§ 504.57 of these regulations, to the extent that such volumes exceed the volumes of natural gas enumerated in paragraphs (d) (1) and (2) above, if ERA has approved use of the volumes for such purposes;

(4) Natural gas volumes for peakload purposes within the meaning of § 504.58 of these regulations, to the extent that such volumes exceed the volume of natural gas enumerated in paragraphs (d) (1) and (2) above, if ERA has approved use of the volumes for such purposes; and

(5) Natural gas volumes, if ERA has approved use of the volumes for such purposes, required (i) because of delays which occurred, despite diligent good faith efforts in the construction of powerplants which will use a primary energy source other than natural gas, or (ii) because without increased volumes reliability of service would be impaired.

(e) Calculation of volumes for adjusted minimum peakload requirements for § 504.4(b)(4)(ii). For purposes of § 504.4(b)(4)(ii), volumes of natural gas are the sum of the following:

(1) The volume of natural gas required to produce 17.1 percent of the total electricity generated by the utility in 1990;

(2) Natural gas volumes, for emergency purposes within the meaning of § 504.57 of these regulations, to the extent that such volumes exceed the volume of natural gas enumerated in paragraph (e)(1) above, if ERA has approved use of the volumes for such purposes, and

(3) Natural gas volumes, for peakload purposes within the meaning of § 504.58 of these regulations, to the extent that such volumes exceed the volume of natural gas enumerated in paragraph (e)(1) above, if ERA has approved use of the volumes for such purposes.

(f) ERA approval of natural gas contracts for $504.4(b)(7). ERA will approve any contract, or contract extension or renewal, for purposes of § 504.4(b)(7) with respect to any plan, if it determines that the electric utility which submitted such plan has demonstrated that the quantities available under such contract, or ex

tension or renewal, do not exceed those which are necessary to meet the requirements of the powerplants under such plan. ERA will not approve any contract, or extension or renewal, which provides for the delivery of such natural gas after December 31, 1999, unless ERA has approved the use of such natural gas under paragraph (h) below.

(g) Fuel conservation measures for § 504.4(b)(9). Fuel conservation measures include generation efficiency measures which conserve natural gas and petroleum by increasing the efficiency of the generation process. A utility may present plans for any other activity, service, or investment that would result in lower consumption of natural gas and petroleum as primary energy sources.

(h) Temporary extension for § 504.4(b)(6). ERA may grant an extension of up to 5 years of the limitation in § 504.4(b)(6) with respect to the use of natural gas if the utility demonstrates that such gas is needed for:

(1) Emergency purposes consistent with § 504.57 of these regulations; or (2)

Peakload purposes consistent with § 504.58 of these regulations.

(i) Evidence. To submit an adequate plan for review by ERA the utility must include in the plan at least the following, in order to make the demonstration required by this section:

(1) A ten year forecast of the utility's construction plans, financial plans, and electric demand with sufficient detail to conclude that the commitments in the plan will be carried out;

(2) A schedule for an orderly progression to meet the commitments for the years 1995 and 2000;

(3) A description of meetings, correspondence, and understandings or agreements reached, if any, with appropriate state regulatory authorities regarding the commitments contained in the plan; and

(4) A description of the planned petroleum and natural gas conservation measures, including their practicability, effectiveness, cost, anticipated savings, and implementation steps.

(j) Reporting. The utility must annually update the information contained in its plan, including progress on im

plementing the proposed conservation measures.

(k) Terms and conditions. ERA will condition approval of a system compliance plan on such terms and conditions as ERA determines to be appropriate, including the permissible level of natural gas use prior to 1990 and the use of effective fuel conservation measures which are practicable and consistent with the purposes of the Act.

(1) Plan revision. A system compliance plan may be revised for substantially changed circumstances supported by clear and convincing evidence. A revision to a system compliance plan may be proposed by the utility or by ERA on its own motion. No proposed revision will be effective without the utility's approval and the approval of ERA.

(m) Plan revocation. ERA reserves the right to revoke a system compliance plan at any time on the basis of the utility's material noncompliance with such plan.

(n) Incorporation of Parts 500 and 501. The administrative and definitional provisions contained in 10 CFR Parts 500 and 501, are incorporated by reference herein, and shall be applicable to the extent that they do not conflict with any of the provisions of this section.

§ 504.5 Purpose and scope.

Section 504.6 below sets forth the prohibitions that ERA, pursuant to Title III of FUA, may impose upon existing facilities. The prohibitions may be made to apply to existing electric powerplants and existing major fuel burning installations, as defined in § 500.2, unless an exemption is granted by ERA under Subparts D and E of this part or a system compliance plan is approved by ERA under Subpart B of this part. Any person who owns, controls, rents or leases an existing facility may be subjected to the prohibitions imposed by and the sanctions provided for in the Act or these regulations, if ERA can make the findings required by sections 301 (b) and (c) and 302 (a) and (b) of the Act.

§ 504.6 Prohibitions by order (case-bycase).

(a) ERA may prohibit, by order, the use of natural gas or petroleum as a primary energy source in an existing facility if ERA finds that:

(1) The unit currently has, or previously had, the technical capability to use an alternate fuel as a primary energy source;

(2) The unit has this technical capability now, or it could have the technical capability without:

(i) A substantial physical modification of the unit; or

(ii) A substantial reduction in the rated capacity of the unit; and

(3) It is financially feasible for the unit to use an alternate fuel as its primary energy source.

(b) ERA must make a proposed finding regarding the technical capability of a unit to use alternate fuel as identified in paragraph (a)(1) above prior to the date of publication of the notice of the proposed prohibition. ERA will publish this finding in the FEDERAL REGISTER along with the notice of the proposed prohibition.

(c) Technical capability. (1) ERA will consider "technical capability" on a case-by-case basis. In making this assessment, ERA will consider the characteristics of the unit itself and will not ordinarily consider the nature or absence of appurtenances outside the unit. ERA's major concern is the ability of the unit, from the point of fuel intake to physically sustain combustion of a given fuel and to maintain heat transfer.2

(2) ERA considers that a unit "had" the technical capability to use an alternate fuel if the unit was once able to burn that fuel (regardless of whether the unit was expressly designed to burn that fuel or whether it ever actu

2 For example, ERA will examine the furnace configuration and ash removal capability but will not normally consider the need to install pollution control equipment as a measure of technical capability. Furthermore, ERA will not conclude that the absence of fuel handling equipment, such as conveyor belts, pulverizers, or unloading facilities, bears on the issue of a unit's "technical capability" to burn an alternate fuel.

ally did burn it), but is no longer able to do so at the present due to temporary or permanent alterations to the unit itself.3

(3) A unit "has" the technical capability to use an alternate fuel if it can burn an alternate fuel, notwithstanding the fact that adjustments must be made to the unit beforehand or that pollution control equipment may be required to meet air quality requirements.1

(d) Substantial physical modifications. ERA will make its determination on whether a physical modification to a unit is "substantial" on a case-by-case basis. ERA will consider physical modifications made to the unit as "substantial" where warranted by the magnitude and complexity of the engineering task or where the modification would impact severly upon operations at the site.5 ERA will not, however, assess physical modification on the basis of cost or the installation of pollution control or fuel handling equipment.

3 For example, a unit which at one time burned solid coal but which could no longer do so because its coal firing ports and sluicing channels had been cemented over, would be classified as having "had" the technical capability to use coal. (The question of whether it again "could have" such capability without "substantial physical modification" is a separate and additional question.) 'A unit designed to burn natural gas shall be presumed to have the technical capability to burn a synthetic fuel such as medium Btu gas from coal (assuming such gas is available unless convincing evidence to the contrary is submitted in rebuttal). Also a unit designed to burn oil may, depending upon the chemical characteristics, be a unit that "has" the technical capability to burn liquefied coal. The fact that certain adjustments may be necessary does not render this a "hypothetical" as opposed to a "real" capability. Even an oil fired unit converting from the use of #2 distillate to #6 residual oil may be required to adjust or replace burner nozzles and add soot blowers.

5 Significant alternations affecting the furnace configuration or a complete respacing of the tubes would likely fall into this category. A combination of modifications involving changes required for bottom ash removal, related construction and engineering work, and other modifications to the boiler, other than furnace configuration or tube spacing may, in some circumstances, cause modifications to be considered substantial.

(e) Substantial reduction in rated capacity. (1) ERA regards a unit's derating of 25 percent or more, as a result of converting a unit from oil or gas to an alternate fuel, as substantial.

(2) ERA will presume that a derating of less than 10 percent, as a result of converting a unit from oil or gas to an alternate fuel, is not substantial unless convincing evidence to the contrary is submitted in rebuttal."

(3) ERA will assess units for which a derating is claimed of 10 percent or more, but less than 25 percent, on a case-by-case.

(4) In assessing whether a unit's derating is not substantial, ERA will consider the impact of a reduction in rated capacity of the unit taking into consideration all necessary appurtenances such as air pollution control equipment required to burn an alternate fuel in compliance with applicable environmental requirements. However, the potential order recipient may raise the following impacts on derating in rebuttal, if under paragraph (e)(2), or case-by-case, if under paragraph (e)(3).

(A) for an existing powerplant, on the site at which the unit is located and on the system as well as on the unit itself; and

(B) for an existing installation, on the site at which the unit is located as well as on the unit itself."

(f) Financial feasibility. (1) ERA will presume that it is financially feasible for a unit to use an alternate fuel as its primary energy source if the cost

"For example, units that are the subject of a prohibition order will not have installed any operating air pollution control equipment sufficient to burn coal in compliance with applicable environmental equipments. The installation and use of air pollution control equipment alone can, in many cases, produce a derating. Moreover, the shift to coal itself will, because of differences in energy density and fuel flow characteristics, typically involve some derating.

'For example, the proposed order recipient may claim and ERA may find that the derating of a unit is substantial if, due to the lack of excess capacity, the derating produces an appreciable effect upon the operations of the site at which the unit is located, if an MFBI, or upon the site and the system of the unit, if a powerplant.

(2) The proposed order recipient may seek to rebut the presumption in paragraph (f)(1), above, with evidence that, despite good faith efforts, it is unable to raise the capital that would be necessary for the conversion, or that for some other economic or finanical reason, conversion is not financially feasible. The standard for assessing capital availability will be identical to that specified in § 503.35(a)(2) of the new facilities regulations (inability to obtain adequate capital).

(3) In making this finding, ERA will consider the following:

(i) for an existing powerplant, the financial impact of the conversion, including other conversions which are or may be imposed upon the utility system by the Act; and

(ii) for an existing installation, any relevant factor presented by the proposed order recipient which bears upon the competitive viability of the site or loss of production, if any, at the site during the period required for the conversion.

§ 504.7 Prohibitions against excessive use of petroleum or natural gas in mixtures.

(a) If ERA finds that it is technically and financially feasible for a unit to use a mixture of petroleum or natural gas and alternate fuel as its primary energy source, ERA may prohibit, by order, the use in that unit of petroleum or natural gas, or both, in amounts exceeding the minimum amount necessary to maintain the reliability of operation consistent with maintaining reasonable fuel efficiency

For the purposes of these regulations, the firm's real cost of capital will be computed according to the procedures outlined in Appendix I.

of the mixture. (For installations, such minimum amount determined by ERA shall not be less than 25 percent.)

(b) In making the technical feasibility finding required by section 301 (b) and (c) of the Act and paragraph (a), above, ERA may weigh "physical modification" or "derating of the unit," but these considerations, by themselves, will not control the technical feasibility finding. A technical feasibility finding might be made notwithstanding the need for substantial physical modification. The economic consequences of a substantial physical modification are taken into account in determining financial feasibility.

NOTE: The authority of ERA implemented under this section should not be confused with the two other fuel mixture provisions of these regulations. One is the general requirement that petitioners for permanent exemptions demonstrate that the use of a mixture of natural gas or petroleum and an alternate fuel is not economically or technically feasible (See § 504.15). The second is the permanent fuel mixtures exemption itself (See § 504.56).

Subpart C-General Requirements for Exemptions

§ 504.10 Purpose and scope.

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

§ 504.11 Contents of petition.

Before ERA will accept a petition for either a temporary or permanent exemption to a statutory prohibition or from a final prohibition rule or order, the petition must include all of the evidence and information required to obtain an exemption in Parts 501 and 504. In the case of a temporary or permanent exemption to a proposed prohibition order or rule, the petitioner must submit adequate information to demonstrate eligibility for an exemption if the order or rule were finalized.

§ 504.12 Cost calculations for existing powerplants 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 (see § 500.2) 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 petroleum is greater than zero.

(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 permanent exemption, a petitioner must use the procedures specified in the general cost test (paragraph (b) of this section). To demonstrate eligiblity 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).

(4) The general cost test differs from the special cost test with respect to the time period over which costs are calculated. For the general cost test, the petitioner must compare the cost of using an alternate fuel with the cost of using oil or natural gas over the remaining useful life of the facility. For the special cost test, the petitioner must compare the cost of using alternate fuel against that of using imported petroleum or natural gas over the period of the desired temporary exemption.

(5) ERA will use the procedures outlined in this section to perform part of the financial feasibility finding required by § 504.6.

(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 the exemption substantially exceeds the cost of using imported petroleum. Unless the cost estimates as prescribed below will not change materially during the first ten years of operation of the unit with an alternate fuel (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 the exemption 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 from when alternate fuel would be used, do not always substantially exceed the cost of using only imported petroleum. The length of the temporary exemption would be the minimum period 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.