PART 504—EXISTING POWERPLANTS Authority: Department of Energy Organization Act, Pub. L. 95-91, 91 Stat. 565 (42 U.S.C. § 7101 et seq. et seq. et seq. Source: 45 FR 53692, Aug. 12, 1980, unless otherwise noted. (Approved by the Office of Management and Budget under control number 1903-0075. See 46 FR 63209, Dec. 31, 1981) § 504.2 Purpose and scope. (a) Sections 504.5, 504.6, and 504.8, set forth the prohibitions that OFP, pursuant to section 301 of the Act, as amended, may impose upon existing powerplants after a review of the certification and prohibition order compliance schedule submitted by the owner or operator of a powerplant. Sections 504.5 and 504.8 are explanatory sections, and § 504.6 provides the informational requirements necessary to support the certification. (b) Sections 504.6 and 504.7, set forth the prohibitions that OFP may impose upon certain electing powerplants, pursuant to former section 301 (b) and (c) of FUA, where OFP can make the findings as to the unit's technical capability and financial feasibility to use coal or another alternate fuel as a primary energy source. The prohibitions may be made to apply to electing powerplants unless an exemption is granted by OFP under the provisions of the Final Rule for Existing Facilities (10 CFR parts 500, 501 and 504) published at 45 FR 53682, Aug. 12, 1980 and 46 FR 59872, Dec. 7, 1981. Any person who owns, controls, rents or leases an existing electing powerplant may be subject to the prohibitions imposed by and the sanctions provided for in the Act or these regulations, if OFP can make the findings required by former section 301 (b) and (c) of FUA. (Department of Energy Organization Act, Pub. L. 95-91, 91 Stat. 565 (42 U.S.C. 7101 et seq. et seq. [47 FR 50849, Nov. 10, 1982] §§ 504.3-504.4 [Reserved] § 504.5 Prohibitions by order (certifying powerplants under section 301 of FUA, as amended). (a) In the case of existing powerplants, OFP may prohibit, in accordance with section 301 of the Act, as amended, the use of petroleum or natural gas as a primary energy source where the owner or operator of the powerplant presents a complete certification concurred in by OFP. The certification, which may be presented at any time, pertains to the unit's technical capability and financial feasibility to use coal or another alternate fuel as a primary energy source in the unit. The informational requirements necessary to support a certification are contained in § 504.6 of these regulations. A prohibition compliance schedule which meets the requirements of § 504.5(d) shall also be submitted. (b) If OFP concurs with the certification, a prohibition order on the powerplant's use of petroleum or natural gas will be issued following the procedure outlined in § 501.52 of these regulations. (c) The petitioner may amend its certification at any time prior to the effective date of the prohibitions contained in the final prohibition order in order to take into account changes in relevant facts and circumstances by following the procedure contained in § 501.52(d). (d) Prohibition order compliance schedule. (1) A schedule of progressive events involved in the conversion project, including construction of any facilities for the production of fuel or fuel handling equipment, and contracts for the purchase of alternate fuels, and estimated date of compliance with the applicable prohibitions of the Act; and (2) A schedule indicating estimated dates for obtaining necessary federal, state, and local permits and approvals. Any prohibition order issued under the certification provisions of §§ 504.5, 504.6, and 504.8 will be subject to appropriate conditions subsequent so as to delay the effectiveness of the prohibitions contained in the final prohibition order until the above events or permits have occurred or been obtained. (Approved by the Office of Management and Budget under control number 1903-0077) (Department of Energy Organization Act, Pub. L. 95-91 (42 U.S.C. 7101 et seq. et seq. et seq. [47 FR 17044, Apr. 21, 1982] § 504.6 Prohibitions by order (case-by-case). (a) OFP may prohibit, by order, the use of natural gas or petroleum as a primary energy source in existing powerplants under certain circumstances. In the case of certifying powerplants under section 301 of the Act, as amended, the petitioner must present evidence to support the certification, required by § 504.6 (c), (d), (e), and (f). In the case of electing powerplants, OFP must make the following findings required by § 504.6 (c), (d), (e), and (f), in order to issue a prohibition order to the unit, pursuant to former section 301 (b) or (c): (1) The unit currently has, or previously had, the technical capability to use an alternate fuel as a primary energy source; (2) The unit has this technical capability now, or it could have the technical capability without: (i) A substantial physical modification of the unit; or (ii) A substantial reduction in the rated capacity of the unit; and (3) It is financially feasible for the unit to use an alternate fuel as its primary energy source. (b) In the case of electing powerplants, OFP must make a proposed finding regarding the technical capability of a unit to use alternate fuel as identified in paragraph (a) (1) of this section prior to the date of publication of the notice of the proposed prohibition. OFP will publish this finding in The Federal Register (c) Technical capability. 2 2 (2) OFP considers that a unit “had” the technical capability to use an alternate fuel if the unit was once able to burn that fuel (regardless of whether the unit was expressly designed to burn that fuel or whether it ever actually did burn it), but is no longer able to do so at the present due to temporary or permanent alterations to the unit itself. 3 3 (3) A unit “has” the technical capability to use an alternate fuel if it can burn an alternate fuel, notwithstanding the fact that adjustments must be made to the unit beforehand or that pollution control equipment may be required to meet air quality requirements. 4 4 (d) Substantial physical modification. 5 5 (e) Substantial reduction in rated capacity. (1) OFP regards a unit's derating of 25 percent or more, as a result of converting a unit from oil or gas to an alternate fuel, as substantial. (2) OFP will presume that a derating of less than 10 percent, as a result of converting a unit from oil or gas to an alternate fuel, is not substantial unless convincing evidence to the contrary is submitted in rebuttal. 6 6 (3) OFP will assess units for which a derating is claimed of 10 percent or more, but less than 25 percent, on a case-by-case. (4) In assessing whether a unit's derating is not substantial, OFP will consider the impact of a reduction in rated capacity of the unit taking into consideration all necessary appurtenances such as air pollution control equipment required to burn an alternate fuel in compliance with environmental requirements expected to be applicable at the date the prohibitions contained in the final prohibition order become effective. However, the potential order recipient may raise in rebuttal the impact of derating on the site at which the unit is located and on the system as well as on the unit itself, if under paragraph (e)(2), or case-by-case, if under paragraph (e)(3) of this section. (f) Financial feasibility. (1) The required coverage ratios on the firm's debt and preferred stock; (2) The firm's investment program; and (3) The financial impact of the conversion, including other conversions which are or may be undertaken voluntarily by the proposed order recipient or imposed upon the recipient's system by the Act, and including pending or planned construction or reconstruction of alternate-fuel-fired plants and plants exempt from FUA prohibitions. 7 7 (Approved by the Office of Management and Budget under control number 1903-0077) (Energy Supply and Environmental Coordination Act of 1974, Pub. L. 93-319, as amended by Pub. L. 94-163, Pub. L. 95-70, and 15 U.S.C. 719 et seq.; et seq. et seq. [45 FR 53692, Aug. 12, 1980, as amended at 47 FR 17044, Apr. 21, 1982; 47 FR 50849, Nov. 10, 1982] § 504.7 Prohibition against excessive use of petroleum or natural gas in mixtures—electing powerplants. (a) In the case of electing powerplants, if OFP finds that it is technically and financially feasible for a unit to use a mixture of petroleum or natural gas and an alternate fuel as its primary energy source, OFP may prohibit, by order, the use in that unit of petroleum or natural gas, or both, in amounts exceeding the minimum amount necessary to maintain reliability of operation consistent with maintaining reasonable fuel efficiency of the mixture. (b) In making the technical feasibility finding required by former section 301 (b) and (c) of the Act and paragraph (a) of this section, OFP may weigh “physical modification” or “derating of the unit,” but these considerations, by themselves, will not control the technical feasibility finding. A technical feasibility finding might be made notwithstanding the need for substantial physical modification. The economic consequences of a substantial physical modification are taken into account in determining financial feasibility. (Energy Supply and Environmental Coordination Act of 1974, Pub. L. 93-319, as amended by Pub. L. 94-163, Pub. L. 95-70, and 15 U.S.C. 719 et seq.; et seq. et seq. [47 FR 17045, Apr. 21, 1982, and 47 FR 50850, Nov. 10, 1982] § 504.8 Prohibitions against excessive use of petroleum or natural gas in mixtures—certifying powerplants. (a) In the case of certifying powerplants, OFP may prohibit the use of petroleum or natural gas in such powerplant in amounts exceeding the minimum amount necessary to maintain reliability of operation consistent with maintaining the reasonable fuel efficiency of the mixture. This authority is contained in section 301(c) of the Act, as amended. The owner or operator of the powerplant may certify at any time to OFP that it is technically capable and financially feasible for the unit to use a mixture of petroleum or natural gas and coal or another alternate fuel as a primary energy source. In assessing whether the unit is technically capable of using a mixture of petroleum or natural gas and coal or another alternate fuel as a primary energy source, for purposes of this section, the extent of any physical modification necessary to convert the unit and any concomitant reduction in rated capacity are not relevant factors. So long as a unit as proposed to be modified would be technically capable of using the mixture as a primary energy source under § 504.6(c), this certification requirement shall be deemed met. The criteria for certification of financial feasibility are found at § 504.6(f). In addition, the powerplant's owner or operator must submit a prohibition compliance schedule, which meets the requirements of § 504.5(d). (b) If OFP concurs with the certification, a prohibition order against the unit's excessive use of petroleum or natural gas in the mixture will be issued following the procedure outlined in § 501.52 of these regulations. (c) The petitioner may seek to amend its certification in order to take into account changes in relevant facts and circumstances by following the procedure contained in § 501.52(d). Note: The authority of OFP implemented under this section should not be confused with the other two fuel mixture provisions of these regulations. One is the general requirement that petitioners for permanent exemptions demonstrate that the use of a mixture of natural gas or petroleum and an alternate fuel is not economically or technically feasible (See § 504.15). The second is the permanent fuel mixtures exemption itself (See § 504.56). (Approved by the Office of Management and Budget under control number 1903-0077) (Department of Energy Organization Act, Pub. L. 95-91 (42 U.S.C. 7101 et seq. et seq. et seq. [47 FR 17045, Apr. 21, 1982] § 504.9 Environmental requirements for certifying powerplants. Under §§ 501.52, 504.5 and 504.6 of these regulations, OFP may prohibit, in accordance with section 301 and section 303 (a) or (b) of FUA, as amended, the use of natural gas or petroleum, or both, as a primary energy source in any certifying powerplant. Under sections 301(c) and 303(a) of FUA, as amended, and §§ 501.52, 504.6, and 504.8 of these regulations, OFP may prohibit the excessive use of natural gas or petroleum in a mixture with an alternate fuel as a primary energy source in a certifying powerplant. (a) NEPA compliance. (b) Environmental review procedure. (c) Financial hardship. (Approved by the Office of Management and Budget under control number 1903-0077) (Department of Energy Organization Act, Pub. L. 95-91 (42 U.S.C. 7101 et seq. et seq. et seq. [47 FR 17046, Apr. 21, 1982] Appendix I to Part 504—Procedures for the Computation of the Real Cost of Capital (a) The firm's real after-tax weighted average marginal cost of capital (K) is computed with equation 1. The terms in equation 1 are defined as follows: W d W p W e R d R p R e INF = Percentage change in the GNP implicit price deflator over the past 12 months expressed as a fraction. f d f p f e t = Marginal federal income tax rate for the current year. (b) Information on parameters used in Equation 1. (2) The predicted nominal cost of debt (R d (3) The predicted nominal cost of preferred stock (R p (4)(A) The predicted nominal cost of common stock (R e Eq 2 R e f m where: R f B = The “beta” coefficient—the relationship between the excess return on common stock and the excess return on the S&P 500 composite index, and R m 1)— (B) The “beta” coefficient is computed with regression analysis techniques. The regression equation is Equation 3. (R e t f t m t f t t Eq. 3 where R f 2 A = A constant which should not be significantly different than zero. e t PRCC t DIVRATE t V sp,t D sp,t The regression analysis is done with sixty months of data. The first month (t = 1) is sixty months before the month in which the firm's current fiscal year started. The last month (t = 60) is the last month of the past fiscal year. (5) Where the parameters specified above are not obtainable, alternate parameters that closely correspond to those above may be used. This may include substituting a bond yield for nominal cost of preferred stock where the former is not available. Where the capital structure does not consist of any debt, preferred equity, or common equity, an alternate methodology to predict the firm's real after-tax marginal cost of capital may be used. Example of using alternate parameters that closely correspond to those above are: (A) In the case of industrials, who do not typically issue preferred stock, the predicted nominal cost of preferred stock (R P (B) If necessary, the following assumptions can be made to determine the nominal cost of debt or preferred stock and their flotation costs. (i) Where a company issued privately placed debt that was not rated, the rating, applied to preferred stock could be used to determine the cost of debt and its flotation cost. (ii) Where a company issued privately placed preferred stock that was not rated, the rating applied to debt could be used to determine the cost of preferred stock and its flotation costs. (iii) In the case where all issues were privately placed, the current average yield on all newly issued debt or preferred could be used to determine the cost of debt or preferred respectively, and an average flotation cost, for debt or preferred, could be used. (C) Evidence Requirements. Footnotes (1) Ibbotson, R.E. and R.A. Sinquefield, Stocks, Bonds, Bills, and Inflation, Costs of Capital and Rates of Return for Industrial Firms and Class A&B Electric Utility Firms, (2) As an option, R f where: D t Survey of Current Business N = Number of days to maturity. [46 FR 59920, Dec. 7, 1981] Appendix II to Part 504—Fuel Price Computation (a) Introduction. Annual Energy Outlook The fuel price and inflation indices will change yearly with the publication of the AEO. (b) Computation of Fuel Price and Inflation Indices. EQ II-2 is: where: PXV i i P o EQ II-2 is: where: IX i GX i GX o (2) The parameters to be used in EQ II-1 are the Base Case fuel price projections found in EIA's current AEO. (3) When computing annual inflation indices, the petitioner is to use the Base Case National Macroeconomic Indicators (NIPA GNP Price Deflator) contained in EIA's current AEO. AEO AEO (4) Table II-1 is provided as an example of the application of equations II-1 and II-2. This table contains annual fuel price indices for distillate oil, residual oil, natural gas, and coal. It also contains annual inflation indices. These values were computed from information contained in Table A3 and Table A11 of EIA's AEO, 1989. Table II-1: Price and Inflation Indices for use in the Cost Calculations Year Distillate (DPX) Residual (RPX) Natural gas (GPX) Coal (CPX) Inflation (IX) 1986 1.0000 1.0000 1.0000 1.0000 1.0000 1987 0.9810 1.2134 0.9508 0.9231 1.0334 1988 0.9429 0.9407 0.8934 0.8876 1.0658 1989 0.8929 0.9328 0.9057 0.8639 1.1054 1990 0.9905 1.0119 0.9221 0.9112 1.1607 1991 1.0381 1.0751 0.9344 0.9172 1.2204 1992 1.0929 1.1344 1.0205 0.9231 1.2836 1993 1.1595 1.2292 1.1148 0.9349 1.3512 1994 1.2286 1.3241 1.1844 0.9467 1.4214 1995 1.3000 1.4150 1.2705 0.9527 1.4960 1996 1.4000 1.5415 1.4016 0.9586 1.5768 1997 1.4762 1.6403 1.4918 0.9704 1.6585 1998 1.5452 1.7273 1.5615 0.9763 1.7410 1999 1.6143 1.7905 1.6475 0.9882 1.8235 2000 1.6690 1.8340 1.7049 0.9941 1.9025 2001 1.6690 I.8340 1.7049 0.9941 1.9025 2002 1.6690 1.8340 1.7049 0.9941 1.9025 2003 1.6690 1.8340 1.7049 0.9941 1.9025 2004 1.6690 1.8340 1.7049 0.9941 1.9025 2005 1.6690 1.8340 1.7049 0.9941 1.9025 2006 1.6690 1.8340 1.7049 0.9941 1.9025 2007 1.6690 1.8340 1.7049 0.9941 1.9025 2008 1.6690 1.8430 1.7049 0.9941 1.9025 2009 1.6690 1.8340 1.7049 0.9941 1.9025 2010 1.6690 1.8340 1.7049 0.9941 1.9025 (C) Fuel Price Computation. i EQ-II-3 is: FPB i i where: FPB i MPB = The current delivered market price of the proposed fuel. PX i or: (2) When planning to use more than one fuel in the proposed unit(s), the petitioner must use Equation II-1 and Equation II-3 to calculate the annual fuel price of each fuel to be used. The petitioner then must estimate the proportion of each fuel to be burned annually over the useful life of the unit(s). With these proportions and the respective annual fuel prices for each fuel, the petitioner must compute an annual weighted average fuel price. The methodology used to calculate the weighted average fuel price must follow standard statistical procedures and be fully documented within the petition. (d) Fuel Price Computation—Alternate Fuel. i Equation II-4 is: PFA i i where: PFA = The price of the alternate fuel in year i. APF −i APX i In most cases the alternate fuel will be coal. The petitioner must use Equation II-1 (paragraph (b)) to compute the escalation rate (APX i [54 FR 52896, Dec. 22, 1989]