E7-17404. Boulder Canyon Project

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of base charge and rates.

SUMMARY:

The Deputy Secretary of Energy has approved the Fiscal Year (FY) 2008 Base Charge and Rates (Rates) for Boulder Canyon Project (BCP) electric service provided by the Western Area Power Administration (Western). The Rates will provide sufficient revenue to pay all annual costs, including interest expense, and repay investments, within the allowable period.

DATES:

The Rates will be effective the first day of the first full billing period beginning on or after October 1, 2007. These Rates will stay in effect through September 30, 2008, or until superseded by other rates.

FOR FURTHER INFORMATION CONTACT:

Mr. Jack Murray, Rates Team Lead, Desert Southwest Customer Service Region, Western Area Power Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, [phone], e-mail [e-mail].

SUPPLEMENTARY INFORMATION:

Rate Schedule BCP-F7, Rate Order No. WAPA-120, effective October 1, 2005, through September 30, 2010, allows for an annual recalculation of the rates.^[1]

Under Rate Schedule BCP-F7, the existing composite rate, effective on October 1, 2006, was 17.02 mills per kilowatthour (mills/kWh). The base charge was $67,509,136, the energy rate was 8.51 mills/kWh, and the capacity rate was $1.63 per kilowattmonth (kWmonth). The newly calculated rates for BCP electric service, to be effective October 1, 2007, will result in an overall composite rate of 17.64 mills/kWh. The proposed rates were calculated using the FY 2008 Final Ten Year Operating Plan. This resulted in an increase of approximately 3.60 percent when compared with the existing BCP electric service composite rate. The increase is due to a decrease in the projected energy sales. The FY 2008 base charge is decreasing to $66,975,283. The major contributing factor to the decrease is a portion of the post September 11, 2001, security costs which will have been fully collected in the FY 2007 base charge, being deemed non-reimbursable in FY 2007. This results in a larger year end carryover into FY 2008, reducing the revenue requirement. The FY 2008 energy rate of 8.82 mills/kWh is approximately a 3.60 percent increase from the existing energy rate of 8.51 mills/kWh. The increase in the energy rate is due to a decrease in the projected energy sales resulting from continued poor hydrology in the region which results in lower Lake Mead water elevations. The FY 2008 capacity rate remains at the existing $1.63/kWmonth. Although the capacity sales are decreasing due to dropping lake elevations, the base charge is also decreasing resulting in no change to the capacity rate.

The following summarizes the steps taken by Western to ensure involvement of all Interested Parties in determining the Rates:

1. On February 9, 2007, a letter was mailed from Western's Desert Southwest Customer Service Region to the BCP Contractors and other Interested Parties announcing an informal customer meeting and public information and comment forums.

2. A Federal Register notice was published on February 14, 2007 (72 FR 7026), announcing the proposed rate adjustment process, initiating a public consultation and comment period, announcing public information and public comment forums, and presenting procedures for public participation.

3. Discussion of the proposed Rates was initiated at an informal BCP Contractor meeting held March 7, 2007, in Phoenix, Arizona. At this informal meeting, representatives from Western and the Bureau of Reclamation (Reclamation) explained the basis for estimates used to calculate the Rates and held a question and answer session.

4. At the public information forum held on April 11, 2007, in Phoenix, Arizona, Western and Reclamation representatives explained the proposed Rates for FY 2008 in greater detail and held a question and answer session.

5. A public comment forum held on May 9, 2007, in Phoenix, Arizona, gave the public an opportunity to comment for the record.

6. Western received two comment letters during the 90-day consultation and comment period. The consultation and comment period ended May 15, 2007. All comments were considered in developing the Rates for FY 2008. Written comments were received from:

Metropolitan Water District of Southern California, California

Irrigation & Electrical Districts Association of Arizona, Arizona

Comments and responses, paraphrased for brevity when not affecting the meaning of the statements, are presented below.

Security Costs

Comment: A BCP Contractor commented that the $10 million cap placed on post September 11, 2001, security costs for 2006 should remain in place since Reclamation is still under a continuing resolution in 2007. Numerous Contractors as well as an Interested Party also commented that these costs should be treated as non-reimbursable or shared with other beneficiaries of the BCP. The BCP Customers believe the Hoover Dam and Lake Mead provide a wide range of important benefits to a number of different classes of beneficiaries such as water users, boaters, fishermen and recreational users, and those users should share in the recovery of the post September 11, 2001, security costs.

Response: It is true that the Bureau is operating under a continuing resolution in 2007. However, the $10 million cap is not binding in 2007 and there is no Congressional direction to limit security cost reimbursement to $10 million as in FY 2006. The Bureau has carefully considered the concerns of power customers over costs as well as the intent that project beneficiaries should pay a share of the security costs just as they do other O&M costs. Based on discretion allowed under Reclamation law, the Bureau has determined that absent clear guidance from the Congress, FY 2007 will be a second transition year in which reimbursement of security costs will be increased from $10 million in FY 2006 to $14.5 million in FY 2007 and will be distributed among project beneficiaries proportionately using methodology similar to that used in FY 2006. Of the $4,111,000 for FY 2007 guard and patrol security costs at Hoover, $954,850 will be non-reimbursable costs.

Post Civil Service Retirement Costs

Comment: A Contractor objects to post Civil Service Retirement System (CSRS) costs being collected through the rates. The Contractor claims these expenses are paid through appropriations and therefore the rates are in excess of the legitimate cost of service. The Contractor requests that the DOE General Counsel re-examine the issue and order that the funds that have been collected be returned to the rate payers. The Contractor questions whether Western is pursuing such action.

Response: In a memorandum dated July 1, 1998, the DOE General Counsel concluded that the Power Marketing Administrations have the authority to collect the full costs of the retirement benefits. Western subsequently began collecting CSRS costs in BCP rates. When Western filed the rate schedule for the BCP as part of Rate Order No. WAPA-94, the Contractor protested to FERC regarding Western's inclusion of these costs. In an Order issued July 31, 2001, FERC ruled that Western's inclusion of the full CSRS costs in its computation of the costs of project operation, and thus in its rates, is neither arbitrary nor capricious nor in violation of law. Docket No. EF00-5092-000 (96 FERC ¶ 61171). The contractors contention is contrary to well settled precedent. FERC has ruled on at least five occasions that CSRS cost are legitimate for inclusion in PMA rates. See 86 FERC ¶ 61,195 (Feb. 26, 1999), rehearing denied, 96 FERC ¶ 61,171 (July 31, 2001), Southeastern Power Administration's (SEPA's) Georgia Alabama rate; 90 FERC ¶ 61,266 (March 17, 2000), rehearing denied, 91 FERC ¶ 61,272, (June 15, 2000), SEPA's Cumberland rates); 93 FERC ¶ 62,100 (Nov. 9, 2000), SEPA's Jim Woodruff rates; 87 FERC ¶ 61,346 (June 22, 1999), Western's Pacific Northwest Pacific Southwest Intertie rates; and 96 FERC ¶ 61,171 (July 31, 2001), Western's Boulder Canyon rates.

Compliance With Northern Electricity Reliability Council (NERC) Standards

Comment: A BCP Contractor requests that Western and Reclamation ensure their compliance with mandatory NERC reliability requirements established by the Energy Policy Act of 2005. They stressed that all costs associated with meeting NERC requirements, as well as associated membership dues such as those paid to the Western Electric Coordinating Council, are appropriately budgeted and allocated to customers. The Contractor further requested that any potential or actual noncompliance penalties that impact BCP and exceed $10,000 be communicated to BCP contractors, and that BOR and Western provide regular updates at the upcoming Engineering and Operating Committee (E&OC) and Technical Review Committee meetings.

Response: Western and the Bureau are both aware of the mandatory NERC reliability standards and the potential cost impact to BCP. Appropriate compliance-related costs have been incorporated into the agency's FY 2008 budget calculations. Both agencies will continue to include all costs associated with properly operating and maintaining the system in the annual budget calculations. Western has developed a team that will review ongoing required compliance activities and has committed to tracking the specific costs related to those activities through separate account numbers in its financial accounting system.

Managing for Excellence Program

Comment: Numerous BCP Contractors suggested Western monitor progress of Reclamation's “Managing for Excellence Program”. They shared that the program and strategy is good but Western needs to ensure it does not impact or interfere with the current successful partnership shared among the customers, Reclamation, and Western on the Lower Colorado River Projects, specifically, the BCP.

Response: Reclamation reports to the BCP E&OC on an ongoing basis on the status of its Managing for Excellence Program. Western is confident that monitoring any potential impacts from Reclamation's Program to the BCP would be through the E&OC process. In the update provided at the May 23, 2007, E&OC meeting, Reclamation invited the BCP Contractors to attend a meeting regarding the Managing for Excellence Program in Denver on May 30, 2007. Reclamation encourages the Contractors to participate in future meetings and share any concerns they may have with this Program.

Visitor Center

Comment: BCP Contractors expressed appreciation to Western and Reclamation for exploring additional funding sources for BCP besides customer funding. In addition, they remain concerned with the continuing imbalance between the visitor center costs and the revenues due to reduced visitation since the terrorist attack on September 11, 2001.

Response: Western and the Bureau appreciate the recognition for the efforts contributed by both Federal agencies. Both agencies commit to continual efforts, in partnership with the power customers, to explore new funding opportunities and to develop strategies for pursuing those opportunities for alternative sources of funding for the Visitor Center. To further those efforts, at the May 23, 2007, E&OC meeting, Reclamation presented a draft business plan which includes ideas to increase visitor center revenues. Upon completion of the draft plan, Reclamation will reconvene with an ad hoc committee comprised of Reclamation, Western and the Contractors to review and have input on finalizing and implementing the business plan recommendations.

Other Comments

Comment: A Contractor noted that Western had prevailed in certain litigation before the U.S. Federal Courts of Appeals and thanked Western for the diligence and efforts it took to protect its customers from the lawsuit.

Response: Western appreciates the comment.

Comment: A Contractor commends Reclamation and Western in their determination and recognizes and appreciates their efforts in the various annual rate processes.

Response: Reclamation and Western appreciate the comment.

BCP Electric Service Rates

BCP electric service rates are designed to recover an annual revenue requirement that includes operation and maintenance expenses, payments to states, visitor services, the uprating program, replacements, investment repayment, and interest expense. Western's Power Repayment Study (PRS) allocates the projected annual revenue requirement for electric service equally between capacity and energy.

Availability of Information

Information about this base charge and rate adjustment, including power repayment studies, comments, letters, memorandums, and other supporting material made or kept by Western used to develop the FY 2008 BCP base charge and rates, is available for public review in the Desert Southwest Customer Service Regional Office, Western Area Power Administration, 615 South 43rd Avenue, Phoenix, Arizona. The information is also available on Western's Web site at http://www.wapa.gov/​dsw/​pwrmkt/​BCP/​RateAdjust.htm.

Ratemaking Procedure Requirements

BCP electric service rates are developed under the Department of Energy Organization Act (42 U.S.C. 7101-7352), through which the power marketing functions of the Secretary of the Interior and the Bureau of Reclamation under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent enactments, particularly section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)), and other acts that specifically apply to the project involved, were transferred to and vested in the Secretary of Energy, acting by and through Western.

By Delegation Order No. 00-037.00, effective December 6, 2001, the Secretary of Energy delegated (1) the authority to develop long-term power and transmission rates on a nonexclusive basis 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 Federal Energy Regulatory Commission (Commission). Existing DOE procedures for public participation in electric service rate adjustments are located at 10 CFR part 903, effective September 18, 1985 (50 FR 37835), and 18 CFR part 300. DOE procedures were followed by Western in developing the rate formula approved by the Commission on June 22, 2006, at 115 FERC ¶ 61362.

The Boulder Canyon Project Implementation Agreement requires Western, prior to October 1 of each rate year, to determine the annual rates for the next fiscal year. The rates for the first rate year, and each fifth rate year thereafter, will become effective provisionally upon approval by the Deputy Secretary of Energy subject to final approval by the Commission. For all other rate years, the rates will become effective on a final basis upon approval by the Deputy Secretary of Energy. This is the second year following Commission approval of BCP-F7 rate. Accordingly, this rate will become final upon approval by the Deputy Secretary.

Western will continue to provide annual rates to the BCP Contractors by October 1 of each year using the same ratesetting formula. The rates are reviewed annually and adjusted upward or downward to assure sufficient revenues exist to achieve payment of all costs and financial obligations associated with the project. Each fiscal year, Western prepares a PRS to update actual revenues and expenses and include future estimates of annual revenues and expenses for the BCP, including interest and capitalized costs.

Western's BCP electric service ratesetting formula set forth in Rate Order No. WAPA-70 was approved on April 19, 1996, in Docket No. EF96-5091-000 at 75 FERC ¶ 62050, for the period beginning November 1, 1995, and ending September 30, 2000. Rate Order No. WAPA-94, extending the existing ratesetting formula beginning on October 1, 2000, and ending September 30, 2005, was approved on July 31, 2001, in Docket No. EF00-5092-000 at 96 FERC ¶ 61171. Rate Order No. WAPA-120, extending the existing ratesetting formula for another five-year period beginning on October 1, 2005, and ending September 30, 2010, was approved on June 22, 2006, in Docket No. EF05-5091-000 at 115 FERC ¶ 61362. The BCP ratesetting formula includes a base charge, an energy rate, and a capacity rate. The ratesetting formula was used to determine the BCP FY 2008 Base Charge and Rates.

Western has proposed a FY 2008 base charge of $66,975,283, an energy rate of 8.82 mills/kWh, and a capacity rate of $1.63/kW month. Consistent with procedures set forth in 10 CFR part 903 and 18 CFR part 300, Western held a consultation and comment period. The notice of the proposed FY 2008 Rates for electric service was published in the Federal Register on February 14, 2007 (72 FR 7026).

Under Delegation Order Nos. 00-037.00 and 00-001.00B, and in compliance with 10 CFR part 903 and 18 CFR part 300, I hereby approve the FY 2008 Rates for BCP Electric Service on a final basis under Rate Schedule BCP-F7, through September 30, 2008.

Dated: August 21, 2007.

Clay Sell,

Deputy Secretary of Energy.

Footnotes

1.  WAPA-120 was approved by the Deputy Secretary of Energy on August 11, 2005 (70 FR 50316) and confirmed and approved by FERC on a final basis on June 22, 2006, in Docket No. EF05-5091-000 (115 FERC ¶ 61,362).