E7-10513. Loveland Area Projects-Rate Order No. WAPA-134

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of proposed power rates.

SUMMARY:

The Western Area Power Administration (Western) is proposing revised rates for Loveland Area Projects (LAP) firm electric service. LAP consists of the Fryingpan-Arkansas Project (Fry-Ark) and the Pick-Sloan Missouri Basin Program (Pick-Sloan)—Western Division, which were integrated for marketing and rate-making purposes in 1989. The current rates, under Rate Schedule L-F6, expire on December 31, 2010, but are not sufficient to meet the LAP revenue requirements. The proposed rates will provide sufficient revenue to pay all annual costs, including interest expense, and repay required investment within the allowable period. Western will prepare a brochure that provides detailed information on the proposed rates. The proposed rates, under Rate Schedule L-F7, are scheduled to go into effect on January 1, 2008, and will remain in effect through December 31, 2012. Publication of this Federal Register notice begins the formal process for the proposed rate adjustment.

DATES:

The consultation and comment period begins today and will end August 29, 2007. Western will present a detailed explanation of the proposed rates at a public information forum on June 18, 2007, 10 a.m. to 12 p.m. MDT, in Denver, Colorado. Western will accept oral and written comments at a public comment forum on July 23, 2007, 10 a.m. to 12 p.m. MDT, in Denver, Colorado. Western will accept written comments any time during the consultation and comment period.

ADDRESSES:

The public information forum and the public comment forum will both be held at the Radisson Stapleton Plaza Hotel, 3333 Quebec Street in Denver, Colorado, on the dates cited above. Written comments and/or requests to be informed of Federal Energy Regulatory Commission (Commission) actions concerning the rates submitted by Western to the Commission for approval should be sent to James D. Keselburg, Regional Manager, Rocky Mountain Region, Western Area Power Administration, 5555 East Crossroads Boulevard, Loveland, CO 80538-8986, e-mail [e-mail]. Western will post information about the rate process on its Web site under the “Rate Adjustments” section at http://www.wapa.gov/​rm/​ratesRM/​2008RatesAdjustment--FirmPower.htm. Western will post comments received via letter and e-mail to its Web site after the close of the comment period. Written comments must be received by the end of the consultation and comment period to be considered by Western in its decision process.

FOR FURTHER INFORMATION CONTACT:

Ms. Sheila D. Cook, Rates Manager, Rocky Mountain Region, Western Area Power Administration, 5555 East Crossroads Boulevard, Loveland, CO 80538-8986, telephone [phone], e-mail [e-mail] or [e-mail].

SUPPLEMENTARY INFORMATION:

Proposed rates for LAP firm electric service are designed to recover an annual revenue requirement that includes investment repayment, interest, purchase power, operation and maintenance, and other expenses. The projected annual revenue requirement for firm electric service is allocated equally between capacity and energy.

Rate Schedule L-F6 for firm electric service, WAPA-125, was approved for a 5-year period beginning January 1, 2006, and ending December 31, 2010.^[1] Under the current Rate Schedule L-F6, a two-step method was approved. The composite rate for the second step, effective on January 1, 2007, is 27.36 mills per kilowatthour (mills/kWh), the firm energy rate is 13.68 mills/kWh and the firm capacity rate is $3.59 per kilowattmonth (kW-month). These rates are listed in Table 1.

During informal discussions prior to the commencement of this rate adjustment process, Western received requests from firm power customers to identify its firm electric service revenue requirement using a Base component (Base) and Drought Adder component (Drought Adder). The firm power customers noted that by identifying the components of the firm electric service revenue requirement in this manner, Western could identify drought impacts in the regions covered by the LAP and the Pick-Sloan Missouri Basin Program (Pick-Sloan)—Eastern Division (individually called Project and collectively called Projects) and demonstrate a proactive approach to repaying incurred costs related to the drought.

In response to these suggestions, Western prepared a proposed rate schedule identifying these two components for LAP firm electric service (L-F7) for consideration and comment during this public process. This proposed rate schedule also reflects rate adjustments based on the Fry-Ark and Pick-Sloan—Western Division revenue requirements derived from the Fiscal Year 2006 Power Repayment Studies (PRS). The PRSs set the LAP revenue requirement for 2008 for firm electric service at $66.1 million, which is an 18.5 percent increase. The proposed rates under L-F7 are listed in Table 1.

Table 1.—Proposed Firm Electric Service Revenue Requirement and Rates

Firm electric service	Existing rate L-F6	Proposed Rate (Jan. 1, 2008) L-F7	Percent change
LAP Revenue Requirement	$55.8 million	$66.1 million	18.5
LAP Composite Rate	27.36 mills/kWh	32.42 mills/kWh	18.5
Firm Energy	13.68 mills/kWh	16.21 mills/kWh	18.5
Firm Capacity	$3.59/kW-month	$4.25/kW-month	18.4

Through this Federal Register notice, as well as through Western's Pick-Sloan—Eastern Division Rate Order No. WAPA-135 process, Western's Rocky Mountain and Upper Great Plains Regions (Regions) are proposing to identify their firm electric service revenue requirements using a Base and a Drought Adder. The Base is a revenue requirement for each Project that includes annual operation and maintenance expenses, investment repayment and associated interest, normal timing power purchases, and transmission costs. Normal timing power purchases are purchases due to operational constraints (e.g., management of endangered species habitat, water quality, navigation, control area purposes, etc.) and are not associated with the current drought in the Regions.

The Drought Adder revenue requirement for each Project is a formula-based revenue requirement that includes costs attributable to the present drought conditions within the Regions. The Drought Adder includes costs associated with future non-timing purchases of additional power to firm obligations not covered with available system generation due to the drought, previously incurred deficits due to purchased power debt that resulted from non-timing power purchases made during this drought, and the interest associated with the previously incurred and future drought debt. The Drought Adder is designed to repay the drought debt within 10 years from the time the debt was incurred, using balloon payment methodology. For example, the drought debt incurred in Pick-Sloan in 2006 will be paid off by 2016.

The annual revenue requirement calculation can be summarized by the following formula: Annual Revenue Requirement = Base + Drought Adder. Under this proposal, the LAP annual revenue requirement equals $66.1 million and is comprised of a Base revenue requirement of $48.6 million plus a Drought Adder revenue requirement of $17.5 million.

Western's proposal for identifying the firm electric service revenue requirement using a Base and a Drought Adder will allow Western to identify and present the impacts of the drought, demonstrate repayment of those drought related costs in the Fry-Ark PRS and the Pick-Sloan PRS, and allow Western to be more responsive to changes in drought-related expenses. Western will continue to charge and bill its customers firm electric service rates for energy and capacity, which are the sum of the Base and Drought Adder.

Western reviews its firm electric service rates annually. Western will review the Base component after the annual PRSs are completed, generally in the first quarter of the calendar year. If an adjustment to the Base is necessary, Western will initiate a public process pursuant to 10 CFR part 903 prior to making an adjustment.

Western will review the Drought Adder each September to determine if drought costs differ from those projected in the PRSs. Based upon this review, Western will determine whether an adjustment to the Drought Adder is necessary. For any adjustments attributed to drought costs of less than or equal to the equivalent of 2 mills/kWh to the LAP composite rate, Western will notify customers by letter in October of the planned adjustment and implement the adjustment in the following January billing cycle. For the portion of any planned incremental adjustment greater than the equivalent of 2 mills/kWh to the LAP composite rate, Western will engage in a public process pursuant to 10 CFR part 903 prior to making that portion of the adjustment. Although decremental adjustments to the Drought Adder will occur, the adjustment cannot result in the Drought Adder being a negative number. Western will conduct a preliminary review of the Drought Adder in early summer to give customers advance notice of any adjustment for the following January. Customers will be advised by letter of the estimated change to the Drought Adder with the final Drought Adder adjustment verified with notification in the October letter to the customers.

Legal Authority

Since the proposed rates constitute a major adjustment as defined by 10 CFR part 903, Western will hold both a public information forum and a public comment forum. After review of public comments and possible amendments or adjustments, Western will recommend that the Deputy Secretary of Energy approve the proposed rates on an interim basis.

Western is establishing firm electric service rates for LAP under the Department of Energy Organization Act (42 U.S.C. 7152); the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent laws; section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)); section 5 of the Flood Control Act of 1944 (16 U.S.C. 825s); and other acts that specifically apply to the projects involved.

By Delegation Order No. 00-037.00, effective December 6, 2001, the Secretary of Energy delegated: (1) The authority to develop power and transmission rates to Western's Administrator; (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 Commission. Existing Department of Energy (DOE) procedures for public participation in power rate adjustments (10 CFR part 903) were published on September 18, 1985.

Availability of Information

All brochures, studies, comments, letters, memorandums, e-mail, or other documents that Western initiates to develop the proposed rates are available for inspection and copying at the Rocky Mountain Regional Office, located at 5555 East Crossroads Boulevard, Loveland, Colorado. Many of these documents and supporting information are also available on Western's Web site under the “Rate Adjustments” section located at http://www.wapa.gov/​rm/​ratesRM/​2008RatesAdjustment--FirmPower.htm.

Ratemaking Procedure Requirements

Environmental Compliance

In compliance with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321, et seq.); the Council on Environmental Quality Regulations for implementing NEPA (40 CFR parts 1500-1508); and DOE NEPA Implementing Procedures and Guidelines (10 CFR part 1021), Western is in the process of determining whether an environmental assessment or an environmental impact statement should be prepared or if this action can be categorically excluded from those requirements.

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.

Dated: May 15, 2007.

Timothy J. Meeks,

Administrator.

Footnotes

1.  WAPA-125 was approved by the Deputy Secretary of Energy on November 9, 2005 (70 FR ¶ 71273), and confirmed and approved by FERC on a final basis on June 14, 2006, in Docket No. EF06-5181-000 (115 FERC ¶ 62276).