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503.10 Use of fluidized bed combustion not

feasible--general requirement for perma

nent exemptions. 503.11 Alternative sites general require

ment for permanent exemptions for new

powerplants. 503.12 Terms and conditions; compliance

plans. 503.13 Environmental impact analysis. 503.14 Fuels search.

Subpart C-Temporary Exemptions for New

Facilities

(c) For purposes of this section only:

(1) An emergency is the occurrence or threat of imminent occurrence of a condition which results or would result from an electric power outage and directly effects or would directly effect the public health, safety or welfare;

(2) Unanticipated equipment outage shall mean an unexpected outage due to equipment failure.

(3) Minimum amounts required to alleviate or prevent shall mean:

(i) For powerplants, the amounts of natural gas or petroleum required to prevent curtailment of electric supply where the operating utility has, to the maximum extent possible, utilized alternate fuel-fired capacity to prevent such curtailment. Note-A utility operating hydroelectric facilities may take into account seasonal fluctuations in storage capacity and shall be permitted to prevent depletion of stored powerproducing capacity as deemed necessary by the utility; and

(ii) For installations, the amounts of natural gas or petroleum required to meet plant protection or human health and safety needs, including services to hospitals, public transportation facilities, sanitation, or water supply and pumping.

503.20 Purpose and scope. 503.21 Lack of alternate fuel supply. 503.22 Site limitations. 503.23 Inability to comply with applicable

environmental requirements. 503.24 Future use of synthetic fuels. 503.25 Public interest.

Subpart D-Permanent Exemptions for New

Facilities

(46 FR 59889, Dec. 7, 1981, as amended at 54 FR 52893, Dec. 22, 1989)

503.30 Purpose and scope. 503.31 Lack of alternate fuel supply for the

first 10 years of useful life. 503.32 Lack of alternate fuel supply at a

cost which does not substantially exceed

the cost of using imported petroleum. 503.33 Site limitations. 503.34 Inability to comply with applicable

environmental requirements. 503.35 Inability to obtain adequate capital. 503.36 State or local requirements. 503.37 Cogeneration. 503.38 Permanent exemption for certain fuel

mixtures containing natural gas or pe

troleum. 503.39-503.44 [Reserved]

AUTHORITY: Department of Energy Organization Act, Pub. L. 95–91, 91 Stat. 565 (42 U.S.C. $7101 et seq.); Powerplant and Industrial Fuel Use Act of 1978, Pub. L. 95 620, 92 Stat. 3289 (42 U.S.C. 8301 et seq.); Energy Security Act, Pub. L. 96-294, 94 Stat. 611 (42 U.S.C. 8701 et seq.); E.O. 1209, 42 FR 46267, September 15, 1977. OMB Control No.: 1903-0075. See 46 FR 63209, Dec. 31, 1981.

SOURCE: 46 FR 59903, Dec. 7, 1981, unless otherwise noted.

$ 501.192 [Reserved)

PART 503-NEW FACILITIES

Subpart A-General Prohibition

Sec. 503.1 Purpose and scope. 503.2 Prohibition. 503.3 [Reserved]

Subpart B-General Requirements for

Exemptions

Subpart A-General Prohibition

503.4 Purpose and scope. 503.5 Contents of petition. 503.6 Cost calculations for new powerplants

and installations. 503.7 State approval-general requirement

for new powerplants. 503.8 No alternate power supply-general re

quirement for certain exemptions for

new powerplants. 503.9 Use of mixtures-general requirement

for certain permanent exemptions.

8503.1 Purpose and scope.

This subpart sets forth the statutory prohibition imposed by the Act upon new powerplants. The prohibition in the subpart applies to all new baseload electric powerplants unless an exemption has been granted by OFE under

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subparts C and D of this part. Any person who owns, controls, rents, leases or operates a new powerplant that is subject to the prohibition may be subject to sanctions provided by the Act or these regulations.

(54 FR 52893, Dec. 22, 1989)

$503.2 Prohibition.

Section 201 of the Act prohibits, unless an exemption has been granted under subpart C or D of this part, any new electric powerplant from being constructed or operated as a baseload powerplant without the capability to use coal or another alternate fuel as a primary energy source. (54 FR 52893, Dec. 22, 1989)

$503.3 [Reserved)

Subpart B-General Requirements

for Exemptions $503.4 Purpose and scope.

This subpart establishes the general requirements necessary to qualify for either a temporary or permanent exemption under this part and sets out the methodology for calculating the cost of using an alternate fuel and the cost of using imported petroleum.

(3) There are two comparative cost calculations-a general cost test and a special cost test. Both take into consideration cash outlays for capital investments, annual expenses, and the effect of depreciation and taxes on cash flow. To demonstrate eligibility for a permanent exemption, a petitioner must use the procedures specified in the general cost test (paragraph (b) of this section). To demonstrate eligibility for a temporary exemption, the petitioner may apply the procedures specified in either the general cost test or the special cost test (paragraph (c) of this section).

(b) Cost calculation-general cost test. (1) A petitioner may be eligible for a permanent exemption if he can demonstrate that the cost of using an alternate fuel from the first year of operation substantially exceeds the cost of using imported petroleum. Unless the best practicable cost estimates as prescribed below will not materially change during the first ten years of operation of the unit (given the best information available at the time the petition is filed), the petitioner must also demonstrate that the cost of using an alternate fuel beginning at any time within the first ten years of operation and using imported petroleum or natural gas until such time (i.e., delayed use of alternate fuel) would substantially exceed the cost of using only imported petroleum.

(2) The petitioner would only be eligible for a temporary exemption if the computed costs of delayed alternate fuel use, commencing at the start of the second through eleventh years of operation, do not always substantially exceed the cost of using only imported petroleum. The length of the temporary exemption would be the minimum period from the start of operation in which the cost of using alternate fuel substantially exceeds the cost of using imported petroleum.

(3) To conduct the general cost test, calculate the difference (DELTA) between the cost of using an alternate fuel (COST(ALTERNATE)) and the cost of using imported petroleum (COST(OIL)) using Equations 1 through 3 below and the comparison procedures in paragraph (b)(5) of this section.

$503.5 Contents of petition.

Before OFE will accept a petition for either a temporary or permanent exemption under this part, the petition must include all of the evidence and information required in this part and part 501 of this chapter.

$503.6 Cost calculations for new pow

erplants and installations. (a) General. (1) This calculation compares the cost of using alternate fuel to the cost of using imported petroleum. It must be performed for each alternate fuel and/or alternate site that the petitioner is required to examine.

(2) The cost of using an alternate fuel as a primary energy source will be deemed to substantially exceed the cost of using imported petroleum if the difference between the cost of using alternate fuel and the cost of using imported oil is greater than zero.

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where COST (ALTERNATE) and COST (OIL) are determined by:

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(4) The terms in Equations 2 and 3 are defined as follows:

i=Year. i is a specified year either before

year 0 or after year 0. Year 0 is the year before the unit becomes operational. For example, in the third year before the unit becomes operational, i would equal -2, and in the third year following commencement of operations of the unit, i would equal +3. Years are represented by 52 week periods prior to or following the date on which the unit becomes operational. Outlays before the unit becomes operational are future valued to the year before the unit becomes operational (year 0), and outlays after the unit becomes operational are present valued to the year before the unit becomes operational. Year 0 must be the same for the

units being compared. g=The number of years prior to the year be

fore the unit becomes operational (year 0) that (1) a cash outlay is first made for capital investments, or (2) an investment tax credit is first used-whichever occurs

first. N=The useful life of the unit (see paragraph

(d)(5) of this section). Ij=Yearly cash outlay (in dollars) from the

year outlays first occur to the last year of the unit's useful life for capital investments. (See paragraph (d)(2) of this section for the items that must be included.)

OM;=Annual cash outlay in year i (in dollars)

for all operations and maintenance expenses except fuel (i.e., all non-capital and non-fuel cash outlays caused by putting the capital investments (1) into service). This may include labor, materials, insurance, taxes (except income taxes), etc. (See paragraph (d)(3) of this

section.) S;=Salvage value of capital investment (in

dollars) in year i. FL;=Annual cash outlay for delivered fuel

expenses (in dollars) in year i. (See paragraph (d)(3) of this section for FLi calculation instructions and appendix II of these regulations for the procedures to

determine fuel price.) k=The discount rate expressed as a fraction

(see paragraph (d)(4) of this section). ITC =Federal investment tax credit used in

year i resulting from capital investments

(see paragraph (d)(6) of this section). DPR;=Depreciation in year i resulting from

capital investments (see paragraph (d)(6)

of this section). ti=Marginal income tax rate in year i (see

paragraph (d)(6) of this section). IX;=Inflation index value for year i (see ap

pendix II to part 504 for method of com

putation). IXe=Inflation index value for the year e, the

year before the asset is placed in service. (5) The step-by-step procedure that follows shows the comparison that the petitioner must make.

(i) Compute the cost of using an alternate fuel (COST(ALTERNATE)) unit throughout the useful life of the unit using Equations 2 and 3.

(ii) Compute the cost of using oil or natural gas (COST(OIL) throughout the useful life of the unit using Equations 2 and 3.

(iii) Using Equation 1, compute the difference (DELTA) between COST (ALTERNATE) and COST (OIL). If the difference (DELTA) is less than or equal to zero, a petitioner is not eligible for a permanent or temporary exemption using the general cost test and need not complete the remainder of the general cost test calculation. However, he still may be eligible for a temporary exemption using the special cost test (paragraph (c) of this section). If the difference (DELTA) is greater than zero and if the best practicable cost estimates will not materially change during the first ten years of operation (given the best information available at the time the petition is filed), the petitioner has completed the test and is eligible for a permanent exemption. However, if the best practicable cost estimate will materially change during the first ten years, the petitioner must complete the remainder of the general cost test-the delayed use calculations which follow.

(iv) Recompute COST (ALTERNATE) with Equations 2 and 3, assuming that an alternate fuel is not used as the primary energy source until the start of the second year of operation and that imported petroleum or natural gas is used for the first year of operation. All cash outlays should reflect postponed use of alternate fuel.

(V) Successively recompute COST (ALTERNATE) with Equations 2 and 3, assuming that the alternate fuel use is postponed until the start of the third year, fourth year, and so on, through the beginning of the eleventh year of

operation (with imported petroleum or natural gas used in the years preceding alternate fuel use).

(vi) Compute the difference (DELTA) between each of

the ten COST(ALTERNATE)S calculated in paragraph (b)(5) (iv) and (v) of this section and the COST(OIL) calculated in paragraph (b)(5)(ii) of this section.

(vii) If all the DELTAs computed in paragraph (b)(5) (iii) and (vi) of this section are greater than zero, the petitioner is eligible for a permanent exemption. If one or more of the DELTAS is less than or equal to zero, he is eligible for a temporary exemption for the period beginning at the start of the first year of operation and terminating at the beginning of the first year in which a DELTA is zero or less.

(c) Cost calculations-special cost test. (1) A petitioner may be eligible for a temporary exemption if

he

demonstrates that the cost of using an alternate fuel will substantially exceed the cost of using imported petroleum or (natural gas) over the period of the proposed exemption. The period of the proposed temporary exemption may not exceed ten years. The petitioner must demonstrate that the cost of using an alternate fuel substantially exceeds the cost of using imported petroleum for the first year of operation, the first two years of operation, and so forth, through the period of the proposed exemption. OFE will limit the duration of a temporary exemption to the shortest time possible.

(2) To conduct the test, calculate the difference (DELTA) between the cost of using an alternate fuel (COST (ALTERNATE)) and the cost of using imported petroleum (COST (OIL)) using Equations 4 and 5 below, Equation 3 (paragraph (b)(3) of this section), and the comparison procedures in paragraph (c)(4) of this section.

EQ 4

DELTA • COST (ALTERNATE)

COST (OIL)

where cost(ALTERNATE) and cosT (OIL) are determined by:

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Capital investment (I) is calculated with Equation 3 (paragraph (b)(3) of this section).

(3) The terms in Equation 5 are the same as those in Equation 2 with the addition of P, the length of the proposed temporary exemption in years. (See paragraph (b)(4) of this section for other terms.)

(4) The step-by-step procedure that follows shows the comparisons which must be made.

(i) Using Equation 5, compute the cost of using

alternate fuel (COST(ALTERNATE)) assuming the length of the proposed exemption is one year.

(ii) Likewise, compute the cost of using imported petroleum or natural gas (COST(OIL)) assuming the length of the proposed exemption is one year.

(iii) Compute the difference (DELTA) between COST (ALTERNATE) and COST (OIL) using Equation 4.

(iv) Repeat the calculations made in (i), (ii), and (iii) above, assuming the length of the proposed exemption is two years, three years, four years, and so on, up through the period of the proposed exemption.

(V) A petitioner is eligible for a temporary exemption for the period beginning at the start of the first year of operation and terminating at the beginning of the first year in which DELTA is zero or less.

(d) Information on parameters used in the calculations. (1) All estimated expenditures, except fuel, shall be expressed in real terms (unadjusted for inflation) by using the prices in effect

at the time the petition is submitted. Instructions for fuel price calculations are contained in appendix II.

(2) Capital investment yearly cash outlays (Ii) must include all items that are capital investments for Federal income tax purposes. All purchased equipment that has a useful life greater than one year, capitalized engineering costs, land, construction, environmental offsets, fuel inventory, transmission facilities, piping, etc., that are necessary for the operation of the unit must be included. However, an item must only be included if a cash outlay is required after the decision has been made to build the unit; sunk costs must not be included (e.g., if the firm owns the land, its purchase price may not be included).

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NOTE: The guidelines for the fuel inventory for powerplants not using natural gas shall be: (a) All powerplants with only steam driven turbines—78 days, (b) all powerplants with only combustion turbines--142 days, (c) all powerplants with combined cycles—both steam driven turbines and combustion turbines-142 days. The guidelines for the fuel inventory for installations not using natural gas shall be the greater of: (1) 21 days fuel supply, or (2) sufficient fuel to fill sixty (60) percent of the storage volume. The guidelines for the fuel inventory for all facilities using natural gas shall be zero unless the gas supply is interruptible in which case an appropriate inventory of back-up fuel must be included. Other inventory levels may be used if they are more appropriate than these guidelines; however, the source or derivation of these levels must be discussed in the evidential summary.

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