Federal Register, Volume 78 Issue 17 (Friday, January 25, 2013)

[Federal Register Volume 78, Number 17 (Friday, January 25, 2013)]
[Rules and Regulations]
[Pages 5256-5268]
From the Federal Register Online via the Government Printing 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, Kimberly.Ognisty@ferc.gov.

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

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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

\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\
---------------------------------------------------------------------------

\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.
---------------------------------------------------------------------------

\66\ 5 CFR 1320.12 (2012).
---------------------------------------------------------------------------

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.
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\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
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
public.referenceroom@ferc.gov.

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).
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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