Final regulatory impact analysis and final regulatory flexibility analysis for regulations to implement Public Law 96-320, the Ocean Thermal Energy Conversion Act of 1980

[From the U.S. Government Printing Office, www.gpo.gov]

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Ocean Thermal Energy Conversion
Final Regulatory Impact- Analysis
Rnd Regulatory Pexibility Analysis

U,S. DEPARTMENT OF COMMERCE
Nationd Ocecnic and Atmospheric Administration
Office of Ocean Minerals and Energy
jUiy 1981
TK
, .41
F5
1981

Final Regulatory Impact Analysis

and

Final Regulatory Flexibility Analysis

for

Regulations to Implement

Public law 96-320,

The Ocean Thermal Energy Conversion Act of 1980

U.S. DEPARTMENT OF COMMERCE N(I.

COASTAL SERVICES CENTER
2234 SOUTH HOBSON AVENUE
CHARLESTON SC 29405-2413

July 1981

Property of CSC Library

United States Department of Commerce

National Oceanic and Atmospheric Administration

Office of Ocean Minerals and Energy

Copies of this analysis can be obtained by writing to the Director, Office
of Ocean Minerals and Energy, Roan 410, Page Building No. 1; 2001 Wisconsin
Avenue, N.W.; Washington, D.C. 20235 or by telephoning (202) 2543483.

Table of Contents

Page
I. INTRODUCTION 1

II. BACKGROUND 2

A. OTEC Technology 2
B. Expected OTEC Industry, Benefits and Costs 4
C. Legislative Background 12
D. Regulatory Background 14
E. Summary of Issues Raised by Public Comments 15

III. REGULATORY PRCBLEM AREAS 17

Problem 1. General Regulatory Approach 17

A. Statement of the Problem 17
B. Alternative Approaches and Their Consequences 18
C. Selection of Preferred Alternative 27

Problem 2. OTEC Site Evaluation and Preconstructin Testing
Activities 28

A. Statement of the Problem 28
B. Alternative Approaches and Their Consequences 29
C. Selection of Preferred Alternative 31

IV. IMPACT ON SMALL ENTITIES 32

Figures

Figure 1. OTEC Commercialization Schedule 6

Figure 2. OTEC Deployment Scenario for Year 2000 7

Figure 3. OTEC Producer Requirements, Plant and Material 11
Figure 4. Cumulative OTEC Producer Investment 11

Final Regulatory Lupact. Analysis
and
Final Regulatory Flexibility Analysis

for Regulations to Implement
Public Law 96-320

The Ocean Thermal Energy Conversion Act of 1980

I. INTRODUCTION

The regulations discussed in this analysis implement Public Law 96-320,

the Ocean Thermal Energy Conversion (OTEC) Act of 1980, by establishing a

regulatory systEm which will permit and encourage ccnuercial develcpment of

OTEC technology -

The National Oceanic and Atmospheric Administration (NOAA) has prepared

this Final Regulatory Impact Analysis of the regulations as part of its

canpliance with Executive Order 12291, which was issued by President

Reagan on February 17, 1981. The Executive Order requires preparation of a

Regulatory Lupact Analysis containing information on potential benefits and

costs in connection with every major rule. NOAA has determined that the OTEC

regulations are major under the definitions contained in the Executive Order.

NOAA has ccmbined with the Final Regulatory Lipact. Analysis required

by the Executive Order the Final Regulatory Flexibility Analysis required by

the Regulatory Flexibility Act (Public Law 96-354) concerning the effect of the

regulations on small entities.

A preliminary version of this document was issued on March 30, 1981.

Public comments were solicited, and this final document reflects consideration

of the ccm-nents; received. A discussion of the ccmTents is contained in section

II.E. of this document.

II. BACKGROUND

A. OTEC Technology

ocean thermal energy conversion (OTEC) is a renewable process for

using solar energy stored in the warm surface waters of the tropical and

subtropical oceans to perforn useful work., This may be generating electricity

for dcoestic and industrial consumption, or providing energy for industrial

refining and manufacturing activities. Several different techniques have

been considered as the basis for OTEC power generation. Two of these, closed

cycle and cpen cycle, are believed to hold the greatest promise of being

economically viable and technically feasible in the foreseeable future.

The closed cycle technique employs a working fluid (most likely

ammonia) enclosed in a system of piping. This fluid is exposed across a

heat exchanger surface to oceanic surface waters that have been %ermed by

the sun. This vaporizes the working fluid causing it to pass through and

drive a gas turbine. This produces rotary motion that is used to drive an

@electric generator and so to produce electricity for distribution to

industrial and residential users, or for use directly on site to power

energy-intensive processing or manufacturing activities. After passing

through the turbine,- the working fluid is returned to the liquid phase by

exposure in a heat exchanger to cold water drawn from the deep ocean. The

working fluid is then revaporized by being pumped back through the werm

water heat exchanger, and the cycle is repeated. This means of power

generation does not use any fuel. It is based on the repeated vaporization

and condensation of the working fluid that is made possible by taking

advantage of the temperature difference between the sun-heated surface %eters

and the perpetually cold deep waters of the tropical oceans. Even the pumps

used to draw in the warm and cold water do not need conventional fuel as

they are powered by a part of the energy produced by the process itself.

The open cycle system is, in most ways, quite similar to the closed

cycle system. However, in the open cycle system the seawater itself is the

working fluid - Warm surface water is puaped into an evaporator in which the

pressure is reduced to the point where the seawater boils. This produces

steam which passes through and drives a steam turbine which produces

electricity or other usable energy as in the closed system. After leaving

the turbine, the steam is cooled and condensed by exposure to cold, deep

water in a heat exchanger. The open cycle technique has the advantage that

the dissolved salts do not acccnpany the surface water when it forms steam.

Thus, a valuable byproduct, fresh water, results when this steam condenses.

The earliest ccmmercial applications of the = principle are expected

to use the closed cycle process. There is also, however, considerable

interest in open cycle applications because of the additional benefit of

fresh water production.

Generation of electricity is expected to be the first commercial appli-

cation of the OTEC process, with early cam-ercial plants beginning operation

by the mid 1980s. This will probably be from facilities which are moored to

or mounted directly on the ocean floor, or located partly on land with their

intake and discharge pipes extending cut into the ocean. The electricity

from moored or bottoat-@unted facilities will be brought to shore by submarine

electrical transmission cables. OTEC facilities located partly on land could

be located in areas where deep water is found very close to shore; such sites

exist in Hawaii, Guam, and other U.S. islands. OTEC facilities are expected

to vary in size from about 10 nie-gawatts (a size suitable for small islands)

to about 400 megawatts (about half the size of a large nuclear power plant).

Another possibility for the impleTentation of the OTEC process is to

use -the OTEC energy directly on the site. It could be used *for production

of energy-intensive products, such as hydrogen or anmnia, or for energy-

intensive processing activities, such as aluuinum. smelting.

Such onsite manufacturing or processing could take place on facilities

situated on or close to shore, or on roving plantships. For the facilities

near shore, the product would be moved ashore by a product pipeline or by

vessels. Self-contained plantships that would use OTEC techniques to

obtain the energy needed to run onboard,rmnufacturing or processing

activities could float urzmred or move slowly under their own power as they

sought cut and followed cptimum. thermal gradient conditions. Vessels would

be used to transport OTEC plantship, products to their destinations. Such

plantships are expected to arploy closed cycle systems. Ammonia will

prcbably be the first product produced on 0MC plantships; ccmnercial OTEC

ammonia plantships are expected to begin cperation in the@late 1980s.

B. Expected OTEC Industry, Benefits and Costs

The potential benefits to society from developmnt of a U.S. commercial

OTEC industry are expected to far outweigh the potential costs. The major

benefits are:

1. a new source of energy competitive with imported oil,

2. major new U.S. export cpportunities,

3. alternative mans for production of energy-intensive products,
and

4. major expansion cpportunities for other sectors of the U.S.
economy.

The amunt of ocean thermal resource available to be used by OMC plants

is huge. The OTEC process needs temperature differences of 20* Centigrade

or more between warm surface and deep ocean waters to cperate on an efficient

basis. Ocean temperature gradients meting this requirement at depths of

1,000 meters or less are found in areas of the ocean between latitudes 30*

North and 25* South. Estimates of the total ocean thermal energy base range

from, 100 million to 10 Billion megawatts thermal. An excellent resource

base exists in the Western Pacific Ocean, the Caribbean area, the tropical

west and southeastern coasts of the Americas, the Indian Ocean, and near

both coasts of Africa. Potential areas of deployment for the United States

include Guam, American Sam:)a, other Western Pacific islands, Hawaii, Puerto

Rico, the U.S. Virgin Islands, and the Gulf of Mexico. The total ocean

thermal resource within 200 miles of the United States is estimated as about

equal to total present U.S. energy usage.

Th e earliest camiercial deployments are expected to occur at sites

where an acceptable thermal gradient is available near to shore at a depth

of 500 meters or less, and where-electricity costs are extremely high. Most

U.S. islands vAiich depend almost entirel y on imported oil for generation

of electricity have such possible OTEC sites, and they are expected to

be the location of the first cam-nercial U.S. OTEC facilities.

A goal has been set of installation of 10,000 megawatts of U;S. OTEC capacity

by 1999. Several scenarios have been developed to show bow this goal could be

met. %;o of those scenarios are summarized in figures 1 and 2. Each scenario

shows U.S. deployment of 14,000 magawatts electric in OTEC capacity by the year

2000. Other'scenarios project greater U.S,- deployment of OTEC facilities and

plantships, with the highest scenario projecting deployment of 39,000 magawatts

of OTEC capacity by 1999. The House of Representatives Committee on Merchant

Marine and Fisheries estimated in its report on the legislation which became

the OTEC Act of 1980 (H. Rept. 96-994, p. 25) that OTEC could provide from 5

to 20 percent of all new electrical generating capacity ccming on line in the

FIGURE 1

Schedule
OTEC Commercialization

Pilot plant (40 MWe) Key: Order Date
Demonstration (400 MWe) Into Dock
From Dock
Plants 1. 2 (@ 400 MWe) On-Line

Plants 3, 4. 5

Plants 6.7,8, 9

Plants 10. 11, 12,13,14

Plants 15. 16.17.18, 19, 20,

Plants 21.22.23.24.25. 26.27
Plants 28.29.30.31.32 33.34,
1980 1985 1990 1995 2000
Year

from Paul A. Curto and Robert Cohen, "Producer Incentives for OTEC
CommerciaLization," Proceedings, 7th Ocean Energy Conference, 1980

U.S. by the year 2000 if the OTEC program is successful and is aggressively

pursued. Use of OTEC would become that extensive only if-As predicted-OTEC

electricity is cost-competitive with electricity generated from oil, coal,

and nuclear power plants. Recent Department of Energy evaluations give a

projected cost for OTEC-generated electric power and stored chemical energy

in 1990 and beyond which is competitive with costs for power or products

from coal, fossil fuel, and nuclear sources. If current construction cost

estimates are accurate, OTEC electricity is now competitive with electricity

generated from imported oil on U.S. islands. Based on current economic

analyses and projected market conditions, the Department of Energy predicts

that island baseload electricity will cost 130 to 230 Mills/KWhe (in 1980

dollars) by 1995; using today's technology, OTEC can generate electricity
at a cost of 100 Mills/KWhe, (in 1980 dollars). The use of this less expensive

electrical generation technology would enable residents and businesses to

avoid rising electricity costs caused by continuing increases in the price

of fuel, and would assure a continuous source of reasonably-priced electricity

FIGURE 2

OTEC DEPLMENT SCENARIO FOR YEAR 2000

BASELOAD ELECTRICITY
Pla:C @=,.'Xumber of Total Percent of Total
, C.@
P
Region Size . e laces Output (GWe) Projected Need*
fyp

Gulf of Mexico Closed-cycle 400 5 Z-O <1

Puerto Rico Closed-cycle (400, 100. 40) 4 0.94
open-cycle 40 2 0.08

SUBTOTAL-PUERTO RICO 6 r.uz 20

Virgin Islands
St. Croix Closed- or Open-cycle 40 2 0.08 70
St. Thomas Closed- or Open-cycle 40 2 .0-08 70

SUBTOTAL-VIRGIN IS. 4 0.16 70

Hawaii Oahu Closed-cycle .00 2 0.8 40
Hawaii Closed- or Open-cycle 100 1 0.1 50
Ka Closed-cycle 40 1 0.04 50
Maui, Lanai, and Molokai Closed- or Open-cycle 40 2 0.08 50

SUBTOTAL-HAWAII 6 1.02 40

Guam Closed- or Open-cycle 40 3 0.12 40

Nortnern Marianas Islands Closed- or Open-cycle 10 1 0.01 60
BASELOAD TUTAL 21 7 4.33

A@OLON IA PLANTSHIPS

Gulf of %exico Closed-cycle 300 .9 4.5
South Atlantic Closed-cycle 300 9 4.5

TOTAL AMMONIA Is 9.0

PLANTSHIPS

ALL@11=1,4 ?"%TSHIPS

Gulf oi Mexico Closed-cycle 0 1 0.4
South Atlantic Closed-cycle 400 1 0.4
Closed-cycie @00 L 0.4
Norrh Pacific TOTAL ALL@XlbllJh 3

PLANTSHIPS

G"M TOTAL 46 14.53

Calculated by multiplying current per capita electricity usage by the population
projected for the year 2000.

from Draft Envirormental I=act Statement on Regulations to
Implement the CTF.C Act of 1@80

in future years.

If ten thousand megawatts of capacity replaced the use of imported

oil for electricity generation the resulting impacts (assuming OTEC operation

at 90% of capacity) wmld be reduction of oil imports by 360,000 barrels per

day and reduction of U.S. import costs (at $35 per barrel) by $4.6 Billion

per year. Preliminary studies conducted for the Department of Energy indicate

that installation of 10,000 MW of OTEC generating capacity by 1999 could

displace a cumulative total of $18 Billion spent on imported oil by that year.

An econometric study based on an OTEC development scenario similar to

that of Figure 1 projects that by 1997 construction of OTEC plants could

generate the following annual econcruic effects (Dr. James R. Roney, "Ehployment

and Econanic Drpacts of OTEC CamTercialization," March, 1981):

� employnmt of 144,000 uorkers, 60,000 of thern at shipyards
or other OTEC plant construction sites

� personal income from construction activities (and multiplier effect)
of $3.9 Billion

� retail sales fran construction salaries (and multiplier effect) of
$1. 2 Billion

� local and state taxes of $180 million

� Federal income taxes of $600 million.

Once U.S. ccapanies have demonstrated the ccnmercial viability and

dependability of OTEC technology at U.S. islands, they could begin to develop

export markets for U.S.-built O= plants, in addition to continuing to

deploy OTEC plants for domestic use. Japan, France, Sweden, the Netherlands,

and several other countries are wurking with O= technology, but at the

present time the United States has a slight technological lead. Japan has

already sold an OTEC plant to the island nation of Nauru.

The potential for export of U.S.-built O= plants can only be described

as vast. ApproxiTrately 70 countries and territories@--mury of them lesser

developed countries now dependent on. imported oil-are located within 200

Miles of usable OTIDC resource. Mien the added electric power generation

needs of these countries between the years 1990 and 2010 are 'examined, the

potential export maxkets for which U.S. -built OTBC plants could compete are

found to be able to accommodate on the order of 100 10 Mw plants, 500 40

Mw plants, 1100 100 Mw plants, and 1100 400 Mw OTBC plants. Even if U.S.

companies are able to supply only ten percent of this potential market,. U.S.

exports of OTBC plants during those years would amount to a capital investment

of about $171 Billion (1980 dollars) and would have major beneficial effects

on U.S. employment and trade balances and in reducing worldwide dependence on

oil. The $171 Billion capital investment in OTEC would result in an estimated

cumulative displacement of $343 Billion (1980 dollars) of inported oil by

the year 2010 (Lyle E. Dunbar, "Market Potential for O`= in Developing

Nations," Sth Ocean Energy Conference, June 1981).

The first commercial use of OTEC is expected to be for generation of

electricity for distribution through normal electric company power grids.-

However, either stationary OTEC platforms or moving plantships could use

OTBC electricity on site to make hydrogen o r ammonia (NH3). Hydrogen would

be produced by electrolysis from. seawater, and nitrogen for ammonia

production would be obtained by separation fran air. Because hydrogen is

extrenely flammable, it can be.shipped more safely over long distances when

combined with nitrogen as ammonia.

OTEC ammonia is expected to be used in production of fertilizer, and as

a means of transporting hydrogen to large fuel cells which would reconvert

it to electricity. Aamonia is the principal source of nitrogen for

fertilizer. Current ammonia production typically uses natural gas both as a

raw material and for process heat. In 1978 approximately 3% of the natural

gas produced in the United States (an amount approximately equal to the

10.

total residential use of natural gas in. California) was used to make ammonia.

The substitution of OTEC ammonia for ammonia made fran natural gas could

conserve the'equivalent of 300,000 to 500,000 barrels of oil per day.

Scrne U.S. ammonia producers are obtaining the natural gas they use

under long-tenn contracts under which they pay as little as $.17 per 1,000

,cubic feet. The.average price being paid for natural gas used in ammonia

production is estimated as $-85 per 1,000 cubic feet, compared to a new-

contract price of well over $2.00. With 'oil at $35 per barrel, the Btu

equivalent price of natural gas would be $6.03 per 1,000 cubic feet. As

the ammnia producers' long-tem contracts for natural gas expire and -they

begin to have to pay current prices for natural gas, the $150 per ton price

of ammonia produced fran natural gas could easily triple or quadruple. The

availability of OTEC anTmnia-which will not depend on natural gas--will
@elp to put a ceiling an the price of ammonia, and will teTper the fert-

tilizer cost increases which would otherwise create financial difficulties

for farmers and cause trenvndcus inflation in the price of food.

New types of fuel cells which can convert hydrogen to electricity are

now being developed and tested. Such fuel cells could use the hydrogen frm

OTEC ammonia to generate baseload power at any location to which the ammonia

could be transported. Transport of ammonia could serve as a substitute for

use of high-voltage transmission lines to bring electricity to remote or

hard-to-reach areas. Because the fuel cells would produce no pollution as

by-products-only heat and water-large banks of them could eventually be

used to produce electricity for cities suffering severe air pollution

problem

Construction of 10,000 megawatts,of installed U.S. OTEC capacity by

the year 1999 will stimulate significant increases in manufacture of materials

11.

FIGURE 3 FIGURE 4

OTEC PRODUCER REQUIREMENTS, PLANT AND MATERIAL Cumulative OTEC Producer Investment Distribution
OTEC Plant OTEC Titanium OTEC Cable OTEC Graving Dock
Capacity Requirements Requirements Requirements
Year (Mile) (Short Tons) (Miles) Mileage in Service) Cumulative
1981 0 0 0 0 Producer
1982 0 0 6 1 Investment
1983 0 3000 0 1 (10% dollars,
1984 40 0 0 1 1980
1985 40 0 0 1
1986 40 5000 80 1
1987 40 5000 80 1
1988 40 10,000 160 2
1989 440 10,000 160 3
1990 440 15,000 240 3
1991 1240 15,000 240 4
1992 2440 20,000 320 5
1993 2440 30,000 480 5
1994 4040 40,000 640 6
1995 6040 40,000 640 7
1996 6040 50,000 800 7
1997 6440 50,000 800 7
1998 11,240 50,000 800 7
1999 11,240 50,000* 800* 7*
2000 14,040 50,000* 800* 7*
* 10,000 ST Titanium and 160 miles of cable in 1999 are used for plants
coming on-line by 2000: the amounts indicated for 1999 and 2000
above this level are for plants to be on-line past-2000.

from Paul A. Curto and Robert Cohen, "Producer Incentives for OTEC
Commercialization," Proceedings, 7th Ocean Energy Conference, 1980

and components used in OTEC plants. Curto and Cohen used their development

scenario (fifure 1) to estimate the increased facilities which would be

needed in three sectors--titanium, submarine electric cables, and shipyard

graving docks--to handle the projected OTEC business. Their estimates of

the new business in these three areas are listed in Figure 3, and their

estimate of new physical plant construction in those sectors to handle the

new business is presented in Figure 4. Curto and Cohen assumed that titanium

will be the material of choice for OTEC heat exchangers. However, assessment

of heat exchangers made of aluminum alloys is proceeding. It is expected

that the primary heat exchanger material in most commercial OTEC plants will

be aluminum.

The projections of Curto and Cohen for only three aspects of OTEC plant

12.

construction serve as examples of the massive expansion opportunities which

development of a commercial = industry will present for the U.S. economy.

Their projections of the opportunities for economic expansion are actually

quite conservative, since the 0= develcpment scenario on which their

projections were based did not include any construction of OTEC plants for

export to other countries.

The net environmental impacts due to ccmmercial development of

are expected to be minimal ccnpared to the brpacts of nuclear and fossil-fueled

electricity generation: however, there are uncertainties associated with the

movernent of large volumes of ocean water that must be better assessed.

Development of a cam-ercial aISC industry will cause some economic

dislocations, primarily in sectors involved in construction of other types

of power plants and delivery of forms of energy which are more expensive than

OTEC energy. For many ccnpanies, such as those who manufacture turbines for

conventional electrical generation or build tankers to transport oil, the

market opportunities lost because of the new OTEC industry will be replaced

by opportunities to participate in the OTEC industry. Suppliers of oil

and natural gas my suffer gradual changes in their delivery patterns and

reductions in projected demand as increasing numbers of 0TEC plants begin

operation. These negative economic irrpacts are expected to be several orders

of magnitude smaller than the economic benefits of amrgence of a large and

vital cormiercial OTEC industry.

C. Legislative Background

The Ocean Thermal Energy Conversion Act of 1980 (OTEC Act) -0as passed
by the Congress during the summer of 1980, and was signed into law on August

3, 1980. The primary purpose of the Congress in passing the new law %as to

establish a legal and regulatory framework to permit and encourage development

13.

of a ccmTercial OTEC industry.

After testimony frcn industry and other witnesses, the Congress concluded

that without passage and implementation of the OTEC Act of 1980, legal and

regulatory barriers would prevent U.S. ccnpanies fran building and cperating

ccmnexcial OMC plants. The institutional barriers addressed by the Act

consisted primarily of uncertainty abmt legal and regulatory matters which-

if not addressed in specific legislation and regulations--would cause potential

investors to place too high a risk on investment in OTEC cperations, and to

refrain fran investing in them.

The legal and regulatory uncertainties which would have prevented invest-

ment in OTEC cperations included:

1. Lack of any clear statement that OMC activities are legal
.under national or international law;

2. Lack of any law or regulation assuriri@-c6htinued access to
the ocean thermal resource being used by a particular OTEC
plant;

3. Lack of clarity as to whether admiralty, land-based, or scme'
other body of residual and ccmmn law would apply to activities
on aMC platforms located on the high seas beyond the normal
coverage of national laws;

4. Absence of certainty that OTEC cperations would not be declared
illegal or partially restricted in the future by national laws
or international treaties; and

5. Lack of clarity as to which federal agency regulations might
apply to OTEC cperations in U.S. waters, and how those regulations
which might apply would be interpreted when applied to O=
cperations.

Legal and regulatory uncertainties such as those enumerated above would

have made it impossible to guarantee a potential investor the return of his

capital, no matter how great the potential profits of the OTEC project appeared

to be. Consequently, potential OTEC ovmers would have found it extremly

difficult, if not impossible, to cbtain loans or other financing. The absence
of a clear legal status for OTEC plants would also have made it either very

14.

difficult or impossible to obtain insurance for an OTEC plant. The officers

of a public corporation might even have been accused of violating their

fiduciary trust to their stockholders by taking undue risks if they cc=titted

corporate fLmds to an CTEC venture.

The OTEC Act accarplishes its primary purpose by establishing United

States jurisdiction over OTEC facilities located in the U.S. territorial sea

or connected to the United States by pipeline or cable, OTEC facilities or

plantships documented under U.S. laws, and OTEC plantships owned or operated

by U.S.,citizens; specifying which federal and State laws apply to OTBC

facilities and plantships under U.S. jurisdiction; and establishing a fair

and expeditious licensing system which will insure cmpliance of U.S. OTEC

facilities and plantships with both U.S. and international law. The license

processing system specified in the Act will produce a single decision

representing all involved federal agencies without the protracted delays

which sometimes occur in other governmental licensing processes. The li-

censing system is to be administered by NOAA, and is the primary subject

of the regulations discussed in this document. The Act also contains

several provisions relating to financing of OTEC facilities and plantships;

those provisions are to be implemented by the Maritime AdIninistration of the

Department of Camnerce, and are not included in the NOAA regulations.

D. Regulatory Background

There are at present no regulations which specifically apply to

OMC operations. No existing regulations of any federal agency specifically

state whether or not they apply to =mercial activities - Scme agency

regulations, such as the Environmental Protection Agency's National Pollutant

Discharge Elimination System and ocean discharge regulations, apply to narrow

aspects of OTEC,cperations., In most cases, however, it is not clear whether

or not existing regulations apply to ccmercial OTEC operations. This

rulemaking delineates clearly which existing federal agency regulations will

apply to commercial OTEC activities, and establishes a licensing system

which will fully implement the legal and regulatory framework which must be

in place before camnercial OTEC operations can commence. Issuance of the

regulations is required by section 102(a) of Public Law 96-320, the Ocean

Thermal Energy Conversion Act of 1980.

In order to encourage public participation in the preparation of the

proposed regulations, NOA A published an Advance Notice of Proposed Rulenaking

in the November 21, 1980 edition of the Federal Reqister (45 Fed. Reg. 77,038

(1980)). That notice listed some of the important issues involved in the

rulemaking and invited oral or written cam-ents. A number of such ccmments

were received and analyzed, and a public hearing to receive comments

on the issues involved hi the rulemaking was held on J@Lnuary 7, 1981. Based

on the camients received, NOAA refined the regulatory alternatives for

discussion of them in the preliminary version of this document, and issued a

Notice of Proposed Rulemaking in the March 30, 1981 edition of the Federal

reflect public comments received at three public hearings or in writing.

E. Summary Of Issues Raised by Public Comments

In response to the Notice of Proposed Rulemaking which was acccupanied by

release of the preliminary version of this document, NOAA received testimony

at three public hearings and a number of written comments. While none of

the oral or written ccmn--nts were specifically directed to the Preliminary

Regulatory Irrpact Analysis/Initial Regulatory Flexibility Analysis, a nunber

of camments contained statements regarding NQAA's general approach in the

Notice of Proposed Rulemaking.

16.

All of those cam-nents except one supported NQAA's selection of the

"minimum regulation" general approach as the approach which will best

permit the innovation and flexibility necessary in the early years of

implementation of a new technology.

One ccmment suggested that if the minim= regulation alternative is to

be implemented, "this concept should only be used once our predictive ability

as regards to environmental impact has been refined. It would seem appropriate

to proceed with caution and apply the detailed regulation approach in the

initial stages of development of 0=, such as the deployment of a pilot plant.

Furthermore, this approach should be closely coupled to an apprcpriate

research program of sufficient breadth and sccpe. The research program should

be generic in nature, but tailored to the particular characteristics of the

site."

NQAA notes that this ccmment relates more directly to the manner in

which NOAA acts while considering individual site-specific license applications

than to the contents of the generic licensing regulations. NOAA continues to

believe that the inclusion of detailed substantive provisions or guidelines

and performance standards in the generic licensing regulations is undesirable

at this early stage of OTEC technology because such requirements would limit

technology development and because it wculd be very difficult to justify such

requirements with the existing knowledge base. For these reasons NOAA did

not change its choice of preferred general approach.

A number of ccmments which agreed with NQAA's selection of the "mininm

regulation" general approachxAent on to suggest specific changes in the

proposed regulations to better implement that approach. NQAA has adopted

those suggested changes where it was possible to do so. A ccmplete description

of those suggestions and changes is contained in the preamble of the Notice

17.

of Final Rulemaking.

No camnents specifically addressed NCAA's choice of the "no regulation"

alternative on OIEC site evaluation and preconstruction testing activities,

or the discussion of impact on small entities. NQAA has made several

changes in the section of this document entitled "Expected OTEC Industry,

Benefits and Costs" in order to include the latest available data estimating

the potential impacts of OTEC.

III. IEGULATORY PROBLEM AREAS

PROBLEM 1. @ALo REGULATORY APPROACH

A. Statement of the Problem

Regulations are necessary to ccrrplete establisbrent of a legal regime

which will reduce legal and regulatory barriers to construction of commercial

OTEC facilities and plantships. Reduction of those institutional barriers

was the prinary purpose of the Congress in passing the OTEC Act of 1980.

The principle goals of the legislatively-mandated licensing system to be

administered by NOAA are:

1. to permit and encourage develcprent of OTEC as a cam-nercial
energy technology;

2. to insure that one 0= plant does not interfere with the ocean
thermal resource used by another OTEC plant;

3. to protect the marine and coastal envirornent; and

4. to insure that ccrmuercial OTEC facilities and plantships
licensed by NOAA caTply with international treaty obligations
of the United States.

No OIEC plant of camTiercial size has yet been constructed or cperated.

Many theoretical predictions have been made of the operating characteristics

and impacts of camTiercial plants, but the theoretical- work has not been

confirmed by actual experience. Consequently, NOAA has devised a general

approach to its regulatory responsibilities which takes into account the

18.

possibility of unexpected'operating characteristics or ixrpacts while meeting

the legislated goals for the regulatory system.

B. Alternative Approaches and Their Consequences

NOAA considered four possible general approaches to the regulations:

(1) detailed regulation of OTEC activities, (2) moderate regulation of OTEC

activities, (3) miniram regulation of OTEC activities, and (4) no regulations.

Each of these alternatives is discussed below.

1. Detailed regulation of OTEC activities.

In this general approach the regulations would contain detailed

substantive provisions specifying design of OTEC plant carponents and

requiring use of specific operating procedures. The substantive provisions

of the regulations might include detailed design specifications for screens

on wann and cold water intakes, specification of the geometry of discharge

outlets, detailed design criteria for valves and controls to prevent

discharge of working fluid into the enviroment, and detailed specification
of operating procedures for biofouling control. NOAA would. have to conduct
detailed reviews of all aspects of the proposed 0= plant-including its

design@--in order to determine full canpliance with the detailed regulations.

The infornation required to be submitted with an application would have to

be voluminous, and the level of plant design detail required would necessitate

ccmpletion of detailed design of the proposed OTEC plant prior to preparation

of the license application for submission to NOAA. Prospective OTBC plant

c*mers would have to ccnplete detailed plant design and make major

expenditures of time, personnel and funds to prepare their applications.

NOAA would have to hire a sizable staff and expend substantial sums to analyze

an application, make the many detailed determinations required by the

regulations, and perform the other tasks necessary to process the application.

19.

Under this approach the administrative costs for processing an application

are estimated at $1 million, and the license processing fee paid by the

applicant to cover reasonable administrative costs would be $1 million.

In addition, a licensee would have to keep detailed records and submit

detailed reports to NQAA to demonstrate ccWliance of the = plant

cperations with diligence requirements and all of the other specific

requirements contained in the regulations. Records would have to substantiate

adherence to each specific plant design and cperating requirement contained

in the regulations, and reports demonstrating carpliance would be required

at the end of every month. The monitoring of environmental effects which

the licensee is required to perform by section 110(3) of the OTEC Act would

provide NOAA information needed to determine whether sane of its detailed

regulatory requirements were stricter than necessary to accomplish the

regulatory goal. Those regulatory requirements found to be more strict than

necessary would then be relaxed.

This detailed regulation approach has two major disadvantages: (1) it

would require a large and expensive administrative apparatus, and (2) it

would not allow the design flexibility needed for technological development.

Use of this approach would require NOAA to specify uniform detailed design

requirements now on aspects of OTEC plant design which have not been fully

resolved frcm the engineering standpoint, and of which the full consequences

--either environmental or econamic-are not yet known. An inevitable

result of attempting to write such detailed requirements fran the current

lack of specific knowledge would be that the regulations would restrict

engineering and design options without demonstrable public benefit fran the

detailed regulatory requirements. The effect of this specific problem,

added to the burdensome nature of the entire regulatory process under this

20.

alternative, would most certainly be to deter potential OTEC (:;Pvmers and

discourage camrercial develc9rent of OTBC technology--a result directly

opposite the result intended by the Congress in passing the Act. Adoption,

of this alternative %vuld provide, a low probability of obtaining the benefits

to society frcm OTEC development, with the highest costs to potential O=

owners and the goverment. For that reason, the detailed regulation alternative

was not seriously considered.

2. Moderate regulation of OTEC activities.

In the moderate regulation approach the regulations would not contain

detailed substantive provisions specifying design of OTEC plant camponents or

plant cperating procedures. The regulations would, however, contain detailed

guidelines and performance standards applicable to all OTBC facilities and

plantships in order to insure adherence to the overall regulatory goals. A

license applicant would be required to prove that his plant design and approach

will meet each of the detailed guidelines and performance standards included

in the regulations. Guidelines and performance standards might relate to

such matters as degree of entrainment through wam water intakes, ., discharge

Plume direction and velocity, and concentrations of chemicals in discharge

water. The plant design information required to be submitted with an

application would be less voluminous than for alternative 1, but would have

to include analyses and predictions of the proposed OTEC plant's performance

characteristics and impacts in area covered in the guidelines and performance

standards. While this alternative would not require submission of a detailed

design for the entire prcposed = plant, the information needed to demonstrate

ccmpliance with at least same of the guidelines and performance standards would

probably not be avai-lable until at least part of the OTEC plant detailed design

is ccrnpleted. Prospective OTEC plant owners would have to make major expendi-

21.

tures of time, personnel and funds to prepare their applications, although

these expenditures would not be as large as in alternative 1. NOAA would have

to hire approximately 12 pecple and expend an estimated $700,000 to analyze

each application, determine whether or not the applicant had demnstrated

carpliance with each of the specific guidelines and performance standards, and

perform the other tasks necessary to process the license application. Under

this approach the administrative costs to NOAA for processing an application

would approximate $700,000, and the license processing fee charged to the

applicant to cover reasonable administrative costs would be set at that amount.

A licensee would be req@dred to keep substantially more detailed records

than kept in the normal course of business, and to submit periodic reports

to NOAA to demonstrate caTpliance with the diligence and other specific guide-

lines and performance standards. The records would have to substantiate

carpliance with each of the specific plant performance standards and guidelines,

and reports demonstrating compliance would be required either monthly or

quarterly. The monitoring of envirornental effects which the licensee is

required to perform by section 110(3) of the OTEC Act would provide NOAA

information needed to determine whether scme of its detailed guidelines and

performance standards were stricter than necessary to acconplish the

regulatory goals, and would aler-t NOAA to additional areas in which specific

guidelines or performance standards were needed.

This moderate regulation approach has two disadvantages: (1) it

requires a relatively large administrat-ive apparatus to develop performance

standards and determine carpliance with them, and (2) it would limit

engineering flexibility more than necessary to meet the regulatory goals at

scme potential OTEC sites. Use of this approach would result in NOAA

establishing uniform guidelines and performance standards applying to all

22.

OTEC plants, regardless of specific design or location. In som cases, the

Mifonn guidelines and performance standards would 'restrict design options

which might be preferred from an engineering standpoint for a particular

OTEC plant or, site - A given performance standar d might be stricter than

necessary for the conditions present at one OTEC site, while not strict

enough for the conditions present at another OTEC site. The full consequences

of such a result would not be 'known at the time NOAA. adopted the original

set of guidelines and performance standards because there is no real-world

experience with OMC plants of commercial size on which to rely in the

establishient of guidelines and performance standards.

The use of specific guidelines and performance standards is a common

approach to regulation of relatively mature and stable industries where many

facilities already exist and the nature of the technology used in them and

its Lqpacts are well Imcwn. However, when applied to a nascent industry

such as OTEC this approach could have a limiting effect on the flexibility

and experimentation which will be necessary to learn the designs which best

meet the combined goals of sound engineeringl economic construction and

cperation, and protection of societal values. Because another alternative

is more suitable to the current early develognental stage of the OTEC industry

and would provide a greater probability of obtaining the benefits to society

from develognent of OTEC technology at less cost to potential OTEC owners and

the goverrrnent, this alternative was not selected.

3. Minimum. regulation of OTEC activities.

Under the minimum regulation alternative NOAA would put in its

regulations only the general guidelines and performance standards specified

in the OTEC Act of 1980. Detailed guidelines and performance standards

would not be prescribed in advance in regulations, but would be included in

23.

the terms and conditions of a license if they were deemed necessary by the

Administrator to prevent significant adverse bTpacts on the environment or

to prevent other results contrary to the law. The use of license terms and

conditions--rather than uniform regulations--to address significant problem

areas would require NOAA to examine each applicant's assessments of the

nature and relative magnitude of each type of problem which might occur as a

result of construction and operation of the proposed OTEC plant. Only those

problem which appeared to be significant vxmld be analyzed in detail. The

information submitted to NOAA in a license application would need to include

details of the proposed site, descriptions of the cperating features of the

plant, and assessments of the potential- impacts of construction and

cperation; however, plant design information submitted would not be as

extensive as in alternatives 1 or 2, and would not include detailed

engineering designs for the proposed plant or its ccmponents. Prospective

OTEC plant owners would have to expend less time and resources in preparation

of applications than under alternatives 1 or 2, and could apply for licenses

before they had completed detailed design of the proposed plant. NOAA would

employ 2 or 3 people to analyze the information submitted and perform the

other tasks necessary to process the license application. Under this

approach the incremental administrative costs -to NOAA for processing each

application (including preparation and printing of draft and final

envirorniental impact statements and travel to the proposed site to coordinate

licensing decisions with State and local officials and hold the public

hearings required by the Act) are estimated at $250,000, and the license

processing fee charged to the applicant to cover reasonable administrative

costs would be set at that amount.

A licensee would be required to submit periodic reports to NOAA to

24.

demonstrate compliance with license terms and conditions; the frequency and

volume of these reports would be substantially less than under alternative 1

or alternative 2. NOAA would normally not require the licensee to keep

records other than those usually kept in the normal course of doing business.

The monitoring of environmental effects which the licensee is required to

perform by section 110(3) of the OTEC Act would alert NOAA to significant

problem areas which might need to become the subject of license term and

conditions in the future. The requirement of section 106 of the Act that

the licensee pursue diligently the construction and operation of the licensed

OTBC plant would be inple-nented by reference to the licensee's ahm work

schedule, with allowance for unforeseen events and circumstances; this approach

will minimize burdens on the licensee while fulfilling the intent of the Act

to prevent the holding of OTEC licenses by idle speculators.

Use of this approach iAmld place NOAA in the position of considering

and responding to proposals made by license applicants, instead of

prescribing standards for the applicant to follow. The flexibility afforded 6

the applicant under this approach would allow the prospective OTEC plant

owner to determine what he considers to be the best engineering and

cost-effective design for the plant and to design his awn cost-effective

means of mitigating any adverse envirormental in-pacts fran plant cperation.

The flexibility would facilitate incorporation of new technology into OTEC

plant design as the technology is developed. The regulatory system would

accomplish the regulatory goals of the OTEC Act of 1980 without interfering

with the engineering innovations and responsible experimentation which is

part of the develognent of a new ccnubercial technology in its early years.

This.general approach will encourage the emergence of a commercial OTEC

industry in the United States by ocapleting establishment of the necessary

25.

legal and regulatory frane%ork, and by allowing the degree of flexibility

appropriate for a new industry. It will provide the greatest probability

of obtaining the potential benefits to society frcrn OTEC develognent, at

the least possible cost to potential CTX owners and the govern-nent.

4. No regulations.

Under this alternative NOAA would not issue regulations to implanent

the OTIDC Act of 1980.

A decision to not issue regulations would place the Administrator of

NOAA in violation of the law (section 1 02(a) of the OTBC Act requires the

Administrator to ccinplete issuance of final regulations by August 3, 1981),

and would also result in absolute legal prohibitions against ownership,

construction or cperation of any OTM faci-lities off the coasts of the United

States and its territories, and against ownership, construction, or operation

of OTEC plantships. anywhere in the world by U.S. citizens (since section

101(a) of the OTEC Act prohibits those activities without licenses). There

is no known reason why the federal government should prohibit private industry

fran building and operating OTM facilities and plantships, and that result

would be the exact cpposite of the enccuragenent of private industry intended

by the Congress.

Because the "no regulations" alternative would be illegal and :make no

sense unless Congress were to repeal the regulatory provisions of the OTEC

Act, the potential results of repeal were examined. Repeal of the regulatory

provisions of the OTEC Act would leave in existence n-any of the legal and

regulatory uncertainities intended by the Congress to be resolved by passage

of the Act. No legal rules would exist to protect the thennal resource on
which one OTM plant depends fran interference or degradation by other

plants. Without such legal protection for the continued existence of the

26.

resource necessary for economic viability of OTEC operations,' financial

institutions vxmld have no assurance that the OTEC owner could continuously

generate the income necessary to repay the large amounts of financing needed

for construction. Private financing would be extremely difficult or hTpossible

to obtain.

In the absence of specific regulatory legislation, many federal agencies

wm1d be unsure which of the laws and regulations they administer would

apply to a= plants. Prospective OTEC owners would have to spend months

meeting with each agency to determine the specific regulations which apply,

and the ways in which those regulations would be interpreted. A potential

OTEC owner could be confronted with a situation in which it would be

impossible to design his plant to meet all the separate requirements of

agencies with differing narrow responsibilities. The amount of tirm required

for a potential 0= owner to obtain permission individually from all

necessary federal agencies would most certainly exceed the 356-day time

limit for a unified federal licensing decision specified in the OTEC Act.

One exanple of the time involved to obtain federal agency permits individually

is that it took one year and nine months (October 1978 to July 1980) for the

Department of Energy's contractor for the =-l test platfonn to obtain all

the necessary permits.

If by some chance a potential OTEC owner were willing to persist in the

face of the legal and regulatory obstacles and succeeded in financing and

building an OTBC plant, there wvuld be no real legal protection against his

operating the OTEC plant in a way which would create severe environmental

problem or interfere with other OTEC plants, offshore oil and gas drilling

activities, major fisheries, or other activities of ocean users.

The United States is a party to international treaties which require

27.

the federal government to insure that its citizens respect the rights of

citizens of other coLmties in con ducting ocean activities. The actions of

such an OTEC owner without the legal regime specified by the OTEC Act of

1980 co uld possibly place the United States in violation of its international

treaty obligations and create a difficult international incident, in addition

to causing economic damage to other ocean industries.

In.sumary, the no regulations alternative would be illegal and would

make no sense unless accompanied by repeal of the regulatory provisions of

the OTEC Act of 1980, but repeal would result in higher costs to society

than issuance of regulations under alternative 3. Repeal of the regulatory

provisions would erect legal and regulatory barriers (discussed on pp. 12-14)

which would discourage or prevent develcpnent of a commercial OTEC industry,

and prevent realization of the full potential benefits to society (including

tax revenues to the governTent) from develcpaient, of OTEC. The tam and cost

to a potential OTEC owner for obtaining federal agency permits individually

would be greater than the time and cost required under regul ations implementing

the OTEC Act. If an OTEC industry were to develop despite those barriers,

there would be no legal system in place to protect the offshore drilling

industry, fishing industry, and other major ocean industries from economic

hann caused by OTEC operators, and additional costs would be borne by those

industries. For those reasons, NQAA has rejected the "no regulations"

alternative -

C. Selection of Preferred Alternative

Alternative 3, minimum regulation of OTEC activities, has been chosen

as the preferred general approach, because it offers the greatest encourage-

ment-for creation of a commercial OTEC industry and realization of the

resulting major econcmic benefits to the United States. The alternative
selected is the alternative which provides the maximan net benefit to society

28.

by encouraging commercial development of OTEC, with the least net cost to

both the private and governmental sectors.

PROBLEM 2. = SITE EVALUXTION AND PP=NSTRUCTION TESTING ACTIVITIES

A. Statement,of the Prcblem

Section 102(b) of the OTEC Act authorizes the Administrator of NOAA

to issue regulations, if he determines them to be necessary, which relate to

activities in site evaluation and preconstruction. testing at potential 0=

locations that may (1) adversely affect the environment, (2) interfere with

other reasonable uses of the high seas or authorized uses of the Outer

Continental Shelf, or (3) pose a threat to human health and safety.

Site evaluation and preconstruction testing activities are likely to

consist primarily of activities designed to measure oceanic and bottan

characteristics, such as currents, sea tenperatures, depth of thermocline and

pycnocline, types and abundance of biota, ability of the bottom to hold a

firm. mooring, etc. Such activities might include use of oceanographic

research vessels and placement of current meters, thermister chains, and

other oceanographic instruments. Techniques to evaluate bottom characteris-

tics for potential mooring areas and cable or pipeline corridors might

include grab sampling or small-scale coring and seismic work. Dyes, drogues,

and drift bottles might be used to measure site characteristics related to

OTEC plant intake and discharge plume behavior. These are types of activities

normally conducted during scientific research in the ocean.

Oceanographic research vessel activities and other scientific research

at sea are not specifically regulated by the federal goverrrnent. One reason

they are not regulated is that they are not generally regarded as causing

adverse effects on the environment, interfering with other reasonable uses of

the high seas or authorized uses of the Outer Continental Shelf, or posing a

29.

threat to human health and safety. The possibil J ty of interference between

oceanographic research activities and other uses of the high seas and Outer

Continental Shelf is reduced by the practice of the Coast Guard of including

nortice of oceanographic research activities in notices -to ILIaliners and

f isIiermen.

B. Alternative Approaches and Their Consequences

NOAA considered three possible approaches to regulation of site

evaluation and preconstruction testing activities: (1) detailed regulation

of 0 MC site evaluation and preconstruction testing activities, (2) regulations

requiring prior notice to NQAA of OTEC site evaluation and preconstruction

testing activities to be undertaken and reports sumnarizing the activities

and the information obtained, and (3) no regulation of OTEC site evaluation

and preconstruction testing activities. Each of these alternatives is

discussed below.

1. Detailed regulation of OTEC site evaluation and preconstruction
testing activities.

This approach would require NOAA approval prior to ccmmencenent of each

OTEC site evaluation or preconstruction testing activity. It would provide
a strict regulatory guarantee that such activity would not adversely affect

the environment, interfere with other high seas or Outer Continental Shelf

uses, or pose a threat to human health and safety.

However, this assurance would be obtained at considerable cost to both

prospective OTBC owners and the government. Prospective = owners would

have to commit personnel tinie and funds to prepare applications for NOAA's

consideration, and would have to delay their planned activities while awaiting

a decision from NCAA. NOAA would have to hire additional people to review

requests for permission to conduct site evaluation and preconstruction testing

30.

activities, develop envirorriental assessments, and maintain files of requests

received and the actions taken on them. Private canpanies trying to get an

edge on possible carpetitors in locating excellent OTEC sites would have to

infonn the government of their interest in particular sites at the earliest

stages of their investigations, creating potential problems concerning the

protection of valuable privately-generated =mnercial infonnation.

2. Regulations requiring prior notice to NOAA of OTEC site
evaluation and preconstruction testing activities to be
undertaken and reports summarizing the activities and the F
infoxmation obtained

This approach would not require NQAA approval prior to each OTEC site

evaluation or preconstruction testing activity, but it would require

submission to NDAA of notices describing the activities to be conducted and

their potential impacts, and of reports prcrnptly afterward SUMMBrlZing.the

activities and the information obtained. It,@Anuld not provide a strict

legal guarantee against occurrence of negative impacts from such activities,

but the post-activity reports would alert NQAA to any negative impacts so

that regulatory action could be taken to prevent similar negative impacts

fr= occurring in the future.

Prospective OTEC owners would.have to cammit personnel time and funds

to prepare and submit activity reports to NOAA. NOAA would have to hire

additional pecple to analyze reports submitted and maintain thEm. in organized

files. These costs to the private and government sectors would be less than

the costs of alternative 1, but would still involve a large amount of

paperwork and some expense for both sectors. Potential problem with respect

to protection of valuable privately-generated ccmmercial information vxmld

be similar to those in alternative 1.

31.

3. No regulation of a= site evaluation and preconstruction
testing activities.

This approach would require no prior approval or notice under the a=

Act before commencement of OTEC site evaluation and preconstruction testing

actavitles, and no reports to NOAA after conclusion of the activities.

Specific aspects of such activities, such as injection of substances into

the water or placement of objects which could hrpede navigation, which are

currently regulated by various federal agencies, would have to be conducted

in confon-nance with any requirements urposed by those regulations. Because

site evaluation and preconstruction testing activities are expected to be

similar in nature and magnitude to oceanographic research activities,. no

ignificant adverse inpacts are expected. The types of information gathered

during these activities may be useful to NOAA (e.g., for preparation of

environmental inpact statenmts), but NOAA does not need the infonration

prior to the time an OTEC license application is filed for the site in question.

This approach would not result in any direct costs to either prospective

OTEC owners or the government. The "no regulation" alternative on this

issue can be adopted legally because section 102(b) of the OTBC Act authorizes,

but does not require, issuance of site evaluation and preconstruction testing

regulations.

C. Selection of Preferred Alternative

Alternative 3, no regulation of OTEC site evaluation and preconstruction

testing activities, has been chosen as the preferred alternative because the

possible adverse hipacts of OTEC site evaluation and preconstruction testing

activities are not expected to exceed the minimal impacts of similar

oceanographic research activities, and because it is the least costly

alternative to both potential OTEC cyAmers and the governnent. Any costs

which might be borne by other ocean users are expected to be negligible.

32.

Consequently, the "no regulation" alternative on the site evaluation and

preconstruction testing issue involves the least net cost to society.

IV. IMPACT ON SMUL ENTITIES

OTEC facilities and plantships will be large projects. The smallest

commercial size OTEC facility currently contemplated (10 W) is estimated

to cost $30-50 million to build. Ccmmercial facilities of this small size
could be located at islands such as Key West and same U.S..territories in the F

Western, Pacific Ocean. It is expected that the vast majority of commercial

OTEC plants will be in the size range. of 40-400 megawatts capacity. Even

the smallest OTEC plants in this size range are estimated to cost over @100

million.

Because of the large size and high cost of cam-ercial-sized 0= plants,

it is highly unlikely that a small business concern would be able to put

forward enough venture or equity capital and locate enough conventional

financing by itself to become the sole owner of a cammercial. O= plant.

However, it is possible that small business concerns might join with other

companies in joint ventures to own ccntmrcial OTEC facilities or plantships.

In this case the burden of providing the resources to prepare a license

application and comply with the regulatory procedures would be distributed

among the joint venturers by their awn agreement, and is not expected to

fall primarily on the small business concern. It is not feasible to estimate

the rAmber of small business concerns which might join such joint ventures.

The prumxy involvement of small business concerns in development of

OTEC will be as contractors or subcontractors to provide materials, parts,

or services to the owners of the OTEC facilities and plantships. The large

size of OTEC plant construction projects and the large diversity of ccmponents

used should create greatly expanded opportunities for all types of business

33.

concerns, both large and small. Under the OTEC Act of 1980 a single federal

license will cover ownership, construction, and cperation of an OTEC faci-lity
or plantship under U.S. jurisdiction. This. license will normally be obtained

by the future owner, or by the systems integrationcontractor acting on

behalf of the owner. The regulations do not place any requirements on

suppliers of materials, parts, or equipment. Reporting, recordkeeping,

envirormiental monitoring, or other ccnpliance requirements associated with

an OTEC license would directly affect a small business concern only if that

concern were hired by the owner or operator of the OTEC plant to fulfill

those requirements for him. Under the preferred general regulatory approach

(alternative 3), only the minim= reporting, recordkeeping, and monitoring

requirements necessary to canply with the Act are specified in the

regulations; any additional such requirements as are found to be necessary

for a particular O= plant design or site will be included as terms and

conditions of an individual license.

Aq goverm=tal ju risdiction-small or larcje--whose authority or res-

ponsibilities are directly affected by a proposed OTEC facility or plantship

will be =ited to appoint a representative to participate in the consolidated

application review process described in the regulations. The regulations do

not impose any reporting, recordkeeping, or other carpliance requirements

on small governmental jursidictions or small organizations.

The general regulatory approach selected for these regulations was

designed to provide the greatest flexibility for, and minimize any adverse

econanic impact on, any entity-whether large or small-which may become

involved in development of camiercial O= facilities or plantships.

Consequently, it is not possible to identify another alternative which would

ccrnply with the OTEC Act of 1980 and decrease the already negligible adverse

econcmic impact on small entities.

34.

The consolidated application review procedures contained in the

regulations provide a framework for coordinated consideration of federal.

penuits and approvals administered under the regulations issued by various

federal agencies. The procedures do not, however, affect the substantive

actions to be taken by any agency under its regulations. The Coast Guard's

regulations regarding documentation of U.S. vessels do not permit documen-

tation of land-based OTEC.plants, which are required by the OTEC Act to be

documented in order to be licensed. NOAA"s final regulations follow the

requirements of the OTEC Act; however, NOAA will continue to work with the

Coast Guard to obtain legislative amendments to the OTEC Act to resolve this

problem. NOAA is not aware of any other federal rules or regulations which

may duplicate, overlap, or conflict with NCAA's regulations to irnplement the

Ocean Thermal Energy Conversion Act of 1980.

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