E6-9443. Integrated System Power Rates

AGENCY:

Southwestern Power Administration, DOE.

ACTION:

Notice of public review and comment.

SUMMARY:

The Administrator, Southwestern Power Administration (Southwestern), has prepared Current and Revised 2006 Power Repayment Studies which show the need for an increase in annual revenues to meet cost recovery criteria. Such increased revenues are needed primarily to cover increased investments and replacements in hydroelectric generating facilities and increased purchased power expenses. The Administrator has developed proposed Integrated System rates, which are supported by a rate design study, to recover the required revenues. The May 2006 Revised Study indicates that the proposed rates would increase annual system revenues approximately 25.9 percent from $136,267,400 to $171,505,848, over a three-year period to meet projected annual expenses and repay the investments in facilities over the required number of years.

DATES:

The consultation and comment period will begin on the date of publication of this Federal Register notice and will end August 15, 2006. The consultation and comment period has been shortened by the Administrator in accordance with Sec. 903.14(a) of 10 CFR part 903, because of the need to assure new rates are in place by October 1, 2006, to respond to financial difficulties resulting from FY 2006 drought conditions. A combined Public Information and Comment Forum (Forum) will be held in Tulsa, Oklahoma at 9 a.m. on July 12, 2006.

ADDRESSES:

The Forum will be held in Southwestern's offices, Room 1460, Williams Center Tower I, One West Third Street, Tulsa, Oklahoma 74103.

FOR FURTHER INFORMATION CONTACT:

Mr. Forrest E. Reeves, Assistant Administrator, Office of Corporate Operations, Southwestern Power Administration, U.S. Department of Energy, One West Third Street, Tulsa, Oklahoma 74103, [phone], [e-mail].

SUPPLEMENTARY INFORMATION:

Originally established by Secretarial Order No. 1865 dated August 31, 1943, Southwestern is an agency within the U.S. Department of Energy which was created by an Act of the U.S. Congress, entitled the Department of Energy Organization Act, Public Law 95-91, dated August 4, 1977. Guidelines for preparation of power repayment studies are included in DOE Order No. RA 6120.2 entitled Power Marketing Administration Financial Reporting. Procedures for Public Participation in Power and Transmission Rate Adjustments of the Power Marketing Administrations are found at title 10, part 903, subpart A of the Code of Federal Regulations (10 CFR part 903). Procedures for the confirmation and approval of rates for the Federal Power Marketing Administrations are found at title 18, part 300, subpart L of the Code of Federal Regulations (18 CFR part 300).

Southwestern markets power from 24 multi-purpose reservoir projects with hydroelectric power facilities constructed and operated by the U.S. Army Corps of Engineers. These projects are located in the states of Arkansas, Missouri, Oklahoma, and Texas. Southwestern's marketing area includes these States plus Kansas and Louisiana. The costs associated with the hydropower facilities of 22 of the 24 projects are repaid via revenues received under the Integrated System rates, as are those of Southwestern's transmission facilities, which consist of 1,380 miles of high-voltage transmission lines, 24 substations, and 46 microwave and VHF radio sites. Costs associated with the Sam Rayburn and Robert D. Willis Dams, two Corps of Engineers projects that are isolated hydraulically, electrically, and financially from the Integrated System are repaid under separate rate schedules and are not addressed in this notice.

Following Department of Energy guidelines, Southwestern's Administrator, prepared a Current Power Repayment Study using existing system rates. The Study indicates that Southwestern's financial requirement to repay annual operating costs and the investment in power generating and transmission facilities for power and energy marketed by Southwestern will not be met without an increase in revenues. The need for increased revenues is primarily due to projected increases in investments and replacements at hydroelectric generating facilities of the U.S. Army's Corps of Engineers. Increased revenues are also needed because of higher projected average purchased power expenses due to market price increases and a severe drought during FY 2006 which has caused Southwestern to incur substantially more than average purchased power costs. The Revised Power Repayment Study shows that additional annual revenues of $35,238,448 (a 25.9 percent increase) are needed to meet these increased operating expense requirements and satisfy repayment criteria.

A Rate Design Study has also been completed which allocates the revenue requirement to the various system rate schedules for recovery, and provides for transmission service rates in general conformance with FERC Order Nos. 888 (A-C). The proposed rates would increase estimated annual revenues from $136,267,400 to $171,505,848 and would meet annual operating expenses and repay project and transmission system investments within the required number of years. As indicated in the Integrated System Rate Design Study, this revenue would be developed through increases in the charges for sales of capacity and energy, and transmission services, including some of the ancillary services for deliveries of both Federal and non-Federal power and associated energy from the transmission system of Southwestern.

Another component of the Integrated System rates for power and energy, the Purchased Power Adder (PPA), produces revenues to cover the cost of power purchased to meet contractual obligations. The PPA is based on Southwestern's average annual purchased power needs and has been increased from the existing rate to reflect projected power costs based on present market rates. Southwestern is further proposing to expand the Administrator's authority to adjust the PPA at his discretion (Discretionary Purchased Power Adder Adjustment) to increase the size of the Discretionary PPA Adjustment and the frequency of its application to no more than twice annually (limited to ±$0.0067 (6.7 mills)/kWh per year) based on the need for greater flexibility to better manage cash flow during drought conditions. With increased flexibility, Southwestern will be able to alleviate some of the increased revenue pressure of drought situations, such as has occurred during the drought of 2006, by implementing increases more frequently.

Because of concerns expressed by Southwestern's customers, during their informal participation in the development of the Power Repayment and Rate Design Studies, regarding the magnitude and underlying causes of the proposed increase, Southwestern is proposing to increase revenue in three steps over a three-year period.

The first step of the rate increase, beginning October 1, 2006, will incorporate increased PPA costs ($8,562,500 or 6.3 percent), with the PPA increasing from $0.0029 (2.9 mills)/kWh to $0.0067 (6.7 mills)/kWh during the period that the rates are in effect. The Administrator's Discretionary PPA Adjustment will be set to recover purchased power costs for all of FY 2006 resulting from the drought which far exceed the average. Presently, this rate would be $0.0034 (3.4 mills)/kWh ($7,620,216 or 5.6 percent) based on current costs through May 2006. All other rates currently approved will remain in effect through September 30, 2007.

The second step of the rate increase, beginning October 1, 2007, through September 30, 2008, will incorporate 1/2 of the remaining revenue requirement ($9,527,866 or 7.0 percent) caused by increased investments and replacements in facilities. As a result, the rate for supplemental peaking energy will increase to $0.0082 (8.2 mills)/kWh and the capacity charge will increase to $3.18/KW/Mo.

The final step of the rate increase, beginning October 1, 2008, through September 30, 2010, will reach the full revenue requirement of $19,055,732, or 14.0 percent revenue increase, caused by the increased investments and replacements, and combined with the PPA increase to $0.0067 (6.7 mills)/kWh ($8,562 500 or 6.3 percent) and the $0.0034 (3.4 mills)/kWh Discretionary PPA Adjustment increase ($7,620,216 or 5.6 percent) from the first and second years, will ensure that cost recovery will be accomplished as required. The capacity rate will increase to $3.51/kW/Mo and ancillary services will increase modestly, while the transmission capacity rate will increase to $0.95/kW/Mo, as well as the rate for network service.

Below is a general comparison of the existing and proposed system rates:

Generation rates	Existing rates	Proposed rates
	Rate schedule P-05 (System Peaking)	Rate schedule P-06 (System Peaking) Step 1 10/1/06-9/30/07	Rate schedule P-06 (System Peaking) Step 2 10/1/07-9/30/08	Rate schedule P-06 (System Peaking) Step 3 10/1/08—9/30/10
Capacity
Grid or 138-161 kV	$3.03/kW/Mo	$3.03/kW/Mo	$3.18/kW/Mo	$3.51/kW/Mo.
Required Ancillary Services (generation in control area)	$0.09/kW/Mo	$0.09/kW/Mo	$0.09/kW/Mo	$0.10/kW/Mo.
Regulation & Freq. Response (generation in control area)	$0.08/kW/Mo	$0.08/kW/Mo	$0.08/kW/Mo	$0.09/kW/Mo.
Reserve Ancillary Services (generation in control area)	$0.0158/kW/Mo	$0.0158/kW/Mo	$0.0158/kW/Mo	$0.0184/kW/Mo.
Transformation Service 69 kV (applied to usage, not reservation)	$0.30/kW/Mo	$0.30/kW/Mo	$0.30/kW/Mo	$0.30/kW/Mo.
Energy
Peaking Energy	$0.0082/kWh	$0.0082/kWh	$0.0082/kWh	$0.0082/kWh.
Supplemental Peaking Energy	$0.0055/kWh	$0.0055/kWh	$0.0082/kWh	$0.0082/kWh
Purchased Power Adder (PPA)	$0.0029/kWh	$0.0067/kWh	$0.0067/kWh	$0.0067/kWh.
Administrator's Discretionary PPA Adjustment Applied	$0.0/kWh	$0.0034/kWh	$0.0034/kWh	$0.0034/kWh.
Administrator's Discretionary PPA Adjustment Authority	±$0.0011/kWh annually	±$0.0067/kWh annually	±$0.0067/kWh annually	±$0.0067/kWh annually.

Transmission rates	Rate schedule NFTS-5 (Transmission)	Rate schedule NFTS-06 (Transmission)	Rate schedule NFTS-06 (Transmission)	Rate schedule NFTS-06 (Transmission)
Capacity (Firm Reservation with energy) Grid or 138-161 kV	$0.90/kW/Mo, $0.225/kW/Week, $0.0409/kW/Day	$0.90/kW/Mo, $0.225/kW/Week, $0.0409/kW/Day	$0.90/kW/Mo, $0.225/kW/Week, $0.0409/kW/Day	$0.95/kW/Mo, $0.238/kW/Week, $0.0432/kW/Day.
Required Ancillary Services	$0.09/kW/Mo, or $0.023/kW/Week, or $0.0041/kW/Day	$0.09/kW/Mo, or $0.023/kW/Week, or $0.0041/kW/Day	$0.09/kW/Mo, or $0.023/kW/Week, or $0.0041/kW/Day	$0.10/kW/Mo, or $0.025/kW/Week, or $0.0045/kW/Day.
Reserve Ancillary Services (generation in control area)	$0.0158/kW/Mo, or $0.00395/kW/Week, or $0.00072/kW/Day	$0.0158/kW/Mo, or $0.00395/kW/Week, or $0.00072/kW/Day	$0.0158/kW/Mo, or $0.00395/kW/Week, or $0.00072/kW/Day	$0.0184/kW/Mo, or $0.0046/kW/Week, or $0.00084/kW/Day.
Regulation & Freq Response (deliveries within control area)	$0.08/kW/Mo, or $0.020/kW/Week, or $0.0036/kW/Day	$0.08/kW/Mo, or $0.020/kW/Week, or $0.0036/kW/Day	$0.08/kW/Mo, or $0.020/kW/Week, or $0.0036/kW/Day	$0.09/kW/Mo, or $0.023/kW/Week, or $0.0041/kW/Day.
Transformation Service 69 kV and below (applied on usage, not reservation) No weekly/daily rates	$0.30/kW/Mo	$0.30/kW/Mo	$0.30/kW/Mo	$0.30/kW/Mo.
Capacity (Non-firm with energy)	No capacity charge 80% of firm monthly charge divided by 4 for weekly rate, divided by 22 for daily rate, and divided by 352 for hourly rate	No capacity charge 80% of firm monthly charge divided by 4 for weekly rate, divided by 22 for daily rate, and divided by 352 for hourly rate	No capacity charge 80% of firm monthly charge divided by 4 for weekly rate, divided by 22 for daily rate, and divided by 352 for hourly rate	No capacity charge 80% of firm monthly charge divided by 4 for weekly rate, divided by 22 for daily rate, and divided by 352 for hourly rate.
Network Service	$0.90/kW/Mo	$0.90/kW/Mo	$0.90/kW/Mo	$0.95/kW/Mo.
Required Ancillary Services	$0.09/kW/Mo	$0.09/kW/Mo	$0.09/kW/Mo	$0.10/kW/Mo.
Reserve Ancillary Services (generation in control area)	$0.00158/kW/Mo	$0.00158/kW/Mo	$0.00158/kW/Mo	$0.00184/kW/Mo.
Regulation & Freq Response (deliveries within control area)	$0.08/kW/Mo	$0.08/kW/Mo	$0.08/kW/Mo	$0.09/kW/Mo.

	Rate schedule EE-05 (Excess Energy)	Rate schedule EE-06 (Excess Energy)	Rate schedule EE-06 (Excess Energy)	Rate schedule EE-06 (Excess Energy)
Energy	$0.0055/kWh	$0.0055/kWh	$0.0082/kWh	$0.0082/kWh.

Opportunity is presented for Southwestern's customers and other interested parties to receive copies of the Integrated System Studies. If you desire a copy of the Integrated System Power Repayment Studies and Rate Design Study Data Package, submit your request to Mr. Forrest E. Reeves, Assistant Administrator, Office of Corporate Operations, Southwestern Power Administration, One West Third, Tulsa, OK 74103 [phone].

A Public Information and Comment Forum is scheduled for July 12, 2006, to explain to the public the proposed rates and supporting studies and to allow for comment. The proceeding will be transcribed. A chairman, who will be responsible for orderly procedure, will conduct the Forum. Questions concerning the rates, studies, and information presented at the Forum will be answered, to the extent possible, at the Forum. Questions not answered at the Forum will be answered in writing, except that questions involving voluminous data contained in Southwestern's records may best be answered by consultation and review of pertinent records at Southwestern's offices.

Persons desiring to attend the Forum should indicate in writing (address cited above) by letter, email or facsimile transmission (918-595-6656) by July 1, 2006, their intent to appear at such Forum. If no one so indicates his or her intent to attend, no such Forum will be held. Persons interested in speaking at the Forum should submit a request to Mr. Forrest E. Reeves, Assistant Administrator, Southwestern, at least seven (7) calendar days prior to the Forum so that a list of forum participants can be developed. The chairman may allow others to speak if time permits.

A transcript of the Forum will be made. Copies of the transcript may be obtained, for a fee, from the transcribing service. Copies of all documents introduced will also be available from the transcribing service upon request for a fee. Five copies of all written comments, together with a diskette or compact disk in MS Word, on the proposed Integrated System Rates are due on or before August 15, 2006. Comments should be submitted to Forrest E. Reeves, Assistant Administrator, Southwestern, at the above-mentioned address for Southwestern's offices.

Following review of the oral and written comments and the information gathered in the course of the proceeding, the Administrator will submit the finalized Integrated System Rate Proposal, Power Repayment Studies, and Rate Design Study in support of the proposed rates to the Deputy Secretary of Energy for confirmation and approval on an interim basis, and subsequently to the Federal Energy Regulatory Commission (Commission) for confirmation and approval on a final basis. The Commission will allow the public an opportunity to provide written comments on the proposed rate increase before making a final decision.

Dated: May 30, 2006.

Michael A. Deihl,

Administrator.