Renewable Energy Production Incentives

DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 451

[Docket No. EE-RM-94-301]

Renewable Energy Production Incentives

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of

Energy.

ACTION: Final rulemaking.

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SUMMARY: The Department of Energy (DOE) Office of Energy Efficiency and

Renewable Energy (EE) is today issuing a final rule to implement a

renewable energy production incentive program in response to the

requirements of section 1212 of the Energy Policy Act of 1992. This

program provides for incentive payments to owners or operators of

qualified renewable energy facilities, subject to the availability of

appropriations. This rule contains procedures for application,

qualification requirements, procedures for calculation of incentive

payments, and administrative remedies.

DATES: Effective Date: This regulation is effective August 18, 1995.

Application Date: Applications for incentive payments for energy

produced in fiscal year 1994 shall be due September 5, 1995.

FOR FURTHER INFORMATION CONTACT:

Kurt Klunder, U.S. Department of Energy, Office of Energy Efficiency

and Renewable Energy, Forrestal Building, Mail Station EE-10, 1000

Independence Avenue, SW, Washington, DC, 20585, (202) 586-4564.

Michael W. Bowers, Esq., U.S. Department of Energy, Office of General

Counsel, Forrestal Building,

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Mail Station GC-72, 1000 Independence Avenue, SW, Washington, DC 20585,

(202) 586-9507.

SUPPLEMENTARY INFORMATION:

I. Introduction

On May 13, 1994, DOE issued a Notice of Proposed Rulemaking for the

Renewable Energy Production Incentive program. (59 FR 24982). The goal

of the incentive program is to advance the commercialization and use of

renewable energy electric generation systems in the United States.

The stated purposes of title XII of the Energy Policy Act of 1992,

of which section 1212 is part, are promotion of (1) increases in the

production and utilization of energy from renewable energy sources; (2)

further advances of renewable energy technologies; and (3) exports of

United States renewable energy technologies.

The implementation of section 1212 draws upon relevant attributes

of sections 1914 and 1916 of the Energy Policy Act of 1992. Section

1914 amended the Internal Revenue Code to provide a tax credit of 1.5

cents per kilowatt-hour, adjusted for inflation, for electricity

generated from wind or from biomass derived from organic matter grown

exclusively for use in generating electricity. 26 U.S.C. Sec. 45.

Section 1916 amended the Internal Revenue Code to make permanent the

energy investment tax credit for non-utility investors in solar and

geothermal property. 26 U.S.C. Sec. 48(a)(2). Sections 1914 and 1916

were designed to assist in making certain emerging renewable energy

technologies cost competitive. The program authorized by section 1212

provides State instrumentalities and nonprofit electric cooperatives

incentives for the production of electricity using certain renewable

resources in a manner that complements the incentives offered to

taxable entities under sections 1914 and 1916 of the Energy Policy Act.

In response to the Notice of Proposed Rulemaking, DOE received

written input from 52 commenters and heard testimony from seven

organizational representatives at a public hearing held on June 16,

1994 in Washington, D.C. After considering the comments received on the

proposed rule, a number of changes have been made to the final rule

contained herein.

With the issuance of this final rule, DOE amends title 10, Chapter

II of the code of Federal Regulations to establish a renewable energy

production incentive program pursuant to section 1212 of the Energy

Policy Act of 1992. 42 U.S.C. Sec. 13317.

II. Discussion of Comments

Section 451.1 Purpose and Scope

DOE proposed that renewable energy production incentive payments be

made only for the generation of electric forms of energy. Three

commenters suggested that such payments be extended to the production

of non-electric forms of energy. Section 1212 of the Energy Policy Act

specifies that payments are to be made only for ``electric energy

generated and sold,'' and thus provides no authority to expand

incentive payments to include non-electric forms of energy.

Section 451.2 Definitions

DOE proposed defining closed-loop biomass as plant matter, other

than standing timber, grown for the sole purpose of being used to

generated electricity. Several comments were received on this proposed

definition. Some commenters wanted to modify the definition to include

dedicated tree farms planted prior to October 1, 1993, while others

wanted to include secondary uses of plant crops. DOE has responded to

these comments in part by designating as closed-loop biomass all

harvests, after the first harvest, of fast growing trees planted before

October 1, 1993 if such harvests occur during the qualifying period.

DOE made additional changes in the definition to make it consistent

with the definition of closed-loop biomass contained in section 1914 of

the Energy Policy Act. The suggested secondary use of plant matter is

not considered closed-loop biomass since such use would be inconsistent

with the section 1914 statutory definition.

In response to several comments requesting clarification as to what

portion of electric energy generated is eligible for incentive

payments, DOE added the term and definition for ''net electric energy

generated'' in the final rule. DOE is adding this definition to draw a

distinction between total electricity generated and the actual amount

of electricity sold after deducting the electric energy used internally

by the facility to operate the pumps, motors, controls, lighting,

heating and cooling, and other systems needed to keep the facility

operational. Such parasitic energy does not qualify for incentive

payments. The addition of the term ``net electric energy generated'' is

intended to clarify this point.

DOE proposed defining ``nonprofit electrical cooperatives'' as a

cooperative association that is treated as tax exempt under section

501(c)(12) of the Internal Revenue Code and is organized under the laws

of any State for the purpose of providing electric service to its

members and other customers. DOE received several comments from

cooperatives indicating that some cooperatives, while not organized to

earn profit, are not treated as tax-exempt under section 501(c)(12).

These cooperatives do incur tax liability from time to time, but within

narrow limits that would not enable the organizations to benefit from

incentives through tax credits. In consideration of these comments and

absent legislative history to the contrary, DOE has changed the

definition of nonprofit electrical cooperative to include those

operated on a not-for-profit basis. To eliminate the possibility of

double coverage, such entities are requires to certify as part of the

application under section 451.8 that they will not claim tax credits

for electricity produced during the same fiscal year for which

incentive payments are requested.

DOE proposed defining ``renewable energy facility'' in sufficiently

broad terms to include the designated technologies while retaining

consistency with the language in section 1212 of the Energy Policy Act.

A key part of the definition referenced ``a system or integrated set of

components.'' Three commenters requested that the definition be

modified to clarify the minimum facility that constitutes a renewable

energy facility. In response to this request, DOE has revised the

definition in the final rule to clarify that a single module or unit,

such as, a wind turbine together with its tower and supporting pad, or

an aggregation of such units falls within the definition of a

``renewable energy facility.''

Several commenters sought to expand the definition of ``renewable

energy facility'' to include facilities that burn municipal solid

waste. DOE is precluded from including municipal solid waste in the

final rule because the language of the statute specifically excludes

``municipal solid waste which is burned'' to create heat. 42 U.S.C.

Sec. 13317(b)(1). Five commenters suggested that methane from sewage

treatment and anaerobic digestion facilities and hydrogen derived from

biomass sources should be clearly recognized as qualified renewable

energy sources when used to generate electricity. DOE concurs that

these sources are biomass energy sources.

Renewable energy facilities may include: (1) Solar photovoltaic

systems, which convert solar light to direct current electricity; (2)

solar thermal systems, which use a fluid heated by the sun to directly

or indirectly drive an electric generator; (3) wind conversion systems,

which capture wind energy to

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drive an electric generator; (4) biomass energy systems, which generate

electricity using heat derived from combustion of plant matter, or from

combustion of gases or liquids derived from plant matter, animal waste,

or sewage, or from combustion of gases derived from landfills, or which

derive hydrogen from these same sources to generate electricity using

fuel cells; and (5) geothermal systems, which generate electricity

using naturally-occurring underground heat.

Several editorial changes have been made to Sec. 451.2. First, the

illustrative list of renewable energy facilities has been deleted to

avoid confusion. Second, the list of excluded renewable energy sources

has been incorporated in the definition of ``renewable energy source.''

Section 451.4 What is a Qualified Renewable Energy Facility

DOE proposed, consistent with the provisions in section 1212, a

list characterizing the attributes of a qualified renewable energy

facility, and sought in proposed paragraph (b) to clarify a potential

ambiguity with regard to what constitutes ownership. Recognizing that

State laws vary in assignment of ownership of financed capital

facilities, DOE proposed wording the ownership requirements to cover

situations in which a State, political subdivision, or a cooperative

has all rights to the beneficial use of the qualified renewable energy

facility, but legal title under State law is held by a source that

provided secured financing for the benefit of the State, political

subdivision, or cooperative.

A number of comments were received on ownership issues. Some of the

commenters wanted the Department to extend the ownership criteria to

include joint action agencies. Joint action agencies are State-

sanctioned organizations of public power electric utilities established

to achieve economies of scale in equipment and power purchases or to

jointly provide other utility services. These agencies are normally

owned by their member utilities, but commenters have indicated that in

some cases actual legal ownership of the joint agency may be unclear

under State law. Accordingly, any joint action agency is considered to

qualify under the ownership requirement if each member meets the

classification requirement as an entity designated under the

Sec. 451.4(a) provision.

One commenter also requested that DOE clarify whether public school

districts are deemed political subdivisions of a State. DOE recognizes

the broad umbrella of the term ``political subdivision of a State.''

Generally, public school districts fall within the Sec. 451.4(a)

classification.

DOE proposed paragraph (c) regarding sale of electricity to track

the language of section 1212. In the preamble of the proposed rule, DOE

discussed its interpretation of the word ``sale'' as used in the phrase

``for sale in, or affecting, interstate commerce.'' Sale was

interpreted to mean a transaction between two entities, who may be

related, involving the sale of electric energy at fair market value.

Based on this interpretation, electricity generated for use within the

renewable energy facility would not constitute a sale. Twelve

commenters requested further clarification of the requirement for such

sale ``in or affecting interstate commerce.'' Specifically, they asked

DOE to elaborate on the meaning of ``interstate commerce.'' Recognizing

that activities within a State can affect interstate commerce, DOE has

concluded that the statutory requirement concerning effect on

interstate commerce is satisfied when electricity is sold to another

party for consideration and has revised Sec. 451.4(c) accordingly. DOE

has also incorporated the use of the new term ``net electric energy

generated,'' discussed under Sec. 451.2 of this section of the

preamble, to clarify that parasitic energy is not eligible for

incentive payments.

Proposed paragraph (e) listed excluded renewable energy sources. In

the case of excluded geothermal energy, certain characteristics of the

reservoir were specified that included the phrase ``steam quality of 95

percent water or higher.'' Even though the Department did not receive

any comments on this provision, clarifying language has been added in

the final rule interpreting the meaning of this specification. The

Department has interpreted the phrase ``a stream quality of 95 percent

water or higher'' to mean a fluid composed of at least 95 percent water

vapor. These exclusions have been moved to the definition of

``renewable energy source'' in section 451.2, of this final rule.

Proposed paragraph (f) tracked the language of section 1212 which

requires that qualifying renewable energy facilities must first be used

during the period beginning October 1, 1993, and ending on September

30, 2003. Several commenters requested that the Department clarify the

term ``first used'' for facilities that have been converted to

renewable energy. In response to these comments, the Department has

inserted the term ``newly constructed'' in paragraph (e) to distinguish

between facilities which are newly constructed and those existing

facilities which are converted. A new paragraph (f) has been added that

elaborates on the criteria that conversions of existing facilities must

meet to quality for incentive payments. There are two possibilities for

conversion. The first is based on converting an existing renewable

energy facility. In consideration of the comments to address the

eligibility of converting existing renewable energy facilities, DOE

reviewed an IRS revenue ruling that specifies the qualifications of an

eligible facility that contains some used property. The IRS ruled that

such a facility would qualify for tax credit provided the fair market

value of the used property is not more than 20 percent of the eligible

facility's total value (i.e., the cost of the new property plus the

value of the used property). Rev. Rul. 94-31, I.R. B. 1994-21,4. By

revising proposed paragraph (f) (renumbered in this final rule as

paragraph (e)), and adding paragraph (f), DOE has adopted this

criterion in the final rule. Accordingly, a renewable energy facility

that is refurbished such that the fair market value of any used

property does not exceed 20% of the facility's total value and meets

the other criteria specified in this part would be eligible for an

incentive payment. Paragraph (f)(2) specifies eligibility when

converting an existing non-renewable facility. The facility must be

converted in part or in whole to a renewable facility and placed in use

within the specified time period.

Section 451.5 Where and When to Apply

DOE proposed in paragraph (a) that owners or operators of qualified

renewable energy facilities file applications only in response to an

annual notice in the Federal Register. There was little comment on this

proposal, but the tenor of other comments favored simplification of the

application process. Consequently, DOE is eliminating the annual

Federal Register notice and establishing a standard application period.

In the final rule, DOE is requiring that owners or operators of

qualified renewable energy facilities apply during the period beginning

October 1 and ending December 31 of each year (except for fiscal year

1994) for an incentive payment for electricity generated and sold in

the preceding fiscal year. Under paragraph (b)(2), applications for

energy generated in fiscal year 1994 shall be due 45 days after the

date of this rule. The extension of the application period for FY 1994

incentive payments was provided because the standard application period

passed prior to the

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publication of this rule. For clarification purposes, paragraph (b)(3)

provides that if an applicant fails to file an application for payment

for electric energy generated in any fiscal year, energy generated in

that year cannot be subsequently claimed as eligible for an incentive

payment.

Seventeen commenters requested that DOE provide a prequalification

mechanism in the application process to reduce payment uncertainty.

While DOE cannot guarantee an incentive payment, it is adding a

provision, subparagraph (a)(1), for applicants to obtain a preliminary

and conditional determination of eligibility for incentive payment. In

addition, to assist the Department in preparing its annual budget

requests, DOE is adding a provision, subparagraph (a)(2), requesting

that the owner or operator of a qualifying renewable energy facility

provide notification at least 6 months in advance of when the facility

is first expected to be placed into service.

Section 451.6 Duration of Incentive Payments

A statement has been added to this section in the final rule to

give notice of the sunset provision of Section 1212(f) of the statute.

Section 451.8 Application Content Requirements

DOE proposed in paragraph (f) that domestic components and

equipment represent at least 50% of the capital cost of the qualified

energy facility. Five commenters requested that the domestic content

provision either be lowered or eliminated. In consideration of these

comments and in recognition of U.S. international trade policies and

tariff and trade agreements, DOE eliminated this proposed requirement.

DOE proposed in paragraphs (g) and (h) a requirement for an

independently audited and certified statement of the annual and monthly

metered number of kilowatt-hours generated and sold. Six commenters

expressed concern about the cost and time requirements of this

proposal. In response to these concerns, the Department is removing the

``independently audited'' provision, as well as the terms ``certified

statement'' and ``class of customer.'' The Department is instead

requiring that an authorized executive official of the applicant

organization sign the application for the incentive payment which is to

include a statement attesting to the accuracy of the information upon

which the requested payment is based. A commenter proposed adding a

statement in the rule regarding the consequences of falsifying parts of

the application. DOE elected not to include a penalties provision

because of the many remedies that are available for the falsification

of an incentive payment application. For example, 18 U.S.C. Sec. 1001

provides for criminal penalties where an applicant knowingly and

willfully falsifies statements or makes fraudulent statements or

representations. Also, DOE may under certain circumstances conduct an

audit or require an independent audit as provided in Sec. 451.9.

DOE proposed using kilowatt-hours as the unit of measurement for

electric energy generated and sold, cents per kilowatt-hour as the unit

of measurement for the amount of the incentive payment, the British

thermal unit as the unit of measurement for heat, and British thermal

units per pound as the measure for enthalpy. DOE received one comment

which requested that DOE amend the proposed rule to comply with public

laws and Executive Order 12770 directing preferential use of the

International Systems of Units (SI). The commenter recommend the use of

joules, cents per megajoule, and joules per kilogram as the units of

measure in this rule. In response the Department revised all sections

referring to British thermal units or British thermal units per pound

by substituting joules or joules per kilogram as the primary text and

including the English unit equivalent parenthetically. The principal

text now conforms to SI standards for heat energy while the parenthetic

citation allows direct comparison with legislative sources in those

instances where the original legislation contains English unit

citations. Where 2 heat measurements are required to calculate a

dimensionless ratio or fraction, the rule does not specify the

measuring units except to state that both measurements must be made in

the same units. In the case of electric power and energy, DOE

recognizes that the SI unit for energy is the joule; however, a joule

per second is a watt and both watt and watt-hour (and kilowatt-hour)

are considered derivatives of SI units and their use is considered to

conform to the intent of Executive Order 12770. DOE has continued to

use watt and watt-hour since the required electrical measurements will

be made using these units and their non-use promotes increased

opportunities for error on the part of the personnel involved in

electric energy measurement, recording, compilation, and summation, and

in application preparation.

DOE is adding a provision, Sec. 451.8(i), to clarify that the total

electrical energy claimed as eligible for incentive payments is the sum

of net electric energy newly generated and accrued energy. Note that

accrued energy is eligible for reimbursement at the same payment rate

as the newly generated net electric energy.

DOE proposed that applicants provide wire transfer payment

instructions. One commenter requested that this provision be broadened

to include ``other payment instructions.'' DOE has incorporated this

suggestion in this provision. To reflect the changes and modifications

made to this section, some paragraph designations under this section

have been changed.

Section 451.9 Procedures for Processing Applications

In order to meet its responsibility to ensure the accuracy of the

metered energy claimed for incentive payments under this rule, DOE is

reserving the right to require an independent audit, the cost of which

is to be paid for by the applicant. This is in addition to any audit

DOE may perform.

DOE has simplified the payment calculations proposed in paragraph

(e), (redesignated in the final rule as paragraph (d)), to assist

qualified renewable energy facilities in the application process.

Paragraph (d) of the final rule provides that incentive payments under

this part are determined by multiplying the number of kilowatt-hours

calculated under Sec. 451.9(c)(2) by 1.5 cents per kilowatt-hours,

adjusted for inflation.

DOE proposed under paragraph (g), (redesignated in the final rule

as paragraph (e)), a procedure to deal with the possibility that there

could be insufficient appropriations to make the full incentive

payments. In the event that the funds available to be obligated under

this program are less than the amount required to make full payments to

all qualifed applicants, the proposed procedure provided payment first

(and, if necessary, pro rata payment) to all owners and operators of

solar, wind, geothermal, and closed-loop biomass facilities, and

payment second (and, if necessary, pro rata payment) to owners and

operators of all other qualified facilities. DOE received both comments

favoring retention of this priority payout approach and comments

suggesting elimination of this approach. Those favoring its retention

cited the limited market penetration of many of the technologies

designated for priority payment. They also cited the preferential

treatment accorded emerging rather than commercial renewable

technologies in other portions of the Energy Policy Act and asserted

that the legislation's authors

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did not intend payments for technologies already on sound commercial

footing. Comments suggesting elimination of this priority payment

system cited diminished opportunities to encourage investment by the

large number of utilities considering facilities based on second

priority payment technologies. They also stated that the priority

payment system reduces incentives for recovering value from otherwise

non-revenue generating waste management facilities and for achieving

climate change benefits through conversion to energy production of

methane emitting landfills and agricultural waste sites. After

carefully considering all comments, DOE elected to retain the priority

payment system as originally proposed. In reaching this position, DOE

was influenced by four considerations: (1) a major objective of the

program is to assist commercialization of emerging renewable

technologies; (2) with equal priorities for all technologies, the

incentive value of the program for solar, wind, geothermal, and closed-

looped biomass technologies is reduced due to uncertainty regarding the

adequacy of annual funding to make full payment to all recipients; (3)

the establishment of a priority payment category increases the

incentive for investment in the priority technologies since the

probability of adequate annual funding for payment to that category is

higher; and (4) the establishment of a set of preferred renewable

technologies that are consistent with those identified in the tax

incentive sections 1914 and 1916 of the Energy Policy Act results in

closer comparability of renewable energy incentives available to tax

and non-tax paying entities.

Several commenters provided suggestions regarding payout

procedures, including: (a) using available funds to establish an escrow

account to cover 10-year payment to owners or operators to early on-

line qualified facilities based on facility start-up date; and (b)

establishment of a 10-year escrow system based on the date applications

are received. Both of these approaches have the potential for providing

full payout to a limited number of program participants, but they also

result in a larger number of participants receiving no payments. In

addition, they do not increase the incentive value of the program since

the certainty of receiving payments would be known only after the

facility became operational. For the foregoing reasons, DOE did not

adopt these proposals in the final rule.

Several of the commenters who recommended a 10-year escrow account

argued that potential investors in new renewable energy facilities are

unlikely to take account of payments under this program in assessing an

investment without assurances, at the time of investment, that the full

schedule of payments would be made. DOE believes this argument has

merit. However, additional work by DOE and its stakeholders is needed

to develop a payout approach that will maximize the effectiveness of

the program as an incentive for promoting incremental investment in new

renewable energy facilities. DOE intends to publish a notice in the

near future that invites suggestions from interested persons regarding

possible program modifications, including possible statutory or

regulatory changes, that can increase the incentive value of this

effort.

Other Comments

In the preamble of the proposed rule, DOE stated that it had

considered the inclusion of a requirement that to be considered

qualified for receipt of incentive payments, a facility must be

purchased and installed without assistance from other Federal programs.

In consideration of the comments received and the absence of this

restriction in this legislation, DOE did not include such a requirement

in the final rule.

III. Regulatory Review

DOE, in consultation with the Office of Management and Budget (OMB)

has concluded that this is not a significant regulatory action because

it does not meet the criteria which define such actions under Executive

Order 12866, 58 FR 51735, and is therefore exempt from regulatory

review. Accordingly, no clearance of this rule under the provisions of

Executive Order 12866 is required.

IV. Review Under Executive Order 12778

Section 2 of Executive Order 12778 instructs each agency to adhere

to certain requirements in promulgating new regulations. These

requirements, set forth in sections 2(a) and (b)(2), include

eliminating drafting errors and needless ambiguity, drafting the

regulation to minimize litigation, providing clear and certain legal

standards for affected legal conduct, and promoting simplification and

burden reduction. Agencies are also instructed to make every reasonable

effort to ensure that the regulation describes any administrative

proceeding to be available prior to judicial review and any provisions

for the exhaustion of administrative remedies. DOE certifies that this

rule meets the requirements of section 2 (a) and (b) of Executive Order

12778.

V. Review Under Executive Order 12612

Executive Order 12612, 52 FR 41685 (October 30, 1987), requires

that regulations, rules, legislation, and any other policy actions be

reviewed for any substantial direct effects on States, on the

relationship between the national Government and the States, or on the

distribution of power among various levels of Government. If there are

sufficient substantial direct effects, then the Executive Order

requires preparation of a federalism assessment to be used in all

decisions involved in promulgating or implementing a policy action.

This rule, which provides financial incentives to States and others,

will not have a substantial direct adverse effect on the institutional

interests or traditional functions of States.

VI. Review Under the Regulatory Flexibility Act

DOE published a determination in the Notice of Proposed Rulemaking

(59 FR 24982, May 13, 1994) that the proposed rule will not have a

significant impact on small entities. One comment was received

addressing this determination. The Small Business Administration (SBA)

stated that DOE's certification was incorrect because municipalities

with a population of less than 50,000 are classified as small

organizations under the Regulatory Flexibility Act and the Small

Business Administration size standard for an electric utility is the

disposition of four million megawatt-hours per year. DOE agrees with

the SBA characterization of such entities. It is the Department's view

that no regulatory flexibility analysis is warranted because there is

no reason to conclude that the regulations will have a significant

adverse economic impact. The commenter did not identify any such

impacts, and DOE understands that the renewable energy production

incentive is only one of many factors in determining whether a

qualified facility is to be constructed.

The SBA requested that DOE examine alternatives that would widen

the availability of the production incentives through revising the two-

tier allocation process and by treating all biomass technologies

equally when there are insufficient appropriations to fund each

eligible project. DOE acknowledges that small municipalities may have

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opportunities to develop biomass projects which are not closed-loop,

but DOE has chosen to retain the two-tier approach for reasons

addressed in the discussion of section 451.9 in the Preamble. We note

that the two-tier system does not impose regulatory burdens on any

party, but merely allocates benefits in the circumstance of

insufficient appropriations. In enacting the Regulatory Flexibility

Act, Congress was primarily concerned with the high cost of compliance

with regulations of general and uniform applicability which place

disproportionate burdens upon small businesses bound to conform their

conduct to those regulations. See S. Rep. No. 878, 96th Cong., 2d Sess.

3, 6-7, reprinted in 1980 U.S. Code Cong. & Ad. News 2788, 2790, 2793-

2794. Those concerns do not apply to this rule.

VII. Review Under the Paperwork Reduction Act

New information collection requirements subject to the Paperwork

Reduction Act, 44 U.S.C. 3501, et seq., and record keeping requirements

are contained in the provisions of this regulatory action. Accordingly,

this rule was submitted to the Office of Management and Budget for

review and approval of paperwork requirements. The final rule was

resubmitted for OMB clearance of information collection requirements

because of substantial changes. On July 12, 1995, OMB approved the

collection of information through July 31, 1998, and assigned approval

number 1910-0068.

VIII. Review Under the National Environmental Policy Act

Pursuant to the Council on Environmental Quality Regulations (40

CFR 1500-1508), the Department of Energy has established guidelines for

its compliance with the provisions of the National Environmental Policy

Act NEPA) of 1969 (42 U.S.C. 4321, et seq.). Pursuant to Appendix A of

Subpart D of 10 CFR Part 1021, National Environmental Policy Act

Implementing Procedures (57 FR 15122, 15152, April 24, 1992

(Categorical Exclusion A6), the Department of Energy has determined

that this rule is categorically excluded from the need to prepare an

environmental impact statement or environmental assessment.

List of Subjects in 10 CFR Part 451

Electric utilities, Grant programs, Solar energy.

Issued in Washington, DC, on July 13, 1995.

Christine A. Ervin,

Assistant Secretary, Energy Efficiency and Renewable Energy.

For the reasons set forth in the preamble, title 10, chapter II of

the Code of Federal Regulations is amended by adding new Part 451 to

read as set forth below:

PART 451--RENEWABLE ENERGY PRODUCTION INCENTIVES

Sec.

451.1 Purpose and scope.

451.2 Definitions.

451.3 Who may apply.

451.4 What is a qualified renewable energy facility.

451.5 Where and when to apply.

451.6 Duration of incentive payments.

451.7 Metering requirements.

451.8 Application content requirements.

451.9 Procedures for processing applications.

451.10 Administrative appeals.

Authority: 42 U.S.C. Sec. 7254; 42 U.S.C. Sec. 13317.

Sec. 451.1 Purpose and scope.

(a) The provisions of this part cover the policies and procedures

applicable to the determinations by the Department of Energy (DOE) to

make incentive payments for electric energy generated and sold by a

qualified renewable energy facility owned by a State or nonprofit

electric cooperative under the authority of 42 U.S.C. 13317.

(b) Determinations to make incentive payments under this part are

not subject to the provisions of 10 CFR part 600 and such payments

shall not be construed to be financial assistance.

Sec. 451.2 Definitions.

As used in this part--

Closed-loop biomass means any organic material from a plant which

is planted exclusively for purposes of being used at a qualified

renewable energy facility to generate electricity or from a second

harvesting of such a plant if planted before October 1, 1993.

Deciding Official means the Assistant Secretary for Energy

Efficiency and Renewable Energy (or any DOE official to whom the

authority of the Assistant Secretary may be redelegated by the

Secretary of Energy).

DOE means the Department of Energy.

Finance Office means the DOE Office of the Chief Financial Officer

(or any office to which that Office's authority may be redelegated by

the Secretary of Energy).

Fiscal year means the Federal fiscal year beginning October 1 and

ending on September 30 of the following calendar year.

Net electric energy means the metered kilowatt-hours (kWh)

generated and sold, and excludes electric energy used within the

renewable energy facility to power equipment such as pumps, motors,

controls, lighting, heating, cooling, and other systems needed to

operate the facility.

Nonprofit electrical cooperative means a cooperative association

that is legally obligated to operate on a nonprofit basis and is

organized under the laws of any State for the purpose of providing

electric service to its members.

Renewable energy facility means a single module or unit, or an

aggregation of such units, that generates electric energy which is

independently metered and which results from the utilization of a

renewable energy source.

Renewable energy source means solar heat, solar light, wind,

geothermal energy, and biomass, except for--

(1) Heat from the burning of municipal solid waste; or

(2) Heat from a dry steam geothermal reservoir which--

(i) Has no mobile liquid in its natural state;

(ii) Is a fluid composed of at least 95 percent water vapor; and

(iii) Has an enthalpy for the total produced fluid greater than or

equal to 2.791 megajoules per kilogram (1200 British thermal units per

pound).

State means the District of Columbia, Puerto Rico, and any of the

States, territories, and possessions of the United States.

Sec. 451.3 Who may apply.

Any owner, or operator with the written consent of the owner, but

not both, of a qualified renewable energy facility, may apply for

incentive payments for net electric energy generated from a renewable

energy source and sold.

Sec. 451.4 What is a qualified renewable energy facility.

In order to qualify for an incentive payment under this part, a

renewable energy facility must meet the following qualifications--

(a) Owner qualifications. The owner must be--

(1) A State or a political subdivision of a State (or agency,

authority, or instrumentality thereof);

(2) A corporation or association wholly owned, directly or

indirectly, by a State or a political subdivision of a State; or

(3) A nonprofit electrical cooperative.

(b) What constitutes ownership. The owner must have all rights to

the beneficial use of the renewable energy

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facility, and legal title must be held by, or for the benefit of, the

owner.

(c) Sales affecting interstate commerce. The net electric energy

generated by the renewable energy facility must be sold to another

entity for consideration.

(d) Type of renewable energy sources. The source of the electric

energy for which an incentive payment is sought must be a renewable

energy source, as defined in Sec. 451.2.

(e) Time of first use. The date of the first use of a newly

constructed renewable energy facility, or a facility covered by

paragraph (f) of this section, must occur during the inclusive period

beginning October 1, 1993, and ending on September 30, 2003.

(f) Conversion of non-qualified facilities. Existing non-qualified

facilities that are converted must meet either of the following

criteria--

(1) A facility employing solar, wind, geothermal or biomass sources

must be refurbished during the allowed time of first use such that the

fair market value of any previously used property does not exceed 20%

of the facility's total value.

(2) A facility not employing solar, wind, geothermal or biomass

sources must be converted in part or in whole to a qualified facility

during the allowed time of first use.

(g) Location. The qualified renewable energy facility must be

located in a State.

Sec. 451.5 Where and when to apply.

(a) Pre-application and notification. (1) An applicant may submit

at any time a pre-application, containing the information described in

Sec. 451.8 (a) through (e), to obtain a preliminary and conditional

determination of eligibility.

(2) To assist DOE in its budget planning, the owner or operator of

a qualified renewable energy facility is requested to provide

notification at least 6 months in advance of when a facility is

expected to be first used, providing projected information specified in

Sec. 451.8 (a) through (e).

(b) Application. (1) Except as provided by paragraph (b)(2) of this

section, an application for an incentive payment for electric energy

generated and sold in a fiscal year must be filed during the first

quarter (October 1 through December 31) of the next fiscal year.

(2) For energy generated and sold in fiscal year 1994, an

application for incentive payment must be filed on or before September

5, 1995.

(3) Failure to file an application in any fiscal year for payment

for energy generated in the preceding fiscal year shall disqualify the

owner or operator from eligibility for any incentive payment for energy

generated in that preceding fiscal year.

(c) Where. Applications and notifications to the Department shall

be submitted to the Renewable Energy Production Incentive Program, U.S.

Department of Energy, Golden Field Office, 1617 Cole Boulevard, Golden,

CO, 80401.

Sec. 451.6 Duration of incentive payments.

Subject to the availability of appropriated funds, DOE shall make

incentive payments under this part with respect to a qualified

renewable energy facility for 10 fiscal years. Such period shall begin

with the fiscal year in which application for payment for electricity

generated by the facility is first made and the facility is determined

by DOE to be eligible for receipt of an incentive payment. The period

for payment under this program ends with fiscal year 2013.

Sec. 451.7 Metering requirements.

The net electric energy generated and sold (kilowatt-hours) by the

owner or operator of a qualified renewable energy facility must be

measured by a standard metering device that--

(a) Meets generally accepted industry standards;

(b) Is maintained in proper working order according to the

instructions of its manufacturer; and

(c) Is calibrated according to generally accepted industry

standards.

Sec. 451.8 Application content requirements.

An application for an incentive payment under this part must be

signed by an authorized executive official and shall provide the

following information--

(a) A statement indicating that the applicant is the owner, of the

facility or is the operator of the facility and has the written consent

of an authorized executive official of the owner to file an

application;

(b) The name of the facility or other official designation;

(c) The location and address of the facility and type of renewable

energy source;

(d) The name, address, and telephone number of a point of contact

to respond to questions or requests for additional information;

(e) A clear statement of how the application satisfies each and

every part of the eligibility criteria under Sec. 451.4;

(f) A statement of the annual and monthly metered net electric

energy generated and sold during the prior fiscal year by the qualified

renewable energy facility, measured in kilowatt-hours, for which an

incentive payment is requested;

(g) In the case of a qualified renewable energy facility which

generates electric energy using a fossil fuel, nuclear energy, or other

non-qualified energy source in addition to using a renewable energy

source, a statement of the net electric energy generated, measured in

kilowatt-hours, attributable to the renewable energy source, including

a calculation showing the total monthly and annual kilowatt-hours

generated and sold during the fiscal year multiplied by a fraction

consisting of the heat input, as measured in appropriate energy units,

received by the working fluid from the renewable energy sources divided

by the heat input, as measured in the same energy units, received by

the working fluid from all energy sources;

(h) the amounts of accrued electric energy, by sources and by year,

in kilowatt-hours, for which the applicant previously applied and DOE

did not make an incentive payment because of insufficient

appropriations;

(i) The total amount of electric energy for which payment is

requested, including the net electric energy generated in the prior

fiscal year, as determined according to paragraph (f) or (g) of this

section, and the accrued energy as determined according to paragraph

(h) of this section;

(j) Preferred method of payment (check or wire transfer) and

instructions;

(k) A statement agreeing to retain records for a period of three

(3) years which substantiate the annual and monthly metered number of

kilowatt-hours generated and sold, and to provide access to, or copies

of, such records within 30 days of a written request by DOE; and

(l) A statement signed by an authorized executive official

certifying that the information contained in the application is

accurate.

(m) If a nonprofit electric cooperative, a statement certifying

that no claim for tax credit has been made for the same electricity for

which incentive payments are requested.

Sec. 451.9 Procedures for processing applications.

(a) Supplemental information. DOE may request supplementary

information relating to the application.

(b) Audits. DOE may require the applicant to conduct at its own

expense and submit an independent audit, or DOE may conduct an audit,

to verify the number of kilowatt-hours claimed to have been generated

and sold by the qualified renewable energy facility and

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for which an incentive payment has been requested or made.

(c) DOE determinations. Upon evaluating the application and any

other relevant information, DOE shall determine:

(1) Eligibility of the applicant for receipt of an incentive

payment, based on the criteria for eligibility specified in this part;

and

(2) The number of kilowatt-hours to be used in calculating the

incentive payment, based on the sum of net electric energy generated

from a qualified renewable energy source at the qualified renewable

energy facility and sold during the prior fiscal year, and any accrued

energy.

(d) Calculating payments. Subject to the provisions of paragraph

(e) of this section, incentive payments under this part shall be

determined by multiplying the number of kilowatt-hours determined under

Sec. 451.9(c)(2) by 1.5 cents per kilowatt-hour, and adjusting that

product for inflation for each fiscal year beginning after calendar

year 1993 in the same manner as provided in section 29(d)(2)(B) of the

Internal Revenue Code of 1986, except that in applying such provisions

calendar year 1993 shall be substituted for calendar year 1979.

(e) Insufficient Funds. The Assistant Secretary for Energy

Efficiency and Renewable Energy shall determine the extent to which

appropriated funds are available to be obligated under this program for

each fiscal year. If funds determined to be available under the

preceding sentence are not sufficient to make full incentive payments

for all approved applications, DOE shall--

(1) Make incentive payments first, and if necessary on a pro rata

basis, to owners or operators of qualified renewable energy facilities

using solar, wind, geothermal, and closed-loop biomass technologies;

(2) Make incentive payments second, and if necessary on a pro rata

basis, to owners or operators of all other qualified renewable energy

facilities.

(3) Treat the number of kilowatt-hours for which an incentive

payment is not made as a result of insufficient appropriations as

accrued energy for which subsequent application for incentive payment

may be made.

(f) Notice to applicant. After calculating the amount of the

incentive payment under paragraphs (e) through (g) of this section, the

DOE Deciding Official shall then issue a written notice of the

determination to the applicant--

(1) Approving the application as eligible for payment and

forwarding a copy to the DOE Finance Office with a request to pay;

(2) Setting forth the calculation of the approved amount of the

incentive payment; and

(3) Stating the amount of accrued energy, measured in kilowatt-

hours, for each qualified renewable energy facility, if any, and the

energy source for same.

(g) Disqualification. If the application does not meet the

requirements of this part or some of the kilowatt-hours claimed in the

application are disallowed as unqualified, the Deciding Official shall

issue a written notice denying the application in whole or in part with

an explanation of the basis for denial.

Sec. 451.10 Administrative appeals.

(a) In order to exhaust administrative remedies, an applicant who

receives a notice denying an application in whole or in part shall

appeal, on or before 45 days from date of the notice issued by the DOE

Deciding Official, to the Office of Hearings and Appeals, 1000

Independence Avenue, S.W., Washington, D.C. 20585, in accordance with

the procedures set forth in subpart C of 10 CFR part 1003.

(b) If an applicant does not appeal under paragraph (a) of this

section, the determination of the DOE Deciding Official shall become

final for DOE and judicially unreviewable.

(c) If an applicant appeals on a timely basis under paragraph (a)

of this section, the decision and order of the Office of Hearings and

Appeals shall be final for DOE.

(d) If the Office of Hearings and Appeals orders an incentive

payment, the DOE Deciding Official shall send a copy of such order to

the DOE Finance Office with a request to pay.

[FR Doc. 95-17753 Filed 7-14-95; 2:32 pm]

BILLING CODE 6450-01-P-M