Today the Department of Energy (DOE) released their amended final rule governing the Title XVII loan guarantee program . The program’s final rule was originally issued in 2007 but in early August DOE proposed amendments to change their original interpretation of the program’s statute.

The amended rule will jeopardize taxpayers’ ability to recoup assets if a project defaults because the new rule does not require that taxpayers receive the right of first lien. As stated by DOE, “this final rule deletes the requirement of a first priority lien on all project assets (and other collateral packages)…” The original rule provided for taxpayers’ “superiority of rights” in accordance with the original law that created the Title XVII loan guarantee program to ensure assets were recovered if the project fails. This is an essential protection because projects under Title XVII allow the federal government to fully guarantee up to 80% of a project’s cost, already putting taxpayers at significant risk.

In September, TCS submitted comments on the proposed changed to the final rule.

“If the proposed change is implemented, DOE will seriously compromise and undermine its standing as first lien holder to project assets, especially in places where DOE provides the vast majority of the project debt. This scenario is highly likely because the loan guarantee program allows for up to 80% of the project cost to be guaranteed by DOE. In the event of a default by project sponsors, this change could lead to substantially increased loan losses to taxpayers. DOE should not jeopardize the recovery of taxpayer provided loan funds where DOE provides the vast majority of project debt under Title XVII, by subordination of its loan in any form for such a project or agree to a pari passu sharing of project assets in the event of default with other creditors.”

Although the comments were acknowledged by DOE, our concerns were not resolved in the final rule. Now DOE plans to move forward with Title XVII loan guarantees without ensuring taxpayers’ right to priority lien.