[Federal Register Volume 78, Number 234 (Thursday, December 5, 2013)]
[Rules and Regulations]
[Pages 73355-73371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29158]



[[Page 73355]]

Vol. 78

Thursday,

No. 234

December 5, 2013

Part III





 Department of Agriculture





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Rural Utilities Service





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7 CFR Parts 1710, 1717, 1721, et al.





 Energy Efficiency and Conservation Loan Program; Final Rule

Federal Register / Vol. 78 , No. 234 / Thursday, December 5, 2013 / 
Rules and Regulations

[[Page 73356]]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Parts 1710, 1717, 1721, 1724, and 1730

RIN 0572-AC19


Energy Efficiency and Conservation Loan Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS or Agency) is publishing 
policies and procedures for loan and guarantee financial assistance in 
support of energy efficiency programs (EE Programs) sponsored and 
implemented by electric utilities for the benefit of rural persons in 
their service territory. This final rule amends RUS regulations on 
General and Pre-Loan Policies and Procedures Common to Electric Loans 
and Guarantees, which were codified on December 20, 1993. The final 
rule also includes conforming amendments to additional RUS regulations. 
Under Section 2 of the Rural Electrification Act (RE Act), RUS is 
authorized to assist electric borrowers in implementing Demand side 
management, energy efficiency and conservation programs, and on-grid 
and off-grid renewable energy systems. The scope of this regulation 
falls within the authority of the Act.

DATES: This final rule is effective February 3, 2014.

FOR FURTHER INFORMATION CONTACT: Gerard Moore, USDA-Rural Utilities 
Service, 1400 Independence Avenue SW., Stop 1569, Washington, DC 20250-
1569, telephone (202) 205-9692 or email to [email protected].

SUPPLEMENTARY INFORMATION:

Executive Summary

    The Rural Utilities Service (RUS or Agency) is publishing policies 
and procedures for loan and guarantee financial assistance in support 
of energy efficiency programs (EE Programs) sponsored and implemented 
by electric utilities for the benefit of rural persons in their service 
territory. This final rule is designed to supplement the policies 
contained in 7 CFR part 1710, GENERAL AND PRE-LOAN POLICIES AND 
PROCEDURES COMMON TO ELECTRIC LOANS AND GUARANTEES, which were 
finalized in December 1993. Under Section 2(a) of the Rural 
Electrification Act of 1936 (7 U.S.C. 902(a)), the Secretary of 
Agriculture is explicitly ``authorized and empowered to make loans in 
the several States and Territories of the United States . . . for the 
purpose of assisting electric borrowers to implement Demand side 
management, energy efficiency and conservation programs, and on-grid 
and off-grid renewable energy systems.'' Section 6101 of the Food, 
Conservation, and Energy Act of 2008 (2008 Farm Bill) inserted the 
words ``and energy efficiency'' into this provision. In order to 
implement this new focus of the program, RUS amends 7 CFR part 1710 by 
adding a new Subpart H entitled ``Energy Efficiency and Conservation 
Loan Program.'' (EECLP).
    In fiscal year 2014 the Rural Utilities Service will make $250 
million available to support energy efficiency as indicated in the 
President's climate change action plan. In future years, the amount of 
funding made available will be based on the performance of the program.
    The goals of an eligible Energy Efficiency project eligible for 
funding under this program and Subpart H include: (1) Increasing energy 
efficiency at the end user level; (2) modifying electric load such that 
there is a reduction in overall system demand; (3) effecting a more 
efficient use of existing electric distribution, transmission and 
generation facilities; (4) attracting new businesses and creating jobs 
in rural communities by investing in energy efficiency; and (5) 
encouraging the use of renewable energy fuels for either Demand side 
management or the reduction of conventional fossil fuel use within the 
service territory. Although not a goal, RUS recognizes that there will 
be a reduction of green house gases with energy efficiency 
improvements.
    The Energy Efficiency and Conservation Loan Program may include 
loans supporting energy efficiency activities undertaken by the utility 
itself, the finance of energy efficiency projects undertaken by others, 
and investments made by the utility to accomplish their obligations 
under utility energy services contracts. It is important to distinguish 
that there are potentially two different types of loans associated with 
this regulation. RUS will loan funds to a utility for an energy 
efficiency program. The utility, in turn, may choose to relend these 
funds to their consumers (ultimate recipient) for energy efficiency 
improvements in industrial, commercial, or residential applications. 
The utility may also use the funds to complete energy efficiency 
activities on their own property. The anticipated transfers during the 
first year of the program will be the funding availability of $250 
million. RUS expects this to increase over the life of the program.

Impacts

    The new Subpart H for the Energy Efficiency and Conservation Loan 
Program can have several economic impacts. The benefits include: (1) 
The value of purchased energy saved; (2) the value of corresponding 
avoided generation, transmission and/or distribution; and (3) savings 
in energy bills.
    The final loan program is estimated to have administrative costs to 
the applicant and federal government, at about $740,000 total for 
applicants, and about $1.7 million for the Federal government.
    The Energy Efficiency and Conservation Loan Program will impose 
administrative costs on applicants and the Federal government. 
Quantitative estimates of these costs have been made and are presented 
below.

Applicants and Awardees

    Estimates of costs for applicants: the twenty expected applications 
are broken down into two sections--applications and reporting. Table 2 
summarizes the estimated costs.

                                     Table 2--Estimate Burden to Applicants
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   Energy Efficiency and Conservation Loan Program       Applications          Reporting            Totals
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Existing Electric Program Borrowers.................           $593,356            $148,339            $741,695
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Applications

    All entities seeking financial assistance under this program must 
submit certain information to the Agency in order to apply for a loan. 
The total estimated cost for applying is approximately $593,356, 
calculated by multiplying the number of applicants (20) by the labor 
hours associated with the additional burden (823.20) by an estimated 
$45 per hour for labor. See OPM's Web site at http://www.opm.gov/

[[Page 73357]]

policy-data-oversight/pay-leave/salaries-wages/

Reporting

    All applicants that are awarded funds must submit reports to the 
Agency to provide information on their performance. The total estimated 
cost for reporting is approximately $148,338, calculated by the number 
of applicants (20) by labor cost ($45) by hours per year (164.82).

Federal Government

    Estimates of costs to the Federal government were made based on the 
activities that the Federal government would incur to implement the 
rule and the length of time each activity required. A cost of $48.35 
per hour was used in making these cost estimates.

 Table 3--Energy Efficiency and Conservation Loan Program Burden Cost to
                         the Federal Government
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                                                      Energy efficiency
                     Activity                         and conservation
                                                        loan  program
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Review of loan Application........................            $1,585,880
Yearly review of financial and statistical                       125,710
 information......................................
Additional costs associated with the collection of                 5,000
 information......................................
                                                   ---------------------
    Total *.......................................             1,716,590
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* Data created from OPM salary and wage table at http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/.

    The following paragraphs summarize the activities and costs to be 
incurred by the Federal government for this program.

Applications

    RUS is responsible for reviewing and approving applications. As 
part of this process, RUS will acknowledge receipt of applications and 
inform the applicants whether their application was selected for 
funding. The estimated cost for these application activities is 
approximately $1,585,880.

Review of Reports

    RUS is responsible for reviewing various reports, including, but 
not limited to, project management plan, energy efficiency work plan, 
quality control plan, etc. The estimated cost for reviewing these 
reports annually is approximately $125,710.

Executive Order 12866 and 13563

    This final rule has been reviewed under Executive Order (EO) 12866, 
``Regulatory Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), and has 
been determined to be ``economically significant'' by the Office of 
Management and Budget. The EO defines an economically significant 
regulatory action as one that is likely to result in a rule that may 
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. As required by OMB circular A-4 the regulatory impact 
analysis will be published along with this rule on regulations.gov.
    The agency has also reviewed this regulation pursuant to EO 13563, 
issued on January 18, 2011 (76 FR 3281, Jan. 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 conducted a cost-benefit analysis to fulfill the 
requirements of EO 12866 and 13563. In this analysis, the Agency 
identifies potential benefits and costs of the Energy Efficiency and 
Conservation Loan Program to borrowers, and RUS. The analysis contains 
quantitative estimates of the burden to the public and the Federal 
government and qualitative descriptions of the expected economic, 
environmental, and energy impacts associated with the Energy Efficiency 
and Conservation Loan Program. This analysis will be made publicly 
available in the docket
    RUS will only make loans for these purposes to electric utility 
systems. RUS anticipates that borrowers under this subpart will be 
generation and transmission (G&T) borrowers or their distribution 
members or unaffiliated distribution borrowers who are current on their 
loan payments and in compliance with their loan documents. This program 
is held to the same high standards and regulatory requirements as the 
existing RUS electric loan program. RUS also anticipates that the 
energy efficiency improvements installation work may be contracted by 
either the utility or the Ultimate Recipient, or performed directly by 
employees of the borrower, at the discretion of the utility designing 
the energy efficiency program. In all cases, the eligible borrower is 
expected to hold title to the receivables funded by the RUS loan.
    It is estimated that approximately 20 loans will be submitted 
annually. Considering applicants are existing RUS borrowers, it is 
anticipated that all 20 loans would be awarded. The administrative cost 
to the Applicant and the Federal government to apply, award and 
maintain these loans is $2.458 million.

Catalog of Federal Domestic Assistance

    The program described by this rule is an eligible purpose/
subsidiary program of the Electrification Loans and Loan Guarantee 
program as listed in the Catalog of Federal Domestic Assistance 
Programs under number 10.850, Rural

[[Page 73358]]

Electrification Loans and Loan Guarantees. The Catalog is available on 
the Internet at http://www.cfda.gov.

Executive Order 12372

    This final rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation, which may require consultation 
with State and local officials. See the final rule related notice 
entitled, ``Department Programs and Activities Excluded from Executive 
Order 12372'' (50 FR 47034).

Paperwork Reduction Act of 1995

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), the information collection for this program has been 
approved by the Office of Management and Budget under OMB Control 
Number 0572-0032.

E-Government Act Compliance

    The Agency is committed to the E-Government Act, which requires 
Government agencies in general to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible.

National Environmental Policy Act Review

    In accordance with the National Environmental Policy Act of 1969 
(42 U.S.C. 4321 et seq.), the Agency has prepared and published a 
Programmatic Environmental Assessment (PEA) for this loan program 
activity as part of this rulemaking process. The PEA was published on 
February 6, 2013 in the Federal Register at 78 FR 8444, and prepared 
pursuant to the National Environmental Policy Act of 1969 (NEPA) (42 
U.S.C. 4321 et seq.), the Council on Environmental Quality's (CEQ) 
regulations for implementing NEPA (40 CFR parts 1500-1508), and RUS' 
NEPA implementing regulations, Environmental Policies and Procedures (7 
CFR part 1794). A Notice of Finding of No Significant Impact was 
published on Friday August 16, 2013 in the Federal Register at VOL. 78, 
NO. 159.

Regulatory Flexibility Act Certification

    It has been determined the Regulatory Flexibility Act is not 
applicable to this rule since the RUS is not required by 5 U.S.C. 551 
et seq. or any other provision of law to publish a notice of proposed 
rulemaking with respect to the subject matter of this rule.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the Unfunded Mandates Reform Act of 1995) for 
state, local, and tribal governments or for the private sector. 
Therefore, this rule is not subject to the requirements of section 202 
and 205 of the Unfunded Mandates Reform Act of 1995.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. The Agency has determined that this rule meets the 
applicable standards in Section 3 of the Executive Order. In addition, 
all state and local laws and regulations that are in conflict with this 
rule will be preempted, no retroactive effort will be given to this 
rule, and, in accordance with section 212(e) of the Department of 
Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)), 
administrative appeals procedures, if any, must be exhausted before any 
action against the Department or its agencies may be initiated.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on state and local governments, on the relationship 
between the national government and the state and local governments, or 
on the distribution of power and responsibilities among the various 
levels of government. Nor does this rule impose substantial direct 
compliance costs on state and local governments. Therefore, 
consultation with the states is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This Executive Order imposes requirements on the development of 
regulatory policies that have tribal implications or preempt tribal 
laws. Between October 2010 and January 2011, the United States 
Department of Agriculture (USDA) hosted seven regional regulation 
Tribal consultation sessions to gain input by elected Tribal officials 
or their designees concerning the impact of this rule (and other 2008 
Farm Bill changes) on Tribal governments, communities, and individuals. 
No comments specific to this rule were received through that process. 
If a Tribe determines that this rule has implications of which Rural 
Development is not aware or would like further information regarding 
the consultation process, please contact Rural Development's Native 
American Coordinator at (720) 544-2911 or [email protected].

Background

    This rulemaking amends 7 CFR part 1710 by adding a new Subpart H 
entitled ``Energy Efficiency and Conservation Loan Program.'' Under 
Section 2(a) of the Rural Electrification Act of 1936 (7 U.S.C. 
902(a)), the Secretary of Agriculture is explicitly ``authorized and 
empowered to make loans in the several States and Territories of the 
United States . . . for the purpose of assisting electric borrowers to 
implement Demand side management, energy efficiency and conservation 
programs, and on-grid and off-grid renewable energy systems.'' As 
noted, Section 6101 of the 2008 Farm Bill inserted the words ``energy 
efficiency'' into this provision, which was originally added as an 
amendment to the RE Act by the Rural Electrification Loan Restructuring 
Act of 1993 (``RELRA'') (Pub. L. 103-129 sec. 2(c)(1)(B)).\1\
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    \1\ Senator Patrick Leahy as the Chairman of the Senate 
Committee on Agriculture, Nutrition and Forestry explained this 
provision in a letter dated June 18, 1993 to Senator Jim Sasser the 
Chairman of the Senate Committee on the Budget as follows: ``These 
amendments also permit REA [now RUS] to make loans for demand side 
management and energy conservation program[s] which are required by 
some state agencies. They are also often the most cost effective 
methods of meeting the energy needs of rural areas.''
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    RUS has experience with implementing programs that promote energy 
conservation, and RELRA explicitly recognized that energy conservation 
is part of the Agency's mission. Starting in 1980, for example, RUS 
developed an Energy Resources Conservation Program by issuing RUS 
Bulletin 20-23, Section 12, ``Extensions for Energy Resources 
Conservation Loans'', dated December 8, 1980.\2\ This Bulletin 
interpreted the Administrator of RUS's discretion under the RE Act to 
extend the time for payments, and this became the foundation for the 
``ERC Loan Program.'' At that time, RUS did not make ERC Loan Program 
loans directly. It operated the ERC Loan Program by entering into 
agreements with its borrowers to defer amortization of their loans in 
order for the borrowers to fund energy conservation improvements. The 
borrowers, generally electric cooperatives, made loans to their members 
out of the cash flow resulting from the deferments they received from 
RUS on their own loans. Even though RUS did not make the ERC loans 
itself, the Agency provided financial assistance to rural Consumers by 
using the electric cooperatives as intermediaries.
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    \2\ This Bulletin was rescinded in 2002 when RUS updated and 
codified the ERC Loan Program as 7 CFR Part 1721, subpart B. (See 67 
FR 484, January 4, 2002).
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    Congress subsequently amended Section 12 of the RE Act in 1990 and

[[Page 73359]]

again in 2008. In 1990, Congress expanded Section 12 to enable 
deferments such that borrowers could provide financing to local 
businesses, with the intent of stimulating rural economic development. 
In 2008, Congress expanded Section 12 of the RE Act to authorize energy 
efficiency and use audits and to install energy efficiency measures or 
devices to reduce demand on electric systems.
    The recent grant of additional authority in Section 2(a) of the RE 
Act to make loans and guarantees for energy efficiency, as contrasted 
with the Section 12 authority to merely defer payments on direct loans, 
has become increasingly significant as the percentage of the RUS 
portfolio represented by direct loans continues to amortize. In recent 
times the Agency delivers nearly all of its electric program assistance 
in the form of loan guarantees. As a guarantor, RUS does not have the 
same discretion to defer payments that it does when it is the lender. 
Consequently, RUS has determined that it is now necessary and 
appropriate to finalize a loan program for this RE Act purpose.
    ``The RE Act, 7 U.S.C. 904, commits to the discretion of the 
Administrator the making of loans for rural electrification. . . .'' 
Alabama Power Co. v. Ala. Elec. Coop., 394 F.2d 672 at 675 (CA 5) cert. 
denied 393 U.S. 1000 (1968). ``REA is the administrative agency charged 
by Congress with responsibility for facilitating rural electrification. 
REA was intended by Congress to determine the appropriate course of 
conduct to accomplish the legislative purpose.'' Public Utility 
District No. 1 of Franklin County v. Big Bend Electric Cooperative, 
Inc., 618 F.2d 601 at 603 (CA 9 1980). By broadly adding ``energy 
efficiency'' in the 2008 Farm Bill as a legislative purpose for the RE 
Act loans, Congress left it to the Administrator's discretion to 
fashion the appropriate method to accomplish this purpose. Drawing on 
more than three decades of experience in using electric cooperatives as 
local intermediaries to accomplish RE Act objectives at the Consumer 
level, RUS will deliver this energy efficiency program by drawing upon 
its favorable past successes and using its electric borrowers as 
intermediaries.
    RUS will only make loans for eligible purposes to electric utility 
systems . An eligible borrower means a utility system that has direct 
or indirect responsibility for providing retail electric service to 
persons in a rural area. This definition includes existing borrowers 
and utilities who meet current RUS borrower requirements. RUS 
anticipates that borrowers under the Energy Efficiency and Conservation 
Loan Program will be generation and transmission (G&T) borrowers, their 
distribution members, or unaffiliated distribution borrowers who are 
current on their RUS loan payments and in compliance with those loan 
documents. RUS anticipates that the Energy Efficiency (EE) improvements 
installation work may be contracted by either the utility, the Ultimate 
Recipient, or performed directly by employees of the borrower. In all 
cases, the Eligible Borrower will hold title to the receivables funded 
by the RUS loan.
    RUS is authorized by the RE Act to make loans to implement Demand 
side management (DSM), EE Programs and conservation programs, and on-
grid and off-grid renewable energy systems. Energy efficiency in this 
regulation is defined as the degree a system or component performs its 
designated function with minimum consumption of resources. Renewable 
energy systems have a specific role in this regulation. Renewable 
generation can be used as load modifiers, which can increase the 
efficiency of energy consumption from the utilities perspective and are 
effective at decreasing energy used by decreasing load. Renewable 
energy and conservation savings associated with this regulation are 
from the utilities perspective, though the energy savings could be 
realized by both the Consumer and utility, depending on the type of 
project, as the utility is the RUS borrower and is culpable for 
repayment of the loan. Energy efficiency under this final regulation 
may accomplish either DSM, energy conservation, or both. The goals of 
an eligible EE Program under Subpart H may include one or more of the 
following: (1) Increase energy efficiency at the end user level; (2) 
modify electric load such that there is a reduction in overall system 
demand; (3) effect a more efficient use of existing electric 
distribution, transmission and generation facilities; (4) attract new 
businesses and create jobs in rural communities; and (5) encourage the 
use of renewable energy fuels.
    There are three primary differences between the existing energy 
resource conservation program codified in 7 CFR part 1721 subpart B 
(ERC program) and the EECLP final regulation in 7 CFR part 1710, 
subpart H. First, the existing ERC program is limited to direct loan 
principal deferments and is not available for RUS guaranteed loans. 
Second, the list of eligible loan purposes for this program is more 
expansive than the ERC program and, where applicable, emphasizes that 
the assets in question must be characterized as an integral part of the 
Consumer's real property that would typically transfer with the title 
under applicable state law. Lastly, the term of financing available 
under Subpart H is longer than the term allowed for principal 
deferments under the ERC loan program.
    Rural electric cooperatives are proponents of energy efficiency 
measures. According to the National Rural Electric Cooperative 
Association: 73 percent of these co-ops plan on significantly expanding 
existing efficiency programs in the next two years: 70 percent of co-
ops offer financial incentives to promote greater energy efficiency: 96 
percent of co-ops have some form of energy efficiency program in place, 
co-ops are responsible for nearly 25 percent of residential peak load 
management capacity, and cooperatives have 10 percent of retail 
electricity sales but are responsible for 20 percent of actual peak 
demand reduction. Representatives from rural electric cooperatives have 
commented that access to low interest funds can be the difference 
between success and failure for an energy efficiency program.
    Eligible EE Programs can be comprised of a variety of activities, 
performed by either the utility or third parties. This final rule sets 
forth the policies and procedures related to eligible EE Programs where 
the RUS will finance: (1) Energy efficiency activities undertaken by 
the utility itself; (2) loans made by the utility to finance energy 
efficiency projects undertaken by others; and (3) investments made by 
the utility to accomplish their obligations under utility energy 
services contracts. The types of activities that are eligible for RUS 
financing under Subpart H include but are not limited to: (1) Energy 
audits; (2) community awareness and outreach programs; (3) services, 
materials and equipment provided by a qualified local contractor to 
improve energy efficiency at the Consumer level; and (4) energy 
efficiency loans made by the utility to its customers. RUS is allowing 
fuel switching as an eligible activity under this regulation. A 
description of EE Programs that qualify for RUS financing can be found 
in Sec.  1710.405. Eligible investments are listed in Sec.  1710.406. 
Finally, eligible borrowers are defined in Sec.  1710.404.
    Some programs designed by utilities may have the utility initially 
owning an asset even though it is located on a Consumer's premise and 
the asset is later conveyed to the Consumer after it is paid for or a 
predetermined time period has elapsed. Where this is the case, RUS is 
proposing that the application include an additional or

[[Page 73360]]

revised Schedule C to the RUS mortgage listing these assets as Excepted 
Property under the RUS mortgage, so as to preclude the assets being 
captured under the after acquired clause that is standard in the RUS 
mortgage codified in 7 CFR part 1718. It is the intent of RUS that a 
release of lien need not be executed by the Agency for the utility to 
convey to the Consumer clear title to these assets when this Schedule C 
is recorded.
    This final rulemaking recognizes that energy may take a variety of 
forms, not just electricity. The criteria to be met by eligible 
programs include energy efficiency as measured by British Thermal Unit 
(Btu) input relative to Btu output, in order to facilitate the widest 
and greatest contribution by the rural utility in optimizing the energy 
consumption profile of its service territory. This rulemaking also 
provides that an eligible program must demonstrate that the financial 
strength of the electric utility is not harmed by EE Program activities 
funded under Subpart H.
    An important distinction between eligible energy efficiency assets 
to be financed under this new Subpart H and other energy efficiency 
activities is that the assets located at a Consumer's premises, whether 
or not title is to be held by the utility must, for the most part, be 
considered an integral part of the real property that would typically 
transfer with the title under applicable State law in order to be 
financed pursuant to an eligible program under Subpart H.
    Eligible programs shall provide that the utility will recoup all or 
part of the costs from specific ratepayers on whose behalf an 
investment has been made. Recoupment may take the form of Consumer loan 
repayment or a dedicated tariff. An eligible program reviewed under 
Subpart H must show that the payment terms and loan term offered to the 
Consumer are generally correlated with the expected life of the 
applicable assets. An eligible program must also offer an undertaking 
that funds, collected from ratepayers, in excess of the current 
amortization requirements for the RUS loan will be redeployed for EE 
Program purposes or used to prepay the RUS loan. These prepayments are 
in addition to scheduled principal and interest debt service payments.
    Applications for program financings under Subpart H must fully 
describe a Business Plan that meets the requirements of Sec.  1710.407.
    The Agency recognizes that energy efficiency investments that 
reduce energy consumption at the Consumer premises (for instance those 
that affect the power factor) may prompt a need for investments at the 
system level to sustain the reliability and stability of the grid. The 
business plan called for in Subpart H must identify the related system 
investment to be identified as part of the EE Program, but these system 
level investments would be reflected in the utility's construction work 
plan and financed as part of a traditional loan application.
    It is not required that an eligible program fund energy audits 
performed at Consumer premises. However, if the utility proposes to 
provide audits; Subpart H requires that the program must also include a 
provision for assisting Consumers in implementing changes suggested in 
aggregate to be cost effective by the audit. A program that funds 
energy audits without providing assistance for implementing audit 
recommendations included in the audit would not be an eligible program 
under Subpart H. Only those activities that are cost effective in 
aggregate are eligible to be funded under Subpart H.
    The list of eligible investments and activities that a qualified 
plan may incorporate is not intended to be exhaustive. The intent is to 
facilitate flexibility for the utility's EE Program consistent with the 
resources and Consumer profiles in its service territory.
    This lending program is designed for utility-designed and directed 
EE Programs. As such it anticipates that eligible loan purposes will 
include program administrative and other soft costs, such as marketing 
expenses, where not more than five percent of the loan budget may be 
used for these purposes. A utility's program may include acting as an 
intermediary lender, where the utility uses RUS financing to make 
Consumer loans to finance these investments on the Consumers' premises. 
Where this is the case, Subpart H requires the borrower to have a 
maximum interest rate to the ultimate consumer at 1.5 percent above the 
RUS loan cost to the borrower unless an exception is granted by the 
Administrator. Exceptions will be made on a case-by-case basis to 
ensure repayment of the government's loan. We will not accept an 
exception if the loan is feasible at 1.5 percent. This rate must be 
discussed in the applicant's business plan.
    The process for applying for EECLP loans is intended to largely 
conform to the Agency's existing process for loans relating to other 
eligible purposes. Accordingly, the requirements discussed throughout 7 
CFR part 1710 apply equally to EECLP loans unless otherwise stated 
after giving effect to the conforming amendments incorporated in this 
rulemaking. Expenditures by the utility will be reimbursed by the 
Agency after the fact pursuant to an inventory of work orders system as 
is typical for our existing loan process. The analytical material 
needed to support an EECLP loan is different from what is needed to 
analyze a generation or transmission loan. Accordingly, Subpart H 
elaborates on what is needed for RUS to approve an EE Program and loans 
to execute the program. EE Program activity will be captured under a 
separate energy efficiency work plan. Energy efficiency investments 
will not be listed on the traditional construction work plan that 
applies to utility assets financed by RUS.
    As with other loans made pursuant to 7 CFR part 1710, a borrower's 
Environmental Report (ER) is expected to accompany the energy 
efficiency work plan associated with the loan request. The ER is in 
accordance with 7 CFR part 1794. Part 1794 contains the policies and 
procedures of the Rural Utilities Service for implementing the 
requirements of the National Environmental Policy Act. In the case of 
an EECLP loan, this ER will be expected to reference the PEA completed 
by the Agency for EECLP loans, and identify any investments and their 
potential environmental impacts proposed in the work plan that were not 
analyzed in the PEA.
    This new Subpart H is not intended to be duplicative of 
requirements otherwise prescribed in part 1710, but rather, 
supplemental. It identifies requirements that are unique to loans made 
under the proposed Subpart H to finance EE Programs. It prescribes 
requirements for our direct borrowers. Our direct borrowers will then 
act as intermediary lenders to accomplish the investments outlined in 
an approved EE program. Where there is an express conflict with 
requirements elsewhere in part 1710, the provisions of Subpart H would 
apply, but otherwise Subpart H is not intended to supplant the 
applicability of the rest of part 1710 or other applicable parts in the 
Code of Federal Regulations.
    In implementing Subpart H, as required for all of part 1710, RUS 
will work with Department of Energy (DOE), following the requirements 
set out by the Rural Electrification Act of 1936, Section 16 that 
states: ``the Secretary in making or guaranteeing loans for the 
construction, operations, or enlargement of generating plants or 
electric transmission lines or systems shall consider such general 
criteria consistent with the provisions of this Act as may

[[Page 73361]]

be published by the Secretary of Energy.''

Summary of Major Changes in Response to Comments on the Rule

    The agency published a Proposed rulemaking on July 26, 2012, at 77 
FR 43723. RUS received 63 comments on the proposed Energy Efficiency 
and Conservation Loan Program. The sixty three commenters consisted of 
industry representatives that included: Electric cooperatives, such as 
South Carolina Electric and Gas company; nonprofit energy efficiency 
supporters, such as the E3 coalition and the Sierra Club; and envelope 
organizations that represent RUS borrowers, such as the National Rural 
Electric Cooperative Association. Sixty two of the sixty three letters 
were extremely supportive of the regulation, and applauded RUS for 
proposing the program. The opposing letter stated that it was against 
all Federal programs.
    Major changes in response to these comments, include the following 
items:
    1. Removed restrictions on the size of load modifiers.
    2. Adjusted soft cost limitations from 4 percent to 5 percent.
    3. Limit Consumer interest rate to 1.5 percent above the cost of 
the loan to the borrower.
    4. Decreased the complexity of the loan program by eliminating 
performance thresholds.
    5. Defined certified energy auditor.
    6. Added fuel switching as an eligible purpose.
    7. Clarified the definition of eligible borrowers to include former 
and new RUS borrowers that meet RUS standards specified in regulation 
and statute.
    8. Changed the cost effectiveness requirements, extending 
requirements to 10 years or equipment useful life on an aggregate 
basis.
    9. Removed the Net Utility Plant language.
    10. Allowed some pre-retrofitting as an eligible activity.

Summary of Comments

    A summary of the comments and RUS's response are as follows:

Small Scale Renewable Energy Projects

    Comment: There were 17 comments addressing the small scale 
renewable energy limitation of ``nameplate generation capacity that is 
less than the 50 percent of the average anticipated electrical load 
associated with the end user.'' Of the 17 comments, only 4 wanted to 
decrease or eliminate small scale renewables, on the basis that small 
scale renewables tend to not be cost effective.
    Response: The Energy Efficiency and Conservation Loan program 
regulation has been edited, and will no longer have any restrictions on 
small scale renewable energy projects. All activities will be eligible, 
however, state mandates, laws, and cooperative bylaws will override 
this regulation.

Soft Costs Associated With a Borrower's Loan

    Comment: Seven comments requested that RUS not limit the 
``administrative'' costs associated with the loan. The current 
regulation limits administrative costs to 4 percent.
    Response: RUS acknowledges that there is a cost to our borrowers to 
start-up and maintain an energy efficiency program, and has agreed to 
increase the ``administrative'' cost limitation to 5 percent in the 
final regulation. However, RUS must protect the Electric Program loan 
portfolio, and increasing the rate any higher may impair the 
productivity of the program, and subsequently the subsidy rate. Also, 
cooperatives may have the opportunity to rate-base certain energy 
efficiency costs.

The Rate Borrowers Can Charge to the Ultimate Consumer Above the 
Treasury Based Interest Rate

    Comment: RUS requested comments on the appropriate markup borrowers 
could charge above the Treasury-based interest rate. Twenty-one 
comments were received. The majority of comments stated that markups 
must be between 5 and 10 percent, with numerous comments stating that 
RUS should not specify a cap to make the program economical to the 
borrower.
    Response: Borrowers are limited to interest rates 1.5 percent above 
the cost of their RUS loan. Exceptions will be given on a case-by-case 
basis that must be clearly articulated in the business plan such as 
unavoidable program level costs. We will not accept an exception if the 
loan is feasible at 1.5 percent.This information, combined with all the 
other additional information, will allow RUS to determine the 
feasibility of the loan.

Decrease the Complexity of the Loan Program

    Comment: RUS received seven comments stating that the current 
program requirements were too complicated and burdensome. Requiring an 
environmental plan, business plan, quality assurance plan, performance 
thresholds, return on investment demonstrations, additional supporting 
documents, and load forecasting before and after improvements was too 
extensive, and would limit borrower's interest in the program.
    Response: RUS has simplified the regulation to decrease the Energy 
Efficiency and Conservation Loan Program's complexity and burden. 
Performance thresholds have been removed, the cost effectiveness 
definition has been modified, and procedures edited to keep the program 
simple and straight forward.

Define Certified Energy Auditor

    Comment: Six comments were submitted, asking RUS to clarify the 
definition of certified energy auditor.
    Response: RUS has clarified the definition, allowing a borrower to 
use an auditor certified under state, local, or federal standards.

Identifying the Appropriate Performance Thresholds

    Comment: Twenty comments were received on what were the appropriate 
performance thresholds for the Energy Efficiency and Conservation Loan 
Program. Seven comments supported the language in the proposed rule, 
stating ``existing energy efficiency standards or criteria such as 
those from Energy Star, Federal Energy Management Program (FEMP), 
American National Standards Institute (ANSI), or other voluntary 
consensus standards,'' 2 comments recommended limiting the thresholds 
to Energy Star or Energy Efficiency Ratio, and the remaining 9 comments 
recommended that RUS fund all market proven energy products that reduce 
the Consumer's annual Btu.
    Response: RUS clarified that borrowers are encouraged to use 
existing energy efficiency standards or criteria such as those from 
ENERGY STAR, FEMP, ANSI, or other voluntary consensus standards rather 
than performance thresholds to give Borrowers greater latitude.

Fuel Switching

    Comment: Twelve comments strongly supported fuel switching. Fuel 
switching is essential for some borrowers to handle peak demand.
    Response: RUS has modified the regulation to allow fuel switching. 
Many of the 12 comments in support of fuel switching were associations 
that represent over 1,000 electric cooperatives and millions of 
households, including NW Energy Coalition, Midwest Energy Efficiency 
Alliance, Utility Geothermal Working Group, Iowa Environmental Council, 
The Mountain Association for Community Economic Development, and the 
National Rural Electric Cooperative Association.

[[Page 73362]]

The $250 Million Funding Limitation

    Comment: Sixteen comments were received, all in strong support of 
removing the $250 million limitation.
    Response: The $250 million was an estimate of what the Agency 
believed would be the demand for the program. Public comment indicates 
more interest in the program than the proposed rule's $250 million per 
year limitation. In fiscal year 2014, the Rural Utilities Service will 
make $250 million available to support energy efficiency as indicated 
in the Presidents climate change action plan. In future years, the 
amount of funding made available will be based on the performance of 
the program. Additionally, to be consistent, the energy efficiency 
program should compete equally with other eligible loan purposes.

A Preferred Lender Program

    Comment: One comment was submitted proposing a preferred lender 
program that borrowers could qualify for if they had a loan total of 
less than $2 million. Standards would be set for basic, preapproved 
weatherization practices and be made available to any eligible 
borrower. Standard benefit levels would be assigned to those practices 
and applied when determining benefits. There would not be a requirement 
for energy audits or post tests. This would cut the cost of program 
delivery while maintaining well established and known benefits for the 
members. The cooperatives that wish to participate at a higher loan 
level would have to comply with the standards established in the 
proposed regulations.
    Response: RUS believes that preferred lending criteria is not 
needed in the regulation. RUS will use current authorities to 
streamline the application process.

 Former RUS Borrowers and Their Eligibility for the Loan Program

    Comment: Four comments were submitted supporting allowance of 
former RUS borrowers to return to the program.
    Response: The regulation has been modified to clarify that past 
borrowers are eligible for the Energy Efficiency and Conservation Loan 
program, in accordance with the statute and any other regulation 
relating to new or returning borrowers.

The Cost Effective Requirement in Section 1710.405

    Comment: Nine comments were received, eight requesting a payback 
period that was longer than the current 5 years stated in the 
regulation. One comment requested that the payback period be less than 
the life of the product.
    Response: The regulation has been modified to more precisely define 
cost effectiveness and increase the payback to 10 years, except in 
cases where the useful life of the technology on an aggregate basis can 
be demonstrated to be longer than the 10 year period. RUS will evaluate 
the useful life assumption on a case-by-case basis.

Financial Institutions and Cooperative Relending

    Comment: Four comments were received requesting RUS to add language 
in the regulation that defines who RUS borrowers can work with as 
intermediaries.
    Response: RUS will not add any additional language. Business cases 
will be reviewed to determine the viability of the loan. Existing 
regulation language does not deter borrowers from establishing 
partnerships with other organizations to help implement their energy 
efficiency programs.

Net Utility Plant

    Comment: Three comments were received asking RUS to remove the 
provisions of Sec.  1710.409(d (1)). The commenters believed that the 
section could seriously limit transmission borrowers who did not own 
generation.
    Response: RUS has removed the section. Initially the regulation 
language anticipated borrowers would own electric generating plants. 
Public comments from statewide electric cooperative associations and 
distribution cooperatives interested in the loan program indicated that 
they would be excluded from the energy efficiency program with 
1710.409(d(1)). These current borrowers are not generation and 
transmission organizations and therefore do not own electric generation 
plants. The language has been removed to allow them to participate.

Bulletin and Guidance Documents

    Comment: Four comments asked RUS to remove Sec. Sec.  1710.406(d), 
1017.407(g), and 1710.408(i). Each of those sections state borrowers 
shall follow a bulletin or other publication to be identified later. 
They claim that the proposed provision violates the Administrative 
Procedures Act by purporting to establish as regulatory obligations 
purely administrative determinations to be made later without notice 
and comment rulemaking.
    Response: The proposed rule required borrowers to follow 
requirements in yet to be developed bulletins. The final regulation has 
been changed from ``shall'' to ``are strongly encouraged to.'' Please 
see the following regulatory language ``(g) The borrowers are strongly 
encouraged to follow a bulletin or such other publication as RUS deems 
appropriate that contains and describes best practices for energy 
efficiency business plans. RUS will make this bulletin or publication 
publicly available and revise it from time to time or eliminate it as 
RUS deems it necessary. ``

Requiring all Electric Borrowers To Participate in This Program

    Comment: Three comments asked if all current borrowers would be 
required to participate in the Energy Efficiency Loan Program. One of 
the two comments stated that RUS must require all borrowers to 
participate in this loan program and have active energy efficiency 
programs.
    Response: The Energy Efficiency and Conservation Loan program 
allows for energy efficiency improvements as an eligible purpose and 
will be reviewed and approved as other eligible purposes within the 
statute and the regulation. RUS does not believe it to be appropriate 
to require Borrowers to participate in this program.

Requiring all Load Forecasting

    Comment: Two comments questioned the need for load forecasting, one 
comment stated that their current energy efficiency and conservation 
loan program is made up of only 30-40 members, not affecting the 
forecast at all.
    Response: Load Forecasting is an important accountability component 
of the Energy Efficiency and Conservation Loan program. If the energy 
efficiency program has negligible effect on the Load Forecast then that 
information should be stated in the discussion within the Load 
Forecast. No changes were made to the regulation.

Quality Assurance plan

    Comment: One comment stated that there were very few qualified 
energy managers and professional engineers in rural areas that are 
available to conduct the requirements of a program evaluation, and 
questioned who would have to bear the cost of the evaluation.
    Response: RUS recognizes that there will be additional expenses 
associated with the Energy Efficiency and Conservation Loan program. 
The borrowers may pass along those costs to the Ultimate Recipient, but 
it needs to be explained in the submitted work plan.

[[Page 73363]]

Loan Advances on a Reimbursement Basis

    Comment: Two comments questioned how funds would be distributed. 
They were not supportive of funding projects on a reimbursable basis.
    Response: All of RUS's programs are run on a reimbursable basis, 
though the regulation currently states that startup capital of up to 5 
percent may be made available for an energy efficiency plan. No changes 
will be made to our current funding model.

Making Post-Installment Evaluations Publically Available

    Comment: Two comments requested that all post-installment 
evaluation and verification requirements be made available to the 
public.
    Response: RUS acknowledges the importance of transparency, but also 
must weigh the privacy of our borrowers. We will provide information to 
the public in conformity with the Freedom of Information Act.

Using Qualified Contractors

    Comment: One comment reiterated the importance of using qualified 
contractors to install energy efficiency and conservation activities.
    Response: RUS is a strong supporter of using qualified contractors 
and will require borrowers to state the types of contractors that will 
be used, if any, in a borrower's quality assurance plan.

Program Aggregation

    Comment: One comment stated that borrowers should be able to 
aggregate their various energy efficiency programs to bring them up to 
scale, decreasing the total workload.
    Response: The Energy Efficiency and Conservation Loan program will 
hold each borrower accountable. Though borrowers can work with each 
other to decrease costs, each borrower will be individually held 
responsible for providing the required level of information and 
oversight.

Ground Source Heat Pumps

    Comment: One comment stated that the regulation should not 
specifically call out ground source heat pumps, as the technology is 
advancing quickly.
    Response: Ground source heat pumps are just one eligible activity 
under the Energy Efficiency and Conservation Loan program. Though 
mentioned in the regulation as an example, we are neither promoting nor 
discouraging their use.

Offer Technical Assistance to Utilities

    Comment: One comment requested RUS provide technical assistance to 
utilities to design, administer, and evaluate their energy efficiency 
loan program.
    Response: RUS will work closely with the borrower, answering any 
questions they may have on their business plan, quality assurance plan, 
etc.

Encourage Peer-to-Peer Networking Through Webinars

    Comment: Six comments requested RUS set up regular webinars, phone 
conferences and an on-line peer-exchange Web site for participating 
borrowers.
    Response: RUS supports the exchange of ideas and will facilitate 
cross communication when possible, but RUS does not have the resources 
to commit to this on a large scale. RUS will partner with other federal 
agencies to support broader peer-to-peer exchange.

The Definition of Energy Efficiency and Conservation measures

    Comment: One comment requested that we add the following language 
to the energy efficiency and conservation measures definition, ``which 
may also include the onsite generation of electricity from waste heat 
resources. ''
    Response: RUS believes the definition is inclusive, and the 
additional language is unnecessary.

Promote On-Bill Repayment

    Comment: Eight comments stated that RUS stress the importance of 
using on-bill repayment as an effective financing method for energy 
efficiencies.
    Response: RUS recognizes that on-bill financing is one way for a 
borrower to be repaid for their activities, however the borrower will 
have the ultimate decision on how they will recover their expenses. 
Their method of choice will be articulated in their business plan.

Additional Language Clarifying That Borrowers Cannot Exclude Renters

    Comment: Five comments requested that RUS add language to the 
regulation requiring utilities to identify approaches that would ensure 
the equitable treatment by all types of consumers, and explicitly 
include low-income in both single-family and multi-family buildings.
    Response: RUS sympathizes with the comment's concern, however we 
believe Sec.  1710.122 on Equal opportunity and nondiscrimination 
located in the overarching Electric Program regulation, fulfills the 
needs specified by the comments.

Pre-Retrofits Should Be Allowed as Program Costs

    Comment: Four comments stated that pre-retrofit activities that 
need to take place to make a house structurally sound before 
weatherization activities can take place, be an eligible activity under 
the Energy Efficiency and Conservation loan program
    Response: RUS added language to allow limited pre-retrofits as an 
eligible loan activity. The Department of Energy has established that 
many opportunities for energy efficiency upgrades exist in low income 
housing. Often the residential building envelope needs infrastructure 
improvements to be able to accept energy efficiency upgrades. For 
example, the floor of a residential building may need structural 
repairs before efficient insulation can be installed. This would reduce 
the overall energy requirement for the structure.

Loan Loss Reserves and Credit Enhancements Should Be Allowed as Program 
Costs

    Comment: Four comments stated that RUS allow borrowers to create 
loan loss reserve funds to allow utilities to attract investors and 
leverage private capital, as an eligible activity under the Energy 
Efficiency and Conservation loan program
    Response: RUS is statutorily required to fund energy efficiency and 
conservation activities. Additional activities are outside the agency's 
authority and would require amendments.

Additional Language Supporting a Diverse Workforce

    Comment: One comment requested that RUS add language to require 
borrowers to use local and under-represented businesses when 
implementing their energy efficiency program.
    Response: A borrower must prove that their energy efficiency 
program is cost effective; specifying who a borrower must work with is 
beyond the scope of Subpart H.

Consumer Eligibility

    Comment: Seven comments requested that RUS clarify ``due 
diligence'' to confirm that ability to repay a loan or participate in a 
program does not have to include a credit check, but rather rely on 
utility bill payment history.
    Response: The borrower is held accountable for paying off the loan, 
and needs to determine eligible Consumers. Their method of choice will 
be articulated in their business plan.

Clarifying Sec.  1710.255(b)

    Comment: One comment requested clarification on Sec.  1710.255(b), 
which requires that all facilities being improved be included in the 
energy

[[Page 73364]]

efficiency work plan, to state that this section only applies to 
utility-owned properties.
    Response: RUS believes the Energy Efficiency Work Plan (EEWP) must 
also itemize Consumer upgrades in aggregate.

Clarifying Demand Side Management

    Comment: Three comments requested that RUS specifically state that 
switches for water heaters and air conditioning units be eligible under 
Demand side management, or at a minimum clearly state energy efficiency 
in the definition.
    Response: RUS believes the definition is inclusive, and the 
additional language is unnecessary.

Redefine Energy Efficiency and Conservation Measures

    Comment: Two comments requested that RUS change the sentence 
``ultimate goal is the reduction of utility energy needs'' to 
``ultimate goal is the reduction of all forms of consumer energy needs 
(based on annual Btu consumption).
    Response: RUS believes the current definition fits the ultimate 
goal, to reduce utility energy needs, Consumer energy needs is too 
limiting as utilities are also eligible to finance energy efficiency 
activities in their facilities.

Clarifying Sec.  1710.406(b)(7)

    Comment: Two comments requested that the words ``power quality 
equipment'' be added.
    Response: RUS believes the definition is inclusive, and the 
additional language is unnecessary.

Fuel Cells

    Comment: Two comments requested that RUS remove fuel cells as an 
eligible activity and investment.
    Response: Fuel cells can be used in energy efficiency and 
conservation activities and will keep the activity in the regulation. 
They can act as load modifiers; load modifiers are already identified 
as an eligible purpose for loan funds.

Clarifying Sec.  1710.406(a)(1)

    Comment: Two comments requested that RUS make changes to Sec.  
1710.406 (a)(1). The proposed rule states that eligible program 
activities and investments ``shall be designed to improve energy 
efficiency or MANAGED demand on the customer side of the meter. While 
demand improvements are a primary goal of the rule, demand improvement 
can be accomplished through managed or passive improvements on the 
customer side of the meter. Consequently the word `managed' should be 
removed from the text and replaced with the word ``reduce'' and the 
word ``peak'' should be added before ``demand.'' The new text should 
state ``shall be designed to improve energy efficiency or reduce peak 
demand on the customer side of the meter.
    Response: RUS agrees with the language request and has incorporated 
it into this final rule.

Clarifying Sec.  1710.405(b)(1)(vii)

    Comment: One comment requests additional clarification in the 
background section on what the rate will be for borrowers.
    Response: This section has been revised for other reasons, the 
issue is moot.

Sec.  1721.1(a)

    Comment: One comment requests the section be modified to remove 
insured, and revise the language to be ``a) Purpose and amount. With 
the exception of minor projects, loan funds will be advanced only for 
projects which are included in a RUS approved borrower's construction 
work plan (CWP), EE Program work plan (EEWP), or approved amendment, 
that have also received written Environmental Clearance and/or Approval 
from RUS prior to the start of construction, and follow RUS' contract 
and bidding procedures as set forth in 7 CFR part 1726 if applicable. 
Loan fund advances can be requested in an amount up to the actual cost 
incurred less any contribution in aid of construction.
    Response: RUS accepts the following language change: ``a) Purpose 
and amount. With the exception of minor projects, loan funds will be 
advanced only for projects which are included in a RUS approved 
borrower's EE Program work plan (EEWP), or approved amendment, that 
have also received written Environmental Clearance and/or Approval from 
RUS prior to the start of construction, and follow RUS' contract and 
bidding procedures as set forth in 7 CFR part 1726 if applicable. Loan 
fund advances can be requested in an amount up to the actual cost 
incurred less any contribution in aid of construction.

State and Federal Interactions

    Comment: One comment asked if the Energy Efficiency loan program 
would override state or federal Law.
    Response: The Energy Efficiency and Conservation Loan program does 
not override any statutory state or federal laws.

Loan Directly to Consumers

    Comment: One comment requested that RUS change the loan program, 
and loan directly to consumers, bypassing the electric companies.
    Response: The Energy Efficiency and Conservation Loan program does 
not statutorily allow us this discretion.

Natural Gas Expansion and Explicit Support of Water Heaters

    Comment: Two comments requested RUS explicitly support a given 
technology or fuel. One comment requested that RUS create a broader 
regulation that clearly articulates the importance of natural gas. One 
comment requested that RUS explicitly include installation of solar 
thermal, gas, and electric-resistance water heaters as an eligible use 
of program funds.
    Response: RUS does not support one technology or fuel source. No 
changes will be made to the regulation.

Appropriate Performance Thresholds for Water Heaters

    Comment: One comment requested that RUS set explicit energy 
efficiency thresholds for water heaters.
    Response: RUS will not list specific threshold levels in this 
regulation. Rather, we have clarified that borrowers are encouraged to 
use existing energy efficiency standards or criteria such as those 
from: Energy Star, FEMP, ANSI, or other voluntary consensus standards.

Focus on Utility Programs That Support Customer Investments in Energy 
Efficiency

    Comment: One comment asked RUS to establish requirements and 
guidelines that will ensure program funds are substantially devoted to 
support utility programs designed to support efficiency investments in 
customer homes, buildings, and facilities.
    Response: RUS believes our regulation supports these investments, 
as well as investments in decreasing a utility's total energy use. No 
additional language was added.

Leverage Other Federal Programs With the Energy Efficiency Program

    Comment: One comment asked RUS to explore leveraging options with 
USDA's Rural Housing Service, Federal Housing Administration, 
Department of Veterans Affairs, and the Federal Housing Finance 
Authority.
    Response: RUS supports program collaboration, and will continue to 
work with our Federal partners, but no additional language will be 
included in the regulation.

[[Page 73365]]

Consider Combined Heat and Power Projects as Eligible Measures

    Comment: One comment asked RUS to explicitly state combined heat 
and power projects are an eligible energy conservation activity under 
the regulation.
    Response: RUS believes our regulation provides enough flexibility 
to allow these forms of activities, without specifying every eligible 
activity in the regulation.

Fuel Switching Definition

    Comment: One comment requested RUS change the definition of fuel 
switching to ``the temporary use of non-electric energy sources as a 
method to limit electric peak loads during limited time periods. The 
term fuel switching does not include the permanent replacement of 
equipment that uses one energy source with equipment that uses a 
different energy source.''
    Response: RUS clarified the definition of ``fuel switching.'

Loan Monitoring

    Comment: One comment asked RUS to adopt data collection procedures 
to track program financials and measure performance.
    Response: RUS has and will continue to collect data on loan 
activities, monitoring and tracking performance measures. No additional 
language needs to be added to the regulation.

Existing EE Programs

    Comment: One comment requested RUS target supplementing existing 
and planned energy efficiency programs and budgets, not replacing the 
programs.
    Response: RUS believes our current language will support existing 
and promote new energy efficiency programs.

List of Subjects

7 CFR Part 1710

    Electric power, Loan programs-energy, Reporting and recordkeeping 
requirements, Rural areas.

7 CFR Part 1717

    Administrative practice and procedure, Electric power, Electric 
power rates, Electric utilities, Intergovernmental relations, 
Investments, Loan programs-energy, Reporting and recordkeeping 
requirements, Rural areas.

7 CFR Part 1721

    Electric power, Loan programs-energy, Rural areas.

7 CFR Part 1724

    Electric power, Loan programs-energy, Reporting and recordkeeping 
requirements, Rural areas.

7 CFR Part 1730

    Electric power, Loan programs-energy, Reporting and recordkeeping 
requirements, Rural areas.

    For reasons set forth in the preamble, the Agency amends 7 CFR 
chapter XVII as follows:

PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO 
ELECTRIC LOANS AND GUARANTEES

0
1. The authority citation for part 1710 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart A--General

0
2. In Sec.  1710.2(a) revise the definition of ``Demand side 
management'' and add a definition of ``Eligible Energy Efficiency 
Programs'' in alphabetical order to read as follows:


Sec.  1710.2  Definitions and rules of construction.

    (a) * * *
    Demand side management (DSM) means the deliberate planning and/or 
implementation of activities to influence Consumer use of electricity 
provided by a distribution borrower to produce beneficial modifications 
to the system load profile. Beneficial modifications to the system load 
profile ordinarily improve load factor or otherwise help in utilizing 
electric system resources to best advantage consistent with acceptable 
standards of service and lowest system cost. Load profile modifications 
are characterized as peak clipping, valley filling, load shifting, 
strategic conservation, strategic load growth, and flexible load 
profile. (See, for example, publications of the Electric Power Research 
Institute (EPRI), 3412 Hillview Avenue, Palo Alto, CA 94304, especially 
``Demand-Side Management Glossary'' EPRI TR-101158, Project 1940-25, 
Final Report, October 1992.) DSM includes energy conservation programs.
* * * * *
    Eligible Energy Efficiency and Conservation Programs (Eligible EE 
Program) means an energy efficiency and conservation program that meets 
the requirements of Subpart H of this part.
* * * * *

Subpart C--Loan Purposes and Basic Policies


Sec.  1710.100  [Amended]

0
3. In Sec.  1710.100, amend the first sentence by adding the words 
``efficiency and'' before ``energy conservation''.


Sec.  1710.101  [Amended]

0
4. In Sec.  1710.101, amend the second sentence of paragraph (b) by 
adding the word ``direct'' before ``loans to individual consumers''.


Sec.  1710.102  [Amended]

0
5. Amend Sec.  1710.102 as follows:
0
a. Amend the first sentence of paragraph (a) by adding ``energy 
efficiency and'' before ``energy conservation''; and
0
b. Amend the first sentence of paragraph (b) by adding ``energy 
efficiency and'' before ``energy conservation''.

0
6. Amend Sec.  1710.106 by adding paragraph (a)(6) and revising 
paragraphs (c)(1) and (d) to read as follows:


Sec.  1710.106  Uses of loan funds.

    (a) * * *
    (6) Eligible Energy Efficiency and Conservation Programs pursuant 
to Subpart H of this part.
* * * * *
    (c) * * *
    (1) Electric facilities, equipment, appliances, or wiring located 
inside the premises of the Consumer, except for assets financed 
pursuant to an Eligible EE Program, and qualifying items included in a 
loan for Demand side management or energy resource conservation 
programs, or renewable energy systems.
* * * * *
    (d) A distribution borrower may request a loan period of up to 4 
years. Except in the case of loans for new generating and associated 
transmission facilities, a power supply borrower may request a loan 
period of not more than 4 years for transmission and substation 
facilities and improvements or replacements of generation facilities. 
The loan period for new generating facilities and DSM activities will 
be determined on a case-by-case basis. The Administrator may approve a 
loan period shorter than the period requested by the borrower, if in 
the Administrator's sole discretion, a loan made for the longer period 
would fail to meet RUS requirements for loan feasibility and loan 
security set forth in Sec. Sec.  1710.112 and 1710.113, respectively.
* * * * *

[[Page 73366]]

Sec.  1710.109  [Amended]

0
7. In Sec.  1710.109 amend the first sentence of paragraph (a) by 
adding the words ``energy efficiency and conservation program work 
plan,'' after ``construction work plan''.

0
8. Amend Sec.  1710.115 by adding paragraph (c) to read as follows:


Sec.  1710.115  Final maturity.

* * * * *
    (c) The term for loans made to finance Eligible EE Programs will be 
determined in accordance with Sec.  1710.408 of this part.
* * * * *


Sec.  1710.120  [Amended]

0
9. In Sec.  1710.120 add the words ``energy efficiency and conservation 
program work plans,'' after ``construction work plans,''.

Subpart D--Basic Requirements for Loan Approval

0
10. Amend Sec.  1710.152 by adding paragraph (e) to read as follows:


Sec.  1710.152  Primary support documents.

* * * * *
    (e) EE Program work plan (EEWP). In the case of a loan application 
to finance an Eligible Energy Efficient Program, an EE Program work 
plan shall be prepared in lieu of a traditional CWP required pursuant 
to paragraph (b) of this section. The requirements for an EEWP are set 
forth in Sec.  1710.255 and in subpart H of this part.

Subpart E--Load Forecasts

0
11. Amend Sec.  1710.202 by adding paragraph (d) to read as follows:


Sec.  1710.202  Requirement to prepare a load forecast--power supply 
borrowers.

* * * * *
    (d) Notwithstanding paragraphs (a) through (c) of this section, a 
power supply borrower that has an outstanding loan for an Eligible EE 
Program is required to maintain an approved load forecast and an 
approved load forecast work plan on an ongoing basis.

0
12. Amend Sec.  1710.203 by adding paragraph (f) to read as follows:


Sec.  1710.203  Requirement to prepare a load forecast--distribution 
borrowers.

* * * * *
    (f) Notwithstanding paragraphs (a) through (e) of this section, a 
distribution borrower that has an outstanding loan for an Eligible EE 
Program is required to maintain an approved load forecast and an 
approved load forecast work plan on an ongoing basis.


Sec.  1710.205  [Amended]

0
13. In Sec.  1710.205 amend paragraph (b)(5) by adding the words ``and 
energy efficiency and conservation program'' after ``demand side 
management''.

Subpart F--Construction Work Plans and Related Studies

0
14. Add Sec.  1710.255 to subpart F to read as follows:


Sec.  1710.255  Energy efficiency work plans--energy efficiency 
borrowers.

    (a) All energy efficiency borrowers must maintain a current EEWP 
approved by their board of directors covering in aggregate all new 
construction, improvements, replacements, and retirements of energy 
efficiency related equipment and activities;
    (b) An energy efficiency borrower's EEWP shall cover a period of 
between 2 and 4 years, and include all facilities to be constructed or 
improved which are eligible for RUS financing, whether or not RUS 
financial assistance will be sought or be available for certain 
facilities. The construction period covered by an EEWP in support of a 
loan application shall not be shorter than the loan period requested 
for financing of the facilities;
    (c) The borrower's EEWP may only include facilities, equipment and 
other activities that have been approved by RUS as a part of an 
Eligible Energy Efficiency and Conservation Program pursuant to subpart 
H of this part;
    (d) The borrower's EEWP must be consistent with the documentation 
provided as part of the current RUS approved EE Program as outlined in 
Sec.  1710.410(c); and
    (e) The borrower's EEWP must include an estimated schedule for the 
implementation of included projects.

Subpart G--Long Range Financial Forecasts

0
15. Amend Sec.  1710.300 by redesignating paragraphs (d)(3) through (5) 
as paragraphs (d)(4) through (6) respectively; and adding a new 
paragraph (d)(3) to read as follows:


Sec.  1710.300  General.

* * * * *
    (d) * * *
    (3) RUS-approved EE Program work plan;
* * * * *


Sec.  1710.302  [Amended]

0
16. In Sec.  1710.302 amend paragraph (d)(5) by removing the reference 
``Sec.  1710.300(d)(5)'' and adding in its place ``Sec.  
1710.300(d)(6)''.

Subpart I--Application Requirements and Procedures for Loans


Sec. Sec.  1710.400 through 1710.407  [Redesignated as Sec. Sec.  
1710.500 through 1710.507]

0
17a. In subpart I, redesignate Sec. Sec.  1710.400 through 1710.407 as 
Sec. Sec.  1710.500 through 1710.507, respectively.
0
17b. Add Subpart H consisting of Sec. Sec.  1710.400 through 1710.499, 
to read as follows:
Subpart H--Energy Efficiency and Conservation Loan Program
Sec.
1710.400 Purpose.
1710.401 RUS policy.
1710.402 Scope.
1710.403 General.
1710.404 Definitions.
1710.405 Eligible energy efficiency and conservation programs.
1710.406 Eligible activities and investments.
1710.407 Business plan.
1710.408 Quality assurance plan.
1710.409 Loan provisions.
1710.410 Application documents.
1710.411 Analytical support documentation.
1710.412 Borrower accounting methods, management reporting, and 
audits.
1710.413 Compliance with other laws and regulations.
1710.414-1710.499 [Reserved]

Subpart H--Energy Efficiency and Conservation Loan Program


Sec.  1710.400  Purpose.

    (a) This subpart establishes policies and requirements that apply 
to loans and loan guarantees to finance Energy Efficiency and 
Conservation programs (EE Programs) undertaken by an eligible utility 
system to finance Demand side management, energy efficiency and 
conservation, or on-grid and off-grid renewable energy system programs 
that will result in the better management of their system load growth, 
a more beneficial load profile, or greater optimization of the use of 
alternative energy resources in their service territory. These programs 
may be considered an essential utility service.
    (b)(1) The goals of an eligible Energy Efficiency project eligible 
for funding under this program and Subpart H include:
    (i) Increasing energy efficiency at the end user level;
    (ii) Modifying electric load such that there is a reduction in 
overall system demand;
    (iii) Effecting a more efficient use of existing electric 
distribution, transmission and generation facilities;

[[Page 73367]]

    (iv) Attracting new businesses and creating jobs in rural 
communities by investing in energy efficiency; and
    (v) Encouraging the use of renewable energy fuels for either Demand 
side management or the reduction of conventional fossil fuel use within 
the service territory.
    (2) Although not a goal, RUS recognizes that there will be a 
reduction of green house gases with energy efficiency improvements.


Sec.  1710.401  RUS policy.

    EE Programs under this subpart may be financed at the distribution 
level or by an electric generation and transmission provider. RUS 
encourages borrowers to coordinate with the relevant member systems 
regarding their intention to implement a program financed under this 
subpart. RUS also encourages borrowers to leverage funds available 
under this subpart with State, local, or other funding sources that may 
be available to implement such programs.


Sec.  1710.402  Scope.

    This subpart adapts and modifies, but does not supplant, the 
requirements for all borrowers set forth elsewhere where the purpose of 
the loan is to finance an approved EE program. In the event there is 
overlap or conflict between this subpart and the provisions of this 
part 1710 or other parts of the Code of Federal Regulations, the 
provisions of this subpart will apply for loans made or guaranteed 
pursuant to this subpart.


Sec.  1710.403  General.

    EE Programs financed under this subpart may be directed at all 
forms of energy consumed within a utility's service territory, not just 
electricity, where the electric utility is in a position to facilitate 
the optimization of the energy consumption profile within its service 
territory and do so in a way that enhances the financial or physical 
performance of the rural electric system and enables the repayment of 
the energy efficiency loan.


Sec.  1710.404  Definitions.

    For the purpose of this subpart, the following terms shall have the 
following meanings. In the event there is overlap or conflict between 
the definitions contained in Sec.  1710.2, the definitions set forth 
below will apply for loans made or guaranteed pursuant to this subpart.
    British thermal unit (Btu) means the quantity of heat required to 
raise one pound of water one degree Fahrenheit.
    Certified energy auditor for commercial and industrial energy 
efficiency improvements. (1) An energy auditor shall meet one of the 
following criteria:
    (i) An individual possessing a current commercial or industrial 
energy auditor certification from a national, industry-recognized 
organization;
    (ii) A Licensed Professional Engineer in the State in which the 
audit is conducted with at least 1 year experience and who has 
completed at least two similar type Energy Audits;
    (iii) An individual with a four-year engineering or architectural 
degree with at least 3 years experience and who has completed at least 
five similar type Energy Audits; or
    (iv) Beginning in calendar year 2015, an energy auditor 
certification recognized by the Department of Energy through its Better 
Buildings Workforce Guidelines project.
    (2) For residential energy efficiency improvements, an energy 
auditor shall meet one of the following criteria: The workforce 
qualification requirements of the Home Performance with Energy Star 
Program, as outlined in Section 3 of the Home Performance with Energy 
Star Sponsor Guide; or an individual possessing a current residential 
energy auditor or building analyst certification from a national, 
industry-recognized organization.
    Cost effective means the aggregate cost of an EE Program is less 
than the financial benefit of the program over time. The cost of a 
program for this purpose shall include the costs of incentives, 
measurement and verification activity and administrative costs, and the 
benefits shall include, without limitation, the value of energy saved, 
the value of corresponding avoided generation, transmission or 
distribution and reserve investments as may be displaced or deferred by 
program activities, and the value of corresponding avoided greenhouse 
gas emissions and other pollutants.
    Demand means the electrical load averaged over a specified interval 
of time. Demand is expressed in kilowatts, kilovolt amperes, kilovars, 
amperes, or other suitable units. The interval of time is generally 15 
minutes, 30 minutes, or 60 minutes.
    Demand savings means the quantifiable reduction in the load 
requirement for electric power, usually expressed in kilowatts (kW) or 
megawatts (MW) such that it reduces the cost to serve the load.
    Eligible borrower means a utility system that has direct or 
indirect responsibility for providing retail electric service to 
persons in a rural area. This definition includes existing borrowers 
and utilities who meet current RUS borrower requirements.
    Energy audit means an inspection and analysis of energy flows in a 
building, process, or system with the goal of identifying opportunities 
to enhance energy efficiency. The activity should result in an 
objective standard-based technical report containing recommendations 
for improving the energy efficiency. The report should also include an 
analysis of the estimated benefits and costs of pursuing each 
recommendation and the simple payback period.
    Energy efficiency and conservation measures means equipment, 
materials and practices that when installed and used at a Consumer's 
premises result in a verifiable reduction in energy consumption, 
measured in Btus, or demand as measured in Btu-hours, or both, at the 
point of purchase relative to a base level of output. The ultimate goal 
is the reduction of utility or consumer energy needs.
    Energy efficiency and conservation program (EE Program) means a 
program of activities undertaken or financed by a utility within its 
service territory to reduce the amount or rate of energy used by 
Consumers relative to a base level of output.
    HVAC means heating, ventilation, and air conditioning.
    Load means the Power delivered to power utilization equipment 
performing its normal function.
    Load factor means the ratio of the average load over a designated 
period of time to the peak load occurring in the same period.
    Peak demand (or maximum demand) means the highest demand measured 
over a selected period of time, e.g., one month.
    Peak demand reduction means a decrease in electrical demand on an 
electric utility system during the system's peak period, calculated as 
the reduction in maximum average demand achieved over a specified 
interval of time.
    Power means the rate of generating, transferring, or using energy. 
The basic unit is the watt, where one Watt is approximately 3.41213 
Btu/hr.
    Re-lamping means the initial conversion of bulbs or light fixtures 
to more efficient lighting technology but not the replacement of like 
kind bulbs or fixtures after the initial conversion.
    SI means the International System of Units: the modern metric 
system.
    Smart Grid Investments means capital expenditures for devices or 
systems that are capable of providing real time, two way (utility and 
Consumer) information and control protocols for individual Consumer 
owned or operated appliances and equipment, usually

[[Page 73368]]

through a Consumer interface or smart meter.
    Ultimate recipient means a Consumer that receives a loan from a 
borrower under this subpart.
    Utility Energy Services Contract (UESC) means a contract whereby a 
utility provides a Consumer with comprehensive energy efficiency 
improvement services or demand reduction services.
    Utility system means an entity in the business of providing retail 
electric service to Consumers (distribution entity) or an entity in the 
business of providing wholesale electric supply to distribution 
entities (generation entity) or an entity in the business of providing 
transmission service to distribution or generation entities 
(transmission entity), where, in each case, the entities provide the 
applicable service using self-owned or controlled assets under a 
published tariff that the entity and any associated regulatory agency 
may adjust.
    Watt means the SI unit of power equal to a rate of energy transfer 
(or the rate at which work is done), of one joule per second.


Sec.  1710.405  Eligible energy efficiency and conservation programs.

    (a) General. Eligible EE Programs shall:
    (1) Be developed and implemented by an Eligible borrower and 
applied within its service territory;
    (2) Consist of eligible activities and investments as provided in 
Sec.  1710.406
    (3) Provide for the use of State and local funds where available to 
supplement RUS loan funds;
    (4) Incorporate the applicant's policy applicable to the 
interconnection of distributed resources;
    (5) Incorporate a business plan that meets the requirements of 
Sec.  1710.407;
    (6) Incorporate a quality assurance plan that meets the 
requirements of Sec.  1710.408;
    (7) Demonstrate that the program can be expected to be Cost 
effective;
    (8) Demonstrate that the program will have a net positive or 
neutral cumulative impact on the borrower's financial condition over 
the time period contemplated in the analytical support documents 
demonstrating that the net present value of program costs incurred by 
the borrower are positive, pursuant to Sec.  1710.411;
    (9) Demonstrate energy savings or peak demand reduction for the 
service territory overall; and
    (10) Be approved in writing by RUS prior to the investment of funds 
for which reimbursement will be requested.
    (b) Financial Structures. Eligible EE Programs may provide for 
direct recoupment of expenditures for eligible activities and 
investment from Ultimate Recipients as follows:
    (1) Loans made to Ultimate Recipients located in a rural area where 
--
    (i) The Ultimate Recipients may be wholesale or retail;
    (ii) The loans may be secured or unsecured;
    (iii) The loan receivables are owned by the Eligible Borrower;
    (iv) The loans are made or serviced directly by the Eligible 
Borrower or by a financial institution pursuant to a contractual 
relationship between the Eligible Borrower and the financial 
institution;
    (v) Due diligence is performed to confirm the repayment ability of 
the Ultimate Recipient;
    (vi) Loans are funded only upon completion of the project financed 
or to reimburse startup costs that have been incurred;
    (vii) The rate charged the Ultimate Recipient is less than or equal 
to the direct Treasury rate established daily by the United States 
Treasury pursuant to Sec.  1710.51(a)(1) or Sec.  1710.52, as 
applicable, plus the borrower's interest rate from RUS and 1.5 percent 
. Exceptions will be made on a case-by-case basis to ensure repayment 
of the government's loan and must be clearly articulated in the 
business plan RUS will not accept an exception request if the loan is 
feasible at 1.5 percent; and
    (viii) Loans are not used to refinance a preexisting loan.
    (2) A tariff that is specific to an identified rural Consumer, 
premise or class of ratepayer; or
    (3) On bill repayment and other financial recoupment mechanisms as 
may be approved by RUS.
    (c) Period of performance--(1) Performance standards. (i) Eligible 
EE Programs activities that are listed under Sec.  1710.406(b) should 
be designed to achieve the applicable operating performance standards 
within one year of the date of installation of the facilities.
    (ii) All activities other than those included in paragraph 
(c)(1)(i) of this section should be designed to achieve the applicable 
operating performance targets within the time period contemplated by 
the analytic support documents for the overall EE Program as approved 
by RUS.
    (2) Cost effectiveness. Eligible EE Programs must demonstrate that 
Cost effectiveness as measured for the program overall will be achieved 
within ten years of initial funding, except in cases where the useful 
life of the technology on an aggregate basis can be demonstrated to be 
longer than the ten year period. RUS will evaluate the useful life 
assumption on a case-by-case basis.


Sec.  1710.406  Eligible activities and investments.

    (a) General. Eligible program activities and investments:
    (1) Shall be designed to improve energy efficiency and/or reduce 
peak demand on the customer side of the meter;
    (2) Shall be Cost effective in the aggregate after giving effect to 
all activities and investments contemplated in the approved EE Program; 
and
    (3) May apply to all Consumer classes.
    (b) Eligible activities and investments. Eligible program 
activities and investments may include, but are not limited to, the 
following:
    (1) Energy efficiency and conservation measures where assets 
financed at an Ultimate Recipient premises can be characterized as an 
integral part of the real property that would typically transfer with 
the title under applicable state law. Where applicable, it is 
anticipated that the loan obligation would also be expected to transfer 
with ownership of the metered account serving that property.
    (2) Renewable Energy Systems, including --
    (i) On or Off Grid Renewable energy systems;
    (ii) Fuel cells;
    (3) Demand side management (DSM) investments including Smart Grid 
Investments;
    (4) Energy audits;
    (5) Utility Energy Services Contracts;
    (6) Consumer education and outreach programs;
    (7) Power factor correction equipment on the Ultimate Recipient 
side of the meter;
    (8) Re-lamping to more energy efficient lighting; and
    (9) Fuel Switching as in:
    (i) The replacement of existing fuel consuming equipment using a 
particular fuel with more efficient fuel consuming equipment that uses 
another fuel but which does not increase direct greenhouse gas 
emissions; or
    (ii) The installation of non-electric fuel consuming equipment to 
facilitate management of electric system peak loads. Fuel switching to 
fossil or biomass fueled electric generating equipment is expressly 
excluded.
    (10) Other activities and investments as approved by RUS as part of 
the EE Program such as, but not limited to, pre-retrofit improvements.
    (c) Intermediary lending. EE Program loan funds may be used for 
direct re-lending to Ultimate Recipients where

[[Page 73369]]

the requirements of Sec.  1710.405(b) are met.
    (d) Performance standards. Borrowers are required to use Energy 
Star qualified equipment where applicable or meet or exceed efficiency 
requirements designated by the Federal Energy Management Program.


Sec.  1710.407  Business plan.

    An Eligible EE Program must have a business plan for implementing 
the program. The business plan is expected to have a global perspective 
on the borrower's energy efficiency plan. Therefore, energy efficiency 
upgrades should be identified in aggregate. The business plan must have 
the following elements:
    (a) Executive summary. The executive summary shall capture the 
overall objectives to be met by the Eligible EE Program and the 
timeframe in which they are expected to be achieved.
    (b) Organizational background. The background section shall include 
descriptions of the management team responsible for implementing the 
Eligible EE Program.
    (c) Marketing plan. The marketing section should identify the 
target Consumers, promotional activities to be pursued and target 
penetration rates by Consumer category and investment activity.
    (d) Operations plan. The operations plan shall include but is not 
limited to:
    (1) A list of the activities and investments to be implemented 
under the EE Program and the Btu savings goal targeted for each 
category;
    (2) An estimate of the dollar amount of investment by the utility 
for each category of activities and investments listed under paragraph 
(d)(1) of this section;
    (3) A staffing plan that identifies whether and how outsourced 
contractors or subcontractors will be used to deliver the program;
    (4) A description of the process for documenting and perfecting 
collateral arrangements for Ultimate Recipient loans, if applicable; 
and
    (5) The overall Btu savings to be accomplished over the life of the 
EE Program.
    (e) Financial plan. The financial plan shall include but is not 
limited to:
    (1) A schedule showing sources and uses of funds for the program;
    (2) An itemized budget for each activity and investment category 
listed in the operations plan;
    (3) An aggregate Cost effectiveness forecast;
    (4) Where applicable, provision for Ultimate Recipient loan loss 
reserves. These loan loss reserves will not be funded by RUS. Loan loss 
reserves are not required when a utility will not be relending RUS 
funds.
    (5) Identify expected Ultimate Recipient loan delinquency and 
default rates and report annually on deviations from the expected 
rates.
    (f) Risk analysis. The business plan shall include an evaluation of 
the financial and operational risk associated with the program, 
including an estimate of prospective Consumer loan losses consistent 
with the loan loss reserve to be established pursuant to paragraph 
(e)(4) of this section.
    (g) The borrowers are strongly encouraged to follow a bulletin or 
such other publication as RUS deems appropriate that contains and 
describes best practices for energy efficiency business plans. RUS will 
make this bulletin or publication publicly available and revise it from 
time-to-time as RUS deems it necessary.


Sec.  1710.408  Quality assurance plan.

    An eligible EE program must have a quality assurance plan as part 
of the program. The quality assurance plan is expected to have a global 
perspective on the borrower's energy efficiency plan. Therefore, energy 
efficiency upgrades should be identified in aggregate. Every effort is 
made to fund only EE programs that are administered in accordance with 
quality assurance plans meeting standards designed to achieve the 
purposes of this subpart. However, RUS and its employees assume no 
legal liability for the accuracy, completeness or usefulness of any 
information, product, service, or process funded directly or indirectly 
with financial assistance provided under this subpart. Nothing in the 
loan documents between RUS and the energy efficiency borrower shall 
confer upon any other person any right, benefit or remedy of any nature 
whatsoever. Neither RUS nor its employees makes any warranty, express 
or implied, including the warranties of merchantability and fitness for 
a particular purpose, with respect to any information, product, 
service, or process available from an energy efficiency borrower. The 
approval by RUS and its employees of an energy efficiency borrower's 
quality assurance plan is solely for the benefit of RUS. Approval of 
the quality assurance plan does not constitute an RUS endorsement. The 
quality assurance plan must have the following elements:
    (a) Quality assurance assessments shall include the use of 
qualified energy managers or professional engineers to evaluate program 
activities and investments;
    (b) Where applicable, program evaluation activities should use the 
protocols for determining energy savings as developed by the U.S. 
Department of Energy in the Uniform Methods Project.
    (c) Energy audits shall be performed for energy efficiency 
investments involving the building envelope at an Ultimate Recipient 
premises;
    (d) Energy audits must be performed by certified energy auditors; 
and
    (e) Follow up audits shall be performed within one year after 
installation on a sample of investments made to confirm whether 
efficiency improvement expectations are being met.
    (f) In cases involving energy efficiency upgrades to a single 
system (such as a ground source heat pump) the new system must be 
designed and installed by certified and insured professionals 
acceptable to the utility.
    (g) Industry or manufacturer standard performance tests, as 
applicable, shall be required on any system upgraded as a result of an 
EE Program. This testing shall indicate the installed system is meeting 
its designed performance parameters.
    (h) In some programs the utility may elect to recommend independent 
contractors who can perform energy efficiency related work for their 
customers. In these cases utilities shall monitor the work done by the 
contractors and confirm that the contractors are performing quality 
work. Utilities should remove substandard contractors from their 
recommended lists if the subcontractors fail to perform at a 
satisfactory level. RUS does not endorse or recommend any particular 
independent contractors.
    (i) Contractors not hired by the utility may not act as agents of 
the utility in performing work financed under this subpart.
    (j) The borrowers are strongly encouraged to follow a bulletin or 
other publication that RUS deems appropriate and contains and describes 
best practices for energy efficiency quality assurance plans. RUS will 
make this bulletin or publication publicly available and revise it from 
time-to-time as RUS deems it necessary.


Sec.  1710.409  Loan provisions.

    (a) Loan term. The maximum term for loans under this subpart shall 
be 15 years unless the loans relate to ground source loop investments 
or technology on an aggregate basis that has a useful life greater than 
15 years. Ground source loop investments as the term is used in this 
paragraph do not include ancillary

[[Page 73370]]

equipment related to ground source heat pump systems.
    (b) Loan feasibility. Loan feasibility must be demonstrated for all 
loans made under this subpart. Loans made under this subpart shall be 
secured.
    (c) Reimbursement for completed projects. (1) A borrower may 
request an initial advance not to exceed five percent of the total loan 
amount for working capital purposes to implement an eligible EE 
Program;
    (2) Except for the initial advance provided for in paragraph (c)(1) 
of this section, all advances under this subpart shall be used for 
reimbursement of expenditures relating to a completed activity or 
investment; and
    (3) Advances shall be in accordance with RUS procedures.
    (d) Loan amounts. (1) Cumulative loan amounts outstanding under 
this subpart will be determined by the Assistant Administrator of the 
Electric Program and based an applicant's business plan; and
    (2) Financing for administrative costs may not exceed 5 percent of 
the total loan amount.
    (3) The Rural Utilities Service reserves the right to place a cap 
on both the total amount of funds an eligible entity can apply for, as 
well as a cap on the total amount of funds the Energy Efficiency and 
Conservation Program can utilize in the appropriations.


Sec.  1710.410  Application documents.

    The required application documentation listed in this section is 
not all inclusive but is specific to Eligible borrowers requesting a 
loan under this subpart and in most cases is supplemental to the 
general requirements for loan applications provided for in this part 
1710:
    (a) A letter from the Borrower's General Manager requesting a loan 
under this subpart.
    (b) A copy of the board resolution establishing the EE Program that 
reflects an undertaking that funds collected in excess of then current 
amortization requirements for the related RUS loan will be redeployed 
for EE Program purposes or used to prepay the RUS loan.
    (c) Current RUS-approved EE Program documentation that includes:
    (1) A Business Plan that meets the requirements of Sec.  1710.407;
    (2) A Quality Assurance Plan that meets the requirements of Sec.  
1710.408;
    (3) Analytical support documentation that meets the requirements of 
Sec.  1710.411;
    (4) A copy of RUS' written approval of the EE Program.
    (d) An EE program work plan that meets the requirements of Sec.  
1710.255;
    (e) A statement of whether an initial working capital advance 
pursuant to Sec.  1710.409(c)(1) is included in the loan budget 
together with a schedule of how these funds will be used.
    (f) A proposed draft Schedule C pursuant to 7 CFR part 1718 that 
lists assets to be financed under this subpart as excepted property 
under the RUS mortgage, as applicable.


Sec.  1710.411  Analytical support documentation.

    Applications for loans under this subpart may only be made for 
eligible activities and investments included in an RUS-approved EE 
Program. In addition to a business plan and operations plan, a request 
for EE program approval must include analytical support documentation 
that demonstrates the program meets the requirements of Sec.  1710.303 
and assures RUS of the operational and financial integrity of the EE 
Program. This documentation must include, but is not necessarily 
limited to, the following:
    (a) A comparison of the utility's projected annual growth in demand 
after incorporating the EE Program together with an updated baseline 
forecast on file with RUS, where each includes an estimate of energy 
consuming devices used by customers in the service territory and a 
specific time horizon as determined by the utility for meeting the 
performance objectives established by them for the EE Program;
    (b) Demonstration that the required periods of performance under 
Sec.  1710.405(c) can reasonably be expected to be met;
    (c) A report of discussions and coordination conducted with the 
power supplier, where applicable, issues identified as a result, and 
the outcome of this effort.
    (d) An estimate of the amount of direct investment in utility-owned 
generation that will be deferred as a result of the EE Program;
    (e) A description of efforts to identify state and local sources of 
funding and, if available, how they are to be integrated in the 
financing of the EE Program; and
    (f) Copies of sample documentation used by the utility in 
administering its EE Program.
    (g) Such other documents and reports as the Administrator may 
require.


Sec.  1710.412  Borrower accounting methods, management reporting, and 
audits.

    Nothing in this subpart changes a Borrower's obligation to comply 
with RUS's accounting, monitoring and reporting requirements. In 
addition thereto, the Administrator may also require additional 
management reports that provide the agency with a means of evaluating 
the extent to which the goals and objectives identified in the EE Plan 
are being accomplished.


Sec.  1710.413  Compliance with other laws and regulations.

    Nothing in this subpart changes a Borrower's obligation to comply 
with all laws and regulations to which it is subject.


Sec. Sec.  1710.414-1710.499   [Reserved]

PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND 
GUARANTEED ELECTRIC LOANS

0
18. The authority citation for part 1717 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart R--Lien Accommodations and Subordinations for 100 Percent 
Private Financing

0
19. Amend Sec.  1717.852 by revising paragraph (b)(2)(ii) to read as 
follows:


Sec.  1717.852  Financing purposes.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Renewable energy systems and RUS-approved programs of Demand 
side management, energy efficiency and energy conservation; and
* * * * *

PART 1721--POST-LOAN POLICIES AND PROCEDURES FOR INSURED AND 
GUARANTEED ELECTRIC LOANS

0
20. The authority citation for part 1721 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart A--Advance of Funds

0
21. Amend Sec.  1721.1 by revising paragraph (a) to read as follows:


Sec.  1721.1  Advances.

    (a) Purpose and amount. With the exception of minor projects, loan 
funds will be advanced only for projects which are included in an RUS 
approved construction work plan (CWP), EE Program work plan (EEWP), or 
approved amendment, and in an approved loan as amended. Loan fund 
advances can be requested in an amount representing actual costs 
incurred.
* * * * *

[[Page 73371]]

PART 1724--ELECTRIC ENGINEERING, ARCHITECTURAL SERVICES AND DESIGN 
POLICIES AND PROCEDURES

0
22. The authority citation for part 1724 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart C--Engineering Services

0
23. Amend Sec.  1724.30 by revising paragraph (a) to read as follows:


Sec.  1724.30  Borrowers' requirements--engineering services.

* * * * *
    (a) Each borrower shall select one or more qualified persons to 
perform the engineering services involved in the planning (including 
the development of an EE Program eligible for financing pursuant to 
subpart H of part 1710 of this chapter, design, and construction 
management of the system.
* * * * *

PART 1730--ELECTRIC SYSTEM OPERATIONS AND MAINTENANCE

0
24. The authority citation for part 1730 continues to read as follows:

    Authority:  7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

Subpart B--Operations and Maintenance Requirements

0
25. Amend Appendix A to subpart B of Part 1730 by adding paragraph 
13.f. to read as follows:

Appendix A to Subpart B of Part 1730--Review Rating Summary, RUS Form 
300

* * * * *
    13. * * *
    f. Energy Efficiency and Conservation Program quality assurance 
compliance--

Rating:------
* * * * *

John Charles Padalino,
Administrator, Rural Utilities Service.
[FR Doc. 2013-29158 Filed 12-4-13; 8:45 am]
BILLING CODE P