FERC issues final rules revising land use fees for hydroelectric projects

The Federal Energy Regulatory Commission has issued a final rule revising its formula for calculating government land use fees for FERC-licensed hydroelectric projects.

FERC's new rule (RM11-6), issued Jan. 17, says the changes will increase the total amount collected in annual rents by less than 1 percent, although some licensees will experience higher rates, and some lower, depending on the circumstances where a project is located.

Based on comments responding to its original November 2011 notice of proposed rulemaking, FERC made several changes in the final rule, including agreeing to phase in the increase, with a 25 percent reduction in the new annual charge in the first year.

The U.S. Court of Appeals for the District of Columbia Circuit had overturned FERC's 2009 update of its land use fees. The court ruled in 2011 that FERC imposed updated -- and significantly higher -- land use fees without allowing notice and comments as required by the Administrative Procedures Act. The court said the commission also improperly delegated the establishment of reasonable fees to other agencies, the U.S. Forest Service and the Bureau of Land Management.

In response, the commission called for suggestions how to create an administratively practical formula that applies uniformly to all hydropower licensees, does not impose exorbitant costs on the commission, and reflects reasonably accurate land values. After comments from licensees, industry trade groups, and federal agencies, FERC issued the 2011 notice of proposed rulemaking that was the basis for the final rule issued Jan. 17.

BLM formula changed to use per-county land values

FERC again returned to a formula drafted by the Bureau of Land Management for calculating the annual fees, based on a National Agricultural Statistics Service census of agriculture, which incorporates values of farm lands and buildings. However, FERC said it would utilize actual per-county land values, rather than grouping the counties in 12 BLM zones that tended to inflate the values.

The commission noted the new fee schedule, to be updated annually, is based on a formula with the following components: a per-acre land value by county (or geographic area in Alaska and Puerto Rico); an "encumbrance factor"; a 5.27 percent rate of return that coverts the land value to a rental value; and an annual inflation adjustment. The encumbrance factor multiplies the land value by 50 percent reflecting the degree to which project facilities hinder other uses of the land. That represents a reduction because, under the old BLM formula, the encumbrance factor multiplier was 70 percent.

It also reduced land values 20 percent from the NASS census to reflect the presence of irrigated land or buildings and other improvements that otherwise increase the average land values.

"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," the order said. "Moreover, the total amount collected by the commission in annual charges for the use of government lands is less than a 1 percent increase."

FERC noted, under the previous 1987 fee schedule, 2013 collections were estimated to total $8.22 million. Under the new final rule, it said 2013 collections are estimated to be $10.27 million.

Charges imposed on 253 licenses on federal land

It said it assesses annual charges for federal land use by 253 licenses held by 135 licensees. It said some of the 135 licensees might experience a one-time increase in their annual land use charge.

"We recognize that for some licensees the annual charge for use of government lands will increase, but this is because annual charges have not been updated to reflect changes in land values since 1987," FERC said.

The commission added that increases charged to Alaska projects might seem significant due in large part to an arbitrarily low rate assessed in Alaska under the 1987 fee schedule. In November, eight hydro licensees with projects in Alaska and three other states petitioned FERC, challenging federal land use fees for land the federal government no longer owns. The challenge relates to those situations in which the federal government actually transferred some hydro project lands to the licensee or another owner but retained a power site reservation.

The land use fee increases had been challenged in court by nine licensees including Idaho Falls, Idaho; Tacoma, Wash.; El Dorado (Calif.) Irrigation District; PacifiCorp; Portland General Electric Co.; Chelan County (Wash.) Public Utility District; Puget Sound Energy; Sacramento Municipal Utility District; and Turlock (Calif.) Irrigation District.

After FERC collects the fees, they are allocated 12.5 percent to the U.S. Treasury, 50 percent to the federal reclamation fund, and 37.5 percent to the states in which the projects are located.

Another component of annual charges levied on licensees is the cost to FERC and other federal agencies of administering the Federal Power Act. FERC receives bills for those costs from other agencies then allocates them to project operators according to installed capacity. Those charges also are under fire by a group of 10 licensees operating 46 hydro projects who contend $2.35 million in costs submitted by two federal agencies are inaccurate or unsubstantiated.

The land use fee final rule, Order 744, may be obtained from the commission Internet site, www.ferc.gov, under https://www.ferc.gov/whats-new/comm-meet/2013/011713/H-1.pdf. Barring rehearing requests, it is to become final upon publication in the Federal Register.

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