E6-16785. Billing Procedures for Annual Charges for the Costs for Administering Part I of the Federal Power Act; Notice Reporting Increase in Municipal Costs for FY 2005 Actual and FY 2006 Estimated Hydropower Administrative Annual Charges

October 3, 2006.

1. Municipal licensees have expressed concerns regarding the substantial increases they have observed in their Statement of Annual Charges issued on August 4, 2006. Specifically, licensees are concerned with the amounts assessed for the current year's Administrative Charge and the prior year's Adjustment of FERC Administrative Charge. The increase in these charges is primarily attributable to a substantial increase in the proportion of direct labor hours staff charged to municipal projects in FY 2005. The purpose of this notice is to provide licensees with information regarding the Commission's process for assessing these charges and how this increase in direct labor applicable to municipal projects resulted in the increases observed on the August 4, 2004 billing statements.

Components of Administrative Annual Charges

2. The Federal Power Act requires the Federal Energy Regulatory Commission to assess annual charges against licensees to reimburse the United States for the costs of administration of the Commission's hydropower regulatory program.^[1] The Omnibus Budget Reconciliation Act of 1986 provided FERC with the authority to “assess and collect fees and annual charges in any fiscal year in amounts equal to all of the costs incurred by the Commission in that fiscal year.” ^[2] Each fiscal year the Commission estimates the total costs of its operations for the current year. These estimates are the basis for the current year's Administrative Charge which is reflected on the annual billing statements as such. In addition, the Commission determines the actual operating costs for the prior fiscal year, and the prior year's Administrative Charge is adjusted either upward or downward for the difference between the prior year's actual costs and the prior year's estimates. These adjustments to the prior year's costs are then reflected as the Adjustment to FERC Administrative Charge on the annual billing statements.

Allocation Methodology for Hydropower Projects

3. The total costs for the hydropower regulatory program consist of both direct and indirect costs. Once the Commission calculates estimated and actual program costs, it allocates these costs based on direct time charged by Commission staff to designated time and labor codes for municipal and non-municipal projects.^[3] Annually the Commission allocates current year estimated costs and prior year actual costs based on the direct labor proportions of staff time recorded against municipal and non-municipal projects in the prior fiscal year. Applying this methodology allows the Commission to utilize credible historical information for the allocation of current year estimated costs and provides the relevant data needed to appropriately affect the prior year downward or upward adjustment when allocating the prior year's actual costs.

4. With regard to the August 4, 2006 statements, the Commission allocated the cost bases for the current year's Administrative Charge and the prior year's Adjustment to FERC Administrative Charge using FY 2005 direct labor proportions. In FY 2005, Commission staff spent 25% of the total hours charged to licensing of hydropower projects on municipal projects. Conversely, 75% of the total hours charged to project licensing were attributable to work on non-municipal projects.

Impact of FY 2005 Direct Labor Allocation

5. The significant increase in municipal project costs for the FY 2006 Administrative Charge and the FY 2005 Adjustment to FERC Administrative Charge was the result of more direct time charged to hydropower municipal time and labor codes in FY 2005 then in FY 2004. Since the Commission used the FY 2005 municipal allocation of 25% to allocate its FY 2006 Administrative Annual Charges, licensees will likely notice an increase to their current year Administrative Charge when compared to previous years. Additionally, since the Commission used the FY 2004 municipal allocation of 11% to allocate its FY 2005 Administrative Charge, the FY 2005 Adjustment to FERC Administrative Charge reflects both a significant adjustment resulting from a 14% increase in the proportion of direct labor allocated and a minor upward adjustment related to the difference in actual and estimated costs previously assessed in FY 2005.

Review of Hydropower Program Costs

6. After calculating the annual charges, the Commission reviewed the total FY 2005 and FY 2006 hydropower costs and the applicable time and labor categories for the hydropower program which clearly differentiates between municipal and non-municipal activities. Overall, total costs for the hydropower program were found to have only small increases between the fiscal years. There were no new programs added in the hydropower area in FY 2005 or FY 2006 that would have contributed to this increase, thus the small increase in total hydropower program costs. However, since there was more direct time charged to municipal time and labor codes in FY 2005 than in FY 2004, municipal licensees received a larger proportion of the total hydropower program costs.

7. The Commission's hydropower program workload depends on how many hydropower applications or inspections are pending before the Commission in any given year. The Commission can not predict with exact certainty which licensees will file each year. In addition, the complexity of the projects under review and the length of time it takes to process a hydropower application could impact the workload proportions. hydropower program workload is cyclical, so in some years there may be more municipal projects pending versus non-municipal projects. While this increase does represent a large swing between municipal and non-municipal direct-labor hours, our review did show a history of cyclical fluctuations in this split.

8. For questions concerning this notice or any other annual charges issues, please direct inquiries via e-mail to [e-mail] or call Troy Cole at [phone].

Magalie R. Salas,

Secretary.

Footnotes

1.  16 U.S.C 794-823b.

2.  Pub. L. 99-509 § 3401, 100 Stat. 1874, 1890-91 (1986) (codified at 42 U.S.C. 7178).

3.  The Commission has implemented within its time and attendance system designated codes which segregate staff hours spent on municipal projects from staff hours spent on non-municipal projects. In calculating direct labor proportions, the Commission aggregates the hours recorded against municipal and non-municipal time codes. The number of hours charged to municipal codes is divided by this aggregate total to derive the municipal proportion used to allocate hydropower program costs. The number of hours charged to non-municipal projects is treated similarly to derive the non-municipal proportion.