where:

R=The extended remaining useful life of the facility.

Q=The unextended remaining useful life of the facility.

k The discount rate (see paragraph (d)(5) above).

(7) All Federal investment tax credits, (ITC, and ITCD1) and depreciation (DPR, and DPRD) values are those used for Federal income tax purposes and must be applied consistently throughout the analysis and in a manner consistent with the Federal tax laws. All investment tax credits allowed under Federal tax law must be reflected in the computations. In general, accelerated depreciation cannot be used for gas- or oil-fired boilers. Otherwise the petitioner must use the method of depreciation which results in the greatest present value of the cash flow due to the tax and depreciation effect. The marginal income tax rate (t) is the firm's anticipated marginal Federal income tax rate in year i. The relevant investment tax credits, depreciation methodology, and marginal Federal income tax rates for a specific exemption or financial feasibility finding will be those prescribed by Federal law in effect (or those tax parameters which are known with certainty will be in effect) at the time a decision is rendered. (However, if an investment tax credit expires in a certain year under the law which is in effect at the time the petition is submitted, the petitioner must assume that it will in fact expire in that year.) (8) All estimated cash outlays must be computed in accordance with generally accepted accounting principles consistently applied.

(9) The scope of the estimates of relevant costs (as discussed above) of units being compared must be the

same.

(1+k)-i

(10) All allowances for uncertainty and risk in the cost estimates must be explicit.

(11) All cash outlays must be net of any government subsidies or grants.

(e) Evidence in support of the cost calculation. All petitions for exemption requiring the use of the cost calculation shall include, but not be limited to, the following information:

(1) A detailed accounting of all cash outlays, investment tax credits, and anticipated salvage for capital investments. Include a description of and a cost estimate for all major construction and equipment. All critical assumptions should be stated and sufficient data included to support the petitioner's estimates.

(2) A detailed accounting of all annual cash outlays for fixed and variable operations and maintenance expenses including a description of all major elements and the formulas used to compute them. All critical assumptions should be stated and sufficient data included to support the petitioner's estimates.

(3) A detailed accounting of all annual cash outlays for delivered fuel expenses including the formulas used to compute them. All critical assumptions should be stated and sufficient data included to support the petitioner's estimates. The fuel price and characteristics for each alternate fuel should also be included.

(4) A detailed accounting of the depreciation for each capital asset, including the depreciable base, tax life, and sufficient data included to support the petitioner's estimates.

(5) If a different useful life than is suggested by ERA (paragraph (d)(6)(i) above) is being used for the purpose of calculating the remaining useful life, all critical assumptions should be

stated and sufficient data included to support the useful life chosen.

(6) If the petitioner's unit is an installation, a brief economic and technical justification of the power or steam generation schedule considering other units at the site.

APPENDIX II-FUEL PRICE COMPUTATION

(a) Introduction. This appendix provides the equations and parameters needed to specify the price of delivered fuels used in computing the cost of using imported petroleum and the cost of using an alternate fuel in Parts 503 and 504 of these regulations. The delivered price of imported petroleum or natural gas used to calculate delivered fuel expenses must reflect: (1) The price of imported petroleum, (2) the effects of future real increases in imported petroleum prices, and (3) substantially exceeds premium. The delivered price of an alternate fuel used to calculate delivered fuel expenses must reflect the petitioner's delivered price of the alternate fuel and the effects of real increases in the price of that alternate fuel.

Paragraphs (b) and (c) below provide alternative procedures to account for projected real increases in the prices of fuels. The petitioner may compute his fuel prices by either of these procedures as long as the same procedure is applied consistently throughout the cost analysis. Table II-1 of this appendix contains the price indices used in option 1 (paragraph (b)) and the inflation index used in computing depreciation in Parts 503 and 504 of these regulations. ERA will change the parameters specified in paragraphs (b)(6) and (c)(6) of this section and in Tables II-1 and II-2 from time to time after public notice and an opportunity to comment. Revisions shall become effective after final publication. However, the relevant set of parameters for a specific petition for exemption will be the set in effect at the time the petition is submitted or the set in effect at the time a decision is rendered, whichever is more favorable to the petitioner.

(b) Fuel price computation-option 1. (1) If it is planned to use 10 percent domestically refined petroleum product in the facility, the petroleum product price (PFE) is computed with Equation II-1.

PICO-Price of imported crude oil per barrel. The most recent refiner acquisition cost of imported crude oil as reported in the FEDERAL REGISTER monthly notice for the DOE Domestic Crude Oil Allocation (Entitlements) Program.2

PCCO Price of composite crude oil per barrel. The most recent weighted average cost of total reported crude oil receipts as reported in the FEDERAL REGISTER notice for the DOE Entitlements Program.2 PF The current market price of the petitioner's fuel oil per barrel at the time the petition is submitted (f.o.b. the facility). Alternatively, if the petitioner does not currently have a supplier of fuel oil or is using natural gas, he should use a simple average of the market prices of fuel oil available to him (capable of being burned in the facility and meeting air quality requirements) sold in his area by at least three suppliers.

PFE Price of fuel oil per barrel in year i. OPX1 = Oil price index value for year i (see Table II-1).

1 Footnotes are at end of section

OPX=Oil price index value for year u, the year in which the petition is submitted. PREM=Substantially exceeds premium added to the price of oil (see paragraph (b)(6) below).

(2) If it is planned to use 100 percent imported petroleum product in the facility, the petroleum price (PFE) is computed with Equation II-2.

(3) If it is planned to use a combination of domestically refined and imported petroleum product in the facility, use a weighted average of the prices computed with Equations II-1 and II-2. If it cannot reasonably be estimated what fraction of petroleum product is imported, assume that 100 percent of the fuel is domestically refined.

(4) If it is planned to use natural gas in the facility, Equations II-1 and II-2 must be used, as appropriate, to calculate the price of fuel PFE), along with the price of the No. 6 residual fuel oil (PF) which meets the air quality standards in the petitioner's

The terms of Equation II-3 are defined as follows:

PFA1=Price of alternate fuel in year i. APF The current market price of the alternate fuel (f.o.b. the facility).

APX1 = Alternate fuel price index value of year i (see Table II-1 and paragraph (b)(6)(iii) below).

APX Alternate fuel price index for the year u, the year in which the petition is submitted (see Table II-1 and paragraph (b)(6)(iii) below).

(6) The petitioner shall use the following parameters for Equations II-1, II-2, and II-3 of this appendix:

(i) The substantially exceeds premium, PREM, is $1.00 per barrel of oil equivalent. (ii) The oil price index values, OPX, and OPX are specified in Table II-1.

(iii) The alternate fuel price index values, APX, and APX1, depend on the type of alternate fuel to be used.

(A) If the alternate fuel is solid coal, the petitioner must use the alternate fuel price index for coal in Table II-1.

(B) For all other alternative fuels, the petitioner may use either the alternate fuel price index for coal in Table II-1 or his own substantiated escalation rates and the equation for APX, in footnote 3 to this appendix.

(c) Fuel price computation-option 2. (1) If it is planned to use 100 percent domestically refined petroleum product in the facility, the petroleum product price (PFE) is computed with Equation II-4.

EQ-4 PFE

(PF+PICO

PCCO)+ PREM + FUTR

where the terms are the same as those in Equation II-1 with the addition of FUTR, the premium added to the price of oil to account for projected escalation in oil prices as compared to escalation in alternate fuel prices (see paragraph (c)(6) of this section).

(2) If it is planned to use 100 percent imported petroleum product in the facility, the petroleum price (PFE) is computed with Equation II-5.

EQ II-5 PFE;=(PF+ENT)+PREM+FUTR where the terms are the same as those in Equations II-2 and II-4.

(3) If it is planned to use a combination of domestically refined petroleum and imported petroleum product in the facility, use a weighted average of the prices computed with Equations II-4 and II-5. If it cannot reasonably be estimated what fraction of petroleum product is imported, assume that 100 percent of it is domestically refined.

(4) If it is planned to use natural gas in the facility, Equations II-4 and II-5 must be used, as appropriate, to calculate the price of fuel (PFE), along with the price of the No. 6 residual fuel oil (PF) which meets the air quality standards in the petitioner's

area.

(5) The price of alternate fuel (PFA) must be the current market price of the alternate fuel (f.o.b. the facility).

(6) The petitioner shall use the following parameters for Equations II-4 and II-5 of this appendix.

(i) The substantially exceeds premium, PREM, is $1.00 per barrel of oil equivalent.

1 For the purposes of these regulations, the Virgin Islands, Puerto Rico, the U.S. territories and possessions, and all the States are domestic sources.

2 When the DOE entitlements programs are terminated, PICO, PCCO, and ENT will all equal zero.

3 The index values OPX, APX, and IX in Table II-1 were calculated using the rates (see Table 1-2) for the real increase in oil price (Ro), coal price (Ra), and inflation (INF), respectively, and the following equations:

i

the substance of the rule by the public are examined and addressed in the preamble to the proposed rule (45 FR 24190-9, June 23, 1980) and in the preamble to the final rule published this date.

II. Impact Analysis

This section describes the analyses which have been done in support of the final rule on the cost calculations. Two aggregate analyses, two microeconomic analyses, and two social benefit analyses were performed and are discussed here.

A. Aggregate Analyses of FUA

The quantitative impacts of policy alternatives available to DOE in implementing FUA were assessed by the Energy Information Administration (EIA) of DOE in two analyses. [The findings and limitations of these analyses were referenced and discussed in earlier FUA rulemakings (43 FR 54058-61, Nov. 17, 1978; 44 FR 28954-6, May 17, 1979; and 45 FR 42209-12, June 23, 1980).] The results of these analyses have only slight relevance to an analysis of the current impact of FUA, because they are limited by the unforseen obsolescence of the assumptions used to derive them, particularly the rapid divergence in the prices of oil and coal, the response of utilities and consumers to these price changes, and the effect of these parameters on natural gas demand, pricing, and displacement of imported petroleum. Because ERA was able to draw only the broadest conclusions from these evaluations-that FUA would reduce the amount of imported petroleum to some extent and that in a high oil/coal price differential environment, the effect of an increment added to the price of oil would be small-ERA chose to perform several additional analyses which would provide a more timely evaluation of FUA's impact than the previous analyses.