02-4025. Pick-Sloan Missouri Basin Program (P-SMBP), Eastern and Western Division Project Use Power Rate Adjustment

AGENCY:

Bureau of Reclamation, Interior.

ACTION:

Approval of new rate for Pick-Sloan Missouri Basin Program (P-SMBP), Eastern and Western Division Project Use Power.

SUMMARY:

The Bureau of Reclamation (Reclamation) determined, after public input, that the proposed P-SMBP project use power rate of 10.76 mils/kWh is approved and will become effective 30 days after this notice is published.

DATES:

The P-SMBP project use power rate of 10.76 mils/kWh will become effective March 22, 2002.

ADDRESSES:

All booklets, studies, comments/letters that were utilized to develop the rate for project use power are available for inspection and copying at the Great Plains Regional Office, located at 316 North 26th Street, Billings, Montana 59101.

FOR FURTHER INFORMATION CONTACT:

Kent Heidt at [phone].

SUPPLEMENTARY INFORMATION:

Power rates for the P-SMBP are established pursuant to the Reclamation Act of 1902 (43 U.S.C. 371 et seq.), as amended and supplemented by subsequent enactments, particularly Section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)) and the Flood Control Act of 1944 (58 Stat. 887).

The project use power rate will be reviewed by Reclamation each time Western Area Power Administration (Western) adjusts the P-SMBP Firm power rate. Western will conduct the necessary studies and will use the same Reclamation-established methodology that was used to develop the 10.76 mils/kWh rate to calculate any new rate. The P-SMBP project use rate will be adjusted by Reclamation when Western adjusts the P-SMBP Firm power rate.

Explanation of Public Comment Format

Reclamation published a Federal Register notice on December 18, 2000 (65 FR 79122, Dec. 18, 2000) stating our intent to adjust the project use power rate with a 30-day written comment period ending on January 17, 2001. Reclamation published another Federal Register notice on January 16, 2001 (66 FR 3611, Jan. 16, 2001), that extended the comment period to February 26, 2001. A total of 18 letters with written comments were received during the comment period.

Project Use Power Rate Adjustment Comments

The following comments were received during the public comment period. Reclamation paraphrased and combined comments when it did not affect the meaning. Reclamation's response follows each comment.

Comment: Reclamation should grant a 60-day extension of time for comments on proposed P-SMBP project use power rate adjustment.

Response: The comment period was extended by Federal Register notice dated January 16, 2001 (66 FR 3611, Jan. 16, 2001), to February 26, 2001, a 41-day extension.

Comment: The rate adjustment is the first step in a base rate change for all projects utilizing P-SMBP project use power.

Response: The “Flood Control Act of 1944” (Act) provides for a 2.5 mils/kWh project use power rate which was considered at that time to cover the cost of generation, transmission, and distribution while at the same time be within the irrigators ability to pay. The Act does not preclude rate adjustments, within ability to pay. The rate for project use power will be adjusted to reflect actual operating, maintenance, and replacement (OM&R) costs, subject to ability to pay. In all cases the rate will not be less than 2.5 mils/kWh.

Comment: The rate adjustment has the potential to put irrigation units out of business.

Response: As it has been the case with project use power contracts initially executed by this Region, the pumping power contractors will pay according to ability-to-pay. Should a district's ability to pay not increase, irrigators will continue to pay 2.5 mils/kWh. The water contracts will contain a 5-year ability-to-pay review provision consistent with Reclamation-wide policy following the Office of Inspector General Audit “Repayment of Irrigation Investments by Water Districts: 93-1468,” issued February 8, 1993.

Comment: The rate adjustment is a major policy change in the manner in which wheeling costs and ability-to-pay are applied to the rate.

Response: The rate adjustment does not result from any change in policy concerning the inclusion of wheeling costs in the project use power rate or the application of ability to pay these costs. The Act contains the rationale and congressional intent for incorporating wheeling costs in the project use power rate as well as applying the ability-to-pay concept to irrigation pumping power costs.

Comment: Third party wheeling costs will be transferred from the irrigators to all preference power customers due to ability to pay. Third party wheeling costs are being reclassified as annual O&M expenses.

Response: The intent of P-SMBP was to provide power to the pump. The 2.5 mils/kWh project use power rate was established under the assumption that energy would be transmitted and distributed to the pump over federally owned lines. If Reclamation had built its own lines all the way to the pumps, OM&R would be included in the basic pumping power rate. Therefore, wheeling costs will be included similarly as if Reclamation had built the lines.

Comment: Including wheeling costs in the project use power rate opens the door wide for further cost reallocation on other irrigation costs.

Response: No. Reclamation law generally requires that districts pay all power and water OM&R costs. However, the Pick-Sloan program is unique due to SD 191's application of ability to pay to power, i.e., irrigation pumping power. Since the mid-1970's, the difference between the 2.5 mil irrigation pumping power rate set in 1944 and full OM&R costs has been incorporated into the preference power rate.

Comment: Reclamation should provide the legal basis for the charge and enunciate a clear policy for treatment of costs related to P-SMBP irrigation projects.

Response: General Reclamation law requires that districts pay all power and water OM&R costs. The P-SMBP has a unique legal provision, the application of ability-to-pay to project use power. A rate adjustment does not affect the treatment of cost related to P-SMBP irrigation projects.

Comment: Reclamation shall provide clear justification for the proposed cost transfer and explain how the original congressional intent with respect to cost/benefit evaluation can be justified as legal.

Response: On P-SMBP projects the Congress intended that there be a substantial subsidy for irrigation development and made special allowance for the payment of power costs to assure success on those projects that required pumping to provide 10 feet of head at the farm turnout. The October 31, 1947, memorandum from the Acting Assistant Commissioner states: “In the event Reclamation elects to provide service by wheeling arrangements, Reclamation should properly make arrangements for wheeling service and absorb the cost thereof as an operation expense. Such is merely an expense in lieu of the costs of providing service over federally owned facilities.”

Comment: Reclamation's proposed methodology for determining the project use power rate does not properly reflect all costs and accounting for those costs. Spreading the irrigation third party wheeling costs across all P-SMBP Firm power sales artificially reduces the proposed project use power rate to 10.76 mils/kWh. If third party wheeling costs for P-SMBP irrigation projects were properly allocated only to P-SMBP irrigation projects, the project use power rate would be almost 18 mils/kWh. That methodology and resulting rate would establish an accurate project use power rate. Reclamation should adopt the methodology that properly classifies third party wheeling as a component of irrigation sales and not based on total P-SMBP sales.

Response: The proposed rate of 10.76 mils/kWh has all current OM&R costs, including wheeling, from the three Federal agencies spread over all the sales, not just irrigation sales. Third party wheeling cost for project use power, along with other Federal wheeling costs, is considered the same as any other OM&R expense in the P-SMBP power repayment study.

Comment: Using the methodology that spreads third party wheeling costs only over irrigation sales will ensure proper accounting and not adversely affect the irrigators.

Response: Reclamation will spread the third party wheeling for project use power over the entire rate structure just as if the power were wheeled over Federal lines.

Comment: The methodology of the ability-to-pay studies seems seriously flawed as private irrigation districts in the same area of irrigation units receiving P-SMBP project use power are currently paying as much as 30 times the project use power rate and pay 100 percent of the capital costs of their project, but 20 percent is typical repayment for a P-SMBP irrigation unit.

Response: The methodology for ability to pay is a form of recognized farm budgeting techniques employed by USDA, the Cooperative Extension Service, and other entities. The assertions that other projects can pay their full costs appear to be anecdotal, and no definitive studies have been put forth that make a full comparison of the fixed and variable costs of like farm enterprises in the private and Federal sector. Farm budget studies for Reclamation ability-to-pay analysis first account for all on-farm expenses, including on-farm irrigation expense. It is out of the remaining net farm income that district operating expense, project capital, and project use power are paid. Farms using groundwater or pumping out of surface streams do not have large distribution system capital and operating expenses assigned to them as do Reclamation projects.

Comment: The 1999 Power Repayment Study used as a basis for the proposed rate shows an annual decrease in energy sales due to depletions associated with future irrigation development, but Reclamation has stated most irrigation developments are no longer feasible; therefore, the ultimate development concept should be changed and more realistic energy numbers used throughout the repayment period.

Response: Regardless of the current economic feasibility of future P-SMBP irrigation development, Federal statutes require that the ultimate development concept remain the standard by which the economic, financial, and hydrologic assumptions are incorporated into overall P-SMBP financial analyses. Reports to the Congress on future project feasibility have not resulted in any legislation that would permit changes. Moreover, removing the depletions because of implied infeasibility would also have to be accompanied by removing the irrigation investment associated with those depletions and changing the cost allocations, including suballocation of investment associated with project use power and reservoir storage. All of these components are interrelated to ultimate development and cannot be treated separately.

Comment: Replacement costs in the power repayment study for year 2000 to 2099, appear high ($2,638,052,924) compared to the actual historical expenses for 1950 to 1999 ($159,391,916).

Response: Historical costs were booked at their acquisition cost. Reclamation's construction cost index shows that the powerplant cost index has gone from 26 in 1950 to 231 in 1999, over an 800 percent increase. Comparing today's cost with historical costs on a nominal basis will generally show today's costs to be higher because of inflation alone. Comparison would have to be done in constant dollar values to draw any meaningful conclusions.

Comment: The power repayment study shows an investment of $1.3 billion from 1970 to 1998, and commentor believes the additional investment is mostly due to transmission costs for preference customers as most of the power system to serve irrigation was in place prior to 1970. The commentor recommends that Reclamation not utilize all the investment costs since 1970, as those costs are a benefit to firm power customers. If all the investment costs and associated OM&R costs were not utilized in the study the proposed rate would be different (lower).

Response: The system as a whole is integrated and irrigation would most likely be as affected by outages on the grid as the commercial customers, regardless of whose load caused the outage. Since irrigation pumping would benefit from overall increased reliability, it should share in the cost of those benefits. Seventy-six million of the $1.3 billion is due to the new power generation at Buffalo Bill Dam.

Comment: Peaking sales appear to decrease in the power repayment study in out years due to depletion associated with future irrigation development which we do not believe will take place.

Response: This is associated with the ultimate development concept and cannot change without congressional action.

Comment: The column titled “Other Revenue” in the power repayment study includes peaking, maintenance, and other power sales.

Response: Yes.

Comment: If adjustments were made in the study for decreased energy sales due to depletion, transmission costs since 1970, reduced replacement cost estimates, and power sales for peaking, the rate would be reduced.

Response: Yes, but depletion, which reduces energy and peaking power sales, is associated with the ultimate development concept and cannot be changed without congressional action. Additions after 1970 were for system reliability, and replacement dollars are current-day dollars instead of inflated dollars.

Comment: Congressional intent was that the project use power rate remains at 2.5 mils/kWh.

Response: In 1944, 2.5 mils/kWh was sufficient to cover OM&R costs. OM&R costs have significantly increased, and since the Act does not direct that the project use power rate be fixed, but only be “within” the ability-to-pay, the rate is being adjusted to reflect current costs.

Comment: A project use power rate adjustment would discourage new irrigation development and jeopardize existing projects.

Response: Existing projects and new irrigation developments currently authorized, will pay subject to their ability to pay. Newly authorized projects will be subject to the new project use power rate subject to specific legislation.

Comment: Instead of a rate adjustment, Reclamation should take a lead role in securing additional P-SMBP power for new and existing irrigation projects as well as individual irrigators.

Response: With respect to construction of any new projects or inclusion of existing non-Federal projects into the P-SMBP, Reclamation must operate according to its congressionally mandated authority.

Comment: Reclamation has chosen not to conduct ability-to-pay tests on P-SMBP irrigation projects in conjunction with its proposed rate adjustment, yet states the application of the ability to pay will reduce the rate to the current level of 2.5 mils/kWh.

Response: Over the past several years, ability-to-pay studies have been conducted on 10 irrigation units and updated on 3 others. Twelve of the 13 studies found no additional ability to pay. One unit had a small increase in ability to pay. Some existing and all renewed repayment and water service contracts will contain requirements for periodic reviews of ability to pay, normally accomplished on a 5-year basis, in accordance with the Commissioner's “Ability-To-Pay Policy” dated July 7, 1999. The periodic reviews will be used, along with published agricultural statistics, as indicators of economic conditions; if they indicate the likely potential of additional ability to pay, it would lead to ability-to-pay studies for project use power contractors.

Comment: Since Reclamation intends to maintain the effective project use power rate at 2.5 mils/kWh, through application of the ability-to-pay test, what is the purpose of Reclamation's proposed rate adjustment?

Response: While present economic conditions create depressed agriculture and the majority of the irrigators will pay 2.5 mils/kWh, the adjusted rate will allow Reclamation to capture additional revenues if and when the economics of agriculture improve. It will also provide current rate structure for use in decisions and legislation related to proposed new projects. Reclamation is required to have accurate numbers for operations, maintenance, and replacement costs.

NEPA

In compliance with the National Environmental Policy Act of 1969 (NEPA), 43 U.S.C. 4321 et seq. Council on Environmental Quality Regulations (40 CFR parts 1500-1508); and the Department of Energy's NEPA Implementing Procedures (10 CFR part 1021), Reclamation has determined that this action is categorically excluded from the preparation of an Environmental Assessment or Environmental Impact Statement.

Power Rate Schedules

The existing rate schedule MRB-P10 placed into effect on November 1, 1986, will be replaced by rate schedule MRB-P11. Rate Schedule MRB-P11 is as follows: Effective: 30 days after being published in the Federal Register. Location: In the areas generally described as central and eastern Montana, North and South Dakota, Nebraska, eastern Colorado, Wyoming, Kansas, western Iowa, and western Minnesota.

Applicable

For use in the operation of congressionally authorized irrigation and drainage pumping plants on irrigation projects for power service supplied through metering at specified points of delivery.

Character and Conditions of Service

Alternating current, 60 hertz, three phase, delivered and metered at the point identified in the contract upon demand during the summer irrigation season.

Availability

Available at 60 hertz at the pumping plant upon demand during the summer irrigation season.

Monthly Rate

Demand Charge: None.

Energy Charge: 10.76 mils/kWh for all energy use; subject to ability-to-pay but not less than 2.5 mils/kWh.

Seasonal Minimum Bill: $2.75 per kilowatt of the maximum 30-minute integrated demand established during service months of each year specified in the contract.

Adjustments

For Power Factor: The customer will normally be required to maintain a power factor at a point of delivery of not less than 95 percent lagging or leading.

Approval of Project Use Power Rate by the Commissioner, Bureau of Reclamation

The Commissioner approved the rate of 10.76 mils/kWh by memorandum dated January 15, 2002.

Dated: January 23, 2002.

Gerald W. Kelso,

Assistant Regional Director.