loan-guarantee by lanyuehua


									Comments of the American Public Power Association and the Large Public Power Council
On Loan Guarantees for Projects that Employ Innovative Technologies (RIN 1901-AB27)

Following are joint comments by the American Public Power Association and the Large Public
Power Council regarding the proposed regulations (RIN 1901-AB27) that would improve the
Department of Energy’s (DOE) Loan Guarantee program regarding partnerships. In general, we
support the proposed changes put forward by DOE, and appreciate the agency’s willingness to
improve the program by clarifying the underlying rule.

I.   Background on Public Power Electric Utilities

The American Public Power Association (APPA) represents the interests of more than 2,000
publicly-owned, not-for-profit electric utility systems across the country, serving approximately
45 million Americans. APPA member utilities include state public power agencies and municipal
electric utilities that serve some of the nation‘s largest cities. However, the vast majority of these
publicly-owned electric utilities serve small and medium-sized communities in 49 states, all but
Hawaii. In fact, 70 percent of our member systems serve communities with populations of
10,000 people or less.

The Large Public Power Council (LPPC) is an organization comprised of 23 of the largest
locally owned and operated electric systems in the nation. LPPC is a geographically diverse
organization representing 23 of the largest not-for-profit community owned utilities, providing
power to some of the largest cities in the U.S. -- including Los Angeles, Phoenix, Omaha, San
Antonio, Jacksonville, Austin, Sacramento and Seattle. LPPC utilities own approximately
75,000 megawatts of generation capacity and over 34,000 miles of high voltage transmission.
Together LPPC members own nearly 90% of the transmission owned by non-federal public
power entities in the U.S. Importantly, a number of LPPC’s members are pursuing new nuclear

Overall, public power utilities’ primary purpose is to provide reliable, efficient service to their
local customers at the lowest possible cost, consistent with good environmental stewardship.
Public power systems are locally-created governmental institutions that address a basic
community need: they operate on a not-for-profit basis to provide an essential public service,
reliably and efficiently, at a reasonable price. On average, residential customers of private
utilities pay rates that are 14 percent higher than those paid by customers of public power electric

Public power systems own 9.8% of the electric utility industry’s generating capacity. Of that,
36.3% is natural gas, 27.1% is coal, 19.3% is hydropower, 8.3% is oil, 8.3% is nuclear, and
approximately 1% is non-hydropower renewable energy like wind, solar and geothermal.

While APPA’s and LPPC’s members have been leaders in developing renewable energy and in
establishing pilot and demonstration programs for new technologies to generate and distribute
electricity, the Department of Energy’s (DOE) loan guarantee program is an essential tool to spur
commercial-scale projects using these new technologies. Public power utilities have partnered
with investor-owned utilities and rural electric cooperatives in applying for DOE loan guarantees
to finance jointly-owned nuclear power plants – the first new nuclear facilities to be proposed in
decades. Partnerships through the use of undivided ownership interests are common in the
electric utility industry, especially involving generation facilities, because of the capital costs
associated with most base-load electric generation and the benefit of spreading such costs across
a broader customer base than would be the case with one owner.

In addition, public power utilities have maintained strong credit ratings despite the turmoil in the
electric utility industry throughout the last decade. This strong credit is beneficial to those
partnering with public power utilities while, in turn, public power utilities benefit from the
economies of scale derived from larger projects that could only be achieved through
partnerships. Public power utilities envision partnering with others in the industry on large-scale
renewable and transmission projects in the future, and the DOE loan guarantee program, with the
proposed clarification to the program discussed below, will be an essential tool to allow these
projects to come to fruition.

II. Comments on the Proposed Regulations

APPA and LPPC strongly support the proposed regulations (RIN 1901-AB27) issued by the
Department of Energy to clarify that jointly-owned projects with undivided interest structures
can access the loan guarantee program. APPA and LPPC also support the comments submitted
by CPS Energy and those submitted on behalf of joint owners of the Vogtle Electric Generating
Plant .

As mentioned above, partnerships using undivided ownership interests are common in the
electric utility industry, and have been undertaken for decades. The traditional undivided
ownership interest structure is typically used so that a single generating plant can be jointly
owned by a public power utility, a rural electric cooperative and an investor-owned utility
despite the differences in their corporate structures. In the case of nuclear power plants, one-
third of the nation’s existing nuclear fleet is either wholly or jointly-owned by public power or
rural cooperative electric utilities. Joint ownership arrangements are common with other forms
of generation as well, but the large scale and initial capital expenditures required of nuclear
power plants particularly lend themselves to partnerships.

APPA and LPPC agree with DOE that undivided interest structures are accommodated by the
current statute under the Energy Policy Act of 2005 (EPAct05). It is clear that Section 1702 of
Title XVII of EPAct05 does not mandate that DOE receive a first lien position on all project

assets. It is also clear that DOE has the flexibility to determine the scope of the collateral
package and to accommodate pari passu lending.

We do, however, request that DOE alter the rules to remove the Secretary’s right to cancel a
conditional commitment. Section 609.2 (under the definition of “Conditional Commitment”)
currently provides that “the Secretary may terminate a Conditional Commitment for any reason
at any time prior to the execution of the Loan Guarantee Agreement.” This language should be
deleted because it impairs the market’s ability to take DOE commitments seriously and thus to
advance the development of projects based on those commitments. DOE is encouraging
borrowers to seek out additional sources of capital from foreign government lending borrowers if
DOE has the unilateral ability to withdraw its loan guarantee commitment without cause. We
would suggest, instead, the Secretary reserve the right to “for cause” withdrawal of loan
guarantees in cases such as where the applicant no longer qualifies for the guarantees.

The rule proposes that utilities seeking to access the loan program must provide sufficient equity
to meet the terms of the statute. There is no explicit definition of equity under the rule, but the
language suggests that the equity be in the form of cash or cash equivalents. Public power
entities do not typically use the same financing mechanisms as private entities. For example,
public power utilities are not able to access the capital markets through the issuance of stock to
raise equity capital and thus often finance new facilities through the issuance of debt. In addition
to the lack of access to equity markets, the public power utilities participating in the loan
guarantee program at this time will bring substantial non-cash assets to the projects that will
become part of the project as a whole once initiated. These include assets such as development
rights, water rights, land, shared facilities, and other assets that have a determinable value. For
the purposes of the rule, we would like to request that DOE be authorized to recognize that
public power financing is largely based on debt and that the contribution of non-cash assets to
the project be treated as a contribution in kind for meeting the matching requirements of the

III. Conclusion

APPA and LPPC appreciate the opportunity to comment on the proposed clarification of DOE’s
role with regard to partnerships under the loan guarantee program. Public power utilities look
forward to participating in the loan guarantee program as joint owners of clean and innovative
generation and transmission projects.

Joy Ditto                                          Noreen Roche-Carter
American Public Power Association                  Treasurer, Sacramento Municipal Utility
Director of Legislative Affairs                    District
1875 Connecticut Ave., N.W., Washington,           On Behalf of the Large Public Power Council
D.C., 20009                                        PO Box 15830
Suite 1200                                         MS B405
Direct Phone: 202/467-2954                         Sacramento, CA 95852-1830
Email:                          Direct Phone: 916/732-6509


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