On December 7, 2009, Energy Secretary Steven Chu announced the issuance of a final rule amending the October, 2007 Final Regulations implementing the Loan Guarantee Program under Section 1703 of Title XVII of the Energy Policy Act of 2005 (the "Section 1703 Program").  The amendments implemented through the final rule were first identified in a Notice of Proposed Rulemaking and Opportunity for Comment  issued by the Department of Energy ("DOE") on August 7, 2009.  The comment period for the proposed amendments ended on September 22, 2009; the comments received by the DOE from the industry and other interested parties were largely supportive of the proposed amendments.

In a nutshell, the amendments to the regulations outlined in the final rule are designed to:

  • provide flexibility in the determination of an appropriate collateral package to secure the guaranteed loan obligations;
  • eliminate the requirement that the Secretary receive a first priority lien on all project assets as a condition for obtaining the loan guarantee;
  • facilitate collateral sharing and related intercreditor arrangements with other project lenders; and
  • provide a more workable interpretation of certain statutory provisions regarding DOE’s treatment of collateral that is more consistent with the intent and purposes of Title XVII.

By way of background, the impetus for the amendments to the regulations arose from what could be characterized as a "stalled" effort to actually provide the loan guarantees contemplated under the Section 1703 Program.  This stalled effort was due to the fact that, among other things, the regulations did not provide enough flexibility to allow for a wide variety of ownership and financing structures needed for the types of projects that could have benefitted from the Section 1703 Program.  The Section 1703 Program is focused on (1) encouraging commercial use in the U.S. of new or significantly improved energy-related technologies, and (2) achieving substantial environmental benefits.  Through this program, the DOE believes that the commercial use of these technologies will help sustain and promote economic growth, produce a more stable and secure energy supply and economy for the U.S. and improve the environment.