewed this regulation pursuant to EO 13563, issued on January 18, 2011 (76 FR 3281, January 21, 2011). EO 13563 is supplemental to and explicitly reaffirms

the principles, structures, and definitions governing regulatory review established in EO 12866. To the extent permitted by law, agencies are required by EO 13563 to: (1) Propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

The Agency identified REAP as one of the Department's periodic retrospective review of regulations under Executive Order 13563, and has proposed a tiered application approach that reduces applicant burden for technical reports and streamlines the narrative portion of the application. Notably, there is an estimated 20 percent reduction in the number of hours it takes to complete a technical report for those applications for projects with total project costs of more than $80,000 to $200,000; the elimination of a technical report for those applications for projects with total project costs of $80,000 or less; and a 50 percent reduction in the number of hours it takes to complete the narrative portion of burden.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. Under section 202 of the UMRA, Rural Development generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to state, local, or tribal governments, in the aggregate, or to the private sector of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires Rural Development to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This final rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for state, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

Environmental Impact Statement

REAP has been operating since 2005 under 7 CFR part 4280, subpart B, and through the issuance of various Notices of Funds Availability (NOFA), including several notices issued in response to Title IX of the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill). Under this program, the Agency conducts a National Environmental Policy Act (NEPA) review for each application received. To date, no significant environmental impacts have been reported, and Findings of No Significant Impact (FONSI) have been issued for each approved application. Taken collectively, the applications show no potential for significant adverse cumulative effects.

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” Rural Development has determined that this action does not constitute a major Federal action significantly affecting the quality of the human environment, and in accordance with NEPA of 1969, 42 U.S.C. 4321

et. seq.,

an Environmental Impact Statement is not required. Grant applications will be reviewed individually to determine compliance with NEPA.

Executive Order 12988, Civil Justice Reform

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

Executive Order 13132, Federalism

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

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the Agency certifies that the rule will not have an economically significant impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

In compliance with the RFA, Rural Development has determined that this action, while mostly affecting small entities, will not have a significant economic impact on a substantial number of these small entities. Rural Development made this determination based on the fact that this regulation only impacts those who choose to participate in the program. Small entity applicants will not be affected to a greater extent than large entity applicants.

Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

The regulatory impact analysis conducted for this final rule meets the requirements for EO 13211, which states that an agency undertaking regulatory actions related to energy supply, distribution, or use is to prepare a Statement of Energy Effects. This analysis finds that this rule will not have any adverse impacts on energy supply, distribution, or use.

Executive Order 12372, Intergovernmental Review of Federal Programs

This program is not subject to the provisions of EO 12372, which require intergovernmental consultation with state and local officials.

Executive Order 13175, Consultation and Coordination With Indian Tribes

This EO imposes requirements on Rural Development in the development

of regulatory policies that have tribal implications or preempt tribal laws. Rural Development has determined that this rule does not have a substantial direct effect on one or more Indian Tribe(s) or on either the relationship or the distribution of powers and responsibilities between the Federal Government and the Indian Tribes. Thus, this rule is not subject to the requirements of EO 13175.

However, in implementing changes to the program resulting from the 2008 Farm Bill, this program was included in the USDA Joint Agency Regional Consultations that consolidated the consultation efforts of 70 USDA rules from the 2008 Farm Bill. USDA Rural Development sent senior level agency staff to seven regional locations and engaged tribal leadership in each region to consult on a host of programmatic adjustments.

Upon completion of the consultation process, USDA Rural Development analyzed the feedback and incorporated input from the consultation into REAP. For example, with the intent to increase tribal participation in the program, the definition of a small business in this rule includes tribal business entities formed as Section 17 Corporations as determined by the Secretary of the Interior or other tribal business entities that have similar structures and relationships with their tribal governments as determined by USDA Rural Development.

Programs Affected

REAP is listed in the Catalog of Federal Domestic Assistance under Number 10.868.

Paperwork Reduction Act

The information collection requirements contained in this final rule have been submitted to the Office of Management and Budget (OMB) for review and approval.

E-Government Act Compliance

Rural Development is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. The rule allows electronic submission of applications through grants.gov. The Rural Development Web site contains information on all of Rural Development's programs, including regulations, fillable forms, and factsheets.

I. Background

Rural Development administers a multitude of programs, ranging from housing and community facilities to infrastructure and business development. Its mission is to increase economic opportunity and improve the quality of life in rural communities by providing leadership, infrastructure, venture capital, and technical support that can support rural communities, helping them to prosper.

To achieve its mission, Rural Development provides financial support (including direct loans, grants, loan guarantees, and direct payments) and technical assistance to help enhance the quality of life and provide support for economic development in rural areas. The 2008 Farm Bill contains several sections under which Rural Development provides financial assistance for the production and use of biofuels. This authority is continued in the Agricultural Act of 2014 (2014 Farm Bill).

In response to the Farm Security and Rural Investment Act of 2002 (FSRIA), which established the Renewable Energy Systems and Energy Efficiency Improvements Program under Title IX, Section 9006, the Agency promulgated a rule (70 FR 41264, July 18, 2005) under 7 CFR part 4280, subpart B) a program for making grants, loan guarantees, and direct loans to farmers and ranchers (agricultural producers) or rural small businesses to purchase RES and make EEI. Renewable energy sources eligible for funding included bioenergy, anaerobic digesters, geothermal electric, direct geothermal, solar, hydrogen, and wind.

Section 9001 of the 2008 Farm Bill amended Title IX of the FSRIA. Under the 2008 Farm Bill and Section 9007 of the amended FSRIA, the Agency is authorized to continue providing to agricultural producers and rural small businesses loan guarantees and grants for the development and construction of RES and EEI projects. In addition to the current set of renewable energy projects eligible for funding, the 2008 Farm Bill expanded the program to include two new renewable energy technologies: hydroelectric and ocean energy. Further, the 2008 Farm Bill authorized the Agency to provide grants specifically for energy audits, renewable energy development assistance, and feasibility studies. This expanded program is referred to as REAP, which continues the Agency's assistance for the adoption of both RES and EEI through Federal Government loan guarantees and grants. During the promulgation of this final rule, the 2014 Farm Bill was enacted and repealed the RES feasibility study component of REAP. This change has been incorporated into this final rule. In addition, the 2014 Farm Bill report language removed the ability to provide assistance for flexible fuel pumps, and the Bill added a provision to allow a council to be an eligible applicant for energy audit and renewable energy development assistance. Both of these changes have also been incorporated into this final rule. All comments regarding RES feasibility study grants and flexible fuel pumps will not be summarized or addressed. All references in the final rule to RES feasibility study grants and flexible fuel pumps have been removed.

After the 2008 Farm Bill, the Agency issued a series of

Federal Register

notices implementing the provisions in the 2008 Farm Bill for RES feasibility studies, energy audits, and renewable energy development assistance. For energy audits and renewable energy development assistance, these notices were published on March 11, 2009 (74 FR 10533), and May 27, 2010 (75 FR 29706).

On April 14, 2011 (76 FR 21110), the Agency published an interim final rule that established a consolidated REAP program by including each part of the program in a single subpart. Because the majority of the interim final rule was based on existing provisions that were at that time being implemented through the existing subpart for RES and EEI (7 CFR part 4280, subpart B) and the notices identified above, the Agency published the REAP regulation as an interim final rule, with the opportunity to comment.

On April 12, 2013 (78 FR 22044), the Agency published a proposed rule for REAP, which proposed a number of changes to the interim final rule.

The Agency requested comments on both the interim final rule and the proposed rule. All of the comments received are summarized in Section III of this preamble. Most of the proposed rule's provisions have been carried forward into subpart B of this final rule, although there have been several significant changes. A summary of major changes to the proposed rule are summarized below in Section II of this preamble.

II. Summary of Changes to the Proposed Rule

This section presents the major changes to the REAP April 12, 2013, proposed rule. Most of the changes were the result of the Agency's consideration of public comments on the proposed rule. As indicated above, the Agency is also making changes to the rule due to

statutory changes resulting from the enactment of the 2014 Farm Bill. Other changes, however, are being made even though the Agency did not receive comments on those provisions. The Agency is making these other changes as a result of the recent revocation of the USDA's 1971 Statement of Policy titled “Public Participation in Rulemaking,” FR Doc. 2013-25321. This revocation restores to USDA the discretion to use notice-and-comment rulemaking procedures when appropriate. Rather than making these other changes in a separate rulemaking, the Agency has elected to include them in this final rule. Unless otherwise indicated, rule citations refer to those in the final rule.

A. Definitions (§ 4280.103)

The following definition was added to the final rule:

Council.

The definition was added because the 2014 Farm Bill allows a council, as define in 16 U.S.C. 3451, to be an eligible applicant for energy audit and renewable energy development assistance grants.

The following definitions were revised from what was published in the proposed rule:

Agricultural Producer.

Clarified that the 50 percent of gross income must come from the products that are grown or raised.

Annual Receipts.

Directly incorporates the definition found in Small Business Administration regulations.

Anaerobic Digester Project.

Clarifies that the digester uses animal waste.

Commercially Available.

The Agency added a second part to the definition such that a Renewable Energy System would be considered “commercially available” if the system has been certified by a recognized industry organization whose certification standards are acceptable to the Agency. In addition, the Agency clarified the definition to make clear that the provisions are applied equally to domestic and foreign systems.

Complete Application.

Revised definition to encompass that an application must be complete enough for the Agency to determine technical merit, which is similar process to the existing rules methodology to determine technical merit.

Departmental Regulations.

Removed 7 CFR part 3021, because the cross reference is no longer valid.

Eligible Project Costs.

Reference REAP by name, instead of general term “program.”

Energy Assessment.

Added language to the definition for projects with total project costs of $80,000 or less that an individual or entity can conduct energy assessments and does not require the individual or entity to be “independent.”

Feasibility Study.

The term business was replaced with business operation, to clarify that it was not just a requirement for businesses but Ag producers as well.

Instrumentality.

Removed the examples since the 2014 Farm Bill now includes a council as an eligible applicant.

Matching Funds.

This definition was revised to clarify that matching funds are the additional funds required to complete the project that are required by 7 U.S.C. 8107, which are 75 percent of eligible project costs for grants and 25 percent of eligible project costs for guaranteed loans. Other funds provided that are in excess of the funds required by statute are not considered matching funds.

Refurbished.

This definition was revised to add the requirement that refurbishment must take place in a “commercial” facility and that the refurbished equipment must come with a warranty that is approved by the Agency or its designee.

Retrofitting.

The Agency made the definition more general by removing reference to renewable energy system and added a requirement that the retrofit does not affect the original warranty, if the warranty is still in existence.

Renewable Energy System.

The definition is being modified in 7 CFR, part 4280 because the 2014 Farm Bill added the definition of “renewable energy systems” to the statute. The statutory definition of a “renewable energy system” is a system that produces a usable energy from a renewable energy source and may include distribution components necessary to move energy produced by such system to initial point of sale, but may not include a mechanism for dispensing energy at retail.

Simple Payback.

A number of changes were made to this definition.

1. Replaced net income with earnings before interest, taxes, depreciation and amortization (EBITDA), which is financing measure of operating cash flow, based on data from the income statement.

2. Removed all tax credits, carbon credits, renewable energy credits, from the calculation.

3. Based on eligible project costs rather than total project costs.

4. For EEI projects and RES systems that reduce onsite energy use, calculation of historical energy used prior to the project implementation can now be calculated on a 12, 24, 36, 48, or 60 month basis at the applicant's discretion, versus the proposed rule which required applicants to use a 36 months.

5. For projects that reduce energy use, added “or replace” to identify that projects that replace energy will use this method to determine simple payback and removed the ability to include revenue from byproducts produced by the energy system. Also those RES project that replace over 100 percent of the energy used by the applicant will use the actual average price paid for the energy replaced, and the projected revenue received from energy sold in a typical year.

Small Business.

Added an additional option to qualify as a small business using average net income and net worth, and reorganized the definition.

The following definitions were in the proposed rule but were removed from the final rule:

Blended Liquid Transportation Fuel.

The definition was required to define flexible fuel pumps and the 2014 Farm Bill report language repealed the ability of the REAP to provide assistance for flexible fuel pumps, therefore the Agency is removing the definition.

Energy Analysis.

As a result of this deletion, conforming changes were made throughout rule.

Flexible fuel pump.

The 2014 Farm Bill report language repealed the ability of the REAP to provide assistance for flexible fuel pumps, therefore the Agency is removing the definition.

B. General Applicant, Application, and Funding Provisions (§ 4280.110)

The Agency clarified that a grant application for EA and REDA can be submitted at any time.

C. Notifications (§ 4280.111)

The final rule clarifies that once an application is determined to be ineligible no further processing of the application will occur. The Agency also relabeled paragraph (c) to “Funding Determination” rather than “Disposition of applications.”

D. Project Eligibility (§ 4280.113)

The Agency added a provision to identify conditions under which a subsequent EEI, that improves or replaces an EEI project previously funded under REAP, is eligible for funding.

Based on comments, for agricultural producers with operations in non-rural areas, the Agency removed the italicized text in the following: “the application can only be for renewable energy systems or energy efficiency

improvements on

integral

components

of or

that are directly related to the operation . . .” so that it now reads: “the application can only be for RES or EEI on components that are directly related to and their use and purpose is limited to the agricultural production operation . . .” (see § 4280.113(d)). This same change was also made for project eligibility for Energy Audits grants, Renewable Energy Development Assistance grants, and RES/EEI guaranteed loans.

The Agency added provisions identifying how a renewable energy system project, in which a residence is closely associated with and shares an energy metering device with the rural small business or agricultural operation, would be eligible for funding (see § 4280.113(e)).

E. RES and EEI Grant Funding (§ 4280.114)

In determining items that qualify as an eligible project cost, the Agency removed the phrase “integral component” so that an item is an eligible project cost if it is “directly related to and its use and purpose is limited to the RES or EEI.” (see § 4280.114(c)).

The Agency also identified that a second meter will be considered eligible project costs for those applicants whose projects involve residences (see § 4280.114(c)(6)).

Lastly, the Agency revised ineligible project costs (§ 4280.114(d)) in the proposed rule by rephrasing “guaranteeing of lease payments” to “lease payments” and removing reference to “guaranteeing loans made by other Federal agencies” which is not applicable to RES and EEI grants, but only to RES and EEI guaranteed loans.

F. Determination of Technical Merit (§ 4280.116)

Under the final rule, the process and criteria that the Agency will use in determining whether a project has technical merit has been established in a new section (see § 4280.116).

G. Grant applications for RES and EEI Projects (§ 4280.117, § 4280.118, § 4280.119)

The Agency clarified the time frames associated with determining if the applicant meets the definition of Rural Small Business for Annual receipts and number of employees, and with determining if the applicant meets the definition of Agricultural Producer for gross income (Annual receipts). This change applies to all three tiers of grant applications and to guaranteed loan applications.

The Agency removed references to Form AD 2106, but included language in the application that requests applicant to provide ethnicity, race, and gender information. This information is optional and is not required for a Complete Application. This change was also made to the energy audit and renewable energy development assistance grants.

The Agency added provisions to technical reports that were not in the proposed rule to describe how the technology meets Commercially Available definition, and to include simple payback calculations for the project.

The Agency added language to the final rule to indicate what documentation is required to receive points for commitment of funds. This same change was also made for Energy Audits grants and Renewable Energy Development Assistance grants.

H. Scoring RES and EEI Grant Applications (§ 4280.120)

Environmental benefits criterion was modified to detail how points are awarded if an applicant can document a positive effect on any of the three impact areas: Resource conservation, public health, and the environment.

The Agency modified the second score criterion, “Quantity of energy generated or saved per REAP dollar requested,” by reducing the points allocated to 10 points. Due to this point reduction, the Agency has added back the scoring criterion from the existing rule “Energy replaced, saved, or generated” and allocated a maximum of 15 points to this criterion.

“Quantity of energy generated or saved per REAP dollar requested” was further modified to use energy generated or saved over a 12 month period rather than 36 months that was required in the proposed rule, and the project will need to achieve 50,000 BTUs per REAP dollar requested rather than 25,000 to receive maximum point under this criterion.

Size of agricultural producer or rural small business was clarified to indicate that the calculation is made on the size of the applicant's agricultural operation or business concern as applicable. This change conforms to language used in Small Business Administration (SBA) regulations for small business determination.

The Agency has revised the “readiness” criterion (now referred to as “Commitment of Funds”) to reflect a sliding scale for those applications that can show commitment of more than 50 percent matching funds and other funds.

Previous grantees and borrowers criterion was revised to increase points for applicants who have not received previous assistance.

Simple payback was revised to increase the maximum number of years for RES project payback by 5 years, raising it from 20 to 25.

Under the State Director and Administrator priority points, the Agency added three new categories for consideration in awarding points: (1) The applicant is a member of an unserved or under-served population, (2) furthers a Presidential initiative or a Secretary of Agriculture priority, and (3) the proposed project is located in an impoverished area, has experienced long-term population decline, or loss of employment. . . .

I. Selecting RES and EEI Grant Applications for Award (§ 4280.121)

Competition cycles for REAP applications were modified such that all RES/EEI grant applications, regardless of the amount of funding requested (which includes $20,000 or less), will compete in up to two competition cycles. RES/EEI grant applications requesting $20,000 or less will compete an additional three times for the $20,000 or less set aside, for a total of up to 5 competitions. Guaranteed loan-only applications will compete periodically, provided that the Agency receives a sufficient number of applications in order to maintain a competitive awards process.

All competitions dates may be modified by a

Federal Register

Notice (see § 4280.121 for RES/EEI grants).

The Agency clarified that an application received after the application submittal deadline can be considered for funding in the subsequent fiscal year if the applicant remains interested in the grant. This same change was also made for Energy Audits grants and Renewable Energy Development Assistance grants.

The Agency relabeled paragraph (e) from “Disposition of ranked applications not funded” to “Handling of Ranked Applications Not Funded.”

J. Awarding and Administering RES and EEI Grants (§ 4280.122)

A change was made to indicate that commitments for matching funds and other funds are needed prior to closing the grant.

K. Servicing RES and EEI Grants (§ 4280.123)

Under programmatic changes the Agency revised the provision that requires prior approval (paragraph (b)(1)) to reflect that prior approval is

not required in cases where there is a decrease in project cost that does not have any negative affect on the long-term viability of the project. In these cases review and approval will be required prior to disbursement.

For transfer of ownership, the Agency added a requirement that the project is also operational.

For both RES and EEI reports, the Agency clarified that jobs reported, if any, are a direct result of the REAP funded project.

For EEI reports, the Agency removed reference to 36 months and refers to the time period as reported in the energy assessment or energy audit.

L. Construction Planning and Performing Development (§ 4280.124)

The Agency rephrased “unnecessary experience and bonding requirements” in the proposed rule to read “unnecessary experience or excessive bonding requirements” to better reflect Agency intent (see § 4280.124(a)(1)).

The final rule clarifies that any exception requested for surety must be in writing and will require Agency funding be disbursed after project is operational (see § 4280.124(a)(3)(v)).

The final rule eliminates the cross reference in the proposed rule to 7 CFR 1780.74 regarding contracts awarded prior to application and brought the applicable requirements into this section (see § 4280.124 (g)).

M. Guaranteed Loan Funding (§ 4280.129)

The Agency added provisions to allow refinancing in the final rule under certain conditions. The final rule also clarifies that eligible project costs include buildings and equipment acquisition when an existing renewable energy system is being financed with guaranteed loan funds.

N. Scoring RES and EEI Guaranteed Loan-Only Applications (§ 4280.135)

The final rule incorporates a periodic competition for guaranteed loan-only applications, provided that the Agency receives a sufficient number of applications in order to maintain a competitive awards process.

The final rule clarifies that all guaranteed loan-only applications that do not meet the minimum score will be competed in a National competition at end of the fiscal year.

The Agency removed reference to Form AD 2106, but included language in the application that requests applicant to provide ethnicity, race, and gender information. This information is optional and is not required for a Complete Application.

O. Application and Documentation (§ 4280.137)

The final rule corrects the reference in paragraph (b)(2)(v) from “the applicant must submit an estimated appraisal” to “the lender must submit an estimated appraisal.”

P. Selecting RES and EEI Guaranteed Loan-Only Applications for Award (§ 4280.139)

The Agency changed quarterly competitions to periodic competitions in the final rule in order to improve access to capital and indicated that the final National competition would be the first business day of September. All competitions dates may be modified by a

Federal Register

Notice (see § 4280.139 for RES/EEI guaranteed loans).

The final rule relabels paragraph (c) from “Disposition of ranked applications not funded” to “Handling of Ranked Applications Not Funded.”

Q. Technical Reports for Energy Efficiency Improvement Projects (Appendix A to Part 4280)

The final rule requires energy audit or energy assessment to use actual energy consumed for the building and equipment being evaluated for 12, 24, 36, 48, or 60 months at the applicant's discretion, versus all applicants being required to use 36 months. The technical report was also modified to require information for simple payback calculations to be submitted. Lastly, the Agency added requirements for an individual or entity to perform assessments if total project cost is $80,000 or less.

R. Technical Reports for Renewable Energy System (RES) Projects With Total Project Costs of Less Than $200,000, but More Than $80,000 (Appendix B to Part 4280)

The Agency clarified what needs to be included in “Project description” and “Resource assessment.” The required information for simple payback calculations was clarified.

III. Summary of Comments and Responses

The current REAP program was implemented through the interim final rule which was published in the

Federal Register

on April 14, 2011 (76 FR 21110), with a 60-day comment period that ended June 13, 2011. The proposed rule was published in the

Federal Register

on April 12, 2013 (78 FR 22044), with a 60-day comment period that ended June 11, 2013. Comments on the interim final rule were received from 32 commenters and comments on the proposed rule were received from 37 commenters. Combined, these commenters provided approximately 150 similar comments. Commenters included biorefinery owner/operators, community development groups, industry and trade associations, investment banking institutions, Rural Development personnel, and individuals. As a result of some of the comments, the Agency made changes in the rule. The Agency sincerely appreciates the time and effort of all commenters.

Responses to the comments on both the interim final rule and the proposed rule are discussed below. Comments made in response to requested comments found in the proposed rule are presented first, followed by comments on the interim final rule and the proposed rule grouped by category and rule section.

Requested Comments—a. Application Threshold for Projects With Total Project Costs of No More Than $200,000

Comment:

One commenter stated that larger thresholds skew to favor larger projects. According to the commenter, most agricultural producers that the commenter works with in southern Oregon are working on solar projects that are much less expensive, generally involving 5 kilowatt (kW), which can now be installed for less than $5/watt, for cattle water or power production for remote locations. The commenter recommended that the threshold be reduced to $100,000 or less.

Response:

The proposed rule contains two thresholds—$200,000 and $80,000. The commenter recommended a threshold of $100,000. The $80,000 threshold is sufficient to address the commenter's concern.

Requested Comments—b. Less Documentation for Applications for Projects With Total Project Costs of No More Than $80,000

Comment:

Numerous commenters agreed with the Agency's decision to create a third category for projects totaling less than $80,000. The commenters stated that the current application for small projects is burdensome at 40 to 50 pages in length, and dissuades farmers and rural small businesses interested in small wind technologies from applying to the program. The commenters suggested developing a template that meets all the statutory requirements and one commenter submitted an alternative application for consideration. Many of the commenters endorsed the proposal to simplify the application process for projects in the $80,000 to $200,000 tier,

as it would presumably increase small wind energy participation in the REAP program.

One commenter, in contrast, did not support the three-tiered grant application system, stating that three-tiers lead to additional complexity for applicants and Agency staff. This commenter recommended that the Agency use a two-tiered system, incorporating the simplified application process outlined for projects under $80,000 for all projects $200,000 or less.

Response:

The Agency thanks the commenters supporting the proposed three-tier application system. While the Agency agrees with the one commenter that a two-tier system would be simpler, the Agency finds that a three-tier system achieves a better balance in the information being requested to account for the differences in the level of technologies; that a two-tier system would either result in obtaining more information than is necessary for the smallest projects or not obtaining enough information on the larger projects.

With regard to the suggestion by one commenter to develop a template for applications for $80,000 or less, the Agency agrees that this would be useful and intends to pursue the development of such a template.

Requested Comments—c. Definition of Small Business

The Agency received comments on the definition of small business in both the interim final rule and the proposed rule. Both sets of comments are addressed below.

Comment:

In commenting on the interim final rule, a number of commenters were concerned that the restrictions in the SBA standards for defining a small business were unduly limiting retailers, especially those with multiple facilities, from participating in REAP. The commenters were seeking, in general, either to eliminate the use of SBA size standard for determining REAP eligibility or to apply the SBA size standard at the individual business concern level rather than at the entire entity level, which includes accounting for affiliates.

Four commenters stated that an obstacle to using REAP that hits at the heart of rural America are the SBA size requirements. These requirements are based on average annual profits and/or number of employees, which prevent interested businesses from using this program. One commenter stated numerous farm cooperatives are unable to take advantage of REAP because they are owned by a parent company, have subsidiaries or affiliates at other locations, and do not qualify for the program because they come under the umbrella of a much larger entity, exceeding SBA eligibility requirements. The commenter encouraged USDA to allow these types of businesses to be judged as a stand-alone company when determining their eligibility based on SBA standards.

Another commenter urged the Agency to use an alternate consideration for small business that would allow a broader interpretation of the term “small business” by allowing each site to be treated as its own entity rather than requiring small business status to be determined at the entire-entity level. According to the commenter, multi-site locations rarely qualify as a small business.

Response:

The Agency has determined that defining “small business” in accordance with how the SBA defines “small business” is not only reasonable, but helps provide consistency within the Federal Government. That being said, even SBA has several definitions for “small business” depending on the specific SBA program. In evaluating the various SBA programs, the Agency has decided to use the small business sized standards used by the SBA financial assistance programs, commonly referred to as the 7A and the SBA 504 programs, as found in 13 CFR 121.301(a) and (b).

As noted in the comment, commenters were seeking, in general, either to remove the cap or to apply the cap at the individual business concern level rather than at the entire entity level, which includes accounting for affiliates. The Agency disagrees with both suggestions, primarily because the Agency has determined that it would be inappropriate to adjust how a business is determined to be a small business relative to the restrictions found in these SBA definitions; that is, the Agency defers to SBA's expertise and years of experience in the specific metrics to use to define a “small business.”

Further, with regard specifically to the recommendation to apply the income limitation to the individual business concern only, the Agency is concerned that either change would open the door for huge companies to obtain assistance by forming a secondary company that could apply for and receive REAP assistance. These companies would have resources not available to other small businesses and potentially have an unfair advantage when putting together an application for assistance.

With regard to removing the income limitation altogether, the statutory authority for the program requires the Agency to consider the applicant's small business status as an eligibility criterion and the Agency cannot do otherwise. Thus, the Agency has not adopted this suggestion in the final rule.

Comment:

In commenting on the interim final rule, two commenters recommended revising the definition of small business to follow an Agency guideline or the broad guideline used by SBA, which only looks at net income and/or net worth, or some other standard guideline. According to the commenters, the small business size standards for each industry are so different that it makes it difficult to determine eligibility. Both commenters stated that, if there were one or two numbers to review in every case, it would be much easier and the Agency would be able to help more businesses.

Response:

For the reasons stated in the responses to the previous two comments, the Agency has decided to use the small business sized standards used by the SBA financial assistance programs, commonly referred to as the 7A and the SBA 504 programs, as found in 13 CFR 121.301(a) and (b).

With regard to the suggestion to look at net income and/or net worth in determining the size of the applicant, the Agency agrees that this is appropriate. By incorporating reference to 13 CFR 121.301(b), the Agency is adding the tangible net worth and average net income of the business concern and its affiliates as an alternative set of metrics for determining whether the applicant is a small business.

Comment:

One commenter suggested removing the limit on the size of the applicant all together given the intent of the program is to encourage energy savings and generation of renewable energy. According to the commenter, the SBA size standards are one of the most burdensome and inconsistent areas within REAP, particularly the determination of parent subsidiary and affiliate status and aggregation of this income has been a challenge. The commenter recommended that consideration be given to continue using SBA size standards thresholds as a cap for each business type, but not necessarily using the same process for defining the threshold.

As an alternative, the commenter recommended using only the income of the applicant entity when determining eligibility. The commenter also asked whether the small business component could be addressed only in scoring rather than in eligibility determination. The commenter pointed that by doing this it would open up the eligibility to any for profit business and would

simplify the application process (

e.g.,

no need to provide previous year's tax returns or look up North American Industry Classification System (NAICS) code).

Response:

While the Agency acknowledges the potential benefits of the commenter's suggestion to remove the size restriction on the applicant, as noted in a previous response, the statutory authority for the program requires the Agency to consider the applicant's small business status as an eligibility criterion and the Agency cannot do otherwise.

In addition, the Agency does not agree with the commenter's alternative to use only the applicant's income for the reasons cited in a previous response and therefore has not adopted the commenter's suggestion in the final rule.

Finally, because it is a statutory requirement that a business applicant be a “small business,” the Agency cannot accommodate the commenter's suggestion to address the size of the business as a scoring criterion only. The Agency notes that the final rule, as found in the proposed rule, does award points based on business size relative to the SBA small business size standards.

Requested Comments—d. Maximum Grant Size for Renewable Energy System Feasibility Studies

The Agency received comments regarding the appropriate size for feasibility study grants, however the 2014 Farm Bill repealed the ability of REAP to make grants for feasibility studies, therefore the Agency will not summarize or address those comments.

Requested Comments—e. Using Average Annual Gallons of Renewable Fuel To Award Points for Flexible Fuel Pumps

The Agency received comments regarding the average annual gallons of renewable fuel for flexible fuel pumps, however the 2014 Farm Bill repealed the ability of the REAP to provide assistance for flexible fuel pumps, therefore the Agency will not summarize or address those comments.

Requested Comments—f. Using a Minimum 25 Percent Tangible Balance Sheet Equity in Lieu of Cash Equity Requirement

Comment:

Two commenters expressed opposition to replacing the current cash equity requirement with a minimum of 25 percent tangible balance sheet equity (or a maximum debt-to-tangible net worth ratio of 3:1).

According to one commenter, the term “net tangible balance sheet equity,” which is used in the Business and Industry Guaranteed Loan (B&I) program, is not a typical lender used term and calculating this figure is confusing and does not provide any real useful information to the lender or the Agency. The present REAP rule allows the fair market value of equity to be used in the calculation of the equity requirements. If farmers are going to use REAP, they are going to meet the equity requirement by using current assets and their values as opposed to cash injection. The term “land rich and cash poor” applies to most farming operations at this time. On-farm renewable energy project applications will be reduced to miniscule amounts if we use the B&I equity requirement. If the future of the REAP program is the guaranteed loan, then the Agency should not be making it more difficult to potential applicants to meet the REAP requirements and that is precisely what such a change would do.

The other commenter stated the use of tangible balance sheet equity (TBSE) appears to be a source of confusion for some existing B&I lenders and borrowers and extending the requirement to REAP would only make this worse. The B&I program requires TBSE when the loan is closed. Given REAP closings are after projects are in service, a TBSE requirement could create significant challenges as the balance sheet will likely see equity changes (cash) used to fund the construction phase. The current process of capping projects at 75 percent and using cash injection into the project works well. Also, agricultural producers typically do not provide Generally Accepted Accounting Principles (GAAP)-based financials as are typical to business and required in the B&I program. This requirement would be an additional burden. The commenter pointed out that REAP loans are generally secured well as there is new equipment with no existing liens, and that RES projects typically have takeoff contracts or power purchase agreement's to ensure cash flow, plus added security with the use of commercially available technology. Given these circumstances, the commenter is unsure as to what, if any, benefit using TBSE would bring to the program. Unless the current cash requirement is not working or the default rate has been unfavorable, the commenter recommended leaving the cash requirement as is. The commenter also noted that the cash equity requirement works with the combination grant/loan application where the grant is used for the cash injection.

Response:

The Agency agrees with the commenters. While a goal of the Agency is for REAP to be as consistent with the B&I program as possible, REAP's agricultural producer and rural small business constituents are poorly served by the use of the term “net tangible balance sheet equity” and it will not be used. The final rule requires equity to be cash equity.

Requested Comments—g. Options for Increasing Use of REAP Guaranteed Loans

Comment:

One commenter recommended that the Agency allow for waivers of the 20 percent personal guarantee when mitigation factors are in place in order to encourage greater use of REAP guaranteed loans.

Response:

The Agency proposed to revise REAP to follow the B&I program's provisions for personal and corporate guarantees, except as they apply to passive investors. The B&I provisions allow the Agency to waive the 20 percent requirement if the lender can document to the Agency's satisfaction that collateral, equity, cash flow, and profitability indicate an above-average ability to repay the loan (7 CFR 4279.149(a)). By doing so, the commenter's recommendation has been addressed and the final rule maintains the incorporation of these B&I provisions.

Comment:

One commenter recommended removing the SBA threshold all together and mimic the B&I program eligibility.

Response:

The Agency does not agree with the commenter's suggestion to follow the B&I program in lieu of the SBA threshold. The B&I program is not specific to small businesses. Aligning REAP with how the SBA defines “small business” rather than how the B&I program determines applicant eligibility is more appropriate. Further, aligning REAP with the B&I program would be statutorily inconsistent with the REAP requirement to provide assistance to small businesses. For these reasons, the Agency has not adopted the commenter's suggestion in the final rule.

Comment:

One commenter recommended allowing refinancing of existing renewable energy projects, which is frequently inquired about. The commenter recommended that the Agency implement provisions that are equal to or less restrictive than those found in the current B&I program.

Response:

The Agency agrees with the commenter that allowing refinancing of existing projects would encourage the use of REAP loan guarantees and has added provisions to allow such

refinancing in the final rule. These provisions, however, require certain conditions be met. First, the existing project to be refinanced must be part of an application for a new project; that is, an application that proposes only to refinance an existing project is not eligible. Second, the existing project being refinanced must be a project that would otherwise be eligible under REAP. Third, the cost of the refinancing must be less than 50 percent of the eligible project costs of the application. In applying these provisions, the existing debt may be either current debt with the lender applying for the guarantee or debt from another lender.

Comment:

One commenter recommended allowing loan note guarantees to be issued up-front prior to complete system being installed and tested.

Response:

For the reasons discussed in response to directed question i below, the Agency is not incorporating this recommendation in the final rule.

Comment:

One commenter indicated quarterly competition is positive improvement from the current REAP program, but monthly funding cycles is better than quarterly.

Response:

The Agency agrees that shorter periods for competing guaranteed loan applications will provide the best service to those applying for such applications. The Agency, therefore, has decided to compete guaranteed loan-only applications on a periodic basis, provided that the Agency receives a sufficient number of applications in order to maintain a competitive awards process, and has included this provision in the final rule.

Requested Comments—h. Frequency for Competing Guaranteed Loan-Only Applications

Comment:

One commenter stated that, while quarterly competitions are a positive proposal to the existing regulation, allowing projects to compete on a monthly basis will be more consistent with the B&I program. The commenter also stated that continuous funding would also mirror SBA programs, which lenders are familiar with.

Response:

As noted in the response to the previous comment, the Agency agrees that shorter periods for competing guaranteed loan applications will provide the best service to those applying for such applications and, therefore, has incorporated periodic competitions for guaranteed loan-only applications in the final rule, provided that the Agency receives a sufficient number of applications in order to maintain a competitive awards process.

Requested Comments—i. Issuance of REAP Loan Note Guarantee Prior to Construction for Technologies That Demonstrate Lower Risk to the Government

Comment:

One commenter recommended allowing loan note guarantees to be issued up-front prior to complete system being installed and tested in order to encourage participation in the REAP loan guaranteed portion of the program.

Response:

The Agency agrees with the commenter that issuing the loan note guarantee up-front prior to the complete system being installed and tested would encourage participation in the program. However, no substantive suggestions were provided by the commenter on how risk to the program could be mitigated. Further, the similar B&I program does not issue loan note guarantees up-front for energy projects primarily because of the inherent increased risk with doing so. Therefore, the Agency has decided not to allow the issuing of loan guarantees up-front under REAP.

Requested Comments—j. Development of Multi-Farm, Community Digester Projects Under the Rule

Comment:

One commenter stated that a community digester may not qualify given the SBA size determination method if all entities incomes are aggregated. According to the commenter, looking at only the income or projected income or employees of newly formed entities may allow this type of project to be eligible.

The commenter also suggested that the Agency consider modifying the Administrator points to encourage community-based renewable or energy efficiency projects with justification being that more people will benefit with project funding.

Response:

The Agency agrees with the commenter that more community digesters would qualify as eligible by not aggregating all of the entities' incomes. However, for the reasons stated earlier in a response concerning this issue, the Agency had determined that consistency with the application of SBA definitions of small business is important and that it is important to look at the financial position of all entities associated with a project. Therefore, the Agency has not revised the rule to incorporate the commenter's suggestion.

With regard to the commenter's suggestion to modify how Administrator priority points are awarded, the Agency is not persuaded that funding a single, large community-based project necessarily benefits more people than funding an equivalent number of smaller projects. Thus, the Agency has not revised the rule in response to this suggestion.

Requested Comments—k. Subcategorization of Energy Efficiency Improvements for Purposes of Determining Under-Representation When Awarding State Director or Administrator Priority Points and Whether Historical Data or the Current Pool of Applications Should Be Used in Determining Under-Representation.

Comment:

One commenter did not support subdividing EEI projects to award under-represented project points. According to the commenter, this would lead to more political influenced awards from year-to-year versus supporting the true goal of energy savings, which these projects currently promote. According to the commenter, penalizing projects types that have formerly been completed also penalizes the applicant that was not an early innovator or just learned about the program, but still has a project that achieves energy savings. The commenter claims that the Agency's credibility with renewable energy technology awards has been hurt because grant writers/vendors do not know from year to year if their applications will be competitive as these priority points for under-represented technologies can be critical for renewable energy projects to receive funding.

With regard to the second part of the question, the commenter stated that, while using historical data is preferable over considering the annual pool of applications, allowing states to award points to encourage growth specific to their state is the preferred method.

Response:

In the absence of input from other commenters on supporting a subdivision of EEI projects, the Agency has elected not to subdivide EEI projects for the purposes of determining whether a specific type of EEI project is under-represented when awarding discretionary points.

The Agency is not subdividing EEI projects for the purposes of determining under-represented technologies, therefore, the agency did not respond to the second part of the comment (historical versus pool of applications for the year) because it is not applicable.

General

Support for Program

Comment:

Two commenters expressed general support for the

program, with one commenter stating that these programs will help jumpstart economic growth in alternative sectors in the United States.

Response:

The Agency thanks the commenters for their support.

Consolidation of Rule

Comment:

One commenter stated that consolidating each part of the program into a single subpart should be helpful in enhancing the REAP program's effectiveness in fostering the development of more anaerobic digesters.

Response:

The Agency agrees that consolidating each part of the REAP program into a single subpart enhances the Agency's effectiveness in implementing REAP, to the benefit of all eligible technologies, including anaerobic digesters.

Comment:

Two commenters expressed strong support for REAP from the dairy farmer perspective. One of the commenters stated that dairy farmers have a great opportunity to take advantage of multiple USDA programs to develop and construct anaerobic digester systems. The commenter appreciates the Secretary's commitment to these efforts as put forth in the dairy sustainability Memorandum of Understanding signed in late 2009. For example, dairy farmers may be able to utilize Environmental Quality Incentives Program (EQIP) through USDA's Natural Resource Conservation Service (NRCS) with REAP to develop an anaerobic digester system. The commenter recommended continuing to work to make certain these opportunities are developed and understood throughout the nation.

The commenter also supported the comments submitted by the Innovation Center for U.S. Dairy, especially the Center's recommendations for modifying the personal loan guarantee language could allow for a number of dairy farmers to secure the necessary finances to utilize REAP for anaerobic digester systems.

The other commenter expressed belief that REAP is critical for our nation's energy future and that opportunities abound for not only realizing the energy efficiencies on the farm, but also for dairy farmers to become producers of renewable energy.

Response:

The Agency thanks the commenters for supporting REAP. Agency officials collaborate closely with REAP applicants via its state offices through an array of supporting entities; such as the Natural Resource Conservation Service (NRCS), the Farm Service Agency (FSA), and the Forest Service (FS), state, and private stakeholders; to leverage program funds to their maximum impact upon national and departmental priorities.

The Innovation Center for U.S. Dairy did not submit comments on the interim or proposed rule, so the Agency was unable to determine what the commenter was referring to beyond the comment on personal loan guarantee. The Agency notes that among the changes implemented by this rule is the incorporation of the personal and corporate guarantee requirements of the B&I program.

Rebate Program

Comment:

In commenting on the interim final rule, one commenter stated that there should be a rebate program for micro wind and solar in order to facilitate greater use of the program by these technologies.

Response:

The statutory authority of REAP requires the Agency to implement grants and loan guarantees. As such, the Agency is not authorized to use rebates in implementing REAP. In lieu of being able to implement a rebate program, the Agency is implementing a simplified application process for applications for projects with total project costs of $80,000 or less where funds are disbursed at project completion. This streamlined application process achieves many of the burden reductions that could be achieved under a direct rebate program.

EO 12372 Intergovernmental Review

Comment:

One commenter noted that the preamble to the interim final rule states that intergovernmental consultation results are not reported because they are “not required of this program.” The commenter stated that he understands that certain field offices insist that the U.S. Fish and Wildlife Service be consulted on all wind projects, regardless of their size, following a memo from Rural Development in Washington. According to the commenter, for fiscal year 2011 this resulted in a severely compressed application deadline and dissuaded a number of qualified applicants. The commenter recommended that this situation be clarified, and that all wind projects of 100 kW, as a minimum, and under be allowed to proceed without such consultation. The commenter's preference would be exclusion for single turbine projects with heights up to 200 feet (ft).

Response:

The consultations referred to by the commenter are in connection with the NEPA and not with EO 12372, Intergovernmental Review. The Agency consultations with U.S. Fish and Wildlife Service regarding proposed project installations are not governed by EO 12372, but are instead governed by NEPA and Agency environmental regulations published in 7 CFR 1940, part G. Projects must comply with all environmental requirements; including Federal, state, and local requirements. All applicants must comply with the environmental requirements applicable to their project, including having the environmental review completed prior to approval of the project. Funding a grant or providing a loan guarantee is a Federal action requiring compliance with the NEPA. NEPA clearance must be done before the Agency obligates money, versus before application, so NEPA requirements should not significantly impact the time needed to submit an application.

Demonstrated Financial Need

Comment:

Four commenters supported the removal of the demonstrated financial need requirement. One commenter stated that the need to demonstrate financial need was one of the most onerous requirements of the program and that it is not called for in the current statute, is burdensome, and a significant obstacle to participation on very small projects. The other two commenters stated that the requirement was undefined and difficult to prove. Other commenters stated that the change should remain in the final regulation.

Response:

The Agency thanks the commenters for their support. The final rule does not contain a “demonstrated financial need” requirement. Further Congress evidenced its intent that “demonstrated financial need” not be shown when the 2008 Farm Bill removed it as a requirement for this program.

Funded Technologies

Comment:

Numerous commenters stated the 2002 Farm Bill and 2008 Farm Bill specifically sought to promote renewable energy development for agricultural producers and rural small businesses. The 2008 Farm Bill set aside 20 percent of REAP funds for small business- and farm-scale renewable energy technologies for grants of $20,000 or less. The commenters believe that the lengthy project cycles for small wind, burdensome REAP paperwork, and application process and lower success rates for small wind applications have resulted in increasingly poor program participation rates by small wind retailers.

During fiscal years 2009 through 2012, the average funding success rate across all REAP technologies was 67 percent, which resulted in 6,605 funded

projects out of 9,856 requests. Yet, during that same 4-year period, the average funding success rate for wind was 40 percent, which resulted in 376 funded projects out of 942 total requests. The percentage of REAP awards between fiscal years 2009 through 2021 for wind projects was just 6 percent. Agency data indicate that the low amount funded for wind projects has been even lower in recent years. The commenters suggested the numbers indicate that the REAP program, including the application process, is not accessible for farmers and small businesses interested in wind generation and there is a programmatic bias against small wind projects.

Response:

While the Agency agrees with the figures presented by the commenters, the Agency disagrees that the program is not accessible to farmers and small businesses interested in wind generation. The Agency has made and is making modifications to the program to ensure all technologies, including wind, have an ability to compete for funding, which include:

• Scoring adjustment in simple payback awards full points at a 10-year payback period rather than a 4-year payback period. This increase in the payback period to receive full points has helped certain renewable energy system projects, including small wind projects.

• To the extent that any one RES technology is unrepresented or under-represented in REAP awards, the program allows State Directors and the Administrator to award discretionary points to such projects. In fiscal year 2012 and fiscal year 2013, these discretionary points were awarded to wind projects and resulted in a higher percentage being funded. In fiscal year 2011, only 19 percent of the wind applications received were funded, but in fiscal year 2012 and fiscal year 2013 45 percent and 56 percent, respectively, of the wind applications received were funded.

Multi-Farm Anaerobic Digester Projects

Comment:

In commenting on the interim final rule, one commenter recommended that a separate procedure be provided for projects involving multiple farms. The commenter provided a detailed separate procedure for providing an alternative combination grant and loan procedures for multi-farm digester projects, which would differ from the current combination grant and guaranteed loan process, as follows:

• The grant portion should be available in the full amount of up to 25 percent of total costs of the activity, as authorized by REAP.

• The loan guarantee portion should be authorized for up to 75 percent of eligible project costs, less the amount of a grant, when:

(1) At least 15 percent of eligible project costs is committed as private equity, and

(2) A minimum 10-year contract has been executed for the end-use of the fuel.

• The loan guarantee should also be available to support restructuring of loan amortization.

• A project developer should be able to apply for a combined grant and loan guarantee on a rolling basis, or as soon as concept design and business plan are completed.

• Project review should not be based on competitive scoring, but would instead be expedited and measured against a set of fixed criteria.

• “Hybrid” project funding would be simultaneously available in the full amount offered by any separate program, whether USDA or Department of Energy (DOE) or other, and would not reduce the availability of the REAP grant.

• An interim procedure should be devised for “shovel ready” projects, to phase in their financing and construction over 2 years, beginning this summer. Some funding should be allocated from the fiscal year 2011 funds to finance the initiation of construction in fiscal year 2011 and a commitment of fiscal year 2012 funding be provided to finance the continuation and completion of construction next year. The current hard June 15 deadline for fiscal year 2011 should be modified to allow the submission of applications for the filing of interim applications under this new procedure.

• In the alternative, if a combination of full, 25 percent funding and a revised loan guarantee is to be made available for multi-digester projects under a competitive scoring procedure, the current hard June 15 deadline needs to be modified to enable submission of applications for funding in fiscal year 2011.

The commenter concluded by stating that, with greater, targeted funding and improved loan financing flexibility for these types of projects, the program's incentive value may be greatly leveraged so as to reach more farms and more sectors of the renewable energy marketplace.

Response:

The Agency points out that multi-farm anaerobic (community) digester projects are eligible projects under the current process and disagrees with the commenter that a separate award procedure is needed for providing a combination grant and loan for multi-farm anaerobic digesters because the current award process is sufficient and allows such facilities to compete on an equitable basis with all other technologies. The Agency has implemented periodic guaranteed loan-only competitions in the rule to improve access to capital. Furthermore, to fully implement the recommendation made by the commenter would require the Agency to set aside funds specifically for multi-farm digesters. This is something that the Agency cannot do without specific statutory authority, which the Agency does not currently have. Finally, the Agency works to sustain a diverse portfolio of RES and EEI projects across every state. To develop a procedure specific to one technology would be counter to this goal for the program.

Comment:

In commenting on the interim final rule, a number of commenters supported increased funding for multi-farm digesters. Some simply requested that the interim final rule be amended to allow multi-farm digester projects to be funded in an amount equal to a full 25 percent of project costs as authorized by REAP. According to one of the commenters, the up-front funding cap of $500,000 per digester for projects combining a loan guarantee with a grant is simply insufficient to drive the investment for a project of this scale, whereas funding of 25 percent of project costs approaches the necessary amount. Therefore, the commenter recommended changing the rule to allow this amount of funding.

Other commenters echoed similar concern and recommendations, explaining that the completion of the projects hinge largely on whether REAP funding can be made available at a level in the amount of 25 percent of project costs, or substantially more than the $750,000 currently authorized by the REAP funding rule and thus the cap of $750,000 must be raised, but would still need to conform to the 25 percent of project costs statutory limitation.

The commenters as a whole stressed the potential benefits of these changes to facilitate multi-farm digester projects. One of commenters noted that these projects take advantage of the economies of scale involved, where the only limitation on the number of farms that may be involved in this type of project is proximity to the host digester site and the associated costs of transporting the farm wastes and returned nutrient spread and bedding byproduct.

Another commenter noted that there are challenges in making digester technology cost effective for single, small farm operations and that it is hard

to envision broad-based application of single digester equipment on smaller dairy operations as are typically found in the eastern United States. This commenter stated that the community digester model provides a workable solution to this challenge by allowing multiple producers to supply their wastes collectively to a single, larger scale operation.

Still other commenters provided examples of projects currently being considered that would provide renewable natural gas as a substitute for #6 and #2 fuel oil in a co-generation plants at universities and extensive discussion of the potential overall benefits of the projects to the universities and local farming operations.

Response:

As implemented in 2011, REAP has two maximum funding levels: a $500,000 limit for any one renewable energy project and a $750,000 limit to any one entity (for all projects funded under REAP). With regard to combined funding requests (those requests seeking both a grant and a loan guarantee) for RES, the maximum loan amount is $25 million and the maximum grant amount is $500,000. While the Agency acknowledges that certain projects, such as multi-farm digesters, may have significant funding requirements, the Agency seeks a program that not only supports a diversity of technologies, but provides funds to a large number of projects in all states to ensure a national-level program. Removing maximum funding levels would work counter to both of those goals (

e.g.,

very large projects could take a significant portion of the limited funds available thereby reducing the number of projects that could otherwise have been funded and in turn reduce the diversity of projects). Further, multi-farm projects are not prohibited from seeking a combined funding request, as long as the grant portion does not exceed $500,000. For these reasons, the Agency has retained these levels in the final rule.

Project Eligibility

Pre-Commercial Technology/Commercially Available Definition

Two commenters expressed concern about removing pre-commercial technology for the rule.

One commenter stated that the rationale behind the removal of pre-commercial technology was difficult to understand. The stated reason is to avoid overlap with the Biorefinery Assistance guaranteed loan program. The Biorefinery Assistance program appears to focus primarily on biofuels, which presumably encompasses only a subset of projects that apply for REAP funding. If the Agency is seeking to avoid overlap with the Biorefinery Assistance program, it appears that there are more efficient and precise mechanisms, such as explicitly stating that biorefinery projects receiving loans from the Biorefinery Assistance program would be ineligible.

In pointing to the definition of pre-commercial technology (Technology that has emerged through the research and development process and has technical and economic potential for commercial application, but is not yet commercially available), the commenter pointed out that the definition is clearly broader than biorefinery projects, and making this category ineligible affects project types outside of what would also be relevant for the Biorefinery Assistance program.

As proposed, only commercially available technologies would be available for funding. The definition for commercially available (from the same document) begins with “A system that has a proven operating history specific to the proposed application” and contains other requirements such as “an established warranty exists for parts, labor, and performance.” While the definition for pre-commercial is fairly broad, the requirements for a technology to be considered “commercially available” are relatively restrictive. If the proposed rule change is accepted, then several new (but beyond pre-commercial) technologies could conceivably be made ineligible. Under a strict reading of the current definition of commercially available, products coming onto the market, such as an innovative wind turbine design or a new biodigester system, would be ineligible for REAP funding.

There may be an argument for removing pre-commercial technology from eligibility to ensure participating projects are likely to succeed, but the given rationale appears incongruent with the potential consequences.

The second commenter opposed eliminating the pre-commercial available technology from the rule because many projects do not qualify for the Biorefinery Assistance program and the removal will leave a void in the Agency's funding spectrum. This commenter stated that, if the Agency does their due diligence in the technical reviews to ensure sound projects are funded, the program can continue to foster innovative energy improvement and renewable energy projects.

In contrast to these two commenters, numerous commenters supported the removal of pre-commercial technologies as eligible projects from the REAP program and, at the same time, recommended that the Agency strengthen the definition of “commercially available.” Without the qualified examination of documentation supporting the claim of commercial availability by an organization such as National Renewable Energy Laboratory (NREL), the broad language (one commenter specifically identified “operating history of 1 year, established design and installation procedures, professional service providers' familiarity with the system”) risks the reputation of the program by inviting the entry of questionable wind energy systems into REAP.

Commenters strongly recommended that the Agency require safety and performance standards certification to either American Wind Energy Association (AWEA) 9.1-2009 (for turbines >200m

2

rotor area, ~ 60 kW) or International Electrotechnical Commission (IEC) 61400-12-1 and IEC 61400-11 (2005 or future versions) by the Small Wind Certification Council, or other accredited certification body, for qualification as “commercially available.” One of the commenters specifically recommended that the Agency include in the definition of “commercially available” certification standards for all RES from an accredited certification body.

Response:

As discussed below, the Agency is not including pre-commercial technologies as eligible for REAP funding in the final rule and has revised the definition of “commercially available.”

With regard to the exclusion of pre-commercial technologies, the Agency acknowledges that the Agency's rationale presented in the preamble was incomplete. The Agency also acknowledges that eliminating the overlap with the Section 9003 program can be handled in several ways, as pointed out by the commenters. However, the Agency is concerned that including pre-commercial technologies within REAP continues to expose the Agency and taxpayer dollars to the risks associated with financing unproven technologies that do not meet the commercially available definition. Further, with the streamlining of applications, the Agency will be receiving less information to make technical merit determinations. To create another set of application requirements increases the complexity of the program at a time when the Agency is making a concerted effort to simplify it. Lastly, with regards conducting “due diligence,” the Agency is concerned that due diligence may be

insufficient to overcome the potential risks inherent with pre-commercial technologies, such as whether the technology can be successfully scaled-up to a commercial level.

Several commenters, in supporting the removal of pre-commercial technologies, recommended that the Agency strengthen the definition of “commercially available” by requiring review of applications by such entities as the National Renewable Energy Laboratory (NREL)and/or requiring certification of projects as being commercially available by an appropriate industry body or meeting certain industry standards. The Agency has and will continue to work with NREL and other recognized industry experts, as needed.

As described below, the Agency has revised the definition of “commercially available” by requiring the system have:

• “Proven performance data” in addition to a “proven operating history” and that there is at least one year of data demonstrating both the performance data and operating history; and

• An existing established warranty that is valid in the United States.

In addition, the Agency is adding the option of demonstrating that a system can be determined “commercially available” if it has been certified by a recognized industry organization whose certification standards are acceptable to the Agency. The Agency also revised the definition to clarify that the requirements apply equally to both domestic and foreign systems.

Finally, with regard to the suggestion that the Agency explicitly state that biorefinery projects receiving loans from the Biorefinery Assistance program would be ineligible for REAP, the Agency agrees with the commenter that this helps delineate the two programs. The Agency intends to address this suggestion in the Biorefinery Assistance program final rule.

In sum, the changes made in the final rule in response to this set of comments strengthen, clarify, and increase flexibility in demonstrating that a system is “commercially available.”

Definitions (§ 4280.103)

Anaerobic Digester Product

Comment:

One commenter recommended that the underlined text be added to the definition: “Anaerobic digester project. A renewable energy system that uses animal waste and other organic substrates, via anaerobic digestion, to produce biomethane that is used to produce thermal or electrical energy or converted to a compressed gaseous or liquid state for direct use or for injection into natural gas transmission and distribution systems.” According to the commenter, this change will increase the demand for renewable biogas produced by anaerobic digesters. It would allow anaerobic digester projects that inject renewable biogas into the natural gas, in addition to or instead of using the gas on-site. Anaerobic biogas producers can receive added value from the renewable quality of their biogas, even when that gas is not used on site but put into transmission; wind and solar generators sell the renewable quality of their electrons to firms far from where the electrons are consumed. Encouraging the wheeling of renewable biogas through the natural gas transmission system allows customers, including stationary fuel cell power plants and hydrogen production systems at fuel cell electric vehicle fueling stations, to take advantage of renewable fuel using the existing natural gas system.

Response:

With regard to the suggestion that the definition be modified to include “for direct use or for injection into natural gas transmission and distribution systems,” the Agency disagrees that this is needed. The current definition does not exclude such uses and including the suggested language might unintentionally disqualify anaerobic digesters that the Agency would otherwise have funded. Therefore, the Agency has not included this suggested language in the final rule.

Annual Receipts

Comment:

One commenter stated that income limitations should be defined using net income, not gross income.

Response:

For the reasons stated earlier in our response to comments on the definition of “small business,” the Agency is using in the final rule the definitions of small business as found in SBA's provisions in 13 CFR 121.301(a) and (b). Having made this determination, the Agency defers to SBA's expertise and years of experience in the specific metrics to use to define a “small business” and, in the case of 13 CFR 121.301(b). The Agency notes that 13 CFR 121.301(b), is still in the process of being updated, but based on 15 U.S.C. Section 632(a)(5), SBA can determine a small business eligible, for development company programs and for 7(a) business loans by using average net income after taxes of less than $5 million and tangible net worth of less than $15 million in the preceding 2 years. Thus, the commenter's request has been accommodated.

Energy Analysis

Comment:

Two commenters did not agree with adding the new definition of “Energy Analysis.” One commenter stated that the definition is ambiguous and does not provide a clear meaning as to what is expected, while the other commenter stated that it adds another level of confusion to the energy savings documentation requirement. According to the commenters, this new term varies little from the “energy assessment” definition, and will result in added confusion for potential applicants. The commenters also questioned whether this definition will provide the Agency with the necessary information for informed energy savings decisions.

Response:

After considering these comments, the Agency has determined that it is unnecessary to have a separate definition for “energy analysis” and has eliminated the term from the final rule.

Energy Assessor

Comment:

One commenter raised concerns with the “energy assessor” definition. The commenter questioned the credibility of using 3 years of experience and completion of five energy assessments or energy audits as a measure for a qualified consultant.

Response:

The Agency has reviewed the proposed definition for “energy assessor” with knowledgeable federal professionals who indicated that the 3 years and five energy assessments or energy audits is a reasonable threshold to provide sufficient experience to perform energy assessments. Further, part of the definition of “energy assessor” is that the energy assessor is a “Qualified Consultant.” To be a “qualified consultant,” the individual or entity must possess “the knowledge, expertise, and experience to perform the specific task required.” In this case, the specific task required is performing an energy assessment. The purpose of the “number of years of experience” and the “number of similar projects” within the definition of “energy assessor” is to set a minimum benchmark to be applied across the various technologies included in REAP. Therefore, the Agency has not revised the rule in response to this comment.

Energy Audit

Comment:

One commenter indicated that there are three types on energy audits: Level I, a walk through audit; Level II, a full audit; and Level III, a full investment grade audit. The commenter asked if walk through audits are sufficient for REAP. According to the commenter, full audits identify numerous energy conservation measures

(ECMs) and it is customary to recommend that a specialist make a detailed analysis of a particular aspect regarding an ECM. The commenter noted that most REAP projects do not focus on one particular piece of equipment. If this is indeed the case, the commenter recommended that the Agency prescribe what is acceptable for such measures as many utility rebate or state grant programs do.

Another commenter recommended that the Agency makes sure that the energy auditor performs the on-farm energy audit according to the American Society of Agricultural and Biological Engineers (ASABE) definitions.

Response:

As defined in the rule, an “energy audit” is, in part, a “comprehensive report that meets an Agency-approved standard.” Rather than defining what level energy audits would be acceptable to the Agency in the rule, the Agency will include guidance on what is acceptable in the Agency's instructions for the rule so as to identify those industry-recognized energy audit standards that are acceptable for conducting energy audits under this program. The Agency notes that, while the Level II and Level III energy audits described by the commenter would constitute energy audits acceptable to the Agency, a walk through energy audit (Level I) may be acceptable depending on the work that is done and presented in the audit. To be accepted by the Agency, an energy audit must contain the information outlined in Section B of Appendix A to 7 CFR part 4280.

While the Agency agrees that an audit performed according to ASABE definitions is acceptable under REAP, not all audits need to be performed according to ASABE definitions in order for the audit to be acceptable to the Agency under REAP. As noted above, the Agency will include up-to-date guidance on what is acceptable in the Agency's instructions so as to further clarify that energy audits include industry recognized energy audit standards.

Energy Auditor

Comment:

One commenter recommended that the Agency ensures that the energy auditor conducting on-farm energy audits is either a professional engineer or certified energy manager.

Response:

The Agency disagrees with the commenter that the only entities qualified to perform energy audits under REAP are professional engineers and certified energy managers. The Agency has determined that a certified energy auditor; an individual with a 4 year engineering or architectural degree with at least 3 years of experience and who has completed at least five similar type energy audits; or an individual supervised by one of these individuals, has the sufficient experience for conducting energy audits under REAP and the Agency has not revised the rule in response to this comment.

Inspector

Comment:

One commenter stated that the definition of “inspector” does not define how the inspector is qualified other than having 3 years of experience and completion of five energy assessments or energy audits. The commenter asked how the Agency arrived at five assessments or audits as a meaningful number and questioned whether five audits or assessments in 3 years makes an individual qualified.

Response:

The Agency points out that in the proposed rule “inspector” is used in conjunction with the quality of the project work completed and not with energy audits or energy assessments. Nevertheless, the Agency disagrees with the commenter's assertion that the definition of “inspector” is solely defined by the number of years of experience and the number of projects. Part of the definition of “inspector” is that the inspector is a “Qualified Consultant.” To be a “Qualified Consultant,” the individual or entity must possess “the knowledge, expertise, and experience to perform the specific task required.” The purpose of the number of years of experience and number of similar projects within the definition of “inspector” is to set a minimum benchmark to be applied across the various technologies included in REAP. The Agency has not revised the rule in response to this comment.

Qualified Consultant

Comment:

One commenter was concerned that requiring the Qualified Consultant be “independent” will have a negative effect on applications for small projects, which have the vendor perform the energy savings analysis, plus supply the equipment, and at times the project installation. The commenter pointed out that there are many small vendors in rural America who are qualified to provide the savings analysis as a service to their potential customers and this should not be discouraged. According to the commenter, this proposed definition would discourage this activity and harm small projects.

Response:

The Agency agrees with the point being made by the commenter. However, neither the proposed rule nor the final rule require projects with total project costs of $80,000 or less to use an energy assessor, who must be a qualified consultant. As found in the definition of “Energy Analysis” in the proposed rule, the energy analysis could have been performed by an individual or entity with at least 3 years of experience and at least five energy assessments or energy audits for similar projects. In § 4280.103 of the final rule, while the Agency has removed the definition of energy analysis (for reasons discussed above), such an individual or entity can still be used to conduct energy assessments for projects with total project costs of $80,000 or less (as found in Section B of Appendix A to 7 CFR part 4280). As such, the final rule does not require the individual or entity to be “independent.” Thus, for these small projects, the vendor or installer of the RES or EEI may be sufficiently qualified to provide energy savings or energy replacement information.

To the extent, however, that the commenter is referring to projects with total project costs of more than $80,000, the Agency disagrees with the commenter and is keeping the requirement that the energy assessment is performed by an independent entity (as found in the definition of “Qualified Consultant”).

Retrofitting

Comment:

One commenter questioned why the term “retrofitting” applies only to RES. The commenter asked: “Can't one retrofit an existing fan, motor, or lighting system?”

Response:

The Agency agrees that the definition of “retrofitting” does not need to reference RES and has revised the definition accordingly.

Simple Payback

Comment:

One commenter agreed with the proposed change to remove the adjustment of energy efficiency equipment based on the ratio of capacity when determining simple payback. According to the commenter, annualized energy savings is sufficient to ensure the goal of the program is being met.

Response:

As in the proposed rule, determining simple payback under the final rule does not include adjusting the EEI based on the ratio of capacity. The Agency agrees with the commenter that annualized energy saving is sufficient to ensure the goal of the program is being met.

Comment:

Two commenters disagreed with using 36 months of energy use data within the “Simple Payback” definition for EEI projects because the 36 month energy usage history requirement can be detrimental to certain applicants. According to the commenters, the

nature of some industries does not require the applicant to record 36 months of energy usage. The commenters further state that the penalty of ineligibility due to an applicant's inability to produce 36 months of energy usage history is too severe. One commenter recommended that the Agency either retain the current 12 month energy usage history criteria or use a 3-year average.

Response:

In consideration of these comments, the Agency has decided not to implement the proposed rule's 36 month of energy usage, but instead allow the applicant a choice to use either the most recent 12 months or an average of 2, 3, 4, or 5 years to provide the baseline data. The ability to use more than just 12 months will provide a more accurate picture of historical data, but not put an undue burden on the applicant or auditor to compile the data on past energy use for all EEI applications.

Comment:

One commenter encouraged the Agency to allow flexibility with the requirement that all utility bills be supplied with the audit/application. The commenter pointed out that agricultural producers and businesses have the records on file, which are submitted to their auditor to derive at overall energy consumption, and the Agency should only request actual bills if necessary. This controls the paperwork burden on applicants as well as the paper volume for Agency files.

Response:

Neither the proposed rule nor the final rule requires applicants to submit their actual utility bills with either the energy audit or the application. The energy audit or energy assessment must present the information in the audit. The Agency agrees that applicants should keep such documentation in their files should the Agency request them as it reviews the energy audit and application.

Comment:

One commenter pointed out that the simple payback calculation allows Production Tax Credits (PTCs) and Renewable Energy Credits (RECs) to be counted, but not Investment Tax Credits (ITCs) or state subsidies. The commenter stated that this makes little sense, because a subsidy is a subsidy in a payback calculation whether it is paid at once or over time. According to the commenter, not including ITCs discriminates against wind and solar projects under 100 kW because such projects qualify for Section 48 ITCs, rather than the Section 45 PTCs. The result is that the payback period of smaller projects is significantly exaggerated and their REAP scores are unfairly reduced.

To remedy this situation, the commenter recommended eliminating the scoring for micro-projects entirely and replacing it with a “first come/first served” award system once annual funding is determined. The commenter stated that this unfair payback accounting, at a minimum, must be equitably revised so that smaller distributed generation projects are not improperly penalized.

Response:

The Agency must evaluate all projects against each other as required by the authorizing statute, and thus cannot implement a “first-come, first-served” approach, as suggested by the commenter, in making awards.

With regard to making changes to the calculation of simple payback, the Agency acknowledges that the simple payback calculation has been difficult to apply because of the differences in utility rates and incentives between state and regions. Rather than adding additional considerations (such as investment tax credits) to the calculation of simple payback, the Agency has decided to simplify its calculation by also removing from consideration in the calculation of net income all tax credits, carbon credits, and renewable energy credits. In addition to simplifying the calculation, this change allows the Agency to better evaluate each project on its own merits.

Comment:

One commenter noted that the simple payback calculation does not allow one time incentives to be figured into the return on the project for simplicity purposes and to allow equitable scoring between EEI projects and renewable energy projects and stated that this is understandable. The commenter then stated that one incentive that should be considered in the simple payback definition is depreciation on RES. This incentive is received as an annual benefit to a grantee, who installs a renewable energy system. The Modified Accelerated Cost Recovery System (MACRS) shortens the useful life of renewable energy equipment to 5 years and is recorded for tax purposes. The total value of the system (in terms of upfront costs) will be taken out of gross income over the 5 year depreciation period allowed by MACRS. For example in the case of solar MACRS reduces the solar energy equipment owner's tax liability with a net result of them keeping more of the annual revenue produced. This is an annual benefit taken over a period of years and should be reflected in the simple payback calculation. The commenter pointed out that, as it stands now, the formula subtracts depreciation to arrive at average net income and then adds it back in essentially creating a “wash” for depreciation and not figuring in this valuable annual incentive in the payback calculation for REAP scoring purposes. This should be considered to provide a more realistic view of the simple payback on RES. According to the commenter, EEI projects have historically had advantages in scoring under REAP and by allowing annual depreciation (MACRS) under the formula this would allow a more level playing field for the two types of purposes under REAP.

Another commenter stated that tax credits and accelerated depreciation should be considered in the payback calculation if an accountant for the applicant can verify the company can benefit from them.

Response:

Incorporating MARCS as an alternative deduction method would result in increasing the complexity of the rule and the burden to the applicant and the Agency. Further, using MARCS would be difficult to calculate for each project. Therefore, the Agency is not modifying the simple payback calculation as requested by the commenters.

Comment:

Two commenters stated that the simple payback calculation should look at eligible project costs (EPC) instead of total project costs. Because the grant amount is based off of EPC, the commenter stated that it only makes sense that the scoring criteria look at the same amount.

Response:

The Agency agrees with the commenter and has modified the definition of simple payback to use eligible project costs instead of total project costs.

Small Wind System

Comment:

In commenting on the interim final rule, one commenter recommended eliminating the hub height limit of 120 ft. for small wind systems (used in various parts of the interim final rule), stating that the limitation to 100 kW is sufficient.

Response:

The Agency proposed in the proposed rule to eliminate the distinction between small and large wind projects, and the Agency is not distinguishing between small and large wind projects in the final rule. Thus, this comment is not relevant to the rule.

Total Project Costs

Comment:

In commenting on the interim final rule, one commenter recommended keeping the feasible study or energy audit cost included in the total project cost.

Response:

The rule continues to include feasibility study and energy audit costs as part of a project's total project cost. However, the Agency

points out that these two costs are not included in calculating a project's eligible project costs. This change was made because the 2008 Farm Bill allowed grants specific to feasibility studies and energy audits available. While the 2014 Farm Bill has repealed the feasibility study grant the Agency has not made a change to eligible projects cost. Since the cost for these items have already been incurred at submission of the RES/EEI application and there is no bona-fide need for the grant to cover these costs.

Laws That Contain Other Compliance Requirement (§ 4280.108)

Environmental

Comment:

One commenter agreed with changing “will” to “may” with regard to the Agency determining whether a project becomes ineligible when an applicant takes any actions or incurs any obligations that would either limit the range of alternatives to be considered or that would have an adverse effect on the environment prior to Agency completing the environmental review.

Response:

The Agency thanks the commenter for supporting this change, which has been retained in the final rule.

Comment:

One commenter recommended that the Agency consider allowing environmental reviews to be conditional upon award as necessary to compete for funding. The commenter provided two examples as to why the Agency should consider this.

Example A:

A Small producer completing an irrigation efficiency project is required to spend $1,500 on an archeological survey to complete the environmental without a funding guarantee. Over 90 percent of the time the surveys are completed with no findings. Most producers withdraw applications versus completing the study.

Example 2:

Applications comes in on deadline and Agency must process all applications as timely as possible. However, the environmental reviews are not always completed in time (given required 30 day comment period) in order to have such affected applications compete for funding. Many of these affected applications are renewable energy projects, which creates an unfair advantage to energy efficiency projects who are allowed to compete in all funding competitions.

Response:

The Agency cannot accommodate the commenter's suggestion allowing environmental reviews be conditional upon award because the Agency is bound by Agency regulations, outside the purview of the REAP rule, to complete the necessary environmental review prior to the obligation of funds for a project. The Agency does note that the final rule incorporates provisions that allow all applications, both for renewable energy projects and EEI projects, to compete in the same number of funding cycles. Thus, while a RES application may not be competed in the same funding cycles as an EEI application submitted at the same time, the RES application is still eligible to compete in the same total number of funding cycles. This addresses the commenter's concern of EEI projects having an “unfair” advantage in being able to compete in all funding competitions.

Comment:

One commenter stated that REAP should grant NEPA Categorical Exclusions for single wind turbine distributed generation projects up to, as a bare minimum, 100 kW and preferably for any single turbine up to 200 ft in height. Single small wind turbines have been installed at National Wildlife Refuges, National and State Parks, Audubon Preserves, schools, historical sites, tribal headquarters, and thousands of farms. No published study has identified small wind systems as having undesirable environmental impacts, such as noise or avian impacts. Available studies point to little or no impact from these small distributed installations. Medium scale wind turbine with heights up to 200 ft. (the Federal Aviation Administration determination threshold) have been installed at numerous sites and shown in pre-installation impact studies and post-installation monitoring to have little or no avian impacts. There should be a clear distinction between the environmental concerns for wind farm projects and the much smaller distributed generation projects.

The commenter recommended that, if this is not acceptable to the Agency, then the Agency should adopt the DOE NEPA Categorical Exclusions for wind turbines up to 20 kW (and solar up to 60 kW) to reduce the burden on small project applicants.

Response:

With regard to the recommendation for a categorical exclusion for small wind and solar projects, it is outside the purview of this regulation to make such determinations. The Agency notes that it will pass this comment on to those within the Agency who perform the environmental assessments for REAP projects and make determinations as to whether these projects, or any other projects, should be categorically excluded. Thus, no changes have been made to this rule with regard to categorical exclusions.

Comment:

One commenter pointed to the preamble to the proposed rule that states, in part: “To date, no significant environmental impacts have been reported, and Finding of No Significant Impact (FONSI) have been issued for each approved application. Taken collectively, the applications show no potential for significant adverse cumulative effects.” Given this, the commenter asked whether a programmatic assessment can be issued to limit the Agency's environmental reviews on REAP applications to only certain areas per technology type that need to be addressed in full to ensure potential impacts are mitigated. According to the commenter, such streamlining would decrease the time and potential cost burdens on applicants, plus reduce Agency staff time as historically the program has shown to have no significant adverse effects on the environment.

Response:

The commenter is correct that all approved REAP projects have resulted in FONSIs. Programmatic assessments cannot assess the site specific impacts of an individual project and can be useful only for programmatic decisions by the Agency. All applicants must comply with the environmental requirements applicable to their project. Funding a grant or providing a loan guarantee is a Federal action requiring compliance with the NEPA. While small projects are likely to have fewer adverse environmental impacts than similar larger projects, USDA cannot predetermine that all projects will have limited impacts. USDA believes it is appropriate for environmental evaluations to be prepared on a project by project basis to analyze the nature and extent of a project's environmental impact. Thus, the Agency has not accommodated this suggestion.

The Agency notes that it will pass this comment on to those within the Agency who perform the environmental assessments for REAP projects.

General Applicant, Application, and Funding Provisions (§ 4280.110)

Project Completion

Comment:

Two commenters are concerned that the 2 year deadline for project completion will put larger projects with longer durations in peril. One commenter asks how long a project could be extended, if the agency grants concurrence. In regard to small projects, one commenter suggested that the Agency utilize the Grant Agreement or the Letter of Conditions to make a statement that it has authority to de-obligate funds after a specified date. The commenter stated that this measure will reduce confusion for the applicants.

Response:

The Agency acknowledges the commenters' concern over the two year period. Extensions to the two year

requirement can be granted with justifications by the approval official (see § 4280.110(i)(1)). Because there are many circumstances that may cause an extension to be required, the approval official has the authority to grant such extensions. The guidance recommended by the commenter to be included into the Letter of Conditions is acceptable and may be used to communicate the Agency's authority to de-obligate funds after a specified date.

Notifications (§ 4280.111)

Comment:

One commenter stated that “Disposition of Applications” may be a conflicting Agency term to determine when applications can be destroyed. The commenter recommended using “Funding Determinations” instead.

Response:

The Agency agrees with the commenter that using “disposition of applications” could be confusing. The Agency has revised the terminology in the final rule to read “Handling of Ranked Applications Not Funded.”

RES/EEI Applicant Eligibility (§ 4280.112)

Applicant Eligibility

Comment:

In commenting on the interim final rule, two commenters recommended maintaining eligibility for all agricultural producers, regardless of location. The commenters supported the Agency's action to remove the rural restriction for agricultural producers under all relevant REAP programs, stating that this action demonstrates support for REAP as a diverse program providing broad benefits to all agricultural producers across the country, which should remain a defining program goal.

This is a commendable action for a number of reasons. Foremost, the authorizing legislation never restricted REAP eligibility to only rural agricultural producers, just to rural small businesses. The exclusion had the effect of excluding many nursery and greenhouse growers, fruit and vegetable growers and other growers of specialty crops from participating in this program. Many of these sectors have their own unique energy needs and can benefit from implementing both energy efficiency as well as renewable energy improvements.

In addition, this change comports REAP with other USDA programs that serve all agricultural producers regardless of location. By this change the REAP program can have a greater reach in sectors across the country. The commenters urged USDA to maintain this policy of eligibility for all agricultural producers, regardless of location, in the Notice of Proposed Rulemaking for REAP.

Response:

The Agency thanks the two commenters for their comments and the final rule does not take into account an agricultural producer's location in determination the agricultural producer's eligibility for REAP funding.

Dun and Bradstreet Data Universal Numbering System/System for Awards Management System/Central Contractor Registration

Since the 2011, applicants have been required to supply a Central Contractor Registration (CCR) number in order to be eligible. The CCR requirement was implemented through program notices published in the

Federal Register

. The CCR number has since been replaced with a System for Awards Management System (SAM) number, and applicants are now required to supply their SAM number with their application in order to be eligible. The proposed rule contains reference to the SAM number requirement. The Agency received comments on this requirement, whether commenting on the CCR or SAM number, as presented below.

Comment:

Several commenters were concerned over the requirement to submit a Dun and Bradstreet Data Universal Numbering System (DUNS) number and a CCR/SAM number as a condition for being eligible for REAP funding.

According to one commenter, the process for requiring every applicant including individuals to obtain a DUNS number and register that number in SAM is very burdensome. In addition to the application burden, the commenter stated that the SAM system does not work properly at times, or provides delayed results or results are lost in cyberspace creating huge burdens for applicants and the Agency. This commenter further stated that individual, including sole proprietors, should not have to register with the CCR. According to the commenter, many of the program's applicants do not have Internet access or are unfamiliar with the Internet. According to the commenter, the process is burdensome and not user friendly, further complicating the program rather than simplifying it. Therefore, the commenter encouraged the Agency to remove the SAM requirement and rely on existing proven data systems already in use by the Agency to provide funding information. If this cannot be considered, the Agency needs to understand that SAM at times has some significant issues and it is not always feasible for borrowers to get the SAM number with expiration in a timely fashion. Agency staff should be allowed to document such cases in the running record, noting attempts made by the applicant, and provide waivers as needed in this event.

Two other commenters were concerned about the burden of the CCR requirement on small farmers and businesses. One of these commenters stated that the requirement for the CCR registration will create a hurdle as many of the farmers and small business people are not computer literate, or will find the process too complicated. This commenter, therefore, suggested that projects less than $50,000 be exempted from the CCR requirements. The commenter stated that in Washington State, there are not many applicants for less than $20,000 projects, and after completing the applications for them, he knows why. The commenter acknowledged that Agency staff have been very helpful in supporting applicants and that the commenter hopes the process can be streamlined.

Response:

While the Agency shares the commenters' concerns, the DUNS and CCR/SAM requirement is a Federal-wide law. Effective October 1, 2010, changes were adopted to 2 CFR part 25 which required all grant applicants other than individuals who would use the grant for personal use (unrelated to any business or nonprofit organization they may own or operate in their name), to have a DUNS number and to be registered in the CCR database, which has since migrated to the SAM. The Agency will continue to work with all applicants to help ease the burden associated with meeting this Federal requirement.

Comment:

One commenter recommended exempting micro wind and solar projects from being required to demonstrate that satisfactory sources of revenue in an amount sufficient to provide for the operation, management, maintenance, and debt service of the project are available for the life of the project (§ 4280.113(h)). According to the commenter, it is burdensome and unnecessary to require applicants to show that resources for operations and maintenance and debt service are available for the life of the project. First, it assumes that these costs will exceed the savings in electric bills and, second, it implies that rural businesses are ill equipped to make sound investment decisions. Because REAP grants are limited to 25 percent of project costs, the commenter recommended eliminating this requirement.

Response:

The Agency disagrees with the commenter's recommendation. Regardless of an applicant's size, the Agency has determined that this

information is necessary to help ensure that it is making awards that are financially viable. It would be an imprudent use of taxpayer money to approve a project that cannot show that it is financially viable. Therefore, the Agency has not revised the rule in response to this comment.

Residential

Comment:

In commenting on the interim final rule, two commenters suggested alternatives to the residential restriction on farms.

One commenter noted that the interim final rule allows excess electricity to be sold to the grid, but not to be used in a farm-related residence. This means the applicant can get some value for excess, but not maximum value. It also means that the utility makes a profit on selling excess electricity generated from the project even though they did not pay any of the capital costs. The commenter believes a better approach would be to remove the residential restriction on farms with only one meter or allow applicant certification of non-use for non-business purposes. Applicants would show and affirm as part of a simplified form that the farm operation uses more energy on an annual basis than the RES is projected to produce.

The other commenter supported the restriction of funding residential RES or EEI projects, but suggested allowing prorating project cost to the non-residential uses. According to this commenter, many agricultural producers wish to also power their homes on their farmsteads with RES and requiring a separate meter at additional costs discourages these applicants from applying. If we allowed them to size the system accordingly, interconnect to all load sources, but only provide funding for business portion of their load supported by appropriate documentation, both the applicant and the Agency would win.

Response:

The Agency agrees with the commenters that there should be more flexibility to allow agricultural producers to submit applications for RES where the resulting power is shared between the farm operation and the farm residence. To this end, the final rule provides applicants with three options to qualify an RES project in which a residence is closely associated with and shares an energy metering devices with the agricultural operation:

• Install a second meter (or similar device) that results in all of the energy generated by the RES to be used for non-residential energy usage;

• Certify that any excess power generated will be sold to the grid and will not be used by the residence; or

• Demonstrate that 51 percent or greater of the energy to be generated will benefit the agricultural operation. If the farm residence uses more than 49 percent of the energy, however, this option would not apply.

Although not requested by the commenters, the Agency has concluded that rural small business seeking to purchase RES that would provide energy to the small business and the business' residence should be afforded the same options, provided the residence is located at the place of business, and the Agency has incorporated this in the final rule.

In addition, the Agency has revised the eligible project cost provisions to make clear as to what items associated with these options qualify as eligible project costs. Specifically, the following, as applicable, are eligible project costs:

• The installation of the second meter, and

• The portion of the project that benefits the agricultural operation or rural small business.

Project Eligibility (§ 4280.113)

New and Unused Versus Refurbished/Remanufactured

Comment:

Numerous commenters requested that the Agency disallow refurbished wind turbines or, in general, refurbished RES. The commenters stated that refurbished wind turbines undergo tremendous wear and tear and are being sold for scrap metal prices when decommissioned, and must be significantly refurbished to gain additional viability for an additional 20 years. Commenters were concerned that allowing refurbished turbines may create significant problem for the Agency in the future, with one commenter stating that significant variances in quality will damage the reputation of the program.

One of the commenters recommended that § 4280.113(a) specify “new and unused” because, according to the commenter, there is no way to adequately police the degree to which a wind turbine is refurbished/remanufactured and most of the refurbished turbines that have been sold to farmers were mostly cleaned up and repainted. Another commenter stated that the refurbishment process for wind turbines is not well governed. Commenters also pointed out that there is a risk of purchasing unviable refurbished turbines.

One commenter pointed out that the Internal Revenue Service, the American Recovery and Reinvestment Act of 2009 program, and most states require new equipment “nor previously placed in service” for tax credit and rebate eligibility. According to the commenter, there are con artists exploiting the REAP loophole and the Agency should close it.

Commenters also stated that new turbines are often more cost effective than their refurbished counterparts, with one commenter stating that to refurbish a wind turbine that has operated in a wind farm for 15 to 20 years so that it can be expected to provide an additional 20 years of service costs more than a new wind turbine.

If refurbished systems are allowed, commenters suggested that the Agency works with NREL to establish technical criteria for refurbished wind systems to ensure they meet standards for safety, performance and reliability. Commenters also suggested that refurbished wind turbines receive approval from qualified engineers to ensure project quality. For example, one commenter stated that any retrofitted or refurbished renewable energy system should receive the review and approval of a qualified engineer—a “wet stamp”—to ensure project quality and that engineering qualifications should be based on significant experience working with correlating RES. This commenter also recommended that the Agency require engineering recertification for the replacement of dynamic components as well as a review of all non-dynamic components to ensure sound support structures.

Finally, commenters objected to subsidizing components that have previously been subsidized under other Federal programs because it constitutes unfair competition to the current manufacturers, amounting to, as one commenter described, a “double subsidy.”

Response:

The Agency disagrees with the comments recommending that refurbished/remanufactured RES, such as wind systems, be ineligible for REAP funding. Many of the uncertainties surrounding refurbished wind turbines is a matter of missing market information that can be resolved with clear signaling; that is to say, an established set of certifications and/or standards and commensurate guarantees and/or warranty security. Secondary markets for small wind should in principle be no different than for that of used cars, farm equipment, etc. Given sufficient market information, agricultural producers and rural small businesses should be able to choose intelligently among available technologies subject to their preferences, policy support, and budget constraints. The presumption of unfair price competition assumes that

refurbished and new wind systems sell for the same price, which would not be the case given sufficient market information.

In allowing refurbished equipment to be eligible for REAP funding, the Agency has revised the definition of “refurbished” to address concerns and suggestions raised by the commenters. Specifically, the revised definition:

• Requires the RES to be brought into a commercial facility for refurbishment. This is intended to reduce unqualified businesses from “refurbishing” RES.

• Requires a warranty that is approved by the Agency or its designee. This is intended to provide additional market information to the potential buyer of the refurbished RES and to reduce unqualified businesses from “refurbishing” RES.

The Agency agrees that an RES could be refurbished and establishes a new “useful life.”

Comment:

One commenter, in supporting the use of refurbished and retrofitted energy systems on the basis that it is consistent with other programs aimed at supporting small renewable energy projects, recommended that the Agency develop resources for project developers to find quality refurbished parts.

Response:

The Agency thanks the commenter for their support on this provision of the rule. However, the Agency cannot accommodate the commenters suggestion because REAP is a financing program and cannot serve as a “clearinghouse” for acceptable refurbished parts.

Certification of Turbines

Comment:

Several commenters recommended that wind turbines be certified.

One commenter, who commented on both the interim final rule and the proposed rule, recommended that the Agency establish a requirement that small wind turbines be certified by an independent certification body prior to awarding grants and loans through REAP in order to promote confidence that small wind turbines installed with REAP funding have been tested for safety, function, performance and durability and to ensure consistency in ratings. In addition, for the 2011 funding cycle, the commenter recommended that small wind turbines that have achieved at least Small Wind Certification Council (SWCC) Limited Power Performance Certification or Conditional Temporary Certification receive higher scores in application review.

The commenter provided detailed suggestions for such certification. This commenter requested that the Agency establish a requirement for wind turbines to be certified by an independent certification body. In addition, for the 2013 funding cycle, the commenter recommended that wind turbines that have achieved either full certification to the AWEA 9.1 Standard or at least SWCC Limited Power Performance Certification or Conditional Temporary Certification (or equivalent) receive higher scores during application review.

The growth of the distributed wind market is often tied to grants, incentives and rebates administered by Federal, State and utility programs. On-site wind turbines have great potential to serve increasing demands for distributed generation and can provide a cost-effective solution for many homes, farms, schools and other end-users. However, performance and reliability obstacles have hindered greater adoption, and both consumers and agencies providing financial incentives need greater assurance of safety, functionality, and durability to justify investments. Certification helps prevent unethical marketing and false claims, thereby ensuring consumer protection and industry credibility.

The commenter has received 50 Notices of Intent to Apply for Certification since its inception, certified its first turbine model in 2011 and became an accredited certification body in 2012. The commenter pointed out that it has recently issued its fourth full certification along with a new Conditional Temporary Certification, bringing the tally to nine turbine models now SWCC-certified.

Representing a significant share of the North American distributed wind market, the commenter's published certification ratings and labels are allowing easier comparison shopping, aiding incentive programs with setting payment levels, and leading toward national requirements. In addition to the nine models carrying SWCC certifications, five other models are currently collecting data at their respective testing sites, and several more are taking steps towards certification.

SWCC certification has been identified as a pathway to eligibility for most of the leading wind incentive programs nationwide, and numerous programs have taken steps to require independent certification for small and medium wind turbines to be eligible for funding. The time is now for USDA to follow suit and ensure REAP's support of the continued development of the distributed wind sector. To provide perspective, the commenter included information on wind incentive programs already requiring or expecting to require certification, including links to individual programs administered by states.

The commenter is an independent non-profit organization with the public purpose of providing certification services. A three-member Certification Commission makes all certification decisions. SWCC Commissioners are qualified and independent industry experts appointed by the SWCC Board of Directors. The Board includes representatives of different stakeholder groups and includes 3 directors (out of 11) who represent the industry sector. SWCC bylaws and operating procedures prevent conflicts of interest in certification decisions.

A second commenter on the interim final rule stated support for the specific language regarding certification that is being recommended by the first commenter.

A third commenter recommended that turbines certified by the SWCC should have priority over projects with uncertified equipment. Suitable approved lists would include that as provided and maintained by the Interstate Technical Advisory Council.

Another commenters requested that the Agency provide guidance on what hardware is used, to require that turbines be certified, or in process of certification, so that the installed wind turbine actually works and the REAP money is well used.

Response:

All technologies eligible for REAP funding must be found to have technical merit and the proposed project must be found determined to be technically feasible. The documentation applicants submit with their applications must be sufficient to allow the Agency to make these determinations. The Agency will continue to use experts, such as those in NREL and other public institutions, to assist in making these determinations when needed in order to ensure safety, performance, and reliability of RES, including refurbished wind systems.

In some cases, the documentation to support technical merit and technical feasibility determinations may require, or be enhanced by, appropriate certifications from existing boards for a particular type of technology. The Agency, however, is not incorporating into the rule specific certification requirements for wind turbines or any other technology. It remains the applicant's responsibility to demonstrate the quality of the technology being proposed. No changes have been made to the rule as a result of this comment.

Projected Annual Energy Costs

Comment:

One commenter suggested that the Agency clarify in § 4280.113(a)(4)(i) that a project is eligible without being subject to any capacity calculation reductions that are currently applied due to size of building or equipment if annual projected energy usage is less than historical usage.

Response:

The Agency agrees with the commenter that, in determining if a project qualifies as an EEI, there is no adjustment to the energy usage based on capacity differences before and after the EEI. The language in the rule text cited by the commenter makes no mention of such an adjustment. Further, the definition of “energy efficiency improvement” specifically references a reduction of energy consumption on an annual basis and also does not reference any adjustment to take into account any capacity changes. Thus, the Agency has determined that it is unnecessary to modify the language in the rule as suggested by the commenter.

RES/EEI Repeat Assistance on Same Project

Comment:

One commenter found the term “shortly thereafter” in § 4280.113(a)(4)(ii) to be ambiguous. The commenter recommended providing a definitive timeframe after grant installation. The commenter suggested using the useful life of the improvements as outlined in the grant agreement for the originally funded project.

Response:

The Agency agrees that the example provided in the proposed rule needs further definition and that reference to the useful life of the EEI as the timeframe is appropriate. The Agency has revised the cited paragraph in the final rule to make clear that a subsequent EEI to previously REAP-funded EEI is eligible only if the following two conditions are met: (1) The replacement occurs at or after the end of the useful life as specified in the grant agreement of the previously REAP-funded EEI, and (2) the subsequent EEI is more energy efficient than the previously REAP-funded EEI.

Grant Applications—General (§ 4280.115)

Comment:

One commenter stated that all REAP applicants should receive funding for some proportion of their project cost.

Response:

While the Agency appreciates the commenter's sentiment, it is simply not feasible to do so. The authorizing statute requires the Agency to score applications using certain criteria and that by doing so we rank applications to determine those projects that score the highest. It is through such a process that the Agency is able to distribute the limited resources made available to the program to the more meritorious projects. No changes have been made to the rule in response to this comment.

Third-Party Contributions

Comment:

In commenting on the interim final rule, two commenters recommended reinstating the prohibition against third-party in-kind contributions as found in the 2005 final rule for REAP. Because REAP helps fund construction and equipment costs, it is not the type of assistance program where a third-party would come in and offer a valued assistance. According to the commenters, allowing in-kind contributions allows the applicant to manipulate total project costs. One of the two commenters also stated that allowing third-party in-kind contributions becomes a processing burden when determining how to value in-kind contributions, thus further complicating the program rather than simplifying it.

Response:

The Agency removed the prohibition against third-party in-kind contributions because it conflicts with Agency regulations found in 7 CFR 3015, which specifically allows the use of third-party in-kind contributions to count towards satisfying cost-sharing and matching requirements of a Federal grant (see 7 CFR 3015.51(b)). Thus, the Agency has not reinstated the prohibition on third-party in-kind contributions in the final rule.

Eligible Project Costs (§ 4280.115(c))

Comment:

One commenter stated that eligible project costs should not include remanufactured or refurbished equipment for the reasons previously provided by the commenter on allowing the purchase of refurbished RES as an eligible project for REAP funding.

Response:

As discussed previously in responding to comments on allowing the purchase of a refurbished RES to be an eligible project, the Agency has determined that it is equally reasonable to allow refurbished equipment to be an eligible project cost, provided such equipment comes with a warranty that is approved by the Agency or its designee.

Comment:

In commenting on the interim final rule, one commenter recommended that storage bins be excluded as an eligible project cost, but that grain dryers and other energy efficient savings, such as an air transfer system that is replacing a diesel tractor, be included as eligible project costs. Limiting the total project cost to just the dryer and any EEI. Putting up an 80,000 bushel storage bin that was included in the total project cost is not energy improvements. The money allocated for the 80,000 bushel bin could have been used for helping a first generation farmer replace two 30 year old bin dryers with a more energy efficient dryer. The commenter stated that more clarification is needed on eligible costs (

i.e.

, what can be included and what must be excluded).

Response:

The Agency agrees with the commenter that more clarification is needed on what is included as eligible project costs, as illustrated through the commenter's example on storage bins, but disagrees with a blanket exclusion of storage bins as eligible project costs. In order to qualify as an eligible project cost for an EEI, the item in question (in this case, the storage bins) must be identified in the audit and must be “directly related to and its use and purpose is limited to” the EEI. If a project proposed to replace a grain dryer and its associated storage bins, the entire project would have to show an energy savings in order to be eligible. If this condition is met, then only those project items identified in the energy audit or energy assessment and that are directly related to and their use and purpose are solely for the EEI would be considered eligible project costs. If storage bins are added to eligible project costs, the simple payback for the project would be longer, potentially decreasing the score and competitiveness of the project. Thus, for the storage bins to be included as an eligible project cost, they must be identified in the energy audit or energy assessment, must be directly related to the EEI, and cannot be used for any other purpose. So, in some cases, storage bins may qualify as an eligible project costs and in others cases, they may not.

The final rule contains slightly different provisions if the applicant is seeking a guaranteed loan. In this case, the storage bins are “directly related to” the EEI and would qualify as an eligible project cost.

The Agency notes that in either case—grant or guaranteed loan—the storage bins would be part of total project costs.

Comment:

One commenter stated that capacity for a grain crop should be defined as the number of bushels harvested. A farmer should have to show an average as proven by at least 2 years. Unless there is a catastrophic event (hailstorm, drought, tornado)—then omit the 1 year and use the prior year—explaining why.

Another commenter stated that, relevant to grain dryer applications,

information provided by energy auditors that have completed hundreds of grain dryer audits in over 20 states indicates that comparing bushels per hour (BPH) does not provide a reliable measurement of drying capacity change when evaluating two grain drying systems. A measurement of BPH indicates a system's speed of drying, much like the miles per hour when driving a vehicle. The best measurement of capacity change between two drying systems is measuring the total number of bushels dried through each system on an annual basis which then compare apples to apples. Using BPH is inaccurate, particularly for in-bin dryers compared to continuous flow dryers.

In the case of in-bin systems, these operate with fewer BPH when compared to a high capacity systems and require more time dry from a certain moisture point to another (

i.e.

, 25% to 15% which is the safe storage moisture). When measuring the total BTUs consumed by a dryer annually, the total annual bushels dried makes the most impact on the total consumption of fuel and electrical power. The lower BPH system in most cases utilize less fuel, but more electricity per bushel to remove 10 percentage points of moisture because of lower instant air heating temperature and more time with fans operating on electrical horsepower.

Consequently, when completing several grain dryer energy audits where a lower BPH system is looking to be replaced by a higher BPH system, often the lower BPH system has lower energy consumption and illustrates more efficiency when drying the same amount of bushels annually, but takes more time. Such as the typical case where projects involving converting from an in-bin dryer to a high capacity/continuous flow dryer have demonstrated notably higher BPH have been deemed inadequate for application to REAP because of the higher fuel cost.

Response:

The Agency disagrees with the comment to use bushels harvested because the amount of energy to be saved is directly related to the amount of grain to be dried and not to the amount of bushels harvested. To illustrate, an agricultural producer can use corn several different ways. The corn could be used for high moisture corn in the agricultural producers operation, sold without being dried, or dried and sold to a local grain elevator. Thus using bushels harvested could over estimate energy savings for an agricultural producer that is replacing a grain dryer.

The Agency agrees with the commenter that limiting of capacity such as bushels per hours may not be the best way to evaluate a process, and the capacity limitation has been removed. The final rule requires actual average annual energy usage, based on historical records for up to 5 consecutive years, to be used in the energy assessment or energy audit for replacement of an inefficient system. An energy audit or energy assessment must document the historical energy usage by either attaching energy bills or providing a summary of those bills. If an agricultural producer had a bad year or catastrophic event where not as much grain was dried, it can be averaged with prior years or subsequent years, as appropriate.

Comment:

In commenting on the interim final rule, one commenter stated that, at the time of the NOFA, there were several changes that made it seem that the Agency was trying not to fund grants for grain dryers, especially through the limitation of capacity. When this was implemented in the interim final rule as the capacity of harvest (prior year) compared to capacity of harvest (current year), this allowed farmers to update outdated equipment, but didn't allow them to double or triple their set-up. The commenter stated that, while this was an excellent way of handling this, the Agency could just state that only the grain dryer and the motors (perhaps also a variable frequency drive because it makes the motors run more efficiently) for grain moving equipment are eligible—this would make it much clearer and fairer. The commenter then continued, stating that he would like to see the money awarded in a much fairer manner. According to the commenter, larger farmers are always somehow able to be eligible for greater amounts and seem to always figure out a way to expand at the expense of others.

Response:

While the Agency disagrees with the commenter's characterization of trying not to fund grain dryers, the Agency was, and is still, seeking to develop a scoring methodology that would achieve a greater diversification of technologies receiving funds under REAP. To further achieve this goal, the Agency included several changes to the REAP program and some of the proposed changes address the commenter's concern about awarding funds in a clearer and fairer manner. For example, one proposed change was to modify one of the scoring criteria for EEI projects to awards points on an “energy saved per dollar amount requested,” which applies to all energy efficiency technologies, including grain dryers. Further, the proposed rule removed the “capacity” aspect for determining the amount of a project's cost that is an eligible project cost and instead required that the project as a whole showed energy savings in order to be an eligible EEI project. These two proposed changes, which are included in the final rule, help level the playing field across all size applicants.

Funding Limits

Comment:

In commenting on the interim final rule, one commenter stated that the award process should allow for some flexibility in the award amount. For some of the projects very close to the cut-off score that might be funded if their request was smaller, the Agency should be able to ask multiple applicants if they would be interested in a reduction of funds or if they need the amount applied for.

Response:

The Agency agrees with the commenter and proposed a process to allow an applicant to accept a lower level of funding in the proposed rule. The Agency is retaining this provision in the final rule.

Application—General (§§ 4280.116 through 4280.119)

Number of Copies

Comment:

In commenting on the interim final rule, one commenter stated that USDA should only require the original application to be submitted to the Agency (not original and one copy).

Response:

The Agency agrees with commenter, especially now that the Agency is encouraging electronic submittals. As was proposed in the proposed rule, the final rule requires only the original application be submitted to the Agency.

Foreign Technology

Comment:

In commenting on the interim final rule, one commenter encourages the Agency to use § 4280.116(a)(3) to police unproven/risky foreign wind turbines, but is concerned that the Agency may not have the technical expertise to make these judgments, particularly in light of the fraudulent documentation that some unscrupulous manufacturers and exporters have provided in the past. The commenter stated that they have previously recommended the adoption of certification standards for turbines that fall under the scope of AWEA 9.1-2009 (>200m2 rotor area, ~ 40 kW).

Response:

As noted in a response to previous comments regarding certification standards for wind turbines, the Agency will continue to use experts, such as those in NREL and other public institutions, to assist in making these determinations when needed in order to ensure safety,

performance, and reliability of RES, including refurbished wind systems. In addition, both domestic and foreign technologies are held to the same set of standards for demonstrating that they are commercially available technologies (see the definition of Commercially Available), including the option of being considered Commercially Available if the system is certified by a recognized industry organization whose certification standards are acceptable to the Agency.

With regard to the recommendation to adopt certification standards for wind turbines, the Agency notes, as stated in a previous response, that the documentation to support technical merit and technical feasibility determinations may require, or be enhanced by, appropriate certifications from existing boards for a particular type of technology. The Agency, however, is not incorporating into the rule specific certification requirements for wind turbines or any other technology. No changes to the rule have been in response to this specific comment.

Applications—Period and Submittal

Timing of Notices

Comment:

In commenting on the interim final rule, several commenters expressed concern as to the timing for when applications would be accepted, including frequency and consideration for accepting applications throughout the year. Commenters as a whole recommended advancing the timing of the whole solicitation process in the calendar year, which would allow more time for application preparation.

One commenter stated that an earlier solicitation process would allow awardees to start construction before the winter freeze and to improve coordination with other Agency programs that will facilitate the construction of digesters.

Another commenter pointed out that, since the beginning of the REAP program, the Agency has had difficulty releasing program funding notice before agricultural producers start spring planting. While state offices now accept applications based on the previous year's notice, this practice is not well known and is unevenly followed in the states.

Another commenter stated that in 2011 the Agency allowed only 2 months between the release of the NOFA (April 15) and the due date for applications (June 15). The early due date is not well-explained, especially as USDA reserves more time for itself to review applications than for applicants to prepare them—with 3.5 months before the end of the fiscal year. The timing is during the busiest part of the year for many agricultural producers, reducing their ability to use the program. The late release date and early deadline restrict the ability of various farm energy technology sectors to use the program. The commenter stated that USDA needs to release the funding notice by December or January.

Still another commenter stated that the Agency needs to provide guidance or role for the 2012 program sooner than within 60 days of the deadline.

Response:

The Agency acknowledges the concerns expressed by the commenters. Under the final rule, REAP applications are accepted throughout the year. The rule establishes application deadlines and increases the number of competitions cycles and application deadlines depending on the type of application as follows:

• RES/EEI grant applications requesting $20,000 or less may be competed up to five times a year;

• combined RES/EEI guaranteed loan and grants twice a year; and

• guaranteed loan-only applications will be competed periodically, provided that the Agency receives a sufficient number of applications in order to maintain a competitive awards process.

This process is accomplished in the final rule without the need to publish a notice in the

Federal Register

each year and thus there is no longer an issue associated with waiting for funding before publishing a notice seeking applications. While the application deadlines are found in the final rule, the Agency will continue to identify the application deadlines in a FR notice published prior to the Federal fiscal year. In addition, the Agency intends to identify the application deadlines on the REAP Web page of the Agency's Web site and on grants.gov as applicable.

Hard Deadlines

Comment:

In commenting on the interim final rule, two commenters stated that the series of fixed deadlines for the submission of grant applications represents a tremendous disincentive for larger-scale projects, involving a number of farms and diverse technologies. According to the commenters, it is very difficult to incorporate a hard deadline and the concept of competitive funding into the two-party project design and review that must occur for this type of project. As one of the commenters stated, the current procedure may allow for fair review of the submission of a number of single farm digester projects, but it is quite an impediment for a project such as this, involving intensive, two-sided, review and negotiation between project developer and large-scale customer.

One of the commenters also stated that this form of application procedure is unduly burdensome for a project that utilizes private equity. A review procedure should be devised that first requires and then serves to verify the due diligence that must have been performed by the investors.

Further, the prospect that a properly designed and financed project must nonetheless be contingent on the competitive allocation of limited funds is almost an overwhelming obstacle for start-up entrepreneurs and their customer partners. It is one thing to put time and capital at risk as part of the business venture. It is quite another to be required to risk capital in an uncertain competition for funding. One of the commenters stated that he was sure that more than one similar project has been taken off the drawing board because either developer or customer, or both, does not have the wherewithal to pursue design of the project by a set deadline, and without any certainty that in the end the project will even be funded.

According to one commenter, the combination of an arbitrary deadline and then passage of time for the competitive process is onerous for the development of a project in a northern climate because these areas have a limited building season to begin with, and the passage of any additional time creates tremendous pressure.

The same commenter recommended that the Agency implement a rolling application procedure, which would allow for submission of design and business plans as soon as completed, and then quick review of such plans against stated project funding requirements derived from the current scoring protocol. According to this commenter, combining this quick review procedure with on-line, updated notice of current available funds would allow developers to know where they stand going into development of a project and minimize many of these risks for all parties concerned.

Response:

As noted in an earlier response, the Agency has included a continuous application process for both grant and guaranteed loan applications with periodic competitions throughout the year depending on the type of application. This allows applicants to submit applications any time during the year. These provisions should help mitigate the commenters' concerns.

Comment:

In commenting on the interim final rule, one commenter noted

that there is no mention of the possibility of going to an open and continuous grant cycle for micro projects.

Response:

As noted in the response to the previous comment, both the proposed rule and the final rule include a continuous application process with periodic competitions for grant applications for all technologies, including micro projects.

Rolling Over Applications

Comment:

In commenting on the interim final rule, one commenter suggested that the option for rolling over the same application should remain each year so that the applicant of a project has started construction has a chance at two funding cycles instead of just one. The commenter noted that many of the other Rural Development funding programs allow for funding consideration in more than one cycle.

In contrast, another commenter commenting on the interim final rule recommended removing the option for rolling over an application. The commenter pointed out that the program is already oversubscribed and if a project did not score high enough to be funded in a fiscal year, the likelihood that it will be funded in a subsequent year is minimal. The commenter suggested that the applicant instead have the option to re-file a new application for the same project if the project has not already been completed. This same commenter, in commenting on the proposed rule, supported the proposed provision that would limit roll-over applications to two semi-annual competitions and one National competition.

Response:

After considering these comments, the Agency has made a few changes to how RES and EEI grant applications will be competed.

A RES and EEI grant application requesting more than $20,000 in grant funds will be eligible to compete twice in one fiscal year—once in a state competition and, if unfunded at the state level, once in a national competition. If the application remains unfunded after the national competition, the Agency will discontinue considering the application for potential funding.

A RES and EEI grant application requesting $20,000 or less in gr

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