Final RUS IRA PACE program guide LOI stage.pdf

Inflation Reduction Act

Section 22001

Powering Affordable Clean Energy (PACE)

Letter of Interest Guide

Rural Utilities Service

Electric Program July 6, 2023

Executive Summary

In August 2022, President Joe Biden signed the Inflation Reduction Act (IRA) into law. IRA makes a historic commitment to build a new clean energy economy while helping to reduce energy costs for families and create thousands of good-paying jobs across rural America. IRA will deliver results through a combination of grants, loans, rebates, incentives, and other investments to support the President’s economic plan. IRA represents the largest investment in rural electrification since the passage of the Rural Electrification Act in 1936.

The Rural Utilities Service (RUS), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), will oversee and implement Sections 22001 and 22004 of the IRA by creating two new programs that establish new loan and grant products. These programs are intended to create unprecedented incentives to expand clean energy, transform rural power production, create jobs, and spur economic growth:

• Powering Affordable Clean Energy (PACE) Program (Section 22001): The $1 billion PACE Program provides loans to eligible entities, with varying levels of loan forgiveness, to finance projects that generate electricity from renewable energy resources or store electricity in support of renewable energy resources. A Notice of Funding Opportunity (NOFO) for PACE was published in the Federal Register on May 16, 2023.

• The Empowering Rural America (New ERA) Program (Section 22004): The $9.7 billion

New ERA Program provides loan and/or grant funds to eligible entities to finance proposals to achieve the greatest reduction in greenhouse gas (GHG) emissions while advancing the long-term resiliency, reliability, and affordability of rural electric systems. A Notice of Funding Opportunity (NOFO) for the New ERA Program was published in the Federal Register on May 16, 2023.

This Guide describes the PACE Program requirements and provides Applicants with the guidance and instructions necessary to prepare and submit a Letter of Interest (LOI) via Grants.gov. RUS will expand this guide in the future to include additional details on the submission of Applications and the post-application process requirements under PACE.

This Guide is specific only to the PACE Program and only provided as guidance. The NOFO is the formal guidance of the PACE Program and any information contained within the NOFO takes precedence over this Guide. All PACE requirements may be found in the Federal Register Notice at 2023-10388.pdf (govinfo.gov).

https://www.govinfo.gov/content/pkg/FR-2023-05-16/pdf/2023-10388.pdf

A copy of this Guide and copies of supporting documents and information are available at https://www.rd.usda.gov/programs-services/electric-programs/powering-affordable-clean-energy-pace-program. If you require alternative means of communication for program information (e.g., Braille, large print, audiotape) please contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD) or the 711 Relay Service.

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Table of Contents

Contents

Executive Summary

Section I: Program Summary

A. Notice of Funding Opportunity (NOFO)

B. Introduction to the PACE Program

C. The Rural Utilities Service (RUS)

D. Eligibility Requirements

E. Available Funding and Types of Loans

F. Key Dates and Timelines

G. How to Apply

H. Definitions and Acronyms

I. Additional Information and Resources

Section II: Program Requirements and Restrictions

A. Funding Restrictions

B. Eligibility Information

1. Eligible Applicants

2. Eligible Service Areas

3. Eligible Projects

4. Eligible Project Costs

C. Types of Loans

1. System Loans

2. Project Loans

D. Loan Forgiveness

E. Federal Requirements

1. Statutory and Regulatory Authority

2. Environmental and Historic Preservation Requirements

3. Build America, Buy America Requirements

4. Wage Rate Requirements

5. Additional Federal Requirements

Section III: The Letter of Interest (LOI)

A. Submission through Grants.gov

B. Submission Dates and Times

C. Prerequisites to Submitting an LOI

D. Other Submission Requirements and Limitations

E. Information required in an LOI

F. Instructions and Specifications for Submitting Shapefiles

G. Criteria for Evaluating LOIs

H. Invitation to Proceed

Section IV: Submitting an LOI

A. PACE submission through Grants.gov

B. Instruction for LOI submission on Grants.gov

Appendices

Appendix A – Definitions

Appendix B – Acronyms

Please Note: The formatting of this document does not take into consideration accessibility concerns if the document were to be printed and viewed in a hard copy format.

Section I: Program Summary

A. Notice of Funding Opportunity (NOFO)

A Notice of Funding Opportunity (NOFO) for the Powering Affordable Clean Energy (PACE) Program [DOCKET#: RUS-23-ELECTRIC-0003] was published in the Federal Register (2023- 10388.pdf (govinfo.gov)) on May 16, 2023, to provide funding for electric loans for renewable energy pursuant to Section 22001 of the Inflation Reduction Act (IRA). The NOFO specifies that the Rural Utilities Service (RUS), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), is soliciting LOIs for loan applications, announcing the application process for those loans, and providing deadlines for Applications from eligible entities under the PACE Program.

B. Introduction to the PACE Program

RUS (or the Agency) will oversee and implement PACE under Section 22001 of the IRA. PACE provides loans to eligible entities, with varying levels of loan forgiveness, to finance projects that generate electricity from a renewable energy resource (RER), including energy storage systems (ESS) that support an RER. Eligible entities include electric service providers such as municipal utilities, cooperatives, private-sector developers, and investor-owned or Tribal utilities.

Section 22001 of the IRA amends Section 9003 of the Farm Security and Rural Investment Act of 2002 by adding new subsection (h), which provides $1 billion, to remain available until September 30, 2031, “for the cost of loans under Section 317 of the Rural Electrification Act (7 U.S.C. 940g).” Per Section 317 of the Rural Electrification Act of 1936, as amended (RE Act), loans may be made for electric generation from an RER for resale to rural and nonrural residents. An RER means an energy conversion system fueled from a solar, wind, hydropower, biomass, or geothermal source of energy. Also, the rate of a loan shall be equal to the average tax-exempt municipal bond rate of similar maturities.

Under PACE, up to 50 percent of an Applicant’s loan may be forgiven. The PACE Program allows an Applicant that satisfies certain criteria to receive a loan with up to 60 percent loan forgiveness.

PACE applicants are encouraged to consider projects that will advance the following Rural Development Key Priorities:

• Assisting rural communities to recover economically through more and better market opportunities and through improved infrastructure;

• Ensuring all rural residents have equitable access to Rural Development (RD) programs and benefits from RD funded projects; and

• Reducing climate pollution and increasing resilience to the impacts of climate change through economic support to rural communities.

C. The Rural Utilities Service (RUS)

RUS is a Rural Development (RD) agency of the United States Department of Agriculture (USDA). RUS administers Federal programs that support the development and improvement of necessary infrastructure in rural areas. To further RD’s mission of expanding economic opportunities and improving the quality of life for rural residents, RUS invests across a broad range of sectors. RUS investment areas include water and wastewater treatment, electric power, and telecommunications services.

The RUS Electric Program, which provides capital and leadership to maintain, upgrade, and modernize America’s vast rural electric infrastructure, will implement the PACE Program.

Under the authority of the RE Act, the Electric Program makes direct loans and loan guarantees, as well as grants, available to eligible borrowers to finance the construction of new electric distribution, transmission, and generation facilities or to finance system improvements and replacements of existing electric facilities. The Electric Program also provides funding to support demand-side management, energy efficiency (EE) and conservation programs, and on-grid and off-grid renewable energy (RE) systems.

The RUS Electric Program is well known for providing financing to rural electric cooperatives.

RUS Electric Program financing is and has long been made available to corporations, tribal utilities, states, territories, and subdivisions and agencies thereof, municipalities, utility districts and non-profit organizations that serve consumers in rural areas. In general, to be an eligible borrower the entity must provide or propose to provide i) the electric service needs of rural areas, or ii) the power supply needs of distribution borrowers under the terms of power supply arrangements satisfactory to RUS.

D. Eligibility Requirements

PACE applicant(s) and the respective project(s) for which funding is being requested under the PACE Program must meet eligibility requirements, including:

• Eligible Applicants: Eligible Applicants are identified in the NOFO and include, but are not limited to, electric service providers such as municipal utilities, cooperatives, private-sector developers, and investor-owned or Tribal utilities.

• Eligible Service Areas: Electricity generated or discharged from facilities shall be provided to both “rural and nonrural residents” located in service areas determined to be eligible under PACE.

• Eligible Projects: The types of projects eligible to be financed with PACE loan funds include Renewable Energy Resource (RER) systems that generate electricity or Energy Storage Systems (ESS) that support RER Projects.

• Eligible Project Costs: Reasonable project costs that are capitalized may be eligible to be financed with PACE loan funds, but limitations on the amount of funds to be awarded will depend on the type of loan, the amount of loan funds requested, loan security, and other factors.

E. Available Funding and Types of Loans

Available Funds: PACE Program has $1,000,000,000 in appropriated funds under the IRA.

Type of Awards: The type of awards to be provided under PACE are loans with varying levels of loan forgiveness. The levels of loan forgiveness will be based on the funding category of the Applicant’s service territory and the terms and conditions for loan forgiveness outlined in the NOFO.

Loan Forgiveness Categories: PACE includes three Categories (I, II and III) of funding that will determine the level of loan forgiveness an Applicant may receive. A loan meeting Category I requirements would receive the lowest level of forgiveness, while a loan that meets Category III requirements would receive the highest level of forgiveness.

Each Category, and the level of forgiveness, will depend on i) the location of the areas being served by the Project; ii) whether the population within the areas being served includes Energy, Distressed and/or Disadvantaged Communities; iii) whether the Project is serving Tribal or SUTA areas; and iv) whether the Project is owned by a Tribal government. The three Categories, including the terms and conditions for loan forgiveness, are outlined in the NOFO and are described in further detail in Section II of this Program Guide.

Award Amounts: The maximum loan amount, inclusive of the forgivable portion, of any individual Award is limited to $100,000,000. The minimum amount of any individual award is $1,000,000.

Loan Types: RUS will offer both Project Loans and System Loans to finance eligible PACE projects. Project Loans and System Loans are also detailed in Section II of this Program Guide.

Municipal Rate Loans: Loans made under the PACE Program will bear interest equal to the municipal rate as provided in Section 317(c) of the RE Act, and as further described in the first sentence of 7 CFR 1714.4(a) and 7 CFR 1714.5(a)-(c). Municipal rates can be found at https://www.rd.usda.gov/page/rural-utilities-loan-interest-rates. Note that because there is no interest rate cap for the PACE Program, the third sentence of 7 CFR 1714.4(a) and 7 CFR 1714.5(d) shall not apply. Interest rates are announced by the Agency on a periodic basis and will be set for a particular loan at the time funds are drawn. The published rates described above are the rates that a borrower would pay if the borrower had drawn funds on the day the rates were in effect. The actual rates an applicant will pay when funds are drawn would likely be different than the rates offered today.

F. Key Dates and Timelines

Date IRA Signed into Law: August 16, 2022.

NOFO Publish Date: May 16, 2023.

Submittal of Letters of Interest: Letters of Interest (LOIs) can be submitted beginning at 11:59 a.m. Eastern Time (ET) on July 10, 2023, until 11:59 p.m. ET September 29, 2023. LOIs will be accepted and reviewed on a rolling basis.

Submittal of Application: An applicant that is invited by RUS to proceed with the loan Application will have 60 days, or a time agreeable to the Agency, to complete and submit a loan Application beginning from the date the Invitation to Proceed is emailed to the PACE Applicant. If the deadline to submit the completed Application falls on Saturday, Sunday, and/or a Federal holiday, the Application is due the next business day. RUS reserves the right, in its sole discretion, to extend the deadline for the submittal of a full Application upon a written request of the applicant if the applicant demonstrates to the satisfaction of the Administrator that exceptional circumstances exist to warrant the extension.

Dates Funds Are Available: PACE funds will be made available no sooner than fiscal year 2023 and will only be available through September 30, 2031. Award agreements will contain a provision that requires the advance of all loan funds on or before September 30, 2031. All undisbursed funds as of close of business on September 30, 2031, will automatically be rescinded. Applicants are advised that the Agency will set a last day for advance in Award agreements well in advance of the statutory limit.

Anticipated Award Date: From September 2023 to December 2025.

Performance Period: Five (5) years from the date of environmental clearance, but no later than September 30, 2031.

https://www.rd.usda.gov/page/rural-utilities-loan-interest-rates

Eligible Construction Start Date: Only those projects where construction began after the effective date of the IRA (August 16, 2022) and that have received written environmental clearance from RUS will be eligible for funding under PACE.

RUS Environmental Approval: Projects must receive RUS environmental clearance prior to the start of construction to remain eligible to receive PACE loan funds or any RUS financing. A project in the pre-construction planning stage before August 16, 2022, may be eligible for IRA financing provided construction has not commenced prior to completion of the environmental review.

G. How to Apply

Letters of Interest (LOI): Each applicant must submit an LOI to RUS electronically through Grants.gov. A detailed description of the items that should be included in an LOI and the specific requirements and instructions for submitting the LOI through Grants.gov are provided in Sections III and IV of this Guide, as well as the NOFO. Applicants are required to read the requirements of Grants.gov before submitting an application on that platform.

H. Definitions and Acronyms

Refer to the Appendices A and B.

I. Additional Information and Resources

Information and additional resources on IRA Funding for RD is located at the following website: https://www.rd.usda.gov/inflation-reduction-act#fn.

Additional information and resources regarding PACE including a copy of this PACE Program Guide are available at https://www.rd.usda.gov/programs-services/electric-programs/powering-affordable-clean-energy-pace-program.

If you require alternative means of communication for program information (e.g., Braille, large print, audiotape) please contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD) or the 711 Relay Service.

Access to previously posted questions and answers regarding both the PACE Program and the New ERA program can be found at: IRA FAQs | Rural Development (usda.gov)

Questions regarding the PACE Program can be emailed to:

SM.RD.RUS.IRA.Questions@usda.gov.

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Section II: Program Requirements and Restrictions

A. Funding Restrictions

The key PACE Program funding restrictions are listed below:

(1) Entities that plan to submit or have submitted Applications under the Empowering Rural America (New ERA) Program may not apply for the same Project under PACE.

Entities may submit one LOI per entity to PACE or New ERA as long as the projects included within those submissions do not overlap. Failure to follow this limitation will cause the PACE Applicant to be disqualified from potential Awards.

(2) Only Projects where construction began after August 16, 2022, the effective date of the IRA, will be eligible for funding under PACE. Projects must also receive RUS environmental clearance prior to the start of construction to remain eligible for any RUS financing which includes receiving any PACE loan funds.

(3) Funding will not be provided for merchant power Projects or Projects or where a non-utility entity is generating power for its own use.

(4) PACE funding will not be provided for the purchase of power from an RER or ESS.

There are no Application or origination fees for loans under the PACE Program.

(5) RUS will only finance Projects that utilize Commercially Available Technology as defined in the PACE NOFO.

(6) PACE Applicants may request financing for interconnection and other costs associated with being able to deliver the electrical output of an RER and/or an ESS to the Off-Taker.

(7) PACE Applicants may include costs specified in 7 CFR 1710.106, including interest during construction (IDC) pursuant to 7 CFR 1710.106(a)(4).

(8) The maximum loan amount, inclusive of the forgivable portion, of any individual Award is limited to $100,000,000. The minimum amount of any individual award is $1,000,000.

(9) PACE funds will be made available no sooner than fiscal year 2023 and, will only be available through September 30, 2031. Award agreements must contain a provision that requires the advance of all loan funds on or before September 30, 2031. All undisbursed funds as of close of business on September 30, 2031, will automatically be rescinded.

B. Eligibility Information

PACE applicants and the projects for which they are requesting funding must meet certain eligibility requirements. These include sufficient information to determine:

• Whether an applicant is eligible to submit an LOI and application under PACE;

• Whether the areas proposed to be served by the projects financed under PACE are eligible; and

• The types of proposed projects and whether proposed project costs are allowed to be financed with PACE loan funds.

1. Eligible Applicants

RUS will accept LOIs and Applications from entities that are determined to be Eligible Applicants. Eligible Applicants include:

(a) For-profit organizations;

(b) State or local governments;

(c) Indian tribes defined by the Federally Recognized Indian Tribe List Act of 1994

(Public Law 103-454; 108 Stat. 4791, 4792), including their wholly arms and instrumentalities;

(d) Alaska Native Corporations, regional or village corporations as defined under or established pursuant to the Alaska Native Claims Settlement Act (Public Law 104-42; 85 State. 688);

(e) Nonprofits;

(f) Institutions of higher education; and

(g) Community-based organizations, distribution electric cooperatives, and generation and transmission electric cooperatives.

LOIs and Applications otherwise eligible from any entity in the above categories will be evaluated for funding. Where applicable and possible, applicants are encouraged to work with Distressed and Disadvantaged Communities, energy communities, Puerto Rico, United States Virgin Islands (USVI), Guam, American Samoa, or other U.S.

territories or Compact of Free Association (COFA) states, tribal entities, and Rural Partners Network (RPN) communities.

2. Eligible Service Areas

PACE funds shall be used to finance an RER or an ESS where electricity generated or discharged is provided to “rural and nonrural residents” in Eligible Service Areas.

Service areas are determined to be eligible based on those communities that receive and consume the electricity generated or discharged from a Project and not by the location of the Project.

Eligible Service Areas must meet the minimum rural percentage of at least 50 percent, unless waived by the Administrator based upon a showing that there exist social equity considerations, such as Substantially Underserved Trust Area (SUTA), significant energy burdens, severe economic needs, or substantial added benefits to rural consumers. The service areas of a former RUS or REA borrower may be considered 100 percent rural for the purposes of their applications as described further below.

The Eligible Service Areas will need to be determined for each Project and, in those cases where there are multiple owners (i.e., co-owners) of a Project, the Eligible Service Areas may need to be determined separately for each co-owner. A co-owner of a Project that is an Eligible Entity may in turn have more than one Off-Taker that receives the output from the Project. In such a case, the Service Areas of all the Off- Takers are combined to determine rural eligibility.

There may be cases where multiple Projects provide electrical power that is delivered to and consumed within the same Eligible Service Areas. If a Project does not provide service to an area that meets the minimum rural percentage of at least 50 percent, then the Applicant will not be eligible to receive PACE Program loan funds for the Project.

An Applicant will need to upload digital Shapefiles that reflect the applicable service areas associated with each Project and demonstrate that the service areas meet the minimum rural percentage of at least 50 percent.

The following are important definitions and steps used to determine Eligible Service Areas:

Rural area: A “rural area” for PACE means:

(a) Any area other than a city, town, or unincorporated area that has a population of greater than 20,000 inhabitants, or

(b) The service areas of current RUS borrowers or a former RUS or Rural

Electrification Act (REA) borrowers for the purpose of that entity’s application.

The service areas of a former RUS or REA borrower would be considered rural only in those cases where 1) the PACE Applicant is a former borrower and 2) the Project being financed with PACE loan funds is providing electricity to the service areas of the former borrower.

Rural Determination: If the PACE Applicant is not a current RUS borrower nor a former RUS or REA borrower, a rural determination will be conducted by RUS to:

(a) Identify the service territory where electricity from the facilities to be financed by PACE loan funds would be delivered and consumed; and

(b) Further identify those areas within the service territory that are rural versus those areas that are not rural.

Rural Percentage: The rural determination will calculate the rural percentage of the service territory. The rural percentage will be calculated by choosing one of the following 2 methods that provides the best results:

(a) The population located in the Rural Areas of a service territory versus the total population of the entire service territory; or

(b) Meters served in the Rural Areas of a service territory versus meters served in the entire service territory - assuming the data and information to conduct this calculation is made available to RUS.

3. Eligible Projects

A Project that is eligible to be financed with PACE loan funds includes the construction of a new RER that generates electricity and/or the construction of a new ESS used to store electricity in support of an RER.

Each RER and ESS that is to be financed with PACE loan funds must be installed to provide electrical capacity and/or energy, as well as any ancillary services should they be included, for resale to rural and nonrural residents located in eligible service areas.

A project must include “commercially available technology” in which all equipment, devices, applications, or systems have a proven, reliable performance, and replicable operating history specific to the proposed application. The equipment, device, application, or system is based on established patented design or has been certified by an industry-recognized organization and subject to installation, operating, and maintenance procedures generally accepted by industry practices and standards.

Service and replacement parts for the equipment, device, application, or system must be readily available in the marketplace with established warranty applicable to parts, labor, and performance.

New facilities must be constructed after the effective date of the IRA (August 16, 2022) and be compliant with all other applicable requirements of the NOFO to remain eligible for financing with PACE loan funds.

A project must have received RUS environmental clearance prior to the start of construction to remain eligible for financing under the PACE Program.

The following elements and associated reasonable costs may be included in a PACE LOI submission:

• New facilities that generate electricity from an RER, including facilities that store electricity that support such assets (ESS). RUS will not approve facilities that violate the terms of a PACE Applicant’s existing wholesale power contract.

• New linear facilities, including microgrids and distributed renewable energy, and equipment that are necessary to operate the Project including, but not limited to, transmission or distribution facilities that are needed to export, transmit, and deliver power from the generating facility to the Off-Taker.

• The upgrading of existing linear facilities and equipment that are necessary to operate the Project including, but not limited to, transmission or distribution facilities that are needed to export, transmit, and deliver power from the generating facility to the Off-Taker(s).

• The Project may include one or more RERs and/or ESSs.

• Facilities may be co-located to operate interconnectedly or independently or constructed at separate sites.

• RERs and ESSs must be installed so that the RER can provide energy and any ancillary services for resale to rural and nonrural residents located in Eligible Service Areas.

• Applicants may request interconnection and other costs associated with being able to deliver the RER and/or the ESS to Off-Takers, including related microgrid investments. Successful applicants may also recover a portion of their capitalizable pre-application costs pursuant to 7 CFR part 1767 and this notice.

4. Eligible Project Costs

PACE loan funds shall be used to finance Eligible Projects listed above and where applicable the costs for such facilities described in 7 CFR 1710.106, including interest during construction (IDC) pursuant to 7 CFR 1710.106(a)(4). Costs must be reasonable, allocable, and necessary to the Project. All eligible costs shall be those that are capitalized and are recorded as an asset on the Applicant’s balance sheet.

Capital costs may include, but not be limited to, land purchases, planning, design and engineering, feasibility studies, project management, equipment purchases and leases, materials and supplies, labor, construction contingencies, permitting, licensing and legal fees, insurance, startup and commissioning, taxes, and interest. Basically, any costs incurred during development and construction that are directly attributable to placing the Project into service should be capitalized. The Applicant must provide an estimated total cost of the Project along with a detailed description of and cost breakdown of the Project.

PACE loan funds may be used to pay off or replace an interim construction loan used to finance an Eligible Project that has cleared environmental review, but PACE loan funds cannot be used to refinance other outstanding debt. Also, PACE loan funds cannot be used to finance any operating or maintenance expenses nor any other costs that are expensed.

An Applicant may include in its loan Application the costs specified in 7 CFR 1710.106, including interest during construction (IDC) pursuant to 7 CFR 1710.106(a)(4).

Note that the PACE Program does not require Applicants to pay any fees to submit an LOI or an Application for a loan, nor to have RUS process a loan application.

C. Types of Loans

RUS will offer both Project Loans and System Loans to finance a project as described below.

1. System Loans

A System Loan is provided where the PACE Award is secured through a senior security interest in all assets of the PACE Applicant. System Loans are only available to currently operating electric utilities.

To receive a System Loan, the PACE Applicant will provide, if it has not already been provided, RUS with a perfected senior lien (or shared perfected senior lien on a Pari Pasu basis) on all its existing assets, both real and personal, including intangible personal property, as well as after-acquired property. At the Administrator’s discretion, a PACE Applicant may be permitted to secure a System Loan through an indenture, if RUS is granted a perfected senior security interest in all its assets by the trustee.

A System Loan may be used to finance 100 percent of the Project costs included in an Application. At the discretion of the Administrator, System Loan funds can be released to finance Projects for costs incurred during construction of the facilities. This would be accomplished by the submittal to and approval by RUS of selected executed procurement and construction contracts where the total price of the contracts has been encumbered and then allowing the Applicant to drawdown the encumbered loan funds based on the cost incurred to date. However, loan forgiveness will not occur until the Project has been completed and RUS has confirmed that the Awardee has satisfied all other conditions specified in the Award. The Agency reserves the right to claw back funds advanced for projects that do not meet their loan commitments.

2. Project Loans

A Project Loan is provided to Applicants that are not eligible for, or have decided not to pursue, a System Loan. Any PACE Applicant that is not a current operating utility would be required to receive PACE financing with a Project Loan only.

A Project Loan is used to finance an eligible Project where the PACE Award is secured through a senior security interest on the Project’s assets and the revenues generated from the Project’s assets, rather than by a security interest of all the assets of the PACE Applicant’s electric utility system.

With a Project Loan, the Applicant would own and operate the RER and/or ESS that are financed with the PACE loan funds and ensure that the electrical output of these facilities is delivered to an Off-Taker(s) who has/have agreed to receive and purchase the power under an executed power purchase agreement (PPA). The facilities may interconnect to a transmission grid system, a distribution system, a micro-grid, or other system that that is used to ultimately deliver and distribute the power to rural and nonrural residents in Eligible Service Areas. The Awardee must collaterally assign the PPA to RUS as security, with the Off-Taker’s consent.

A Project Loan will be used to finance a Project in the amount that does not exceed any one of the following:

• 75 percent of the total capitalized cost of the Project;

• The total capitalized cost of the project minus both the project’s equity contribution & other sources of capital financing (e.g., grant funds, loans for other lenders, etc.); or

• The loan amount requested by the Borrower.

Unless otherwise approved, a Project Loan requires that the Applicant provide a 25 percent minimum cash equity investment in the Project prior to the release of any PACE loan funds, and that the Applicant maintain an equity level at or above 25 percent throughout the life of the loan, unless otherwise agreed to by the agency. This must be reflected for the term of the loan in the Awardee’s Long Range Financial Forecast (LRFF).

The Administrator may consider tax credits or direct payments in lieu of tax credits the Awardee receives under the Internal Revenue Code when calculating equity investment requirements for a PACE Applicant’s proposed Project. If the Administrator allows a PACE Applicant to meet the financial equity requirement by utilizing applicable tax benefits, the Administrator may require additional credit support from the PACE Applicant pending the PACE Applicant’s receipt of the tax benefit.

Further, the Agency may utilize its authority under Section 306F of the RE Act and finance up to 100 percent of the cost of Projects benefitting SUTA areas. Project Award funds will only be released after commercial operation of the Project is commenced and RUS has confirmed that the Awardee has satisfied all other conditions specified in the Award.

The Awardee will need to establish and fund at least two separate reserve accounts.

These include: 1) an O&M Reserve Account in the amount equal to the operation & maintenance (O&M) expenses that the Borrower is expected to incur during one year of operation, and 2) a Debt Reserve Account in the amount equal to all principal and interest (P&I) that the Borrower would be required to pay for one year.

The Office of Loan Origination and Approval (OLOA) may require the establishment of other reserve accounts depending on the perceived risks of the project. The Borrower would need to make the appropriate deposits into the reserve accounts before closing. RUS may allow a parent company guarantee to be used in lieu of or as a complement to establishing the reserve accounts. In addition to the reserve accounts, the Awardee may be required to establish a Sinking Fund to factor in the expected cost to replace major components during the term of the loan (e.g., inverters, wind turbine blades, battery cells, etc.).

D. Loan Forgiveness

PACE provides loans to eligible entities, with varying levels of loan forgiveness, to finance Projects that generate electricity from an RER and/or store electricity in support of an RER.

Once the level of loan forgiveness is determined it would be applied on a percentage basis to the total amount of loan funds that an Applicants receives. Loan forgiveness is available with either a System Loan or a Project Loan.

Paragraph (1) in Section 22001 of IRA specifies that a loan “shall be forgiven in an amount that is not greater than 50 percent of the loan based on how the borrower and the project meet the terms and conditions for loan forgiveness consistent with the purposes of that section established by the Secretary, except as provided in paragraph (3).” Paragraph (3) of Section 22001 stipulates that the “Secretary shall establish criteria for waiving the 50 percent limitation described in paragraph (1)."

Criteria acceptable to the Secretary has been established to determine the level of loan forgiveness to be provided by the PACE Program including the criteria to allow an Applicant to receive loan forgiveness up to 60 percent of the loan.

PACE includes 3 Categories (I, II and III) that determine the level of loan forgiveness an

Applicant may receive. A loan that meets Category I requirements would receive the lowest level of forgiveness, while a loan that meets Category III requirements would receive the highest level of forgiveness. The 3 categories and the level of loan forgiven to be provided under each category is described below.

• Category I: Allows an Applicant, as a minimum under the PACE Program, to receive up to

20 percent total loan forgiveness.

• Category II: Allows an Applicant to receive up to 40 percent total loan forgiveness if 50 percent or more of the population included in the proposed service area is located within the following areas:

(a) Energy Communities, or

(b) Distressed and Disadvantaged Communities.

An “Energy Community” is a community as defined by the Department of Treasury and the Internal Revenue Service at https://www.irs.gov/pub/irs-drop/n-23-29.pdf or through future governmental guidance.

A “Disadvantaged Community” is determined by the Agency by using the Council on Environmental Quality’s Climate and Economic Justice Screening Tool which identifies communities burdened by climate change and environmental injustice.

A “Distressed Community” is determined by the Agency by using the Economic Innovation Group’s Distressed Communities Index, which uses several socio-economic measures to identify communities with low economic well-being.

To determine if a Project is located in a Disadvantaged Community, a Distressed Community, or Energy Community, please use the following USDA look-up map:

https://ruraldevelopment.maps.arcgis.com/apps/webappviewer/index.html?id=4acf083b e4c44bb7864d90f97de0c788

The loan forgiveness provided under Category II takes into account the service areas associated with all the Projects or portion of Projects an Applicant would own and is seeking to finance with PACE loan funds; that is, the service areas that will receive and consume power from all the proposed Projects or portion of Projects owned by the Applicant will be combined to determine whether such service areas meet or exceed the 50 percent threshold with respect to Energy, Distressed, or Disadvantaged Communities discussed above. If this criterion is satisfied, the Applicant would be eligible to receive up to 40 percent total loan forgiveness for those Projects or portion of Projects it owns and is seeking to finance with PACE loan funds.

https://www.irs.gov/pub/irs-drop/n-23-29.pdf https://ruraldevelopment.maps.arcgis.com/apps/webappviewer/index.html?id=4acf083be4c44bb7864d90f97de0c788 https://ruraldevelopment.maps.arcgis.com/apps/webappviewer/index.html?id=4acf083be4c44bb7864d90f97de0c788

• Category III: Allows an Applicant to receive up to 60 percent total loan forgiveness if:

(a) The proposed service area is located in Puerto Rico, United States Virgin Islands

(USVI), Guam, American Samoa, or other U.S. territories or Compact of Free Association (COFA) states; or

(b) The proposed service area consists of 60 percent or more of a Tribal area or serves an area that constitutes a SUTA; or

(c) The Project is owned by an Indian Tribe defined by the Federally Recognized Indian Tribe List Act of 1994 (Public Law 103-454; 108 Stat. 4791, 4792), including their wholly owned arms and instrumentalities, or an Alaska Native Corporation, including regional or village corporations, as defined under or established pursuant to the Alaska Native Claims Settlement Act (Public Law 104-42; 85 Stat. 688).

Similar to that determined under Category II, the loan forgiveness provided under Category III takes into account the service areas associated with all the Projects or portion of Projects an Applicant would own and is seeking to finance with PACE loan funds; that is, the service areas that will receive and consume power from all the proposed Projects or portion of Projects owned by the Applicant will be combined to determine whether: a) the service areas are in Puerto Rico, USVI, Guam, American Samoa or other U.S. territories or COFA states; or b) the service areas consist of 60 percent or more a Tribal area or an area that constitutes a SUTA. If either criterion is satisfied, the Applicant would be allowed to receive up to 60 percent total loan forgiveness.

However, if a Project is owned by an Applicant who is either an Indian Tribe or an Alaskan Native Corporation, then that Applicant would be allowed to receive up to 60 percent total loan forgiveness.

Service areas would not be limited to Tribal lands; however, the total service area must still be at least 50% rural.

RUS will initially allocate a minimum of $300 million of available PACE loan funds to each category. The Administrator shall have discretion to redistribute or modify the amount of loan funds allocated among the 3 Categories.

E. Federal Requirements

1. Statutory and Regulatory Authority

PACE is authorized under Section 22001 of the Inflation Reduction Act (IRA), Public Law 117-169. Other Federal statutes and regulations that may apply to the NOFO, include but are not limited to: Section 317 of the Rural Electrification Act of 1936; 7 U.S.C. 940g (RE Act); 7 U.S.C. 8103; 7 CFR parts 1700-1730, 1767, 1773, and 1787; and 7 CFR part 1970.

PACE is to be carried out by RUS pursuant to Section 22001 of the IRA. Section 22001 of the IRA amends Section 9003 of the Farm Security and Rural Investment Act of 2002 by adding new subsection (h). Section 22001 of the IRA provides RUS with $1,000,000,000 in appropriated funds “for the cost of loans under Section 317 of the RE Act.” Additionally, Section 22001 of the IRA provides that PACE funds may be utilized to finance Projects that store electricity generated from eligible renewable energy sources listed under Section 317 of the RE Act. Loans will be forgiven up to 50 percent, or more under certain circumstances, provided the Awardee and the Project otherwise meet the term and conditions of the loan forgiveness.

Pursuant to Section 317(b) of the RE Act, loans shall be made for the purpose of constructing electric generation from renewable energy sources. Section 22001 of the IRA also provides that loan funds may be utilized for Projects that store electricity for such generation facilities. Further, Section 317(b) requires that the power generated from the eligible renewable energy source be for resale to rural and nonrural residents. Lastly, Section 317(c) requires that the rate of a loan shall be equal to the average tax-exempt municipal rate of similar maturities.

2. Environmental and Historic Preservation Requirements

Projects to be financed with PACE loan funds must meet the National Environmental Policy Act of 1969, as amended (NEPA) (42 U.S.C 4321, et seq), Section 7 of the Endangered Species Act (16 U.S.C. 1531 et seq.), and Section 106 of the National Historic Preservation Act (NHPA)(54 U.S.C. 300101 et seq.), as well as their implementing regulations in 7 CFR part 1970, Environmental Policies and Procedures (including Farmland Protection Policy Act Implementation Policy), 50 CFR part 402, Interagency Cooperation, and 36 CFR part 800, Protection of Historic Properties.

3. Build America, Buy America Requirements

Awardees using Federal grant or loans to purchase materials, equipment, and supplies under PACE must meet the following domestic preference requirements:

(a) Funding to Non-Federal Entities: Awardees that are Non-Federal Entities shall be governed by the requirements of Section 70914 of the Build America, Buy America Act (BABAA) within the Infrastructure Investment and Jobs Act (IIJA), and its implementing regulations. The Act requires the following Buy America preference:

(1) All iron and steel used in the Project are produced in the United States. This means all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.

(2) All manufactured products used in the Project are produced in the United States. This means the manufactured product was manufactured in the United States, and the cost of the components of the manufactured product that are mined, produced, or manufactured in the United States is greater than 55 percent of the total cost of all components of the manufactured product, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under applicable law or regulation.

(3) All construction materials (excludes cement and cementitious materials, aggregates such as stone, sand, or gravel, or aggregate binding agents or additives) are manufactured in the United States. This means that all manufacturing processes for the construction material occurred in the United States.

BABAA only applies to articles, materials, and supplies that are consumed in, incorporated into, or affixed to an infrastructure project. As such, it does not apply to tools, equipment, and supplies, such as temporary scaffolding, brought to the construction site and removed at or before the completion of the infrastructure project. Nor does BABAA apply to equipment and furnishings, such as movable chairs, desks, and portable computer equipment, that are used at or within the finished infrastructure project. Any requests for waiver of these requirements must be submitted pursuant to USDA’s guidance available online at https://www.usda.gov/ocfo/federal-financial-assistance-policy/USDABuyAmericaWaiver. RD’s website can be referenced for additional information on BABAA at https://www.rd.usda.gov/build-america-buy-america.

Funding to all other entities: All other Awardees shall be governed by 7 CFR part 1787, The “Buy American” Requirement (Part 1787). For-profit organizations that are not considered Non-Federal Entities would be required to comply with Part 1787 but would be exempt from BABAA.

Each RUS borrower is responsible for ensuring compliance with the “Buy American” provision. This requires that applicable contracts be provided a Buy American Certificate (RUS Form 213, Rev. 2–04) that is completed to document compliance with the “Buy American” requirement.

A product that is considered “domestic” in accordance with Part 1787 would meet the “Buy American” requirement. A product is domestic if it meets the following criteria:

1) it is manufactured in the United States or in any eligible country, and 2) it contains components manufactured in the United States or in any eligible country consisting of more than 50 percent of the total cost of all components used in that product. The second part of this definition is to ensure that materials used to complete the project https://www.usda.gov/ocfo/federal-financial-assistance-policy/USDABuyAmericaWaiver https://www.usda.gov/ocfo/federal-financial-assistance-policy/USDABuyAmericaWaiver https://www.rd.usda.gov/build-america-buy-america are benefiting either the United States or an eligible country. If a product does not meet both requirements, the product is considered nondomestic.

The “Buy American” requirement may be waived under certain circumstances, allowing the Awardee to use Federal funds to purchase materials, equipment, and supplies that are considered nondomestic products (which includes any product other than a domestic product, or any product from an ineligible country). There are three defined paths for an applicant to request a waiver: 1) the cost between the non-domestic product and domestic product is unreasonable, 2) the domestic products are not available, or 3) it is not in the public interest or impractical for the RUS Borrower to purchase a domestic product. All requests for waivers must be approved by RUS prior to the start of construction. Further details on the “Buy American” requirement can be found in 7 CFR Part 1787.

4. Wage Rate Requirements

As provided in 7 U.S.C. 8103(f) all Projects funded under PACE, as a condition of receiving a grant or loan under this Section, an eligible entity shall ensure that all laborers and mechanics employed by contractors or subcontractors in the performance of construction work financed, in whole or in part, with the grant or loan, as the case may be, shall be paid wages at rates not less than those prevailing on similar construction in the locality, as determined by the Secretary of Labor in accordance with 40 U.S.C. 31, Sections 3141 through 3144, 3146, and 3147.

5. Additional Federal Requirements

Other Federal requirements that applicants may be required to adhere to are listed in the table below with a brief description.