We continue our effort to highlight significant differences between provisions of the ARRA and analogous provisions in the House and Senate energy bills now moving through Congress. Last week, it was electric vehicle infrastructure. Today, we’ll explore the DOE loan guarantee program.

Many of our clients and contacts have a significant interest in the DOE loan guarantee program established under Title XVII of the 2005 Energy Policy Act, and amended under the ARRA. In a newsletter we released in April, we highlighted the Title XVII-related provisions in S. 949, the 21st Century Energy Technology Deployment Act, introduced by Senator Bingaman and others. At the time, we were pleased to report that the proposed legislation included provisions that would eliminate one of the more problematic aspects of the existing loan guarantee program, namely, the absolute requirement in Section 1702(g)(2)(B) of that Act that the DOE retain a superior right in assets pledged in connection with a loan guarantee. Many of our clients and contacts viewed that requirement as an unnecessary impediment to private financing.

S. 949 as introduced removed the requirement that the DOE have superior rights with respect to any property pledged pursuant to a guarantee, and would have allowed DOE to take a pari passu or subordinate interest in project assets in circumstances where it felt appropriate to ensure the financing of clean energy projects. S. 949 was largely incorporated into and now forms Title I of the ACELA legislation reported from the Senate Energy Committee last week. However, as that title of the overall bill was marked-up, the relevant provision of the original proposal was changed. The bill now includes a modification to Section 1702 of EPAct 2005 which, on the one hand, maintains the requirement that DOE have a superior right to any project assets pledged in connection with a loan guarantee, but, in Section 104(b)(3)(C), appears to grant DOE discretion to do otherwise when, in the Secretary's discretion, taking a subordinate position would be consistent with the interests of the United States.  

The language in ACELA seems to mark a subtle relaxation from the standard reflected in the current law and related DOE rules governing the loan guarantee program. Those rules require that the DOE retain a first lien on all project assets, but allow the Secretary to share the proceeds from the sale of the collateral as long as DOE controls the disposition of all project assets. The revised language seems to indicate that the Secretary would have even more discretion than is currently provided under the current rules. If the relevant section of the ACELA legislation is enacted as law, it will be interesting to see whether and how the DOE modifies its current interpretation of Section 1702 in light of the new, explicit authorization to depart from the requirement to take a superior position.

 

The proposed amendments to the DOE loan guarantee program included in the House’s American Clean Energy Security Act (see Section 181 “Revisions to Loan Guarantee Program Authority”) do not provide DOE with additional discretion regarding superiority of rights.