Federal Register, Volume 61 Issue 26 (Wednesday, February 7, 1996)

[Federal Register Volume 61, Number 26 (Wednesday, February 7, 1996)]
[Notices]
[Pages 4650-4659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2523]

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DEPARTMENT OF ENERGY
Western Area Power Administration

AC Intertie Project; Rate Order

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of Rate Order.

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SUMMARY: Notice is given of the confirmation and approval by the Deputy
Secretary of the Department of Energy (DOE) of Rate Order No. WAPA-71
and Rate Schedules INT-FT2 and INT-NFT2 placing firm and nonfirm
transmission rates into effect on an interim basis. The interim rate,
called the provisional rate, will remain in effect on an interim basis
until the Federal Energy Regulatory Commission (FERC) confirms,
approves, and places it into effect on a final basis or until it is
replaced by another rate.
The power repayment studies indicate that the proposed rates for
firm and nonfirm transmission service are necessary because of
adjustments in operation and maintenance expenses and an anticipated
decrease in current marketable capacity on the new 500-kV transmission
system.
Three major changes are affecting the rates for the AC Intertie:
(1) The establishment of separate firm transmission rates for the
existing 230/345-kV lines and the new 500-kV lines as a result of
customer comments and concerns expressed in formal and informal
meetings with Western; (2) changing the methodology of calculating
interest offsets to be consistent with the other power marketing
administrations; and (3) adjustments Western made to budgeted
investments for the AC Intertie Project.

DATES: Rate Schedules INT-FT2 and INT-NFT2 will be placed into effect
on an interim basis on the first day of the first full billing period
beginning on or after February 1, 1996, and will be in effect until
FERC confirms, approves, and places the rate schedules in effect on a
final basis through September 30, 2000, or until the rate schedule is
superseded.

FOR FURTHER INFORMATION CONTACT:

Mr. J. Tyler Carlson, Regional Manager, Desert Southwest Customer
Service Region, Western Area Power Administration, P. O. Box 6457,
Phoenix, AZ 85005-6457, (602) 352-2453
Mr. Terry D. Waggoner, Western Area Power Administration, P.O. Box
3402, Golden, CO 80401-0098, (303) 275-1611
Mr. Joel K. Bladow, Power Marketing Liaison Office, Room 8G-027,
Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585-
0001, (202) 586-5581

SUPPLEMENTARY INFORMATION: By Amendment No. 3 to Delegation Order No.
0204-108, published November 10, 1993 (58 FR 59716), the Secretary of
Energy delegated: (1) The authority to develop long-term power and
transmission rates on a nonexclusive basis to the Administrator of
Western; (2) the authority to confirm, approve, and place such rates
into effect on an interim basis to the Deputy Secretary; and (3) the
authority to confirm, approve, and place into effect on a final basis,
to remand, or to disapprove such rates to FERC. Existing DOE procedures
for public participation in power rate adjustments (10 CFR Part 903)
became effective on September 18, 1985 (50 FR 37835). These power rates
are established pursuant to section 302(a) of the Department of Energy
(DOE) Organization Act, 42 U.S.C. 7152(a), through which the power
marketing functions of the Secretary of the Interior and the Bureau of
Reclamation (Reclamation) under the Reclamation Act of 1902, 43 U.S.C.
371 et seq., as amended and supplemented by subsequent enactments,
particularly

[[Page 4651]]
section 9(c) of the Reclamation Project Act of 1939, 43 U.S.C. 485h(c),
and other acts specifically applicable to the project system involved,
were transferred to and vested in the Secretary.
Rate Order No. WAPA-71 confirming, approving, and placing the
proposed AC Intertie rate adjustments into effect on an interim basis,
is issued, and the new Rate Schedules INT-FT2 and INT-NFT2 will be
submitted promptly to FERC for confirmation and approval on a final
basis.

Issued in Washington, DC. January 30, 1996.
Charles B. Curtis,
Deputy Secretary.
In the matter of: Western Area Power Administration Rate
Adjustment for Pacific Northwest-Pacific Southwest Intertie Project,
Rate Order No. WAPA-71.

Order Confirming, Approving, and Placing the Pacific Northwest-Pacific
Southwest Intertie Firm and Nonfirm Transmission Service Rates Into
Effect on an Interim Basis

February 1, 1996.
These power rates are established pursuant to section 302(a) of the
Department of Energy (DOE) Organization Act, 42 U.S.C. 7152(a) through
which the power marketing functions of the Secretary of the Interior
and the Bureau of Reclamation (Reclamation) under the Reclamation Act
of 1902, 43 U.S.C. 371 et seq., as amended and supplemented by
subsequent enactments, particularly section 9(c) of the Reclamation
Project Act of 1939, 43 U.S.C. 485h(c), and other acts specifically
applicable to the project involved, were transferred to and vested in
the Secretary of Energy (Secretary).
By Amendment No. 3 to Delegation Order No. 0204-108, published on
November 10, 1993 (58 FR 59176), the Secretary delegated: (1) The
authority to develop long-term power and transmission rates on a
nonexclusive basis to the Administrator of the Western Area Power
Administration (Western); (2) the authority to confirm, approve, and
place such rates into effect on an interim basis to the Deputy
Secretary; and (3) the authority to confirm, approve, and place into
effect on a final basis, to remand, or to disapprove such rates to the
Federal Energy Regulatory Commission (FERC). Existing DOE procedures
for public participation in power rate adjustments (10 CFR Part 903)
became effective on September 18, 1985 (50 FR 37835).

Acronyms and Definitions

As used in this rate order, the following acronyms and definitions
apply:

AC Intertie: Pacific Northwest-Pacific Southwest Intertie Project
Additions: A unit of property constructed or acquired which enhances or
improves a project system.
CIAR: Compound Interest Amortization Repayment
CEP: Cost Evaluation Period, which is the first 5 future years in the
PRS, normally consistent with the budget period.
CROD: Contract rate of delivery
Current PRS: The PRS used in this rate order, which was used to test
the adequacy of the existing rate.
Customer Brochure: A document prepared for public distribution
explaining the background of the rate proposal contained in this rate
order.
DC: Direct Current
DOE: Department of Energy
DOE Act: Department of Energy Organization Act, August 4, 1977 (42
U.S.C. 7101 et seq.)
DOE Order RA 6120.2: An order dealing with power marketing
administration financial reporting.
EIS: Environmental Impact Statement
Engineering Ten Year: A planning document prepared
Construction and Replacement Plan: By Western for transmission system
construction for a 10-year period. Also referred to as the
``Engineering 10-Year Plan.''
FERC: Federal Energy Regulatory Commission
FY: Fiscal Year
IDC: Interest During Construction
kW: Kilowatt
$/kW/year: Annual charge for capacity usage--(Sec. per kilowatt per
year)
kWh: Kilowatthour
mills/kWh: Mills per kilowatthour
Multiproject Costs: These are costs for facilities being charged to one
project that benefit other projects
MW: Megawatt
NEPA: National Environmental Policy Act of 1969. (42 U.S.C. 4321 et
seq.)
O&M: Operations and maintenance
pinch-point: The future FY with the largest annual revenue requirement
PMA: Power marketing administration
PRS: Power repayment study
Proposed rate: A rate revision that the Administrator of Western
recommends to the Deputy Secretary of Energy for approval
Provisional rate: A rate which has been confirmed, approved, and placed
into effect on an interim basis by the Deputy Secretary
Ratesetting PRS: The PRS that utilizes, in whole or part, proposed or
assumed rates. It is designed to demonstrate that potential revenue
levels will satisfy the cost recovery criteria over the remainder of
the power system's repayment period
Reclamation: Bureau of Reclamation, U.S. Department of the Interior
Replacement: A unit of property constructed or acquired as a substitute
for an existing unit of property for the purpose of maintaining the
power features of a project
Replacement study: The cyclical analysis of replacement service lives
Secretary: Secretary of Energy
Treasury: Secretary of the Department of the Treasury
Western: Western Area Power Administration, DOE
WSPP: Western Systems Power Pool

Effective Date

The AC Intertie rates for firm and nonfirm transmission service
will become effective on an interim basis beginning on February 1,
1996, and will be in effect until FERC confirms, approves, and places
the rate schedules into effect on a final basis through September 30,
2000, or until superseded. Western is implementing a rate for the AC
Intertie 230/345-kV transmission lines that is separate from the rate
for the 500-kV transmission lines for firm transmission service, but a
combined rate for nonfirm transmission service.

Public Notice and Comment

The Procedures for Public Participation in Power and Transmission
Rate Adjustments and Extensions, 10 CFR Part 903, have been followed by
Western in the development of the firm transmission service and nonfirm
transmission service rates. The provisional firm transmission rate for
the existing 230/345-kV transmission system in FY 1996 represents a
rate increase of 85 percent over the existing step 1 rate, and for the
period FY 1997 through FY 2000, it represents a 48 percent increase
over the existing step 1 rate. The provisional nonfirm transmission
service rate for the existing system represents an increase of 100
percent from the current nonfirm transmission service rate. The
provisional firm transmission rate for the 500-kV transmission system
is $17.98/kW/year for FYs 1996 through 1998 and $17.23/kW/year for FYs
1999 through 2000. This rate is classified as a major rate adjustment
as defined at 10 CFR Secs. 903.2(e) and 903.2(f)(1). The distinction
between a minor and a major rate adjustment is used only to

[[Page 4652]]
determine the public procedures for the rate adjustment. The following
summarizes the steps Western took to ensure involvement of interested
parties in the rate process:
1. The first informal public information meeting was held on
February 22, 1995. Western explained the need for the proposed rate
adjustments and answered questions from those attending.
2. A Federal Register notice was published on May 17, 1995 (60 FR
26433), which extended the existing rates for firm and nonfirm
transmission service that became effective August 1, 1993, until
October 1, 1996.
3. The second informal public information meeting was held on July
6, 1995. Western representatives again explained the need for the
proposed rate adjustment, provided copies of studies, and answered
questions from those attending.
4. A Federal Register notice was published on July 31, 1995 (60 FR
38955), officially announcing the proposed rate adjustment for firm
transmission service and nonfirm transmission service rates, initiating
the public consultation and comment period, announcing the August 24,
1995, public information forum and the September 18, 1995, public
comment forum, and presenting procedures for public participation.
5. A letter was mailed to all AC Intertie customers and other
interested parties on August 7, 1995, providing a copy of the AC
Intertie Proposed Rate Adjustment Brochure and announcing the public
information forum and public comment forum.
6. At the public information forum held on August 24, 1995, Western
explained the need for the rate increase in greater detail and answered
questions.
7. A letter was mailed to all AC Intertie customers and other
interested parties on September 13, 1995, providing a copy of the issue
papers concerning the abandoned plant audit adjustment.
8. The comment forum was held on September 18, 1995, to give the
public an opportunity to comment for the record. Four persons
representing customers and customer groups made oral comments.
9. A letter was mailed to all AC Intertie customers and interested
parties on October 14, 1995, providing a copy of the answers to the
questions that were raised during the comment period. The letter also
announced an informal meeting on October 25, 1995, to answer any
questions on the CIAR methodology.
10. A question and answer informal meeting was held on October 25,
1995, to discuss the compound interest amortization methodology.
Questions and comments were also raised at this meeting. These comments
have also been incorporated and taken into consideration in the final
rate settings studies.
11. A Federal Register notice published on November 22, 1995 (60 FR
57867), extended the comment period until November 27, 1995.
12. Ten letters were received during the 119-day consultation and
comment period ending November 27, 1995. All formally submitted
comments have been considered in the preparation of this rate order.

Project History

The AC Intertie was authorized as part of a much larger alternating
current (AC) and direct current (DC) combined transmission system
(Pacific Intertie Project) by section 8 of the Act of August 31, 1964,
16 U.S.C. 837g. The basic purpose of the Pacific Intertie Project was
to provide, through power transmission system interconnections, maximum
utilization of the total power resources to meet the nation's growing
demands. This purpose was to be accomplished through: (1) The exchange
of summer-winter surplus peaking capacity between the Northwest and
Southwest to reduce capital expenditures for new generating capacity;
(2) the sale of Northwest secondary energy to the Southwest; (3) the
sale of Southwest energy to the Northwest to ``firm'' peaking
hydroelectric sources during critical water years; (4) conservation of
significant amounts of fuel through the use of surplus hydroelectric
energy; and (5) increased efficiency in the operation of hydroelectric
and thermal resources. As authorized, the Pacific Intertie Project was
to be a cooperative construction venture by Federal and non-Federal
entities that incorporated the capability for both AC and DC
transmission components and that provided an intertie among certain
Federal and non-Federal power systems.
The Lower Colorado Region (LCR), Bureau of Reclamation, U.S.
Department of the Interior, (Reclamation) was assigned construction
jurisdiction for: (1) the Celilo-Mead 750-kV DC transmission line from
the Oregon-Nevada border to Mead Substation; (2) Mead Substation; and,
(3) all facilities south of Mead Substation. Several delays in
congressional construction funding for the DC line revised its
estimated in-service date to the point that some of the potential users
withdrew their interest. This, and the subsequent lack of congressional
funding, resulted in the May 1969 indefinite postponement of the DC
line construction. Consequently, the facilities constructed provide
only AC transmission service.
Pursuant to section 302 of the DOE Organization Act, 42 U.S.C.
7152(a), dated August 4, 1977, these Reclamation constructed facilities
were transferred to Western. Only those AC Intertie facilities which
are administered by Western's Desert Southwest Customer Service Region
and which provide AC transmission service are the subject of this rate
adjustment. To simplify identification, these facilities have been
classified as the AC Intertie and are sometimes referred to as the
existing system.
On February 1, 1996, Western will add to the AC Intertie the new
Mead-Phoenix and Mead-Adelanto 500-kV transmission lines. The
additional sales of capacity are expected to be 668 MW. A separate
marketing plan is being developed for the sales of the additional
capacity.

Power Repayment Studies

PRSs are prepared each fiscal year to determine if power revenues
will be sufficient to pay, within the prescribed time periods, all
costs assigned to the power function. Repayment criteria are based on
law, policies, and authorizing legislation. DOE Order RA 6120.2,
section 12.b, states:

In addition to the recovery of the above costs (operations and
maintenance and interest expenses) on a year-by-year basis, the
expected revenues are at least sufficient to recover (1) each dollar
of power investment at Federal hydroelectric generating plants
within 50 years after they become revenue producing, except as
otherwise provided by law; plus (2) each annual increment of Federal
transmission investment within the average service life of such
transmission facilities or within a maximum of 50 years, whichever
is less; plus (3) the cost of each replacement of a unit of property
of a Federal power system within its expected service life up to a
maximum of 50 years; plus, (4) each dollar of assisted irrigation
investment within the period established for the irrigation water
users to repay their share of construction costs; plus (5) other
costs such as payments to basin funds, participating projects, or
States.

Existing and Provisional Rates

The following table compares the existing transmission service
rates and the proposed transmission service rates.

[[Page 4653]]

Comparison of the Existing and Provisional Rates
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Existing rates
Existing rate 230/ step two 230/345/ Proposed rate 230/ Proposed rate 500-
Type of service 345-kV system 500-kV system 10/1/ 345-kV system 2/1/ kV system 2/1/1996
extended through 1996 through 7/31/ 1996 through 9/30/ through 9/30/2000
10/1/1996 1998 2000
----------------------------------------------------------------------------------------------------------------
Firm transmission service....... $4.46/kW/year..... $8.01/kW/year..... 1996 \1\--$8.26/kW/ 1996-1998--$17.98/
year, 1997-2000-- kW/year, 1999-
$6.58/kW/year. 2000--$17.23/kW/
year
Nonfirm transmission rate (mills/ 1.00 mills/kWh.... 1.52 mills/kWh.... 2.00 mills/kWh.... 2.00 mills/kWh
kWh).
----------------------------------------------------------------------------------------------------------------
\1\ Rate based upon 8 months.

Certification of Rates

Western's Administrator has certified that the AC Intertie firm and
nonfirm transmission service rates placed in effect on an interim basis
herein are the lowest possible, consistent with sound business
principles. The rates have been developed in accordance with
administrative policies and applicable laws.

Discussion

The power repayment study for the 230/345-kV transmission system
indicates that the proposed rate adjustments for firm and nonfirm
transmission service are necessary due to adjustments in operation and
maintenance expenses of the existing system, and due to capacity in the
new 500-kV transmission system being sold separately. The existing
rates were designed to recover all annual costs and investment
repayment of both the existing 230/345-kV transmission lines and the
new 500-kV transmission lines. Three major changes are affecting the
rates for the AC Intertie.
The first change is the establishment of separate firm transmission
rates for the existing 230/345-kV transmission lines and the new 500-kV
transmission lines. This change responds to customer comments and
concerns during formal and informal meetings Western held with its
customers. Separate PRSs has been prepared for the 500-kV portion and
the 230/345-kV portion of the AC Intertie.
The second change is the determination of interest offsets. An
interest offset is a credit that is made toward interest expenses.
Western is changing its methodology of calculating interest offsets to
be consistent with the other power marketing administrations. The old
method calculates interest offsets on only the principal that was
repaid in the current year. The new method calculates interest offsets
on both the principal and interest for the current year.
The third change is adjustments Western made to data budgeted for
investments to the AC Intertie Project. Western's staff determined the
total O&M costs on the combined system for the AC Intertie Project and
developed a percentage breakdown based upon O&M costs, to determine a
method for allocating Other Revenues/Costs.

Existing System

Based upon FY 1994 data, the PRS for the AC Intertie showed that
the existing Step II of the firm transmission service rate of $8.01/kW/
year and the nonfirm transmission service rate of 1.52 mills/kWh would
provide more than sufficient revenues to pay the project costs within
the prescribed time periods. The ratesetting PRS indicates that a
transmission service rate for February 1, 1996, through September 30,
1996, of $8.26/kW/year and a transmission service rate of $6.58 for
October 1, 1996, through September 30, 2000, for firm transmission
service is adequate to meet revenue requirements. The rate for FY 1996
is higher because the revenue will be collected over an 8 month period
rather than over a 12 month period. The nonfirm rate was determined by
developing a combined rate for both systems. The provisional nonfirm
transmission rate of 2.00 mills/kWh for nonfirm transmission service is
required to meet revenue requirements for FY 1996 through the end of
the study.

New System

Based upon FY 1994 data, the PRS for the new Mead-Phoenix and Mead-
Adelanto 500-kV transmission system showed that a rate of $17.98/kW/
year for February 1, 1996, through September 30, 1998, and a
transmission service rate of $17.23/kW/year for October 1, 1998,
through September 30, 2000, would satisfy the repayment criteria. The
nonfirm rate was determined by developing a combined rate for both
systems. The proposed rate for nonfirm transmission service of 2.00
mills/kWh will meet revenue requirements for FY 1996 through the end of
the study.
The provisional rates filed with FERC have been updated from the
rate originally proposed in the customer brochure and Federal Register
notice dated July 31, 1995.
The changes to the PRS are as follows:
1. Revised budget data for the 230/345-kV existing system.
2. Revised power repayment studies that include the new interest
offset methodology.
3. Revised budget data for the 500-kV system.
4. Increase in other revenue sales based upon proposed transmission
rate.

Firm Transmission Revenue Requirements

A comparison of the transmission revenue requirements estimated for
the step II of the existing rate for 1996 to the proposed revenue
requirements for the existing 230/345-kV AC Intertie system and to the
proposed revenue requirements for the new 500-kV system based upon the
pinch-point methodology is as follows:

------------------------------------------------------------------------
Step II of the existing Proposed revenue Proposed revenue
system transmission requirements for the requirements for the
revenue requirements 230/345-kV system new 500-kV system
------------------------------------------------------------------------
$24,883,655............ $8,709,909 $12,352,554
------------------------------------------------------------------------

The rate adjustment is necessary to satisfy the cost-recovery
criteria set forth in DOE Order RA 6120.2.

Replacement and Addition Activities

The decrease from the existing Step II 230/345-kV transmission
system rate is largely due to a decrease in replacements and additions
and a decrease in the O&M costs for the existing system. The AC
Intertie initial investment will not be fully paid until FY 2028. The
capitalized costs for future replacements and additions in the cost
evaluation period includes IDC. The IDC calculation for each
replacement is determined by the interest rate in the year construction
begins. The annual interest expense for replacements and additions is
also based on the interest rate in the year construction begins. The

[[Page 4654]]
total replacement cost for the cost evaluation period through the end
of the study is $42,891,147.
The 500-kV transmission system has been pulled out of the existing
230/345-kV transmission power repayment study. A 500-kV transmission
system power repayment study has been developed to determine the
transmission rate for the new system. The new transmission system will
provide better service to the customers and additional transmission
paths that are presently not available. The total cost of the 500-kV
Mead-Phoenix and Mead-Adelanto transmission line for the cost
evaluation period through the end of the study is $134,103,799 and is
to be repaid by 2046.

Abandoned Plant

Western's auditors have identified approximately $14.5 million in
equipment and interest charges that are contained in the financial
statements as abandoned plant that Western has not included in the rate
base. Western's financial statements show that these charges have
accumulated since 1964 for the construction of the Direct Current (DC)
portion of the Intertie Project.
The construction of the DC line was discontinued in 1969 by the
Assistant Secretary of the Department of the Interior. At the time of
the decision, the total expenditure amounted to approximately $10.5
million. Since that time the amount has increased to approximately
$14.5 million. This amount includes $2,399,747 of IDC and approximately
$952,574 of tangible assets and studies. The remaining $11.1 million
represents the remaining charges for which no tangible assets/studies
exist. These costs are not in the PRS, because they were expended on a
feature that was never placed in service.

Statement of Revenue and Related Expenses

The following table provides a summary of revenue and expense data
for the 5-year proposed rate approval period for the existing 230/345-
kV system.

AC Intertie Project--5-Year Rate Study Summary Period Revenues and Expenses
----------------------------------------------------------------------------------------------------------------
Existing rate step
II 230/345/500-kV Proposed rates 230/
Revenue and expenses system 10/1/96 245-kV system 2/1/96 Difference
through 9/30/2000 through 9/30/2000
----------------------------------------------------------------------------------------------------------------
Revenues:
Firm Transmission......................... 105,009,620 35,545,000 70,464,620
Other Revenues............................ 19,503,775 8,906,743 10,597,032
-----------------------------------------------------------------
Total Revenues........................ 124,513,395 43,451,743 81,061,652
=================================================================
Revenue Distribution:
Operations & Maintenance.................. 17,486,459 12,643,540 4,842,919
Other Deductions.......................... 1,077,007 1,640,012 (563,005)
Interest on Deferred...................... 0 490,316 (490,316)
Annual Cost:
Interest.................................. 93,042,899 23,102,897 69,940,002
Investment Repayment...................... 12,814,649 1,984,977 10,829,672
Capitalized Expenses...................... 92,381 3,590,002 (3,497,621)
Study-Year Adjustments.................... 0 0 0
-----------------------------------------------------------------
Total................................. 124,513,395 43,451,744 81,061,651
----------------------------------------------------------------------------------------------------------------

The following table provides a summary of revenue and expense data
for the 5-year proposed rate approval period for the new 500-kV system.

AC Intertie Project.--5-Year Rate Study Summary Period Revenues and Expenses
----------------------------------------------------------------------------------------------------------------
Existing rate
step II 230/345/ Proposed rates
Revenue and expenses 500-kV system 10/ 500-kV system 2/ Difference
1/96 through 9/ 1/96 through 9/
30/2000 30/2000
----------------------------------------------------------------------------------------------------------------
Revenues:
Firm Transmission..................................... 105,009,620 59,051,200 45,958,420
Other Revenues........................................ 19,503,775 1,807,372 17,696,403
-----------------------------------------------------
Total Revenues.................................... 124,513,395 60,858,572 63,654,823
=====================================================
Revenue Distribution:
Operations & Maintenance.............................. 17,486,459 3,569,559 13,916,900
Other Deductions...................................... 1,077,007 487,620 589,387
Interest on Deferred.................................. 0 0 0
Annual Cost:
Interest.............................................. 93,042,899 52,707,044 40,335,855
Investment Repayment.................................. 12,814,649 4,094,349 8,720,300
Capitalized Expenses.................................. 92,381 0 92,381
Study-Year Adjustments................................ 0 0 0
-----------------------------------------------------
Total............................................. 124,513,395 60,858,572 63,654,823
----------------------------------------------------------------------------------------------------------------

[[Page 4655]]

The table provides a summary of revenue and expense data for the 5-
year proposed rate approval period for the combined system.

AC Intertie Project.--5-Year Rate Study Summary Period Revenues and Expenses
----------------------------------------------------------------------------------------------------------------
Existing rate Proposed
step II 230/345/ combined rate
Revenue and expenses 500-kV system 10/ study 2/1/96 Difference
1/96 through 9/ through 9/30/
30/2000 2000
----------------------------------------------------------------------------------------------------------------
Revenues:
Firm Transmission..................................... 105,009,620 90,195,000 14,814,620
Other Revenues........................................ 19,503,775 10,714,115 8,789,660
-----------------------------------------------------
Total Revenues.................................... 124,513,395 100,909,115 23,604,280
=====================================================
Revenue Distribution:
Operations & Maintenance.............................. 17,486,459 16,213,099 1,273,360
Other Deductions...................................... 1,077,007 2,127,632 (1,050,625)
Interest on Deferred.................................. 0 286,491 (286,491)
Annual Cost:
Interest.............................................. 93,042,899 71,141,078 21,901,821
Investment Repayment.................................. 12,814,649 7,458,773 5,355,876
Capitalized Expenses.................................. 92,381 3,682,042 (3,589,661)
Study-Year Adjustments................................ 0 0 0
-----------------------------------------------------
Total............................................. 124,513,395 100,909,115 23,604,280
----------------------------------------------------------------------------------------------------------------

Basis for Rate Development

The provisional rates were designed to meet cost recovery criteria.
The power repayment studies indicate that the proposed rates for firm
and nonfirm transmission service are necessary because of the
redistribution of costs from the current rate setting study. The
current rate setting study anticipated 1,718 MW of capacity available
for sale. The existing rates were designed to recover all annual costs
and investment repayment of both the existing 230/345-kV transmission
lines and the new 500-kV transmission lines. Three major changes are
affecting the rates for the AC Intertie.
The first change is the establishment of separate firm transmission
rates for the existing 230/345-kV transmission lines and the new 500-kV
transmission lines. This change is due to customer comments and
concerns during the informal and formal meetings Western held with its
customers. Separate PRSs have been prepared for the 500-kV portion and
the 230/345-kV portion of the AC Intertie.
The second change is the determination of interest offsets. An
interest offset is a credit that is made toward interest expenses.
Western is changing its methodology of calculating interest offsets to
be consistent with the other power marketing administrations. The old
method calculates interest offsets on only the principal that was
repaid in the current year. The new method calculates interest offsets
on both the principal and interest for the current year.
The third change is adjustments Western made to data budgeted for
investments to the AC Intertie Project. Western's staff determined the
total O&M costs on the combined system for the AC Intertie Project and
developed a percentage breakdown based upon O&M costs, to determine a
method for allocating Other Revenues/Costs.

Existing 230/345-kV Transmission System

Operations and Maintenance expenses have decreased for the 230/345-
kV system, since the O&M expenses for the 500-kV transmission system
are in a separate power repayment study as well as the additional
facilities. The 230/345-kV system is projecting 1,050 MW of capacity
for sale.

500-kV Transmission System

There is also a anticipated decrease in current marketable capacity
on the new 500-kV system. This is now projected to be 668 MW which is
156 MW decrease from the current rate setting study. Once the 500-kV
transmission lines are energized and go into service, these 500-kV
transmission lines will become an integral part of the AC Intertie.

Nonfirm Transmission Service

Western decided to maintain one nonfirm transmission service rate
for the AC Intertie Project. This maintains consistency with other
Western projects and allows for the ability to market nonfirm
transmission service through the WSPP Agreement and Joint Transmission
Agreement which Western is a participant. The single nonfirm
transmission rate has been derived by calculating a firm rate from a
combined transmission line power repayment study. Once the yearly kW
rate is determined, it is divided by 8760 hours in a year and
multiplied by a 60 percent load factor. This number is then converted
to mills/kWh.

Comments

During the 119 day comment period, Western received 10 written
comments. In addition, five persons commented during the September 18,
1995, public comment forum. All comments were reviewed and considered
in the preparation of this rate order.
Written comments were received from the following sources:

Irrigation & Electrical Districts Association of Arizona (Arizona)
K. R. Saline & Associates (Arizona)
Arizona Power Authority (Arizona)
Central Arizona Water Conservation District (Arizona)
Salt River Project (Arizona)

Representatives of the following organizations made oral comments:

Irrigation and Electrical Districts Association of Arizona (Arizona)
K. R. Saline & Associates (Arizona)
Arizona Power Authority (Arizona)
Central Arizona Water Conservation District (Arizona)
Salt River Project (Arizona)

Most of the comments received at the public meetings and in
correspondence

[[Page 4656]]
were related to the issue on abandoned plant, the separation of the new
500-kV transmission system from the existing system, and the change in
the ratesetting methodology from the pinch-point methodology to the
CIAR method. All comments were considered in developing the provisional
rates.
Comment: The customers support the idea of moving away from the
pinch-point methodology to the compound interest amortization repayment
method as was done in the Parker-Davis Project.
Response: Western developed power repayment studies based upon the
CIAR method and the pinch-point method. After review of these studies
with the customers through working groups, the customers request is to
remain with the traditional pinch-point methodology. This rate
submittal in based upon the pinch-point methodology.
Comment: The rate brochure includes approximately $13,558,108 in
replacements associated with Mead Substation Stage 05. Would Western
please provide a breakdown of the proposed work including the rationale
to allocate all of these proposed expenditures to the 230/345-kV
transmission system project versus the 500-kV transmission system
project?
Response: The Intertie Project Proposed Rate Adjustment Brochure
refers to replacements at Mead Substation (see page 15) which are part
of a multifaceted construction project, Mead Stage 05. The portion of
the work related to Intertie expenses is described below (excerpt from
the Congressional Budget document Facility Data Sheet):
Activity 2: The work to be performed is as follows:
At Mead: This portion of the project consists of replacing 18 power
circuit breakers at Mead Substation, provide new wiring and associated
control cabinets, and new line relaying to protect the lines. Four of
the 18 breakers to be replaced are a result of the planned addition of
a 500-kV AC transmission line from Liberty Substation to Mead
Substation to McCullough Substation, where it will tie into a 500-kV
line into the Los Angeles area. The associated costs will be recovered
from the Mead-Phoenix 500-kV Project. Add an additional fault recorder
to assist in determining causes of system failures. Provide two vehicle
crossing in the switchyard to improve access to equipment necessary for
maintenance of the breakers. Replace the bolted bus connections with
compression fittings to reduce thermal hot spots. Replace a portion of
the station service power distribution system to provide 120VAC
convenience power at the breakers. At Liberty Substation: Replace the
line relaying and control cabinet.
The objective is to replace the breakers at Mead that are
associated with the Intertie facilities. These circuit breakers will be
under rated due to increased fault current. The fault current has
increased due to the interconnected power system growth in the area.
The southern Division of the Pacific Northwest-Pacific Southwest
Intertie Transmission System (Intertie) is part of the Pacific
Northwest-Pacific Southwest Intertie authorized August 31, 1964, by
Public Law 88-552. The Intertie consists of a 345-kV AC transmission
line from Mead Substation, near Hoover Dam and Boulder City, Nevada, to
Liberty Substation near Phoenix, Arizona, and a 230-kV line from
Liberty Substation to Pinnacle Substation north of Phoenix. The
Intertie facilities are interconnected with additional AC Intertie
transmission facilities which are owned and operated by various Federal
and non-Federal entities.
In the first paragraph of the description, in the bold and
underlined portion, it states that: ``Four of the 18 breakers to be
replaced are a result of the planned addition of a 500-kV AC
transmission line from Liberty Substation to Mead Substation to
McCullough Substation, where it will tie into a 500-kV line into the
Los Angeles area. The associated costs will be recovered from the Mead-
Phoenix 500-kV Project.'' This statement should clarify that the
portion of the Intertie expense that is the result of the 500-kV
Project has been accounted for and properly funded. The accounting
process for the proper expending has been done by accounting
adjustments through the use of Journal Vouchers in our financial
management system.
Comment: When Western decided to split the Intertie into two
separate projects (230/345-kV and 500-kV) how has Western allocated the
interconnection facilities between Mead Substation and Market Place
Substation? The tie between the two substations was not required for
the operation of the existing 345-kV project and therefore should be
allocated to the 500-kV project. At a minimum Western needs to identify
the offsetting benefits to the existing Intertie customers of these
additions.
Response: The tie between Mead Substation and Marketplace
Substation is 13 miles of 500-kV transmission line. The cost to build,
operate and maintain these facilities is being allocated to the 500-kV
transmission system.
Comment: It is our understanding that there is approximately 67 MW
(Phoenix to Mead) of excess capacity available of the existing Intertie
(345-kV line). Since Western has indicated they believe that they will
be successful in marketing 668 MW on the 500-kV project. It seems
appropriate that 67 MW of those sales would in reality be contract over
the 345-kV line. Would Western provide its rational for not including
marketing the additional 67 MW on the 345-kV line before projecting
sales on the more expensive 500-kV line.
Response: The referenced 67 MW of transmission system capacity was
the estimated amount of capacity that was not under firm contractual
arrangements for the existing system. This was stated at the August 18,
1995, public information forum. The existing system for the AC Intertie
has a total marketable transmission system capability of 1,050,000
kilowatts.
Western currently has 987,643 kW of the 230/345-kV transmission
system capacity under firm contracts.
Comment: Included in Western's FY 1995 10-Year Plan is
approximately $5,016,000 to replace the 345-kV Series Capacitor Control
and Bypass System. Has the installation of the 500-kV transmission line
caused or contributed to the need to replace the series capacitor
controls? Given the fact that the 500-kV transmission line may have
excess capacity for some time, is there potential to delay this
expenditure until additional transfer capability is needed? What is the
rate impact of the proposed replacement of the capacitor controls?
Response: The series capacitor banks at Mead and Liberty
substations were installed in July 1977. The PCB capacitor units were
replaced in 1992 with new non-PCB units. The pneumatic control system
is deteriorating and preliminary review indicates it should be replaced
with an electronic and optical control system.
The installation of the 500-kV line did not cause or contribute to
the deteriorating of the pneumatic control system. The series
capacitors were not included in the cost base of the power repayment
study because the projected in-service date went beyond the cost
evaluation period for power repayment consideration. Although the costs
were not included, a separate study has been run to determine the
effect on the rate. The existing system rate would increase about $.23/
kW-year.
Comment: Would Western provide its rational for allocating Other
Revenues/Costs on miles of transmission?
Response: Western's staff used the following rationale to
distribute projected Other Deductions and Other Revenues for the AC
Intertie Project to the two systems as follows:

[[Page 4657]]

In the early studies, Western determined the total miles of the AC
Intertie Project and developed a percentage breakdown by transmission
miles. The existing system (230/345-kV transmission lines) consists of
271 miles of transmission lines or 37 percent of the combined system.
The new system (500-kV transmission lines) consists of 458 miles of
transmission lines or 63 percent of the combined system.
Based upon customer request and comment, Western changed its
methodology and based the other deductions and other revenues upon the
total O&M in the combined power repayment study. Western's staff
determined the total O&M costs on the combined system for the AC
Intertie Project and developed a percentage breakdown based upon O&M
costs, to determine a method for allocating Other Revenues/Costs to
each of the separate systems. The allocation of other costs and other
revenues obtained through the Multiproject Cost calculations, has been
applied by the above methodology.
Comment: Would Western provide its rational for a single nonfirm
rate? What has been the historical nonfirm uses of the existing 345-kV
system? Would Western please provide its projection of nonfirm energy
sales on each of the proposed projects (345-kV and 500-kV)?
Response: Due to customer request to develop a single firm
transmission service rate for the 230/345-kV and 500-kV transmission
lines, Western decided to maintain one nonfirm transmission service
rate for the AC Intertie Project. This maintains consistency with other
Western projects and allows for the ability to market nonfirm
transmission service through the WSPP Agreement and Joint Transmission
Agreement of which Western is a participant. The single nonfirm
transmission rate has been derived by calculating a firm rate from a
combined transmission line power repayment study. Once the yearly kW
rate is determined, it is divided by 8760 hours in a year and
multiplied by a 60 percent load factor. This number is then converted
to mills/kWh.
Typically, Western's non-firm sales on the existing AC Intertie are
made through our membership in the WSPP or under our fuel replacement
program. For example, in FY 1995, WSPP sales totaled approximately 195
GWh and revenues of approximately $2.3 million; fuel replacement sales
totaled approximately 67 GWh and revenues of approximately $670,000.
Projections for non-firm energy sales on the AC Intertie system
should remain at the same levels. These sales could be split between
the existing and 500-kV AC Intertie systems in the future.
Western determines future year projections for nonfirm transmission
sales revenues for the AC Intertie Project by calculating a 3-year
average of total nonfirm sales as reflected in the results of
operations. Western does not keep a separate log of nonfirm sales by
transmission line voltages; therefore information pertaining to
separate projections of nonfirm sales on the 230/345-kV and 500-kV
transmission lines is unavailable.
Comment: Western's white paper addresses the options to resolve the
$11.1 million in abandoned plant that Western has indicated as a cost
responsibility of the AC Intertie project. We support Western's option
number 4, and hereby request Western seek authority through the budget
cycle to declare the abandoned plant as nonreimbursable.
Response: With customer support, Western will seek authority
through the Department to declare the $11.1 million of abandoned plant
as nonreimbursable.
Comment: Consider the acceptability of directly assigning non-firm
transmission revenues, which are based on the historical level of non-
firm transmission, to the existing 345/230-kV system. Also, all ``Other
Revenues and Expenses'' would be allocated based on an O&M factor
versus the presently proposed ``Line Miles'' method.
Response: Western has been directly assigning all nonfirm
transmission revenues, which are based on the historical level of
nonfirm transmission, to the existing 230/345-kV system. We are
estimating future nonfirm transmission revenues for the 500-kV system
to be $300,000 per year. Distribution of Other ``Revenue and Expenses''
which is due to Multiproject Cost and Revenues, are based upon O&M
factors.
Comment: (1) Investigate what is included in the $2.3 million
revenue number stated in Western's October 13th letter. (2) What is the
appropriate level of GWH for the Intertie and what would be the
corresponding level of revenues?
Response: The $2.3 million of WSPP sales mentioned in the October
13, 1995, letter includes total WSPP nonfirm transactions including
energy sales made under WSPP during FY 1995. The transmission portion
associated with the AC Intertie is approximately $70,000. The GWH
associated with these particular WSPP nonfirm transmission transactions
for FY 1995 was approximately 26 GWH.
Comment: Continue the use of the 1,050,000 KW as the Marketable
Capacity for the Existing 230/345 System. This issue centers on whether
or not Western needs to reserve 50 MW of capacity on the existing
system considering the ability to use both the 230/345-kV lines and
500-kV lines for ``operation flexibility.''
Response: The 1,050,000 kW is the estimated transmission capacity
which is projected to be marketed, for the purposes of determining the
existing 230/345-kV AC Intertie rate adjustment. This estimate is based
on projected demand for transmission capacity in the region and on
transmission service requests received by Western. Transmission
capacity in excess of 1,050,000 kW exists on the 230/345-kV AC Intertie
system, but is primarily available from Mead Substation to the Phoenix
area and is in limited demand. If transmission capacity in excess of
1,050,000 kW is marketed in the future, future rate adjustments will
reflect the addition.
Comment: The information distributed by Western at the August 24,
1995, public information forum contains a page of ``AC Intertie Project
Investments'' which are to be assigned to the existing and new systems.
All of the investments, except the ``Mead-Phoenix 500-kV transmission
line'' and the ``Mead-Adelanto 500-kV transmission line'' have been
assigned to the existing 230/345 system. Yet, we know that at least a
component of the ``Mead-Substation Stage 05'' investment should be
allocated to the 500-kV system, specifically, the costs associated with
four (4) of the 18 breakers. What are the costs associated with these
four breakers and should any portion of the other investments be
assigned to the 500-kV system.
Response: The costs associated with the four breakers which are
attributed to the 500-kV system are cost for breaker hardware,
installation, sectionalizing breaker, portion of design, portion of
switch gear, portion of control boards, and portion of site
preparation. The total cost attributed to the 500-kV system is
$1,945,071.
Breakdown of theses costs are as follows:

Mead 05 Breaker Hardware.................................... $589,200
Mead 05 Breaker Installation................................ 494,030
Mead 05 Sectionalizing Breaker.............................. 103,345
Mead 05 Portion of Design................................... 98,868
Mead 05 Portion of Switchgear............................... 55,000
Mead 05 Portion of CNTRL Boards............................. 79,448
Portion of Mead:
CNTRL Bldg., Site Prep.................................... 525,181
-----------
Total Itemized Cost:.................................... 1,945,071

[[Page 4658]]

Western believes that all other investments have been properly
allocated to the 230/345-kV system and the 500-kV system. We are in the
process of closing out work for the 500-kV system and would be willing
to provide detailed information on the allocation of equipment. If an
adjustment is necessary, Western will work with customers during the
next rate adjustment process.
Comments: Repayment of the Capitalized Deficits in FY 96. In
accordance with a customer's request, run a new PRS in which the
capitalized deficit is repaid in FY 1996, and then a separate PRS for
years 1997 forward.
Response: Based upon the request, Western ran a new study forcing
the deficits to be paid by 1996, the results, using the Compound
Interest Amortization method are: Rates: FY 1995--$4.46, FY 1996--
$10.36, FY 1997--$7.21.
Comment: Customer request Western to determine separate nonfirm
transmission rates for the existing 230/345-kV transmission system and
the new 500-kV transmission line.
Response: The calculated nonfirm transmission service rate for the
230/345-kV transmission lines is 1.40 mills/kWh. The calculated nonfirm
transmission service rate for the 500-kV transmission lines is 3.28
mills/kWh.
Comment: We have heard that the Area Manager of the Boulder City
Area Office may have written off the abandoned plant dollars in 1983.
Does any document exist writing off the abandoned plant?
Response: Western has not been able to locate the document and is
not sure that such a document exists. Area Managers do not have the
authority to write off a dollar amount of such magnitude. Western will
continue to search for the document and check for the legality of the
document.

Environmental Evaluation

In compliance with the National Environmental Policy Act of 1969,
42 U.S.C. 4321 et seq.; Council on Environmental Quality Regulations
(40 CFR Parts 1500-1508); and DOE NEPA Regulations (10 CFR Part 1021),
Western has determined that this action is categorically excluded from
the preparation of the environmental assessment or an environmental
impact statement.

Executive Order 12866

DOE has determined that this is not a significant regulatory action
because it does not meet the criteria of Executive Order 12866, 58 FR
51735. Western has an exemption from centralized regulatory review
under Executive Order 12866; accordingly, no clearance of this notice
by OMB is required.

Availability of Information

Information regarding this rate adjustment, including PRSs,
comments, letters, memorandums, and other supporting material made or
kept by Western for the purpose of developing the power rates, is
available for public review at the Desert Southwest Customer Service
Region, Western Area Power Administration, Office of the Assistant
Regional Manager for Power Marketing, 615 South 43rd Avenue, Phoenix,
Arizona 85009-5313; and Power Marketing Liaison Office, Room 8G-027,
Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585-
0001.

Submission to Federal Energy Regulatory Commission

The rates herein confirmed, approved, and placed in effect on an
interim basis, together with supporting documents, will be submitted to
FERC for confirmation and approval on a final basis.

Order

In view of the foregoing and pursuant to the authority delegated to
me by the Secretary of Energy, I confirm and approve on an interim
basis, effective February 1, 1996, the Rate Schedules INT-FT2 and INT-
NFT2. The rate schedules shall remain in effect on an interim basis,
pending FERC confirmation and approval of them or substitute rates on a
final basis, through September 30, 2000.

Issued in Washington, D.C., January 30, 1996.
Charles B. Curtis

Supersedes Rate Schedule INT-FT1

United States Department of Energy Western Area Power Administration

Pacific Northwest-Pacific Southwest Intertie Project

Schedule of Rates for Firm Transmission Service

Effective

The first day of the first full billing period beginning on or
after February 1, 1996, and will remain in effect through September 30,
2000, or until superseded, whichever occurs first.

Available

In the marketing area served by the Pacific Northwest-Pacific
Southwest Intertie Project.

Applicable

To firm transmission service customers where capacity and energy
are supplied to the Pacific Northwest-Pacific Southwest Intertie
Project (AC Intertie) system at points of interconnection with other
systems and transmitted and delivered, on a bi-directional basis, less
losses, to points of delivery on the AC Intertie system specified in
the service contract.

Character and Conditions of Service

Alternating current at 60 Hertz, three-phase, delivered and metered
at the voltages and points of delivery established by contract over the
230/345-kV transmission lines.

Rates 230/345-kv System

Firm Transmission Service Charge: February 1, 1996, through
September 30, 1996: $8.26 per kilowatt per year for each kilowatt
delivered at the point of delivery, as established by contract: payable
monthly at the rate of $0.688 per kilowatt.
October 1, 1996, through September 30, 2000: $6.58 per kilowatt per
year for each kilowatt delivered at the point of delivery, as
established by contract, payable monthly at the rate of $0.548 per
kilowatt.

Rates 500-kv System

Alternating current at 60 Hertz, three-phase, delivered and metered
at the voltages and points of delivery established by contract over the
500-kV transmission lines.
Firm Transmission Service Charge: February 1, 1996, through
September 30, 1998: $17.98 per kilowatt per year for each kilowatt
delivered at the point of delivery, as established by contract, payable
monthly at the rate of $1.50 per kilowatt.
October 1, 1998, through September 30, 2000: $17.23 per kilowatt
per year for each kilowatt delivered at the point of delivery, as
established by contract, payable monthly at the rate of $1.44 per
kilowatt

Adjustments

For Reactive Power

None. There shall be no entitlement to transfer of reactive
kilovolt-amperes at points of delivery, except when such transfers may
be mutually agreed upon by contractor and contracting officer or their
authorized representatives.

For Losses

Capacity and energy losses incurred in connection with the
transmission and delivery of capacity and energy under this rate
schedule shall be supplied by

[[Page 4659]]
the customer in accordance with the service contract.

Rate Schedule INT-NFT2;Supersedes Rate Schedule INT-NFT1

United States Department of Energy Western Area Power Administration

Pacific Northwest-Pacific Southwest Intertie Project

Schedule of Rates for Nonfirm Transmission Service

Effective

The first day of the first full billing period beginning on or
after February 1, 1996, and will remain in effect through September 30,
2000, or until superseded, whichever occurs first.

Available

In the marketing area served by the Pacific Northwest-Pacific
Southwest Intertie Project.

Applicable

To nonfirm transmission service customers where capacity and energy
are supplied to the Pacific Northwest-Pacific Southwest Intertie
Project (AC Intertie) system at points of interconnection with other
systems and transmitted and delivered, on a bi-directional basis, less
losses, to points of delivery on the AC Intertie system established by
contract.

Character and Conditions of Service

Alternating current at 60 Hertz, three-phase, delivered and metered
at the voltages and points of delivery established by contract.

Rate

Nonfirm Transmission Service Charge: 2.00 mills per kilowatthour of
the scheduled delivered kilowatthours at the point of delivery,
established by contract, payable monthly.

Adjustments

For Reactive Power

For Losses

Capacity and energy losses incurred in connection with the
transmission and delivery of capacity and energy under this rate
schedule shall be supplied by the customer in accordance with the
service contract.

[FR Doc. 96-2523 Filed 2-6-96; 8:45 am]
BILLING CODE 6450-01-P