04-21058. Notice of Interim Approval

AGENCY:

Southeastern Power Administration, DOE.

ACTION:

Notice of rate order.

SUMMARY:

The Deputy Secretary of the Department of Energy, confirmed and approved, on an interim basis, Rate Schedules JW-1-H and JW-2-E. The rates were approved on an interim basis through September 19, 2009, and are subject to confirmation and approval by the Federal Energy Regulatory Commission (Commission) on a final basis.

DATES:

Approval of rate on an interim basis is effective through September 19, 2009.

FOR FURTHER INFORMATION CONTACT:

Leon Jourolmon, Assistant Administrator, Finance & Marketing, Southeastern Power Administration, Department of Energy, 1166 Athens Tech Road, Elberton, Georgia 30635-6711, [phone].

SUPPLEMENTARY INFORMATION:

The Commission, by Order issued April 2, 2003, in Docket No. EF02-3031-000, confirmed and approved Wholesale Power Rate Schedules JW-1-G and JW-2-D. Rate schedules JW-1-H and JW-2-E replace these schedules.

Dated: September 9,2004.

Kyle E. McSlarrow,

Deputy Secretary.

Order Confirming and Approving Power Rates on an Interim Basis

Rate Order No. SEPA-45

In the Matter of: Southeastern Power Administration; Jim Woodruff Project Power Rates;

Pursuant to sections 302(a) and 301(b) of the Department of Energy Organization Act, Public Law 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. 00-037.00 (December 6, 2001), the Secretary of Energy delegated to the Administrator of Southeastern the authority to develop power and transmission rates, and delegated to the Deputy Secretary of the Department of Energy the authority to confirm, approve, and place in effect such rates on an interim basis and delegated to the Federal Energy Regulatory Commission (Commission) the authority to confirm and approve on a final basis or to disapprove rates developed by the Administrator under the delegation. This rate order is issued by the Deputy Secretary pursuant to said delegation.

Background

Power from the Jim Woodruff Project is presently sold under Wholesale Power Rate Schedules JW-1-G and JW-2-D. These rate schedules were approved by the Commission on April 2, 2003, for a period ending September 19, 2005 (103 FERC 62003).

Public Notice and Comment

Southeastern prepared a Power Repayment Study, dated March 2004, that showed that revenues at current rates were not adequate to meet repayment criteria. A revised study with a revenue increase of $2,182,000 produced rates that are adequate to meet repayment criteria in Fiscal Years 2005, 2006, and 2007. On March 31, 2004, by Federal Register notice (69 FR 16916), Southeastern proposed a rate adjustment of about 35.5 percent for Fiscal Years 2005, 2006, and 2007 and 3.1 percent for Fiscal Year 2008 and thereafter to recover this revenue. The notice also announced a Public Information and Comment Forum to be held May 6, 2004, in Tallahassee, Florida. Six preference customers and one customer representative made comments at the forum. Written comments were accepted on or before June 29, 2004. Written comments were received from two sources.

Staff Review of Comments

The following comments were received during the public comment period. Southeastern's response follows each comment.

Comment 1: In reviewing RA 6120.2, we determined that recovery of the annual interest expense may be deferred in unusual circumstances for short periods of time. This guidance is set forth in section 12 of RA 6120 under cost recovery criteria.

Response 1: Southeastern believes the intent of this section was to cover unplanned events such as drought. However, Southeastern agrees that the need for a drastic rate increase followed by a rate reduction is an unusual circumstance. Southeastern also believes that this section gives Southeastern some discretion to defer interest payments. Southeastern is proposing to defer payment of capitalized unpaid interest deficits incurred in 1999, 2000, and 2001 until 2007, 2008, and 2009. Southeastern will use all available funds to meet the required payment of the initial investment in the Jim Woodruff Project that is due in 2007.

Comment 2: The SeFPC and the [Jim Woodruff preference] customers encourage Southeastern to use the provision of RA 6120.2 to capitalize the interest on the new plant until 2008. Following this approach, the proposed rate increase for the Jim Woodruff Project, as we understand it, may only need to be in the 10 percent range, plus or minus, as opposed to the 35.5 percent that is currently proposed.

Response 2: A 10 percent rate increase would meet the required repayment of the initial investment in the Jim Woodruff Project in 2007, provided repayment of interest on investment is deferred. Southeastern projects that repayment of this interest would be accomplished in 2020 which is more that 13 years after the interest on the Federal investment was incurred. Southeastern believes that this repayment period does not qualify as a short period of time as described in section 12 of RA 6120.2.

Comment 3: The customers are also concerned with the amounts that have been included in the repayment study for purchase capacity and energy costs. We understand that Southeastern has estimated the previous 25 years of daily peak plant output in determining what should be included in the repayment study for purchase capacity and energy. The fact that Southeastern has looked at the previous 25 years, discounting all the years when the project was being rehabilitated, gives us concern that Southeastern has inflated the amount that it needs to be included for purchased capacity and energy.

Response 3: Southeastern has estimated purchase capacity and energy using historic streamflow conditions. This is an established industry practice. Southeastern discounted the years when the project was undergoing rehabilitation because these years were not representative of the operation of the project. Southeastern does not believe that the estimate of purchase capacity and energy is inflated. Southeastern will monitor purchase capacity and energy expense and may propose a pass-through of these expenses if Southeastern and the customers determine that a pass-through is appropriate. A pass-through of these costs would eliminate the need for an estimate in the repayment study.

Comment 4: It may be appropriate for Southeastern to consider making purchased capacity and energy costs a pass-through cost component as Southeastern has done in other marketing areas.

Response 4: Southeastern has not proposed to establish a pass-through charge for support capacity and purchased power costs in the Jim Woodruff System. Southeastern will monitor support capacity and purchase power costs and may propose a pass-through if Southeastern and the customers determine that such a pass-through is appropriate. The implications of such a change to the cost-recovery from Florida Power Corporation need to be carefully examined before proposing such a change.

Comment 5: Appropriate review is merited of the Operations and Maintenance (O&M) costs that are recovered for the U.S. Army Corps of Engineers (Corps). In reviewing the projections for the Corps O&M expenses, the members of the SeFPC are alarmed by a considerable increase in joint maintenance costs. In 2002, the joint maintenance costs allocated to hydropower were $271,000. In 2003, these same costs rose to $871,000, despite the fact that the Corps had projected the joint maintenance cost allocable to hydropower would be only $88,000. At some point a significant error occurred, either with the original projection, or the inclusion of these additional maintenance costs.

The stated reason for this increase is the cost associated with the purchase of supplies and materials increased in Fiscal Year 2003 by $455,000. Southeastern has failed to justify this calculation. Therefore, recovery of these amounts is arbitrary and capricious in the absence of an explanation.

Response 5: Estimates of Corps O&M costs are provided to Southeastern by the Corps. Southeastern, the Corps, and the Customers, through the O&M committee of the SeFPC, review these estimates. Estimates incorporated into the power repayment study were provided to the O&M Committee of the SeFPC in 2003. The customers reviewed the Corps O&M costs at that time. The variance of Corps O&M estimates to the actual costs incurred has not been significant.

Comment 6: The proposed rate has legal infirmities that cannot be cured unless the proposed rate is revised. In the absence of such revision, implementation of the rate will be an arbitrary and capricious decision by the Administrator of Southeastern in light of the following factors:

(1) The proposed rate does not explain why Southeastern has declined to invoke the provision of DOE Regulation RA 6120.2 to ensure the lowest possible rate consistent with sound business principles;

(2) The calculation of estimated purchased energy and capacity costs is based on historical data the Customers do not believe is indicative of expected performance by the project;

(3) The Corps O&M costs have not been justified in the case of future recoveries for inflated joint costs allocable to maintenance.

Response 6: Because of this comment, Southeastern is proposing to revise the proposed rate increase deferring the recovery of capitalized deficits incurred in 1999, 2000, and 2001 until recovery of the initial investment in the Jim Woodruff Project that is due in 2007 is repaid.

Southeastern believes its estimate of purchased energy and capacity costs is appropriate considering the operations of the project and the contract with Florida Power Corporation. If conditions warrant, Southeastern will consider implementation of a pass-through charge for purchased energy and support capacity as discussed in Response 4.

Southeastern relies on the Corps to provide estimates of Corps O&M. The variance of O&M estimates provided by the Corps to actual costs incurred has not been significant as discussed in Response 5.

Comment 7: The City of Quincy realizes that some of the increase in our rates that Southeastern Power has made must come so that this Project may continue producing the needed power that we all receive benefits from. [We] would like to see Southeastern strive, if possible, to re-evaluate its proposed rate increase and give serious consideration to extending the period for recouping its generated revenue from the project to say ten years instead of three.

Response 7: Southeastern has extended the repayment period for the capitalized deficits that were incurred in 1999, 2000, and 2001 from three years to five years. Section 12 of RA 6120.2 allows that recovery of annual interest expense may be deferred in unusual circumstances for short periods of time. Southeastern believes it is within Southeastern's discretion to defer repayment of these capitalized deficits until 2009.

Discussion

System Repayment

An examination of Southeastern's revised system power repayment study, prepared in March 2004, for the Jim Woodruff Project, shows that with the proposed 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.

Environmental Impact

Southeastern has reviewed the possible environmental impacts of the rate adjustment under consideration and has concluded 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

Information regarding these rates, including studies, and other supporting materials is available for public review in the offices of Southeastern Power Administration, 1166 Athens Tech Road, Elberton, Georgia 30635-6711.

Submission to the Federal Energy Regulatory Commission

The rates hereinafter confirmed and approved on an interim basis, together with supporting documents, will be submitted promptly to the Commission for confirmation and approval on a final basis for a period beginning September 20, 2004, and ending no later than September 19, 2009.

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 September 20, 2004, attached Wholesale Power Rate Schedules JW-1-H and JW-2-E. The rate schedules shall remain in effect on an interim basis through September 19, 2009, unless such period is extended or until the Federal Energy Regulatory Commission confirms and approves them or substitute rate schedules on a final basis.

Dated: September 9, 2004.

Kyle E. McSlarrow,

Deputy Secretary.

Wholesale Power Rate Schedule JW-1-H

Availability

This rate schedule shall be available to public bodies and cooperatives (the Customers) served by the Florida Power Corporation and having points of delivery within 150 miles of the Jim Woodruff Project (Project).

Applicability

This rate schedule shall be applicable to firm power and accompanying energy made available by the Government from the Project and sold in wholesale quantities.

Character of Service

The electric capacity and energy supplied hereunder will be 3-phase alternating current at a nominal frequency of 60 cycles per second delivered at the delivery points of the customer.

Monthly Rate

The monthly rate for capacity and energy made available or delivered under this rate schedule shall be:

Demand Charge

$6.95 per kilowatt of monthly contract demand.

Energy Charge

19.95 mills per kilowatt-hour.

Billing Demand

The monthly billing demand for any billing month shall be the lower of (a) The Customer's contract demand or (b) the sum of the maximum 30-minute integrated demands for the month at each of the Customer's points of delivery; provided, that, if an allocation of contract demand to delivery points has become effective, the 30-minute maximum integrated demand for any point of delivery shall not be considered to be greater than the portion of the Customer's contract demand allocated to that point of delivery.

Contract Demand

The contract demand is the amount of capacity in kilowatts stated in the contract which the Government is obligated to supply and the Customer is entitled to receive.

Energy Made Available

During any billing month in which the Government supplies all the Customer's capacity requirements for a particular delivery point, the Government will make available the total energy requirement of said point. When both the Government and the Florida Power Corporation are supplying capacity to a delivery point, each kilowatt of capacity supplied to such point during such month will be considered to be accompanied by an equal quantity of energy.

Billing Month

The billing month for power sold under this schedule shall end at 12 (midnight) on the 20th day of each calendar month.

Conditions of Service

The customer shall, at its own expense, provide, install, and maintain on its side of each delivery point the equipment necessary to protect and control its own system. In so doing, the installation, adjustment, and setting of all such control and protective equipment at or near the point of delivery shall be coordinated with that which is installed by and at the expense of the Florida Power Corporation on its side of the delivery point.

Service Interruption

When energy delivered to the Customer's system for the account of the Government is reduced or interrupted for one hour or longer, and such reduction or interruption is not due to conditions on the Customer's system or has not been planned and agreed to in advance, the demand charge for the month shall be appropriately reduced.

Proposed Wholesale Power Rate Schedule JW-2-E

Availability

This rate schedule shall be available to the Florida Power Corporation (hereinafter called the Company).

Applicability

This rate schedule shall be applicable to electric energy generated at the Project and sold to the Company in wholesale quantities.

Points of Delivery

Power sold to the Company by the Government will be delivered at the connection of the Company's transmission system with the Project bus.

Character of Service

Electric power delivered to the Company will be 3-phase alternating current at a nominal frequency of 60 cycles per second.

Monthly Rate

The monthly rate for energy sold under this schedule shall be equal to 90 percent of the calculated saving in the cost of fuel per kilowatt-hour (KWh) to the Company determined as follows:

Where:

Fm = Company fuel cost in the current period as defined in Federal Power Commission Order 517 issued November 13, 1974, Docket No. R-479.

Sm = Company sales in the current period reflecting only losses associated with wholesale sales for resale. Sale shall be equated to the sum of (a) generation, (b) purchases, (c) interchange-in, less (d) inter-system sales, less estimated wholesale losses (based on average transmission loss percentage for preceding calendar year).

Determination of Energy Sold

Energy will be furnished by the Company to supply any excess of Project use over Project generation. Energy so supplied by the Company will be deducted from the actual deliveries to the Company's system to determine the net deliveries for energy accounting and billing purposes. Energy for Project use shall consist of energy used for station service, lock operation, Project yard, village lighting, and similar uses.

The on-peak hours shall be the hours between 7 a.m. and 11 p.m., Monday through Sunday, inclusive. Off-peak hours shall be all other hours.

All energy made available to the Company shall, to the extent required, be classified as energy transmitted to the Government's preference customers served from the Company's system. All energy made available to the Company from the Project shall be separated on the basis of the metered deliveries to it at the Project during on-peak and off-peak hours, respectively. Deliveries to preference customers of the Government shall be divided on the basis (with allowance for losses) of 77 percent being considered as on-peak energy and 23 percent being off-peak energy. Such percentages may by mutual consent be changed from time to time as further studies show to be appropriate. In the event that in classifying energy there is more than enough on-peak energy available to supply on-peak requirements of the Government's preference customers but less than enough off-peak energy available to supply such customers off-peak requirements, such excess on-peak energy may be applied to the extent necessary to meet off-peak requirements of such customers in lieu of purchasing deficiency energy to meet such off-peak requirements.

Billing Month

The billing month under this schedule shall end at 12 (midnight) on the 20th day of each calendar month.

Power Factor

The purchaser and seller under this rate schedule agree that they will both so operate their respective systems that neither party will impose an undue reactive burden on the other.