Charges and Fees for Hydroelectric Projects

Federal RegisterFeb 3, 1994

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 11 and 381

[Docket No. RM93-7-000]

Charges and Fees for Hydroelectric Projects

January 26, 1994.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is

inviting comments on whether it should revise its regulations governing

the assessment of annual charges for the administration of Part I of

the Federal Power Act and if so, what changes might be appropriate. One

alternative that the Commission is considering is to allocate the

annual charges for administrative costs among a single class of

licensees and exemptees, based on the respective capacity of each

hydropower project as measured in kilowatts, with a minimum and maximum

charge, and with the assessments to commence at the same time as the

commencement of project construction. To ameliorate the potential

impact on licensees and exemptees, this alternative would include a

transition period of several years for phasing-in the changes. Other

alternatives would include, but would not be limited to, retention of

the current distinction between municipal and non-municipal licensees

including retention of the different formulae by which their respective

annual charges are allocated.

DATES: Comments are due on or before April 4, 1994.

ADDRESSES: An original and 14 copies of written comments must be filed.

All filings should refer to Docket No. RM93-7-000 and should be

addressed to: Office of the Secretary, Federal Energy Regulatory

Commission, 825 North Capitol Street, NE., Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT: Barry Smoler, Office of the General

Counsel, Federal Energy Regulatory Commission, 825 North Capitol

Street, NE., Washington, DC 20426, (202) 208-1269.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission also provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in room 3104, 941 North

Capitol Street, NE., Washington, DC 20426.

The Commission Issuance Posting System (CIPS), an electronic

bulletin board service, provides access to the texts of formal

documents issued by the Commission. CIPS is available at no charge to

the user and may be accessed using a personal computer with a modem by

dialing (202) 208-1379. To access CIPS, set your communications

software to use 300, 1200, or 2400 bps, full duplex, no parity, 8 data

bits, and 1 stop bit. CIPS can also be accessed at 9600 bps by dialing

(202) 208-1781. The full text of this rule will be available on CIPS

for 30 days from the date of issuance. The complete text on diskette in

Wordperfect format may also be purchased from the Commission's copy

contractor, La Dorn Systems Corporation, located in room 3104, 941

North Capitol Street NE., Washington, DC 20426.

I. Introduction

The Federal Energy Regulatory Commission (Commission) invites

comments on whether it should revise its regulations governing the

assessment of annual charges for the administration of Part I of the

Federal Power Act (FPA),\1\ and if so, what changes might be

appropriate. One alternative that the Commission is considering is to

allocate the annual charges for administrative costs among a single

class of licensees and exemptees, based on the respective capacity of

each hydropower project as measured in kilowatts, with a minimum and

maximum charge, and with the assessments to commence at the same time

as the commencement of project construction. To ameliorate the

potential impact on licensees and exemptees, this alternative would

include a transition period of several years for phasing-in the

changes. Other alternatives would include, but would not be limited to,

retention of the current distinction between municipal and non-

municipal licensees including retention of the different formulae by

which their respective annual charges are allocated.

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\1\16 U.S.C. 792-823b.

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II. Public Reporting Burden

Under the current regulations, major non-municipal licensees file

annual reports containing data on their electric generation during the

prior fiscal year. If adopted, one alternative of the regulations

discussed herein would eliminate that reporting burden.

III. Background

The Commission is required by section 10(e)(1) of the FPA2 to

collect annual charges from licensees for the cost of administering

Part I of the FPA. Part 11 of the Commission's regulations3

provides the manner in which licensees are charged for such costs.

Prior to the adoption of the current regulations in 1958 and 1963,

administrative charges were not based on the actual costs of the

government, but were in the nature of set fees that were billed for a

calendar year.\4\ Under the current regulations, the reimbursable costs

are determined on a fiscal year basis.

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\2\16 U.S.C. 803(e)(1).

\3\18 CFR part 11.

\4\The present system of basing the annual charges on actual

costs was adopted in Order No. 205, 19 F.P.C. 907 (1958) (with

respect to municipal licensees only), and in Order No. 272, 30

F.P.C. 1333 (1963) (all other licensees); see also Order No. 272A,

31 F.P.C. 1555 (1964).

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Section 3401 of the Omnibus Budget Reconciliation Act of 1986

(OBRA)\5\ requires the Commission to recover all of its costs for the

fiscal year through annual charges and fees.\6\ The annual charges

assessed pursuant to OBRA are based on an estimate of the Commission's

current-fiscal-year costs, with subsequent adjustments based on actual

costs.\7\ Pursuant to OBRA, the Commission collects annual charges to

recover the costs of administering parts II and III of the FPA, as well

as the costs the Commission incurs in administering the Natural Gas

Act, the Natural Gas Policy Act, and the Interstate Commerce Act. In

this regard, we note that section 3401(a)(2) of OBRA provides that

``[t]he provisions of this subtitle shall not affect the authority,

requirements, exceptions, or limitations in sections 10(e) and 30(e) of

the Federal Power Act.''

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\5\Pub. L. No. 99-509, Title III, Subtitle E, sec. 3401 (1986)

(codified at 42 U.S.C. 7178). OBRA is implemented in Part 382 of the

Commission's Regulations, 18 CFR Part 382.

\6\See Joint Explanatory Statement of the Committee of

Conference to Accompany H.R. 5300 (Conference Report), H.R. Rep. No.

1012, 99th Cong., 2d Sess. 238, reprinted in 1986 U.S.C.C.A.N. 3607,

3883.

\7\The procedures for estimating the costs and later adjusting

the assessments are described in Order No. 472, 52 FR 18201 (May 14,

1987), FERC Stats. & Regs. (Regulations Preambles 1986-1990) 30,746

at pp. 30,612 and 30,616-17.

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IV. Discussion

A. Allocation Among Different Classes of Licensees

The existing Sec. 11.1 provides three different allocation formulae

for three different classes of licensees. For non-municipal licensees

of projects of more than 2,000 horsepower of installed capacity,

Sec. 11.1(a) sets forth an allocation formula that is based on a

combination of the project's authorized installed capacity and the

energy actually generated.8 For municipal licensees of projects of

more than 2,000 horsepower, Sec. 11.1(b) sets forth an allocation

formula based solely on capacity.9 For all licensees (both

municipal and non-municipal) of projects of 2,000 horsepower or less of

installed capacity, Sec. 11.1(c) specifies an annual charge of five

cents per horsepower, with a minimum charge of $5 per year.10

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\8\The capacity is currently measured in horsepower, while the

generation is measured in kilowatt-hours. The allocation for pumped

storage projects is based solely on capacity.

\9\The capacity is currently measured in horsepower.

\1\0As noted above, the present allocation formulae were adopted

in Order No. 205, 19 F.P.C. 907 (1958) and Order No. 272, 30 F.P.C.

1333 (1963).

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The Commission believes that the process of collecting data and

assessing charges could be conducted more efficiently if the allocation

were based on a single formula, and questions whether any presently-

valid purpose is served by perpetuating the divergent formulae.

Therefore, one alternative the Commission is considering is to use the

same formula to allocate the annual charges among a single pool of

licensees that includes both municipal licensees (i.e., those who are

not fully exempt from annual charges) and non-municipal licensees, as

well as minor licensees and (as discussed below) exemptees. One

variation of that alternative is to base that formula entirely on

authorized installed capacity. Another variation would be to base the

formula entirely on generation. A third alternative would be to base it

on a combination of capacity and generation.

We recognize that using the same formula to allocate the annual

charges among a single pool of licensees (and exemptees) would cause a

large increase, both in total dollars and percentage, that major

municipal licensees as a group experience. We solicit comment on this

impact. One approach the Commission could consider (discussed below)

would be the adoption of a three-year transition period for phasing in

the resulting cost changes.

Changing the allocation formula from a mix of capacity and

generation to capacity alone would reduce the Commission's

administrative burden as well as the reporting requirements of major

non-municipal licensees. Under the current system, the Commission

obtains annual generation data from non-municipal project operators;

delays in providing this information to the Commission complicate the

billing process. By using authorized installed capacity exclusively,

the Commission would always have the apportionment data on hand and the

calculation of the bills would be simplified.

The Commission is also considering alternative formulae, such as an

allocation based in whole or in part on generation measured in kilowatt

hours. In this regard, the Commission notes that the annual charges it

assesses pursuant to OBRA are all allocated among the regulated

entities pursuant to a formula based on an appropriate measure of

volume rather than on a measure of capacity. OBRA requires the

Commission to compute those annual charges based on methods which the

Commission determines to be ``fair and equitable.''11 Annual

charges under Parts II and III of the FPA and related statutes are

apportioned to public utilities based on the data they submit with

respect to megawatt-hours of adjusted sales for resale and adjusted

coordination sales.12 Annual charges under the Natural Gas Act and

the Natural Gas Policy Act of 1978 and related statutes are allocated

among natural gas pipeline companies based on the volumes of gas sold

or transported by each company.13 Annual charges under the

Interstate Commerce Act are allocated among oil pipelines based on

their operating revenues.14

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\1\1See Annual Charges Under the Omnibus Budget Reconciliation

Act of 1986, Order No. 472, FERC Stats. & Regs. (Regulations

Preambles) 30,746 at p. 30,610 (1987).

\1\2See 18 CFR 380.201. It also contains a comparable provision

for allocating annual charges among power marketing agencies.

\1\3See 18 CFR 380.202.

\1\4See 18 CFR 380.203. As noted below, there is a maximum

charge.

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With respect to the annual charges for the administration of part I

of the FPA pursuant to section 10(e)(1) of the FPA, the analog to

allocation of the annual charges pursuant to OBRA would be an

allocation scheme based on the electric energy actually generated by

the various licensed and exempted hydropower projects rather than on

their respective capacity to so generate. We are concerned, however,

that the generation data reporting requirements necessary to implement

such a scheme may impose an undue burden on smaller licensees and

exemptees. Accordingly, the Commission invites comment on the propriety

of using generation data rather than authorized capacity as the basis

for allocating the charges, and on whether such a scheme would be

unduly burdensome on some or all licensees or exemptees. We

specifically invite comment from municipal and minor licensees as to

whether they have equipment for measuring generation and whether it

would be burdensome to report such data to us.

Another alternative that the Commission is considering to simplify

the allocation process is to eliminate only the third prong of the

formula, and to include minor licensees in the respective allocation

formulae for major licensees. In other words, the minor municipal

licensees would be included in the same allocation formula with the

major municipal licensees, and the minor non-municipal licensees would

be included in the same allocation formula with the major non-municipal

licensees. The Commission could include exemptees in the same manner.

This alternative would preserve the existing use of a formula based on

a combination of capacity and generation to determine the annual

charges for non-municipal licensees, and of a formula based solely on

capacity to determine the annual charges for municipal licensees. This

alternative would avoid the large increase, both in total dollars and

percentage, that major municipal licensees as a group would experience

under a single, unified formula.

The Commission could provide a transition period for phasing in the

assessments for minor licensees and exemptees. The Commission

specifically invites comment from minor licensees and exemptees on

whether such a transition period would be helpful or appropriate.

In this regard, the Commission notes that the current system of

categorizing municipal and non-municipal projects separately for

purposes of annual charges produces a sizeable disparity in the annual

charges assessed for projects of comparable size depending on their

class of ownership. The disparity is illustrated by the data in the

table in Appendix A.

Under the present regulations, and under the currently prevailing

facts (which, as discussed below, can be expected to change), the non-

municipal licensees are assessed a substantially larger annual charge

per kilowatt of capacity than the municipal licensees. This is

occurring primarily because the bulk of the Commission's current

licensing activities is focused on processing applications for new

licenses for projects whose original licensees expired in 1993. Since a

disproportionate number of these projects are owned by non-municipal

licensees, the effect of segregating out the hours spent on those

applications is to allocate more of the annual charges burden to the

non-municipal licensees. In other words, non-municipal licensees as a

group are paying comparatively higher annual charges today than

municipal licensees because at this time the non-municipal licensees,

as a group, are imposing comparatively greater regulatory costs.

This is not to suggest, however, that the disproportionate charges

are being assessed only to the non-municipal licensees who have filed

pending applications for a new license or who are presently involved in

compliance proceedings. To the contrary, the annual charge assessments

for this work are allocated among all of the non-municipal licensees as

a class, and most of those licensees are neither seeking a new license

nor involved in a compliance proceeding.

Furthermore, it is reasonable to assume that in some future year

the shoe may shift to the other foot. On average, over time, the

licenses for municipal projects expire at the same frequency as the

licenses for non-municipal projects, and the frequency of compliance

proceedings also tends to even out. Thus, given the current

concentration of resources on processing cases involving non-municipal

projects, it is reasonable to assume that eventually some years will

occur in which there will be an equally disproportionate burden of

annual charge assessments on municipal projects vis-a-vis non-municipal

projects. The net effect of the present categorization of costs

according to the municipal/non-municipal status of the project,

therefore, is not to permanently favor either one class or the other,

but to create swings--both up and down--in the annual charges assessed

to the two classes, depending on the particular mix of the Commission's

workload in any given year. The Commission welcomes comment on all of

these matters.

The Commission recognizes the possibility that the elimination of

generation as a factor might have a significant impact on some

licensees, and welcomes comment on it. The Commission also recognizes

that the charges for minor licensees may increase substantially, but

believes that the current charge of five cents per horsepower has been

so heavily eroded by inflation since it was adopted in 1963 as to have

been rendered comparatively meaningless.

For instance, the table in Appendix A at the end of this NOPR shows

the following illustrative examples of increases in annual charges for

minor licensees from the 1993 charge to the charge that would result

from the amendments described in the Alternative A regulatory text:

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Proposed

Current method

Minor licensee method charge,

charge fourth year

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Town of Rollingsford.......................... $100 $1,697

City of Marshall.............................. 22 367

City of Lewiston.............................. 67 1,134

STS Hydropower Ltd............................ 75 1,279

John A. Dodson................................ 5 100

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In particular, the Commission welcomes comment on whether there are

distinctions between municipal and non-municipal projects that would

justify the current difference in their allocation formulae or whether

the substantial increases in some licensees' annual charges that would

result from eliminating this distinction are reason enough to retain

the distinction.

The Commission recognizes that, in the case of major construction

projects, the license may be in effect for several years before project

construction is commenced and before the project commences operation

and goes into service. With respect to non-municipal licensees, annual

charges are payable each year from the date of issuance of the license

but there is no incoming stream of revenue during those years because

no power is being generated. Municipal licensees, on the other hand, do

obtain an exemption from annual charges prior to and during the

construction period because, since they are not generating power during

that period, they are not selling power for profit. This is because

Sec. 11.6(g) of the regulations provides a complete exemption from

certain annual charges when a municipal project is under construction

and not generating power, on the theory that the project is operating

without profit within the meaning of the municipal exemption in FPA

section 10(e).

Under the various regulatory regimes discussed herein, the

Commission would maintain the above-described exemption from annual

charges with respect to municipal projects that have not yet commenced

commercial operation. In addition, the Commission proposes to include

in the assessment formula (whatever it may be) only licensed and

exempted projects that have already been constructed or whose

construction has commenced. Although framed in terms of all projects,

as a practical matter, because of the exemption for municipal projects,

the change would primarily affect non-municipal projects.

We believe that commencement of construction is a more appropriate

determinant than completion of construction, for two reasons. First of

all, the date on which construction commenced is a legally precise,

documented date15-16 whereas the date on which construction is

completed is not defined with the same precision. Secondly, it is our

understanding that licensees of projects under construction can draw on

construction loan funds to pay the annual charges whereas such funds

may not be available prior to the commencement of construction.

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\1\5-16Section 13 of the FPA requires that the licensee commence

construction of the project within fixed time periods after issuance

of the license, as specified in section 13 and the license. Thus,

the Commission has evolved standards for determining the precise

date of commencement of construction, and the hydropower industry is

familiar with those standards.

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The Commission also proposes to establish a minimum and maximum

annual charge. The minimum annual charge would be $100.17 We

believe that $100 is a reasonable charge for a regulated project to

pay, to participate in defraying the cost of administration of the

hydropower regulatory program, regardless of how small the project's

capacity may be.18

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\1\7Under certain circumstances (e.g., commencement of

construction, or transfer or termination of a license during a

fiscal year) the minimum charge would be prorated.

\1\8In the event that a municipal licensee was entitled to a

partial exemption from annual charges, the exemption could reduce

its charge below the $100 minimum.

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The Commission also proposes to set a limit on annual charges so

that, with respect to costs incurred by the Commission, no licensee's

project would be required to pay more than 2.0 percent of the total

costs. We believe that a maximum charge is appropriate to avoid having

a small number of projects bearing most of the Commission's costs of

administration. The proposed limit is modelled after the formula in

Sec. 382.203(b) with respect to annual charges for oil pipelines. The

maximum annual charge stated therein is 6.339 percent of the total

charges, but that figure is based on a much smaller number of

significant entities (interstate oil pipelines) sharing a much smaller

total cost.

With respect to a minimum charge, other alternatives would be to

waive charges below a fixed dollar amount or below a fixed capacity.

With respect to a maximum charge, different percentages could be used

for the ceiling. If the formula were to be based solely on capacity,

another alternative would be to have a 50 percent discount for all

authorized capacity above a prescribed ceiling (e.g., 500 megawatts).

In this example, if a project had an authorized capacity of 1000

megawatts, it would be counted in the apportionment formula as 750

megawatts (all of the first 500 megawatts plus half of the second 500

megawatts). The Commission invites comments on these and other

potential alternatives.

The Commission notes that adoption of some of the alternatives

discussed herein might increase the annual charges for certain pumped

storage projects. Nevertheless there are other features (such as the

start-of-construction date and the maximum charge) that would benefit

some pumped storage projects, to the extent that large pumped storage

projects have extended design and construction periods and

comparatively massive capacity.

We have included in this notice of proposed rulemaking two

alternative examples of the regulatory text that might be used to

implement the various alternative proposals discussed herein. The

``Alternative A'' regulatory text is based on the allocation of all of

the annual charges among a single class of licensees and exemptees,

including all major and minor municipal and non-municipal licensees and

all exemptees. The allocation is based solely on the respective

capacity of each hydropower project as measured in kilowatts.

The ``Alternative B'' regulatory text retains the current separate

categories and formulae for major municipal and non-municipal

licensees. Minor licensees and exemptees would be classified with the

comparable groups of major licensees and their charges would be

assessed pursuant to the formulae currently used for those groups.

Both the ``Alternative A'' and ``Alternative B'' regulatory texts

implement a minimum charge of $100 and a maximum charge of two percent

of the total of all charges. Under both alternatives, assessments would

not commence prior to the commencement of project construction.19

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\1\9Attached to this NOPR as Appendices A, B and C are three

tables prepared by the Commission's staff which shows the impact

that some of the ideas discussed herein might have on the annual

charges of representative licensees and exemptees.

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B. Transition Arrangements

While the Commission believes that many of the regulatory

amendments discussed above would in the long run render the regulations

more rational and more fair and equitable, the Commission also

recognizes that if these amendments were to be adopted en masse at a

single stroke they might impose significant unanticipated burdens on

some licensees and exemptees. Therefore, the Commission proposes a

three-year transition period for phasing-in some of the changes it

might adopt, particularly with respect to the changes described in the

``Alternative A'' regulatory text.

Charges during the transition described therein would be calculated

by the following steps. First, the difference between a project's

charge using the current method and the proposed method would be

divided into fourths. The charge for the first transition year would be

the current method charge plus the one-fourth increment. (If the charge

is reduced in going from the current method to the proposed method, the

one-fourth increment would be subtracted.)20 The charge for the

second transition year would be the current method charge plus (or

minus) the two-fourths increment. The charge for the third transition

year would be the current method charge plus (or minus) the three-

fourths increment. The charge for the fourth year would be calculated

solely by the proposed method.

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\20\In order to avoid any net increase or decrease in the total

of all charges assessed in any single year, the total amount of the

reductions in the charges must be matched by an equal amount of

``increases'' in charges. The ``increases,'' however, would in fact

simply be a partial elimination of a reduction that would otherwise

occur--to balance the elimination of part of an actual increase

elsewhere that would otherwise occur.

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The charges in all of these transition years, however, would be

subject to the proposed minimum and maximum charges.\21\ In addition,

in all of these transition years, charges would be assessed only with

respect to hydropower projects that have been constructed or whose

construction has commenced.\22\

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\21\Thus, even during the transition period the minimum charge

would be $100 and the maximum charge would not exceed two percent of

the total of all charges assessed. See Appendices A and B for

illustrative examples.

\22\The regulatory amendments proposed herein are intended to be

purely prospective in nature. Thus, to the extent that any licensee

has obtained approval for an installment or deferred payment plan,

the amendments, if adopted, would not extinguish that licensee's

responsibility to pay whatever amounts were assessed under the

existing regulations even if such amounts have been deferred for

later payment.

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Finally, as discussed above, if the major changes have their most

significant impact only on minor licensees and exemptees, a transition

period could be established solely for those entities.

C. From Horsepower to Kilowatts

As discussed above, the existing regulations at Sec. 11.1 provide

different allocation formulae for municipal and non-municipal projects

of more than 2,000 horsepower of installed capacity. Both formulae,

however, take into account a project's authorized installed capacity

defined in terms of horsepower.

The computation of a project's capacity in terms of horsepower

likely arose in the earlier years of the Commission's regulatory

oversight, when the then-existing projects included a greater

percentage of hydromechanical equipment.\23\ Today, however, the

determination of a hydroelectric project's authorized capacity is

generally stated in terms of kilowatts; that is the manner in which

authorized capacity is stated in the licenses.\24\ In fact, the

Commission's staff determines a project's horsepower capacity by

converting kilowatts into horsepower. Therefore, the Commission

proposes to revise Sec. 11.1 to substitute kilowatts for horsepower in

stating a project's authorized installed capacity.

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\23\In other words, horsepower was a convenient measure for

comparing the capacity of hydropower projects, some of which

generated electricity and some which did not. In rough terms,

horsepower measures the weight that an average draft horse can pull

in a circular path around a rotary grinder. The common definition in

the United States is that one horsepower is equal to 550 foot-pounds

per second or approximately 746 watts.

\24\The exception is that the license article on annual charges

states the capacity in horsepower.

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For the few licensed hydromechanical projects, all of which are

quite small, the Commission would impute a kilowatt figure by

multiplying these projects' existing horsepower capacity by three-

fourths. We believe that using kilowatts as the standard and converting

the few hydromechanical project capacities into an imputed kilowatt

capacity is far easier than converting all of the hydroelectric project

capacities from kilowatts to horsepower.

D. The Determination of Authorized Installed Capacity

Questions have occasionally arisen as to how to define ``authorized

installed capacity.'' What if the capacity of the generator exceeds the

capacity of the turbine? What if the available stream flow is

insufficient to fully utilize the capacity of the turbine and generator

installed in the project?\25\

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\25\Such situations might arise, for instance, if it were

cheaper for a project operator to purchase an ``off-the-shelf'' or a

used generator whose capacity exceeded the capacity of the turbine

or the stream flow available at the project site.

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The Commission proposes to take this occasion to clarify the

concept of ``authorized installed capacity'' by defining it. The

authorized installed capacity would be expressed in kilowatts, and

would be the lesser of the capacity of the generator or the turbine.

Thus, if the capacity of the generator exceeded the capacity of the

turbine, then the capacity of the turbine would apply, and vice-versa.

The availability of stream flow, however, would not be considered.\26\

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\26\The proposed rule would codify the policy articulated in

Public Utility District No. 2 of Grant County, Washington, 62 FERC

61,229 (1993).

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The capacity would be based on the actual power of the equipment in

question without regard to whatever ``nameplate'' rating might be

physically affixed to the unit (although, with respect to a new or

unmodified unit, the ``nameplate rating'' may well coincide with the

definition proposed herein). If the generator or turbine are

subsequently modified, such as by rewinding the generator, the capacity

would be recalculated accordingly.

We believe that the proposed definition provides a means of

determining capacity that is both workable and fair. The capacity of

the generator and the turbine are reasonably ascertainable, and do not

involve the potential complexities and controversies inherent in

determining the availability of usable stream flow. If a project

operator, for whatever reason, chose to purchase, install or operate

equipment whose capacity exceeded the available stream flow needed to

operate it, the operator would have to accept the consequence of having

that equipment's capacity used as the basis for determining the

project's annual charges.

E. The Five Megawatt and Conduit Exemption Costs

Section 30 of the FPA\27\ provides that the Commission may exempt

from the FPA's licensing provisions any facility (other than a dam, and

within certain megawatt limits) which is constructed or operated to

generate electric power, if the facility is located on non-federal land

and ``utilizes for such generation only the hydroelectric potential of

a manmade conduit, which is operated for the distribution of water for

agricultural, municipal, or industrial consumption and not primarily

for the generation of electricity.''

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\27\18 U.S.C. 823a.

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Sections 405 and 408 of the Public Utility Regulatory Policies Act

of 1978 (PURPA), as amended by section 408 of the Energy Security Act

of 1980,\28\ provide that the Commission may exempt from the FPA's

licensing requirements small hydroelectric power projects that are

located at the site of an existing dam (or utilize natural water

features without the need for a dam) and that have a proposed installed

capacity of five megawatts (MW) or less.

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\28\16 U.S.C. 2708.

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The Commission's staff, however, performs similar safety and

environmental compliance functions with respect to hydroelectric

projects that are operated pursuant to a 5 MW or conduit exemption as

it does for projects that are operated pursuant to a license. The

Commission also incurs costs in processing exemption applications.

Therefore, as a matter of policy, the Commission believes that it would

be appropriate for projects that are operated pursuant to the 5 MW

exemption to share the cost of the Commission's application and

compliance programs, and that the same principle applies as well with

respect to conduit exemptions.

Section 10(e) of the FPA provides that ``the licensee shall pay * *

* annual charges * * * for the costs of the administration of this Part

* * *'' (emphasis added). We believe that this statutory language may

preclude imposition of annual charges on 5 MW and conduit exemptees

under section 10(e) of the FPA. It is arguable that such exemptees

could not be construed as ``licensees'' within the meaning of section

10(e). The Commission believes, however, that it has the legal

authority under OBRA to assess annual charges to exemptees,29 and

proposes to do so with respect to both the 5 MW and the conduit

exemptions.30

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\2\9Section 3401(a) of OBRA provides as follows:

(a) In General.--(1) Except as provided in paragraph (2) and

beginning in fiscal year 1987 and in each fiscal year thereafter,

the Federal Energy Regulatory Commission shall, using the provisions

of this subtitle and authority provided by other laws, assess and

collect fees and annual charges in any fiscal year in amounts equal

to all of the costs incurred by the Commission in that fiscal year.

(2) the provisions of this subtitle shall not affect the

authority, requirements, exceptions, or limitations in sections

10(e) and 30(e) of the Federal Power Act.

Whereas this provision makes clear that OBRA does not authorize

the collection of annual charges from, e.g., municipal licensees who

qualify for an exemption under the terms of section 10(e) of the

Federal Power Act, projects under exemptions from licensing are not

subject to section 10(e), and therefore charging them under OBRA

does not affect any provision of section 10(e).

Section 30(e) of the Federal Power Act requires the Commission

to collect from exemption applicants and certain license applicants,

on behalf of the U.S. Fish and Wildlife Service, the National Marine

Fisheries Service, and state fish and wildlife agencies, these

agencies' project-specific costs under section 30(c) (establishment

of mandatory conditions with respect to fish and wildlife

resources). These agencies are required to subtract from their

section 10(e) claims the money they recover under section 30(e).

\3\0Holders of 5 MW and conduit exemptions would, however, be

able to apply for exemption from annual charges based on their

municipal status.

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Finally, pursuant to Sec. 381.601, the Commission currently imposes

a filing fee for applications for a 5 MW exemption. The fee is based on

the cost of processing all 5 MW exemption applications received each

year divided by the number of applications that the Commission has

completed processing in that year. At present, the fee established by

Sec. 381.601 is $21,620. Because the Commission is proposing to assess

annual charges on 5 MW exemptees, the Commission proposes to delete

Sec. 381.601 from the regulations.31

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\3\1The Commission does not impose a filing fee for conduit

exemptions.

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F. Other Revisions to Annual Charges

Section 11.1(d) currently states that the minimum annual charge for

projects involving transmission lines will be $5. The Commission's

current practice, however, is to state that charge in the articles of

the individual licenses, as appropriate. Therefore, we propose to

conform the text of Sec. 11.1(d) to that practice.

In its current form, Sec. 11.20 provides two separate deadlines for

payment of bills for annual charges: 30 days for headwater benefits

bills and 45 days for other annual charges bills. The purpose of this

distinction is not readily apparent. Therefore, the Commission proposes

to make all such bills payable upon 30 days of their rendition.

There has also been some confusion over the procedures that a

licensee should follow if it believes that the bill is incorrect. The

proposed new Sec. 11.20 provides for licensees to file an appeal of the

bill to the Commission's Chief Financial Officer. All decisions of the

Chief Financial Officer on appeals would be subject to rehearing by the

Commission pursuant to Sec. 385.713. This would essentially codify the

current informal practice. Most billing disputes involve mathematical

calculations that can be readily resolved by discussion with the

Commission's staff without the need for a formal request to the

Commission for rehearing.

The bill would still have to be paid within 30 days of its

rendition in order to avoid the assessment of penalty payments under

Sec. 11.21, but if a timely appeal or request for rehearing is filed

the bill could be paid under protest and subject to refund. This

provision would codify the Commission's current practice.

As currently in effect, Sec. 11.6(i) requires that applications for

exemptions from payment of annual charges ``shall be prepared on forms

prescribed by the Commission * * *.'' Inasmuch as the Commission does

not currently prescribe such forms, the reference to such forms will be

deleted.

We also propose to add a sentence at the end of Sec. 11.6(i) to

clarify that bills for annual charges can be paid under protest and

subject to refund in the event that an application for an exemption

from payment is pending when the bill becomes payable. This provision

would codify the Commission's current practice.

V. Regulatory Flexibility Certification

The Regulatory Flexibility Act of 1980 (RFA)32 generally

requires a description and analysis of proposed regulations that will

have a significant economic impact on a substantial number of small

entities.\33\ Pursuant to section 605(b) of the RFA, the Commission

hereby certifies that the regulations proposed herein will not have a

significant economic impact on a substantial number of small entities.

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\32\5 U.S.C. 601-612.

\33\Section 601(c) of the RFA defines a ``small entity'' as a

small business, a small not-for-profit enterprise, or a small

governmental jurisdiction. A ``small business'' is defined by

reference to section 3 of the Small Business Act as an enterprise

which is ``independently owned and operated and which is not

dominant in its field of operation.'' 15 U.S.C. 632(a).

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VI. Environmental Statement

Issuance of this notice of proposed rulemaking does not constitute

a major federal action having a significant adverse impact on the

quality of the human environment under the Commission's regulations

implementing the National Environmental Policy Act.34 The

regulations proposed herein are procedural in nature and therefore fall

within the categorical exemptions provided in the Commission's

regulations. Consequently, neither an environmental impact statement

nor an environmental assessment is required.35

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\34\See Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats.

& Regs. (Regulations Preambles 1986-1990) 30,783 (Dec. 10, 1987)

(codified at 18 CFR Part 380).

\35\See 18 CFR 380.4(a)(1).

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VII. Information Collection Statement

The Office of Management and Budget's (OMB) regulations at 5 CFR

1320.13 require that OMB approve certain information and recordkeeping

requirements imposed by an agency. The information collection

requirements that would be deleted by this proposed rule are contained

in FERC-583 ``Annual Kilowatt Generating Report (Annual Charges)''

(1902-0136). The Commission's Financial Services Division uses the data

for determination of the amount of annual charges to be assessed

licensees for reimbursable government administrative costs. If the

amendments proposed herein are adopted, the Commission would submit to

the OMB a notification that these collections of information have been

modified.

Interested persons may obtain information on these reporting

requirements by contacting the Federal Energy Regulatory Commission,

941 North Capitol Street NE., Washington, DC 20426 [Attention: Michael

Miller, Information Services Division, (202) 208-1415]. Comments on the

requirements of this rule can be sent to the Office of Information and

Regulatory Affairs of OMB [Attention: Desk Officer for Federal Energy

Regulatory Commission].

VIII. Public Comment Procedures

The Commission invites all interested persons to submit written

comments on the matters discussed in this notice of proposed

rulemaking. An original and 14 copies of the written comments must be

filed with the Commission April 4, 1994. Comments should be submitted

to the Office of the Secretary, Federal Energy Regulatory Commission,

825 North Capitol Street NE., Washington, DC 20426, during regular

business hours, and should refer to Docket No. RM93-7-000.

All written comments will be placed in the Commission's public

files and will be available for inspection in the Commission's Public

Reference Room, room 3104, 941 North Capitol Street North East,

Washington, DC 20426 during regular business hours.

List of Subjects

18 CFR Part 11

Electric power, Reporting and recordkeeping requirements.

18 CFR Part 381

Electric power plants, Electric utilities, Natural gas, Reporting

and recordkeeping requirements.

In consideration of the foregoing, the Commission invites comment

on the potential amendments to 18 CFR parts 11 and 381 that are set

forth below in two alternative versions (styled as ``Alternative A''

and ``Alternative B''), and also invites comments on any other

potential alternatives.

Lois D. Cashell,

Secretary.

For the reasons set out in the preamble, 18 CFR parts 11 and 381

are proposed to be amended in the alternative as follows:

Alternative A

PART 11--ANNUAL CHARGES UNDER PART I OF THE FEDERAL POWER ACT

1. The authority citation for Part ll continues to read as follows:

Authority: 16 U.S.C. 791a-825r; 42 U.S.C. 7101-7352.

2. Section 11.1 is revised to read as follows:

Sec. 11.1 Costs of administration.

(a) Authority. Pursuant to section 10(e) of the Federal Power Act

and section 3401 of the Omnibus Budget Reconciliation Act of 1986, the

Commission will assess reasonable annual charges against licensees and

exemptees to reimburse the United States for the costs of

administration of the Commission's hydropower regulatory program.

(b) Scope. The annual charges under this section will be charged to

and allocated among:

(1) all licensees;

(2) all holders of exemptions under section 30 of the Federal Power

Act; and

(3) all holders of exemptions under sections 405 and 408 of the

Public Utility Regulatory Policies Act of 1978, as amended by section

408 of the Energy Security Act of 1980.

the costs of administration of Part I of the Federal Power Act, from

which shall be deducted administrative costs fixed in the licenses and

exemptions and those fixed by the Commission in determining headwater

benefit payments. For each fiscal year, the costs of administration

will be assessed against each licensee and exemptee in the proportion

that the annual charge factor for each such project bears to the total

of the annual charge factors under all such outstanding licenses and

exemptions. The annual charge factor for each such project shall be its

authorized installed capacity as measured in kilowatts. The assessments

will include all such licensed and exempted projects that have been

constructed, and all such licensed and exempted projects whose

construction has been commenced. In the event that construction

commences during a fiscal year, the charges will be prorated based on

the day on which construction commenced.

(d) Municipal exemptions. (1) To enable the Commission to compute

on the bill for annual charges the exemption to which State and

municipal licensees and exemptees are entitled because of the use of

power by the licensee or exemptees for State or municipal purposes,

each such licensee or exemptee must file with the Commission, on or

before November 1 of each year, a statement under oath showing the

following information with respect to the power generated by the

project and the disposition thereof during the preceding fiscal year,

expressed in kilowatt-hours:

(i) Gross amount of power generated by the project.

(ii) Amount of power used for station purposes and lost in

transmission, etc.

(iii) Net amount of power available for sale or use by licensee or

exemptee, classified as follows:

(A) Used by licensee or exemptee.

(B) Sold by licensee or exemptee.

(2) When the power from a licensed or exempted project owned by a

State or municipality enters into its electric system, making it

impracticable to meet the requirements of this section with respect to

the disposition of project power, such licensee or exemptee may, in

lieu thereof, furnish similar information with respect to the

disposition of the available power of the entire electric system of the

licensee or exemptee.

(e) Transmission lines. For projects involving transmission lines

only, the administrative charge will be stated in the license.

(f) Minimum and maximum charges. (1) The minimum annual charge

under this section will be $100 per year for each licensed or exempted

project, subject to reduction based on partial or total exemption

pursuant to paragraph (d) of this section.

(2) No licensed or exempted project's annual charge may exceed a

maximum charge established each year by the Commission to equal 2.0

percent of the adjusted costs of administration of the hydropower

regulatory program. For every project with an annual charge determined

to be above the maximum charge, that project's annual charge will be

set at the maximum charge, and any amount above the maximum charge will

be reapportioned to the remaining projects. The reapportionment will be

computed using the method outlined in paragraph (c) of this section

(but excluding any project whose annual charge is already set at the

maximum amount). This procedure will be repeated until no project's

annual charge exceeds the maximum charge.

(g) Commission's costs. (1) With respect to costs incurred by the

Commission, the assessment of annual charges will be based on an

estimate of the costs of administration of Part I of the Federal Power

Act that will be incurred during the fiscal year in which the annual

charges are assessed. After the end of the fiscal year, the assessment

will be recalculated based on the costs of administration that were

actually incurred during that fiscal year; the actual costs will be

compared to the estimated costs; and the difference between the actual

and estimated costs will be carried over as an adjustment to the

assessment for the subsequent fiscal year.

(2) The issuance of bills based on the administrative costs

incurred by the Commission during the year in which the bill is issued

will commence in 1993. The annual charge for the administrative costs

that were incurred in fiscal year 1992 will be billed in 1994. At the

licensee's option, the charge may be paid in three equal annual

installments in fiscal years 1994, 1995, and 1996, plus any accrued

interest. If the licensee elects the three-year installment plan, the

Commission will accrue interest (at the most recent yield of two-year

Treasury securities) on the unpaid charges and add the accrued interest

to the installments billed in fiscal years 1995 and 1996.

(h) In making their annual reports to the Commission on their costs

in administering Part I of the Federal Power Act, the United States

Fish and Wildlife Service and the National Marine Fisheries Service are

to deduct any amounts that were deposited into their Treasury accounts

during that year as reimbursements for conducting studies and reviews

pursuant to section 30(e) of the Federal Power Act.

(i) Definition. As used in paragraph (c) of this section,

authorized installed capacity means the lesser of the ratings of the

generator or turbine units. The rating of a generator is the product of

the continuous-load capacity rating of the generator in kilovolt-

amperes (kVA) and the system power factor in kW/kVA. If the licensee or

exemptee does not know its power factor, a factor of 1.0 kW/kVA will be

used. The rating of a turbine is the product of the turbine's capacity

in horsepower (hp) at maximum head gate opening under the

manufacturer's rating head times a conversion factor of 0.75 kW/hp. If

the generator or turbine installed has a rating different from that

authorized in the license or exemption, or the installed generator is

rewound or otherwise modified to change its rating, or the turbine is

modified to change its rating, the licensee or exemptee must apply to

the Commission to amend its authorized installed capacity to reflect

the change.

(j) Transition rules. (1) For a license having the capacity of the

project for annual charge purposes stated in horsepower, that capacity

shall be deemed to be the capacity stated in kilowatts elsewhere in the

license, including any amendments thereto.

(2) During the first three fiscal years in which annual charges are

assessed after [INSERT DATE ON WHICH THE FINAL RULE BECOMES EFFECTIVE],

the annual charges will be determined as follows. The assessments will

include (and be limited to) all licenses and exempted projects that

have been constructed or whose construction has been commenced, and

will be subject to the minimum and maximum charges specified in

paragraph (f) of this section. Subject to those parameters, the

Commission will determine the charge that would have been assessed

pursuant to the regulations in effect prior to [INSERT DATE ON WHICH

THE FINAL RULE BECOMES EFFECTIVE], the charge that would have been

assessed pursuant to the regulations in effect subsequent to that date,

and the difference between those two assessments. In the first fiscal

year after [INSERT DATE ON WHICH THE FINAL RULE BECOMES EFFECTIVE], the

Commission will adjust the assessment that would otherwise be payable

under the regulations in effect after that date by an amount equal to

75 percent of the difference between the amount that would have been

payable under the regulations that were previously in effect and the

amount that would have been payable under those regulations after they

were amended. In the second fiscal year after [INSERT DATE ON WHICH THE

FINAL RULE BECOMES EFFECTIVE], the Commission will adjust the

assessment by 50 percent of that difference. In the third fiscal year

after [INSERT DATE ON WHICH THE FINAL RULE BECOMES EFFECTIVE], the

Commission will adjust the assessment by 25 percent of the difference.

3. In Sec. 11.6, the title, the introductory sentence of paragraph

(a), and paragraph (i), are revised, and the cross-reference at the end

of the section is removed, to read as follows:

Sec. 11.6 Exemption of State and municipal licensees and exemptees.

(a) Bases for exemption. A State or municipal licensee or exemptee

may claim total or partial exemption from the assessment of annual

charges upon one or more of the following grounds:

* * * * *

(i) Application for exemption. Applications for exemption from

payment of annual charges shall be signed by an authorized executive

officer or chief accounting officer of the licensee or exemptee and

verified under oath. An original and three copies of such application

shall be filed with the Commission within the time allowed (by

Sec. 11.28) for the payment of the annual charges. If the licensee or

exemptee, within the time allowed for the payment of the annual

charges, files notice that it intends to file an application for

exemption, an additional period of 30 days is allowed within which to

complete and file the application for exemption. The filing of an

application for exemption does not by itself alleviate the requirement

to pay the annual charges, nor does it exonerate the licensee or

exemptee from the assessment of penalties under Sec. 11.21. If a bill

for annual charges becomes payable after an application for an

exemption has been filed and while the application is still pending for

decision, the bill may be paid under protest and subject to refund.

4. Section 11.20 is revised to read as follows:

Sec. 11.20 Time for payment.

Annual charges must be paid no later than 30 days after rendition

of a bill by the Commission. If the licensee or exemptee believes that

the bill is incorrect, no later than 30 days after its rendition the

licensee or exemptee may file an appeal of the bill with the Chief

Financial Officer. No later than 30 days after the date of issuance of

the Chief Financial Officer's decision on the appeal, the licensee or

exemptee may file a request for rehearing of that decision pursuant to

Sec. 385.713 of this chapter. In the event that a timely appeal to the

Chief Financial Officer or a timely request to the Commission for

rehearing is filed, the payment of the bill may be made under protest,

and subject to refund pending the outcome of the appeal or rehearing.

PART 381--FEES

5. The authority citation for part 381 continues to read as

follows:

Authority: 15 U.S.C. 717-717w; 16 U.S.C. 791-828c, 2601-2645; 31

U.S.C. 9701; 42 U.S.C. 7101-7352; and 49 U.S.C. 1-27.

Sec. 381.601 [Removed]

6. Section 381.601 is removed, and subpart F is reserved.

Alternative B

PART 11--ANNUAL CHARGES UNDER PART I OF THE FEDERAL POWER ACT

1. The authority citation for part 11 continues to read as follows:

Authority: 16 U.S.C. 791a-825r; 42 U.S.C. 7101-7352.

2. Section 11.1 is revised to read as follows:

Sec. 11.1 Costs of administration.

(a) Authority. Pursuant to section 10(e) of the Federal Power Act

and section 3401 of the Omnibus Budget Reconciliation Act of 1986, the

Commission will assess reasonable annual charges against licensees and

exemptees to reimburse the United States for the costs of

administration of the Commission's hydropower regulatory program.

(b) Scope. The annual charges under this section will be charged to

and allocated among:

(1) All licensees;

(2) All holders of exemptions under section 30 of the Federal Power

Act; and

(3) All holders of exemptions under sections 405 and 408 of the

Public Utility Regulatory Policies Act of 1978, as amended by section

408 of the Energy Security Act of 1980. The assessments will include

all such licensed and exempted projects that have been constructed, and

all such licensed and exempted projects whose construction has been

commenced. In the event that construction commences during a fiscal

year, the charges will be prorated based on the day on which

construction commenced.

licensees and exemptees, other than State or municipal:

(1) A determination shall be made for each fiscal year of the costs

of administration of Part I of the Federal Power Act chargeable to such

licensees or exemptees, from which shall be deducted any administrative

costs that are stated in the license or exemption or fixed by the

Commission in determining headwater benefit payments.

(2) For each fiscal year the costs of administration determined

under paragraph (c)(1) of this section will be assessed against such

licensee or exemptee in the proportion that the annual charge factor

for each such project bears to the total of the annual charge factors

under all such outstanding licenses and exemptions.

(3) The annual charge factor for each such project shall be found

as follows:

(i) For a conventional project the factor is its authorized

installed capacity plus 150 times its annual energy output in millions

of kilowatt-hours.

(ii) For a pure pumped storage project the factor is its authorized

installed capacity.

(iii) For a mixed conventional-pumped storage project the factor is

its authorized installed capacity plus 150 times its gross annual

energy output in millions of kilowatt-hours less 100 times the annual

energy used for pumped storage pumping in millions of kilowatt-hours.

(iv) For purposes of determining their annual charges factor,

projects that are operated pursuant to an exemption or whose authorized

installed capacity does not exceed 1.5 megawatts will be deemed to have

an annual energy output of zero.

(4) To enable the Commission to determine such charges annually,

each licensee whose authorized installed capacity exceeds 1.5 megawatts

must file with the Commission, on or before November 1 of each year, a

statement under oath showing the gross amount of power generated (or

produced by nonelectrical equipment) and the amount of power used for

pumped storage pumping by the project during the preceding fiscal year,

expressed in kilowatt hours. If any licensee does not report the gross

energy output of its project within the time specified above, the

Commission's staff will estimate the energy output and this estimate

may be used in lieu of the filings required by this section made by

such licensee after November 1.

(d) State and municipal licensees and exemptees. For State or

municipal licensees and exemptees:

(1) A determination shall be made for each fiscal year of the cost

of administration under Part I of the Federal Power Act chargeable to

such licensees and exemptees, from which shall be deducted any

administrative costs that are stated in the license or exemption or

that are fixed by the Commission in determining headwater benefit

payments.

(2) An exemption will be granted to a licensee or exemptee to the

extent, if any, to which it may be entitled under section 10(e) of the

Act provided the data is submitted as requested in paragraphs (d) (4)

and (5) of this section.

(3) For each fiscal year the total actual cost of administration as

determined under paragraph (d)(1) of this section will be assessed

against each such licensee or exemptee (except to the extent of the

exemptions granted pursuant to paragraph (d)(2) of this section) in the

proportion that the authorized installed capacity of each such project

bears to the total such capacity under all such outstanding licenses or

exemptions.

(4) To enable the Commission to compute on the bill for annual

charges the exemption to which State and municipal licensees and

exemptees are entitled because of the use of power by the licensee or

exemptees for State or municipal purposes, each such licensee or

exemptee must file with the Commission, on or before November 1 of each

year, a statement under oath showing the following information with

respect to the power generated by the project and the disposition

thereof during the preceding fiscal year, expressed in kilowatt-hours:

(i) Gross amount of power generated by the project.

(ii) Amount of power used for station purposes and lost in

transmission, etc.

(iii) Net amount of power available for sale or use by licensee or

exemptee, classified as follows:

(A) Used by licensee or exemptee.

(B) Sold by licensee or exemptee.

(5) When the power from a licensed or exempted project owned by a

State or municipality enters into its electric system, making it

impracticable to meet the requirements of this section with respect to

the disposition of project power, such licensee or exemptee may, in

lieu thereof, furnish similar information with respect to the

disposition of the available power of the entire electric system of the

licensee or exemptee.

(e) Transmission lines. For projects involving transmission lines

only, the administrative charge will be stated in the license.

(f) Minimum and maximum charges. (1) The minimum annual charge

under this section will be $100 per year for each licensed or exempted

project, subject to reduction based on partial or total exemption

pursuant to paragraph (d)(4) of this section.

(2) No licensed or exempted project's annual charge may exceed a

maximum charge established each year by the Commission to equal 2.0

percent of the adjusted costs of administration of the hydropower

regulatory program. For every project with an annual charge determined

to be above the maximum charge, that project's annual charge will be

set at the maximum charge, and any amount above the maximum charge will

be reapportioned to the remaining projects. The reapportionment will be

computed using the method outlined in paragraphs (c) and (d) of this

section (but excluding any project whose annual charge is already set

at the maximum amount). This procedure will be repeated until no

project's annual charge exceeds the maximum charge.