[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6344-6351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3114]
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DEPARTMENT OF ENERGY
Western Area Power Administration
[Rate Order No. WAPA-76]
Pacific Northwest-Pacific Southwest Intertie Project--Point-To-
Point Transmission Service Rates for the 230/345-kV Transmission
System--Rate Order No. WAPA-76
AGENCY: Western Area Power Administration, DOE.
ACTION: Notice of rate order.
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SUMMARY: Notice is given of the confirmation and approval by the Acting
Deputy Secretary of the Department of Energy (DOE) of Rate Order No.
WAPA-76 and Rate Schedule INT-FT3 placing provisional rates for the
230/345-kV Pacific Northwest-Pacific Southwest Intertie Project (AC
Intertie) firm point-to-point transmission service into effect on an
interim basis. The provisional rates will remain in effect on an
interim basis until the Federal Energy Regulatory Commission (FERC)
confirms, approves, and places them into effect on a final basis or
until they are replaced by other rates. The provisional rates will
provide sufficient revenue to pay all annual costs, including interest
expense, and repayment of required investment within the allowable
period.
DATES: The provisional rates will be placed into effect on an interim
basis on January 1, 1999, and will be in effect until FERC confirms,
approves, and places the provisional rates in effect on a final basis
for a 5-year period ending December 31, 2003, or until superseded.
FOR FURTHER INFORMATION CONTACT: Mr. Maher A. Nasir, Rates Team Lead,
Desert Southwest Customer Service Region, Western Area Power
Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, telephone (602)
352-2768.
SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved the
existing Rate Schedule INT-FT2 for AC Intertie firm transmission
service on January 31, 1996 (Rate Order No. WAPA-71, 61 FR 4650,
February 7, 1996); and FERC confirmed and approved the rate schedule on
July 24, 1996, under FERC Docket No. EF96-5191-000 (76 FERC para.
62,061). The existing Rate Schedule INT-FT2 became effective on
February 1, 1996, for the period ending September 30, 2002. Rate
Schedule INT-FT2 provides separate rates for firm transmission service
on the AC Intertie 230/345-kV transmission system and AC Intertie 500-
kV transmission system. This Rate Order (WAPA-76) seeks to put into
place Rate Schedule INT-FT3 that will supersede Rate Schedule INT-FT2
as it relates to 230/345-kV firm transmission service only. Under Rate
Schedule INT-FT3, the firm point-to-point transmission service rate on
the AC Intertie 230/345-kV transmission system on January 1, 1999, is
$12.00/kW/year or $1.00/kW/month and includes the cost for the
ancillary service of scheduling, system control and dispatch service.
The remaining ancillary services, which comply with FERC Order Nos. 888
and 888-A, will be provided through Western Area Power Administration's
(Western) Open Access Transmission Service Tariff, published on January
6, 1998 (63 FR 521). The provisional rate of $12.00/kW/year represents
an increase of approximately 82 percent over the existing rate for firm
transmission service on the AC Intertie 230/345-kV transmission system.
By Amendment No. 3 to Delegation Order No. 0204-108, published
November 10, 1993 (58 FR 59716), the Secretary of Energy delegated: (1)
The authority to develop long-term power and transmission rates on a
nonexclusive basis to the Administrator of Western; (2) the authority
to confirm, approve, and place such rates into effect on an interim
basis to the Deputy Secretary of Energy; and (3) the authority to
confirm, approve, and place into effect on a final basis, to remand, or
disapprove such rates to FERC.
Rate Order No. WAPA-76 was prepared pursuant to Delegation Order
No. 0204-108, existing DOE procedures for public participation in power
rate adjustments in 10 CFR Part 903, and procedures for approving Power
Marketing Administration rates by the FERC in 18 CFR Part 300. Rate
Order No. WAPA-76, confirming, approving, and placing the proposed AC
Intertie 230/345-kV transmission system firm point-to-point
transmission service rate into effect on an interim basis, is issued,
and the new Rate Schedule INT-FT3 will be submitted promptly to FERC
for confirmation and approval on a final basis.
[[Page 6345]]
Dated: January 28, 1999.
Ernest J. Moniz,
Acting Deputy Secretary.
Order Confirming, Approving, and Placing the Pacific Northwest-
Pacific Southwest Intertie Firm Transmission Service Rates Into
Effect on an Interim Basis
January 1, 1999.
These rates are developed pursuant to the Department of Energy
Organization Act (42 U.S.C. 7101 et seq.), through which the power
marketing functions of the Secretary of the Interior and the Bureau of
Reclamation under the Reclamation Act of 1902 (43 U.S.C. 371 et seq.),
as amended and supplemented by subsequent enactments, particularly
section 9c of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)),
and other acts specifically applicable to the project involved, were
transferred to and vested in the Secretary of Energy (Secretary).
By Amendment No. 3 to Delegation Order No. 0204-108, published
November 10, 1993 (58 FR 59716), the Secretary delegated: (1) the
authority to develop long-term power and transmission rates on a non-
exclusive basis to the Administrator of Western Area Power
Administration (Western); (2) the authority to confirm, approve, and
place such rates into effect on an interim basis to the Deputy
Secretary of Energy; and (3) the authority to confirm, approve, and
place into effect on a final basis, to remand, or to disapprove such
rates to the Federal Energy Regulatory Commission (FERC). Existing DOE
procedures for public participation in power rate adjustments are found
at 10 CFR Part 903. Procedures for approving Power Marketing
Administration rates by FERC are found at 18 CFR Part 300.
Acronyms and Definitions
As used in this rate order, the following acronyms and definitions
apply:
AC: Alternating Current.
AC Intertie: Pacific Northwest-Pacific Southwest Intertie Project.
Administrator: The Administrator of Western Area Power Administration
(Western).
BPA: Bonneville Power Administration.
Existing PRS: The PRS used in this rate order, which was used to test
the adequacy of the existing rate.
DC: Direct Current.
DOE: Department of Energy.
DOE Act: Department of Energy Organization Act, August 4, 1977 (42
U.S.C. 7101 et seq.).
DOE Order RA 6120.2: An order dealing with power marketing
administration financial reporting and rate-making procedures.
DSW: Desert Southwest Customer Service Region.
FERC: Federal Energy Regulatory Commission.
FRN: Federal Register notice.
FY: Fiscal Year.
kV: Kilovolt.
kW: Kilowatt.
$/kW/year: Annual charge for capacity usage--($ per kilowatt per
year).
kWh: Kilowatthour.
LCRBDF: Lower Colorado River Basin Development Fund established under
Section 403 of the Colorado River Basin Project Act of 1968 (82 Stat.
885).
MAP: Mead-Adelanto Project. A 500-kV transmission system joint
participation construction project with termination points in southern
Nevada and southern California.
MPP: Mead-Phoenix Project. A 500-kV transmission system joint
participation construction project with termination points in Phoenix,
Arizona and southern Nevada.
mills/kWh: Mills per kilowatthour.
Multi-Project Costs: These are costs for facilities being charged to
one project that benefit other projects.
MW: Megawatt.
O&M: Operations and Maintenance.
PRS: Power Repayment Study.
Proposed Rate: A rate revision that the Administrator of Western
recommends to the Deputy Secretary of Energy for approval.
Provisional Rate: A rate which has been confirmed, approved, and
placed into effect on an interim basis by the Deputy Secretary.
Ratesetting PRS: The PRS that demonstrates that potential revenue
levels will satisfy the cost.
Reclamation: Bureau of Reclamation.
Replacement: A unit of property constructed or acquired as a
substitute for an existing unit of property for the purpose of
maintaining the power features of a project.
Retirement Benefits: Civil Service Retirement Costs and Post
Retirement Health Benefits.
Secretary: Secretary of Energy.
Western: Western Area Power Administration.
Effective Date
The new rate will become effective on an interim basis on the first
day of the first full billing period beginning on or after January 1,
1999, and will be in effect pending FERC's approval of it or a
substitute rate on a final basis for the 5-year period ending December
31, 2003, or until superseded. Western is implementing a rate for firm
point-to-point transmission service on the AC Intertie 230/345-kV
transmission system only.
Public Notice and Comment
The Procedures for Public Participation in Power and Transmission
Rate Adjustments and Extensions, 10 CFR Part 903, have been followed by
Western in the development of the firm point-to-point transmission
service rate. The provisional firm point-to-point transmission service
rate for the AC Intertie 230/345-kV transmission system represents a
rate increase of 82 percent over the existing rate. This rate is
classified as a major rate adjustment as defined at 10 CFR Part
903.2(e) and 903.2(f)(1). The distinction between a minor and a major
rate adjustment is used only to determine the public procedures for the
rate adjustment. The following summarizes the steps Western took to
ensure involvement of interested parties in the rate process:
1. The first informal public information meeting was held on April
28, 1997, at the Desert Southwest Customer Service Region (DSW) office
located in Phoenix, Arizona. Approximately 13 customers of the AC
Intertie were present. Western explained the need for the proposed rate
adjustment and answered questions from those attending.
2. Western held its second informal public information meeting on
June 25, 1997, at the DSW office. Approximately 11 customers of the AC
Intertie were present. Western staff provided and discussed responses
to data requested at the first informal public meeting.
3. Western held its third informal public information meeting on
July 24, 1997, at the DSW office. Approximately 20 customers of the AC
Intertie were present. Western staff provided and discussed responses
to data requested at the second informal public meeting.
4. Western provided responses to the questions and comments raised
at the third informal customer information meeting by letter dated
January 12, 1998.
5. On April 3, 1998, Western announced in Federal Register notice
(FRN) 63 FR 16497 the start of the public process for the approval of
the proposed AC Intertie 230/345-kV transmission system firm point-to-
point transmission service rate. The FRN identified the end of the
consultation and comment period as July 2, 1998.
6. On May 4, 1998, beginning at 10 a.m., a public information forum
was held at Western's DSW office. At the start of the forum, a handout
containing
[[Page 6346]]
information regarding the updated rate was provided. Western publicly
presented the Proposed Rate for the AC Intertie 230/345-kV transmission
system, provided a detailed explanation of the changes to the Proposed
Rate, and answered questions from the public. On May 20, 1998, a
letter, responding to questions not answered at the public information
forum, was mailed to the AC Intertie customers.
7. On June 1, 1998, beginning at 10 a.m., a public comment forum
was held at Western's DSW office. Western gave the public an
opportunity to comment for the record, verbally and in written form.
Eight representatives made oral comments.
8. Twenty-four comment letters were received during the
consultation and comment period. The consultation and comment period
ended July 2, 1998. All formally submitted comments have been
considered in the preparation of this rate order.
Project Description
The AC Intertie was authorized by section 8 of the Pacific
Northwest Power Marketing Act of August 31, 1964. Originally, the AC
Intertie was to be a combined Alternating Current (AC) and Direct
Current (DC) system which was to connect the Pacific Northwest with the
southwest regions of the United States. As authorized, the overall
project was to be a cooperative construction venture between Federal
and non-Federal entities. In May 1969, the Department of the Interior
indefinitely postponed construction because of several delays in
congressional funding, revising the DC line's estimated in-service date
to the point that some of the potential users withdrew their interest.
Consequently, the facilities constructed provide only AC transmission
service.
Western's portion of the AC Intertie consists of two parts, a
northern portion and a southern portion. The northern portion is
administered by Western's Sierra Nevada Customer Service Region and is
incorporated, for repayment, with the Central Valley Project. The
northern portion consists of a 94-mile (151 km), 500-kV line from Malin
Substation (Oregon) to Round Mountain to Cottonwood Substation
(California). By agreement, the Central Valley Project has transmission
rights for 400 MW of northern Intertie capacity.
The southern portion is administered by Western's DSW office and is
treated as a separate project for repayment and operational purposes.
It consists of a 238-mile (383 km) 345-kV line from Mead Substation
(Nevada) to Liberty Substation (Arizona), a 19-mile, (31 km) 230-kV
line from Liberty to Westwing Substation (Arizona), a 22-mile (35 km),
230-kV line from Westwing to Pinnacle Peak Substation (Arizona), and
two new segments which came on-line in April 1996: the 260-mile (419
km) Mead-Phoenix 500-kV AC Transmission Line between Marketplace
Substation (Nevada) and Perkins Substation (Arizona) and the 202-mile
(325 km) Mead-Adelanto 500-kV AC Transmission Line between Marketplace
Substation and the existing Adelanto Switching Substation in southern
California.
Existing and Provisional Rates
AC Intertie Project Firm Point-to-Point Transmission Service
The following table displays the existing rates and the Provisional
Rates for the AC Intertie 230/345-kV transmission system:
Existing Point-to-Point Transmission Service Rate
[AC intertie 230/345-kV transmission system rate schedule firm point-to-point transmission rate ($ per kW/year)]
----------------------------------------------------------------------------------------------------------------
Existing (effective 10/ Percent change
Effective period 01/96 to 09/30/02) Provisional from existing rate
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01/01/99 to 12/31/03.................. $6.58/kW/Year............ $12.00/kW/Year........... 82.0
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Certification of Rate
Western's Administrator has certified that the AC Intertie 230/345-
kV transmission system firm point-to-point transmission service rate
placed into effect on an interim basis herein is the lowest possible
rate consistent with sound business principles. The Provisional Rate
has been developed in accordance with administrative policies and
applicable laws.
Discussion
AC Intertie Transmission Service
The existing AC Intertie transmission service rate schedule was
placed into effect on February 1, 1996, under Rate Order WAPA-71 (61 FR
4850) until September 30, 2002, and was approved on a final basis by
FERC on July 24, 1996. Under Rate Order WAPA-71, three types of
transmission service rates were approved and they are: (1) a rate for
firm transmission service on the AC Intertie 230/345-kV transmission
system; (2) a rate for firm transmission service on the AC Intertie
500-kV transmission system; and (3) a rate for non-firm transmission
service on both the 230/345-kV and the 500-kV transmission systems.
Western proposes, through Rate Order WAPA-76, to supersede only the
rate for firm transmission service on the AC Intertie 230/345-kV
transmission system placed in effect under Rate Order WAPA-71.
Basis for Rate Development
Two major issues have prompted the transmission rate adjustment.
First, the Provisional Rate accounts for recovery of abandoned project
costs with interest. These costs were incurred primarily between 1964
and 1969 during the planning and early construction phases of the
Celilo-Mead-Los Angeles 750-kV DC Transmission Line. In May 1969, the
Department of the Interior indefinitely postponed construction because
of several delays in congressional funding, revising the DC line's
estimated in-service date to the point that some of the potential users
withdrew their interest.
The second issue is that costs and revenues relating to the new AC
Intertie 500-kV transmission system are now being accounted for in the
Power Repayment Study (PRS). It is estimated that it will take
approximately 10 years for the AC Intertie 500-kV transmission system
to be subscribed to a level sufficient to meet its own revenue
repayment requirements. The Provisional Rate for firm transmission
service on the AC Intertie 230/345-kV transmission system takes into
account the phasing-in of the AC Intertie 500-kV transmission system
revenues starting with a revenue contribution of $1,500,000 in Fiscal
Year (FY) FY 1999, and increasing annually by $1,410,000 through FY
2008.
Power Repayment Study
As a result of phasing in the AC Intertie 500-kV transmission
system revenues, and in order to maintain a marketable rate of $12/kW/
year, annual deficits are incurred through FY 2005. These deficits
allow for the very
[[Page 6347]]
acceptable industry practice of marketing, over time, a major capitol
improvement such as the AC Intertie 500-kV transmission system. The
annual deficits incurred are all repaid by FY 2017.
Statement of Revenue and Related Expenses
The following table provides a summary of revenues and expenses for
the 5-year rate period:
AC Intertie Rate Period Revenues and Expenses
[$1,000]
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Provisional Existing rate
rate PRS FY PRS FY 1999- Difference
1999-2003 2003
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Total Revenues.......................................... 91,067 43,435 47,632
Revenue Distribution:
O&M......................................................... 20,690 13,226 7,464
Abandoned Plant............................................. 1,837 0 1,837
Interest.................................................... 91,428 22,474 68,954
Other....................................................... 4,056 1,848 2,208
Investment Repayment........................................ 0 5,887 (5,887)
Capitalized Expenses........................................ (26,943) 0 (26,943)
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The following table provides a summary of the average annual
revenues and expenses for the 5-year rate period:
AC Intertie Comparison of Period Average Annual Revenues and Expenses for FY 1999-2003
[$1,000]
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Provisional
rate average Existing rate Difference
annual average annual
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Total Revenues.......................................... 18,213 8,687 9,526
Revenue Distribution:
O&M......................................................... 4,138 2,645 1,493
Abandoned Plant............................................. 367 0 367
Interest.................................................... 18,286 4,495 13,791
Other....................................................... 811 370 441
Investment Repayment........................................ 0 1,177 (1,177)
Capitalized Expenses........................................ (5,389) 0 (5,389)
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The following table provides a summary of revenues and expenses for
the 50-year study period:
AC Intertie Cost Evaluation Rate Period Revenues and Expenses
[$1,000]
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Provisional Existing rate
rate PRS FY PRS FY 1999- Difference
1999-2049 2049
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Total Revenues.......................................... 1,369,275 441,987 927,288
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Revenue Distribution:
O&M......................................................... 222,164 132,885 89,279
Abandoned Plant............................................. 9,921 0 9,921
Interest.................................................... 497,108 81,851 415,257
Other....................................................... 23,191 12,468 10,723
Investment Repayment........................................ 269,849 116,159 153,690
Capitalized Expenses........................................ 22,550 0 22,550
LCRBDF Transfer............................................. 324,492 98,543 225,949
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The following table provides a summary of the average annual
revenues and expenses for the 50-year study period:
AC Intertie Comparison of Cost Evaluation Rate Period Average Annual Revenues and Expenses for FY 1999-2049
[$1,000]
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Provisional
rate average Existing rate Difference
annual average annual
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Total Revenues.......................................... 27,386 8,840 18,546
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Revenue Distribution:
[[Page 6348]]
O&M..................................................... 4,443 2,658 1,785
Abandoned Plant............................................. 198 0 198
Interest.................................................... 9,407 1,637 7,770
Other....................................................... 464 249 215
Investment Repayment........................................ 4,230 2,323 1,907
Capitalized Expenses........................................ 451 0 451
LCRBDF Transfer............................................. 8,192 1,971 6,221
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Comments
During the public consultation and comment period, Western received
24 written comments on the rate adjustment. In addition, eight customer
representatives orally commented during the June 1, 1998, public
comment forum. All comments received by the end of the public
consultation and comment period, July 2, 1998, were reviewed and
considered in the preparation of this rate order.
Written comments were received from the following sources:
Aguila Irrigation District (Arizona)
Arizona Power Authority (Arizona)
Arizona Public Service Company (Arizona)
BDJ Farms, LLC (Arizona)
Central Arizona Project (Arizona)
Charles A. Ditsch, Attorney at Law (Arizona)
City of Safford (Arizona)
Colorado River Commission of Nevada (Nevada)
Colorado River Energy Distributors Association (Arizona)
Electrical District No. 3 (Arizona)
Electrical District No. 5 (Arizona)
Electric Resource Strategies (Arizona)
Gladden Farms II (Arizona)
Harquahala Valley Power District (Arizona)
James N. Warkomski, P.E., R.L.S. (Arizona)
John DelMar, Electrical District No. 8 Member (Arizona)
McMullen Valley Water Conservation and Drainage District (Arizona)
Meyer, Hendricks, Bivens & Moyes, P.A. (Arizona)
Nevada Power Company (Nevada)
Robert S. Lynch, Attorney at Law (Arizona)
Salt River Project (Arizona)
Thatcher (Arizona)
Tonopah Irrigation District (Arizona)
The following is a summary of the comments received by the end of
the consultation and comment period and Western's responses to those
comments. The comments are paraphrased for brevity and responses are
presented below. Specific comments are used for clarification where
necessary.
Comment: Several commentors protested the inclusion of the
abandoned project costs relating to the Celilo-Mead-Los Angeles 750-kV
DC transmission line in the rate order stating that doing so would be
inequitable and inconsistent with the financial reporting policies,
procedures, and methodology established under DOE Order RA 6120.2. The
commentors also referenced a longstanding rate making principle that
customers should only be required to pay for facilities that are
``prudent'' investments and which are ``used and useful'' in providing
electric service.
Response: Western held the abandoned project costs from 1969 until
1993 in a deferred asset account. In 1993, these costs were booked in
Western's financial statements as an expense against Operation and
Maintenance. Western has withheld the inclusion of these costs from the
PRS in any of the previous rate orders while it determined the
appropriate course of action. Western's auditors issued findings in
1994 and 1995 that the proper treatment of abandoned project costs is
the full cost recovery through project rates of the costs plus any
accrued interest. In 1996, Western's Administrator committed to comply
with the auditor recommendation before a Congressional subcommittee
hearing.
Comment: Several commentors questioned Western's legal authority to
collect the abandoned project costs relating to the Celilo-Mead-Los
Angeles 750-kV DC transmission line.
Response: Fundamental principles of Reclamation Law require the
recovery of the Government's construction investment, with interest
(Reclamation Project Act of 1939, Section 9(c); 53 Stat. 1187, 1194).
Western is not aware of any authority exempting the abandoned project
costs from this requirement.
Comment: Several commentors questioned the difference in Western's
proposed treatment of the abandoned project costs relating to the
Celilo-Mead-Los Angeles 750-kV DC transmission line from the position
stated by the Bonneville Power Administration (BPA) with regard to
costs incurred under the Teton Dam Project. In 1976, the Teton Dam
Project failed, and a decision was subsequently made by the Bureau of
Reclamation (Reclamation) not to recommence construction. To date, the
costs associated with the Teton Dam Project have not been included in
BPA's customer rates for repayment.
Response: The debt incurred by Western relating to the Celilo-Mead-
Los Angeles 750-kV DC transmission line was funded through government
appropriations. The Reclamation Project Act of 1939 requires repayment
of appropriations. Through this rate order, these costs will be repaid
through the project rates. The costs associated with the Teton Dam
Project remain a part of BPA's appropriated debt balance. The debt
balance can be reduced through repayment or through Congressional
action to de-authorize the project and declare the costs as non-
reimbursable. To Western's knowledge, BPA is currently not pursuing
either of the two options available for reducing appropriated debt.
Western, however, recognizes the AC Intertie customers' intention of
seeking, through Congressional action, to declare the abandoned project
costs related to the Celilo-Mead-Los Angeles 750-kV DC transmission
line as non-reimbursable. In order to avoid the costly process
associated with reversing the costs should the customers' efforts be
successful, Western is willing to allow the deposit of customer monies
associated with these disputed abandoned project costs in an escrow
account, for a 2-year period, thereby allowing sufficient time for the
customers' efforts to be concluded.
[[Page 6349]]
Comment: A commentor questioned the amount of funds appropriated
for the Celilo-Mead-Los Angeles 750-kV DC transmission line.
Response: The specific amount of funds appropriated to Reclamation
for the construction of the Celilo-Mead-Los Angeles 750-kV DC
transmission line is not readily available. However, appropriations
funded construction activities from 1964 through 1969 were recorded as
capitalized costs in Reclamation's AC Intertie financial statements.
These capitalized costs, plus accrued interest, make up the abandoned
project costs.
Comment: A commentor protested the inclusion of costs associated
with the AC Intertie 500-kV transmission system into the proposed
rates.
Response: Western has maintained maximum flexibility for the AC
Intertie Project by maintaining independent transmission service rates
for the 230/345-kV transmission system and the 500-kV transmission
system. However, DSW is responsible for demonstrating repayment for
those AC Intertie facilities constructed with appropriated funds
allocated to DSW. The firm point-to-point transmission service rate
being proposed under this rate order will satisfy the repayment
criteria that Power Marketing Administrations are subject to while
maintaining the flexibility of a possible reduction to the 230/345-kV
transmission system rate in future years should revenues from the AC
Intertie 500-kV transmission system materialize as projected.
Comment: A commentor questioned the existence of any specific Act
authorizing Western to construct the AC Intertie 500-kV transmission
system.
Response: Construction of the Intertie was initially authorized by
the Pacific Northwest Preference Act of 1964 (P.L. 88-552; 78 Stat.
756). Subsequently, the Energy and Water Development Appropriation Act
of 1985, Public Law No. 98-360, 98 Stat. 403, 416, authorized Western's
participation in the construction of the AC Intertie 500-kV
transmission system.
Comment: A commentor stated that the construction and inclusion in
the proposed rate of the AC Intertie 500-kV Intertie transmission
system violates Western's goals with regards to limiting increases in
annual operating expenses in order to maintain competitive rates.
Response: Western's goal of limiting increases in annual operating
expenses, exclusive of debt service, in order to maintain competitive
rates in the markets served by Western was first published in September
1994 and was not in existence when construction began on the AC
Intertie 500-kV transmission system. Nevertheless, the overwhelming
majority of costs relating to the AC Intertie 500-kV transmission
system is for debt service and not annual operating expenses.
Furthermore, the proposed firm point-to-point transmission service rate
of $12/kW/year remains less than Western's Parker-Davis Project
transmission service rate of $12.99/kW/year and also less than the firm
point-to-point transmission rates offered by the other utilities that
operate in the same regional markets served by DSW.
Comment: A commentor stated that the construction and inclusion in
the proposed rate of the AC Intertie 500-kV transmission system
violates Western's operating rules with regards to subjecting new
facilities for construction to at least one of three criteria: (1)
increased revenues from the new facilities must exceed the annual cost
over the cost evaluation period; (2) customers must benefit
sufficiently to support the new facilities in spite of a possible rate
increase; or (3) the new facilities must be funded by others.
Response: Western's operating rules for construction of new
facilities were first published in September 1994 and were not in
existence when construction began on the AC Intertie 500-kV
transmission system. However, Western had conducted studies and surveys
prior to the construction of the AC Intertie 500-kV transmission system
that supported Western's participation in the Mead-Phoenix Project
(MPP) and Mead-Adelanto Project (MAP). Studies conducted in 1989
indicated that given Western's generation capability and load patterns,
Western's transmission system existing at the time of the studies did
not have the capacity to effectively market Federal power resources.
Western's decision to participate in the MPP and MAP was substantiated
by an independently-produced resources and transmission study conducted
in 1990. The MPP and MAP were joint participation construction projects
with 11 other entities. The entities are as follows: Arizona Public
Service Company; City of Anaheim; City of Azusa; City of Banning; City
of Burbank; City of Colton; City of Glendale; City of Pasadena; City of
Riverside; City of Vernon; Los Angeles Department of Water and Power;
Public Power Agency of Modesto, Santa Clara, and Redding; and Salt
River Project.
This vast number of participants only underscores the perceived
need by the participants at the time of construction. Furthermore,
Western conducted a number of surveys between November 1990, and
January 1996, all of which resulted in substantial interest by
prospective customers for transmission capacity. In February 1996,
Western began contract negotiations with prospective customers. During
negotiations, it became apparent that various external industry issues
were emerging and that these issues were having an impact on the
negotiations. The prospective customers decided to delay contracting
for long-term firm transmission capacity over the AC Intertie 500-kV
transmission system. FERC Order No. 888 became effective July 9, 1996.
FERC Order No. 888 is designed to promote competition through open
access and has brought many new players to the wholesale bulk power
business. As a result, utilities are striving to improve their short-
term competitive position, and prospective customers are staying away
from committing to long-term transmission contracts.
Comment: A commentor referenced 10 CFR. 903.21(g) in conjunction
with a statement concerning the AC Intertie 500-kV transmission
facilities, that ``Western is not legally permitted to construct
speculative transmission facilities on the backs of the preference
customers it has a statutory obligation to serve at the lowest possible
rates consistent with sound business principles.''
Response: The reference to 10 CFR 903.21(g) is erroneous because no
such section exists. Moreover, as explained previously, Western's
participation in the construction of the AC Intertie 500-kV
transmission system was specifically authorized by Public Law No. 98-
360. In response to the criticism that the construction of the AC
Intertie 500-kV transmission system was a speculative enterprise, it
should be noted once again that the MPP and MAP were joint
participation construction projects with 11 other entities. The
entities are as follows: Arizona Public Service Company; City of
Anaheim; City of Azusa; City of Banning; City of Burbank; City of
Colton; City of Glendale; City of Pasadena; City of Riverside; City of
Vernon; Los Angeles Department of Water and Power; Public Power Agency
of Modesto, Santa Clara, and Redding; and Salt River Project. Due to
changes in the electric industry as a whole, utilities are having to
defend stranded investments that the electric utility industry has
undertaken. At the present time, many of the participants are trying to
effectively market their entitlement of the MPP and MAP. Stranded
investments, due to industry restructuring in California alone, are
projected to be more than $4 billion. At the time Western and other
utilities made the decision to participate in the
[[Page 6350]]
MPP and MAP, the decision was sound. As late as February 1996,
utilities were requesting 649 MW of capacity on the AC Intertie 500-kV
transmission system.
Comment: Several commentors protested the inclusion of the unfunded
portion of the Civil Service Retirement Costs and Post-Retirement
Health and Life Insurance Benefits (Retirement Benefits) in the rate
order and in some cases stated that Western did not possess the legal
authority to either collect the funds, to divert the funds to the
Office of Personnel Management prior to their deposit in the
Reclamation Fund, or to withdraw the funds from the Reclamation Fund
for these same purposes.
Response: Under a legal opinion provided by the General Counsel of
the DOE by memorandum dated July 1, 1998, the Power Marketing
Administrations have the authority to collect through the rates the
full costs of the Retirements Benefits. Based on the FY 1998 data
expected to be booked to the AC Intertie, this amounts to $120,359 for
FY 1999, representing less than one percent of the AC Intertie revenue
requirements for FY 1999. At this time, Western's only intention is to
deposit the funds into the Reclamation Fund.
Comment: A commentor requested that the construction work planned
for replacing the 345-kV series capacitor banks at Mead and Liberty
Substations be reevaluated and that the projected cost be removed from
the rate order.
Response: Western agrees with the commentor's request to reevaluate
the necessity of replacing the series capacitor banks and has removed
the projected costs from the rate order.
Comment: A commentor requested an explanation as to why Multi-
Project Costs are no longer being booked in the PRS.
Response: Western had intended to separate the investment costs
that are the basis for the Multi-Project Cost calculation and allocate
them to their respective projects for repayment. Western has
reevaluated the benefit of such action and will continue to book the
Multi-Project Costs in the PRS consistent with previously established
procedures.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601, et seq.)
requires Federal agencies to perform a regulatory flexibility analysis
if a final rule is likely to have a significant economic impact on a
substantial number of small entities and there is a legal requirement
to issue a general notice of proposed rulemaking. Western has
determined that this action does not require a regulatory flexibility
analysis since it is a rulemaking of particular applicability involving
rates or services applicable to public property.
Small Business Regulatory Enforcement Fairness Act
Western has determined that this rule is exempt from Congressional
notification requirements under 5 U.S.C. 801 because the action is a
rulemaking of a particular applicability relating to rates or services
and involves matters of procedure.
Environmental Compliance
In compliance with the National Environmental Policy Act of 1969,
42 U.S.C. 4321 et seq.; Council on Environmental Quality Regulations,
40 CFR Parts 1500-1508; and DOE NEPA Regulations, 10 CFR Part 1021,
Western has determined that this action is categorically excluded from
the preparation of an environmental assessment or an environmental
impact statement.
Determination Under Executive Order 12866
Western has an exemption from centralized regulatory review under
Executive Order 12866; accordingly, no clearance of this notice by the
Office of Management and Budget is required.
Availability of Information
Information regarding this rate adjustment, including project
repayment studies, comments, letters, memorandums, and other supporting
material made or kept by Western for the purpose of developing the
Provisional Rates, is available for public review in the Desert
Southwest Regional Office, Western Area Power Administration, Office of
the Power Marketing Manager, 615 South 43rd Avenue, Phoenix, Arizona.
Submission to the Federal Energy Regulatory Commission
The rates herein confirmed, approved, and placed into effect on an
interim basis, together with supporting documents, will be submitted to
FERC for confirmation and approval on a final basis.
Order
In view of the foregoing and pursuant to the authority delegated to
me by the Secretary of Energy, I confirm and approve on an interim
basis, effective January 1, 1999, Rate Schedule INT-FT3 for the Pacific
Northwest-Pacific Southwest Intertie Project 230/345-kV transmission
system of the Western Area Power Administration. The rate schedule
shall remain in effect on an interim basis, pending FERC confirmation
and approval of it or a substitute rate on a final basis through
December 31, 2003.
Dated: January 28, 1999.
Ernest J. Moniz,
Acting Deputy Secretary.
Schedule of Rate(s) for Long-Term and Short-Term 230/345-kV Firm
Point-to-Point Transmission Service
Rate Schedule INT-FT3 (Supersedes Schedule INT-FT2) for 230/345-
kV Firm Transmission.
Effective: The first day of the first full billing period beginning
on or after January 1, 1999, and will remain in effect through December
31, 2003, or until superseded, whichever occurs first.
Available: Within the marketing area served by the Pacific
Northwest-Pacific Southwest Intertie Project (AC Intertie) 230/345-kV
transmission system.
Applicable: To firm transmission service customers where capacity
and energy are supplied to the AC Intertie 230/345-kV transmission
system at points of interconnection with other systems and transmitted
and delivered, less losses, to points of delivery on the AC Intertie
230/345-kV transmission system pursuant to the applicable firm point-
to-point transmission service agreement and the rates referred to
below.
Character and Conditions of Service: Alternating current at 60
Hertz, three-phase, delivered and metered at the voltages and points of
delivery established by contract over the AC Intertie 230/345-kV
transmission lines.
Long-Term Rate on the AC Intertie 230/345-kV Transmission System:
For transmission service of longer than one year, the rate to be in
effect January 1, 1999, through December 31, 2003, is $12.00 per
kilowatt per year for each kilowatt delivered at the point of delivery,
as established by contract, payable monthly at the rate of $1.00 per
kilowatt per month.
Short-Term Rates on the AC Intertie 230/345-kV Transmission System:
For transmission service up to one year, the maximum rate to be in
effect from January 1, 1999, through December 31, 2003, is as follows:
Yearly: $12.00/kW
Monthly: $1.00/kW
Weekly: $.23/kW
Daily: $.03/kW
Hourly: $.00137/kWh
Discounts may be offered from time-to-time in accordance with
Western's open access transmission service tariff.
[[Page 6351]]
Billing: The rates listed above will be applied to the amount of
capacity reserved, payable whether utilized or not.
For Losses: Capacity and energy losses incurred in connection with
the transmission and delivery of capacity and energy under this rate
schedule shall be supplied by the customer in accordance with the
transmission service agreement.
[FR Doc. 99-3114 Filed 2-8-99; 8:45 am]
BILLING CODE 6450-01-P
