[Federal Register Volume 60, Number 203 (Friday, October 20, 1995)]
[Rules and Regulations]
[Pages 54151-54180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25829]



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  Federal Register / Vol. 60, No. 203 / Friday, October 20, 1995 / 
Rules and Regulations  

[[Page 54151]]


DEPARTMENT OF ENERGY

Western Area Power Administration

10 CFR Part 905


Energy Planning and Management Program

AGENCY: Western Area Power Administration, DOE.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Western Area Power Administration is publishing this final 
rule to adopt an Energy Planning and Management Program. The Program is 
being developed in part to implement section 114 of the Energy Policy 
Act of 1992. The Program requires the preparation of integrated 
resource plans by Western's customers and establishes a framework for 
extension of existing firm power resource commitments.

EFFECTIVE DATE: These regulations will become effective November 20, 
1995.

FOR FURTHER INFORMATION CONTACT: For additional information, please 
contact: Robert C. Fullerton, Western Area Power Administration, P.O. 
Box 3402, A3100, Golden, CO 80401-0098, (303) 275-1610.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion of comments
    A. Energy Planning and Management Program-Overview
    1. General
    B. Integrated Resource Planning
    1. Specificity of Regulations
    2. IRP Content
    3. IRP Review and Approval
    4. Member-Based Associations
    5. Economic Feasibility and Administrative Burden
    6. IRP Cooperatives
    7. Technical Assistance
    8. Submittal Timing
    9. Irrigator Issues
    10. Future Program Review
    11. Penalty
    C. Power Marketing Initiative
    1. Applicability
    2. Contract Term
    3. Extension Percentage
    4. Resource Pool Creation
    5. Resource Pool Uses
    6. Resource Adjustment
    7. Notice
    8. Native American Issues
    9. Resource Acquisition by Western
    10. Implementation
    11. Other Marketing Issues
    D. Other Issues
    1. Support of Renewables
    2. Project Use
III. Summary of Changes from the Proposed Program
IV. Supplemental Explanation of the Rule
V. Regulatory Review
VI. Review under the Regulatory Flexibility Act
VII. Review under the Paperwork Reduction Act
VIII. Review under the National Environmental Policy Act
IX. Review under Executive Order 12612
X. Review under Executive Order 12778

I. Background

    On April 19, 1991, the Western Area Power Administration (Western) 
proposed an Energy Planning and Management Program (Program) (56 FR 
16093). The goal of the Program was to require planning and efficient 
electric energy use by Western's long-term firm power customers and to 
extend Western's firm power resource commitments. On May 1, 1991, 
Western announced its intention to prepare an environmental impact 
statement (EIS) on the Program due to potentially significant 
environmental and economic issues that may be of interest to the public 
(56 FR 19995). Combined public information/environmental scoping 
meetings on the Program were held in seven States in June of 1991. 
Based on the feedback received from these meetings, Western developed 
alternatives to be analyzed in the EIS. Alternatives workshops were 
held in eight cities during March and April 1992. Based on further 
public input received during these workshops, as well as comments 
previously received, Western announced a tentative preferred 
alternative for the EIS in a Program newsletter in June of 1992.
    On October 24, 1992, the President signed the Energy Policy Act of 
1992 (EPAct), Public Law 102-486, into law. Section 114 of that 
legislation requires the preparation of integrated resource plans (IRP) 
by Western's customers and amends Title II of the Hoover Power Plant 
Act of 1984. Western has adjusted its Program to reflect fully the 
provisions of this law.
    On March 31, 1994, a notice of public availability of the draft EIS 
was published in the Federal Register (59 FR 15198). The Environmental 
Protection Agency also published a notice of availability of the draft 
EIS on April 1, 1994, officially starting a 45-day public comment 
period. Eight hearings were held throughout Western's service 
territory, with more than 130 members of the public in attendance. 
About 200 written comments were received on the draft EIS.
    The Program goal is to promote the efficient use of electric energy 
by Western's customers and to extend Western's long-term firm power 
resource commitments in support of customer IRPs. A major purpose of 
this action is to assure the customers which purchase Federal power 
greater stability in planning for future resources than would exist in 
the absence of the Program. The Program has two major components: (1) 
An integrated resource planning provision conforming to the 
requirements of EPAct and (2) a Power Marketing Initiative (PMI). The 
IRP provision, formerly known as the Energy Management Program, would 
require most long-term firm power customers to (1) develop and 
implement an IRP, (2) submit an updated IRP every 5 years, and (3) 
submit an annual progress report. A different requirement for small 
customers with an annual load or usage of 25 GWh or less is 
established, as allowed in the EPAct. This IRP provision and small 
customer provision will amend Western's Final Amended Guidelines and 
Acceptance Criteria (G&AC) for Customer Conservation and Renewable 
Energy (C&RE) Programs of August 21, 1985 (50 FR 33892). Western will 
continue to provide a wide range of technical assistance to customers. 
As provided by EPAct, 42 U.S.C. (7276b(e)), a penalty provision for 
noncompliance with the IRP provision will consist of a 10-percent 
surcharge for the first 12 months of noncompliance, 20 percent for the 
next 12 months of noncompliance, and 30 percent thereafter for as long 
as noncompliance persists. In lieu of a surcharge after the first 12 
months of noncompliance, Western may impose a 10-percent resource 
reduction penalty if 

[[Page 54152]]
such an approach is more effective in assuring compliance or is more 
cost-effective for Western. The penalties in this Program will be 
incorporated into the contracts that extend resources and will be 
effective upon contract execution. Penalties in existing contracts will 
continue to be in effect until changed.
    The PMI establishes a framework for extending a major portion of 
the power currently under contract with existing customers. Western 
will extend its existing long-term firm resource commitments, subject 
to the outcome of project-specific environmental analysis as 
appropriate. Initially, the Pick-Sloan Missouri Basin Program-Eastern 
Division and the Loveland Area Projects are covered by the PMI. The 
term of the extension would be 20 years from the date that existing 
contracts expire. The level of the commitment to existing customers 
would be a project-specific percentage of the marketable resource 
determined to be available when future resource extensions begin, as 
described in section 905.33 of the regulations, with two withdrawals at 
5-year intervals after the new contracts become effective. Unextended 
resources would be available for allocation to new customers and other 
purposes as determined by Western. In addition, marketable resources 
placed under contract could be adjusted on 5 years' notice, and then 
only in response to changes in hydrology and river operations.

II. Discussion of Comments

    On August 9, 1994, a notice of the proposed Program and request for 
public comments was published in the Federal Register (59 FR 40543). 
Seven combined public information/comment forums were held throughout 
Western's service territory in September 1994. The original comment 
period of 60 days was extended in response to a public request. 59 FR 
53976 (October 27, 1994). The comment period closed 90 days after 
publication of the notice of the proposed Program.
    Western has received numerous comments as a result of publication 
of the proposed Program in the Federal Register on August 9, 1994. The 
following section responds to those comments. Each issue is presented 
in a format featuring background, public comments and discussion. 
Responses to all comments on Native American issues are in section C.8. 
Comments pertaining to the environmental impact statement are addressed 
in Appendix G of the final EIS.

A. Energy Planning and Management Program--Overview

1. General
a. Background
    Western initially proposed the Program in April of 1991, and has 
devoted over 4 years to public process and Program development. The 
publication of the proposed program on August 9, 1994, included 
comprehensive responses to public comments received as of that date. 
This response to comments section includes only those comments received 
since that date.
b. Comments and Discussion
    Comments were received in favor of finishing the public process 
quickly. Public comment was received in support of the spirit of 
compromise that is reflected in the Power Marketing Initiative. Western 
was asked to keep the hydroelectric resource reliable and cost-based. 
Others commended Western for the time and attention it has devoted to 
produce an improved Program proposal. The proposed rule was viewed as a 
substantial improvement over the alternatives presented in the draft 
EIS. This Federal Register notice represents the final step in the 
development of the Program. The Power Marketing Initiative and the 
Integrated Resource Planning Provision will become effective 30 days 
after publication of this rule in the Federal Register. Western is 
appreciative of the widespread participation in the public process by 
customers, Indian tribes, environmental groups and other interested 
parties. This extensive participation has resulted in an improved 
Program that is responsive to the comments of the public.
    Western was asked to publish the final Program as a rule within the 
Code of Federal Regulations. Western agrees with this comment. The 
Program regulations will appear in Title 10, which deals with energy-
related subjects. Explanatory text and the detailed description of the 
future application of the PMI have been moved to the preamble.
    Another comment suggested that Western adopt the section of the 
Federal Register publication entitled ``Response to Comments on the 
Energy Planning and Management Program,'' specifically found at 59 FR 
40552-40562, as interpretative guidelines to accompany the IRP rules. 
Western concurs that the responses to comments contained in the August 
9, 1994, Federal Register notice are useful in providing insight and 
guidance to assist the public in understanding Western's rationale for 
the proposed Program. The responses to comments in this notice of final 
rulemaking play a similar role. Although Western's responses to 
comments will not be published in the Code of Federal Regulations, they 
serve the purpose of interpretative guidelines and are available to 
clarify the intent of Western in promulgating the final Program.
    Western received a request for an additional 120 day extension of 
the comment period. Western initially provided for a 60 day comment 
period, and later extended the comment period by 30 days in response to 
a public request. The total comment period of 90 days presented ample 
opportunity for the public to understand and comment on the proposed 
Program.

B. Integrated Resource Planning

1. Specificity of Regulations
a. Background
    Section 114 of the EPAct provides the framework for the IRP 
requirement. It sets forth IRP criteria as well as administrative 
principles and requirements. As set forth by section 114, Western shall 
approve an IRP if, in developing the plan, the customer has addressed 
the criteria provided.
b. Comments and Discussion
    A number of customers commented that the distinction between 
customers and purchasers should be dropped because the terms are 
defined differently but used synonymously, so the term ``purchaser'' 
has been deleted from the rule to avoid confusion.
    A commenter asked for clarification of the relationship between the 
IRPs required under section 114 of EPAct and the requirement to 
consider integrated resource planning under Section 111. Section 
111(a)(7) of EPAct is an amendment to the Public Utility Regulatory 
Policies Act. If a Western long-term firm power customer falls under 
this regulatory authority, only one IRP will be required as long as the 
IRP submitted to the State regulatory authority and to Western also 
meets the approval criteria addressed in the IRP regulations and 
section 114 of EPAct.
    A few customers requested a refinement of IRP regulations to make 
them ``more suitable for non-generating and end-use customers.'' Most 
end-use customers will qualify for small customer status, which 
requires that they submit a plan that (1) considers all reasonable 
opportunities to meet future energy service requirements using demand-
side management (DSM) techniques, new renewable resources, 

[[Page 54153]]
and other programs that are cost- effective, and (2) minimizes adverse 
environmental effects to the extent practicable. For those that do not 
qualify, Western will review IRPs based on the customer size, type, 
resource needs, geographic area, and competitive situation. There is no 
need to tailor these regulations further as the capabilities of non-
generating end-use customers are adequately recognized under the 
``reasonableness'' review standard in 905.13.
    Western was requested to delete the word ``new'' from the 
definition of IRP, based on the viewpoint that integrated resource 
planning is a planning process that can be applied to all resources. 
Western has not removed the word ``new'' from the definition of IRP 
because Congress included this adjective in section 114 of EPAct. 
However, analysis of all resource options would allow the customer to 
incorporate cost-effectiveness of current resources into utility 
decision-making which in turn provides for sound long-term decisions 
based on least-cost resource planning. To remain competitive in a 
dynamic utility industry, Western's customers may find value in 
evaluating continuously all costs, including those from both existing 
and potential future resources.
2. IRP Content
a. Background
    Section 114 of EPAct defines the elements and content that must be 
addressed in an IRP. Although these requirements must be addressed, 
Western understands the importance of balancing needs for flexibility 
and equity among a diverse customer base. Western's primary interest is 
in providing an adequate framework for customer use of the IRP process 
as a tool for meeting resource needs.
b. Comments and Discussion
    Many commenters requested that Western remove the ``Other 
Criteria'' because it is overly broad. Western included element 8, 
``Met such other criteria as the Administrator shall require,'' in the 
proposed rules primarily to track the language and format of EPAct, and 
to give the flexibility to add other requirements as might later become 
necessary. In order to give customers reassurance that Western will not 
arbitrarily change or add requirements without the proper public review 
and comment process, this element has been dropped.
    A stakeholder suggested that each IRP or small customer plan 
submitted to Western should describe the formal and informal service 
relationships the customer has with trade allies that can provide DSM 
sales and service delivery to the utility and its customers if the IRP 
or small customer action plan includes DSM resources. If a customer 
chooses, partnerships can be formed with trade allies that can provide 
DSM sales and services in support of IRP implementation plans. However, 
it is not the intent of EPAct nor appropriate for Western to require 
IRP or small customer plan submittals to describe the service 
relationships that Western's customers have with trade allies. A trade 
ally has the opportunity to participate in a customer's IRP process and 
DSM pursuits through the customer's public process, and pursue a 
voluntary partnership with Western's customers.
    Western was asked to define practicable. EPAct states that IRPs 
must identify and accurately compare all practicable energy efficiency 
and energy supply resource options available to the customer. Using the 
reasonableness test set forth in section 905.13(a), practicable in this 
case means those energy efficiency and energy supply resource options 
which are appropriate for the customer's size, type, resource needs, 
geographic area, and competitive situation. Practicable resource 
options are both economically and technically feasible. Western will 
not dictate resource choices.
    One customer noted that there is no option in the action plan to 
report that there is nothing further that a customer can do than it is 
already doing, and that this language needs to be added. Language has 
been added in section 905.11 so that there is an option for customers 
to report in an action plan that they are not experiencing or 
anticipating load growth. Even when customers are not experiencing load 
growth, action plans may describe how otherwise ``lost opportunities'' 
have been pursued, such as encouraging energy efficiency in new housing 
to avoid the expense of retrofitting in the future.
    Comment was received on the criteria for determining that customers 
have complied with the requirements for minimizing adverse 
environmental impacts associated with resource choices. The criteria 
for assessing whether customers have complied with the requirements for 
minimizing adverse environmental impacts of new resource acquisitions 
are stated in EPAct and supplemented by this rule. In addition, Western 
cannot exempt any organization from complying with existing 
environmental laws and regulations due to customer size. Western will 
not determine for its customers the level of environmental compliance 
appropriate for each action.
    A number of customers and stakeholders submitted comments regarding 
environmental externalities. Western will not require customers to 
include a quantitative analysis of environmental externalities in their 
IRPs for the following reasons: (1) EPAct, which did not use the term 
``externalities,'' created a different ``minimization to the extent 
practicable'' review standard for IRPs; (2) the externality issue 
continues to be subject to public debate and scientific analysis, with 
no consensus being reached; (3) there is no consensus on the numbers 
that should be used to value certain emissions and pollutants; (4) 
quantification of externalities is a policy question that appears to 
fall under state jurisdiction at the present time. Establishment of a 
Western standard would not appropriately reflect comity between the 
states within Western's service territory and the Federal government. 
Complicating the issue is the fact, as described in more detail in the 
EIS, that the Western states have widely varying policies on 
quantification of externalities; (5) it would be impossible to 
reconcile a common externality standard with the heterogeneous 
approaches of the states; and (6) if Western were to require 
quantification of externalities, Western's customers could find 
themselves at a inappropriate competitive disadvantage as compared to 
noncustomer utilities not bound by such a stringent standard under 
state laws and regulations.
    Customers asked what Western considers public involvement for a 
rural electric cooperative. Additionally, customers and stakeholders 
stated that Western should allow flexibility in interpreting the public 
process requirements; outside entities should have the opportunity to 
review and comment on submitted IRPs once Western receives them; and 
Western should require that customer utilities meet minimum standards 
for public participation, including the creation of public advisory 
groups. Given the diversity of customers Western serves, Western 
intentionally defined the term ``public participation'' in general 
terms so as to allow customers the flexibility they need to comply with 
this requirement. Full public participation will be interpreted to mean 
that ample opportunity was provided for the public to participate in or 
influence the preparation and development of an IRP, as required by 
905.11. The summary of the public participation process in the IRP 
should describe how the customer 

[[Page 54154]]
(1) gathered information from the public, (2) identified public 
concerns, (3) shared information with the public, and (4) responded to 
public comments. Additionally, Western feels that public participation 
at the local/regional level is adequate and that it is not necessary to 
provide another opportunity for public comment once the IRP has been 
filed with Western.
    One customer commented that the load forecasting examples in the 
rule ``make no sense'' for Federal load. No load forecasting examples 
are given in the Rule except as referred to for a methodology (i.e., 
time series method, end-use method, econometric method). These are the 
three methods most used for load forecasting, but they are not required 
by Western. The customer should determine the method(s) best suited for 
its own needs, though that method should use an accepted methodology 
such as one or more of the three listed above. Customers should develop 
forecasts upon which to base their IRPs. EPAct requires that, with the 
exceptions addressed in section 905.11(b)(3), least-cost options must 
be adopted by customers under the IRP.
    Many customers commented on quantification and resource tests. The 
following questions were asked: Is Western prescribing that a levelized 
cost method be used? If renewable resources are not cost-effective, how 
can they be included in the least-cost plan? If they are cost-
effective, why should they be given priority if they will be in the 
least-cost plan? Additionally, customers stated that they preferred 
that Western not prescribe a method. There is concern about how 
utilities will deal with the least-cost provisions or whether they can 
still use supply- and demand-side projects in the IRP process and still 
do their planning in order to minimize rates and remain competitive. 
Comment was also received that Western needs to address the additional 
exemptions to least-cost based decision-making related to state law 
requirements; and that Western's IRP requirement should impose no 
standard stricter than the standard used by the state public utility 
regulatory agency in which a given customer does business. Western is 
not prescribing that a levelized cost method be used. Instead, the 
final rule requires that evaluation of demand and supply resource cost 
effectiveness for larger customers be done on a comparable basis. 
Examples of types of methods Western expects from a larger customer are 
given, but no specific method is required. The least-cost provisions, 
as part of the IRP, are meant to allow utilities to be more 
competitive. Analyses of a variety of situations--including possible 
exceptions to least-cost based decisions--will promote competitiveness 
as well as rate minimization. Renewables do not have to be given 
priority, but must be fully evaluated alongside demand- and other 
supply-side resources. EPAct states that to the extent practicable, 
energy efficiency and renewables may be given priority in any least-
cost option. Language has been added, under section 905.11, stating 
that exceptions to least-cost-based decisions may be made where Federal 
or State requirements mandate other than a least-cost based decision. 
EPAct allows the choices in this area to be made at the reasonable 
discretion of the customer as long as supply- and demand-side resources 
are compared using a consistent economic analysis. As long as the 
customer meets the criteria as defined in EPAct and these regulations, 
Western will not impose any standard stricter than the standard used by 
the state public utility regulatory agency in which a given customer 
does business.
    Western received comment that the rule needs to better define 
economic tests and more clearly describe the economic evaluations made. 
Comment was received that Western should require customers to use the 
total resource test to screen demand-side measures and the societal 
test to evaluate demand-side programs; and that customers should be 
required to use minimization of revenue requirements as the standard to 
choose least-cost options. Western will not mandate the use of a 
particular test to screen resource options or as a standard in the 
resource selection process. While examples of analyses are set forth 
elsewhere in this Federal Register notice, EPAct does not require the 
use of any particular tests. There is no compelling reason to force 
customers to take the same approach when a number of different tests 
are currently used in IRP preparation by utilities and utility 
commission review throughout the United States. Western will review the 
approach chosen by its customers for reasonableness, taking into 
account each customer's size, type, resource needs, geographic area, 
and competitive situation.
    A few customers commented that they are opposed to quantification 
of savings. Western is not requiring unreasonable efforts by customers 
to quantify savings. Section 905.11 describes the need for customers to 
establish methods of validating predicted performance.
3. IRP Review and Approval
a. Background
    Western has proposed that the required elements of an IRP or a 
small customer plan must be addressed in a reasonable manner by a 
customer before Western approves the IRP or small customer plan.
b. Comments and Discussion
    Customers commented that the flexibility to amend IRPs at any time 
should be incorporated into the regulations. Western was asked to 
clarify the difference between good faith efforts and mitigating 
circumstances. Comment was received regarding an apparent conflict 
between the time tables for requesting small customer status and the 
general time line when activities need to be accomplished. One customer 
stated that the size of the Western allocation should be a factor in 
IRP review. Western will apply a reasonableness test in its review and 
approval of customer IRPs and small customer plans which asks the 
following two questions:
    1. Is the customer's application of the IRP or small customer 
criteria consistent with the intent of EPAct and these regulations?
    2. Is such application appropriate for the customer's size, type, 
resource needs, geographic area, and competitive situation?

Western will use the reasonableness test, as applied to the criteria in 
Subpart B, as a basis for plan review and approval. Western will not 
use the size of the Western allocation as a factor in review, as EPAct 
does not allow for such an approach.
    In using this reasonableness test as the basis for approval of 
plans, other language has been incorporated into the regulations which 
clarifies the review and approval process. Specifically, language has 
been added which: allows amendments and revisions to IRPs to be 
submitted at any time (under section 905.12(c)(5)); delineates ``good 
faith effort'' and deletes the term ``mitigating circumstances'' (under 
section 905.17(b)); and amends the originally proposed time table for 
IRPs and small customer plans (under section 905.12(c)), so that 
requests for IRP cooperative and small customer status must be made to 
Western within 30 days (not 60) of the effective date of the Program, 
allowing the time tables to match and allowing for a more expedient 
process. Additionally, there is no longer a requirement for customers 
to submit a notification of intent to prepare an individual or MBA IRP. 


[[Page 54155]]

    One customer asked how customers should act when preparing their 
IRPs which are dependent on time-limited offers of power from third 
parties. When preparing plans dependent upon time-limited resource 
offers, a customer should develop the plan based upon the best 
information available. The customer determines its own resource needs, 
so it should accept the time-limited offer if that is in its best 
interests, and then let Western know through its annual progress report 
or an amended action plan. Western will not disapprove such a decision 
if it is in the best interests of the customer, was evaluated alongside 
supply- and demand-side resources, and was a ``least-cost option'' (or 
is an adequate cost-effective exception as addressed in section 
905.11).
4. Member-Based Associations
a. Background
    There is considerable variety in the contractual arrangements among 
Western's member-based association (MBA) customers. Some MBAs are the 
sole supplemental power supplier for the members and have load growth 
responsibility, others act as a representative for the members and have 
no generation or transmission capabilities, and others act as agents 
for or subcontract with but do not assume power supply responsibility 
for their principals or subcontractors.
b. Comments and Discussion
    Concerns were raised over the role of the MBA and its members. 
Comment was received that the submittal requirements need to be defined 
for an MBA and its members. One customer stated that Western needs to 
broaden the definition of MBA to cover both parent-type entities and 
their user members and entities which act as agents for, or subcontract 
with but do not assume power supply responsibility for, their 
principals or subcontractors. The definition of MBA has been broadened 
to include both parent-type entities and their user members and 
entities which act as agents for or subcontract with but do not assume 
power supply responsibility for their principals or subcontractors so 
that the wide variety of Western customers which are MBAs under the 
revised definition can submit IRPs on behalf of one, some, or all of 
their customers. In adding this definition, the submittal requirements 
have been further delineated.
    Two additional questions were asked: (1) To what extent must 
members of an MBA be identified in the IRP and action plans? (2) What 
is the responsibility of an MBA with members outside of its marketing 
area for an IRP? While Western agrees that members should support the 
IRP process with data and during the decision making process, it is the 
responsibility of each MBA to work with its affected membership on 
these issues. Each member receiving the benefit of long-term firm power 
from Western will be required to sign the IRP or a resolution accepting 
the IRP prior to submittal to Western. Additionally, for IRPs developed 
and submitted on behalf of the MBA's members, the IRPs must clearly 
show how each of the seven approval criteria is addressed for each 
member. MBA members outside of Western's service territory need not be 
included in the MBA's IRP, but the benefits of joint planning may be 
diminished by such an approach.
5. Economic Feasibility and Administrative Burden
a. Background
    A number of Western's customers are small or medium-sized 
utilities. Western is not proposing to define how much time and money a 
customer should invest in IRP and small customer plan development and 
implementation. Rather, Western's review will be focused on the end-
product IRP or small customer plan.
    EPAct requires that customers develop and submit annual progress 
reports to Western, which Western will in turn use in developing its 
own annual report.
b. Comments and Discussion
    Many customers asked what criteria will be used to determine that a 
small customer has ``limited economic, managerial, and resource 
capability'' to conduct an IRP. Three criteria will be used in 
determining small customer status: (1) Does the customer have total 
annual energy sales or usage of 25 GWh or less averaged over the 
previous 5 year period? (2) Is the customer not a member of a joint 
action agency or a generation and transmission cooperative with power 
supply responsibilities? (3) Does the customer have limited economic, 
managerial and resource capability to conduct integrated resource 
planning? Prior experience with customers under the 25 GWh threshold 
that are not members of a joint action agency or a generation and 
transmission cooperative with power supply responsibility has shown 
that many of these customers possess limited economic, managerial and 
resource capability to conduct integrated resource planning. If the 
customer meets all of these criteria, it will then be granted small 
customer status if requested.
    Other customers also suggested that small customers be able to 
normalize or average over a period of time their energy use or sales in 
order to qualify for the 25 GWh threshold for small customer status 
which might otherwise not be met due to extreme circumstances such as 
weather. In order to account for weather-related or other circumstances 
which might put the small customer over the 25 GWh threshold, customers 
will be responsible for documenting average annual energy sales and 
usage for the 5 years prior to the initial request. Subsequent annual 
letters documenting energy sales and use will be averaged thereafter on 
a rolling basis to determine the under 25 GWh threshold. If the 
customer exceeds 25 GWh average sales and usage after already receiving 
small customer status, an IRP will be required.
    Comments on annual progress reports included statements that the 
reports should not be required, to statements that they only be 
required every 2 or 3 years. Customers also commented that the 
requirements for the annual progress reports are excessive, especially 
the obligation to perform post mortem analysis to quantify the energy 
capacity and dollars saved under an IRP. EPAct requires that annual 
progress reports be submitted by customers to Western. The requirement 
can be satisfied by customers as long as the annual progress reports 
contain information describing the customer's progress towards the 
goals established in the plan submitted, including a report of the 
measured or estimated energy savings and renewable resource benefits 
achieved. Western is required by law to report to Congress annually 
``an estimate of the energy savings and renewable resource benefits 
achieved as a result'' of customer IRP. Western cannot develop a 
credible estimate without customer input. In the absence of credible 
data, the accomplishments of Western's customers cannot be fairly 
described.
    In lieu of a separate annual progress report, all information may 
be combined with any other report that the customer submits to Western, 
at the customer's discretion, as long as that report is submitted 
within 30 days of the IRP approval anniversary date.
6. IRP Cooperatives
a. Background
    Customers may form IRP cooperatives under EPAct and request 
Western's approval to submit IRPs for those cooperatives. Approved 
cooperatives 

[[Page 54156]]
shall have 18 months from the date of approval to submit their IRPs.
b. Comments and Discussion
    Comments on IRP cooperatives concerned limitations to forming an 
IRP cooperative, and clarification of the formation of an IRP 
cooperative as being a matter solely between those potential members 
and Western. Comment was also received that IRP cooperative status 
should be based only on the determination that an appropriate resource 
planning decision block exists; and the ``power supply chain'' example 
be removed so that it is not read as an exhaustive sample. An IRP 
cooperative allows customers with common interests, such as where a 
resource decision block exists, to form an IRP cooperative for the 
purpose of jointly developing and implementing an IRP. Individual 
member responsibilities and participation levels, as with MBA IRPs, 
must be identified in the IRP. A resource planning decision block 
includes a situation such as if all entities covered by an IRP are 
contained within a power supply chain, or regional entities covered by 
an IRP will plan for joint supply-side, demand-side, and/or renewable 
resources above and beyond the Western resource. It is permissible for 
a customer to prepare an IRP jointly with an investor-owned utility. 
These are examples and are not all-encompassing definitions.
    Section IV of this supplementary information section gives examples 
of entities that would be favorably considered for IRP cooperative 
status.
7. Technical Assistance
a. Background
    Western has provided technical assistance to customers, which 
includes workshops, equipment loan programs, technical studies and 
analyses, peer-match evaluations, and other support, since 1980. EPAct 
authorizes Western to continue to provide technical assistance to help 
customers with integrated resource planning.
b. Comments and Discussion
    One customer commented that Western should charge for technical 
assistance based on its use. At present, Western feels that technical 
assistance, offered through its energy services program, is more 
effective if offered to all customers without a use-based charge. 
Western realizes the greatest need for technical assistance often falls 
on the smallest customers which may not be able to pay for direct 
technical assistance. Western will make every effort to cost-share 
technical assistance activities to leverage costs so that many parties 
benefit.
    Some customers requested that Western develop sample IRP formats 
for customers. Because of the great diversity of its customers, Western 
will not develop sample IRP formats. A customer can, however, obtain 
technical assistance from the appropriate Area Office to help it 
prepare an IRP. Additionally, a customer's Area Office may already have 
a collection of sample IRPs.
8. Submittal Timing
a. Background
    Customers must submit their plans to the Area Manager of the area 
in which they are located within 12 months of the effective date of 
this rule for individual IRPs, within 12 months of the approval of a 
request for small customer status for small customer plans, and within 
18 months of the approval of a request for IRP cooperative status for 
IRPs from IRP cooperatives. Additionally, EPAct requires updated IRPs 
and small customer plans to be submitted to Western for review every 5 
years.
b. Comment and Discussion
    A comment was received that suggested that Western stagger IRP 
submittals over 120 days, with small customer submittals processed 
first. Western will not take additional steps to stagger the approval 
of IRPs because the submittal time frame already is staged, and EPAct 
offers Western limited ability to depart from defined submittal time 
frames. Western expects that although many customers will submit IRPs 
and small customer plans when due, others will submit them before the 
plans are due. In addition, IRP cooperatives may submit IRPs 6 months 
after individual IRPs and small customer plans are due.
9. Irrigator Issues
a. Background
    The IRP provisions apply to all customers, including irrigators, 
with the exception of those qualifying for small customer status. 
Irrigation districts and other irrigation entities may qualify for 
small customer status. Western shall consider water planning, water 
efficiency improvements, and water conservation in evaluating an IRP or 
small customer plan. Customers that provide water utility services and 
customers that service irrigation load as part of their overall load 
may include water conservation activities in the IRP.
b. Comments and Discussion
    It was suggested that the irrigation provision language include 
entities which are not necessarily irrigation districts but which have 
irrigation loads. Language has been added to section 905.13, which has 
the effect of expanding the term ``irrigation district'' to include 
electrical districts, power and water conservation districts, and other 
comparable entities. Therefore, entities with similar functions are 
eligible for this provision.
    It was also suggested that water efficiency should equate to 
electrical savings for all customers that manage water utilities, not 
just irrigators. Western agrees that customers with water utility 
responsibility face the same issues as irrigators. In recognition of 
the need for equity, new language has been added to section 905.13 to 
cover customers that provide both energy and water utility services and 
customers that serve irrigation load as part of their overall load. 
Western requests that all types of customers covered by this section 
convert their water savings to energy values to the extent practical.
10. Future Program Review
a. Background
    EPAct requires that within 1 year after January 1, 1999, and at 
appropriate intervals thereafter, Western shall initiate a public 
process to review the Integrated Resource Planning provision 
established by this rule.
b. Comments and Discussion
    A customer commented that 1999 is too late to revise the Program, 
given the increasingly competitive nature of the utility industry. 1999 
is the date set forth by EPAct for review and revision, as appropriate, 
of these regulations, and the point at which, using a public process to 
review the program, Western has some ability to revise the criteria set 
forth in EPAct to reflect any changes in technology, needs, or other 
developments. However, IRPs may be amended or revised at any time, and 
updated IRPs are required every 5 years. This flexibility allows 
Western's customers to remain competitive.
11. Penalty
a. Background
    As required by EPAct, penalties for noncompliance with these 
regulations shall be imposed for failure to submit or resubmit an IRP 
or small customer plan in accordance with these regulations and/or when 
Western finds that the customer's activities are not consistent with 
the applicable IRP or small customer plan unless a good faith effort 
has been made to comply with the approved IRP or small customer plan. 

[[Page 54157]]

b. Comments and Discussion
    The public commented that Western should not impose the same 
penalties for being late or not submitting an annual report as for not 
submitting an IRP; that the time frame between receiving a notice of 
noncompliance and the imposition of the penalty needs to be lengthened; 
and that the phrase ``it is found that there are no mitigating 
circumstances which justify those reactions'' should be removed. The 
noncompliance section of this rule, section 905.17, has been revised 
substantially in response to public comments. In recognition of the 
severity of the proposal, Western has dropped the provision for 
imposing penalties for failure to submit or for late submittal of 
annual progress reports. Section 905.17 also has been revised to 
provide that any penalties will be imposed beginning with the first 
full billing period following the notice of noncompliance, allowing 
customers 30 days to provide evidence of a good faith effort to comply. 
A customer must still show evidence of a good faith effort to comply 
which justifies its deficiency, but the term ``mitigating 
circumstances'' has been deleted.
    Customers also commented that customers should be able to choose 
their own penalties (surcharge or allocation) and that penalties should 
apply directly to the MBA member and not to or through the MBA. Comment 
was also received that if a member of an MBA is not in compliance, 
notice should be sent to both the member and the MBA. Customers will 
not be allowed to choose the type of penalty that will be imposed for 
noncompliance. Western will determine which penalty is most appropriate 
for the situation in accordance with the criteria in section 905.17(d). 
Language has been added to clarify the imposition of penalties on MBAs 
and IRP cooperatives and their members. Members of MBAs and IRP 
cooperatives which are found to be in noncompliance will be directly 
penalized if they have a firm power contract with Western. For those 
members which do not, the penalty will be imposed upon the member's MBA 
or parent-type entity on a pro rata basis in proportion to that 
member's share of the total MBA's power received from Western. 
Assessment of penalties against MBAs is necessary in this situation to 
ensure that MBA members comply with the IRP requirements in this rule. 
The MBA or parent-type entity will be notified of a penalty assessment 
on a member.
    A comment was received that stated that the administrative appeal 
process should allow a customer to appeal a decision about an IRP to 
the Department of Energy's Deputy Secretary to ensure customers and 
Western have an opportunity to seek an impartial ruling. A customer may 
request reconsideration of an initial noncompliance determination by 
filing a written appeal with the appropriate Area Manager. If the 
customer disagrees with the Area Manager's decision, an appeal may be 
filed with the Administrator. The Administrator's decision will be the 
final agency decision for purposes of judicial review. Western will use 
mutually agreeable alternative dispute resolution procedures, upon the 
customer's request, to attempt resolution of any appeal. No penalty 
will be imposed during the appeal, but if the dispute resolution is 
unsuccessful for the customer, Western will impose the penalty 
retroactively from the date the penalty would have been assessed 
without an appeal.
    One customer commented that resource withdrawal penalties should 
not be imposed retroactively, as the impact on the annual ratchet 
clause in supplemental power supply contracts is overly burdensome. 
Western agrees that certain supplemental power supply contracts have 
ratchets that could magnify the burden of a retroactive resource 
penalty caused by an administrative appeal. However, Western will not 
amend the regulations to address this unlikely event. This situation 
would not arise under the final regulations until 12 months after the 
initial 10 percent surcharge had been imposed. The customer can avoid 
the impact of a ratchet by submitting an acceptable and timely IRP to 
Western.
    Finally, a customer asked why, if IRPs are not required of nonfirm 
purchasers of Western energy, the penalty extends to nonfirm 
interruptible/diversity contracts with customers. A penalty will be 
assessed on the total charges for all power obtained by a customer from 
Western and will not be limited to firm power charges. If a customer 
has more than one long-term firm power contract with Western, the 
penalty will be imposed under each contract. Under EPAct, 42 U.S.C. 
7276b(e), these penalties apply to ``all power'' purchased from Western 
by a customer which is in non-compliance; the penalty is not limited to 
firm power.

C. POWER MARKETING INITIATIVE

1. Applicability
a. Background
    In the proposed Program, the Pick-Sloan Missouri Basin Program-
Eastern Division and the Loveland Area Projects were proposed for 
initial coverage under the Power Marketing Initiative. Western proposed 
to defer making any decision about applying the PMI to the Central 
Valley Project, which is the subject of a project-specific marketing 
plan and associated EIS for the post-2004 time period. Western further 
proposed to evaluate application of the PMI to the Salt Lake City Area/
Integrated Projects after its power marketing EIS is completed and the 
associated marketing criteria and contract changes are implemented. 
Finally, Western also proposed to evaluate application of the PMI to 
the Parker-Davis Project and the Boulder Canyon Project no sooner than 
10 years before existing contracts expire.
b. Comments and Discussion
    A comment was received concerning Western's statement that its 
customers have no equity position in Western's facilities, and that no 
right exists to power in the absence of a contract. The comment further 
states that this is not precisely true for the Boulder Canyon Project, 
where there is a statutory allocation of power and upratings funded by 
certain customers. The first of two other comments received on this 
subject suggests that Hoover should be excluded from PMI applicability 
in the final rule due to the statutory nature of the Hoover allocation. 
The second states that the customers do not understand Western's 
intentions on application of the Power Marketing Initiative to Hoover 
and that Western needs to conduct workshops and hearings before 
implementation takes place. Western has not proposed to apply the Power 
Marketing Initiative to the Boulder Canyon Project at the present time. 
The Boulder Canyon Project long-term firm sales contracts do not expire 
until 2014. Western cannot make sound decisions today about how this 
power might be marketed starting 20 years into the future. Western will 
evaluate the applicability of the PMI to the Boulder Canyon Project no 
sooner than the year 2004. No decision to apply the PMI will take place 
until an appropriate public process takes place. At that time, 
statutory interpretation issues can be addressed.
    Comments were received suggesting that the Central Valley Project 
should recognize the Sacramento Municipal Utility District's right to 
31 percent of CVP power through the year 2014 and that the first 
preference customers under the 1962 Flood Control Act should be exempt 
from any loss of allocation under the Power Marketing Initiative. 
Western does not intend to abrogate the statutory right of CVP first 
preference customers pursuant to the Flood Control 

[[Page 54158]]
Act of 1962. Nor does the Power Marketing Initiative impact the 
contractual right of the Sacramento Municipal Utility District to 
receive a defined share of CVP resources between 2004 and 2014. Section 
905.30(b) of the final rule accommodates these concerns by stating that 
the PMI will apply ``if consistent with other contractual and legal 
rights.'' This broad statement of applicability protects the interests 
of the commenters.
    Western received several comments that favored applying the PMI to 
the CVP. The comments had a common theme that the stability and 
certainty of the CVP resource is critically important and that Western 
should apply the PMI to the CVP now, and not wait until the 2004 
marketing plan to make a decision on resource levels or contract term. 
Western was also asked if the application of the PMI to the CVP would 
take place with or without a public process. These comments also state 
that applying the PMI to the CVP will assure consistency across all of 
Western, and allow the 2004 process and the customers to focus on other 
issues. The commenters believe that a definite level of commitment and 
contract term, known now, is worth trading for larger percentage 
allocations and longer contract terms in a more uncertain future and 
that applying the PMI to the CVP will streamline the CVP EIS process, 
and integrate the planning process between the two programs. Western is 
impressed by the comments favoring an immediate but limited application 
of the PMI to the Central Valley Project, subject to the findings of 
the project-specific EIS currently underway. However, Western wants to 
protect the integrity of the ongoing project-specific marketing 
process. Application of the PMI to the CVP is best addressed in the 
separate public process.
    One comment expressed appreciation for the decision not to propose 
application of the PMI to CVP and the SLCA/IP at this time, as large 
adjustments of marketable resources will be needed to meet 
environmental concerns for these projects. This comment expressed 
concern that the Program will create a precedent for these two 
projects. Western sees no reason to change its initial proposal to 
evaluate applicability of the PMI after the Salt Lake City Area/
Integrated Projects Electric Power Marketing EIS is completed and the 
associated marketing criteria and contract changes are implemented. 
These steps are scheduled for completion in the near future. Western 
expects to start the evaluation process soon thereafter.
    A comment was received questioning the decision to apply the Power 
Marketing Initiative to the LAP given that existing contracts do not 
expire for another 10 years. Other comment received supports 
application of the PMI to the Loveland Area Projects after the 1999 
resource adjustments are complete. Western did not change its proposal 
regarding application of the Power Marketing Initiative to the Loveland 
Area Projects. No resource extension offer will take place until the 
analysis of potential LAP resource adjustments in 1999 has been 
completed. The analysis and implementation of any 1999 resource 
adjustments will take place no later than 1996. Given the time period 
that it takes to develop alternative resources to replace unextended 
LAP power, application of the PMI to LAP now is prudent. The resource 
certainty that results will assist Western's customers in developing 
effective integrated resource plans.
2. Contract Term
a. Background
    In the proposed Program, an 18-year contract term was proposed, 
with the contract term to start from the date existing contracts 
expire.
b. Comments and Discussion
    Western received many comments supporting extending the contract 
term from 18 to 20 or 25 years. The reasons customers overwhelmingly 
supported extending the contract term follow: a longer term would help 
short and long range planning; a longer term would add resource and 
rate stability; a longer term would benefit the environment by 
customers being more willing to make financial commitments to 
environmentally sound project enhancements; a 20 year term would be 
consistent with the IRP submittal cycle of 5 years; a longer term would 
be comparable to the amortization of long term investments in base load 
power plants and renewable resources; a longer term would correspond to 
existing all requirements contracts; an eighteen year term may 
jeopardize Western's obligations under an existing exchange 
arrangement; an eighteen year term would require existing customers 
that contracted for Federal power when it was not economical to give up 
too much of their existing benefits without equitable treatment; a 
longer term conforms to the Tennessee Valley Authority practices; and a 
longer term would allow customers to make commitments to demand side 
management programs and capital-intensive renewables. Western is 
persuaded by the comments supportive of a longer contract term. Section 
905.31 of this final rule establishes a 20-year extension of resources.
    In developing a proposal for the length of the resource extensions, 
Western has considerable discretion. One of the limits on that 
discretion is the prohibition, as set forth in the Reclamation Project 
Act of 1939, on power sales contracts with terms in excess of 40 years. 
Western may legally consider commitments of power up to, but not 
beyond, this 40-year maximum.
    Western adopts a resource extension period of 20 years for several 
reasons. This time period is long enough to maintain a sufficient 
customer planning horizon. Long-term project financing, whether for 
supply-side, demand-side, or renewables, would be feasible with such an 
extension. Western agrees that financing of renewable resources is 
particularly sensitive to Federal hydropower resource uncertainty. 
Twenty years will maintain the resource and rate stability necessary 
for effective integrated resource planning. At the same time, 20 years 
is not so long that Western cannot reasonably guarantee the 
availability of the extended resource. The proposal of a graduated 
resource pool available to new customers gives Western the flexibility 
to allocate power equitably over the term of the contract.
    Western's goal is to provide a sufficient incentive for new 
customer preparation of IRPs and to offer a contract term compatible 
with the time horizon for other resources evaluated in IRPs. Another 
goal is to reduce the amount of Western, customer, and public time and 
resources spent on marketing plan development. An extension of resource 
commitments for 20 years beyond the expiration date of contracts with 
existing customers would mean that new contracts would be in place 
until at least 2020. In other words, initial extensions would be about 
25 years from the date that extension commitments are offered to 
customers of the Pick-Sloan Missouri Basin Program--Eastern Division; 
this time period approaches the average useful life of thermal 
generation.
    Western agrees that a 20-year contract term is more comparable to 
those existing between the Tennessee Valley Authority and its 
customers. Western also agrees with the comments suggesting that a 20 
to 25 year contract term is consistent with industry standards for firm 
sales. Recently issued RFPs have also entertained resource acquisition 
options on a long-term basis. Western also concurs with the comment 

[[Page 54159]]
that a 20-year contract term fits better with the 5 year IRP 
preparation and approval cycle.
    The selection of a 20-year extension contract term helps to answer 
the comment that the proposed Program asked existing customers to give 
up too much. The additional 2 years helps to provide an appropriate 
balance between existing customers, who in many cases chose to enter 
into hydropower contracts with the United States before the economic 
benefits of such a choice were clear, and other needs reflected in the 
Program.
    Western believes that adoption of a relatively short contract term 
could impact the resource stability required to meet Western's 
obligations under the exchange arrangement with the Salt River Project. 
In particular, the pattern of power allocations over time could change 
the use of Colorado River Storage Project transmission, which could in 
turn impact the exchange arrangement. Twenty year contracts support the 
resource stability that in turn impacts usage of Western's transmission 
system.
    A comment was received that stated eighteen year contracts are 3 
years too long. According to this comment, most of the power contracts 
that Western has signed have been for 15-year terms, and a 15-year 
extension strikes the right balance between the customer's need for 
certainty and the Federal government's desire for flexibility so the 
changing needs of the West can be addressed. Western agrees that many 
of its historic contract terms have been 15 years in length. Currently 
effective contracts for the sale of power from the Pick-Sloan Missouri 
Basin Program--Eastern Division, the Loveland Area Projects and the 
Salt Lake City Area/Integrated Projects are all 15 years in length. 
However, a significant number of contracts have been in excess of this 
time period. Power sales contracts for the Parker-Davis Projects are 20 
years in length, while the currently effective Boulder Canyon Project 
contracts are 30 years. Contracts for the sale of Central Valley 
Project power have variable terms, with the longest contracts 
approaching 40 years in length. The historic precedent for contract 
length is not confined to 15-year commitments, and is consistent with 
the 20-year term adopted in the final Program regulations.
    A comment received suggested rollover 18-year extensions every 5 
years upon submittal of an updated IRP. A rolling extension of 
contracts on a long-term basis at the customer's option, upon submittal 
of future IRPs to Western, would cause hydropower resources to be 
extended too far into the future for Western to respond to changing 
circumstances over time.
    Western has provided for resource adjustment capability as part of 
the PMI. Initial extensions would be based on the resource available at 
the time existing contracts expire. This allows Western to respond to 
changes in operations at Corps of Engineers (Corps) and Bureau of 
Reclamation (Reclamation) hydroelectric plants before the term of 
contract starts for extended resources. In addition, Western can make 
further adjustments in its marketable resources in response to changes 
in hydrology and operations upon 5 years' notice. Because of this 
capability, no need exists to extend resources for a minimal time 
period to protect fish and wildlife resources. The impact of the PMI 
can be summarized as an extension of existing commitments, with the 
recognition that adjustments to the marketable resource as a result of 
operational accommodations for fish and other wildlife resources can be 
accomplished within the extension framework.
    Western realizes that the draft EIS predicted relatively greater 
environmental benefits for contract terms in excess of 20 years. 
Western's proposal balances environmental benefits associated with 
resource certainty against the need for flexibility to respond to 
changing circumstances over time.
    Some of Western's customers suggest that since they have paid for 
projects in the past, they should have first call on resources in the 
future. Western agrees that the resource choices made by customers in 
the past have led to the construction or purchase of certain 
supplemental generating resources, as well as investment in 
transmission resources or negotiation of transmission service 
contracts. Western does not want to disrupt regional power supply and 
transmission arrangements at considerable economic and environmental 
cost to the area. At the same time, Western's existing customers have 
no equity position in Western's facilities, and they have no right to 
receive power from Western in the absence of a contract. Western 
believes the public interest is served by having the flexibility to 
meet a fair share of the needs of new customers from the publicly owned 
and financed hydroelectric facilities in the West.
    Western agrees with a comment received that states the Program does 
not provide its customers with absolute resource certainty. Instead, 
the Program attempts to provide as much certainty as possible to 
facilitate the development of integrated resource plans, while 
retaining the flexibility to respond to changing conditions and 
evolving needs.
    A comment received stated Western should consider a longer contract 
term, such as the 35-year term associated with FERC relicenses. This 
comment recognized how virtually all access to hydropower is controlled 
by Federal policy, either through FERC or the power marketing 
administrations, but the costs for that power differ. FERC licensees 
pay only for capital costs and O&M, while CVP customers must subsidize 
other project purposes such as those under the Central Valley Project 
Improvement Act. Differences in commitment lengths between FERC 
licensees and CVP power sales contracts only compound the inequity in a 
competitive and price-sensitive market. These comparability factors 
should be an additional basis for extending contracts for the longest 
possible term.
    In response to these comments, Western notes that the holder of a 
FERC license typically plans, funds, and constructs the hydropower 
resource itself. A long-term license is appropriate in such a case, 
given the length of the construction debt service and the 
responsibilities of the licensee. With Western's resources, the 
planning, construction, financing, operation, and maintenance of the 
hydroelectric generation and high-voltage transmission is usually the 
responsibility of the United States. Since the two situations are not 
strictly comparable, Western feels that a proposal of a 20-year term of 
contract is appropriate.
    Western agrees with the comment that the utility industry is 
increasingly dynamic, and that utilities must be flexible and forward-
looking in order to be successful. The IRP requirement in this Program 
will provide Western's customers with the tools necessary to succeed in 
a changing utility climate.
    Many comments were received from the public indicating that an 
extension of resources would assist IRP and not hinder future resource 
planning.
    Western does not agree with the comment that long-term contracts 
will be a disincentive to improving energy efficiency. Short-term 
contracts cause customers to focus on the uncertainty surrounding the 
Western resource, rather than looking to implementation of cost-
effective energy efficiency and DSM to meet future needs. Western only 
provides a portion of the resource needs of its customers, about 30 
percent on average Western-wide. The cost of supplemental resources, 
whether supply-side or demand-side, is usually significantly higher 
than the cost of 

[[Page 54160]]
Western's resources. Supplemental resource prices provide a significant 
incentive to implementation of cost-effective energy efficiency 
improvements.
    Some customers indicated that their willingness to fund 
environmental improvements would be impacted by short-term contracts. 
Western agrees that short-term contracts could be a disincentive to the 
implementation of environmentally beneficial project improvements in 
support of the Clinton Administration's climate control action plan.
    Several comments were received stating that Western power preserves 
the competitive balance in the utility industry. Western's hydropower 
commitments provide a yardstick that enhances competition in the 
utility industry within Western's marketing area. Twenty-year contracts 
help preserve the competitive balance in the regional utility industry.
3. Extension Percentage
a. Background
    Western proposed to extend a major percentage of the power 
currently under contract with long-term firm power customers. The exact 
percentage to be extended would be determined on a project-specific 
basis, based on the amount of power needed to meet a fair share of the 
needs of potential new customers within the marketing area.
b. Comments and Discussion
    Western received numerous comments that support a contract rate of 
delivery extension of 97 or 98 percent. One comment did not support a 
resource pool. Some comments were specific and suggested that current 
allocations should be the basis for application of the extension 
percentage or that the percentage withdrawal should be based on 
customer allocations existing in the year 2000 for Pick-Sloan Missouri 
Basin Program--Eastern Division customers and that withdrawals after 
that time should be based on the resource available to the customer at 
the time. One comment received stated that a 100 percent extension was 
preferred and another comment suggested that existing customers should 
receive maximum allocations.
    The amount of unextended resource was determined on a project-
specific basis by assessing the amount of power that must be reserved 
in order to meet a fair share of the needs of potential new customers. 
In deriving the size of the initial resource pool for each project, 
Western reviewed letters of interest from potential new allottees, 
potential new customer load information and analysis of any hydropower 
benefits currently being received by a potential new customer. Due to 
significant expressions of interest by Native Americans, Western has 
increased the size of the initial resource pool for those projects 
initially subject to the PMI. Subsequent resource pool increments have 
been reduced to compensate for the increase in the initial pool. 
Section 905.32 provides that for the Pick-Sloan Missouri Basin 
Program--Eastern Division and the Loveland Area Projects, Western will 
reserve 4 percent of the marketable resource determined to be available 
at the beginning of future resource extensions. Subsequent increments 
of the resource pool have been reduced to no more than 1 percent.
    The final rule recognizes that power reserved for new customers but 
not allocated and resources offered but not placed under contract may 
become available. Section 905.32 (e) provides that this power will be 
offered on a pro rata basis to existing customers that contributed to 
the resource pool through application of the extension formula. No firm 
power is expected to go unmarketed at any time.
    The Program provides for the creation of two additional resource 
pool increments in the future for all of Western's projects covered by 
the PMI. At two intervals of 5 years after the effective date of the 
extension to existing customers, Western will create a project-specific 
resource pool increment of up to an additional 1 percent of the 
resource under contract at the time. The actual size of the additional 
resource pool increment will reflect the actual fair share needs of new 
customers and other purposes as determined by Western.
    Western believes that the final Program provides an appropriate 
balance that recognizes the importance of certainty in customer 
planning efforts. An extension of Pick-Sloan Missouri Basin Program--
Eastern Division and Loveland Area Project resources at a 96 percent 
level is substantial enough so existing customers will not have to 
build new generation or enter into large purchases of thermal 
generation. A lesser level of extension could cause customer pursuit of 
other resources, with potential associated economic and environmental 
impacts. The resource planning of auxiliary suppliers would be 
disrupted by the nonextension of a significant percentage of Federal 
power.
    One comment stated that the percentage reduction should be applied 
to the allocation existing at the time, not the resource existing at 
the time of the contract extension. The current allocations to the 
customers will not be adopted as the basis for application of the 
resource percentage, as this approach could limit Western's short-term 
capability to adjust its marketable resources in response to changed 
operations and hydrology. Western believes a more flexible approach 
would be to apply the percentage to the marketable resource that is 
determined to be available at the beginning of future resource 
extensions. In this way, changes in operations or hydrology between 
today and the time existing contracts expire can be readily 
accommodated.
    One of two comments received concerning the resource pool stated 
that given the great sacrifice of an initial 3 percent resource pool, 
the 1.5 percent additional increments should be based on the resource 
available at the time, while the other comment said there was no need 
for two additional resource pool increments. Another comment stated 
that they support a 2 percent resource pool. In the case of creation of 
resource pool increments subsequent to the initial pool, Western agrees 
with the comments that the percentage should be applied to the resource 
available at the time. The proposed Program, which suggested 
application of all percentages to the resource available at the time 
existing contracts expire, had some disadvantages. Application of the 
percentage to the resource available when existing contracts expire 
could create administrative confusion if the actual resource under 
contract was different. If the resource available several years into an 
extension contract was less than the marketable hydropower at the 
beginning of extension contracts, application of a percentage to the 
earlier, larger amount would create a higher effective percentage as 
applied to the existing resource. Western agrees with the comments 
recommending a change in the proposed approach. The final rule reflects 
this more simplified method.
    One commenter points out that Western has not shown any reason for 
increasing the Pick-Sloan resource pool above 3 percent. The initial 
Pick-Sloan resource pool has been increased to 4 percent in the final 
rule, to assure that a fair share of the needs of Native Americans can 
be met. The rationale for creating two future resource pool increments 
of up to 1 percent each is to meet future needs that Western cannot 
currently identify. This flexibility is necessary to support a 20 year 
contract term. 

[[Page 54161]]

    Western understands the comment expressing concern about tying 
future allocations to a percentage of an amount to be determined, 
especially when Western may not know what it has to market from the 
Missouri River Basin generation until after the year 2000. Although 
Western appreciates the suggestion that a percentage of today's 
contractual amount be extended with an option to adjust the extended 
resource, others have expressed the concern that such an approach would 
create unwarranted power availability expectations on the part of firm 
power customers. Western believes that either adoption of this comment 
or retention of the approach of the proposed Program will lead to the 
same resource commitment. Western chooses to retain the approach of the 
proposed regulations.
    One customer commented that a 97 percent initial extension level 
asks existing Pick-Sloan customers to give up too much, especially when 
coupled with the additional resource pool increments, exposure to 
adjustments due to changes in hydrology and operations, and withdrawals 
for project use. In contrast, another comment was received that the 
resource pool percentages should be increased to a 6 percent initial 
level, followed by two additional increments at 5 percent each. For the 
reasons stated earlier, Western believes the final rule strikes an 
appropriate balance among the relevant considerations.
    Western recognizes that existing customers made an historic choice 
to pursue Federal hydropower and that some customers elected to 
purchase this resource before the economic advantages were clear. 
However, Western does not believe that the historic enjoyment of the 
benefits of Federal hydropower means that a customer has a perpetual 
right that cannot be diminished. Western's policy of promoting 
widespread use and the potential allocation of power to new preference 
customers must be balanced against the fact that existing customers 
have developed contractual relationships with supplemental suppliers, 
transmission arrangements with Western or third parties, and in some 
instances have constructed transmission facilities to receive Federal 
power. Western believes that this final rule provides for a proper 
balance among these policy considerations.
    Comments concerning the marketable resources or the loss thereof 
for the Salt Lake City Area/Integrated Projects and the Central Valley 
Project were received that suggest that an additional 2 percent 
resource pool seems inappropriate for the Salt Lake City Area/
Integrated Projects; that the resource pool for the Central Valley 
Project may be premature and too restrictive; that extensions for CVP 
resources should be in the 90-95 percent range and CVP unbundled 
services should be offered pro rata in 2004 in line with these 
percentages; that there is support for limiting the CVP resource pool 
to no more than 6 percent of the available resource which would 
minimize any disruption of customer planning efforts and avoids 
confusion between allocation issues and resource availability, yet 
allows Western to distribute the benefits of Federal power to new 
customer; that a 3-5 percent initial CVP resource pool is reasonable 
given the changes that are taking place within the industry; and that 
the initial CVP pool should not be larger than 2 percent given the two 
additional increments.
    In the final rule, Western has not defined the size of the initial 
resource pool for the Central Valley Project and the Salt Lake City 
Area/Integrated Projects. The actual size of resource pools for these 
projects will be determined at a later date through project-specific 
public processes. Comments relating to these resource pools should be 
advanced at that time.
    Western received a comment that stated that the Master Operating 
Manual process and the adverse impact of Corps of Engineers operations 
on wetlands, fish and wildlife and endangered species will likely 
affect electricity production on the Missouri River. Similar changes 
are possible on the Platte, Arkansas and Rio Grande rivers. Western's 
proposal will create an expectation that 94 percent of existing 
allocations will be reserved for existing customers. This will make it 
difficult to modify dam operations in the future. Evidence from the 
comments received on the draft EIS suggest that 6 percent is not enough 
to meet the needs of new customers and to respond to changing 
environmental concerns.
    Western does not agree that the resource pools for the Eastern 
Division of Pick-Sloan and the Loveland Area Projects should be 
increased in size to enhance the ability to modify dam operations. 
Ample opportunity exists under the Program to adjust marketable 
resources in response to changes in reservoir operations. In the short-
term, Western can accommodate such changes by applying the extension 
percentages to the marketable resource determined to be available at 
the beginning of future resource extensions. Operational decisions by 
the generating agencies in the shorter term will be reflected in the 
initial commitment to customers, as the extension percentage will be 
applied to the resource available at the time current contracts expire. 
Over the longer term, Western can adjust its commitments on 5 years' 
notice due to changes in operations and hydrology. Western is not 
creating a customer expectation that a percentage of existing 
allocations will be reserved for existing customers. Considerable 
flexibility exists in the final regulations to address the concerns 
raised in this comment.
    No evidence has been produced to show that 6 percent is not enough 
to meet the needs of new customers. Environmental concerns will be 
addressed through the extension approach and withdrawal opportunities 
explained above, and not through use of the resource pools. Six percent 
should be more than is needed to meet a fair share of the needs of 
potential new customers. Western sees no reason to create a resource 
pool larger than that needed to meet a fair share of the needs of 
potential new customers.
4. Resource Pool Creation
a. Background
    In the August 1994 Federal Register notice, Western proposed the 
creation of project-specific resources pools through a reservation of 
power not extended to existing customers. Existing customers with an 
allocation of one MW or less were not subject to the reservation. New 
customers receiving an allocation from an initial resource pool were 
not subject to withdrawal to form subsequent resource pool increments. 
The possibility of extending resources on a graduated scale, weighted 
towards some customer characteristic, was suggested early in the public 
process.
b. Comments and Discussion
    Western received many comments on the issue of equity in the 
proposed creation of the resource pool. The majority of the comments on 
the issue objected to special treatment for customers with an 
allocation of one MW or less. Specific comments are that Western has 
provided no justification for exempting entities with a contract rate 
of delivery of one MW or less from resource pool creation, that the 
administrative burden of withdrawing power from entities with small 
allocations is not great; that it is inequitable to have an exemption 
from contributing to resource pools for customers with allocations of 
one MW or less; and that all resource reductions should be shared pro 
rata, with no exceptions for certain customers.
    Western's rationale for exempting small entities from a 
contribution to the 

[[Page 54162]]
resource pool was threefold. First, Western felt that the benefits 
associated with small allocations of hydropower would be diluted if all 
customers contributed to the resource pool. Second, the administrative 
issues of applying resource extension percentages to small allocations 
influenced Western's proposal. Third, there were not many entities with 
allocations of one MW or less, so the impact of the proposal on other 
customers was not large.
    Upon further consideration, Western withdraws the proposal to 
exempt entities with allocations of one MW or less from contributing to 
the resource pool. For some small customers, an allocation of one MW 
represents a high percentage of their total load. Exempting an entity 
because of the size of their allocation is inequitable if that customer 
has a high percentage of its needs met by Western. The administrative 
issues underlying the original proposal are manageable. In fact, 
creating separate classes of customers leads to its own set of 
administrative issues. The fact that a small amount of power is 
involved is not dispositive, as the issue is more one of equity and 
fairness than one which hinges on the amount of power involved.
    Western agrees that the proposed Program was not consistent in its 
treatment of customers with small allocations. For example, Western did 
not propose to insulate customers with small allocations from 
withdrawals for project use or from withdrawals of marketable resources 
due to changes in operations and hydrology. The final rule eliminates 
this inconsistency by treating all customers alike.
    Several comments suggested that the one MW limit on withdrawals 
should apply even if the entity is a member of a member-based 
association or an IRP cooperative. With the elimination of the one MW 
exception, these comments are no longer relevant and need not be 
addressed.
    Other comments were that withdrawals should apply to all customers 
with no exception for new customers; that allocations to new customers 
should be allowed to increase rather than automatically be reduced in 
their infancy through use of the extension formula; and that power 
reserved for project use should be used for new customers instead of 
taking it away from existing customers. This is another issue that 
received a number of equity-based comments--Western's proposal to 
exempt new customers receiving allocations out of the initial resource 
pool from withdrawals to create future resource pool increments. The 
rationale for this proposal was to avoid the dilution of recently-
received hydropower benefits.
    After considering these comments, Western has decided to abandon 
this aspect of its Program proposal. There is no strong policy reason 
to depart from equitable treatment for all customers. A new customer 
contribution to future resource pool increments would not be a large 
amount of power, so the benefits of the Western allocation out of the 
initial resource pool would not be diluted significantly. The 
administrative complications that arise from creating more than one 
class of firm power customer for withdrawal purposes are avoided by 
treating all customers the same.
    Customers also commented that Western should only create a resource 
pool if there are set time periods, restrictions as to amount, and 
defined customer demands; more consideration must be given to how 
resource pool power will be priced and marketed; and subsequent 
increments of the resource pool are inconsistent with Western's stated 
goal of resource stability. Western concurs with the comment that a 
resource pool should only be created if there are set time periods and 
restrictions as to amount. However, it is difficult to define precisely 
the demands of new customers prior to creation of the resource pool. 
That can only be done after a call for applications is published in the 
Federal Register, and applications are actually received. Western 
cannot precisely define the needs of new customers at this time. 
Instead, Western has promoted the widespread use of its hydropower 
resources through establishment of a resource pool based upon a fair 
share of estimated needs. If the pool size is too large, the 
unallocated power or power not placed under contract is returned to the 
customers who contributed power towards the initial resource pool on a 
pro rata basis.
    Western intends to charge new customers the same rate for power as 
that charged to existing customers. Western will not purchase resources 
for new but not yet identified customers, as the appropriate level of 
Western's marketable resources should be determined through a project-
specific analysis of hydrology, project use load, losses and reserves. 
Committing resources beyond this level would increase the risk of 
purchasing firming resources.
    Comment was received that the proposed Program does not recognize 
that some customers get a high percentage of power from Western while 
others do not. On the whole, little support was received for the 
concept of extending resources on a graduated-scale basis. The issue 
here is whether extensions should be offered on a pro rata basis to all 
existing customers or if extensions should take place on some other 
basis, such as the percentage of the total customer load that is served 
by Western. Given the lack of significant public support for the 
graduated scale concept and the associated administrative complexities, 
Western has adopted a pro rata policy under which existing customers 
will receive the same treatment in the application of the extension.
    Comment was received that the wide variation in percentage of 
customer load served from the Central Valley Project should be 
addressed through the PMI. While Western will not depart from the 
general policy of a pro rata extension of resources, Western's 
Sacramento Area Office reserves the right to achieve more parity among 
allocations to existing CVP customers. Allocations to existing 
customers may be made out of the CVP resource pool to assure that each 
customer has some minimum percentage of its needs met by Western. This 
will be considered during the public process on the CVP power marketing 
plan.
    According to some commenters, the creation of subsequent increments 
of the resource pools are inconsistent with Western's stated goal of 
resource stability. To a limited extent, this comment is correct. The 
final Program strikes a balance between the need for resource stability 
and the need for flexibility to meet changing circumstances.
    One customer commented that Western should use energy efficiency 
improvements rather than withdrawals from existing customers to create 
the initial resource pool, while another stated that savings 
opportunities recognized in Western's use of IRP principles can be used 
to develop resource pools, reducing the need to withdraw from existing 
customers. To the extent that cost-effective energy efficiency 
improvements can be captured, Western will take steps to make such 
improvements a reality. Potential for such improvements could be 
identified through the use of principles of integrated resource 
planning. Flexibility has been retained in the Program to allocate 
power available due to implementation of such efficiencies. If adopted 
on a project-specific basis, Western could use efficiency improvements 
to offset the need to form a resource pool through withdrawal of power 
from existing customers. 

[[Page 54163]]

    Some of Western's projects have reserved power for future project 
use loads, but have not marketed this resource as firm power on a 
withdrawable basis. As an example, this marketing approach is used by 
the SLCA/IP. If proposed and adopted on a project-specific basis, 
Western could use project use power, marketed on a withdrawable basis, 
to offset the need to form a resource pool through withdrawal of power 
from existing customers.
5. Resource Pool Uses
a. Background
    In the proposed Program, Western advanced a concept to allocate 
power out of project-specific resource pools to new preference 
customers within the marketing area, and to meet other purposes as 
determined by Western. The specific terms and conditions associated 
with allocations out of each resource pool would be determined during 
future, project-specific public processes.
    Western said it expected to make allocations to Native Americans 
for use on the reservation, and would consider making allocations to 
national parks, public mass transit agencies, in support of renewable 
resources and fish and wildlife habitat.
b. Comments and Discussion
    Comment was received that new customers don't need resources and 
that they just want cheaper resources at the expense of those who made 
wise long-term decisions many years ago. Western does not necessarily 
agree that new customers don't need resources. Load growth could create 
such a need, as could expiration of a purchase power contract or the 
retirement of generation. One of Western's goals in the PMI is to 
achieve widespread use of Western's resources. Reservation of a modest 
percentage of resources to create a resource pool is consistent with a 
policy of encouraging widespread use of Federal hydroelectric power.
    One customer commented that the resource pool should be first used 
to make adjustments in response to changes in operations/hydrology. 
Western does not agree. In response to public comments in favor of 
equity among all customers, Western has adopted in this final rule a 
policy of treating new customers and existing customers alike. Making 
the resource pool subject first to adjustments would discriminate 
against new customers when allocations are made from the pool before 
adjustments take place. Given the adoption of a separate resource 
adjustment mechanism in these regulations, there is no need to make the 
resource pool subject to resource adjustment.
    It was suggested that all resources be marketed, and that resource 
pools should have a maximum ceiling, but should only be allocated to 
meet new loads that actually develop. Western agrees that all available 
resources should be marketed. The intent underlying the PMI is to 
market as much firm resource as would have been marketed in the absence 
of the PMI. Allocations out of each resource pool will be completed 
before the term of the extension contract begins. Power reserved in a 
resource pool but not allocated and resources offered but not placed 
under contract will be offered to existing customers that contributed 
to the resource pool, in accordance with the final rule. The comment 
which asks that resource pools have a maximum ceiling has been adopted 
in the final rule.
    Comment was received that under the current proposal an existing 
customer will not be eligible to receive power out of a resource pool; 
an existing customer receiving power from only one Federal project 
would be precluded from applying for power from another project's 
resource pool; and that this is a clear departure from Reclamation Law. 
In the past, Western has allowed preference entities to receive power 
from more than one project when marketing areas overlap. Given the 
significant new customer load that exists in portions of Western's 
service territory, Western is not willing to continue this policy on a 
Western-wide basis. On this issue, Western will retain the flexibility 
set forth in the proposed Program. An existing customer will not be 
eligible to receive power from a resource pool unless Western provides 
otherwise on a project-specific basis. Comments on the eligibility of 
existing customers to receive resource pool power will be accepted as 
part of the project-specific public process.
    Comment was received favoring use of the Central Valley Project 
resource pool to achieve a fairer distribution of power. Western 
reserves the right to use the CVP resource pool in this manner, subject 
to public input received during a project-specific public process.
    Several comments advocated allocations of resource pool power to 
customers with renewable resources in their mix and customers that have 
documented efficiency improvements through IRP. Other comments suggest 
that new customers represent emerging markets for Western, or that 
allocations to the Federal government have national benefits. Since the 
specific criteria associated with allocations to new customers will be 
determined during future, project-specific public processes, these 
comments are more appropriately raised and addressed at that time.
    Customers commented that sales from the pool should be on the same 
terms and conditions as with other contractors. Western also received 
comment that a definition of ``fair share'' is needed. Western agrees 
that sales from the pool should be on the same terms and conditions as 
with other contractors. No definition of ``fair share'' will be adopted 
as part of these regulations due to the difficulty of developing a 
meaningful definition on a Western-wide basis. A specific determination 
of ``fair share'' will be developed during the project-specific 
allocation processes, which will take place during a time period closer 
to the expiration date of existing contracts.
6. Resource Adjustment
a. Background
    In the August 9 Federal Register notice, Western proposed to adjust 
its long-term firm resources only in response to changes in hydrology 
and river operations. Existing customers would receive at least 5 
years' notice before adjustments are made.
b. Comments and Discussion
    Comment was received that Western should change its marketable 
resource in response to changes in operations after the extension term 
begins only if such a change adversely impacts Western's ability to 
meet its contractual obligations. Under the PMI resource adjustment 
provision, section 905.34, however, Western retains the flexibility 
needed to react to either changes that are adverse or beneficial to 
Western's marketable resource. Western will not limit the exercise of 
this adjustment provision to circumstances that adversely impact our 
ability to meet contractual obligations.
    A customer commented that any changes to marketable resources--not 
just significant changes--should be subject to a public process, and 
that adjustments in resources should be triggered only by changes in 
river hydrology or mandated operating adjustments such as new 
legislation and that if other factors affect determination of the 
allocated resource, Western should conduct public proceedings. Western 
agrees that any changes in our long-term marketable resource should be 
subject to a public process. Western also agrees to limit the exercise 
of this 

[[Page 54164]]
resource adjustment provision to changes in hydrology and operations.
    It was suggested that adjustments to contract rates of delivery be 
limited to no more than 5 percent. Some customers also commented that 
they support the 5 year window to make changes in resources based upon 
changes in operations/hydrology. A 5 percent limitation on contract 
rate of delivery adjustments would enhance the stability of Western's 
hydropower commitment, but would not give Western the flexibility it 
needs to react to changing circumstances such as generating agency 
adjustments to operations.
    Western has experienced adjustments in operations that have 
impacted long-term firm power in excess of 5 percent in the past. 
Western needs the ability to react to these situations, even though 
they may be infrequent in nature.
    Finally, comment was received concerning the withdrawal 
opportunities not likely being large enough to manage future 
environmental problems, encourage renewables, or meet the needs of new 
customers. Comment was also received that the added flexibility that 
Western has proposed on resource withdrawals is good. The more open-
ended approach in the final rule should satisfy the concern that the 
withdrawal opportunities are not likely to be large enough to manage 
future environmental problems. Other provisions of the Program, or 
separate Western initiatives, will encourage renewables and meet the 
needs of new customers.
7. Notice
a. Background
    Western has proposed the creation of an incremental resource pool 
that makes power available for potential new customers over time, 
without the disruptive influence of creating a large pool all at once, 
before the need exists. At two intervals of 5 years after the effective 
date of the extension to existing customers, Western proposed to create 
a project-specific resource pool increment of up to an additional 1.5 
percent of the marketable resource. No provision for the timing of any 
advance notice was proposed.
b. Comments and Discussion
    Comments were received that Western needs to better define the 
conditions and the notice provisions for future withdrawals of power, 
and that advance notice of incremental resource pool reductions should 
range from 2 to 5 years. Western agrees that customers need to have 
advance notice of the amount of future withdrawals of power. Five 
years' notice appears to be too long given the relatively low ceiling 
of 1 percent of the marketable resource available at the time, and the 
5 year intervals between the initial resource pool and the two 
subsequent pool increments. Instead, Western has added a notice 
provision that gives customers at least a 2 year notice on withdrawals 
to create subsequent resource pool increments. The conditions for 
future withdrawals of power will be defined on a project-specific 
basis.
    Comment was received that Western needs to clarify how it will 
notify customers about the availability of power due to penalty 
imposition. Other comment suggested that such power should be marketed 
in the same Area Office region first, and that Western needs to 
reconcile the reinstatement of power proposal with the notice to be 
given to those purchasing the penalty power. Western plans to provide 
notice to all long-term firm power customers within the project's 
marketing area. Of these customers, only those not currently being 
penalized for non-compliance with the IRP/small customer plan provision 
of these regulations may be offered an opportunity to place the penalty 
power under contract. The comment regarding the need to reconcile the 
reinstatement of power with the withdrawal notice timing is valid. The 
regulations have been changed to avoid any conflict.
8. Native American Issues
a. Background
    In the proposed Program, Western expressed an expectation that 
resource pool power would be made available to Indians for use on the 
reservation. No utility status was required as a prerequisite to 
receipt of an allocation.
b. Comments and Discussion
    Western has taken several steps toward assisting Native Americans 
in meeting their needs for cost-based hydroelectric power. In the past, 
the benefits of hydropower have been realized by Indians through 
allocations to cooperatives that serve tribal load. In the future, 
Western expects to make allocations directly to the tribes.
    A number of comments were received on Native American utility 
status, ranging from strong objections to eliminating the utility 
responsibility requirement to strong support for eliminating it. 
Interested parties commented that the definition of preference 
customers should remain fixed, or otherwise the maximum will be taken 
from existing customers in later resource pool increments. Western has 
always considered tribes to be preference entities, but has not 
historically allocated power to Native Americans in the absence of 
utility status, eligible irrigation load or special legislation enacted 
by Congress. Western's change in policy, through removal of the utility 
status requirement, is in keeping with the spirit of DOE's Indian 
policy, and recognizes the special and unique relationship between the 
United States and tribal governments.
    This limited and narrow policy change does not subvert the 
preference clause set forth in section 9(c) of the Reclamation Project 
Act of 1939. An overview of the range of preference customers Western 
currently serves helps put this issue in perspective. Western has 
marketed power historically both to preference utilities, such as 
municipal utilities and cooperatives, and non-utilities, such as 
irrigation districts, Federal installations, universities and prisons. 
Utility status is required for cities to be eligible to receive Western 
power under the preference clause. Salt Lake City et al. v. Western 
Area Power Administration, et al. 926 F.2d 974 (10th Cir. 1991). This 
precedent is not disturbed or overturned by these regulations. Western 
has discretion to determine the eligibility of Indian tribes and other 
entities entitled to preference in the allocation of Federal power. 
This policy change is limited in scope, in accordance with the policy 
underpinning described above, and is not a precedent for future erosion 
of the preference clause.
    Comments were received favoring a 3 percent resource pool going to 
Native Americans if there is no disruption to the preference customer 
currently serving those loads. Comment was also received that new 
customers should be accommodated from new/expanded resources instead of 
taking power from existing customers that already have rates higher 
than the regional average; and expressing the view that it is not in 
the public's best interest to extend preference beyond the requirement 
of utility status.
    No disruption to the preference customers currently serving tribal 
loads need occur. Proposals for providing allocations directly to the 
tribes will be developed on a project-by-project basis during the 
allocation of power from project-specific resource pools. Many of the 
more detailed comments Western has received on the issue of delivery of 
power to Native Americans cannot be answered at this time. However, 
some basic approaches have been set forth in this rule in section 
905.35 and in 

[[Page 54165]]
section IV of this supplementary information section. Western will 
consider arrangements for the delivery of the benefits of cost-based 
Federal power to non-utility Native American tribes, such as through 
credits on power bills.
    Customers commented that preference and cost-based pricing must be 
observed and there should be no disruption to preference entities 
currently serving Native Americans. Customers and stakeholders 
commented that most Indian tribes already get 50 percent of their needs 
through coops; the arrangements should not result in financial hardship 
or additional responsibilities for the cooperative; the distribution 
cooperative should be kept as part of the transaction--possibly through 
the use of bill credits; the existing service territories of 
cooperatives must be protected; rural electric cooperation has been 
pledged to assure that delivery of power allocated to the tribes takes 
place and that a monthly billing credit approach is evolving in the 
Eastern Division of Pick-Sloan; and Western's allocations to tribal 
members should be based on usage within the servicing cooperative's 
territory. Western was also asked to put provisions in firm power 
contracts with cooperatives requiring distribution of power to the 
tribes at fair and reasonable costs.
    Entities providing delivery services, such as rural electric 
cooperatives, should be fairly compensated for services provided. No 
additional responsibility will be required without appropriate 
financial compensation. Preference and cost-based pricing will be 
observed. Due to the decision to allocate power directly to tribes, 
without regard to utility status, there should not be any threat to the 
existing service territories of cooperatives because of these 
regulations. Western understands that some tribes are considering 
utility formation, but this action would not be required to receive a 
firm power allocation from Western.
    It is true that many Indian tribes currently served by rural 
electric cooperatives already receive a portion of their needs from 
Western through the cooperative's blended rate. The amount varies from 
tribe to tribe. The magnitude of the benefit already received, among 
other factors, could influence Western's development of proposed 
criteria for future allocations of power from project-specific resource 
pools.
    There was a question as to how tribes being served by investor-
owned utilities will be handled. Western has not decided how tribes 
being served by investor-owned utilities might be handled. While 
Western's rural electric cooperative customers have been cooperative in 
working with Western and the tribes on workable delivery arrangements, 
investor-owned utilities serving reservation load have not been 
similarly involved to this point. A potential exists for the investor-
owned utility community to resist comparable delivery arrangements 
based upon retail wheeling concerns. This issue will be addressed 
during Program implementation.
    Diverse comments were received on the Pick-Sloan marketing area, 
with some comments favoring expansion; other comments favoring 
reduction; with most arguing for maintenance of the current Pick-Sloan 
marketing area. Western does not believe that equity or the public 
interest is served by adjusting the Pick-Sloan Missouri Basin Program-
Eastern Division marketing area in the Power Marketing Initiative. 
Existing customers outside of the Missouri River Basin, principally in 
Minnesota and Iowa, have developed contractual arrangements with 
supplemental suppliers, have transmission arrangements with Western or 
third parties, or in some cases constructed transmission facilities to 
receive Federal power. Changing the marketing area to exclude these 
customers would create unnecessary disruption in regional power supply 
arrangements and lead to resource uncertainty that could hinder quality 
integrated resource planning. For these same reasons, Western will not 
require a larger withdrawal from customers located outside the Missouri 
River basin.
    A comment was received that the Blackfeet Nation should be included 
in the marketing area for the Eastern Division of Pick-Sloan. The 
marketing area of the Pick-Sloan Missouri Basin Program-Eastern 
Division need not be expanded to include the reservation of the 
Blackfeet Nation. As the reservation is east of the Continental Divide 
in Montana, it is currently within the marketing area.
    It was suggested that there is a potential for cooperation between 
a tribe and a rural electric cooperative on integrated resource 
planning. Western agrees that there is potential for cooperation 
between a tribe and a rural electric cooperative on an integrated 
resource plan. In addition to the benefits of joint planning and 
avoiding duplication, the tribe and the cooperative could apply for IRP 
cooperative status and receive an additional 6 months to submit an 
initial IRP.
    The intent of the Program is for the benefits of hydropower 
allocations to go directly to individual tribal consumers. This is 
consistent with treatment of other Western customers. Tribal councils 
will be involved in the process of accomplishing this goal.
    There were many comments concerning power allocations. Questions 
received were: (1) Will the tribes be able to act with complete 
independence in determining who receives the benefits? (2) What types 
of loads are appropriate targets for Western power? (3) Who will hold 
the allocation? (4) How will transmission compensation be handled? (5) 
How will the closed/open reservation issue be addressed? (6) Who must 
approve the agreement? (7) Who will be responsible for paying Western? 
Comments stated that a tribe should be required to demonstrate the 
existence of an agreement with a viable utility capable of delivering 
power and that the allocation should be made to the tribe and the 
utility that will transfer the resource; Western must be willing to 
reduce allocations to cooperatives that would otherwise benefit from 
allocations to tribes; the benefit of the allocation should be 
reflected on the power bills of the tribes; and allocations for tribes 
should be based on ``usage by tribal members within the preference 
customer's service territory.'' Western sees no need to reduce 
allocations to cooperatives that would otherwise benefit from 
allocations to tribes. In the Eastern Division of Pick-Sloan, most of 
the discussion with tribes and customers regarding delivery of power 
has focused on the use of a bill crediting mechanism that could avoid 
this issue of undue benefits.
    Concerns have been raised over Western providing power to tribes 
``for free.'' Western will not provide power to tribes free of charge. 
Native Americans will pay the same rate for power as any other 
customer.
    Additional comments state that a resource pool of 25 percent is 
needed to meet the needs of tribes in the Missouri Basin today and into 
the future; the benefits of hydropower allocations must go directly to 
individual tribal consumers; tribes should get all new Pick-Sloan power 
resources due to changes in operations; the tribal councils should 
determine how the benefits of hydroelectric power are distributed to 
tribal members; Western should support a congressional super-preference 
for the tribes; and Western should serve all Native American existing 
load and meet all load growth with Federal power. Resale of Western's 
allocations should be allowed pending a need for the power. In 
response, Western maintains that the tribes should 

[[Page 54166]]
receive their fair share of the marketable resources available. A power 
reservation for Native Americans of 25 percent of the current 
commitments from the Eastern Division of the Pick-Sloan Missouri Basin 
Program is far greater than that needed to meet a fair share of the 
power needs of the requesting tribes. A 25 percent resource pool would 
equal 500 MW of firm power, a resource far in excess of the loads of 
all potential new preference customers in the region. As documented in 
the EIS, there are increased environmental impacts associated with 
progressively larger resource pool sizes. Western believes that an 
extension of less than 90 percent of the resource to existing customers 
may lead to unnecessary power supply dislocations and potential 
development of new, but largely unneeded, supply-side resources, 
lessening the efficiency of the integrated system and defeating the 
purpose of the Program. Western sees no reason to allocate power to an 
entity in amounts greater than its loads, as this would deny a valuable 
renewable resource to existing customers. It is contrary to Western's 
policy and undermines Federal law to allow a customer to resell 
hydropower to third parties. Neither equity nor environmental quality 
is served by withdrawing power from existing customers to meet the load 
growth of new customers. Western intends to allocate power to Native 
Americans for use on the reservation out of project-specific resource 
pools, but will determine the size of the allocation based upon the 
need to meet an appropriate share of the load for eligible new 
customers.
    Comment was received that the resource pool be enlarged to 4.5 
percent to assure the pool is not so small that it limits a tribe's 
``fair share'' or that the expectations of existing customers are not 
fixed too high. Over the last several months, Western has developed an 
estimate of the loads that exist on reservations within the marketing 
area of the Pick-Sloan Missouri Basin Program-Eastern Division. 
Information on the hydropower benefits currently being received by 
reservations has also been compiled. Based upon this information, and 
information from customers relating to Native American loads, a 3 
percent initial resource pool was proposed. Comment was received that 
the proposed 3 percent initial reservation of Pick-Sloan Eastern 
Division power was not enough to meet a fair share of the needs of 
tribes, and should be increased to 4.5 percent. To assure that a fair 
share of the load of Native Americans is met, Western has increased the 
size of the initial resource pool to 4 percent.
    Comments were received regarding the size of the resource pool. At 
present, Western supplies about 26 percent on average of the total load 
of firm power customers in the Eastern Division of Pick-Sloan. The size 
of the initial pool is large enough to meet a considerably higher 
percentage of tribal load than many existing customers enjoy.
    Comments on the ``fair share'' concept were that Western has not 
addressed the tribal arguments in support of a greater than ``fair 
share'' allocation; Western's estimate that 45 MW of Pick-Sloan power 
is enough to meet a fair share of the needs of the tribes is flawed 
because it assumes a ``fair share'' would not exceed 70 percent and the 
load analysis was based on 1990 census data when the delivery of power 
would actually begin in the year 2000; and the term ``fair share'' 
should be discontinued because it is ambiguous and promotes 
misunderstanding and mistrust. Western regrets that tribes oppose the 
use of the term ``fair share'' due to its ambiguity. Western will not 
define ``fair share'' in this final rule, as this determination can be 
made better during the future project-specific allocation process for 
new customers within the Eastern Division marketing area.
    During the comment period, it was suggested that tribes should 
receive all ``new'' power resources resulting from operational changes 
or upgrades. In contrast, another comment asked Western to accommodate 
new customer needs exclusively from new resources and not from a 
resource pool. According to this commenter, if needy groups need 
assistance, it should be in the form of subsidies borne by all 
taxpayers and not through actions that will increase power costs for 
rural America.
    Equity is not served by dedicating future increases in resources, 
whether due to operational changes favorable to power production or 
upratings at existing powerplants, to one class of customers. The Power 
Marketing Initiative provides tribes with significant new benefits. Nor 
will Western limit new customer access to power to new power resources 
only. The creation of a resource pool serves the policy of promoting 
widespread use of hydropower. Limiting new customer allocations to 
potential new power resources would create additional uncertainty for 
new customers, as there is no assurance of the availability of such 
resources during any defined time period.
    To date, Western has received full cooperation from Eastern 
Division cooperatives on the issue of delivery of hydropower benefits 
to reservations. Even if unanticipated obstacles to the delivery of 
hydropower benefits arise, Western retains the right to provide the 
economic benefits of its resources to Native Americans directly. Given 
this flexibility, Western sees no reason to include language that makes 
delivery of power/power benefits to tribes a condition of firm power 
sales contracts for cooperatives. Western, Native Americans and 
Western's Eastern Division customers will continue to work together to 
assure that the tribes receive the benefit of their allocation. Western 
has responded positively to requests for assistance in negotiations.
    One comment suggested that Western evaluate tribal irrigation 
potential and integrate that irrigation into the Pick-Sloan similar to 
the Standing Rock Sioux and the Three Affiliated Tribes under the Water 
Resources Development Act of 1992. Another comment asked that more 
tribes receive compensation like that received by the Fort Berthoud, 
Standing Rock Sioux and Three Affiliated tribes. Special legislation 
would be required to accomplish these suggestions. Western will 
consider allocation of power to eligible irrigation districts in a 
future, project-specific resource pool allocation process.
    Western has no authority to adjudicate Indian water rights and 
negotiate such rights with the states. This activity is outside the 
scope of Western's mission, and should be addressed through direct 
discussions with the responsible agencies.
    Western will not adopt the comment that only short-term commitments 
of firm power should be made pending resolution of Missouri River Basin 
tribal issues. Significant resource uncertainty would continue for 
existing customers in the Eastern Division if this comment were 
adopted, as contracts currently in place expire in the year 2000. 
Instead, Western will continue to work with tribes in the upper Midwest 
in parallel with Program implementation.
    Several comments were received advocating flexibility in the 
allocation of Western power to Indian tribes. Instead of limiting 
allocations to use on the reservation, these commenters asked that 
tribal members living adjacent to the reservation and within the 
servicing cooperative's service territory also be allowed to receive 
the benefits of cost-based Eastern Division power. Another comment 
asked how Western intended to address the closed/open reservation 
issue. In order to retain the flexibility to address these situations, 
this Federal Register notice states that Western 

[[Page 54167]]
expects to make allocations to Native American tribes for use on the 
reservation and potentially off the reservation under certain 
circumstances as determined by Western. Western wants to reserve the 
flexibility to tailor the allocation of power from project-specific 
resource pools to meet regional circumstances.
    Western was requested to advise whether the Mni Wiconi special 
allocation of 6 MW is part of the proposed 3 percent resource pool. The 
Mni Wiconi special allocation of 6 MW is statutory, and is not part of 
the Eastern Division proposed 3 percent initial resource pool.
    An objection was raised regarding the distribution of power within 
the Department of Defense where the total military electrical load is 
being reduced, with comment being received that a higher Federal 
purpose would be served by reallocating the power to the tribes. 
Western does not have the contractual right to withdraw power from the 
Department of Defense to meet Native American needs. Under an existing 
contract that is effective through the year 2000, Western has agreed to 
allow the Department of Defense to shift its allocation among Air Force 
bases under circumstances such as a base closure. Western cannot 
allocate this power to tribes, as it is already contractually 
committed.
    One comment stated that the tribes lost over 160,000 acres of land 
without just compensation when Oahe was constructed, and that the 
tribes have never received the power benefits from Pick-Sloan despite 
the loss of land. Just compensation for the taking of lands to 
construct the Pick-Sloan Program is not an issue that is appropriately 
addressed through an allocation of power by Western. When the taking of 
lands took place, compensation was given to tribes. If the compensation 
was inadequate, redress is available through the courts, through 
special legislation, or through the agencies that took the property.
    It was suggested that a special tribal nation allocation be 
established from power revenues to provide just compensation. Western 
has no authority to use power revenues deposited in the Treasury to 
create a special tribal allocation to provide just compensation. Only 
Congress can direct the use of revenues in such a manner.
    Western declines to create a special class of power exclusively for 
tribes. In the absence of direction from Congress to the contrary, 
Western believes it is inequitable to create administratively a 
special, preferential classification for Indians. Instead, Western 
intends to meet the needs of tribes through allocations from project-
specific resource pools.
    Nor will Western create a special IRP provision for Indians. Under 
section 114 of the Energy Policy Act of 1992, Western does not have the 
discretion to develop special provisions for tribes. However, Western 
intends to provide integrated resource planning technical assistance to 
Native American tribes upon tribal request. We are committed to 
assisting the tribes to successfully develop and implement IRPs.
    Comment was received that the tribe must recapture capital 
ownership rights in RUS plant equipment based on the Consumer Price 
Index, and that Indians should be provided technical and financial 
assistance in developing a utility on a par with the rural electric 
cooperatives and investor-owned utilities. No authority exists for 
Western to adopt the comment that a tribe must recapture capital 
ownership rights in RUS plant equipment based on the Consumer Price 
Index. Nor does Western have any role with respect to disconnection of 
service policies. Western will remain neutral on the issue of tribal 
utility formation. Technical and financial assistance to a tribe or any 
other group in support of utility formation will not be provided, as 
this cost is the responsibility of the entity seeking utility status 
and should not be a project cost borne by all project ratepayers.
    Western was asked whether it is implementing retail wheeling. 
Western is not imposing retail wheeling on its Eastern Division rural 
electric cooperative customers under the Power Marketing Initiative. 
The cooperatives have been supportive of the delivery of the benefits 
of power allocations to tribes, and are supportive of a bill crediting 
approach to accomplish Western's goals in a manner that avoids the need 
for a separate transmission service arrangement.
    Comment was received asking why Western was expanding its resource 
allocations to tribes when the overall SLCA/IP resource was declining. 
No decision has been made on the size of the resource pool for 
potential new customers within the SLCA/IP marketing area. The size of 
this project- specific pool will be determined at a later date. Western 
is working with the Ute Mountain Utes to determine if project use power 
might be made available for certain irrigation pumping loads before 
existing firm power contracts expire in the year 2004.
    Comments were received by customers and stakeholders that the 
efforts of Western to work with the tribes on implementing the Program 
is appreciated; that the United States should abandon the policy of 
decimating Indian water rights through court adjudication and 
negotiation with the states; the relationship between Western and 
Indian tribes is expected to be one of government to government; and 
Western must follow DOE's commitment to the trust responsibility 
reflected in DOE's Indian Policy and ``redo'' the Program to reflect 
tribes' unique relationships with the Federal government. Western 
supports the Department of Energy's American Indian policy which 
stresses the need for a government-to-government, trust-based 
relationship. The key theme throughout the Department's policy is 
consultation with tribal governments so that tribal rights and concerns 
are considered prior to action being taken. Western has met with Indian 
tribes and tribal representatives throughout the Program public 
process, and is currently meeting with tribes located in the Missouri 
River Basin on a monthly basis. To mitigate the economic conditions on 
reservations within Western's marketing area, Western has responded 
favorably to the comment that tribal utility status should not be 
required before a power sales contract can be offered, and has also 
adopted tribal comment by agreeing to enter into contracts with the 
tribe directly. These policy decisions show how Western has been 
responsive to the needs of tribal nations, and that the consultation 
has been meaningful and substantive.
9. Resource Acquisition by Western
a. Background
    In the proposed Program, Western committed to the use of IRP 
principles in its resource acquisition and transmission planning 
principles. This commitment has been pursued through a separate public 
process, commencing with a Federal Register notice published on 
December 6, 1994, 59 FR 62724.
b. Comments and Discussion
    The following are comments received which were addressed in the 
separate public process on the use of IRP principles by Western, or are 
more appropriately addressed in the project-specific implementation of 
the IRP principles: (1) Western should not develop non-hydro resources, 
as this would have a negative impact on our IRP. (2) Western's resource 
acquisitions should be limited to meeting contract rates of delivery. 
(3) Western should identify current and future transmission development 
in its IRP, as this information is critical to our IRP. (4) 

[[Page 54168]]
How will Western acquire DSM? Western should not conserve its 
hydroelectric power, but should market all of the available resource. 
(5) Western should emphasize the purchase of energy efficiency and 
renewable energy from Western customers over other resources. (6) 
Western should purchase efficiency and renewables, because cost-based 
rates discourage the installation of energy efficiency measures. (7) We 
support IRP by Western. It would be appropriate for the Bureau of 
Reclamation to use IRP principles in its pump replacements, generator 
rewinds or other project enhancements and system improvements. (8) Any 
reduction in Western's costs will enhance our competitive position. (9) 
We do not support the concept of Western reducing customer demand 
through Western's adoption of IRP principles. (10) We are unclear 
whether Western could free up power resources by funding energy 
efficiency and demand-side management projects. (11) We are unsure if 
Western's commitment to IRP principles will apply to investments 
Western is considering in the very short term. (12) We are concerned 
about the timing of the adoption of IRP principles by Western--it 
should apply to Navajo transmission and Glen Canyon replacement power 
and to resources that have not yet been acquired as of January 1, 1995. 
(13) Western should use IRP principles immediately, without waiting for 
completion of the public process.
    Several relevant comments will be addressed briefly here.
    One customer commented that Western's use of IRP principles could 
impact customer resource planning, and that Western should implement 
its commitment before requiring its customers to complete their IRPs. 
Additionally, Western should be sensitive to the timing of customer 
IRPs and Western's use of IRP principles, especially if Western's 
actions impact the amount or the price of the Federal resource. Western 
agrees that its use of IRP principles could impact customer planning. 
Every attempt was made to conclude the parallel public process quickly, 
to provide customers with more certainty as they prepare their 
individual integrated resource plans. The implementation of Western's 
commitment to use principles of integrated resource planning is 
described in a Federal Register notice published on June 9, 1995 (60 FR 
30533).
    A customer commented that it supports future contracts that allow 
customers the flexibility to acquire firming resources, and urges 
Western to enter into contracts to purchase customer-owned renewable 
resources. Additionally, customers should be given the opportunity to 
refuse Western purchase of firming energy, and should be given a 
priority to purchase surpluses. Western concurs that customers be given 
the opportunity to refuse Western purchase of firming energy. For all 
projects receiving resource extensions under the PMI, Western will 
develop contractual language which would allow the customer to assume 
the responsibility of acquiring resources to firm up Western's 
hydroelectric commitments if the customer so chooses.
    Another customer commented that adoption of IRP principles by 
Western should not mean abandonment of lowest possible cost consistent 
with sound business principles; and that Western's role is one of a 
marketer of power from Federal generation, and not acquiring non-
Federal power through the use of power revenues. Adoption of IRP 
principles does not mean abandonment of lowest possible costs 
consistent with sound business principles. To the contrary, use of IRP 
principles will be a tool that will assist Western in keeping costs 
low.
10. Implementation
a. Background
    Western proposed to offer extension contracts to existing Pick-
Sloan Missouri Basin Program-Eastern Division and Loveland Area Project 
customers upon submittal of their IRPs to Western. Western also 
proposed to extend to existing customers a pro rata percentage of 
marketable resources available at the time current contracts expire.
b. Comments and Discussion
    Comments were received stating that actual contract rate of 
delivery values need to be in the contracts extending resources because 
a percentage of a resource available at the end of the term of existing 
contracts does not offer customers the certainty needed to prepare a 
quality integrated resource plan; that it would be extremely beneficial 
to know the marketable capacity and the resources to be committed as 
soon as possible--when the Corps of Engineers operating procedures are 
known, the marketable capacity should be determined; that contract rate 
of delivery values must be specified in the contract; and that there 
should be minimum resource values set forth in the post-2000 contracts. 
While Western understands the concern that actual contract rate of 
delivery values need to be in contracts extending resources, or that 
some minimum resource values be established, there remains a need to 
retain the flexibility to respond to changing circumstances in the 
short term. The development and completion of the Missouri River Master 
Operating Manual EIS is one of those changing circumstances. Western 
will work with customers to determine the resources and marketable 
capacity to be committed as soon as possible after the Corps operating 
procedures are known. If no better information is available, for 
initial IRP planning purposes, Western will provide existing customers 
with estimated resource commitments (based upon application of the 
percentages set forth in this final rule to the resources currently 
under contract).
    Customers commented that contracts should be offered upon 
publication of the final rule, as the added certainty would promote 
quality integrated resource planning; that customers are already 
required to prepare and implement IRPs under the Energy Policy Act and 
there is no need for a further incentive to encourage IRP; that 
contracts should be offered upon issuance of the EIS Record of Decision 
subject to the submission of the customer's initial IRP; that customers 
will find it difficult to develop IRPs without knowing Western's exact 
commitment; and that it may be necessary to delay the signing of 
Eastern Division contracts if appropriate delivery arrangements to 
Native Americans cannot be worked out. Western agrees with the comments 
that individual customer contract offers for those projects initially 
covered under the Power Marketing Initiative should be made before 
individual customers are required by Western to submit an IRP. By 
adopting this approach, the new penalty provisions under the extension 
contracts will be effective and available if an IRP or small customer 
plan is unsatisfactory. In 905.37 of this final rule, Western has 
adopted the approach that Pick-Sloan Missouri Basin Program-Eastern 
Division extension contracts may be offered 30 days after publication 
of this Federal Register notice. This approach provides more certainty 
to customers by advancing the date of the contract offer, but retains a 
powerful incentive for quality and timely integrated resource planning 
by making the penalties mandated by EPAct immediately applicable 
pursuant to the terms of the extension contract. Contracts for 
extensions of resources for the Loveland Area Projects will not be 
offered until the analysis of potential resource adjustments in 1999 
has been 

[[Page 54169]]
completed and any adjustments are implemented. Existing power sales 
contracts require that this analysis be completed by 1996.
    It was also suggested that the Salt Lake City Area/Integrated 
Projects marketing plan, Glen Canyon EIS and replacement power study 
should be expedited, with contract extensions accomplished concurrent 
with the Record of Decision on the SLCA/IP marketing plan EIS. Western 
agrees that customer resource certainty is promoted by expediting the 
Salt Lake City Area/Integrated Projects marketing plan, the Glen Canyon 
EIS and the replacement power study. Western is making every effort to 
complete the processes we are managing, and is working with the Bureau 
of Reclamation to help complete the Glen Canyon EIS as well. Western 
will evaluate application of the PMI to the SLCA/IP after its electric 
power marketing EIS is completed and the associated marketing criteria 
and contract changes are implemented.
11. Other Marketing Issues
a. Background
    Historically, Western has marketed firm power at a level defined in 
project- specific marketing criteria. During periods of drought, 
Western has purchased firming power to meet the obligations defined in 
the marketing criteria. When water conditions are good, surplus energy 
(and occasionally surplus capacity) may be available for sale on a 
short-term basis. Typically, these surpluses are sold to regional 
utilities. These regional utilities may or may not be long-term firm 
power customers; these sales are often made to both preference entities 
and investor owned utilities.
    Historically, Western's project-specific marketing approach has 
been based upon public comment and policy decisions made during the 
development of specific marketing criteria. Some resources are marketed 
on a resource pattern basis, while others are based on the load pattern 
of the customer.
    Western proposed to extend a major percentage of the power 
currently committed to existing customers beyond the expiration date of 
existing contracts. Western is not proposing to acquire new resources 
to meet customer load growth.
b. Comments and Discussion
    A number of commenters supported the current definition of Pick-
Sloan Missouri Basin Program-Eastern Division marketable resources and 
the marketing criteria. Any change should take place under a separate 
public process after consultation with customers. Several commenters 
suggested that existing preference entities should have a right of 
first refusal to all non-firm power at the price of production and 
transmission and that non-firm energy should be sold to customers that 
demonstrate feasibility of purchase in their IRP, and when that 
customer can firm the hydroelectric energy. They also suggested that 
resources made available as a result of penalty impositions should be 
marketed to customers of the same Area Office.
    There were numerous comments on how to establish the marketable 
capacity. Some suggested that a separate approach may help maximize the 
capacity Western has available to market. Several of Western's 
customers are power suppliers that have energy flexibility with their 
own resources. If that flexibility can be utilized by Western to 
minimize their risk in high or low water years, the Western capacity 
could be based on something other than a lower decile water year such 
as a higher percentage of average hydrology. This would be a departure 
from the load pattern type resource. In bad water years, the deliveries 
would be lower, and the deliveries would be higher in good water years. 
This would minimize the purchase and sale of firming energy. Marketable 
capacity might be based on average water conditions if the customers 
could handle some of the swings.
    Changes to Western's project-specific marketing policies are not 
appropriate in a Western-wide initiative such as the Energy Planning 
and Management Program. Adjustments in Western's current marketing 
approach for a specific project can be appropriately addressed in a 
separate project-specific proceeding at a later date. The extension 
formula provides for a pro rata commitment to existing customers, based 
upon the resource available at the end of the term of existing 
contracts. Changes in marketing approaches are best addressed at that 
time on a project-specific basis and not during the Western-wide 
development of the PMI. Marketing issues that might be appropriate for 
discussion at that time include policies for sale of non-firm energy, 
departure from a load pattern resource and adjusting the firm power 
risk level to a different percentage.
    Several comments were received on the proposal to restrict 
transfers of Pick-Sloan Missouri Basin Program--Eastern Division 
allocations held by the State of South Dakota and the Department of 
Defense. Under existing contracts, these two customers have enjoyed the 
flexibility to transfer Western's hydropower and concentrate 
allocations in specific locations with the goal of maximizing the 
benefits of Federal hydropower. This contractual right exposes 
supplemental power suppliers to load variations, undermining the 
resource stability which promotes quality integrated resource planning. 
By proposing some restrictions in the final rule on this flexibility in 
the contracts extending resources, Western intends to create a more 
stable resource commitment to customers that would benefit regional 
planning, and make future firm power customer contracts more consistent 
and equitable.
    Contrary to the comments of the Air Force, the final rule does not 
require that an entire allocation be lost upon base closure after 2000. 
Movements of allocations are allowed when the contract rate of delivery 
exceeds the load at a particular site; this would be the case when a 
base closes.
    The final rule does not impose unfair or unusual constraints on 
government customers. If anything, the regulations treat Federal and 
state government the same as other Eastern Division customers by 
removing an advantage other customers do not enjoy. While this 
provision may impact power costs for the Air Force and the state of 
South Dakota, broader regional advantages are also realized from the 
increase in power supply stability.
    The seasonal proportional share concept does not violate least-cost 
principles. This same approach has been used in allocations to new 
customers in many historic project-specific marketing plans.
    Several commenters recommended that Western maximize the stability 
of the planning environment, and do everything possible to control 
costs and identify the costs of other agencies that adversely impact 
the cost of power. They also suggested that Western recognize the 
potential structural changes in the electric utility industry by 
beginning a meaningful dialogue on unbundling of services and must 
avoid new subsidies or perpetuating old ones. A further suggestion was 
that Western should further unbundle services to expand Western's 
customer base and those receiving project benefits.
    Western is committed to enhancing resource stability through 
control of costs. Many positive steps have been taken to reduce 
Western's expenses, and more are planned for the future. Western 
intends to be responsive to customer needs and utility industry 
changes. This responsiveness includes a willingness to enter into a 
meaningful dialogue on unbundling of services. Most recently, a 
dialogue on this subject has taken place among Western and 

[[Page 54170]]
Central Valley Project customers. Western agrees with the comment that 
new subsidies must be avoided and old subsidies must be eliminated. 
Western will take advantage of consultation opportunities with 
customers to maximize communication.
    One commenter was concerned that in the responses to comments that 
were part of the proposed rule, Western makes the statement that it has 
no general legal obligation to acquire additional resources to meet the 
load growth of its customers. They felt that this statement is 
unnecessary and constrains the considerable authority given to Western 
by the Tenth Circuit Court of Appeals.
    Western does not intend the publication of the proposed Program or 
this final rule to limit Western's legal authorities recognized by the 
Tenth Circuit Court of Appeals in Salt Lake City et al v. Western Area 
Power Administration, et al., 926 F.2nd 974 (10th Cir. 1991). However, 
Western does not have the legal authority to acquire resources to meet 
customer load growth.
    Several commenters supported efficiency improvements to existing 
project facilities, and asked that customers have a right of first 
refusal to participate. Any increases in capacity/energy should be made 
available to the financing customer, or as a substitute for other 
firming resources. Western should commence a process along the lines of 
NCPA's 1992 proposal to the House Interior Committee.
    On the issue of customer financing of improvements to project 
facilities, Western has decided to retain its flexibility to address 
unique opportunities in a tailored manner as opposed to establishing a 
Western-wide policy. In the past, Western has made increases in 
capacity/energy available to the financing customer. Western continues 
to believe this concept makes sense, and will likely apply it in the 
future under most circumstances.
    Commenters applauded Western's decision to continue to provide 
transmission access for renewables and endorsed Western marketing a 
variety of products out of the Central Valley Project. Western 
appreciates this supportive feedback.
    One commenter remarked that access to Western hydropower should be 
based on customer adoption of a mix of conventional, renewable, and 
demand-side resources. This commenter believes that contract renewals 
should be a reward for DSM implementation. Western declines to allocate 
power based on customer adoption of a mix of conventional, renewable 
and demand-side resources. Nor will contract renewals be a reward for 
DSM implementation. Resource extensions should be the foundation for 
customer IRP, and not a carrot to induce the selection of some 
preconceived resource ideal. Integrated resource planning should lead 
to the selection of resources based on their individual merits as 
determined through the IRP process. Western addressed at length the 
issue of incentives in the responses to comments that were part of the 
Federal Register notice of August 9, 1994. That discussion is still 
valid and is incorporated as a response to these comments.
    Allocations from project-specific resource pools will be completed 
before contracts with existing customers expire. Power that is reserved 
for new customers but not allocated and resources offered but not 
placed under contract will be offered to existing customers that 
contributed to the resource pool. Western expects that all firm power 
will be marketed. Withdrawal mechanisms will exist for purposes 
described in the final regulations.

D. Other Issues

1. Support of Renewables
a. Background
    In the proposed rule, Western stated that consideration would be 
given to the allocation of power from project-specific resource pools 
to firm up renewable resources.
b. Comments and Discussion
    Western received several comments that strongly support the concept 
of making power available to preference entities to firm up renewable 
resources. Those comments stated that firming renewables would expand 
that marketplace for renewables and facilitate the further development 
and commercialization of this technology; that the initial pools for 
the Pick-Sloan Missouri Basin Program--Eastern Division and the 
Loveland Area Projects be increased to 6 percent of the available 
resource, with half of the increased pool being dedicated to help firm 
up renewables; and that the increased experience and economies of scale 
would make renewables more attractive and cost-effective and renewable 
investments would help utilities diversify against future fuel price 
and environmental risks. However, one commenter stated that funding 
renewable or nontraditional power supply may be a worthy social 
objective, but this is not Western's role and incentives to encourage 
non-traditional resources should be developed at the community level 
through the customer IRP process.
    Western has a strong desire to support the development of 
renewables. Western has in the past and plans in the future to assure 
the continued progress of renewable resources as an important national 
resource. The following examples demonstrate Western's commitment.
    In the Eastern Division of the Pick-Sloan Missouri Basin Program, 
the Mid-Continent Area Power Pool (MAPP) has in place a means to 
accredit capacity for renewable resources based on historical 
performance. Accreditation relieves the renewable resource owner from 
the cost of purchasing power reserves due to the intermittent nature of 
power production by this type of resource. If a Western customer is not 
a MAPP member, Western may act as an agent for the customer to gain 
MAPP accreditation of capacity for the renewable resource.
    Recently, Western has committed to undertake a market assessment of 
the potential for solar power in the southwestern United States as part 
of the Solar Enterprise Zone (SEZ) initiative. Western has offered its 
marketing, transmission and power system operations expertise to the 
SEZ.
    Western has been active in promoting renewable energy in 
partnership with Native American Indians. Western, in coordination with 
the Navajo Nation, the Department of Energy and Sandia National 
Laboratory, has supplied forty photovoltaic units to the Navajo Tribal 
Utility Authority for installation at remote homes on the Navajo 
reservation. As extensions of distribution lines to these remote 
locations would be prohibitively expensive, installation of 
photovoltaic technology is a commercially viable alternative. Western 
has contributed to an assessment of the wood fuel supply on the White 
Mountain Apache tribe reservation to determine the quantity of this 
fuel available for power cogeneration. To promote Indian health, 
Western is contributing to the Navajo Rootfuel Promotion project, which 
will evaluate the feasibility of growing and harvesting rootfuels to 
replace coal as a fuel in Indian homes. Another example of a 
partnership between Western and Native Americans is an assessment of 
the feasibility of producing biogas fuel from solid wastes to meet the 
needs of remote Navajo villages and cluster homes.
    In addition to sponsoring many workshops and publishing numerous 
publications on IRP, Western has created the Resource Planning Guide, a 
technical assistance tool that will help customers to prepare 
integrated resource 

[[Page 54171]]
plans as required by section 114 of the Energy Policy Act of 1992. The 
RPG is a personal computer-based piece of software that will allow 
customers to evaluate renewable resources as a future resource.
    Western's Sacramento Area Office has provided technical assistance 
for a feasibility analysis of using wind-generated energy at Lawrence 
Livermore National Laboratory. If the analysis is favorable, Western 
will work with the laboratory to develop the use of wind energy. 
Western has also made its transmission system available to wheel power 
from wind generation to load.
    Most recently, Western has taken steps to implement its commitment 
to use principles of integrated resource planning for its resource 
acquisition and transmission planning activities. Demand-side and 
renewable resource options will be considered side-by-side with thermal 
generation purchase opportunities. The implementation of the commitment 
to use principles of integrated resource planning is described in a 
Federal Register notice published on June 9, 1995 (60 FR 30533). 
Although strongly supportive of renewable resources, Western believes 
that the concept of setting aside a portion of Western's purchase power 
appropriations exclusively to acquire renewables is best addressed 
through project-specific implementation of IRP principles.
    While Western wants the ability to support renewable resources 
through allocations from project-specific resource pools, it is 
premature to designate a portion of the pool exclusively for the 
support of renewable resources. Western's resource pool reservations 
are for use beginning in the year 2000 for the Eastern Division of 
Pick-Sloan. Western does not want to commit a block of power today for 
the benefit of renewable technologies, when the targeting of resource 
pool power can take place more effectively nearer the date that 
existing contracts expire and regional needs are better known. Devotion 
of a block of power today to a single use, such as fostering 
renewables, could work to the disadvantage of other pool uses, such as 
allocation of power to American Indians. Western reserves the right to 
allocate resource pool power in support of renewables, but will not now 
exercise that right.
2. Project Use
a. Background
    Project use power is that power reserved to meet project needs 
pursuant to law, such as pumping irrigation water. Power in excess of 
that needed for project use is available to Western for allocation. 
Western made no proposal to change the definition of project use power 
in the proposed Program.
b. Comments and Discussion
    One comment stated that Western should maintain the current 
definition of project use and that an allocation of Pick-Sloan power to 
the Garrison Diversion Conservancy District is important to them under 
present operations and absolutely essential for future requirements. 
Given the Garrison Diversion Unit reformulation legislation passed by 
Congress in 1986, the commenter thought consideration should be given 
to a specific power allocation on reserve in their name for operation 
of facilities authorized in the 1986 legislation. Any change in the 
suballocation of costs should take into account the interests of the 
irrigation districts. This commenter also stated that all long-term 
contracts should have provisions for withdrawal to meet the pumping 
power needs of the Garrison Diversion Unit, as farmers need reasonably 
priced electricity for use on the farm.
    Project use power is not allocated but is reserved pursuant to the 
authorizing legislation for each project. Since Western does not 
allocate project use power for water pumping, this type of power is not 
a part of the PMI. Western's firm power contracts for the Eastern 
Division presently contain withdrawal provisions to meet project use 
load as it develops. Future contracts will contain similar withdrawal 
language for project use.
    Since these regulations do not address any changes in the 
definition or scope of project use power for pumping purposes, the 
suballocation of costs is similarly not a part of the PMI.

III. Summary of Changes From the Proposed Program

    Western has made several revisions to the proposed Program in 
response to public comments on the Federal Register notice of August 9, 
1994. All references to Program ``procedures'' have been deleted, and 
replaced with ``final rule'' or ``regulations'' to better reflect 
section 114 of the EPAct and the fact that the final rule will be 
published in the Code of Federal Regulations. The final rule clearly 
separates the Program's provisions from the explanatory text which has 
been shifted to the supplemental explanation section. To eliminate 
confusion, the definition and use of the word ``purchaser'' was 
eliminated and replaced with ``customer.''
    In the IRP subpart (subpart B), Western broadened language relating 
to member-based associations in recognition of our wide variety of 
customers. Determination of the small customer threshold of 25 
gigawatthours (GWh) was changed to a 5 year average, instead of the 
proposed annual measurement. A customer's competitive situation was 
added as a factor in the determination of the reasonableness of an IRP. 
Provisions relating to irrigation districts were extended to other 
customers that serve water pumps and comparable equipment as part of 
their load. The section dealing with the use of IRP principles by 
Western was deleted, in recognition of the completion of a separate 
public process (60 FR 30533 (June 9, 1995)) on this subject. Finally, 
clarifying changes were made in a variety of areas, including 
penalties, IRP action plans and progress reports, public participation 
and small customer plans.
    With regard to the Power Marketing Initiative (PMI) provision 
(subpart C), the term of contract has been extended from 18 to 20 
years. For any project initially covered by the PMI, offers of 
extension contracts will take place upon no sooner than the effective 
date of the final rule. For the Pick-Sloan Missouri Basin Program--
Eastern Division and the Loveland Area Projects, the initial resource 
pool was increased to 4 percent, while the two subsequent pool 
increments were reduced to 1 percent each. Application of the 
percentage extension for subsequent resource pool increments was 
changed to the resource that is under contract at the time. The 
proposal to exempt customers with contract rates of delivery of one MW 
or less from contributions to the resource pool was deleted, as was the 
proposed new customer exemption from withdrawals to form later resource 
pool increments. Delivery of the benefits of cost-based Federal power 
to Indian tribes is now directly allowed. Various clarifying changes 
were also made in the PMI.

IV. Supplemental Explanation of the Rule

    This section includes an explanation of certain IRP provisions, and 
it also sets forth Western's policy regarding the future application of 
the Power Marketing Initiative. Section 905.11(b)(3) addresses the 
concept of cost-effectiveness. Cost-effectiveness is basic to a 
resource evaluation and therefore must be pursued. Western recognizes 
the criteria for determination of least-cost options in each IRP will 

[[Page 54172]]
vary among Western's customers because of differences in their size, 
type, resource needs, geographic area and competitive situation. For 
Western's smaller customers, Western may approve an IRP that is a 
generalized analysis which describes the cost comparison processes 
utilized and economic assumptions used. These may be limited to, for 
example, the total resource cost test for demand-side resources and may 
involve use of simplified methods and procedures to analyze important 
variations in supply-side characteristics such as service lives, 
construction periods, and price inflation influences. However, Western 
would expect its larger customers to prepare a more in-depth evaluation 
of demand and supply resource cost effectiveness, on a comparable 
basis. This may include evaluation of demand-side resources under some 
combination of the total resource cost, participant, rate impact 
measure, utility, or societal tests; life-cycle screening and screening 
curve analyses for the supply-side resources; production costing 
analysis; rate impact analysis; risk analysis; and impacts to the power 
supply chain as applicable.
    Full public participation is the subject of section 905.11(b)(5). 
Western will not require a customer to take any action inconsistent 
with existing sunshine laws and other open meeting requirements. Given 
the wide diversity of customers that Western serves and the variety of 
resource planning circumstances that they face, Western will not 
mandate that customers hold a specific number of public meetings.
    Section 905.12 describes how customers may be allowed to form an 
IRP cooperative. Western believes the benefits of joint integrated 
resource planning can be significant and encourages customer 
consideration of this approach when an appropriate resource planning 
``decision block'' exists. Examples of such a ``decision block'' are 
when all the entities covered by an IRP are contained within a power 
supply chain or regional entities plan for joint supply-side, demand-
side, and/or renewable resources above and beyond the Western resource, 
so long as individual member responsibilities and participation levels 
are identified.
    Examples of entities likely to receive Western's approval include 
(1) existing first-level MBAs which were formed to meet the load growth 
of their members through supply-side resources, such as G&T 
cooperatives; (2) existing second-level MBAs, such as organizations 
with G&T cooperative members, which may be granted IRP cooperative 
status due to the magnitude and effort involved in development of such 
comprehensive IRPs; and (3) new associations where potential members 
have not previously evaluated supply-side and demand-side resources on 
a joint basis.
    The criteria that will be used in evaluating IRPs are set forth in 
section 905.11(b). Customers will make their own choices regarding 
resource type, quantity, and timing in accordance with their IRP. 
Western will not dictate resource choices.
    Section 905.13(d) contains special irrigation district and water 
planning provisions. Irrigation and water utility customers may use 
information available from an extension service or a university to 
judge the merits of a demand-side resource opportunity; there is no 
requirement to hire a consultant to independently verify this kind of 
information. The customer's knowledge and experience should be central 
in the integrated resource planning resource evaluation and selection 
process.
    Small customer plan requirements are set forth in section 905.14. 
Western does not expect small customers to expend a significant amount 
of time and money to acquire expertise and data to prepare these plans. 
Western will be available to assist customers in developing an 
appropriate strategy for preparing the plans.
    Section 905.30 deals with the applicability of the Power Marketing 
Initiative. It limits the initial application of the PMI to the Pick-
Sloan Missouri Basin Program--Eastern Division and the Loveland Area 
Projects. Western's Program establishes an overall framework for the 
marketing of power, while recognizing that future determinations must 
be made on a project-specific basis. Many project-specific 
determinations are necessary before any final decisions can be made on 
marketing power. Such important issues as the resource available for 
marketing in the future, the size of a resource pool, any adjustments 
to the size of this pool, and allocation criteria for new customers 
must be decided on a project-specific basis, with public input and 
appropriate environmental documentation.
    Application of the PMI to the Central Valley Project, Washoe 
Project and Salt Lake City Area/Integrated Projects shall not take 
place in the absence of a future, project-specific evaluation and 
decision.
    For Central Valley Project and Washoe Project resources, all power 
contracts between Western and its long-term firm power customers expire 
in 2004, as do the Western-Pacific Gas & Electric Company contracts. 
Western is presently preparing an environmental impact statement (EIS) 
for the Sacramento Area Office (SAO) 2004 marketing plan. Western will 
not make any decision at this time about application of the PMI to SAO 
resources for the post-2004 time period. The provisions of the PMI will 
be within the range of alternatives in the SAO marketing plan EIS for 
purposes of impact assessment. As a result of further analysis in the 
2004 power marketing plan process, Western may at a later date propose 
through the public process adoption of the PMI for SAO resources in the 
post-2004 time period. If the PMI provision is implemented, Western 
estimates that an initial extension level percentage would be similar 
to those of the Pick-Sloan Missouri Basin Program--Eastern Division and 
the Loveland Area Projects. The additional resource pool increments 
described in section 905.32 would also be applicable.
    Application of the PMI to the Salt Lake City Area/Integrated 
Projects (SLCA/IP) resources will be evaluated after its electric power 
marketing EIS is completed and the associated marketing criteria and 
contract changes are implemented. Western's ongoing project-specific 
EIS for the SLCA/IP analyzes power marketing between now and the year 
2004. If the PMI provision is implemented, Western estimates that an 
initial extension level percentage would be similar to those of the 
Pick-Sloan Missouri Basin Program--Eastern Division and the Loveland 
Area Projects. The additional resource pool increments described in 
section 905.32 would also be applicable.
    The resource pool size for SAO and SLCA/IP resources will be 
determined during a project-specific public process to reflect the 
actual fair share needs of eligible new customers and other purposes, 
as determined by Western.
    Western will evaluate application of this PMI to other Western firm 
power contracts that expire after January 1, 2005--principally the 
Parker-Davis and Boulder Canyon Projects. This evaluation will be 
published after a separate public process and will take place no more 
than 10 years before termination of these contracts.
    Any adjustment shall only take place after an appropriate public 
process. Withdrawals to serve project use and other purposes provided 
for by contract shall continue to take place based on existing 
contract/marketing criteria principles.
    Section 905.32 addresses both resource extensions and resource pool 
size. Western's policy on these subjects is as follows. For the 
projects initially covered under this PMI, the project-specific 
resource pools (including both the initial pool and future increments) 

[[Page 54173]]
could be as large as 6 percent over the term of the contracts. These 
percentages are based on Western's judgment of the hydropower needed to 
meet a fair share of the projected power needs of potential new 
customers in the applicable marketing area at the time existing 
contracts expire.
    Western will establish incremental resource pools that make power 
available for potential new customers over time, without the disruptive 
influence of creating a large pool all at once, before the need exists. 
Another purpose of incremental resource pools is to provide Western 
with the flexibility to meet new needs that is necessary when long-term 
contracts are offered to customers. The following table illustrates the 
timing and size of the resource pool creation, as applied to the Pick-
Sloan Missouri Basin Program--Eastern Division and the Loveland Area 
Projects.

------------------------------------------------------------------------
              Year                     P-SMBP-ED              LAP       
------------------------------------------------------------------------
2001............................  4%................                    
2004............................  ..................  4%.               
2006............................  Up to 1%..........                    
2009............................  ..................  Up to 1%.         
2011............................  Up to 1%..........                    
2014............................  ..................  Up to 1%.         
------------------------------------------------------------------------

    For the Pick-Sloan Missouri Basin Program--Eastern Division, both 
the State of South Dakota (State) and the Department of Defense 
(Defense) have been allowed to transfer Western power from one location 
to another. After existing contracts expire, Western will require that 
power commitments to specific State and Defense sites not be changed 
unless the contract rate of delivery exceeds the total load at that 
site. If the contract rate of delivery exceeds the total load at a 
State or Defense site, only the excess power at that site may be 
transferred to other State or Defense sites. Transfers are subject to 
negotiation of transmission service contracts for the delivery of 
transferred power. To be consistent with requirements for other firm 
power deliveries, Western will require the delivery of a proportional 
share of firm Pick-Sloan Missouri Basin Program--Eastern Division power 
at each State or Defense site in both the summer and winter seasons. If 
a Defense installation or facility is closed after the year 2000, the 
allocation may be affected by the report required in section 2929 of 
the 1993 National Defense Authorization Act, Pub. L. No. 103-160. 
Section 2929 requires the Secretary of Energy, in consultation with the 
Secretary of Defense, to submit a report to Congress that must contain 
recommendations regarding the disposition of hydroelectric power 
allocations to military installations closed or approved for closure 
outside of the marketing area of the Central Valley Project.
    In section 905.33, the PMI extension formula is described. If no 
better information is available for initial IRP planning purposes, 
Western will provide existing customers with estimated resource 
commitments (based on application of the percentages set forth in these 
procedures to the resources currently under contract). Actual resource 
commitment numbers will be developed and included in contracts as soon 
as practicable.
    New customer eligibility is addressed in section 905.35. Western's 
policy on allocation of power to new customers in the future is as 
follows. In order to increase widespread distribution of hydropower 
resources, Western will allocate a fair share of power to eligible new 
preference entities who do not have a contract with Western or are not 
a member of a parent entity that has a contract with Western.
    The specific terms and conditions associated with allocations to 
new customers will be determined during future, project-specific public 
processes. All new applicants for power will be considered and be given 
an opportunity to receive an allocation in accordance with Reclamation 
law. For example, Western expects to make allocations to Native 
American tribes (as that term is defined in the Indian Self 
Determination Act of 1975, 25 U.S.C. 450b) for use on the reservation 
and potentially off the reservation under certain circumstances as 
determined by Western. Utility status will not be a prerequisite for an 
allocation to Native American tribes. Western will also consider making 
allocations to national parks and public mass transit agencies. Western 
will consider making power available to preference entities in support 
of fish and wildlife (such as power to pump water to increase or 
improve wildlife habitat) and to firm up renewable resources.
    Proposals for providing allocations directly to Native American 
tribes will be developed on a project-by-project basis, during the 
allocation of project-specific resource pools.
    Western will consider arrangements for the delivery of the benefits 
of cost-based Federal power to Native American tribes without utility 
status.
    All potential new customers, both utilities and nonutilities, will 
be required to apply for power in a project-specific marketing plan by 
a date to be determined in the project-specific process. All potential 
new customers, except Native American tribes, must be ready, willing, 
and able to receive and distribute or use power from Western. Ready, 
willing, and able means that (1) the potential customer has the 
facilities needed for the receipt of power or has made the necessary 
arrangements for transmission and/or distribution service, (2) the 
potential customer's power supply contracts with third parties permit 
the delivery of Western's power, and (3) metering, scheduling, and 
billing arrangements are in place. Limits on the power received by any 
customer, as well as minimum load requirements, may be adopted. If 
required in project-specific marketing criteria, a potential new 
customer is responsible for transmission arrangements beyond Western's 
system/points of delivery necessary to receive power from Western.
    An existing customer will not be eligible to receive power from a 
resource pool unless Western provides otherwise on a project-specific 
basis. A new customer receiving power from a project-specific resource 
pool will not be eligible to receive additional power from a 
subsequently available resource pool increment unless Western provides 
otherwise on a project-specific basis.
    Existing power marketing criteria, which will remain in effect 
unless amended by the PMI, may be amended in the future if necessary. 
Section 905.36 addresses the relationship between existing marketing 
criteria and the PMI. Any necessary amendments to existing power 
marketing criteria could be pursued at the time Western determines the 
amount of resource available after existing contracts expire. For the 
Central Valley Project, Western plans to develop future marketing 
criteria during the 2004 Marketing Plan process.
    The process of implementing the PMI is addressed in section 905.37. 
Modified contractual language will be required to place resource 
extensions under contract. For all projects receiving resource 
extensions under the PMI Western will develop alternative contractual 
language which would allow the customer to assume the responsibility of 
acquiring resources to firm up Western's hydroelectric commitments to a 
customer if the customer so chooses. The timing of any offers of power 
to existing Salt Lake City Area/Integrated Projects customers for the 
time period after 2004 may be affected by the replacement power process 
relating to loss of capacity due to changes in operations at Glen 
Canyon Dam. For the SLCA/IP, existing contracts provide for potential 
resource adjustments in 1999. No contracts will 

[[Page 54174]]
be offered to existing customers for post-2004 SLCA/IP resources until 
the analysis of potential resources in 1999 has been completed and any 
adjustments are implemented. Existing power sales contracts require 
that this analysis be completed by 1996.
    Western is committed to providing IRP technical assistance to 
customers. In section 905.40, Western will establish a program to 
assist customers with technical questions or concerns relating to the 
development and implementation of an IRP or small customer plan. 
Technical assistance, which may include publications, workshops, 
conferences, individual assistance, equipment loans, technology and 
resource assessment studies, marketing studies, and other mechanisms to 
transfer information on energy efficiency and renewable energy options 
and programs to customers, will be provided under Western's energy 
services functions. Customers will be kept informed of the technical 
assistance available to them in support of their development and 
implementation of IRPs through Western's energy services publications 
and other communications efforts.

V. Regulatory Review

    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 (OMB) is required.

VI. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires 
federal agencies to perform a regulatory flexibility analysis if a 
proposed regulation is likely to have a significant economic impact on 
a substantial number of small entities. In the notice proposing the 
Program, Western's Administrator certified that this Program, if 
promulgated, would not have a significant adverse economic impact on a 
substantial number of small entities. Western did not receive any 
comments that addressed the certification.

VII. Review Under the Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980, 44 U.S.C. 
3501-3520, Western has received approval from OMB for the collection of 
customer information in this rule, under control number 1910-1200.

VIII. Review Under the National Environmental Policy Act

    Western has completed an environmental impact statement on the 
Program, pursuant to the National Environmental Policy Act of 1969. The 
Record of Decision was published in the Federal Register on October 12, 
1995 (60 FR 53181).

IX. Review Under Executive Order 12612

    Executive Order 12612 requires review of regulations or rules for 
any substantial direct effects on States, on the relationship between 
National Government and the States, or on the distribution of power and 
responsibilities among various levels of Government. This rule carries 
out the requirements of EPAct in a manner that reflects comity between 
the States and the United States Government. Western has assessed this 
rule in light of the criteria in Sections 2 through 5 of Executive 
Order 12612. Western has determined that the rule is consistent with 
those criteria, and that the rule will not impose significant costs or 
burdens on States or affect the States' ability to discharge 
traditional State functions.

X. Review Under Executive Order 12778

    Section 2 of Executive Order 12778 instructs each agency to adhere 
to certain requirements in promulgating new regulations. These 
requirements, set forth in section 2(a) and (b)(2), include eliminating 
drafting errors and needless ambiguity, drafting the regulations to 
minimize litigation, providing clear and certain legal standards for 
affected legal conduct, and promoting simplification and burden 
reduction. Agencies are also instructed to make every reasonable effort 
to ensure that regulations define key terms and are clear on such 
matters as exhaustion of administrative remedies and preemption. The 
Department certifies that today's regulatory action meets the 
requirements of section 2(a) and (b)(2) of Executive Order 12778.

XI. List of Subjects in 10 CFR Part 905

    Electric Power, Electric Utilities, Energy, Energy Conservation, 
Hydroelectric Power and Utilities.

    Issued in Golden, Colorado, September 21, 1995.
J.M. Shafer,
Administrator.

    For the reasons set forth in the preamble, Title 10 of the Code of 
Federal Regulations is amended by adding a new part 905 to read as set 
forth below.

PART 905--ENERGY PLANNING AND MANAGEMENT PROGRAM

Subpart A--General Provisions

905.1 Purpose.
905.2 Definitions.

Subpart B--Integrated Resource Planning

905.10 Applicability.
905.11 Integrated resource plan contents.
905.12 Submittal procedures.
905.13 Approval criteria.
905.14 Small customer plan.
905.15 Processing of IRPs and small customer plans.
905.16 Annual IRP progress reports.
905.17 Noncompliance.
905.18 Administrative appeal process.
905.19 Periodic review by Western.
905.20 Freedom of information Act.
905.21 Program review.

Subpart C--Power Marketing Initiative

905.30 Purpose and applicability.
905.31 Term.
905.32 Resource extensions and resource pool size.
905.33 Extension formula.
905.34 Adjustment provisions.
905.35 New customer eligibility.
905.36 Marketing criteria.
905.37 Process.

Subpart D--Energy Services

905.40 Technical assistance.

    Authority: 42 U.S.C. Secs. 7152 and 7191; 32 Stat. 388, as 
amended; and 42 U.S.C. Secs. 7275-7276c.

PART 905--ENERGY PLANNING AND MANAGEMENT PROGRAM

Subpart A--General Provisions


Sec. 905.1  Purpose.

    The purposes of the Energy Planning and Management Program 
(Program) are to implement section 114 of the Energy Policy Act of 1992 
(EPAct) and to extend the Western Area Power Administration's (Western) 
long-term firm power resource commitments in support of customer 
integrated resource planning.


Sec. 905.2  Definitions.

    Administrator means the Administrator of Western.
    Applicable integrated resource plan or applicable IRP, when used 
with reference to a customer, means the integrated resource plan (IRP) 
approved by Western under these regulations for that customer.
    Customer means any entity that purchases firm capacity, with or 
without energy, from Western under a long-term firm power contract. The 
term includes a member-based association (MBA) and its distribution or 
user members that receive direct benefit from Western's power.

[[Page 54175]]

    Integrated resource planning means a planning process for new 
energy resources that evaluates the full range of alternatives, 
including new generating capacity, power purchases, energy conservation 
and efficiency, cogeneration and district heating and cooling 
applications, and renewable energy resources, in order to provide 
adequate and reliable service to a customer's electric consumers at the 
customer's or member's lowest system cost. The process shall take into 
account necessary features for system operation, such as diversity, 
reliability, dispatchability, and other factors of risk; shall take 
into account the ability to verify energy savings achieved through 
energy efficiency and the projected durability of such savings measured 
over time; and shall treat demand and supply resources on a consistent 
and integrated basis.
    Least-cost option means an option for providing reliable electric 
services to electric consumers which will, to the extent practicable, 
minimize life-cycle system costs, including adverse environmental 
effects, of providing such service. To the extent practicable, energy 
efficiency and renewable resources may be given priority in any least-
cost option.
    Long-term firm power contract means any contract with Western for 
the sale of firm capacity, with or without energy, which is to be 
delivered over a period of more than 1 year. This term includes 
contracts for the long-term sale of power from the Boulder Canyon 
Project.
    Member-Based Association or MBA means:
    (1) an entity composed of utilities or user members; or
    (2) an entity which acts as an agent for, or subcontracts with, but 
does not assume power supply responsibility for its principals or 
subcontractors, who are its members.
    Small customer means a customer with total annual sales or usage of 
25 GWh or less, as averaged over the previous 5 years, which is not a 
member of a joint action agency or a generation and transmission (G&T) 
cooperative with power supply responsibility, and that Western finds 
has limited economic, managerial, and resource capability to conduct 
integrated resource planning.
    Western means the Western Area Power Administration.

Subpart B--Integrated Resource Planning


Sec. 905.10  Applicability.

    (a) Each customer of Western must address its power resource needs 
in an IRP prepared and submitted to Western as provided herein, except 
for:
    (1) Those meeting the criteria for a small customer as detailed in 
Sec. 905.14 this part; and
    (2) State-regulated, investor-owned utilities.
    (b) Nothing in these regulations shall require a customer to take 
any action inconsistent with a requirement imposed by the Rural 
Utilities Service or a state utility commission which receives IRP 
filings from that customer.


Sec. 905.11  Integrated resource plan contents.

    (a) An integrated resource plan should support customer-developed 
goals and schedules. The plan should evaluate the full range of 
practicable alternatives for energy resources, and include:
    (1) an assessment of resources on an equitable basis, where supply-
side, demand-side, and renewable resources are compared on a fair and 
accurate basis to determine an appropriate low-cost resource portfolio, 
and
    (2) an integration of all options in a comprehensive manner.
    (b) IRPs must consider electrical energy resource needs and may 
consider, at the customer's option, water, natural gas, and other 
energy resources. Each IRP submitted to Western must satisfy the 
following requirements of section 114 of EPAct:
    (1) Identification and Comparison of All Practicable Energy 
Efficiency and Energy Supply Resource Options. This is an assessment 
and comparison of existing and future supply- and demand-side resource 
options available to a customer based upon its size, type, resource 
needs, geographic area, and competitive situation. Identification of 
resource options evaluated by the specific customer, or members in the 
case of IRP cooperatives or MBAs, must be provided. The options 
evaluated should relate to the resource situation unique to each 
Western customer as determined by profile data (such as service area, 
geographical characteristics, customer mix, historical loads, projected 
growth, existing system data, rates, and financial information) and 
load forecasts.
    (i) Supply-side options include, but are not limited to, purchased 
power contracts, conventional or renewable generation options.
    (ii) Demand-side options alter the customer's use pattern in a 
manner that provides for an improved combination of energy services at 
least cost to the customer and the ultimate consumer.
    (iii) Considerations that may be used to develop the potential 
options include cost, market potential, consumer preferences, 
environmental impacts, demand or energy impacts, implementation issues, 
revenue impacts, and commercial availability.
    (iv) The IRP discussion comparing resource options must include:
    (A) the method or rationale used to select the options to be 
compared,
    (B) the options evaluated,
    (C) the assumptions and costs related to the options, and
    (D) the evaluation methods, including any quantitative and 
qualitative methods used to compare the resource options.
    (2) An IRP must include an action plan covering a minimum period of 
5 years describing specific actions the customer will take to implement 
its IRP. This plan must outline both short-term (2 years) and long-term 
(5 years) actions proposed for implementation during the period covered 
by the plan. The action plan must summarize the load profile data and 
address the results of the resource evaluation. Where a customer is 
implementing integrated resource planning in response to State, 
Federal, and other initiatives, Western will accept action plans of 
other than 2 and 5 years if they substantially comply with EPAct. For 
those customers not experiencing or anticipating load growth, the 
action plan requirement for the IRP may be satisfied by a discussion of 
current actions and procedures in place to reevaluate periodically the 
possible future need for new resources. The action plan must include 
the following four items:
    (i) Actions the customer expects to take in accomplishing the goals 
identified in the IRP;
    (ii) Milestones to be used to evaluate accomplishment of those 
actions during implementation;
    (iii) Quantified estimated energy and capacity benefits for each 
action planned; and
    (iv) Estimated or proposed costs for implementing each action.
    (3) An IRP must designate least-cost options to be utilized by the 
customer. This requires a comparative evaluation of supply- and demand-
side resources using a consistent economic evaluation method. This 
evaluation should identify the most cost-effective energy services to 
the consumer, taking into account reliability, economics, price, 
adverse environmental effects, risk, and all other factors influencing 
the quality of energy services. The analysis should consider impacts on 
suppliers, distribution entities, and end-use consumers, as applicable. 
The resource selection process and criteria must be explicit and 
identify the rationale for selection. An IRP may strike a reasonable 
balance 

[[Page 54176]]
among the applicable evaluation factors, as opposed to a plan which 
seeks to optimize any single criterion. Exceptions to least-cost-based 
decisions may be made if the customer explains the basis for the 
decision and can show in the IRP that decisions were based on a 
reasonable analysis of resource options and environmental effects, were 
based on response to public input, or were required by Federal or State 
mandates.
    (4) To the extent practicable, the customer shall minimize adverse 
environmental effects of new resource acquisitions and document these 
efforts in the IRP. Customers are neither precluded from nor required 
to include a quantitative analysis of environmental externalities as a 
part of their integrated resource planning process. Customers are 
required to include a qualitative analysis of environmental effects.
    (5) In the preparation and development of an IRP (or any revision 
or amendment of an IRP), ample opportunity for full public 
participation shall be provided. The IRP shall describe how the 
customer: gathered information from the public, identified public 
concerns, shared information with the public, and responded to public 
comments.
    (i) Member-based associations and their members must demonstrate 
public participation in the preparation and development, revision, or 
amendment of the IRP. No specific number of meetings is required.
    (ii) As part of the public participation process, the governing 
body of an MBA and each MBA member (such as a board of directors or 
city council) must approve the IRP, confirming that all requirements 
have been met. MBA and member approvals must be indicated by signature 
of a responsible official in the IRP submitted to Western or by 
documentation of passage of an approval resolution by the appropriate 
governing body included or referred to in the IRP submitted to Western.
    (iii) For Western customers that do not purchase for resale, such 
as Federal and State government agencies, the public participation 
requirement is satisfied if there is review and concurrence by a top 
management official with resource acquisition responsibility, and the 
concurrence is noted in the IRP submitted to Western.
    (6) An IRP must include load forecasting. Load forecasting should 
include data which reflects the size, type, resource conditions, and 
demographic nature of the customer using an accepted load forecasting 
methodology, including but not limited to the time series, end-use, and 
econometric methods.
    (7) Customers must provide methods of validating predicted 
performance in order to determine whether objectives in the IRP are 
being met. These validation methods must include identification of the 
baseline from which a customer will measure the benefits of its IRP 
implementation. Baseline data that is unavailable should be identified. 
A reasonable balance must be struck between the cost of data collection 
and the benefits resulting from obtaining exact information.


Sec. 905.12  Submittal procedures.

    (a) An IRP submitted to Western for approval must have sufficient 
detail for Western to confirm it meets the requirements of these 
regulations. Only one IRP is required per customer, regardless of the 
number of long-term firm power contracts between the customer and 
Western.
    (b) Customers may submit IRPs to Western under one of the following 
options:
    (1) Customers may submit IRPs individually.
    (2) MBAs may submit individual IRPs for each of their members or 
submit one IRP on behalf of all or some of their members, that 
specifies the responsibilities and participation levels of individual 
members and the MBA. Such IRP or IRPs shall constitute the MBA's IRP 
where the MBA subcontracts or acts as an agent but does not assume 
power supply responsibility. Any member of an MBA may submit an 
individual IRP to Western in lieu of inclusion in an MBA IRP.
    (3) Integrated resource planning cooperatives approved by Western 
pursuant to paragraph (d) of this section must submit an IRP for its 
members.
    (4) Customers that Western determines to be small customers 
pursuant to section 905.14 may submit a small customer plan in lieu of 
an IRP.
    (c) Schedules.
    (1) Except as provided in paragraph (c)(2) of this section, 
customers must submit their initial IRP to the appropriate Area Manager 
no later than 1 year after the effective date of this rule, or after 
becoming a customer, whichever is later. Approved IRP cooperatives 
shall be allowed 18 months from Western's approval of the IRP 
cooperative request to submit an initial IRP.
    (2) Every customer must provide written notification to Western if 
it intends to seek approval for IRP cooperative or small customer 
status. This notification must be provided by the customer to the 
Western Area Manager of the Area in which the customer is located by 
December 19, 1995, or within 30 days from the time it becomes a 
customer, whichever is later.
    (3) If an IRP submittal is found to be insufficient after Western 
review, a notice of deficiencies will be provided to the entity that 
submitted the IRP. Western, working together with the customer, will 
determine the time allowable for resubmitting the IRP. However, the 
time allowed for resubmittal will not be greater than 9 months after 
the date of the disapproval, unless otherwise provided by contract 
language in effect as of the effective date of these regulations.
    (4) Updated IRPs must be submitted to the appropriate Area Manager 
every 5 years after Western's approval of the initial IRP.
    (5) Amendments and revisions to IRPs may be submitted at any time.
    (d) Western shall respond to IRP cooperative status requests within 
30 days of receipt. If a request for IRP cooperative status is 
disapproved, the requesting customers must submit their initial IRPs no 
later than 1 year after the date of the letter of disapproval. Any 
subsequent requests by customers for IRP cooperative status will be 
responded to by Western within 30 days of receipt of the request. 
Western's approval of IRP cooperative status will not be based on any 
potential member's contractual status with Western.


Sec. 905.13  Approval criteria.

    (a) IRP or small customer plan approval will be based upon:
    (1) whether the IRP or small customer plan satisfactorily addresses 
the criteria in these regulations; and
    (2) the reasonableness of the IRP or small customer plan given the 
size, type, resource needs, geographic area, and competitive situation 
of the customer.
    (b) Western will review resource choices in accordance with section 
114 of EPAct and these regulations. Western will disapprove IRPs if 
resource choices do not meet the reasonableness test set forth in 
(a)(2) of this section and the provisions of section 114 of EPAct.
    (c) Where a customer or group of customers implements integrated 
resource planning under a program responding to other Federal, State, 
or other initiatives, Western shall accept and approve such a plan as 
long as the IRP substantially complies with the requirements of these 
regulations.
    (d) In evaluating an IRP or small customer plan, Western shall 
consider water planning, efficiency improvements, and conservation in 
the 

[[Page 54177]]
same manner it considers energy planning and efficiencies. Customers 
that provide water utility services and customers that service 
irrigation load as part of their overall load may include water 
conservation activities in the IRP. To the extent practical, customers 
should convert their water savings to energy values.


Sec. 905.14  Small customer plan.

    (a) Small customers may submit a request to prepare a small 
customer plan in lieu of an IRP. Requests for small customer status 
must include data on total annual energy sales and usage for the 5 
years prior to the request. This data will be averaged to determine 
overall annual energy sales and usage so that uncontrollable events, 
such as extreme weather, do not distort levelized energy sales and 
usage. Documentation of limited economic, managerial and resource 
capability must also be included in a request.
    (b) Western shall respond to small customer status requests within 
30 days of receipt of the request. If a request for small customer 
status is disapproved, the requesting customer must submit its initial 
IRP no later than 1 year after the date of the letter of disapproval. 
Any subsequent requests by customers for small customer status will be 
responded to by Western within 30 days of receipt of the request.
    (c) Small Customer Plan Contents.
    Small customer plans shall:
    (1) consider all reasonable opportunities to meet future energy 
service requirements using demand-side management techniques, new 
renewable resources, and other programs that will provide retail 
consumers with electricity at the lowest possible cost;
    (2) minimize, to the extent practicable, adverse environmental 
effects; and
    (3) present in summary form the following information:
    (i) customer name, address, phone number, and contact person;
    (ii) type of customer;
    (iii) current energy and demand profiles and data on total annual 
energy sales and usage for the previous 5 years;
    (iv) future energy services projections;
    (v) the manner in which paragraphs (c) (1) and (2) of this section 
were considered; and
    (vi) actions to be implemented over the next 5 years.
    (d) The first small customer plan must be submitted to the 
appropriate Western Area Manager within 1 year after Western's approval 
of the request for small customer status. Small customers must submit 
in writing a small customer plan every 5 years.
    (e) Maintenance of Small Customer Status.
    (1) Every year on the anniversary of submittal of the plan, small 
customers must submit a letter to Western verifying that their annual 
energy sales or usage is 25 GWh or less averaged over the previous 5 
years, and identifying their achievements against their targeted action 
plans. The letter will be used for overall program evaluation and 
comparison with the customer's plan, and for verification of continued 
small customer status.
    (2) A customer ceases to be a small customer if it:
    (i) exceeds total annual energy sales or usage of 25 GWh, as 
averaged over the previous 5 years,
    (ii) becomes a member of a joint action agency or G&T cooperative 
with power supply responsibility, or
    (iii) no longer has a limited economic, managerial, and resource 
capability. Western will work with a customer who loses small customer 
status to develop an appropriate schedule, no longer than 1 year, for 
submittal of an IRP.
    (3) Membership in or contracting with an MBA that does not have 
power supply responsibility shall not affect a customer's status as a 
small customer. A small customer plan or annual letter may be submitted 
by or through an MBA that does not have power supply responsibility.


Sec. 905.15  Processing of IRPs and small customer plans.

    Western shall review all IRP and small customer plan submittals and 
notify the submitting entity of the plan's acceptability within 120 
days after receipt.


Sec. 905.16  Annual IRP progress reports.

    IRP progress reports must be submitted each year within 30 days of 
the anniversary date of the approval of the currently applicable IRP in 
such form and containing such information as to describe the customer's 
accomplishments achieved pursuant to the action plan, including 
projected goals, implementation schedules, and resource expenditures, 
and energy and capacity benefits and renewable energy developments 
achieved as compared to those anticipated. Measured values are 
preferred, but reasonable estimates are acceptable if measurement is 
infeasible or not cost-effective. In lieu of a separate progress 
report, all information from the progress report may be combined with 
any other report that the customer submits to Western, at the 
customer's discretion, if that report is submitted within 30 days of 
the approval anniversary date of the currently applicable IRP.


Sec. 905.17  Noncompliance.

    (a) The penalty set forth in this section shall be imposed for 
failure to submit or resubmit an IRP or small customer plan in 
accordance with these regulations. The penalty also will be imposed 
when Western finds that the customer's activities are not consistent 
with the applicable IRP or small customer plan unless Western finds 
that a good faith effort has been made to comply with the approved IRP 
or small customer plan.
    (b) If it appears that a customer's activities may be inconsistent 
with the applicable IRP or small customer plan, Western will so notify 
the customer and offer the customer 30 days in which to provide 
evidence of its good faith effort to comply. If the customer does not 
correct the specified deficiency or submit such evidence, or if Western 
finds, after receipt of information from the customer, that a good 
faith effort has not been made, a penalty shall be imposed.
    (c) Western shall provide written notice of the imposition of a 
penalty to the customer, and to the MBA or IRP cooperative where 
applicable. The notice must specify the reasons for imposition of the 
penalty.
    (d) Imposition of Penalty.
    (1) Beginning with the first full billing period following the 
notice specified in paragraph (c) of this section a surcharge of 10 
percent of the monthly power charges will be imposed until the 
deficiency specified in the notice is cured, or until 12 months pass, 
provided that no such penalty shall be immediately imposed if the 
customer or its MBA or IRP cooperative has requested reconsideration by 
filing a written appeal with the appropriate Area Manager, pursuant to 
905.18.
    (2) The surcharge imposed shall increase to 20 percent for the 
second 12 months and to 30 percent per year thereafter until the 
deficiency is cured.
    (3) After the first 12 months of imposition of the surcharge and in 
lieu of imposition of any further surcharge, Western may impose a 
penalty which would reduce the resource delivered under a customer's 
long-term firm power contract(s) by 10 percent. The resource reduction 
may be imposed either
    (i) when it appears to Western to be more effective to assure 
customer compliance, or
    (ii) when such reduction may be more cost-effective for Western.
    (4) The penalty provisions in existing contracts will continue to 
be in effect 

[[Page 54178]]
and shall be administered and enforced in accordance with such contract 
provisions.
    (e) The surcharge will be assessed on the total charges for all 
power obtained by a customer from Western and will not be limited to 
firm power charges. When a customer resolves the deficiencies, the 
imposed surcharge or power withdrawal will cease, beginning with the 
first full billing period after compliance is achieved.
    (f) In situations involving an IRP submitted by a member-based 
association on behalf of its members where a single member does not 
comply, a penalty or withdrawal shall be imposed upon the MBA on a pro 
rata basis in proportion to that member's share of the total MBA's 
power received from Western. In situations involving noncompliance by a 
member of an IRP cooperative, any applicable penalty shall be imposed 
directly upon that member if it has a firm power contract with Western. 
If the IRP cooperative member does not have a firm power contract with 
Western then a penalty or withdrawal shall be imposed upon the member's 
MBA or parent-type entity on a pro rata basis in proportion to that 
member's share of the total MBA's power received from Western.


Sec. 905.18  Administrative appeal process.

    (a) If a customer disagrees with Western's determination of the 
acceptability of its IRP submittal, its compliance with an approved 
IRP, or any other compliance issue, the customer may request 
reconsideration by filing a written appeal with the appropriate Area 
Manager. Appeals may be submitted any time such disagreements occur and 
should be specific as to the nature of the issue, the reasons for the 
disagreement, and any other pertinent facts which the customer believes 
should be brought to Western's attention. The Area Manager will respond 
within 45 days of receipt of the appeal. If resolution is not achieved 
at the Area Office level, a further appeal may then be made to the 
Administrator who will respond within 30 days of receipt.
    (b) Upon request, Western will agree to use mutually agreeable 
alternative dispute resolution procedures, to the extent allowed by 
law, to resolve issues or disputes relating to compliance with IRP 
requirements.
    (c) Western shall not impose a penalty while an appeal process is 
pending. However, if the appeal is unsuccessful for the customer, 
Western shall impose the penalty retroactively from the date the 
penalty would have been assessed if an appeal had not been filed.
    (d) A written appeal or use of alternative dispute resolution 
procedures does not suspend other reporting and compliance requirements 
under these regulations.


Sec. 905.19  Periodic review by Western.

    (a) Western will periodically review customer actions to determine 
whether they are consistent with the approved IRP. Small customer plans 
are not subject to this periodic review.
    (b) Beginning 3 years after the effective date of these 
regulations, Western shall periodically review selected, representative 
IRPs and the customer's implementation of the applicable IRP. These 
reviews are in addition to, and separate and apart from, the review of 
initial IRP submittals and updated IRPs made under Secs. 905.11 and 
905.13 of these regulations.
    (c) Western will review a representative sample of IRPs from each 
of its marketing areas. The representative samples will consist of IRPs 
that reflect the diverse characteristics and circumstances of the 
customers that purchase power from Western. At a minimum, Western will 
review a sample of IRPs from the following:
    (1) IRPs indicating a need to acquire resources in the IRP study 
period;
    (2) IRPs prepared by individual customers, IRP cooperatives, and 
member-based associations; and
    (3) IRPs that do not show plans to implement DSM programs in the 
IRP study period.
    (d) Periodic reviews may consist of any combination of review of 
the customer's annual IRP progress reports, telephone interviews, or 
on-site visits. Western will document these periodic reviews and shall 
report on the results of the reviews in Western's annual report.


Sec. 905.20  Freedom of Information Act.

    IRPs and associated data submitted to Western will be made 
available to the public unless Western has determined, pursuant to 10 
CFR Part 1004, that particular information is exempt from public access 
under the Freedom of Information Act (FOIA). Customers may request 
confidential treatment of all or part of a submitted document under 
FOIA's exemption for confidential business information. Materials so 
designated and which Western determines to meet the exemption criteria 
in the FOIA will be treated as confidential and will not be disclosed 
to the public.


Sec. 905.21  Program review.

    Before January 1, 2000, and at appropriate intervals thereafter, 
Western shall initiate a public process to review these IRP regulations 
in order to determine whether the criteria for approval of IRPs should 
be revised to reflect changes in technology, needs, or other 
developments.

Subpart C--Power Marketing Initiative


Sec. 905.30  Purpose and applicability.

    (a) The Power Marketing Initiative (PMI) provides a framework for 
marketing Western's long-term firm hydroelectric resources. For covered 
projects, Western will make a major portion of the resources currently 
under contract available to existing long-term firm power customers for 
a period of time beyond the expiration date of their current contracts.
    (b) The Western projects covered by this subpart are the Pick-Sloan 
Missouri Basin Program--Eastern Division and the Loveland Area Projects 
(LAP). The PMI applies to covered projects to the extent it is 
consistent with other contractual and legal rights, and subject to any 
applicable project-specific environmental requirements.


Sec. 905.31  Term.

    Western will extend resource commitments for 20 years from the date 
existing contracts expire to existing customers with long-term firm 
power contracts from projects identified in section 905.30(b).


Sec. 905.32  Resource extensions and resource pool size.

    (a) Western will extend a project-specific percentage of the 
marketable resource, determined to be available at the time future 
resource extensions begin, to existing customers with long-term firm 
power contracts. The remaining unextended power will be used to 
establish project-specific resource pools. An initial level of 96 
percent of the marketable resource will be extended for the Pick-Sloan 
Missouri Basin Program--Eastern Division and the Loveland Area 
Projects.
    (b) At two 5-year intervals after the effective date of the 
extension to existing customers, Western shall create a project-
specific resource pool increment of up to an additional 1 percent of 
the long-term marketable resource under contract at the time. The size 
of the additional resource pool increment shall be determined by 
Western based on consideration of the actual fair-share needs of 
eligible new customers and other appropriate purposes. 

[[Page 54179]]

    (c) The initial pool percentages shall be applied to the marketable 
resource determined to be available at the time future resource 
extensions begin. Subsequent percentages shall be applied to the 
resource under contract at the time.
    (d) The additional resource pool increments shall be established by 
pro rata withdrawals, on 2 years' notice, from then-existing customers. 
Withdrawals could be mitigated or delayed if good water conditions 
exist.
    (e) Once the extensions for existing customers and allocations to 
new customers from the resource pool have been made, additional power 
resources may become available for various reasons. Any additional 
available resources will be used as follows:
    (1) If power is reserved for new customers but not allocated, or 
resources are offered but not placed under contract, this power will be 
offered on a pro rata basis to customers that contributed to the 
resource pool through application of the extension formula in 
Sec. 905.33.
    (2) If power resources become available as a result of the 
enhancement of existing generation, project-use load efficiency 
upgrades, the development of new resources, or resources turned back to 
Western, Western may elect to use this power to reduce the need to 
acquire firming resources, retain the power for operational 
flexibility, sell these resources on a short-term basis, or allocate 
the power.
    (3) If resources become available due to imposition of penalties 
pursuant to Sec. 905.17, Western may make such resources available 
within the marketing area to existing customers that are in compliance 
with Subpart B, subject to withdrawal.


Sec. 905.33  Extension formula.

    (a) The amount of power to be extended to an existing customer 
shall be determined according to this formula:
    Customer Contract Rate of Delivery (CROD) today/total project CROD 
under contract today x project-specific percentage x marketable 
resource determined to be available at the time future resource 
extensions begin = CROD extended.
    (b) Where contract rates of delivery vary by season, the formula 
shall be used on a seasonal basis to determine the extended power 
resource. A similar pro rata approach shall be used for energy 
extensions.
    (c) Determination of the amount of resource available after 
existing contracts expire, if significantly different from existing 
resource commitments, shall take place only after an appropriate public 
process.
    (d) The formula set forth in paragraph (a) of this section also 
should be used to determine the amounts of firm power subject to 
withdrawal at 5-year intervals after the effective date of the 
extension to existing customers, except that the percentage used would 
be up to 1 percent for each of the two withdrawal opportunities, and 
the formula would use the customer CROD, project CROD and the resource 
under contract at the time.


Sec. 905.34  Adjustment provisions.

    Western reserves the right to adjust marketable resources committed 
to all customers with long-term firm power contracts only as required 
to respond to changes in hydrology and river operations, except as 
otherwise expressly provided in these regulations. Under contracts that 
extend resources under this PMI, existing customers shall be given at 
least 5 years' notice before adjustments are made. New customers may 
receive less notice. The earliest that any notice under this section 
shall become effective is the date that existing contractual 
commitments expire. Any adjustment shall only take place after an 
appropriate public process. Withdrawals to serve project use and other 
purposes provided for by contract shall continue to take place based on 
existing contract/marketing criteria principles.


Sec. 905.35  New customer eligibility.

    (a) Allocations to new customers from the project-specific resource 
pools established under Sec. 905.32 shall be determined through 
separate public processes in each project's marketing area. New 
customers receiving an allocation must execute a long-term firm power 
contract to receive the allocated power and are required to comply with 
the IRP requirements in this part. Contracts with new customers shall 
expire on the same date as firm power contracts with all other 
customers of a project.
    (b) To be eligible for an allocation, a potential new customer must 
be a preference entity, as defined in Reclamation law, within the 
currently established marketing area for a project.
    (c) Entities that desire to purchase power from Western for resale 
to consumers, including municipalities, cooperatives, public utility 
districts and public power districts, must have utility status. Native 
American tribes are not subject to this requirement. Utility status 
means that the entity has responsibility to meet load growth, has a 
distribution system, and is ready, willing, and able to purchase power 
from Western on a wholesale basis for resale to retail consumers. To be 
eligible to apply for power available from a project's initial resource 
pool, those entities that desire to purchase Western power for resale 
to consumers must have attained utility status by December 31, 1996, 
for the Pick-Sloan Missouri Basin Program--Eastern Division, and by 
September 30, 2000, for the Loveland Area Projects. To be eligible to 
apply for power from subsequent resource pool increments, these 
entities must have attained utility status no later than 3 years prior 
to availability of the incremental addition to the resource pool. 
Deadlines for attaining utility status for other projects will be 
established at a later date.


Sec. 905.36  Marketing criteria.

    Western shall retain applicable provisions of existing marketing 
criteria for projects where resource commitments are extended beyond 
the current expiration date of long-term firm power sales contracts. 
Western must retain important marketing plan provisions such as classes 
of service, marketing area, and points of delivery, to the extent that 
these provisions are consistent with the PMI. The PMI, eligibility and 
allocation criteria for potential new customers, retained or amended 
provisions of existing marketing criteria, the project-specific 
resource definition, and the size of a project-specific resource pool 
shall constitute the future marketing plan for each project.


Sec. 905.37  Process.

    Modified contractual language shall be required to place resource 
extensions under contract. Resource extensions and allocations to new 
customers from the initial resource pool will take effect when existing 
contracts expire. These dates are December 31, 2000, for the Pick-Sloan 
Missouri Basin Program--Eastern Division and September 30, 2004, for 
the Loveland Area Projects. For the Pick-Sloan Missouri Basin Program--
Eastern Division, Western will offer contracts to existing customers 
for resource extensions no sooner than the effective date of the final 
regulations. For the Loveland Area Projects, existing contracts provide 
for potential adjustments to marketable resources in 1999. No contracts 
will be offered to existing customers for post-2004 Loveland Area 
Projects resources until the analysis of potential resource adjustments 
in 1999 has been completed and any adjustments are implemented. 
Existing power sales contracts require that this analysis be completed 
by 1996. 

[[Page 54180]]


Subpart D--Energy Services


Sec. 905.40  Technical assistance.

    Western shall establish a program that provides technical 
assistance to customers to conduct integrated resource planning, 
implement applicable IRPs and small customer plans, and otherwise 
comply with the requirements of these regulations.

[FR Doc. 95-25829 Filed 10-19-95; 8:45 am]
BILLING CODE 6450-01-P