Document ID: FERC-2011-0293-0001
Agency: ferc
Document Type: Proposed Rule
Title: Annual Charges for Use of Government Lands
Posted Date: 2011-02-28T05:00Z

[Federal Register Volume 76, Number 39 (Monday, February 28, 2011)]
[Proposed Rules]
[Pages 10811-10815]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4268]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Chapter I

[Docket No. RM11-6-000]

Annual Charges for Use of Government Lands

AGENCY: Federal Energy Regulatory Commission, DOE.

[[Page 10812]]

ACTION: Notice of Inquiry (NOI).

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
inviting comments on its procedures with respect to the assessment of 
annual charges for the use of government lands. This Notice of Inquiry 
will assist the Commission in identifying options to consider in 
determining the methodology to be used to calculate rental rates for 
use of government lands under Part 11 of the Commission's regulations.

DATES: Comments on this NOI are due on April 29, 2011.

ADDRESSES: You may submit comments on the Notice of Inquiry, identified 
by Docket No. RM11-6-000, by one of the following methods:
     Electronic Submission: Documents created electronically 
using word processing software should be filed in native applications 
or print-to-PDF format, and not in a scanned format, at http://www.ferc.gov/docs-filing/efiling.asp.
     Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original copy of their 
comments to: Federal Energy Regulatory Commission, Secretary of the 
Commission, 888 First Street, NE., Washington, DC 20426. These 
requirements can be found on the Commission's Web site, see, e.g., the 
``Quick Reference Guide for Paper Submissions,'' available at http://www.ferc.gov/docs-filing/efiling.asp, or via phone from FERC Online 
Support at 202-502-6652 or toll-free at 1-866-208-3676.

FOR FURTHER INFORMATION CONTACT:

Kimberly Ognisty, (Legal Information), Office of General Counsel--
Energy Projects, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, (202) 502-8565.
Doug Foster, (Technical Information), Office of the Executive Director, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6118.

SUPPLEMENTARY INFORMATION:

Notice of Inquiry

Issued February 17, 2011

    1. The Federal Energy Regulatory Commission is issuing this Notice 
of Inquiry to seek comments on its procedures with respect to the 
assessment of annual charges for the use of government lands by 
hydropower projects. In particular, the Commission is interested in 
identifying administratively practical methods for assessing reasonable 
annual charges that compensate the United States for the use of its 
lands.

I. Background

    2. Section 10(e)(1) of the Federal Power Act (FPA) \1\ requires 
Commission hydropower licensees using Federal lands to:
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    \1\ 16 U.S.C. 803(e)(1) (2006). Section 10(e)(1) also requires 
licensees to reimburse the United States for the costs of the 
administration of Part I of the FPA. Those charges are calculated 
and billed separately from the land use charges, and are not the 
subject of this Notice of Inquiry.

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 
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the Commission as conditions may require * * *

    In other words, where hydropower 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 FPA section 17(a), 16 U.S.C. 810(a) (2006), the 
fees collected for use of government lands are allocated as follows: 
12.5 percent is paid into the treasury of the United States, 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 is used to fund the 
Commission's operations.
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    3. The Commission has employed various methodologies to determine 
the charges. The touchstone has been to find an administratively 
practical methodology which results in reasonably accurate land 
valuations.
    4. Beginning in 1938, annual charges for use of government land 
were based on project-by-project appraisals.\3\ That proved 
uneconomical because the cost of conducting individual appraisals was 
in excess of the value of the land involved.\4\ In 1942, the 
Commission's predecessor, the Federal Power Commission (FPC), developed 
a national average value of $50 per acre, to which it applied a four 
percent rate of return to derive an annual land use charge of $2.00 per 
acre.\5\ The FPC had determined that a national average was superior to 
regional or State land values because use of the national average would 
simplify the administrative task of Commission staff and reduce the 
costs associated with yearly land use charge determinations.\6\ The FPC 
recognized that regional or State averages had the advantage of greater 
localization, but concluded that any speculative improvement in land 
value accuracy would not be significant enough to outweigh the obvious 
administrative economies accruing when a single nationwide figure is 
used as the basis for annual charges.\7\
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    \3\ See 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).
    \4\ Id.
    \5\ Id.
    \6\ Order Prescribing Amendment to Section 11.21 of the 
Regulations Under the Federal Power Act, Order No. 560, 56 F.P.C. 
3860 (1976).
    \7\ Id.
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    5. In 1962, the FPC increased the national average land value to 
$60 per acre, and in 1976 to $150 per acre. In 1976, the FPC also 
adopted a fluctuating interest rate to ensure that the rate of return 
would remain current.\8\
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    \8\ Order No. 469, FERC Stats. & Regs. ] 30,741 at 30,584. This 
rate was based on a fluctuating rate used by the United States Water 
Resources Council, based primarily upon the average yield of long-
term United States interest-bearing securities.
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    6. In 1985, the Inspector General of the Department of Energy 
concluded that the Commission's existing methodology resulted in an 
under-collection of over $15 million per year because it used outdated 
land values. The Inspector General also found that the wide variation 
in land values made the use of a zone index preferable to a national 
average. The Inspector General recommended that the Commission: (1) 
Base land use charges on the current fair market value of the land 
being used; (2) use current long-term interest rates in its 
calculations; and (3) replace the national average land value with 
State-by-State averages.\9\
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    \9\ 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).
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    7. In response, the Commission instituted a rulemaking for several 
purposes, including to impose Federal land use fees that better 
approximated the fair market value of the use of those lands. In the 
Notice of Proposed Rulemaking, the Commission noted that it had found 
no existing index of land values that accurately reflected current 
economic conditions and conformed precisely to the context of land used 
for hydropower projects.\10\ The Commission stated that it was 
considering several proposals for assessing land use charges, 
including: (1) Using, with modifications, the ``Agricultural Land 
Values and Market Outlook and Situation Report,''

[[Page 10813]]

published by the Department of Agriculture, which provided State-by-
State average farm land and building values; (2) conducting individual 
appraisals; or (3) using fees based on a licensed project's gross 
income or on its power generation.\11\ In a subsequent notice 
requesting supplemental comments, the Commission posited another 
alternative that had recently become available: basing land use fees on 
a rental schedule for linear rights-of-way being developed jointly by 
the U.S. Department of Agriculture's Forest Service and the U.S. 
Department of Interior's Bureau of Land Management (BLM).\12\ The 
Commission explained that, although the rental schedule concerned 
linear rights-of-way, it might be more representative of the value of 
land used for hydropower projects than valuation of farm lands or any 
other then currently-published information.\13\
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    \10\ Billing Procedure Revisions--Annual Charges Methodology for 
Assessing Federal Land Use Charges, Notice of Proposed Rulemaking, 
FERC Stats. & Regs. ] 32,423, at 33,281 (1985).
    \11\ Id.
    \12\ 52 FR 82 (Jan. 2, 1987).
    \13\ Id.
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    8. In its final rule, the Commission explained that its existing 
methodology had resulted in under-collection of land use charges and 
was no longer reasonable because it used outdated land values, that the 
wide variation in land values across the country made use of a zone 
index preferable to a national average, and that its previous decision 
not to use such an index because of the burden on the Commission to 
determine the value of Forest Service lands was no longer an issue 
because the Forest Service and BLM had begun promulgating an index 
setting forth those values.\14\ The Commission agreed with the majority 
of commenters that the BLM-Forest Service index more accurately 
reflected typical hydropower project lands, and so decided to use that 
index rather than the farm values index.\15\
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    \14\ Order No. 469, FERC Stats. & Regs. at 30,584.
    \15\ Id. at 30,589.
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    9. The Commission explained that the BLM-Forest Service methodology 
was based on a survey of the various types of lands that the Forest 
Service has allowed to be occupied by linear rights-of-way. The 
schedule was divided into regional zones, and provided per acre rental 
fees listed by State and county.\16\ The Commission decided to continue 
its past practice of doubling the linear right-of-way fee in order to 
establish the annual fees for the use of Federal lands for project 
works other than transmission lines (e.g., dams, powerhouse, and 
reservoirs) because lands used for transmission line rights-of-way 
would remain available for multiple uses, while other Federal lands 
occupied by hydropower project works would not.\17\
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    \16\ Id. at 30,588.
    \17\ See id. at 30,588-89.
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    10. The Commission 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.\18\

    \18\ Id. (footnotes omitted). The Commission also rejected 
arguments that it should intentionally set low land charges based on 
the public benefits provided by hydropower projects.
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    The Commission stated that ``the Forest Service index is the best 
approximation of reasonable land charges'' and explained that ``the 
Forest Service index will be adopted and published each year by the 
Commission.'' \19\
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    \19\ Id. at 30,591.
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    11. The Commission rejected the proposal to use the agricultural 
lands value index published by the U.S. Department of Agriculture, 
which used a State-by-State average value per acre of farm land and 
buildings. The Commission concluded that the agricultural index would 
require such major adjustments that it would not be an efficient 
measure of land value for hydropower projects.\20\ The Commission also 
rejected using a fee based on the percentage of gross sales or a rate 
per kilowatt hour. The Commission concluded that a percentage of gross 
sales fee or flat rate is not a reasonable method because it would 
charge a royalty as though the Federal land being used was producing 
power, which overlooks the fact that power output is the result of many 
factors (e.g., water rights, head, project structures), and not just 
the acreage of the Federal land involved.\21\ Finally, the Commission 
rejected the proposal to use individual project appraisals, concluding 
that the FPC had abandoned the appraisal method in 1942, and again 
after reconsideration in 1976, because the cost of individual project 
appraisals was excessive compared to the value of the Federal land at 
issue. Thus, the Commission concluded that individual appraisals would 
be too costly and result in time-consuming litigation.\22\
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    \20\ Id. at 30,589.
    \21\ Id. at 30,589-90.
    \22\ Id. at 30,590.
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    12. Based on these findings, the Commission promulgated a 
regulation stating, inter alia, that annual charges for the use of 
government lands would be set on the basis of the schedule of rental 
fees for linear rights-of-way (the BLM-Forest Service schedule); that 
annual charges for government lands occupied by project transmission 
lines would be based directly on the schedule, while charges for lands 
used for other project purposes would be twice the charges set forth in 
the schedule; and that the Commission, by its designee the Executive 
Director, would update its fees schedule to reflect changes in land 
values established by the Forest Service.\23\
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    \23\ See 18 CFR 11.2(b) (2010).
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    13. From 1987 until 2008, BLM and the Forest Service did not change 
the 1987 linear right-of-way schedule, other than to make an adjustment 
to the fees each year to account for inflation. Likewise, the only 
change in the Commission's implementation of its annual charges during 
this period was an annual fee update schedule to reflect the inflation 
adjustment.\24\ In 2005, Congress passed the Energy Policy Act of 2005 
that required BLM ``to update [the schedule] to revise the per acre 
rental fee zone value schedule by State, county, and type of linear 
right-of-way use to reflect current values of land in each zone.''\25\ 
Congress further ordered that ``the Secretary of Agriculture shall make 
the same revision for linear rights-of-way * * * on National Forest 
System land.''
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    \24\ 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 (January 22, 2008), FERC Stats. & Regs. 
] 31,262 (2008)
    \25\ 42 U.S.C. 15925 (2006).
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    14. On April 27, 2006, BLM issued an advance notice of proposed 
rulemaking proposing to update the fee schedule.\26\ BLM stated that it 
was considering using existing published information or statistical 
data, such as information published by the National Agricultural 
Statistic Service (NASS), for updating the schedule. On December 11, 
2007, BLM issued a proposed rule updating the rental fee schedule,\27\ 
and on October 31, 2008, it issued a final rule.\28\ The rule based the 
updated fee on the NASS information, as BLM had proposed. BLM noted 
that the four

[[Page 10814]]

commenters who had addressed the issue had supported use of the NASS 
data. The Forest Service subsequently adopted the BLM revisions.\29\
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    \26\ Update of Linear Right-of-Way Rental Schedule, 71 FR 
24,836.
    \27\ Update of Linear Right-of-Way Rent Schedule, 72 FR 70,376.
    \28\ Update of Linear Right-of-Way Rent Schedule, 73 FR 65,040.
    \29\ See Fee Schedule for Linear Rights-of-Way Authorized on 
National Forest System Lands, 73 FR 66,591 (November 10, 2008). The 
Forest Service noted that it had given notice, in the preambles to 
BLM's proposed and final rules, that it would adopt BLM's revised 
fee schedule.
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    15. In January 2009, the Commission sent letters to all of its 
licensees, explaining that the Forest Service had revised its fee 
schedule in response to direction from Congress and that consequently 
``for many projects, the [fiscal year] 2009 Federal land use charges 
will increase substantially.'' The Commission asked licensees to 
confirm by county the Federal acres that the Commission believed to be 
occupied by each project.\30\
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    \30\ See, e.g., letter to Portland General Electric Co. in 
Project No. 2030 (January 6, 2009).
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    16. On February 17, 2009, the Commission issued notice of the Fee 
Update Schedule and based the schedule, as in previous years, on the 
BLM's and Forest Service's land valuations (February 17 Notice).\31\ 
Because of the BLM-Forest Service revisions, this resulted, in some 
cases, in significantly higher fees being assessed.\32\ In calculating 
the 2009 fees, the Commission used the same methodology that it has 
used for the past 21 years: it took the land values published by Forest 
Service and BLM, used the information in its files showing Federal 
acreage occupied by individual projects, and applied the values for the 
counties in which individual projects were located, doubling the values 
for acreage occupied by non-transmission line portions of hydropower 
projects.
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    \31\ Update of the Federal Energy Regulatory Commission's Fees 
Schedule for Annual Charges for the Use of Government Lands, 74 FR 
8184 (February 24, 2009) FERC Stats. & Regs. ] 31,288 (2009).
    \32\ Other licensees, typically in the eastern part of the 
country, had their charges reduced.
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    17. On March 6, 2009, the Federal Lands Group, a group of licensees 
composed of both municipal and private entities, filed a request for 
rehearing of the February 17 Notice. The group alleged that the 
February 17 Notice amounted to a rulemaking, improperly issued without 
notice and an opportunity for comment, and that the Commission had 
improperly delegated its authority to set annual charges to BLM and the 
Forest Service. The group asked the Commission to vacate the February 
17 Notice, rescind annual charge bills that had been sent out in 
accordance with it, and reissue bills calculated under the prior fees 
schedule.
    18. On October 30, 2009, the Commission denied rehearing.\33\ On 
December 18, 2009, the Federal Lands Group filed a petition for review 
with 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 2009 Update.\34\ The Court stated 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 Forest Service's land value 
index, and the Forest Service has made changes to the methodology 
underlying its index. We begin that process here.
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    \33\ Update of the Federal Energy Regulatory Commission's Fee 
Schedule for Annual Changes for the Use of Government Lands, 129 
FERC ] 61,095 (2009).
    \34\ City of Idaho Falls, Idaho v. FERC, No. 09-1120, 2011 U.S. 
App. LEXIS 13 (DC Cir. Jan. 4, 2011).
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II. Subject of the Notice of Inquiry

    19. As recounted above, the Commission has employed various 
methodologies over the course of its history to determine annual 
charges for the use of government lands by hydropower projects. The 
touchstone has been to find an administratively-practical methodology, 
which results in reasonably accurate land valuations. In seeking this 
goal, the methodology has been modified on occasion in response to 
concerns such as the cost of administering the methodology (e.g., 
rejecting individual appraisals), the administrative burden on the 
Commission (e.g., rejecting creation of our own index), and the 
accurate collection of fair market value (e.g., implementing updates in 
response to the contention that Commission had been under-collecting). 
At times, however, a previously-rejected approach has been revisited 
and adopted (e.g., Forest Service-BLM index adopted with adjustments 
because Commission would not be subject to administrative burden of 
creating its own index). The Commission now seeks suggestions for 
creating an administratively-practical methodology for assessing annual 
charges for the use of government lands that will result in reasonably 
accurate land valuations. The Commission specifically seeks comment on 
existing indices that could be used as the basis for establishing 
annual land use charges, and whether particular indices are better 
suited for that purpose than others. We outline below the major 
objectives in considering a new annual charges methodology, and request 
that commenters address how any methodology they suggest would be 
consistent with each of those objectives.

A. Uniform Applicability

    20. Any proposed methodology should be uniformly applicable to all 
hydropower licensees. This means that the Executive Director should be 
able to take the information in the Commission's files showing Federal 
acreage occupied by individual projects, apply the adopted methodology, 
and create an annual charge for the use of government lands for each 
licensed project. This has previously been possible, for instance, from 
1987 to 2008, with the use of an existing index created by the Forest 
Service and BLM, modified as necessary, and updated automatically by 
the Forest Service for inflation.

B. Cost of Administering Collection of Annual Charges

    21. The administration of any proposed methodology must not impose 
exorbitant costs on the Commission. Collection of annual charges and 
application of the ultimate methodology should be an annual, routine 
ministerial process that requires reasonable, but not overly 
burdensome, staff effort.

C. Methodology Not Subject to Review on an Individual Basis

    22. Any proposed methodology, once adopted, should not be subject 
to review on an individual case-by-case basis. Licensees will have the 
opportunity to challenge computational errors by the Executive Director 
in calculating the annual charge or the relevant county land acreage, 
but case-by-case challenges to the methodology would add significantly 
to the administrative cost and burden of collecting annual charges.

D. Fair Market Value

    23. At times in the Commission's history, it has been determined 
that the Commission had not been collecting fair market value for the 
use of government lands, which resulted in a substantial under-
collection.\35\ To ensure that the Commission recovers ``reasonable 
annual charges,'' any proposed methodology must reflect reasonably 
accurate land valuations.
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    \35\ 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).

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[[Page 10815]]

E. Avoid Increasing Price to Consumers of Power

    24. In fixing annual charges, we must seek to avoid increasing the 
price to consumers of power by such charges. Therefore, any proposed 
methodology should provide reasonable, but not excessive, compensation 
to the United States for the use of its lands.

III. Comment Procedures

    25. The Commission invites interested persons to submit comments 
and other information on the matters, issues, and specific questions 
identified in this notice. Comments are due April 29, 2011. Comments 
must refer to Docket No. RM11-6-000, and must include the commenter's 
name, the organization it represents, if applicable, and its address.
    26. To facilitate the Commission's review of the comments, 
commenters are requested to provide an executive summary of their 
position. Commenters are requested to identify each specific question 
posed by the Notice of Inquiry that their discussion addresses and to 
use appropriate headings. Additional issues the commenters wish to 
raise should be identified separately. The commenters should double-
space their comments.
    27. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    28. Commenters unable to file comments electronically must mail or 
hand deliver an original copy of their comments to: Federal Energy 
Regulatory Commission, Secretary of the Commission, 888 First Street, 
NE., Washington, DC, 20426. The current requirements are specified on 
the Commission's Web site, see, e.g., the ``Quick Reference Guide for 
Paper Submissions,'' available at http://www.ferc.gov/docs-filing/efiling.asp, or via phone from FERC Online Support at 202-502-6652 or 
toll-free at 1-866-208-3676.
    29. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters are not required to 
serve copies of their comments on other commenters.

IV. Document Availability

    30. In addition to publishing the full text of this document 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 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    31. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document 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) in the docket number field.
    32. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
the Commission's Online Support at 1-866-208-3676 (toll free) or 202-
502-6652 (e-mail at FERCOnlineSupport@ferc.gov) or the Public Reference 
Room at 202-502-8371, TTY 202-502-8659 (e-mail at 
public.referenceroom@ferc.gov).

    By direction of the Commission.

Kimberly D. Bose,
Secretary.
[FR Doc. 2011-4268 Filed 2-25-11; 8:45 am]
BILLING CODE 6717-01-P