[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Rules and Regulations]
[Pages 5256-5268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01373]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 11

[Docket No. RM11-6-000; Order No. 774]


Annual Charges for Use of Government Lands

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: In this Final Rule, the Commission revises its regulations for 
assessing the annual charge for use of government lands by hydropower 
licensees. Each year, the Commission will create an annual per-acre fee 
schedule by county using a formula with four components: a per-acre 
land value by county based on a publicly available index of land 
values; an encumbrance factor; a rate of return; and, an inflation 
adjustment.

DATES: Effective Date: This rule will become effective February 25, 
2013.

FOR FURTHER INFORMATION CONTACT: 

Kimberly Ognisty (Legal Information), Office of General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
DC 20426, (202) 502-8565, [email protected].

Norman Richardson (Technical Information), Office of the Executive 
Director, Federal Energy Regulatory Commission, 888 First Street NE., 
Washington, DC 20426, (202) 502-6219, [email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents


 
                                                               Paragraph
 
I. Background...............................................           2
    A. History of Annual Charges for Use of Government Lands           3
        1. 1987 BLM Fee Schedule............................           4
        2. 2008 BLM Fee Schedule............................          10
    B. Notice of Inquiry....................................          16
    C. Notice of Proposed Rulemaking (NOPR).................          22
II. Discussion..............................................          27
    A. Part 11 Fee Schedule.................................          27
        1. Projects Occupying Multiple Counties, States, or           29
         Geographical Areas.................................
        2. Transmission Line Acres..........................          30
        3. Phase-In Period..................................          35
    B. Components of the Fee Schedule.......................          36
        1. Per-Acre Land Value..............................          36
            a. Per-Acre Land Values for Alaska..............          43
            b. Per-Acre Land Values for Puerto Rico.........          47
            c. Individual Appraisals........................          49
        2. Encumbrance Factor...............................          51
        3. Rate of Return...................................          54
        4. Annual Adjustment Factor.........................          59
    C. Summary of Schedule..................................          62

[[Page 5257]]

 
    D. Changes to Proposed Regulations......................          66
III. Regulatory Requirements................................          67
    A. Information Collection Statement.....................          67
    B. Environmental Analysis...............................          68
    C. Regulatory Flexibility Act...........................          69
    D. Document Availability................................          74
    E. Effective Date and Congressional Notification........          77
 

Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, 
John R. Norris, Cheryl A. LaFleur, and Tony T. Clark.

Final Rule

Issued January 17, 2013

    1. This Final Rule amends Part 11 of the Commission's regulations 
and implements a new methodology for the calculation of annual charges 
for the use of government lands. Annually, the Commission will create a 
per-acre fee schedule by county that will be published in Appendix A of 
Part 11 of the Commission's regulations. The formula to create the fee 
schedule has four components: a per-acre land value by county based on 
a publicly available index of land values; an encumbrance factor; a 
rate of return; and, an annual inflation adjustment. In this Final 
Rule, all charges for the occupancy of government lands by hydropower 
projects will be calculated based on the fee schedule rate. A discount 
will be applied to all applicable licensees for the first year of this 
rule's implementation.

I. Background

    2. Section 10(e)(1) of the Federal Power Act (FPA) requires the 
hydropower licensees occupying federal lands to:

pay to the United States reasonable annual charges in an amount to 
be fixed by the Commission * * * for recompensing [the United 
States] for the use, occupancy, and enjoyment of its lands or other 
property * * * and in fixing such charges the Commission shall seek 
to avoid increasing the price to the consumers of power by such 
charges, and any such charges may be adjusted from time to time by 
the Commission as conditions may require * * *.\1\
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    \1\ 16 U.S.C. 803(e)(1) (2006) (emphasis added). Section 
10(e)(1) also requires licensees to reimburse the United States for 
the costs of administering Part I of the FPA. These charges are 
calculated and billed separately from the land use charges, and are 
not the subject of this Final Rule.

In other words, where licensees use and occupy federal lands for 
project purposes, they must compensate the United States through 
payment of an annual fee, to be established by the Commission.\2\
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    \2\ Pursuant to section 17(a) of the FPA, 16 U.S.C. 810(a) 
(2006), the fees collected for the use of government lands are 
allocated as follows: 12.5 percent is paid into the U.S. Treasury, 
50 percent is paid into the federal reclamation fund, and 37.5 
percent is paid into the treasuries of the states in which 
particular projects are located. No part of the fees discussed in 
this Final Rule are used to fund the Commission's operations.
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A. History of Annual Charges for Use of Government Lands

    3. Since its inception, the Commission has used or considered a 
number of methodologies to effectuate this statutory directive. From 
1937 to 1942, the Commission based annual charges for the use of 
federal lands by hydropower licensees on individual land appraisals for 
each project.\3\ In 1942, the Commission rejected this approach in 
favor of a single national average per-acre land value because it 
determined that project-by-project appraisals were more costly to 
administer than the value collected in rent, the values for inundated 
lands would become distorted, the values could only be maintained with 
reappraisals, and disputes over values may lead to costly 
litigation.\4\ In 1986, the Commission also rejected use of a single 
national average per-acre land value because this methodology resulted 
in an under-collection of over $15 million per year due to the use of 
outdated land values.\5\
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    \3\ Order Prescribing Amendment to Section 11.21 of the 
Regulations Under the Federal Power Act, 56 FPC 3860, at 3863 
(1976).
    \4\ Id. at 3863-64.
    \5\ See Assessment of Charges under the Hydroelectric Program, 
DOE/IG Report No. 0219 (September 3, 1986); see also More Efforts 
Needed to Recover Costs and Increase Hydropower Charges, U.S. 
General Accounting Office Report No. RCED-87-12 (November 1986). The 
single national average land value per acre in 1942 was $50 per 
acre, and by 1976, the value was $150 per acre. 56 FPC 3860.
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1. 1987 BLM Fee Schedule
    4. In 1987, the Commission adopted use of a fee schedule developed 
by the U.S. Department of the Interior's Bureau of Land Management 
(BLM) and the U.S. Department of Agriculture's Forest Service (Forest 
Service) that identified per-acre rental rates by county for linear 
rights-of-way on federal lands.\6\ The BLM and Forest Service produced 
the fee schedule by taking a survey of market values by county for the 
various types of land the agencies had allowed to be occupied by linear 
rights-of-way.\7\ The BLM divided the range of per-acre land values 
into eight zones with the following per-acre values: $50, $100, $200, 
$300, $400, $500, $600, and $1000. To calculate the rental rate in the 
fee schedule, the per-acre zone value was multiplied by an encumbrance 
factor of 70 percent,\8\ a rate of return of 6.41 percent,\9\ and an 
annual inflation adjustment factor.\10\ The resulting fee schedule 
assigned all counties to one of eight rental rates.\11\
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    \6\ Revision of the Billing Procedures for Annual Charges for 
Administering Part I of the Federal Power Act and to the Methodology 
for Assessing Federal Land Use Charges, Order No. 469, FERC Stats. & 
Regs. ] 30,741, at 30,584 (1987).
    \7\ Notice of Adoption of Rental Fee Schedule, 51 FR 44014 (Dec. 
5, 1986). BLM explained that the value of timber had not been 
included, and that the values were not for urban or suburban 
residential areas, industrial parks, farms or orchards, recreation 
properties or other such types of land. The agencies tried to avoid 
using attractive public use areas such as lakeshores, streamsides, 
and scenic highway frontage.
    \8\ The encumbrance factor reflects the degree that a particular 
type of facility encumbers the right-of-way area or excludes other 
types of land uses. If the encumbrance factor is 100 percent, the 
right-of-way facility (and its operation) encumbers the right-of-way 
area to the exclusion of all other uses.
    \9\ This number was the 1-year Treasury Securities ``Constant 
Maturity'' rate for June 30, 1986.
    \10\ The fee schedule was adjusted annually by the change in the 
Implicit Price Deflator for the Gross National Product index from 
the second quarter to the second quarter.
    \11\ In 1987, the per-acre rental fee under the 1987 BLM fee 
schedule ranged from $2.24 to $44.87. By 2008, due to the inflation 
adjustments, the per-acre rental fee under the 1987 fee schedule 
ranged from $3.76 to $75.23.
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    5. In adopting the 1987 BLM fee schedule, the Commission found that 
the methodology promulgated by the BLM and Forest Service for linear 
rights-of-way was the ``best approximation available of the value of 
lands used for transmission line rights-of-way.'' \12\ Therefore, the 
Commission assessed the BLM-generated schedule rate for transmission 
line rights-of-way on federal lands, and doubled this rate for federal 
lands occupied by other project works (e.g., dams, powerhouses,

[[Page 5258]]

reservoirs) because the Forest Service indicated that its methodology 
was intended for transmission line rights-of-way, and its market value 
figures reflected strips of land used for limited purposes, but that 
reservoirs, streambeds, and other typical hydropower sites should have 
a higher value.\13\
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    \12\ Order No. 469, FERC Stats. & Regs. ] 30,741 at 30,588 
(1987) (emphasis added).
    \13\ Id. at 30,589.
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    6. In the 1987 proceeding, the Commission rejected arguments that 
it should intentionally establish low charges for the use of government 
lands based on the public benefits provided by hydropower projects. The 
Commission explained that the public benefits provided by licensed 
projects are considered in the licensing decision, and these benefits 
are the quid pro quo for the ability to operate the project in a manner 
consistent with the needs of society. In contrast, the purpose of the 
rental fee is to establish a fair market rate for the use of government 
land.\14\
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    \14\ Id. at 30,587.
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    7. The Commission also found no merit to claims that charging fair 
market value for federal lands is prohibited by the FPA:

    All increases in charges will result in some impact on 
consumers. The statutory provision bars the Commission from 
assessing unreasonable charges that would be passed along to 
consumers. Reasonable annual charges are those that are 
proportionate to the value of the benefit conferred. Therefore, a 
fair market approach is consistent with the dictates of the Act. 
Furthermore, as land values have not been adjusted in over ten 
years, an adjustment upwards is warranted and overdue.\15\
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    \15\ Id. at 30,589 (footnotes omitted).

    8. In adopting the 1987 BLM fee schedule, the Commission again 
rejected a proposal to use individual project appraisals because such 
appraisals would be too costly and result in time-consuming 
litigation.\16\
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    \16\ Id. at 30,590.
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    9. From 1987 to 2007, the Commission assessed annual charges for 
the use of government lands according to the BLM fee schedule. Each 
year, BLM adjusted the fee schedule for inflation, and each year the 
Commission published notice of the updated schedule.\17\
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    \17\ See, e.g., Update of the Federal Energy Regulatory 
Commission's Fee Schedule for Annual Charges for the Use of 
Government Lands, 73 FR 3626 (Jan. 22, 2008), FERC Stats. & Regs. ] 
31,262 (2008).
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2. 2008 BLM Fee Schedule
    10. In 2005, Congress passed the Energy Policy Act (EPAct 2005), 
which required BLM ``to update [the fee schedule] to revise the per 
acre rental fee zone value schedule * * * to reflect current values of 
land in each zone.'' \18\ Congress further directed that ``the 
Secretary of Agriculture shall make the same revision for linear 
rights-of-way * * * on National Forest System land.'' \19\
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    \18\ 42 U.S.C. 15925 (2006).
    \19\ Id.
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    11. On October 31, 2008, BLM issued a Final Rule promulgating its 
updated rental schedule for linear rights-of-way to satisfy the 
congressional mandate in EPAct 2005,\20\ and the Forest Service 
subsequently adopted the 2008 BLM fee schedule.\21\ As had been the 
case with the methodology underlying the 1987 BLM fee schedule, the 
updated 2008 fee schedule is based on a formula with four components: 
(1) An average per-acre land value by county (grouped into zones); (2) 
an encumbrance factor reduction; (3) a rate of return; and (4) an 
annual adjustment factor for inflation.\22\
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    \20\ Update of Linear Right-of-Way Rent Schedule, 73 FR 65,040 
(Oct. 31, 2008).
    \21\ See Fee Schedule for Linear Rights-of-Way Authorized on 
National Forest System Lands, 73 FR 66591 (November 10, 2008). The 
Forest Service noted it had given notice, in the preambles to BLM's 
proposed and final rules, that it would adopt BLM's revised fee 
schedule.
    \22\ 43 CFR 2806.20(b) (2012).
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    12. The per-acre land value for counties (or other geographic 
regions) is based on 80 percent of the average per-acre land and 
building value published in the Census of Agriculture (Census) by the 
National Agricultural Statistics Service (NASS).\23\ Updates to the 
per-acre land values will occur every five years following publication 
of the NASS Census.\24\ The annual adjustment factor will be updated 
every 10 years, with the first 10-year period occurring from 2006 
through 2015. For Puerto Rico, the average per-acre farmland value for 
the entire Commonwealth of Puerto Rico is used as the per-acre land 
value. For Alaska, the 2008 BLM rule uses the NASS Census designation 
Aleutian Islands Area for all lands within the Aleutian Islands Chain; 
Fairbanks Area for all lands within the BLM Fairbanks District 
boundaries; Kenai Peninsula Area for all lands within the BLM Anchorage 
District boundaries excluding the Aleutian Islands Chain, the Anchorage 
Area, and the Juneau Area; Anchorage Area for all lands within the 
Municipality of Anchorage; and Juneau Area for all lands within 
downtown Juneau (i.e., Juneau voting precincts 1, 2, and 3).
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    \23\ 43 CFR 2806.21 (2012).
    \24\ Update of Linear Right-of-Way Rent Schedule, 73 FR 65040, 
at 65047 (2008).
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    13. In addition to the source of the per-acre land values, BLM made 
additional changes to the components of the formula used to calculate 
the fee schedule. BLM reduced the encumbrance factor from 70 percent to 
50 percent after a review of public comments, industry practices in the 
private sector, and the Department of the Interior's appraisal 
methodology for right-of-way facilities on federal lands.\25\ BLM 
revised the fixed rate of return downward from 6.41 percent to 5.27, 
which it stated was the most recent 10-year average (1998-2007) of the 
30-year and 20-year Treasury bond yield rate.\26\ To stay current with 
inflationary or deflationary trends, BLM applied an annual adjustment 
factor, which is currently 1.9 percent, to the per-acre rental rate in 
the fee schedule for all years in a 10-year period except the base 
year.\27\ The annual adjustment factor is based on the average annual 
change in the Implicit Price Deflator for the Gross Domestic Product 
(IPD-GDP) for the 10-year period immediately preceding the year that 
the NASS Census data become available.\28\ The BLM rule makes clear 
that the fee schedule is the only basis for determining an annual 
rental fee for rights-of-way on federal lands.\29\
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    \25\ Id. at 65,047.
    \26\ Id. at 65,049. A calculation of the 10-year average of the 
30-year and 20-year Treasury bond yield rates for 1998-2007 results 
in a rate of return of 5.77 percent.
    \27\ Id. at 65,050. The base year is the first year updated per-
acre values are applied based on the most recent NASS Census data.
    \28\ The annual adjustment factor will be updated every 10 
years.
    \29\ If lands are to be transferred out of federal ownership, 
BLM allows a right-of-way occupier to submit an appraisal report to 
determine a one-time rental payment for perpetual linear grants or 
easements.
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    14. On February 17, 2009, the Commission issued notice (February 17 
Notice) of the 2008 BLM fee schedule that had been created from the 
revised methodology, as it had done for every annual update to the 1987 
fee schedule.\30\ Because of the land value revisions and methodology 
adjustments in response to EPAct 2005, the 2008 BLM fee schedule 
resulted, in some cases, in significantly higher annual charge 
assessments for Commission licensees.\31\
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    \30\ Update of the Federal Energy Regulatory Commission's Fees 
Schedule for Annual Charges for the Use of Government Lands, FERC 
Stats. & Regs. ] 31,288 (2009); 74 FR 8184 (Feb. 24, 2009).
    \31\ However, a handful of licensees, in geographical locations 
throughout the country, had reduced rates.
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    15. On March 6, 2009, a group of licensees requested rehearing of 
the February 17 Notice, which the Commission denied.\32\ The licensees

[[Page 5259]]

petitioned for review of the Commission's orders in the United States 
Court of Appeals for the District of Columbia Circuit. On January 4, 
2011, the Court granted the petition for review and vacated the 
Commission's February 17 Notice.\33\ The D.C. Circuit found that the 
Commission is required by the Administrative Procedure Act to seek 
notice and comment on the methodology used to calculate annual charges 
because the Commission's fee schedule is based on the BLM fee schedule, 
and BLM made changes to the methodology underlying its fee schedule.
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    \32\ Update of the Federal Energy Regulatory Commission's Fees 
Schedule for Annual Charges for the Use of Government Lands, 129 
FERC ] 61,095 (2009).
    \33\ City of Idaho Falls, Idaho v. FERC, 629 F.3d 222 (D.C. Cir. 
2011).
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B. Notice of Inquiry

    16. On February 17, 2011, the Commission issued a Notice of Inquiry 
(NOI) soliciting comments on its procedures for assessing annual 
charges for the use of government lands by hydropower licensees.\34\ 
The NOI specifically sought information about existing indices that 
could be used as the basis for establishing annual land use charges, 
the adequacy of such indices, and how any new or modified proposed 
methodology for calculating an annual charge is consistent with five 
objectives. The methodology must be uniformly applicable to all 
licensees occupying federal lands, administration of the methodology 
should not impose exorbitant costs on the Commission, the methodology 
should not be subject to review on an individual case-by-case basis, 
the methodology must reflect reasonably accurate land valuations, and 
the methodology should avoid an unreasonable increase in the price to 
consumers of power.\35\
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    \34\ Annual Charges for Use of Government Lands, 134 FERC ] 
61,111 (2011).
    \35\ Id. P 19.
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    17. In response to the NOI, comments were filed by eight entities 
representing licensees, industry trade groups, and federal agencies. No 
commenters offered an alternative, existing index to the NASS Census 
identified in the NOI to determine per-acre rental rates by county. 
Instead, most commenters proposed modifications or adjustments to the 
values and components in the 2008 BLM fee schedule.
    18. The Forest Service recommended adoption of the 2008 BLM fee 
schedule because it would result in consistent application of linear 
rights-of way rental values among federal agencies, parity in rental 
rates for projects licensed or exempted from licensing under the FPA, 
and reduced administrative burden because BLM maintains and updates the 
fee schedule, with periodic revisions.
    19. One commenter suggested that even though BLM and Forest Service 
have updated their fee schedules, for hydropower licensees, the 
Commission should retain the 1987 fee schedule with annual adjustments 
for inflation.
    20. A number of commenters recommended reducing the NASS Census 
per-acre land values for counties (or other geographic regions). The 
proffered suggestions included reducing the NASS Census land values by 
50 percent, rather than the 20 percent reduction incorporated into the 
BLM fee schedule, rejecting the zone system implemented by BLM, or 
using the ``pastureland'' values from the NASS Census, which commenters 
advocated would result in reduced land values. A number of commenters 
also advocated for an opportunity for licensees to conduct individual 
appraisals to independently determine the fair market value of the 
federal lands occupied by a hydropower project, but one commenter 
objected to individual appraisals on a case-by-case basis because of 
the potential for increased costs in the administration of Part I of 
the FPA.\36\ Commenters also recommended reducing the encumbrance 
factor significantly to reflect the fact that project lands often 
incorporate multiple uses, many of which benefit the public at a cost 
to the licensee.
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    \36\ The annual charge for use of government lands is one 
component of a licensee's annual charges. Another component of the 
annual charge is the Commission's costs for administering Part I of 
the FPA, which are allocated, with certain exceptions, among 
licensees and exemptees according to installed capacity. See 18 CFR 
11.1 (2012).
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    21. Commenters objected to the Commission's longstanding practice 
of automatically doubling the linear rights-of-way fee for non-
transmission line project lands. Some commenters also proposed specific 
adjustments to the rate of return and annual adjustment factor 
components of the annual fee calculation. Several commenters requested 
that the annual fee resulting from any new methodology be phased-in or 
discounted initially.

C. Notice of Proposed Rulemaking (NOPR)

    22. In the NOPR, the Commission proposed to adopt the 2008 BLM 
methodology for creating a fee schedule, with some modifications, to 
assess annual charges for the use, occupancy, and enjoyment of federal 
lands by hydropower licensees.\37\ Like the methodology set forth in 
the 2008 BLM rule, the formula proposed in the NOPR had four 
components: (1) An average per-acre land value by county, based on the 
``land and buildings'' category from the NASS Census; (2) an 
encumbrance factor of 50 percent; (3) a rate of return; and (4) an 
annual adjustment factor.
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    \37\ Annual Charges for the Use of Government Lands, FERC Stats. 
& Regs ] 32,684; 137 FERC ] 61,139 (2011).
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    23. The Commission proposed to use this formula to create its own 
schedule because it agreed with the underlying premise of the change in 
the BLM fee schedule that the 1987 fee schedule no longer reflected 
fair market land values. Thus, the NOPR proposed to use the NASS 
Census--the only index proferred by commenters--which includes land 
values from around the country as a basis for the per-acre land values. 
However, the Commission agreed with commenters that BLM's ``zone 
system'' inflates the values of all counties in a zone except the 
highest valued county.
    24. Except for rejecting the zone system, the Commission proposed 
to adopt all other aspects of the BLM methodology for producing a fee 
schedule to assess rental rates for the use of federal lands, including 
the encumbrance factor, the rate of return, the annual adjustment 
factor, and assignment of non-county geographical areas in Alaska and 
Puerto Rico.
    25. The proposed rule eliminated the Commission's longstanding 
practice of doubling the fee schedule rate for non-transmission line 
lands. In promulgating the 1987 fee schedule, the Forest Service 
indicated that its methodology at the time was intended for 
transmission line rights-of-way, and its market value figures reflected 
strips of land used for limited purposes, but that reservoirs, 
streambeds, and other typical hydropower sites should have a higher 
value.\38\ In contrast, the land values in the formula proposed in the 
NOPR are based on the NASS Census, which is a survey of land values for 
areas of land rather than strips of land used for limited purposes. 
Thus, as proposed in the NOPR, it would no longer be necessary to 
double the fee schedule for non-linear strips of land.
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    \38\ Order No. 469, FERC Stats. & Regs. ] 30,741 at 30,589 
(1987).
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    26. The proposed rule did not include a graduated phase-in period 
for the new fee schedule.

II. Discussion

A. Part 11 Fee Schedule

    27. In this Final Rule, the Commission adopts a methodology for 
creating an annual fee schedule for the use, occupancy, and enjoyment 
of government lands by hydropower licensees, and amends Part 11 of its

[[Page 5260]]

regulations accordingly. This methodology is largely based on the 
methodology proposed in the NOPR, which in turn is based on the 
methodology expounded in the 2008 BLM rule adopting an updated fee 
schedule for linear rights-of-way.
    28. The fee schedule will be based on a formula with four inputs: 
(1) An adjusted per-acre land value by county or geographic area; (2) 
an encumbrance factor; (3) a rate of return; and (4) an annual 
inflation adjustment. The product of the formula's components will 
result in a fee for each county or geographic area and will be noticed 
and published annually as a fee schedule in Appendix A to Part 11 of 
the Commission's regulations. The Commission will compute a licensee's 
annual charge for the use of government lands by multiplying the 
applicable county or geographical area fee in the fee schedule by the 
number of federal acres reported by a licensee.
1. Projects Occupying Multiple Counties, States, or Geographical Areas
    29. Several commenters requested clarification regarding the 
application of the fee schedule to hydropower projects that occupy 
multiple counties. If a licensed project occupies multiple counties, 
states, or geographical areas, the Commission will perform a separate 
calculation for the proportional amount of acres in each county, state, 
or geographical area.\39\ As discussed more fully below, this includes 
proportional application of the state-specific reduction to remove the 
value of irrigated lands from the value of all farmlands reported in 
the NASS Census.
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    \39\ Throughout this order, any reference to a county or state 
also applies to the regions termed ``geographical areas,'' even if 
this term is not explicitly used.
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2. Transmission Line Acres
    30. This Final Rule retains the NOPR's proposal to eliminate the 
Commission's practice of doubling the fee schedule rate for non-
transmission line lands. In other words, all federal hydropower project 
lands will be charged at the fee schedule rate.
    31. A number of commenters agreed with the Commission's proposal to 
eliminate its longstanding practice of automatically doubling the 
linear fee schedule rate for non-transmission line lands (i.e., non-
linear acres). However, Pacific Gas and Electric Company (PG&E) 
commented that the Commission should reduce a licensee's charges under 
the Final Rule by 50 percent for federal lands occupied by transmission 
lines and similar project works (e.g., roads) because the rationale for 
the Commission's decision to reject doubling of the annual fee for the 
use of government lands dictates that the Commission accordingly reduce 
the charges when they are applied to transmission lines.
    32. We disagree. As explained above, from 1942 to 1986, the 
Commission used a national per-acre average land value as the basis for 
assessing rent for the use of government lands. Throughout this period, 
the Commission adopted the view that fees for right-of-way usage of 
federal lands would be less than those for other project uses because 
land so used remained available for multiple uses.\40\ In adopting a 
new methodology for creating a fee schedule for the use of government 
lands in 1986, the Commission considered whether to eliminate the 
practice of charging a lower rate for the use of federal lands occupied 
by transmission lines than for lands occupied by other project 
features.\41\ The Forest Service commented that its methodology was 
intended for transmission line rights-of-way, its market value figures 
reflected strips of land used for limited purposes, and therefore it 
suggested that reservoirs, streambeds, and other typical hydropower 
sites should have a higher rental value.\42\ Thus, in adopting the 1987 
fee schedule, the Commission found that the Forest Service's and BLM's 
methodology was ``the best approximation available of the value of 
lands used for transmission line rights-of-way,'' applied the 1987 fee 
schedule rate for transmission line lands, and doubled this rate for 
other hydropower sites, because, while the existence of transmission 
lines did not completely preclude other uses, features such as dams and 
powerhouses did.\43\
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    \40\ See, e.g., Order No. 560, 56 F.P.C. 3860 (1976).
    \41\ Revisions to the Billing Procedures for Annual Charges for 
Administering Part I of the Federal Power Act and to the Methodology 
for Assessing Federal Land Use Charges, 51 FR 211 (January 3, 1986), 
FERC Stats. & Regs., Proposed Regulations ] 33,278, at 33,282 
(1986).
    \42\ Order No. 469, FERC Stats. & Regs. ] 30,741 at 30,588 
(1987).
    \43\ Id. (emphasis added).
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    33. Both previous methodologies (i.e., the national per-acre 
average, and the 1987 fee schedule based on surveys of linear rights-
of-way) were estimates of the value of lands occupied by hydropower 
projects based on the data available at that time. Thus, in adopting 
the 1987 fee schedule, it was reasonable for the Commission to attempt 
to account for the presumption that more uses could be permitted on 
linear rights-of-way than on other hydropower sites and the attendant 
presumption that the lands underlying linear rights-of-way are of 
lesser value than the lands underlying other hydropower sites.
    34. However, we find that this conflates two aspects of the formula 
for creating the fee schedule. The extent to which a hydropower 
facility encumbers federal lands, or precludes other uses on such 
lands, is reflected in the encumbrance factor component of the formula. 
As discussed below, this Final Rule reduces the encumbrance factor from 
70 percent (the encumbrance factor used in the 1987 fee schedule) to 50 
percent, which lowers the rent for licensees, in recognition of the 
various degrees of encumbrance caused by different hydropower 
facilities (e.g., powerhouses, dams, reservoirs, roads, penstocks, or 
transmission lines). However, the underlying land value component of 
the formula is independent of the type of infrastructure (transmission 
line, reservoir, penstock, road) occupying the land. The specificity 
and detail of the NASS Census allows the Commission to more accurately 
value parcels of land in particular counties or geographic areas. Thus, 
it is no longer necessary to rely on the ``best approximation 
available,'' and the attendant estimated adjustments to discount lands 
perceived to have differing degrees of encumbrance. Accordingly, the 
Final Rule makes this distinction and eliminates the rudimentary 
practice of simply doubling the linear fee schedule rate for non-
transmission line lands.
3. Phase-In Period
    35. The NOPR did not propose to include a phase-in period for the 
new schedule of annual charges because licensees have been on notice 
since issuance of the 2008 BLM rule that the fee schedule would be 
updated. In response to the NOPR, six commenters requested a 25 percent 
reduction in the annual charge calculated under any new methodology 
because of the anticipated higher rates that may result from the Final 
Rule. Because of the uncertainty about the actual rates that would be 
charged under the new fee schedule, we agree that a 25 percent 
reduction in the annual charge for the use of government lands will be 
applied to all licensees for the first year under this rule.

[[Page 5261]]

B. Components of the Fee Schedule

1. Per-Acre Land Value
    36. The NOPR proposed to base the per-acre land value on the 
applicable county ``land and buildings'' category \44\ from the NASS 
Census, adjusted downward by 20 percent to remove the value of 
irrigated lands and buildings,\45\ and updated with current land values 
from the NASS Census every five years. This Final Rule changes the 
adjustment downward in the proposed per-acre value to a state-specific 
reduction that removes the value of irrigated lands on a state-by-state 
basis rather than a national basis, plus a seven percent reduction to 
remove the value of buildings or other improvements.
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    \44\ The ``land and buildings'' category is a combination of all 
the land categories in the NASS Census, and includes croplands 
(irrigated and non-irrigated), pastureland/rangeland, woodland, and 
``other'' (roads, ponds, wasteland, and land encumbered by non-
commercial/non-residential buildings).
    \45\ Twenty percent is the sum of a 13 percent reduction to 
remove the value of irrigated lands based on national averages and a 
7 percent reduction to remove the value of lands in the ``other'' 
category, which include buildings and improvements.
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    37. The NASS Census is conducted every five years and there is an 
18-month delay before NASS publishes the Census data. The 2008 BLM rule 
incorporates another 18-month delay to allow notice of any changes in 
applicable land values. This Final Rule adopts the NOPR's proposed 
schedule, which is consistent with BLM's implementation of its rule. 
Thus, the Commission's 2011-2015 fee schedules will be based on data 
from the 2007 NASS Census, the 2016-2020 fee schedules will be based on 
data from the 2012 NASS Census, the 2021-2025 fee schedules will be 
based on data from the 2017 NASS Census, and so on. State-specific 
adjustments to the per-acre land value will be performed in the first 
year that the most recent NASS Census data are used in the formula, and 
remain the same until the next round of NASS Census data are used.
    38. To determine the downward adjustment of 20 percent to the per-
acre land and buildings value, BLM consulted with NASS on an 
appropriate methodology to reduce the average per-acre land and 
building value by an amount that reflects the value of irrigated 
cropland and land encumbered by buildings.\46\ NASS advised BLM that 
this calculation could be accomplished by comparing the total value of 
irrigated acres and the acres in the ``other'' category \47\ to the 
total value of all farmland acres. This resulted in a 13 percent 
reduction for all irrigated acres and a seven percent reduction for all 
lands in the ``other'' category, for a total 20 percent reduction in 
the per-acre land value to eliminate the value of all land that could 
possibly be encumbered by buildings or which could possibly have been 
developed, improved, or irrigated.\48\
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    \46\ 73 FR 65040, at 65043 (2008).
    \47\ The ``other'' category includes all improved land or land 
encumbered by buildings.
    \48\ 73 FR 65040, at 65043 (2008).
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    39. In response to the NOPR, seven commenters argued that the per-
acre county land values should be reduced by more than 20 percent. 
Several of these commenters argued that such a further downward 
adjustment is appropriate because the lands where hydropower projects 
are located tend to be rocky, steep-sloped, and with little soil, and 
therefore of lesser value than ``agricultural'' lands. The Federal 
Lands Group,\49\ in particular, believes the per-acre county land 
values should be reduced by 50 percent to reflect the fundamental 
difference in character and quality between agricultural lands and 
hydropower lands. Placer County Water Agency (PCWA) argues that the 13 
percent reduction for irrigated cropland, which reflected the national 
ratio of irrigated croplands to all farmlands in the 2008 BLM rule, 
should be performed individually for each state because the value of 
irrigated lands relative to all farmlands varies drastically from state 
to state. Similarly, Idaho Power argues that a blanket 20 percent 
reduction is inequitable and overestimates the per-acre land value in 
the states with a large percentage of irrigated cropland.
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    \49\ The Federal Lands Group is composed of the following 
licensees: Bradley Lake Project Management Committee; City of Idaho 
Falls, Idaho; City of Seattle, Washington; City and Borough of 
Sitka, Alaska; City of Tacoma, Washington; El Dorado Irrigation 
District; Eugene Water and Electric Board; PacifiCorp; Portland 
General Electric Company; Public Utility District No. 1 of Chelan 
County, Washington; Puget Sound Energy, Inc.; Sacramento Municipal 
Utility District; Public Utility District No. 1 of Snohomish County; 
Southeast Alaska Power Agency; Kodiak Electric Association; and 
Turlock Irrigation District.
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    40. We agree with PCWA and Idaho Power that the use of a national 
ratio to remove the value of irrigated lands from the per-acre country 
value is disproportionate. In this Final Rule, the per-acre value by 
county or other geographic area will be reduced by a state-specific 
factor to remove the value of irrigated lands from the per-acre land 
value. This will be accomplished by comparing the total value of 
irrigated lands in each state to the total value of all farmlands in 
each state. For all counties or geographical areas within a particular 
state, the per-acre land value will be reduced by this state-specific 
ratio to remove the value of irrigated lands. This state-specific 
reduction will be performed every five years, or on the same schedule 
as the introduction of the updated NASS Census values.\50\ Appendix A 
to this order includes a table demonstrating this calculation for each 
state under the 2007 NASS Census. For each subsequent NASS Census, a 
table identifying the state-specific factor will be available on the 
Commission's Web site.
---------------------------------------------------------------------------

    \50\ The 2007 NASS Census will be applicable through 2015, data 
from the 2012 NASS Census will apply beginning in 2016, data from 
the 2017 NASS Census will apply beginning in 2021, etc.
---------------------------------------------------------------------------

    41. In its 2008 rule, BLM specifically consulted with NASS on an 
appropriate methodology to reduce the average per acre ``land and 
buildings'' category by an amount that reflects the value of irrigated 
cropland because BLM- and Forest Service-administered lands generally 
do not include these land categories. We agree with this assessment and 
concur that hydropower projects, particularly those occupying BLM- and 
Forest Service-administered lands, generally do not include irrigated 
croplands.\51\ Thus, it is reasonable to remove the value of irrigated 
croplands from the per-acre county land value assessment in the NASS 
Census. Furthermore, using a state-specific ratio to remove the 
increased value of irrigated lands from the per-acre county land values 
results in a fairer representation of the value of county lands. 
Commission staff found that performing such a calculation every five 
years is administratively feasible. Therefore, in the Final Rule, the 
per-acre land value from the NASS Census' ``land and buildings'' 
category will be adjusted individually for each state.
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    \51\ However, this is not always the case. Commenters focused 
exclusively on licensed hydropower projects in the western United 
States to argue that hydropower lands are often on steep, rocky, and 
soilless lands that are fundamentally different than agricultural 
lands. This is sometimes the case, but it is also true that many 
licensed hydropower reservoirs are located in the heart of 
agricultural areas. Therefore, we disagree with the assertion that, 
by their very nature, lands used for hydropower projects are 
fundamentally different from those used for agriculture.
---------------------------------------------------------------------------

    42. Once this percent is determined for each state, the per-acre 
land value will be reduced by an additional seven percent. According to 
the BLM rule, the additional seven percent reduction reflects the value 
added to the ``lands and buildings'' category by buildings and other 
improvements, as reflected in the ``other'' category. In its rule, BLM 
acknowledged that seven percent was likely a slight overestimate, but 
that neither it nor NASS knew of any way to separate out the components 
of the ``other'' category, which included

[[Page 5262]]

buildings and other improvements, but also included wastelands. Because 
no commenters offered a viable critique or alternative to the 
calculation for the seven percent reduction to remove the value of 
buildings and improvements, we retain and find reasonable this 
reduction as presented in the BLM rule.
a. Per-Acre Land Values for Alaska
    43. In the NOPR, the Commission proposed to retain BLM's approach 
to Alaska per-acre land values such that lands in Alaska would be 
designated as part of one of the NASS Census geographic area 
identifiers. Under the 2008 BLM rule, the Aleutian Islands Area 
includes all lands within the Aleutian Islands chain; the Fairbanks 
Area includes all lands within the BLM Fairbanks District boundaries; 
the Kenai Peninsula Area includes all lands within the BLM Anchorage 
District excluding the Aleutian Islands Chain, the Anchorage Area, and 
the Juneau Area; the Anchorage Area for all lands within the 
Municipality of Anchorage, and the Juneau Area for all lands within 
downtown Juneau (i.e., voting precincts 1, 2, and 3). Currently, 
Commission-licensed projects occupying federal lands are located only 
in the Kenai Peninsula Area, as defined above, although there are 
outstanding preliminary permits for projects that would occupy federal 
lands in the Fairbanks Area.
    44. A number of commenters argued that Alaska should be assessed a 
per-acre statewide value, which is also a category reported by the NASS 
Census. Commenters asserted that regional values for Alaska are 
inappropriate because Alaska does not use the administrative 
designation of county, the number of farms surveyed for the NASS Census 
in the entire state of Alaska is less than the number of farms surveyed 
in most counties in the lower-48 states, and certain per-acre land 
values near Anchorage and Juneau are very high and result in a 
substantial increase in annual charges for the use of government lands 
by hydropower licensees. Despite these objections and concerns, 
commenters offered no explanation as to why it was appropriate to use a 
statewide value for Alaska, but not the smallest NASS Census defined 
area, which in Alaska's case is the geographic area identifier.
    45. This Final Rule retains the proposal in the NOPR, but clarifies 
that the Anchorage Area and the Juneau Area will not be used to assess 
annual charges for the use of government lands because these high, 
urban-based rates would not reasonably reflect the value of government 
lands on which hydropower projects are located.\52\ Thus, for purposes 
of determining a per-acre land value, projects in Alaska will be 
assessed the Aleutian Islands Area per-acre land value if located in 
the Aleutian Islands Chain, the Fairbanks Area per-acre land value if 
located in the Fairbanks BLM district, or the Kenai Peninsula Area land 
value if located in the Anchorage BLM district, but excluding the 
Aleutian Islands Area. As with the other states, the Alaska per-acre 
geographic area values will be reduced to remove the value of irrigated 
lands and building or improvements.
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    \52\ As noted, there are no Commission-licensed projects in 
these geographic areas, as defined in the 2008 BLM rule. However, 
even if there were projects in these locations in the future, such 
projects would be assessed annual charges for the use of government 
lands using the Kenai Peninsula per-acre value.
---------------------------------------------------------------------------

    46. While the NASS Census is based on farmland values--which 
include pasturelands, woodlands, and other wastelands--and there is a 
low concentration of farms in Alaska, the NASS Census remains a useful 
indication of land values. Even under the 1987 fee schedule, projects 
in Alaska were charged a unique rate that was not the result of 
surveyed lands. Because this rate was artificially low, the current 
adjustment is aligning Alaska's charges with the methodology applied to 
all other licensees. Furthermore, in adopting application of the NASS 
Census values for the Alaska geographical areas, BLM found that the fee 
schedule rates under the formula promulgated in its 2008 rule are 
consistent with the general fee schedule previously developed by the 
Department of the Interior's Appraisal Services Directorate, Alaska, 
for the BLM and the U.S. Fish and Wildlife Service. Thus, while the 
increase to Alaska licensees in annual charges for the use of 
government lands may seem significant, this is in large part due to the 
arbitrarily low rate assessed under the 1987 fee schedule. No 
commenters have proferred a meaningful justification for treating 
federal lands in Alaska any differently from federal lands administered 
by the same land management agencies throughout the country.
b. Per-Acre Land Values for Puerto Rico
    47. Except for excluding the use of BLM's zone system, the NOPR 
proposed to adopt all other aspects of the 2008 BLM rule with respect 
to the components of the formula for creating a fee schedule. Under the 
2008 BLM schedule, the Forest Service proposed to use $5,866 as the 
per-acre land value for projects occupying Forest Service lands in 
Puerto Rico,\53\ which is the NASS average farmland value for the 
entire Commonwealth Puerto Rico.
---------------------------------------------------------------------------

    \53\ Puerto Rico has one licensed project that occupies 
approximately two acres of lands managed by the Forest Service. 
Under the 2007 NASS Census, the base per-acre land value is $8,829.
---------------------------------------------------------------------------

    48. No comments were received regarding the application of the 
proposed rule to Puerto Rico. We find the Forest Service's proposal 
reasonable because Puerto Rico has no counties, and the NASS Census 
surveys do not convey the same information in the same units and 
categories as those presented in the NASS Census state tables. The 
Final Rule will use the NASS average farmland value, adjusted by 20 
percent to remove the value of irrigated lands and buildings,\54\ as 
the per-acre value component of the fee schedule formula.
---------------------------------------------------------------------------

    \54\ The NASS Census information reported for Puerto Rico is not 
presented in the same units and categories as the information 
presented for other states. As such, it is not possible to perform 
the state-specific reduction to remove the value of irrigated lands. 
Therefore, this Final Rule retains the 2008 BLM rule's adjustment of 
20 percent to remove the value of irrigated lands and building and 
improvements from the per-acre land value.
---------------------------------------------------------------------------

c. Individual Appraisals
    49. The NOPR did not propose to allow licensees to challenge an 
annual charge by presenting independent appraisals based on the 
Commission's longstanding disfavor of any annual charges methodology 
that would rely on individual appraisals. A number of commenters 
objected to this preference and recommended that the Commission should 
allow licensees to submit individual appraisals at a licensee's 
expense. One commenter opposed the use of individual appraisals because 
it may increase the administrative charges for all licensees.
    50. This Final Rule does not include a provision for independent 
appraisals. The adjustments made to this rule ensure that the annual 
charges are reasonable because they are based on a market value index 
that surveys down to the county level, adjusts for state-specific 
increases in value based on the ratio of irrigated lands in each state, 
and is further reduced by an encumbrance factor that fairly reflects 
the occupation of federal lands that are also used for multiple 
purposes. Moreover, the total amount collected by the Commission in 
annual charges for the use of government lands is less than a one 
percent increase.\55\ We recognize that for some licensees the annual 
charge for the use of government lands will

[[Page 5263]]

increase, but this is because annual charges have not been updated to 
reflect changes in land values since 1987.\56\ We continue to believe 
that allowing individual appraisals of a licensee's lands would 
significantly increase the Commission's administrative burden, cause 
delay in the final determination of annual charges, result in increased 
costs in the administration of Part I of the FPA, and could lead to 
unnecessary litigation.
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    \55\ Under the 1987 fee schedule, 2013 collections were 
estimated to be $8,227,851. Under the Final Rule, 2013 collections 
are estimated to be $10,270,471.
    \56\ Based on land trends since 1987, we would expect to see 
increases in some western states, in suburban areas adjacent to 
cities, and in Alaska because of the artificially low rate assessed 
under the 1987 fee schedule.
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2. Encumbrance Factor
    51. The NOPR proposed to adopt a 50 percent encumbrance factor.\57\ 
In response to the NOPR, a number of commenters argued that the 
encumbrance factor should be less than 50 percent in recognition of the 
public benefits and enhancements provided by hydropower projects. 
Specifically, the Federal Lands Group argues that the encumbrance 
factor should be 30 percent to reflect the actual, physical encumbrance 
of federal lands, the multiple, non-project uses of federal lands at 
licensed projects, and the public benefits licensees provide. 
Similarly, the National Hydropower Association (NHA) and Edison 
Electric Institute (EEI) assert that the record in this proceeding 
demonstrates that federal lands at hydropower projects are often used 
by federal land management agencies for non-project purposes.
---------------------------------------------------------------------------

    \57\ The encumbrance factor is a measure of the degree to which 
a particular type of facility encumbers a right-of-way or excludes 
other types of land uses.
---------------------------------------------------------------------------

    52. We disagree and retain the 50 percent encumbrance factor in 
this Final Rule. The 50 percent encumbrance factor in this Final Rule 
is a reduction from the 70 percent encumbrance factor incorporated into 
the 1987 fee schedule. In promulgating its 2008 fee schedule, BLM 
revisited its survey of the degrees of encumbrance presumed by utility 
facilities and infrastructure, and determined that 50 percent was more 
reasonable than 70 percent because lands often can be used for other 
purposes. BLM made this change as a result of comments received on its 
proposed rule, a review of industry practices in the private sector, 
and a review of the Department of Interior's appraisal methodology for 
right-of-way facilities located on federal lands.\58\
---------------------------------------------------------------------------

    \58\ 73 FR 65040, at 65047.
---------------------------------------------------------------------------

    53. A 50 percent encumbrance factor partially reflects commenters' 
suggestion that hydropower projects are used for non-power purposes. 
However, the Commission's position remains unchanged in that public 
benefits provided by licensed projects are considered in the licensing 
decision, and these benefits are the quid pro quo for the ability to 
operate the project in a manner consistent with the needs of society. 
In combination with the decision not to double the fee schedule for 
non-transmission line lands, and the fact that the different components 
of hydropower projects represent varying levels of encumbrance on 
federal lands, on balance, a 50 percent encumbrance factor is 
reasonable.
3. Rate of Return
    54. The rate of return component of the formula converts the 
adjusted per-acre land value into an annual rental value. The NOPR 
proposed a rate of return of 5.27 percent, which is the rate of return 
adopted in the 2008 BLM rule. BLM described 5.27 percent as the most 
current 10-year average (1998-2007) of the 30-year and 20-year Treasury 
bond yield rate.\59\
---------------------------------------------------------------------------

    \59\ The longest term treasury bond is a 30-year bond. However, 
from 2003-2005, 30-year treasury bonds were discontinued, and the 
longest term treasury bond was the 20-year bond.
---------------------------------------------------------------------------

    55. In response to the NOPR, Southern California Edison (SCE) 
commented that the 10-year average of these Treasury bond yield rates 
will result in no greater certainty than the a one-point-in-time 
Treasury bond yield rate. SCE proposes that, rather than using a 10-
year average, the Commission should use the most recent 30-year 
Treasury bond yield rate to determine the applicable rate of return for 
annual charges.\60\
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    \60\ This rate is 3.91 percent for 2011.
---------------------------------------------------------------------------

    56. In deciding to use the Treasury bond yield rate as a basis for 
a rate of return, BLM reviewed a number of appraisal reports that 
indicated the rate of return for land can vary from 7 to 12 percent, 
and is typically around 10 percent. BLM acknowledged that these rates 
take into account certain risk considerations, and do not normally 
include an allowance for inflation. BLM determined that it should use a 
``safe rate of return,'' that is, the prevailing rate on insured 
savings accounts or guaranteed government securities that include an 
allowance for inflation, because any risk of non-payment is reduced 
because BLM requires a potential right-of-way holder to show that it is 
financially able to construct and operate the facility.
    57. We agree that, because the annual charge for use of government 
land is a required payment as a term of a hydropower license, using a 
``safe'' rate of return is appropriate. Therefore, as in the 2008 BLM 
rule, our Final Rule will convert the adjusted per-acre land value into 
an annual rental value using a rate of return pegged to the 30-year 
Treasury bond yield rate. Hydropower licenses generally are issued for 
a period of 30 to 50 years, and the Treasury bond yield rate should 
match that time frame as closely as possible. The longest bond yield 
rate available from the Treasury is 30 years. We also agree with BLM's 
reasoning in its 2008 rule that a 10-year average eliminates a ``one-
point-in-time'' high or low rate, and thus we will not adopt SCE's 
proposal that we use a one-point-in-time Treasury bond yield rate. 
Therefore, in this Final Rule, the rate of return will be the 10-year 
average of the 30-year Treasury bond yield rate for the 10 years 
immediately preceding the most recent NASS Census.\61\ The 10-year 
average (2002-2011) of the 30-year Treasury bond yield rate for the 10 
years immediately preceding the 2012 NASS Census is 5.77 percent.\62\ 
Therefore, the applicable interest rate will be 5.77 percent for years 
2013 through 2025.\63\
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    \61\ Between 2003 and 2005, the U.S. Treasury Department did not 
publish a 30-year Treasury bond yield rate. For these years, the 20-
year Treasury bond yield rate is used. Should the U.S. Treasury 
Department discontinue publishing the 30-year Treasury bond yield 
rate, the longest term bond yield available will be used for 
applicable years to calculate the rate of return.
    \62\ Data to derive these calculations is available from the 
Federal Reserve Web site. This Final Rule uses the nominal 30-year 
Treasury constant maturity rate available on an annualized basis 
from the Federal Reserve Web site.
    \63\ For the years 2026-2035, the rate of return will be the 10-
year average of the 30-year Treasury bond yield rate for the 10 
years (2012-2021) preceding the 2022 NASS Census.
---------------------------------------------------------------------------

    58. Further, for the sake of administrative efficiency, the 10-year 
adjustments will occur in tandem with the annual adjustment factor, 
which is also adjusted on a decadal basis. As a result, the 5.77 
percent rate of return will apply for 13 years, or through 2025. Both 
the rate of return and the annual adjustment factor will be 
recalculated for years 2026 through 2035, and will remain fixed through 
the 10-year period.
4. Annual Adjustment Factor
    59. The annual adjustment factor adjusts the fee schedule annually 
to reflect inflationary or deflationary trends. The NOPR proposed an 
annual adjustment factor of 1.9 percent, as adopted in the 2008 BLM 
rule, which would be adjusted every 10 years.\64\ The NOPR proposed to 
base the annual adjustment factor on the average annual

[[Page 5264]]

change from second quarter to second quarter in the IPD-GDP for the 10-
year period immediately preceding the year (2004) that the 2002 NASS 
Census data became available. The NOPR proposed to adopt BLM's decadal 
updates to the annual adjustment factor.\65\ BLM chose to use the IPD-
GDP over the Consumer Price Index--for all Urban Consumers (CPI-U) 
because the IPD-GDP index tracks increases in land values as well as, 
if not better than, the CPI-U, and the IPD-GDP tracks a broader range 
of economic indicators than does the CPI-U, and can be tracked on an 
annual basis. BLM chose to update the IPD-GDP every ten years to 
provide predictability so that rental fees could be anticipated.
---------------------------------------------------------------------------

    \64\ The first 10-year period will not be a full period so as to 
ensure that the 10-year track the five year census data updates. 
Thus, the annual adjustment factor of 1.9 percent would be applied 
for each calendar year through 2015.
    \65\ BLM will recalculate the annual adjustment factor in 2014, 
based on the average annual change in the IPD-GDP from 2004 to 2013 
(the 10-year period immediately preceding the year (2014) when the 
2012 NASS Census data will become available) and will apply it 
annually to the fee schedule for years 2016 through 2025.
---------------------------------------------------------------------------

    60. In response to the NOPR, no comments were received on the 
proposal to adopt the BLM methodology of using the IPD-GDP for the 10-
year period immediately preceding the issuance of the NASS Census data, 
and updating the annual adjustment factor every 10 years. The IPD-GDP 
was used from 1987 to 2007 to adjust the fee schedule for the use of 
government lands without complaint, it is an easily identifiable number 
for use by the public and federal agencies, and, as explained by BLM, 
it better aligns with actual inflationary trends when contrasted to the 
CPI-U. Therefore, the ten-year IPD-GDP for the period immediately 
preceding issuance of the NASS Census data is a reasonable factor to 
adjust for inflationary or deflationary trends in the per-acre land 
values.
    61. Through 2015, a 1.9 percent annual adjustment factor will be 
applied each calendar year. This is the annual change in the IPD-GDP 
index for the ten-year period immediately preceding the year (2004) 
that the 2002 NASS Census data became available. For the next ten-year 
period (2016-2025), the annual adjustment factor will be based on the 
average annual change in the IPD-GDP for the ten-year period 
immediately preceding the year (2014) that the 2012 NASS Census data 
becomes available. The annual adjustment factor will be adjusted in the 
same manner for subsequent ten year periods.

C. Summary of Schedule

    62. Fee schedules through 2015 will be based on data from the 2007 
NASS Census, and all adjustments and components identified in this 
order apply through 2015 (i.e., the per-acre land value adjustment, the 
50 percent encumbrance factor, the 5.77 percent rate of return, and the 
1.9 percent inflation adjustment).
    63. Fee schedules for years 2016-2020 will be based on data from 
the 2012 NASS Census. The state-specific adjustment to the per-acre 
land values will be performed for the 2016 base year, the rate of 
return will remain at 5.77 percent, and the inflation adjustment will 
be recalculated.
    64. For years 2021-2025, the per-acre land value will be based on 
data from the 2017 NASS Census, the state-specific adjustments will be 
recalculated, the rate of return will be 5.77 percent, and the 
inflation adjustment will match that used in years 2016-2020.
    65. A schedule of adjustments to the fee schedule is provided in 
Appendix B to this order, and will be available on the Commission's Web 
site.

D. Changes to Proposed Regulations

    66. The NOPR proposed to retain the general structure of section 
11.2 by referring to the completed fee schedule created based on the 
components described in the rule promulgating the 1987 regulations. 
However, in response to comments on the NOPR and to reduce the risk of 
ambiguity, the regulations promulgated by this Final Rule include a 
description of the individual components of the formula used to create 
the fee schedule. Furthermore, the first sentence of section 11.2(a) 
will not be deleted because it helps to clarify the relationship of 
annual charges for the use of government lands to the annual charges 
for the use of government dams.

III. Regulatory Requirements

A. Information Collection Statement

    67. The Office of Management and Budget (OMB) regulations require 
OMB to approve certain reporting, record keeping, and public disclosure 
requirements (collections of information) imposed by an agency.\66\ 
This rule does not contain any information collection requirements and 
compliance with the OMB regulations is thus not required. The 
Commission anticipates this rulemaking will make no change in current 
filing requirements, since licensees already must report to the 
Commission annually the number of acres per county a licensed project 
occupies. In addition, this Final Rule does not make any substantive or 
material changes to requirements specified in the NOPR, where the 
Commission similarly found no information collection requirements. The 
Commission will submit a copy of this Final Rule to OMB for information 
purposes only.
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    \66\ 5 CFR 1320.12 (2012).
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B. Environmental Analysis

    68. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\67\ The 
Commission has categorically excluded certain actions from these 
requirements as not having a significant effect on the human 
environment.\68\ The actions taken here fall within categorical 
exclusions in the Commission's regulations for actions concerning 
annual charges.\69\ Therefore, an environmental review is unnecessary 
and has not been prepared in this rulemaking.
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    \67\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
] 30,783 (1987).
    \68\ 18 CFR 380.4 (2012).
    \69\ 18 CFR 380.4(1) (2012).
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C. Regulatory Flexibility Act

    69. The Regulatory Flexibility Act of 1980 (RFA) \70\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA mandates consideration of regulatory alternatives that 
accomplish the stated objectives of a rulemaking while minimizing any 
significant economic impact on a substantial number of small entities. 
The Small Business Administration's (SBA) Office of Size Standards 
develops the numerical definition of a small business.\71\ The SBA has 
established a size standard for electrical utilities stating that a 
firm is small if, including its affiliates, it is primarily engaged in 
the transmission, generation and/or distribution of electric energy for 
sale and its total electric output for the preceding twelve months did 
not exceed four million megawatts.\72\
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    \70\ 5 U.S.C. 601-612 (2006).
    \71\ 13 CFR 121.101 (2012).
    \72\ 13 CFR 121.201, Sector 22 Utilities & n.1 (2012).
---------------------------------------------------------------------------

    70. Section 10(e)(1) of the FPA requires that the Commission fix a 
reasonable annual charge for the use, occupancy, and enjoyment of 
federal lands by hydropower licensees.\73\ The Commission currently 
assesses annual charges to 253 licenses for projects that occupy 
federal lands, which represent

[[Page 5265]]

135 discrete licensees, who will be impacted by this Final Rule. The 
Final Rule adopts a methodology promulgated by BLM, based on the NASS 
Census data, to determine the annual charge for the use of federal 
lands. The methodology for assessing this annual charge under the 
previous regulations is based on land values from 1987, whereas this 
Final Rule incorporates current land values, and would update those 
values every five years. As a result, some of the 135 licensees may 
experience a one-time increase in their annual charge for the use of 
federal lands.
---------------------------------------------------------------------------

    \73\ 16 U.S.C. 803(e)(1) (2006).
---------------------------------------------------------------------------

    71. Nevertheless, based on a review of the licensees with federal 
lands that will be impacted by the Final Rule, we estimate that less 
than 10 percent are small entities under the SBA definition. The 
affected licensees represent utilities, cities, and private and public 
companies in 30 states or territories. Many of the utilities which may 
seem to be under the four million megawatt hours per year threshold are 
also engaged in electricity production through other forms of 
generation, such as coal or natural gas, or also provide other utility 
services such as natural gas or water delivery. Similarly, many 
licensees that are small hydropower generators are affiliated with a 
larger entity or entities in other industries. Therefore, we estimate 
that less than 10 percent of the impacted licensees are actually small, 
unaffiliated entities who are primarily engaged in hydropower 
generation and whose total electrical output through transmission, 
generation, or distribution is less than four million megawatt hours 
per year.
    72. Any impact on these small entities would not be significant. 
Under the Final Rule, there may be a one-time increase for some 
licensees in the annual charge for the use of federal lands, but 
because the new methodology for calculating the annual charge will be 
updated every five years, any future increases or decreases will be 
incremental.\74\ In addition, small, unaffiliated entities generally 
occupy less federal lands than larger projects that generate more 
power. Therefore, as a class of licensees, small entities would be less 
impacted by an annual charge for the use of federal lands. Furthermore, 
this Final Rule does not incur any additional compliance or 
recordkeeping costs on any licensees occupying federal lands. 
Consequently, the Final Rule should not impose a significant economic 
impact on small entities.
---------------------------------------------------------------------------

    \74\ Alaska Electric Light and Power Company (AEL&P) commented 
that it was a small business that would be significantly impacted by 
the proposed rule because its charges for the Project No. 2307 would 
rise from approximately $10,000 annually to over $1 million. In 
fact, under this Final Rule, AEL&P's charges for the use of 
government lands would be approximately $30,000.
---------------------------------------------------------------------------

    73. Based on this understanding, the Commission certifies that the 
Final Rule will not have a significant economic impact on a substantial 
number of small entities. Accordingly, no regulatory flexibility 
analysis is required.

D. Document Availability

    74. In addition to publishing the full text of this document, 
except for the Appendices, in the Federal Register, the Commission 
provides all interested persons an opportunity to view and/or print the 
contents of this document via the Internet through the Commission's 
Home Page (http://www.ferc.gov) and in the Commission's Public 
Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. 
Eastern time) at 888 First Street NE., Room 2A, Washington, DC 20426.
    75. From the Commission's Home Page on the Internet, this 
information is available on eLibrary. The full text of this document, 
including the Appendices, is available on eLibrary in PDF and Microsoft 
Word format for viewing, printing, and/or downloading. To access this 
document in eLibrary, type the docket number excluding the last three 
digits of this document in the docket number field.
    76. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from Commission's Online Support 
at 202-502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

E. Effective Date and Congressional Notification

    77. These regulations are effective February 25, 2013. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 251 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.\75\ This rule is being 
submitted to the Senate, House, Government Accountability Office, and 
the Small Business Administration.
---------------------------------------------------------------------------

    \75\ 5 U.S.C. 804 (2006).
---------------------------------------------------------------------------

List of Subjects in 18 CFR Part 11

    Public Lands.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
    In consideration of the foregoing, the Commission amends part 11, 
Chapter I, Title 18 of the Code of Federal Regulations, as follows.

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

0
1. The authority citation for part 11 continues to read as follows:

     Authority:  16 U.S.C. 792-828c; 42 U.S.C. 7101-7352.


0
2. Revise Sec.  11.2 to read as follows:


Sec.  11.2  Use of Government lands.

    (a) Reasonable annual charges for recompensing the United States 
for the use, occupancy, and enjoyment of its lands (other than lands 
adjoining or pertaining to Government dams or other structures owned by 
the United States Government) or its other property, will be fixed by 
the Commission.
    (b) General rule. Annual charges for the use of government lands 
will be payable in advance, and will be set on the basis of an annual 
schedule of per-acre rental fees, as set forth in Appendix A of this 
part. The Executive Director will publish the updated fee schedule in 
the Federal Register.
    (c) The annual per-acre rental fee is the product of four factors: 
the adjusted per-acre value multiplied by the encumbrance factor 
multiplied by the rate of return multiplied by the annual adjustment 
factor.
    (1) Adjusted per-acre value. (i) Counties (or other geographical 
areas) are assigned a per-acre value based on their average per-acre 
land and building value published in the Census of Agriculture (Census) 
by the National Agricultural Statistics Service (NASS). The adjusted 
per-acre value is computed by reducing the NASS Census land and 
building value by the sum of a state-specific modifier and seven 
percent. A table of state-specific adjustments will be available on the 
Commission's Web site.
    (ii) The state-specific modifier is a percentage reduction 
applicable to all counties or geographic areas in a state (except 
Puerto Rico), and represents the ratio of the total value of irrigated 
farmland in the state to the total value of all farmland in the state. 
The state-specific modifier will be recalculated every five years 
beginning in payment year 2016.
    (iii) The state-specific modifier for Puerto Rico is 13 percent.
    (2) Encumbrance factor. The encumbrance factor is 50 percent.

[[Page 5266]]

    (3) Rate of return. The rate of return is 5.77 percent through 
payment year 2025. The rate of return will be adjusted every 10 years 
thereafter, and will be based on the 10-year average of the 30-year 
Treasury bond yield rate immediately preceding the applicable NASS 
Census. For example, for years 2026 through 2035, the rate of return 
will be based on the 10-year average (2012-2021) of the 30-year 
Treasury bond yield rate immediately preceding the 2022 NASS Census. If 
the 30-year Treasury bond yield rate is not available, the next longest 
term Treasury bond available should be used in its place.
    (4) Annual adjustment factor. The annual adjustment factor is 1.9 
percent through payment year 2015. For years 2016 through 2025, the 
annual adjustment factor is the annual change in the Implicit Price 
Deflator for the Gross Domestic Product (IPD-GDP) for the ten years 
(2014-2023) preceding issuance (2024) of the most recent NASS Census 
(2022). Each subsequent ten year adjustment will be made in the same 
manner.
    (d) The annual charge for the use of Government lands for 2013 will 
be reduced by 25 percent for all licensees subject to this section.
    (e) The minimum annual charge for the use of Government lands under 
any license will be $25.

    Note:  Appendix A will not be published in the Code of Federal 
Regulations.


                                                                       Appendix A
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Irrigated                 Irrigated                       Total Harvested
                                                    Farms All                 Farms All     Total Farm Est       Irrigated                   % Reduction
                                       All Farms    harvested    All Farms    harvested     Mkt Value (per    Cropland Est Mkt  % Reduction       of
                State                  2007 (per     cropland       2007       cropland     acre all farms    Value (irrigated       of       irragated
                                      acre value)   irrigated     (acres)     irrigated   value x all farms    farms acres x     Irrigated    cropland +
                                                    2007 (per                    2007           acres)        irrigated farms     cropland   7% Building
                                                   acre value)                 (acres)                        per acre value)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.............................        2,292        4,406    9,033,537       94,995     20,704,866,804        418,547,970         2.02         9.02
Alaska..............................          391          766      881,585       55,673        344,699,735         42,645,518        12.37        19.37
Arizona.............................          748        4,828   26,117,899    1,983,172     19,536,188,452      9,574,754,416        49.01        56.01
Arkansas............................        2,343        2,144   13,872,862    1,930,505     32,504,115,666      4,139,002,720        12.73        19.73
California..........................        6,408        9,636   25,364,695   11,417,202    162,536,965,560    110,016,158,472        67.69        74.69
Colorado............................        1,046        1,426   31,604,911    7,235,306     33,058,736,906     10,317,546,356        31.21        38.21
Connecticut.........................       12,667       25,138      405,616       13,457      5,137,937,872        338,282,066         6.58        13.58
Delaware............................       10,347       15,326      510,253       10,949      5,279,587,791        167,804,374         3.18        10.18
Florida.............................        5,639        6,583    9,231,570    2,497,529     52,056,823,230     16,441,233,407        31.58        38.58
Georgia.............................        3,117        3,091   10,150,539      500,841     31,639,230,063      1,548,099,531         4.89        11.89
Hawaii..............................        7,688        7,873    1,121,329      264,215      8,620,777,352      2,080,164,695        24.13        31.13
Idaho...............................        1,972        2,374   11,497,383    4,990,872     22,672,839,276     11,848,330,128        52.26        59.26
Illinois............................        3,792        6,244   26,775,100       43,999    101,531,179,200        274,729,756         0.27         7.27
Indiana.............................        3,583        6,615   14,773,184       29,987     52,932,318,272        198,364,005         0.37         7.37
Iowa................................        3,388        5,501   30,747,550       14,798    104,172,699,400         81,403,798         0.08         7.08
Kansas..............................          911          976   46,345,827      581,943     42,221,048,397        567,976,368         1.35         8.35
Kentucky............................        2,682        4,537   13,993,121       55,937     37,529,550,522        253,786,169         0.68         7.68
Louisiana...........................        2,058        1,777    8,109,975      502,057     16,690,328,550        892,155,289         5.35        12.35
Maine...............................        2,203        6,109    1,347,566       23,145      2,968,687,898        141,392,805         4.76        11.76
Maryland............................        7,034       10,102    2,051,756       31,095     14,432,051,704        314,121,690         2.18         9.18
Massachusetts.......................       12,313       15,069      517,879       47,956      6,376,644,127        722,648,964        11.33        18.33
Michigan............................        3,409        6,940   10,031,807      144,741     34,198,430,063      1,004,502,540         2.94         9.94
Minnesota...........................        2,569        3,791   26,917,962      100,603     69,152,244,378        381,385,973         0.55         7.55
Mississippi.........................        1,870        1,972   11,456,241      238,386     21,423,170,670        470,097,192         2.19         9.19
Missouri............................        2,179        3,267   29,026,573      186,134     63,248,902,567        608,099,778         0.96         7.96
Montana.............................          775        1,179   61,388,462    8,244,973     47,576,058,050      9,720,823,167        20.43        27.43
Nebraska............................        1,159        1,234   45,480,358    4,122,912     52,711,734,922      5,087,673,408         9.65        16.65
Nevada..............................          613          542    5,865,392    4,197,712      3,595,485,296      2,275,159,904        63.28        70.28
New Hampshire.......................        4,929       12,537      471,911        7,834      2,326,049,319         98,214,858         4.22        11.22
New Jersey..........................       15,346       16,131      733,450       83,573     11,255,523,700      1,348,116,063        11.98        18.98
New Mexico..........................          337          609   43,238,049    8,328,784     14,571,222,513      5,072,229,456        34.81        41.81
New York............................        2,275       12,676    7,174,743       58,992     16,322,540,325        747,782,592         4.58        11.58
North Carolina......................        4,096        6,923    8,474,671      221,134     34,712,252,416      1,530,910,682         4.41        11.41
North Dakota........................          771        1,470   39,674,586       46,390     30,589,105,806         68,193,300         0.22         7.22
Ohio................................        3,528       10,297   13,956,563       27,239     49,238,754,264        280,479,983         0.57         7.57
Oklahoma............................        1,157        1,102   35,087,269      439,262     40,595,970,233        484,066,724         1.19         8.19
Oregon..............................        1,890        1,648   16,399,647    5,528,995     30,995,332,830      9,111,783,760        29.40        36.40
Pennsylvania........................        4,775       18,011    7,809,244       35,549     37,289,140,100        640,273,039         1.72         8.72
Rhode Island........................       16,828       15,665       67,819        6,749      1,141,258,132        105,723,085         9.26        16.26
South Carolina......................        2,858        4,269    4,889,339       84,908     13,973,730,862        362,472,252         2.59         9.59
South Dakota........................          896          667   43,666,403      422,908     39,125,097,088        282,079,636         0.72         7.72
Tennessee...........................        3,378        6,291   10,969,798       55,112     37,055,977,644        346,709,592         0.94         7.94
Texas...............................        1,270        1,329  130,398,753    5,146,796    165,606,416,310      6,840,091,884         4.13        11.13
Utah................................        1,249        1,959   11,094,700    3,751,452     13,857,280,300      7,349,094,468        53.03        60.03
Vermont.............................        2,903        7,011    1,233,313        8,724      3,580,307,639         61,163,964         1.71         8.71
Virginia............................        4,213        7,062    8,103,925       50,527     34,141,836,025        356,821,674         1.05         8.05
Washington..........................        1,992        3,029   14,972,789    3,284,122     29,825,795,688      9,947,605,538        33.35        40.35
West Virginia.......................        2,385        5,283    3,697,606        6,109      8,818,790,310         32,273,847         0.37         7.37
Wisconsin...........................        3,225        4,586   15,190,804      247,792     48,990,342,900      1,136,374,112         2.32         9.32
Wyoming.............................          513          592   30,169,526   10,496,772     15,476,966,838      6,214,089,024        40.15        47.15
United States.......................        1,892        2,757  922,095,840   87,900,817  1,744,605,329,280    242,342,552,469        13.89        20.89
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Note: Appendix B will not be published in the Code of Federal 
Regulations.


[[Page 5267]]



                             Appendix B--Adjustment Schedule for Formula Components
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
       Payment year                   Per-acre adjustments                Rate of return          Inflation
                                                                            adjustments           adjustments
----------------------------------------------------------------------------------------------------------------
2013.....................  2007 NASS Census....  state-specific        rate of return
                                                  adjustment.           update (10-year
                                                                        average of
                                                                        annualized 30-year
                                                                        T-bill yield for
                                                                        years 2002-2011).
2014
2015
2016.....................  2012 NASS Census....  updated state-        ....................  inflation update
                                                  specific adjustment.                        (average IPD-GDP
                                                                                              for 2004-2013, 2Q-
                                                                                              2Q).
2017
2018
2019
2020
2021.....................  2017 NASS Census....  updated state-
                                                  specific
                                                  adjustment.
2022
2023
2024
2025
2026.....................  2022 NASS Census....  updated state-        rate of return        inflation update
                                                  specific adjustment.  update (10-year       (average of IPD-
                                                                        average of            GDP for 2014-2023,
                                                                        annualized 30-year    2Q-2Q).
                                                                        T-bill yield for
                                                                        2012-2021).
2027
2028
2029
2030
2031.....................  2027 NASS Census....  updated state-
                                                  specific
                                                  adjustment.
2032
2033
2034
2035
2036.....................  2032 NASS Census....  updated state-        rate of return        inflation update
                                                  specific adjustment.  update (10-year       (average of IPD-
                                                                        average of            GDP for 2024-2033,
                                                                        annualized 30-year    2Q-2Q).
                                                                        T-bill yield for
                                                                        2022-2031).
2037
2038
2039
2040
2041.....................  2037 NASS Census....  updated state-
                                                  specific
                                                  adjustment.
2042
2043
2044
2045
2046.....................  2042 NASS Census....  updated state-        rate of return        inflation update
                                                  specific adjustment.  update (10-year       (average of IPD-
                                                                        average of            GDP for 2034-2043,
                                                                        annualized 30-year    2Q-2Q).
                                                                        T-bill yield for
                                                                        2032-2041).
2047
2048
2049
2050
2051.....................  2047 NASS Census....  updated state-
                                                  specific
                                                  adjustment.
----------------------------------------------------------------------------------------------------------------


[[Page 5268]]

[FR Doc. 2013-01373 Filed 1-24-13; 8:45 am]
BILLING CODE 6717-01-P