[Federal Register Volume 63, Number 192 (Monday, October 5, 1998)]
[Notices]
[Pages 53409-53415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26463]
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DEPARTMENT OF ENERGY
Southeastern Power Administration
Notice of Proposed Rate Adjustment
AGENCY: Southeastern Power Administration, DOE.
ACTION: Notice of rate order.
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SUMMARY: Notice is given of the confirmation and approval by the Deputy
Secretary of the Department of Energy, on an interim basis, of Rate
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1,
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1. The rates were approved on an
interim basis through September 30, 2003, and are subject to
confirmation and approval by the Federal Regulatory Commission on a
final basis.
DATES: Approval of rates on an interim basis is effective through
September 30, 2003.
FOR FURTHER INFORMATION CONTACT: Leon Jourolmon, Assistant
Administrator, Finance & Marketing, Southeastern Power Administration,
Department of Energy, Samuel Elbert Building, 2 South Public Square,
Elberton, Georgia 30635-2496,(706) 213-3800.
SUPPLEMENTARY INFORMATION: The Federal Energy Regulatory Commission by
Order issued March 18, 1994, in Docket No. EF93-3011-000, confirmed and
approved Wholesale Power Rate Schedules GA-1-D, GA-2-D, GA-3-C, GU-1-D,
ALA-1-H, MISS-1-H, MISS-2-D, SC-3-C, SC-4-B, CAR-3-C, SCE-2-C, GAMF-3-
B. Rate schedules SOCO-1,SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I,
Duke-1, Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4,
SCE&G-1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1 replace these schedules.
Dated: September 18, 1998.
Elizabeth A. Moler,
Deputy Secretary.
In the matter of: Southeastern Power Administration--Georgia-
Alabama-South Carolina System Power Rates. Rate Order No. SEPA-37.
Order Confirming and Approving Power Rates on an Interim Basis
Pursuant to Sections 302(a) and 301(b) of the Department of Energy
Organization Act, Pub. L. 95-91, the functions of the Secretary of the
Interior and the Federal Power Commission under Section 5 of the Flood
Control Act of 1944, 16 U.S.C. 825s, relating to the Southeastern Power
Administration (Southeastern) were transferred to and vested in the
Secretary of Energy. By Delegation Order No. 0204-108, effective May
30, 1986, 51 FR 19744 (May 30, 1986), the Secretary of Energy delegated
to the Administrator the authority to develop power and transmission
rates, and delegated to the Under Secretary the authority to confirm,
approve, and place in effect such rates on an interim basis, and
delegated to the Federal Energy Regulatory Commission (FERC) the
authority to confirm and approve on a final basis or to disapprove
rates developed by the Administrator under the delegation. On November
4, 1993, the Secretary of Energy issued Amendment No. 3 to Delegation
Order No. 0204-108, granting the Deputy Secretary authority to confirm,
approve, and place into effect Southeastern's rates on an interim
basis. This rate is issued by the Deputy Secretary pursuant to said
notice.
Background
Power from the Georgia-Alabama-South Carolina System of Projects is
presently sold under Wholesale Power Rate Schedules GA-1-D, GA-2-D, GA-
3-C, GA-1-D, ALA-1-H, ALA-3-D, MISS-1-H, MISS-2-D, SC-3-C, SC-4-B, CAR-
3-C, SCE-2-C, and GAMF-3-B. These rate schedules were approved by the
FERC on March 18, 1994, for a period ending September 30, 1998 (66 FERC
62168).
Discussion
System Repayment
An examination of Southeastern's revised system power repayment
study, prepared in July 1998, for the Georgia-Alabama-South Carolina
System shows that with an annual revenue increase of $1,877,000 over
the revenues in the current repayment study using current rates, all
system power costs are paid within the 50-year repayment period
required by existing law and DOE Procedure RA 6120.2. The Administrator
of Southeastern has certified that the rates are consistent with
applicable law and that they are the lowest possible rates to customers
consistent with sound business principles.
Public Notice and Comment
Opportunities for Public Review and Comment on Wholesale Power Rate
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1,
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1, was announced by notice
published in the Federal Register March 24, 1998. Public Information
and Comment Forums were held April 29, 1998, in College Park, Georgia,
and April 30, 1998, in Columbia, South Carolina, and written comments
were invited through June 22, 1998. The notice proposed rates with a
revenue increase of $14.6 million in Fiscal Year 1999 and all future
years. An alternative set of rates including the costs associated with
the Pump Storage Units at the Richard B. Russell Project was also
proposed. There were 22 comments received and evaluated. Written
comments were received from five (5) sources by mail and facsimile
during the comment period. Transcripts of the Public Information and
Comment Forums are included as Exhibits A-4-A and A-4-B. A review of
comments is included as Exhibit A-5. The following is a summary of the
22 comments.
Staff Evaluation of Public Comments
1. Comment: Using the 1997 Corps of Engineers' O&M amount, which is
significantly higher than prior years, as a base for the 1998 study
amount for O&M yields an unrealistically high number. In computing
Corps O&M Expense, Southeastern should take 1993-1997 average costs and
escalate them at a rate of about 4% for 2.5 years yielding an average
annual cost of $34,307,000.
Response: Two responders suggested an alternative way to estimate
Corps of Engineers O&M expenses. Because the
[[Page 53410]]
estimates provided by the Corps of Engineers were based on an
accounting number which appears to be suspect, and because the
accounting system that created that number is new and people do not
feel comfortable with the accuracy of the numbers, Southeastern agrees
that an alternative method should be used. Southeastern used a method
that in some ways was similar to the one described in the two
responders comments. Southeastern took the actual escalation rate for
the 5-year period 1992 through 1996, thereby not including 1997. The
actual rate of escalation over the 5-year period was 3.7%. Southeastern
then escalated the actual 1996 amount of $30,461,000 at a 3.7% rate
until half way through the cost evaluation period or midway through
fiscal year 2001 or 4.5 years. The resultant O&M Expense is $32,784,927
in 1998, $34,012,547 in 1999, $35,286,135 in 2000, and $35,946,773 in
2001 to the end of the study.
2. Comment: Corps of Engineers should analyze joint O&M costs and
any inappropriate joint costs should be excluded.
Response: The Corps of Engineers and Southeastern are discussing
which of the costs that are currently recorded as Joint Costs should be
recorded more appropriately as specific costs to purposes other than
power. Corps of Engineers personnel believe that any decision to record
costs to other purposes would need to be approved at the Headquarters
level in Washington, D.C. Southeastern will continue to investigate
methods to allocate as many costs as possible to specific purposes.
However, Southeastern has made no modification to the present rate
proposal in regard to this comment.
3. Comment: The Corps of Engineers' projections of capitalized
costs from 1999 through 2003 should be reexamined.
Response: The Corps of Engineers reexamined the projections of the
capitalized costs for the period 1998 through 2003. In the
reexamination, they looked at the question of whether costs were a
capitalized item or an expenditure. The corrected numbers are intended
to be included when they will be capitalized and modified to be the
Corps of Engineers' best estimate. The corrected numbers are included
in the proposed rates. The amount of costs decreased by a total of
about $6,000,000 for the 1998 to 2003 period.
4. Comment: The Southeastern projections of capitalized costs at
the Corps of Engineers' projects after 2003 should be reexamined.
Response: Southeastern reexamined the projections of capitalized
costs for the fiscal years after 2003. Southeastern determined that the
in-service dates should be modified to agree with the major
rehabilitation work currently going on. Using the original in-service
date overlooks the current work on the system. Changing these in-
service dates meant that replacement costs for fiscal years 2004
through 2045 decreased from $238 million to $214 million.
5. Comment: Southeastern marketing expenses should be recalculated
using a more normal escalation rate and escalating the costs until
midway through the cost evaluation period.
Response: Southeastern agrees with the comment of the responders.
Southeastern's marketing cost used in the repayment study at the time
of the forum included costs escalated at 6.235% until the year 2003.
The 6.235% was the actual annual rate of escalation over the period
from 1993 through 1997. The amount used in the earlier study was
$3,587,892. The period used to compute the escalation rate was
determined to be an inappropriate period because the increase in costs
were primarily one-time costs to begin an operating center and control
areas. Southeastern has modified its projected marketing costs by using
the escalation rate allowed in Federal budgeting and escalating the
costs until the midpoint of the cost evaluation period, or midway
through fiscal year 2001. Southeastern marketing expenses are now
estimated to be $2,698,067 in 1998, $2,733,142 in 1999, $2,823,335 in
2000, and $2,869,920 from 2001 to the end of the study.
6. Comment: Southeastern should review all costs to determine if
any can be reduced or eliminated. Areas to consider include personnel,
communications, contract maintenance, competitive resources strategy
(CRS) services and supplies, ADP supplies and equipment, and other
services.
Response: Southeastern is continually looking at the
appropriateness of the costs including those mentioned. It is
Southeastern's position that the costs used in the past and the costs
requested for the present and near future are necessary and are the
lowest possible costs consistent with sound business principles.
7. Comment: Southeastern should include additional capacity
resulting from rehabilitation work at various projects and the revenues
resulting from that additional capacity in the rate proposal.
Response: Southeastern has reexamined the capacity available for
sale because of the rehabilitation work currently in progress. We
believe that an additional 144,000 kilowatts of capacity will be
available because of the rehabilitation work. For the next few years
the increased amount will help provide reserves for the time units are
out of service because of the rehabilitation work. Therefore, in the
years 2001 through 2003 Southeastern has included an additional 79,000
kilowatts and in 2004 through the end of the study Southeastern has
included an additional 144,000 kilowatts marketed in the proposed
repayment study.
8. Comment: Southeastern should not include Civil Service
Retirement System costs (CSRS) and pension health benefits costs that
are funded by the Office of Personnel Management.
Response: The Department of Energy has made a determination that it
is appropriate for the Power Marketing Administrations to include the
Civil Service Retirement System costs and pension health benefits costs
that are funded by the Office of Personnel Management in the rates
charged to customers. Therefore, Southeastern has included the costs in
the repayment study and thereby included them in the rates that
Southeastern proposes to charge to the customers.
9. Comment: Southeastern does not have legal authority to collect
Civil Service Retirement System costs that are funded by the Office of
Personnel Management.
Response: One of the responders made several legal arguments
contending the Southeastern did not have the requisite legal authority
to collect Civil Service Retirement System costs and pension health
benefits costs that are funded by the Office of Personnel Management
(OPM). On July 1, 1998, the Department of Energy's General Counsel Mary
Anne Sullivan issued a Memorandum of same date entitled ``PMA Authority
To Collect In Rates, And Reimburse To Treasury, Government's Full Costs
Of Post-Retirement Benefits.'' (Opinion) A copy of the Opinion is
included as Attachment 1 to this notice, as well as part of the
Administrator's record of decision as Exhibit A-5 filed with the
Federal Energy Regulatory Commission (FERC) pursuant to 18 CFR 300.10
et seq. in support of this rate action.
Preliminarily, the Opinion relates that the Administration's FY
1998 budget documentation states that starting in FY 1998 Southeastern
and the three other Power Marketing Administrations (PMA's) `` `* * *
will set rates, consistent with current law, to begin to recover the
full cost of the Civil Service Retirement System and Post-Retirement
[[Page 53411]]
Health Benefits for its employees that have not been recovered in the
past' ''. (Opinion, p. 1.) The Opinion notes that (1) PMA rates
generally have not reflected the cost to the Government of the unfunded
liability related to the Retirement Fund or post-retirement health and
life insurance benefits, and (2) that these undercollected amounts are
eleven percent in the case of Civil Service Retirement System
employees. (Opinion, pp. 1 & 6)
As a matter of background Congress addressed the problem of
potential shortfalls * * * of funding for retiree benefits by
authorizing a permanent indefinite appropriations to the Retirement
Fund to finance the unfunded liability created by: (1) New or
liberalized benefits payable from the Fund; (2) extension of coverage
of the Fund to new groups of employees or; (3) increases in pay on
which benefits are computed. (Opinion, p. 2), citing 5 U.S.C. 8348(f).
The relevant statutory authority for Southeastern to set rates is
found in the Flood Control Act of 1944 16 U.S.C. 825s (the Act), which
applies to projects built by the Army Corps of Engineers and provides
that rates shall be set (by Southeastern) ``* * * having regard to the
recovery * * * of the costs of producing and transmitting such electric
energy.'' This statutory obligation is also coupled with the obligation
to:
* * * transmit and dispose of such power and energy in such
manner as to encourage the most widespread use thereof at the lowest
possible rates to consumers consistent with sound business
principles * * *
All PMA revenues are required to be deposited in a statutorily
specified fund or account in the Treasury.
The Opinion also notes that, ``pursuant to the Flood Control Act
requirements, monies received from power rates to recover costs of
unfunded liabilities from power marketed by Southeastern * * * would be
deposited into the general fund of the Treasury as miscellaneous
receipts (Opinion, p. 10).
The Opinion recognizes that Section 5 of the Act (as to
Southeastern) leaves considerable discretion to the Southeastern
regarding the recovery of costs. Courts have noted the broad
discretionary authority conferred upon the Secretary of Energy,
Southeastern and the other PMAs regarding actions taken pursuant to the
Act. The 9th Circuit has observed that Section 5 of the Act, ``* * *
`breathes discretion at every pore' * * * (it) permits the exercise of
the widest administrative discretion by the Secretary. It does not
supply `law to apply.' '' for purposes of judicial review under the
Administrative Procedures Act. City of Santa Clara v. Andrus, 572 F.2d
660 at 668 (cert. den. 439 U.S. 859 (1978). See also Greenwood
Utilities Commission v. Hodel, 764 F.2d 1459, 1464 (11th Cir. 1985)
Electricities of North Carolina v. Southeastern Power Administration,
774 F.D. 1262, 1267 (4th Cir. 1985).
With recognition of the broad discretionary authority conferred by
Section 5 of the Act, the Opinion alludes, at page 4, to a ``Reasonable
Interpretation of `Cost.' '' It concludes that it is ``* * * reasonable
to interpret the term `cost' in the organic statutes to include the
total costs to the Government of post-retirement benefits for PMA-
related employees'' * * * because ``courts accord considerable weight
to an executive department's `construction of a statutory scheme it is
entrusted to administer,'' citing Chevron v. Natural Resources Defense
Council, 467 U.S. 837, 844 (1984).
Also, the Opinion notes that ``in reviewing actions of the PMA's,
courts give substantial deference to PMA interpretations of their
organic statutes,'' citing Department of Water & Power of the City of
Los Angeles v. Bonneville Power Administration., 759 F.2d 684, 690-91
(9th Cir. 1985). In addition, Alcoa v. Central Lincoln Peoples' Util.
Dist., 467 U.S. 380, 389 (1984) is cited for the proposition that the
``* * * courts need not find that an agency's interpretation of its
organic statutes `is the only reasonable one, or even that it is the
result [the court] would have reached had the question arisen in the
first instance in judicial proceedings.' '' (Citations omitted.) The
court ``need only conclude that the interpretation is a reasonable
one,'' citing Chevron v. Natural Resources Defense Council, 467 U.S. at
845.
The Department of Energy repayment policy is set forth in
Department of Energy Order No. RA 6120.2, dated September 20, 1979. The
Opinion cites Section 12(a)(1) of DOE Order No. RA 6120.2 (Sept. 20,
1979), which states that rates for a power system are ``* * * adequate
if, and only if, a power repayment study indicates that * * * expected
revenues are at least sufficient to recover,'' inter alia, ``* * *
(a)ll costs of operating and maintaining the power system during the
year in which such costs are incurred.''
The General Counsel concludes in the Opinion that, ``On a
practical, common sense level, there seems little room to dispute that
the full amount of the retiree benefits is a `cost' of hiring the
employees to operate and maintain the PMA power systems.'' (Opinion, p.
5.) The General Counsel further reasoned that ``* * * recovering those
costs in rates is entirely consistent with the congressional objective
that the PMA's operate on fiscally self-supporting basis.'' Ibid, at 5.
Also, by way of analogy, The Opinion notes that:
Similarly, FERC has recognized that the obligation for such
retiree benefits is legitimately treated as a cost. For example,
FERC recognizes, as a component of cost-based rates, allowances for
prudently incurred cost of post-retirement benefits other than
pensions (PBOPs) that are consistent with the accounting principles
set forth in FASB Statement No. 106 (1991) 61 FERC para. 61,330, at
62,200 (1992). Opinion, p. 5.
The Opinion also notes that, at present, the ``four PMA's are
recovering in rates the cost of their own direct contributions to the
three OPM funds with respect to their own employees'' as well as
``power-related generation and maintenance expenses of the Corps * *
*.'' Such Corps costs ``include contributions'' by the Corps of
Engineers ``to the OPM Funds to the extent Corps of Engineers employees
conduct these functions.'' The Opinion concludes that ``[t]hus there is
no question as to the authority to include in rates the agency funded
contributions to these funds.'' (Opinion, p. 6). It also notes that
although ``PMA rates generally have not reflected the cost to the
Government of the unfunded liability related to the Retirement Fund or
post-retirement health and life insurance benefits,'' however the
``Alaska Power Administration, has recovered these costs in rates since
FY 1991.'' Also, the Western Area Power Administration rates included
these costs for two years (FY 1992 and 1993). (Opinion, p. 6).
Western Area Power Administration included retirement costs as a
function of operation and maintenance expense. Notice of proposed Salt
Lake City Integrated Project Rates (56 FR 47203; September 18, 1991);
and Notice of Boulder Canyon Project Rate Adjustment (57 FR 61,074,
61,080, December 23, 1992).
DOE's Order RA No. 6120.2 holds power rates are adequate only it
they recover all costs of operating and maintaining the power system.
Employee salaries and post-retirement personnel benefits are in
Southeastern's opinion in the nature of operating costs.
The General Counsel elaborates by stating:
The relevant statutory text provides that the PMA's must set
rates that fully recover costs. Because the statutes provide
direction as to how the agencies are to interpret the term ``costs''
and leave considerable discretion to the PMAs (including
[[Page 53412]]
Southeastern) in applying the standard, it is entirely reasonable
for the PMAs to interpret costs to include all employer costs of
employee retirement benefits. The PMA rate practices to date
acknowledge that PMA customers bear responsibility for some of the
Government's costs of post-retirement benefits for PMA employee and
for the power operations employees of the Bureau (of Reclamation)
and the Corps. DOE policy, (Financial Accounting Standards Board)
FASB principles, and FERC ratemaking policy indicate the inclusion
in rates applicable for a given period of all employer costs
accruing in that period is a reasonable interpretation of the
statutory obligation to recover costs. A reasonable interpretation
adopted by DOE and the PMA's is entitled to judicial deference. On
these grounds, we conclude that it is within the discretion of the
PMA Administrators to include in rates the allocated
undercollections for post-retirement benefits. (Opinion, pp. 6-7).
The General Counsel also determined that the ``flow of rate revenues
for * * * Southeastern * * * is governed by the Flood Control Act of
1944'' which provides that ``[a]ll moneys received from * * *
(electric) sales shall be deposited in the Treasury of the United
States as miscellaneous receipts.'' 16 U.S.C. 825s and that, ``any
monies received in rates to recover the costs of unfunded liabilities
would be deposited directly into the miscellaneous receipts fund of the
Treasury, and could not be expended without further appropriation. See
31 U.S.C. 3302(b).'' (Opinion, p. 7). For these reasons, Southeastern
has included these costs in the repayment study and in the rates that
Southeastern proposes to charge the customers.
10. Comment: FERC ratemaking requirements imposed upon regulated
electric and natural gas utilities derived from Statement 106 of the
Financial Accounting Standards Board (FASB) including establishment of
an ``irrevocable external trust fund'' to receive monies collected as
post-retirement benefit costs in these rates should apply to
Southeastern and the other PMAs.
Response: At the outset it should be recognized that the
jurisdiction conferred by The Federal Power Act (FPA) (18 U.S.C. 824 et
seq.) upon FERC to regulate electric and natural gas public utilities
does not apply to the PMAs. Jurisdiction to review PMA rates is
conferred and limited by a delegation from the Secretary of Energy to
FERC. See Department of Energy Delegation Order No. 0204-108, as
amended. 58 F. R. 59716 (November 10, 1993). For example, the
Commission recognizes that, as to the FPA's prohibition regarding
``retroactive ratemaking'', ``* * * [it] does not apply to PMAs
including Southeastern (Power Administration), that operate subject to
a different statutory and regulatory scheme''. U.S. Department of
Energy--Southeastern Power Administration 55 FERC para. 61, 016, p.
61045 (1991), appeal pending sub nom. Central Electric Power Corp. v.
Southeastern, Civil No. 3-91-2449-0 (D. S. C. Filed August 15, 1991).
See also: US Department of Energy-Southwestern Power Administration, 56
FERC para. 61,398, p. 62,469 (1991) and U.S. Department of Energy,
Western Area Power Administration, 65 FERC para. 61,186, p. 61,914
(1993). Since Southeastern is not a regulated public utility under the
FPA, the ratemaking requirements of FERC advocated by the responder
should not be applied herein.
Also because Southeastern is required by Flood Control Act of 1944
as well as the Miscellaneous Receipts Act (31 U.S.C. 3302) to deposit
all monies received to the Treasury of United States as miscellaneous
receipts, it is not possible for Southeastern to establish an
``irrevocable external trust fund'' for these monies as FERC has in
some instances required of regulated electric and gas public utilities.
11. Comment: Collection of full CSRS costs as proposed in
Southeastern's rates and deposit to the U.S. Treasury will constitute
an illegal augmentation of appropriations.
Response: Although the Opinion does not directly address this
comment, it noted, however, that, ``In 1969, Congress addressed the
problem of potential shortfalls in the sufficiency of funding for
retiree benefits by authorizing a permanent indefinite appropriation
for transfer of general funds from the Treasury,'' (Opinion p. 2),
citing 5 U.S.C. 8348(f). The Opinion concludes that the 1969 Act
``authorizes appropriations to the Retirement Fund to finance the
unfunded liability created by new or liberalized benefits payable from
the Fund, extension of the coverage of the Fund to new groups of
employees, or increases in pay on which benefits are computed.''
(Opinion, p.2.)
It was found that, ``All PMA rate revenues are required to be
deposited in a statutorily specified fund or account of the Treasury,''
and that ``(p)ursuant to Flood Control Act requirements, monies
received from power rates to recover costs of unfunded liabilities from
power marketed by Southeastern and SWPA'' are to ``* * * be deposited
into the general fund of the Treasury as miscellaneous receipts.'' The
Opinion concludes that such deposits to miscellaneous receipts would
``therefore offset the appropriation for unfunded liability made to the
OPM Funds,'' from the general fund of the Treasury. (Opinion p.10).
By adoption of Public Law 91-93 of Oct. 20, 1969, 5 U.S.C. 8348 (f)
and (g), ``Congress made it clear that increases in the unfunded
liability of the Civil Service Retirement Fund were not to be
permitted.'' In the matter of Dr. Katsura Fukui, (B-191321), 58 Comp.
Gen. 115, 118 (November 30, 1978). The Comptroller General explained
such unfunded liability would be avoided by the addition of subsections
(f) and (g) of the 1969 Act which authorizes appropriations to the
Civil Service Retirement Fund to fund the ``new liability'' under ``any
statute authorizing new or more liberal annuity payments, extension of
retirement coverage to new groups, or increases in the pay used to
compute retirement benefits.'' Id. at p. 118. The Comptroller General
also said that ``Taken together, these provisions express a
congressional mandate limiting further increases to the unfunded
liability of the Retirement Fund.'' See Senate Report 91-339, 91st
Cong., 1st Sess., August 1, 1969. Id.
Since Congress provided for a permanent indefinite appropriations
(ie: without imposing a dollar ceiling on a particular fund) for the
transfer of general funds from the Treasury to address the unfunded
utility of the CSRS, the augmentation of appropriations prohibition
would not apply. Rather the reason for such a prohibition is to:
``* * * protect Congress' power of the purse and its prerogative
to determine the level at which an agency of Federal program may
operate.'' See Nolan: Public Interest, Private Income: Conflicts and
Control Units on the Outside Income of Government Officials, 87 Nw.
U. L. Rev. 57, 122 (1992).
Again, in this instance, Congress has addressed an ongoing problem
by placing no dollar limits on appropriations from the general fund (or
derived from miscellaneous receipts) to assure full funding of these
employee benefits. Southeastern is depositing the revenues to
miscellaneous receipts, no funds are remitted to OPM, and therefore
there is no augmentation of appropriations.
12. Comment: Southeastern's proposed increase in PMA rates to
collect post-retirement benefits is an unexplained departure from
previous interpretations.
Response: The Opinion acknowledges Congress's 1969 effort to
address the ongoing problem of agencies' underfunding of retiree
benefits under the Civil Service Retirement Act and other acts.
(Opinion, p. 2) The Opinion concludes `` * * *that the PMA's have
sufficient statutory authority to include
[[Page 53413]]
these costs in their rates and can deposit such funds into an
appropriate Treasury account so as to effectively offset the
appropriations made to the OPM funds from which these post-retirement
costs are paid to retirees.'' Id., at p. 2. By passing Public Law 91-93
of Oct. 20, 1960, (5 USC 8348 (f) & (g)) Congress made it clear that
further increases in the unfunded liability of the Civil Service
Retirement Fund were not to be permitted and, as demonstrated in the
legislative history, there is a Congressional mandate limiting such
increases in unfunded liability. See Senate Report 91-339, 91st
Congress 1st Sess., August 1, 1969.
The Southeastern Power Administration like non-Federal enterprises
must be mindful of the Generally Accepted Accounting Principles adopted
by the Financial Accounting Standards Board. PMAs are required by
Section 6(a) of DOE Order No. RA 6120.2 to use ``accounting practices''
in ``accordance'' with Financial Accounting Standards Board principles.
FERC, for example, regards RA 6120.2 and its accounting principles and
Financial Standards as a substantive regulation binding upon BPA when
FERC reviews BPA's rates under Section 7(a)(2) of the Northwest Power
Act, 16 U.S.C. 839(e)(a)(2). See: U.S. Department of Energy, Bonneville
Power Administration 72 FERC para. 62,045, p. 64,064, fn. 4 (1995); 67
FERC para. 61,351, p. 62,217, fn. 8 (1994); 65 FERC para. 62,179, p.
64,396, fn. 4 (1993); and 64 FERC para. 61,375, p. 63,606, fn. 5
(1993).
In the view of Southeastern and DOE, Section 6(a) of DOE Order No.
RA 6120.2 requires the PMAs to use accounting practices consistent with
the Generally Accepted Accounting Principles prescribed by the
Financial Accounting Standards Board. The requirement to set rates
consistent with this DOE order has been judicially recognized. E.g.
Overton Power Dist. No. 5 v. Watkins, 829 F. Supp.1523, 1530 n.5 (D.
Nev.1993).
The Financial Accounting Standards Board (FASB) in December 1985
established standards for financial reporting and accounting of
employee pension benefits. The standard is Statement of Accounting
Standards No. 87 (FAS 87). Under FAS 87, ``a company must recognize
future pension benefits earned by current employees as current pension
costs rather than when the pension benefits are actually paid.''
Southwestern Bell Telephone Co., Missouri Public Service Commission.
(case No. TC-93-224), 2 Mo. P.S.C. 3d 479; 1993 Mo. P.S.C. Lexis 62
(Dec. 17, 1993).
The Opinion, likewise, notes FAS 87, stating (1) ``The Financial
Accounting Standards Board (FASB)'' by ``FASB Statement No. 87 (1990)''
has ``issued rules and audit procedures for pensions'' and that (2)
``FASB 87 recognizes that unfunded pensions promised to current and
retired employees are actual liabilities'' so that there must be
``recognition as a cost in any period of ``the actuarial present value
of benefits attributed by the pension benefit formula to employee
service during the period.'' Opinion at p. 5, f.n. 5.
In 1991, the Financial Accounting Standards Board issued FAS No.
106, (``FAS 106''). This ``changes generally accepted accounting
principles * * * for post-retirement, medical and life insurance
benefits from accounting on a pay-as-you-go basis to an accrual
basis.'' Pennsylvania Public Utility Commission v. Metropolitan Edison
Company. Case No. R-00922314) 78 Penn, PUC 124; 141 P.U.R. 4th 336
(January 21, 1993).
Prior to FAS 106, ``most companies expensed these benefits as they
were paid.'' Puget Sound Power and Light Co., (Docket No. UE-920433)
(Washington Utilities and Transportation Commission), 147 P.U.R. 4th 80
(September 21, 1993).
In this connection, it should be noted that the Federal Government
since 1969 has operated in essentially the same manner. It has
established a general indefinite appropriation from the Federal
Treasury to the Civil Service Retirement Fund of amounts needed to fund
retiree benefits not covered by employer-employee contributions to the
Fund.
The Opinion also addressed FAS 106, stating: ``the FASB in
``December 1990'' by ``FASB Statement No. 106'' recognized post-
retirement benefits to be broader than simply pensions.'' The General
Counsel stated, the FASB issued ``standards, regarding post-retirement
benefits other than pensions,'' and that ``post-retirement benefits
include post-retirement health care and life insurance provided outside
a pension plan to retirees * * *.'' (Opinion, p. 5, fn. 5).
The General Counsel concluded stating that, ``(a) post-retirement
benefits are part of the compensation paid to an employee for services
rendered,'' citing FASB 106.18. (Ibid at 5, fn. 5). This was so because
the General Counsel was of the view that (1) ``the (FASB) believes that
the cost of providing the benefits should be recognized over those
employee service periods,'' citing FASB 106.03 and (2) ``(b)ecause the
obligation to provide benefits arises as employees render services.''
(Opinion, p. 5, f.n. 5).
Southeastern did not in prior rate proceedings include the unfunded
portion of employee benefit costs in its rates. It does so now in light
of Administration policy as set forth in and confirmed by General
Counsel Sullivan's Opinion.
Also, the non-collection of these costs by the PMAs has recently
received ongoing congressional scrutiny and criticism. See e.g.:
Reports of United State General Accounting Office: Power Marketing
Administrations: Repayment of Power Cost Need Closer Monitoring (GAO/
AIMED-98-164, June 30, 1998), Federal Electricity Activities: The
Federal Government's Net Cost and Potential for Future Losses, volumes
1 and 2 (GAO/AIMD-97-110 and 110A, September 19, 1997), Addressing The
Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year
1998 (GAO/O.G.-97-2, March 14, 1997), Power Marketing Administrations:
Cost Recovery Financing, and Comparison to Nonfederal Utilities, (GOA/
AIMD-96-145, September 19, 1996). The Opinion also acknowledges the
Administration's FY 1998 budget documentation that states that,
``starting in FY 1998'' Southeastern (and two other PMAs) ``* * * will
set rates, consistent with current law, to begin to recover the full
cost of the Civil Service Retirement system and post-retirement health
benefits for its employees that have not been recovered in the past.''
(Opinion, p. 1). This seems to implement the 1969 Congressional effort
to deal with ongoing underfunding problems in this regard.
The Opinion reviews; (1) legal and statutory authorities; (2)
establishment of a reasonable interpretation of ``cost'; and (3) DOE
and FERC policy on ratemaking and rate practices of PMAs. The Opinion
states that:
Given the PMA's previous practice of not securing recovery in
rates of the unfunded portion of employee retirement benefits, it
may be argued that the PMAs' inclusions of such costs now would
represent a change in agency interpretation. We do not understand
this practice, however, to have been premised on an articulated
legal judgment that it would be legally impermissible. (Opinion,
p.).
The Opinion further states in regards to current and past rate
practices of PMAs that:
At present, the four PMA's are recovering in rates the cost of
their own direct contributions to the three OPM funds with respect
to their own employees. They also are recovering in rates the power-
related operation and maintenance expenses of the Corps and the
Bureau, which we understand to include contributions by those two
agencies to the OPM funds to the extent that
[[Page 53414]]
their employees conduct these functions. Thus, there is no question
as to the authority to include in rates the agency-funded
contributions to these funds.
The PMA rates generally have not reflected the cost to the
Government of the unfunded liability related to the Retirement fund
or post-retirement health and life insurance benefits. However, the
Alaska Power Administration has recovered these costs in rates since
FY 1991, and WAPA rates included these costs for two years (FY 1992
and FY 1993). (Opinion, p. 6)
Given the current and prior recoveries of these funds it is clear that
no ``articulated legal judgment'' was in place to bar to the inclusion
of such costs in rates. Rather the proposal here is to comply with a
congressional mandate that these costs be recovered in accordance with
the law and DOE Order No. RA 6120.2 that Southeastern establish its
rates in accordance with generally accepted accounting principles as
enunciated by the Financial Accounting Standards Board.
13. Comment: The estimates of the CSRS costs and pensions health
benefits cost that are funded by the Office of Personnel Management are
not accurate.
Response: Southeastern estimated the CSRS and pensions health
benefits cost of the Corps of Engineers and Southeastern that are
funded by the Office of Personnel Management by analyzing the
computation of the General Accounting Office discussed in their report
Power Marketing Administrations: Cost Recovery Financing, and
Comparison to Nonfederal Utilities (GAO/AIMD-96-145). The relevant
excerpt from this General Accounting Office Report is designated
Appendix III at page 100 of the Report. The GAO ``Estimated 1995
Pension and Postretirement Health Benefit Costs Not Recovered from
Power Customers.'' They state ``GAO estimates based on information
provided by the PMA's, operating agencies and OPM.'' Southeastern
recomputed the data using similar methodology. Southeastern received
data on the hours allocated to power at the different projects in the
Georgia-Alabama-South Carolina System and the percentage of employees
that are covered by the CSRS for fiscal year 1995. Health Benefits were
estimated by multiplying the number of Full Time Equivalents (FTEs) for
Southeastern and the Power FTEs for the Corps of Engineers by the
Federal Employee Health Benefits Plan (FEHBP) participation percentage
(82%). The product was then multiplied by $1,973, which is the FY 1995
estimated cost of post-retirement health benefits provided to GAO by
the OPM. The estimated annual health benefits costs for Southeastern
and the Corps are $565,000 per year ($61,000 for Southeastern, $504,000
for the Corps). CSRS costs were estimated by multiplying the
Southeastern and Corps payroll expenses for FTEs covered under CSRS
times the estimated percentage shortfall by which combined employee and
employer contributions toward CSRS pensions fell short of the normal
cost of these pensions in FY 1995. The estimated percentage shortfall
as provided by OPM for 1995 was 11.14 per cent. The estimated annual
unrecovered pension benefits costs for Southeastern and the Corps are
$970,000 per year ($109,000 for Southeastern, $861,000 for the Corps).
The total estimated annual expenses for CSRS and pension health
benefits for Southeastern and the Corps is $1,535,000 per year.
Southeastern and the other Power Marketing Administrations are
requesting more accurate numbers from the Corps of Engineers in the
future.
14. Comment: Richard B. Russell pumped storage unit costs should be
included only if the units are declared commercially operable first.
Response: One responder made several legal arguments about the
ability of Southeastern to include the costs of the pumping units at
the Richard B. Russell project prior to the time that the project is
declared commercially operable. Southeastern has made no attempt to
determine whether it is possible to include the costs in the study.
However, Southeastern agrees with the responder that the project should
be declared commercially operable before the costs are included in the
repayment study. Accordingly the costs of the pumping units at the
Richard B. Russell have not been included because the present estimate
of the earliest time that the units could be declared commercially
operable is after September 30, 1998. Southeastern will file for
increased rates that include the costs of the pumping units as soon as
the units are declared commercially operable.
15. Comment: If the Richard B. Russell pumped storage units costs
are included, they should be phased in over a 5 year period.
Response: Southeastern has determined not to include the costs of
the pumping units in the present rate adjustment. At the time of the
next rate proposal, interested parties will have the opportunity to
comment on the advisability of phasing in the rate increase.
16. Comment: If the Richard B. Russell pumped storage units costs
are included, Southeastern should review the costs with the Corps of
Engineers to make sure they are appropriate.
Response: Southeastern has determined not to include the costs of
the pumping units in the proposed rates.
17. Comment: If the Richard B. Russell pumped storage units costs
are included, the environmental litigation and mitigation costs should
not be included in the amount allocated to power.
Response: Southeastern has made no attempt to determine the
environmental litigation and mitigation costs and whether they should
be included in the rates. Southeastern believes this issue should be
addressed when the costs are included in a future rate filing.
18. Comment: If the Richard B. Russell pumped storage units costs
are included, the interest during construction from the period from
March 1993 until the units are declared commercially operable should
not be allocated to power and should not be recovered in the rates.
Response: This issue is under discussion between the Corps of
Engineers and Southeastern. Southeastern believes this issue should be
readdressed when the costs are included in a future rate filing.
19. Comment: If the Richard B. Russell pumped storage units costs
are included, the repayment study should be corrected to show that 260
megawatts will be marketed.
Response: Southeastern is in the process of examining the reserves
and losses in all marketing areas of the Georgia-Alabama-South Carolina
System. If reserves or losses have been inappropriately taken out of
the capacity marketed Southeastern will restore them.
20. Comment: Southeastern should demonstrate that depreciation and
interest for marketing expense capital expenditures are included in
Southeastern's marketing expense component of the rate and not the
capital expenditure lump sum.
Response: Financial statements for the Southeastern Federal Power
Program are prepared in accordance with Generally Accepted Accounting
Principles, including computation of depreciation and interest in
Southeastern marketing expense and capitalizing items with a useful
life of more than one year. Southeastern has received an unqualified
opinion from its auditors since 1991.
21. Question: Does Southeastern foresee any other specific changes
which would affect marketing expense, but are not in the 1999-2003
study?
[[Page 53415]]
Response: Marketing expenses have been changing markedly over the
past few years primarily because of the Open Access Tariff orders
promulgated by the Federal Energy Regulatory Commission. These changes
have been complex and dramatic. Southeastern believes that changes like
these may continue because of the volatility of the industry. However,
Southeastern does not know of any specific changes which would affect
the marketing expense.
22. Comment: Southeastern should return the losses to the customers
that gave up the losses beginning in October 1, 1996.
Response: Southeastern agrees and plans to return the capacity to
the customers in the Southern Company area during fiscal year 1999. The
repayment study includes the return of the capacity effective the
beginning of fiscal year 2000.
Environmental Impact
Southeastern has reviewed the possible environmental impacts of the
rate adjustment under consideration and has concluded that, because the
adjusted rates would not significantly affect the quality of the human
environment within the meaning of the National Environmental Policy Act
of 1969, the proposed action is not a major federal action for which
preparation of an Environmental Impact Statement is required.
Availability of Information
The rates hereinafter confirmed and approved on an interim basis,
together with supporting documents, will be submitted promptly to the
Federal Energy Regulatory Commission for confirmation and approval on a
final basis for a period beginning on October 1, 1998, and ending no
later than September 30, 2003.
Order
In view of the foregoing and pursuant to the authority delegated to
me by the Secretary of Energy, I hereby confirm and approve on an
interim basis, effective October 1, 1998, attached Wholesale Power Rate
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1,
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1. The Rate Schedules shall
remain in effect on an interim basis through September 30, 2003, unless
such period is extended or until the FERC confirms and approves them or
substitute Rate Schedules on an final basis.
Dated: September 18, 1998.
Elizabeth A. Moler,
Deputy Secretary.
[FR Doc. 98-26463 Filed 10-2-98; 8:45 am]
BILLING CODE 6450-01-P
