United States: DOE Loan Program Issues New Tribal Energy Solicitation With Key Improvements

Taite R McDonald is a Partner in our Washington DC office.

Tara S Kaushik is a Partner in our San Francisco office.

Stephen R Bolotin is a Public Affaris Advisor in our Washington DC office.

HIGHLIGHTS:

  • The U.S. Department of Energy (DOE) has opened the doors of its much anticipated Tribal Energy Loan Guarantee Program (TELGP), which can guarantee up to $2 billion in loans to support economic opportunities for American Indian tribes via energy development projects.
  • This is the first time the DOE Loan Programs Office (LPO) has been extended loan guarantees to projects on tribal lands and is doing so at significantly reduced fees and rates than the other Title XVII solicitations.
  • Given the complexity of the DOE LPO and the recent inclusion of the TELGP, applicants are strongly encouraged to carefully evaluate the solicitation and structure proposed projects in a manner that aligns with the LPO's rules and successful projects to date, which is key for efficiently and effectively navigating the program.

The U.S. Department of Energy (DOE) has opened the doors of its much anticipated Tribal Energy Loan Guarantee Program (TELGP), which can guarantee up to $2 billion in loans to support economic opportunities for American Indian tribes via energy development projects. Since the beginning of 2018, the DOE has been actively engaging tribal stakeholders as it finalized the details of the program; TELGP was only recently funded under the Fiscal Year 2017 Omnibus Spending Bill. The TELGP is administered by the DOE's Loan Programs Office (LPO) – which also runs the Advanced Technology Vehicle Manufacturing Program (ATVM) and the Title XVII Program for Innovative Energy Technologies – in consultation with the Office of Indian Energy Policy and Programs (IE). This is the first time the LPO has been extended loan guarantees to projects on tribal lands and is doing so at significantly reduced fees and rates than the other Title XVII solicitations.

Program Overview

Under this solicitation, the DOE can guarantee up to 90 percent of the unpaid principal and interest due on any loan made to a federally recognized tribe. The program requires the tribal borrower to invest equity in the project and that all project debt is provided by nonfederal lenders. A total of $8.5 million has been appropriated by Congress to cover the Credit Subsidy Costs (CSCs)1 associated with these loan guarantees. The application fees are $10,000 for the Part I application, and $25,000 for the Part II application. The loans can be for a broad range of energy projects with a focus on commercially proven technologies, including:

  • electricity generation, transmission and/or distribution facilities, utilizing renewable or conventional energy sources
  • energy storage facilities, whether integrated with any of the above
  • energy resource extraction, refining or processing facilities
  • energy transportation facilities, including pipelines
  • district heating and cooling facilities
  • cogeneration facilities
  • distributed energy project portfolios, including portfolios of smaller distributed generation and storage facilities employed pursuant to a unified business plan

Uniquely, the TELGP is structured to have the flexibility to finance a wide variety of projects structures and types including: generation projects serving both nontribal customers and residents of Indian lands, wherever constructed; transmission projects facilitating the sale of electricity generated on Indian land to outside markets; transmission projects across Indian lands, connecting outside generation to outside markets, where no tribal customers are served; and projects in which a tribal borrower participates as an investor, but bears no other direct relationship to the tribe or Indian lands. In cases where projects are not located on tribal land, applicants are strongly encouraged to outline in their applications how the project measurably benefits one or more tribes. The refinancing of energy development projects that have already completed construction are not eligible under TELGP. However, the DOE may issue loan guarantees for the financing of substantial improvement or modification to existing facilities.

Unlike other LPO loan guarantee programs, the tribal program is structured to be a partnership between eligible lenders and the DOE, similar to the DOE's Financial Institution Partnership Program (FIPP). Eligible lenders include commercial banks or other nonfederal lenders with suitable experience and capabilities. A tribe seeking financing would apply to an eligible lender, which in turn would apply to the DOE for the partial guarantee. TELGP program also allows for projects to be partially owned by nontribal participants.

Application Process and Submission Schedule

Like other LPO solicitations, the TELGP is a two-part application process. The Part I application aims to determine an applicant's eligibility and project's readiness to proceed. Upon positive determination, qualified applicants are invited to submit a Part II application, which contains the necessary technical and financial information for the DOE LPO to conduct extensive project due diligence and undertake term sheet negotiations. From start to finish, the application process will likely extend approximately six to 18 months, depending upon the project's complexity, the level of National Environmental Policy Act (NEPA) review required by DOE, and the applicant's need to raise additional equity.

Upcoming Part I due dates:

  • Round 1 – Sept. 19, 2018
  • Round 2 – Nov. 14, 2018
  • Round 3 – Jan. 16, 2019
  • Round 4 – March 13, 2019
  • Round 5 – May 15, 2019
  • Round 6 – July 17, 2019
  • Round 7 – Sept. 18, 2019
  • Round 8 – Nov. 1, 2019

Upcoming Part II due dates:

  • Round 1 – Oct. 17, 2018
  • Round 2 – Dec. 19, 2018
  • Round 3 – Feb. 13, 2019
  • Round 4 – April 17, 2019
  • Round 5 – June 19, 2019
  • Round 6 – Aug. 14, 2019
  • Round 7 – Oct. 16, 2019
  • Round 8 – Nov. 30, 2019

Future submission rounds will be announced by supplemental solicitation announcements.

Key Takeaways

TELGP provides a unique opportunity for tribal projects to receive low-cost financing – a considerable barrier for many tribal projects, which often run into difficulties with attracting the capital needed to develop projects in remote areas. Given the complexity of the DOE LPO and the recent inclusion of the TELGP, applicants are strongly encouraged to carefully evaluate the solicitation and structure proposed projects in a manner that aligns with the LPO's rules and successful projects to date, which is key for efficiently and effectively navigating the program. Holland & Knight's energy advisors and attorneys have deep experiencing navigating the DOE LPO and guiding clients through all aspects of the project from application through due diligence and beyond. In addition to the eligibility factors outlined on the TELGP website and related solicitation documents, there are broad policy factors (such as U.S. grid resiliency) and process factors (such as receiving clearances from the White House Office of Management and Budget) that can determine the ultimate fate of a loan application. Holland & Knight's energy advisors can provide application teams with templates and strategic review sessions to facilitate the drafting efforts, which can be extensive. Finally, Holland & Knight's Native American Law Group and the Energy Team can provide other legal services related to establishing joint ventures with American Indian tribes, project development and siting projects on tribal lands.

Footnote

1 The Credit Subsidy Cost is the net present value of the estimated long-term cost to the U.S. government of a loan guarantee, as determined under the applicable provisions of the Federal Credit Reform Act of 1990. In other words, it is the "premium" paid to the government in return for its guarantee.

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