30 C.F.R. § 206.353 Determination of transmission deductions.
Title 30 - Mineral Resources
(a) Where the value of geothermal energy is determined by the geothermal netback procedure pursuant to paragraphs (c)(1)(ii) and (d)(1)(ii) of §206.352 of this subpart, a transmission deduction shall be subtracted from the lessee's gross proceeds received for the sale of electricity to determine the plant tailgate value of the electricity. The transmission deduction consists of either or both of two components: (1) Transmission line costs as determined pursuant to paragraph (b) of this section, and (2) Wheeling costs if the electricity is transmitted across a third-party's transmission line under an arm's-length wheeling agreement. Transmission deductions are subject to the limitation prescribed in paragraph (c) of this section. (b)(1) Transmission-line costs shall be based on the lessee's actual costs associated with the construction and operation of a transmission line for the purpose of transmitting electricity attributable and allocable to the lessee's powerplant utilizing Federal geothermal resources. The monthly transmission line cost component of the transmission deduction is determined by multiplying the annual transmission line cost rate (in dollars per kilowatthour) by the amount of electricity delivered for the reporting month. The transmission line cost rate shall be redetermined annually at the beginning of the same month of the year in which the transmission line was placed into service, the same month of the year in which the powerplant was placed into service, or, at the lessee's option, at a time concurrent with the beginning of the lessee's annual corporate accounting period; Provided, however, the period selected must coincide with the same period chosen for the generating deduction pursuant to §206.354(b)(1). After a deduction period is chosen, the lessee may not later elect to use a different deduction period without MMS approval. (2) Allowable transmission-line costs include operating and maintenance expenses, overhead, and either depreciation and a return on undepreciated capital investment in accordance with paragraph (b)(2)(iv)(A) of this section, or a cost equal to the capital investment in the transmission line multiplied by a rate of return in accordance with paragraph (b)(2)(iv)(B) of this section. Allowable capital costs are generally those costs for depreciable assets, including costs of delivery and installation of capital equipment, that are an integral part of the transmission line. A return on capital invested in the purchase of real estate for transmission facilities may be allowed provided that the lessee demonstrates the necessity for such purchase, the purchased land is not on a Federal geothermal lease, and MMS approves the deduction; the rate of return shall be the same rate determined in paragraph (b)(2)(v) of this section. (i) Allowable operating expenses include operations supervision and engineering, operations labor, materials, ad valorem property taxes, rent, supplies, and any other directly allocable and attributable operating expenses that the lessee can document. (ii) Allowable maintenance expenses include maintenance of the transmission line, maintenance of equipment, maintenance labor, and other directly allocable and attributable maintenance expenses that the lessee can document. (iii) Overhead directly attributable and allocable to the operation and maintenance of the transmission line is an allowable expense. State and Federal income taxes and severance taxes and other fees, including royalties, are not allowable expenses. (iv) To compute costs associated with capital investment, a lessee may use either depreciation with a return on undepreciated capital investment, or a return on capital investment. After a lessee has elected to use either method, the lessee may not later elect to change to the other alternative without MMS approval. (A) To compute depreciation, the lessee must use a straight-line depreciation method based on the expected life of the geothermal project, usually the term of the electricity sales contract or other depreciation period acceptable to MMS. A change in ownership of a transmission line shall not alter the depreciation schedule established by the original lessee-owner for purposes of computing transmission line costs. With or without a change in ownership, a transmission line shall be depreciated only once. The rate of return used to compute the return on undepreciated capital investment shall be determined pursuant to paragraph (b)(2)(v) of this section. (B) To compute a return on capital investment, the allowed cost shall be the amount equal to the allowable capital investment in the transmission line multiplied by the rate of return determined pursuant to paragraph (b)(2)(v) of this section. No allowance shall be provided for depreciation. This alternative shall apply only to transmission lines first placed into service on or after March 1, 1988. (v) The rate of return shall be 2 times Standard and Poor's industrial BBB bond rate. The rate of return shall be 2 times the monthly average rate as published in Standard and Poor's Bond Guide for the first month of the annual deduction period and shall be effective during the following deduction period. The rate shall be redetermined annually at the beginning of the same month beginning the annual deduction period chosen pursuant to paragraph (b)(1) of this section. (3) Transmission-line cost rates, determined annually, are computed by dividing the sum of the operating, maintenance, overhead, and capital costs by the annual amount of delivered electricity. (4) For new transmission lines, the lessee's costs for the first deduction period shall be based on estimated expenses (including overhead) for operating and maintaining the transmission line. For subsequent deduction periods, the transmission line costs shall be estimated based on the lessee's actual operating and maintenance expenses for the previous period adjusted for decreases or increases that the lessee knows will affect the deduction in the current period. (c) Under no circumstances shall the transmission deduction plus the generating deduction determined pursuant to §206.354 of this subpart reduce the royalty value of the geothermal resource to zero. (d)(1) If the actual transmission deduction determined at the end of the annual reporting period is less than the amount the lessee estimated and used in the netback procedure during the reporting period, the lessee shall be required to pay additional royalties retroactive to the first month of the reporting period, plus interest computed pursuant to 30 CFR 218.302. If the actual transmission deduction is greater than the amount applied in the netback calculation, the lessee shall be entitled to a credit. (2) Lessees must submit corrected Forms MMS–2014 to reflect adjustments to royalty payments in accordance with MMS instructions. (e)(1) All transmission deductions are subject to review, audit, and adjustment. When necessary or appropriate, MMS may direct a lessee to modify its estimated or actual transmission deduction and adjust royalty values accordingly. (2) Pursuant to subpart H of 30 CFR part 212, the lessee must maintain all data and records supporting its transmission deduction, including wheeling and other transmission-related agreements. These data and records must be made available to MMS and other authorized personnel upon request, and shall be maintained in a confidential manner in accordance with applicable laws and regulations pursuant to §206.352 of this subpart. (f) A one-time refund of royalties equal to the royalty amount of actual dismantlement costs attributable to the transmission line that are in excess of actual income attributable to the salvage of the transmission line will be allowed at the completion of the dismantlement and salvage operations.
Title 30: Mineral Resources
PART 206—PRODUCT VALUATION
Subpart H—Geothermal Resources
§ 206.353 Determination of transmission deductions.
