E7-10514. Pick-Sloan Missouri Basin Program-Eastern Division-Rate Order No. WAPA-135

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of proposed power rates.

SUMMARY:

The Western Area Power Administration (Western) is proposing revised rates for Pick-Sloan Missouri Basin Program—Eastern Division (P-SMBP—ED) firm electric and firm peaking power service. Current rates, under Rate Schedules P-SED-F8 and P-SED-FP8, extend through December 31, 2010, but are not sufficient to meet the P-SMBP—ED revenue requirements. The proposed rates will provide sufficient revenue to pay all annual costs, including interest expense, and repayment of required investment within the allowable period. Western will prepare a brochure that provides detailed information on the proposed rates. The proposed rates, under Rate Schedules P-SED-F9 and P-SED-FP9, 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 public information forums. Public information forum dates are:

1. June 18, 2007, 10 a.m. to 12 p.m. MDT, Denver, CO.

2. June 19, 2007, 9 a.m. to 12 p.m. CDT, Sioux Falls, SD.

Western will accept oral and written comments at public comment forums. Public comment forums will be held on the following dates:

1. July 23, 2007, 10 a.m. to 12 p.m. MDT, Denver, CO.

2. July 24, 2007, 9 a.m. to 12 p.m. CDT, Sioux Falls, SD.

Western will accept written comments any time during the consultation and comment period.

ADDRESSES:

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 Robert J. Harris, Regional Manager, Upper Great Plains Region, Western Area Power Administration, 2900 4th Avenue North, Billings, MT 59101-1266, or e-mail at [e-mail]. Western will post information about the rate process on its Web site at http://www.wapa.gov/​ugp/​rates/​2008firmrateadjust. 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.

Public information forum locations are:

1. Denver—Radisson Stapleton Plaza, 3333 Quebec Street, Denver, CO.

2. Sioux Falls—Holiday Inn, 100 West 8th Street, Sioux Falls, SD.

Public comment forum locations are:

1. Denver—Radisson Stapleton Plaza, 3333 Quebec Street, Denver, CO.

2. Sioux Falls—Holiday Inn, 100 West 8th Street, Sioux Falls, SD.

FOR FURTHER INFORMATION CONTACT:

Mr. Jon R. Horst, Rates Manager, Upper Great Plains Region, Western Area Power Administration, 2900 4th Avenue North, Billings, MT 59101-1266, telephone [phone], e-mail [e-mail].

SUPPLEMENTARY INFORMATION:

Proposed rates for P-SMBP—ED firm electric and firm peaking 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 Schedules P-SED-F8 and P-SED-FP8 for P-SMBP—ED firm electric and firm peaking service, respectively, were approved for a 5-year period beginning on January 1, 2006, and ending December 31, 2010 ^[1] . Under current Rate Schedule P-SED-F8, the composite rate is 19.54 mills per kilowatthour (mills/kWh), the energy rate is 11.29 mills/kWh, and the capacity rate is 4.45 per kilowattmonth (kWmonth). Under current Rate Schedule P-SED-FP8, the firm peaking capacity rate is $4.45 per kWmonth. These rates are set forth in Table 1, below.

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 Pick-Sloan Missouri Basin Program (P-SMBP) and demonstrate a proactive approach to repaying incurred costs related to the drought.

Western also received requests from customers to eliminate the tiered rate. The tiered rate charge was implemented in the mid-1970's for loads in excess of 60 percent monthly load factor. Customers believe that continuing the tiered rate charge discourages load management. Moreover, eliminating the tiered rate from the P-SMBP—ED firm electric service schedule is consistent with the administration of firm electric service rates in the Pick-Sloan Missouri Basin Program—Western Division (P-SMBP—WD), which does not assess a tiered rate charge.

Western also received customer requests to redesign its revenue recovery methodology for firm peaking service. Western presently provides both firm electric and firm peaking service to customers using a seasonal contract rate of delivery (CROD). Western's firm peaking capacity rate is equal to the firm power capacity rate, which is calculated by dividing one-half of the P-SMBP—ED revenue requirement by the sum of the metered billing units for firm electric service and the seasonal CROD monthly billing units for firm peaking service. During informal discussions, several customers stated that Western's rate design for firm electric capacity and firm peaking capacity should be representative of the different products. Customers recommended that Western use the sum of the total allocated seasonal CRODs for both firm electric capacity and firm peaking capacity and model them as the billing units for calculating the firm peaking capacity rate. It was noted in these discussions that any change to the peaking power capacity revenue requirement methodology also affects the P-SMBP total firm power capacity revenue requirement in the P-SMBP power repayment study (PRS) which is recovered by both eastern and western divisions of the P-SMBP.

In response to these suggestions, Western prepared proposed rate schedules for firm electric service (P-SED-F9) and firm peaking service (P-SED-FP9) for consideration and comment during this public process. The projected annual revenue requirement under these schedules is allocated equally between capacity and energy. These proposed rate schedules also reflect rate adjustments based on the Pick-Sloan revenue requirement derived from the Fiscal Year 2006 Final Power Repayment Study (PRS). The PRS sets the total annual P-SMBP—ED revenue requirement for 2008 for firm electric and firm peaking power service at $235.9 million.

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

Firm electric service	Existing rates	Proposed rates (Jan. 1, 2008)	Percent change
P-SMBP—ED Firm and Firm Peaking Revenue Requirement	$189.9 million	$235.9 million	24.2
P-SMBP—ED Composite Rate	19.54 mills/kWh	24.49 mills/kWh	25.3
Firm Capacity	$4.45/kWmonth	$5.65/kWmonth	27.0
Firm Energy	11.29 mills/kWh	13.99 mills/kWh	23.9
Tiered > 60 Percent Load Factor	5.21 mills/kWh
Firm Peaking Capacity	$4.45/kWmonth	$5.10/kWmonth	14.6
Firm Peaking Energy 1	11.29 mills/kWh	13.99 mills/kWh	23.9
1 Firm peaking energy is normally returned. This will be assessed in the event firm peaking energy is not returned.

Under proposed Rate Schedule P-SED-F9, the composite rate will increase 25.3 percent. The firm energy rate will increase to 13.99 mills per kWh, or 23.9 percent, and the firm capacity rate will increase to $5.65/kWmonth, or 27.0 percent.

Additionally, under Rate Schedule P-SED-F9, Western is proposing to identify its firm electric service revenue requirement using a Base and a Drought Adder. The Base is a revenue requirement that includes annual operation and maintenance expenses, investment repayment and associated interest, normal timing power purchases, and transmission costs. Western's normal timing power purchases are purchases due to operational constraints (e.g., management of endangered species habitat, water quality, navigation, etc.) and are not associated with the current drought.

The Drought Adder is a formula-based revenue requirement that includes costs attributable to the present drought conditions within the Pick-Sloan Program. 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 Western's drought debt within 10 years from the time the debt was incurred, using balloon payment methodology. For example, the drought debt incurred by Western 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 P-SMBP—ED annual revenue requirement equals $245.2 million and is comprised of a Base revenue requirement of $157.2 million plus a Drought Adder revenue requirement of $88.0 million. Both the Base and Drought Adder recover portions of the firm power revenue requirement, firm peaking power, and associated 5 percent discount revenue necessary to equal the P-SMBP—ED annual revenue requirement.

Western's proposal for identifying its firm electric service revenue requirement using Base and Drought Adder will help Western present the impacts of the drought within the Pick-Sloan Program, demonstrate repayment of those drought related costs in the 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 after the annual PRS is 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 PRS, and, if so, 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 PRS composite rate, Western will notify customers by letter in October of the planned adjustment and implement the adjustment in the January billing cycle. For the portion of any planned incremental adjustment greater than the equivalent of 2 mills/kWh to the PRS 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 advanced notice of any adjustment in 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.

Under Rate Schedule P-SED-F9, Western is also proposing to eliminate the tiered rate in the P-SMBP—ED. Western agrees with customers that continuing a tiered rate charge for loads in excess of 60 percent monthly load factor discourages load management, and eliminating the tiered rate from the P-SMBP—ED firm electric service schedule is consistent with the design of firm electric service rates in the P-SMBP—WD.

Western is also proposing to redesign its revenue recovery methodology for firm peaking service. Under proposed Rate Schedule P-SED-FP9, the firm peaking capacity charge will be calculated by dividing one-half of the P-SMBP—ED revenue requirement by the sum of the total allocated seasonal CRODs modeled as monthly billing units for both firm electric and firm peaking service. While Western is proposing to redesign its methodology for calculating the firm peaking capacity rate, it notes that the firm electric capacity and firm peaking capacity rates combined will continue to recover one-half of P-SMBP—ED annual revenue requirement.

As set forth in Table 1, above, under proposed Rate Schedule P-SED-FP9, the firm peaking capacity rate will increase to $5.10 per kWmonth, or 14.6 percent. Peaking energy is either returned to Western or paid for in accordance with the terms of the contract between Western and the peaking power customer. The firm peaking energy rate is set forth in Table 1, above.

Legal Authority

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

Western is establishing firm electric service and peaking rates for P-SMBP—ED 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, particularly 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

Interested parties may review and copy all brochures, studies, comments, letters, memorandums, or other documents that Western initiates or uses to develop the proposed rates. These documents are at the Upper Great Plains Regional Office, located at 2900 4th Avenue North, Billings, Montana. Many of these documents and supporting information are also available on Western's Web site under the “2008 Firm Rate Adjustment” section located at http://www.wapa.gov/​ugp/​rates/​2008firmrateadjust.

Ratemaking Procedure Requirements

Environmental Compliance

In compliance with the National Environmental Policy Act of 1969 (NEPA) (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 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 18, 2007.

Timothy J. Meeks,

Administrator.

Footnotes

1.  WAPA-126 was approved by the Deputy Secretary of Energy on November 5, 2005 (70 FR ¶ 71280), and confirmed and approved by FERC on a final basis on April 27, 2006, in Docket No. EF06-5031-000 (115 FERC ¶ 62107).