[Federal Register Volume 60, Number 138 (Wednesday, July 19, 1995)]
[Rules and Regulations]
[Pages 36959-36966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17753]



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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, 

[[Page 36960]]
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 

[[Page 36961]]
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 

[[Page 36962]]
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 

[[Page 36963]]
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 

[[Page 36964]]
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 

[[Page 36966]]
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