[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43051-43055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21151]


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

DEPARTMENT OF ENERGY
Western Area Power Administration


Western Area Power Administration's Policy for the Purchase of 
Non-Hydropower Renewable Resources

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of non-hydropower renewable resources policy.

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

SUMMARY: This notice announces the Western Area Power Administration 
(Western) adoption of a policy to purchase a portion of its expected 
purchase power requirements on a project-by-project basis and in a 
competitive manner, from non-hydropower renewable resource producers. 
This concept includes a proposal to purchase 50 percent of those 
purchases from solar resources. Western's policy focuses on technical 
assistance and facilitation of renewables, as opposed to a mandatory 
purchase power set-aside for renewables.

FOR FURTHER INFORMATION: For additional information, please contact Mr. 
Michael S. Cowan, Chief Program Office, Western Area Power 
Administration, P.O. Box 3402, Golden, CO 80401-0098, (303) 275-1630.

SUPPLEMENTARY INFORMATION: On April 15, 1996, Western published a 
notice entitled Western Area Power Administration's Concept for 
Purchase of Non-hydropower Renewable Resources, and Solicitation of 
Interest (Concept) in the Federal Register (61 FR 16480). In response 
to requests, the original 30-day comment period was extended in 61 FR 
24789 (May 16, 1996). The comment period closed May 31, 1996, 45 days 
after the publication of the Concept. Western received 150 comment 
letters concerning the Concept. A summary discussion of those comments 
and Western's responses are included in this notice along with 
Western's policy on non-hydropower renewable resource purchases.
    The primary focus of the Concept was the purchase of non-hydropower 
renewable resources as part of Western's electric firming requirements. 
Western also requested comments on the criteria that Western would use 
to implement a new policy. These proposed criteria included: (1) The 
assumption that additional costs associated with non-hydropower 
renewable resource purchases would have little or no discernable rate 
impact to Western's firm power customers; (2) the cost of the non-
hydropower renewable resources purchased by Western would be equal or 
less than an established cost cap; and (3) the contract term for the 
purchase of these renewable resources would vary project by project, 
but in no case would the term extend beyond the termination date of 
Western's long-term firm power sales contracts for a project.
    Western specifically requested comments on the following points 
related to the proposed Concept: (1) Whether or not the respondents 
support the proposed Concept, (2) the magnitude of percentage of a 
potential purchase power requirement set-aside, (3) whether it is 
appropriate to have 50 percent reservation for solar resources within 
the set-aside, and if so, whether the reservation amount for solar 
should be increased or decreased, (4) the acceptable rate impact, (5) a 
recommended cost cap in mills per kWh for non-hydropower renewable 
resources, (6) a recommended contract term for purchases, (7) 
recommendations on alternative methods whereby Western would facilitate 
market opportunities for non-

[[Page 43052]]

hydropower renewable resources, and (8) any other related issues.
    Western also was interested in receiving comments concerning other 
terms, requirements, and criteria of the proposed Concept such as: 
dispatchability, point of delivery, dependability, resource diversity, 
and environmental impact. The proposed Concept also indicated that 
resource acquisitions would be made through the application of the 
Concept on a project-by-project, cost competitive basis and in a manner 
consistent with Western's formally adopted principles of integrated 
resource planning published in the Federal Register (60 FR 54151).
    Western also solicited comments from the public interested in 
having Western facilitate the delivery of non-hydropower renewable 
resources on their behalf and at their cost; for alternative Concepts; 
and for information from renewable resource developers.
    Comments were received from a variety of entities including power 
customers, developers, environmentalists, government agencies, 
investor-owned utilities, and Native American tribes.
    Western has taken into consideration each comment in the 
development of its non-hydropower renewable resource policy.

Discussion of Comments

    Western received 150 comment letters representing both individual 
commenters and groups of interested entities. The majority indicated 
that they or the entities they represent do not support the proposed 
Concept. Western reviewed each comment and responded to them in the 
text which follows.
    Comments: The primary reason given for not supporting the proposed 
Concept was the increased cost and subsequent adverse rate impact. 
Several entities stated that ``any'' rate impact is significant and the 
cost of these types of renewables is too high and should not be blended 
into their costs. Although many Western firm power customers support 
the development of renewables, they strongly oppose the proposed 
Concept because of the increase in costs and lack of local choice for 
customers to support renewables that make sense in their particular 
community. The firm power customers strongly suggest that the proposed 
Concept be abandoned.
    Other commenters stated that the impact to rates is acceptable, and 
an even higher rate impact should be used as a ceiling. Several of 
those commenters stated that Western may have overestimated the rate 
impacts and suggested alternative methodologies to calculate the rate 
impacts and make the program more attractive to developers. The various 
suggestions included: taking into account capacity values; aggregating 
Western's purchase power needs into one contract; focusing on one large 
resource where economies of scale would make it more cost competitive; 
extending the length of the commitment; purchase year-round as opposed 
to seasonal; and increasing the amount of the resource purchased.
    Response: Western acknowledges that there are minimal rate impacts 
associated with the Proposed Concept. Western also recognizes its 
obligation to both the taxpayers and the power customers to keep rates 
as low as possible to maintain a market for the Federal hydropower 
resource and thereby assure project repayment to the Treasury. Western 
reviewed the comments concerning the suggested rate impacts and 
acknowledges that there are several ways to recalculate those impacts 
and different methodologies that could be used to determine a larger or 
smaller rate impact. However, Western has not ascertained a method of 
purchasing nonhydropower renewable resources that does not increase 
costs.
    In response to the large negative response to the proposed Concept, 
Western will not mandate the purchase of a certain portion of its 
replacement and firming requirements from non-hydropower renewable 
resources. The proposed concept is impracticable given Western's policy 
in the Energy Planning and Management Program that allows customers to 
provide their own firming energy and the customers strong opposition to 
the proposed Concept. Consequently, proceeding with a non-hydropower 
renewables firming energy purchase over the objection of customers 
would likely result in customers exercising their option not to 
purchase higher priced firming energy from Western. Western will 
strongly support the use of these non-hydropower renewable resources by 
means other than the conceptual purchase power set-aside and, when 
available at competitive prices, will purchase replacement and firming 
requirements from these renewable resources.
    Comments: Many commenters stated that the proposed Concept is in 
conflict with Western's primary mission and contradicts legislation, 
regulations, and policies that Western is presently required to 
observe. Numerous customers indicated that the Concept is not 
consistent with Western's primary mission as stated in section 9(c), 
Reclamation Act of 1939, 43 U.S.C. 485h and by section 5, 
Flood Control Act of 1944, 16 U.S.C. 825s which obligates Western to 
provide power ``* * * in such a manner as to encourage the most 
widespread use thereof at the lowest possible rates to consumers 
consistent with sound business principles''. In addition, commenters 
explained that the proposed Concept is inconsistent with section 1809 
of the Grand Canyon Protection Act of 1992, which states that the 
Secretary of Energy will replace lost generation with ``economically 
and technically'' feasible methods. Some commenters indicated that the 
proposed Concept is not consistent with Western's policies established 
in the Energy Planning and Management Program (EPAMP) and the 
Integrated Resource Planning (IRP) section of EPAMP, and Western's IRP 
principles. Additionally, commenters indicated that the proposed 
Concept is incompatible with existing agency purchase power policies 
that allow customers to choose to make their own replacement energy 
purchases. A few commenters indicated that the proposed Concept is 
contrary to the provision in the Public Utilities Regulatory Policies 
Act that only requires utilities to purchase resources such as being 
proposed for acquisition by Western at the ``avoided cost''. These 
commenters' contention is that the 5.5 cents/KWH far exceeds the 
``avoided cost''. A few commenters suggested that Western is violating 
the National Environmental Policy Act by considering implementation of 
the proposed Concept without an environmental impact statement.
    Response: Western is an agency of the DOE and has responsibilities 
to support DOE's mission and to provide benefits to the public, but 
Western must also observe applicable legislation and fulfill its 
contractual obligations. Western believes it has the authority to 
implement the proposed Concept. Since Western has modified the method 
Western will use to support the non-hydropower renewable resources 
program, it will not address the specific legal issues raised by the 
commenters.
    Comments: Numerous commenters objected to the Concept, citing that 
it did not recognize the new competitive utility environment in light 
of the Federal Energy Regulatory Commission's (FERC) recent Orders, 888 
and 889. They stated that open access to the electric transmission 
system will create a highly competitive industry and that high priced 
resources would be an unnecessary obstacle to such competition. A few 
commenters indicated that the proposed Concept would be directly at 
odds with a

[[Page 43053]]

competitive market place and that if the proposed Concept was 
implemented, the creation of an artificial market may ultimately hurt 
development of non-hydropower renewable resources.
    Response: Western believes that competition by itself is not at 
odds with the development of non-hydropower renewable resources. 
Western recognizes the environmental and socioeconomic benefits that 
non-hydropower renewable resources provide and will promote the use of 
these types of resources. However, there are currently large amounts of 
surplus power available in the spot market, with pricing detrimental to 
the competitiveness of non-hydropower renewable resources. In response, 
Western has developed a policy to commit staff resources to 
continuously evaluate power pricing, identify market opportunities for 
renewables, and facilitate transactions between renewable resource 
developers and customers interested in purchasing renewable resources.
    Comments: Many commenters believe the proposed Concept is not 
equitable because Western's firm power customers would be the only ones 
paying for the non-hydropower renewable resource program and the 
program would benefit many other stakeholders. Most of these commenters 
indicated that DOE should fund this ``subsidy'' program. Some 
commenters are very much against financing any type of subsidy and 
indicated that the proposed Concept, if implemented, should be funded 
by all taxpayers. Some commenters stated that they were already funding 
Federal policies detrimental to power, such as replacing the lost 
generating capacity at Glen Canyon Dam and questioned the fairness of 
the firm power customers being assigned the responsibility to pay 
above-market costs to accommodate a policy that would increase their 
costs to benefit the general public. However, one commenter stated that 
Western's firm power customers have received the most direct benefits 
from the Federal hydro projects, so they should fund the proposed 
Concept's non-hydropower renewable purchases.
    Response: Western understands that all Americans will benefit from 
the research and development of the non-hydropower renewable resources. 
Western believes that non-hydropower renewable resources are very 
important and will benefit all Americans, including the commenters that 
do not support the proposed Concept. Western has decided not to adopt a 
policy that would include a mandatory set-aside of power purchases for 
non-hydropower renewables, but Western will provide technical support 
to customers willing to pursue non-hydropower renewable resource 
transactions.
    Comments: Several commenters indicated that the choice of 
purchasing firming energy should be at the local level and they should 
have the right to choose any resource that meets their needs. Some of 
these commenters indicated that participation in the proposed Concept 
should be on a voluntary basis. One commenter suggested the purchase of 
the renewables should be incorporated into existing contracts and that 
Western should re-evaluate its IRP process to provide purchase 
alternatives for Western's customers.
    Response: Western supports its existing policies of allowing the 
firm power customers to choose the resources that provide for their 
requirements. Western's policy incorporates the principles of voluntary 
participation and least-cost resource acquisition.
    Comments: A few commenters believe that Western should have 
additional involvement with the public and hold meetings with 
stakeholders to discuss the proposed Concept. In addition, a few 
commenters stated that the purpose of the proposed Concept is unclear 
and questioned a perceived lack of a goal or reasoning behind the 
proposed Concept. One commenter stated it is illogical to use one 
renewable resource (hydropower) to subsidize another renewable resource 
(non-hydropower).
    Response: Western published the proposed Concept in the Federal 
Register to solicit comments from the public and to determine the level 
of public interest in non-hydropower renewable resources. Western 
supports the idea of developing non-hydropower renewable resources if 
each local utility can make the appropriate decision, with customer 
involvement. Western also believes that there was an appropriate amount 
of public involvement, but as part of facilitating transactions under 
the policy, Western is willing to consider other actions the agency can 
perform to further the use of renewable resources.
    Comments: Several commenters questioned the reasoning behind the 
50% solar reservation of the purchases that would be provided under the 
proposed Concept. Commenters questioned the reasoning behind the 
promotion of any type of generation when there is already excess 
capacity available. In addition, a number of comments recommended that 
the set aside level be modified.
    Response: The proposed Concept reflected Western's desire to ensure 
a diversified mix of non-hydropower renewable resources and Western's 
goal of supporting the DOE's commitment to commercializing a variety of 
renewable resource technologies. In the modified program, each customer 
will be free to choose the type and level of resource, since all costs 
are paid for by the individual utility.
    Comments: Several commenters expressed their support for the 
proposed Concept, citing the environmental and societal benefits as a 
primary reason Western should implement the proposal. One commenter 
stated that Western should evaluate the impact of renewables using the 
NEPA process. One commenter cited three environmental benefits from 
implementing the proposed Concept; ``(1) mitigates the decision to add 
firming power to Western's output mix, (2) improves the conservation 
and economic efficiency of electrical use in the region, and (3) is a 
prudent step toward responsible domestic participation in addressing 
global environmental problems.'' This commenter also suggested Western 
should adopt an environmental impact policy featuring the purchase of 
non-hydropower renewable resources.
    Response: Western recognizes the environmental and societal 
benefits from renewable resource use. However, Western also recognizes 
that firm power customers would be adversely impacted by implementing 
the proposed Concept. Therefore, Western has determined to evaluate 
opportunities on a case-by-case basis and to support voluntary efforts 
to develop non-hydropower renewable resources.
    Comments: Several commenters suggested that Western work with the 
Nevada Corporation for Solar Technology and Renewable Resources (CSTRR) 
by implementing the proposed Concept or a modified version of the 
Concept. It was also suggested that Western could facilitate CSTRR 
power sales and distribution and provide a market for solar power 
generated from CSTRR. A few commenters encouraged Western to support 
CSTRR's effort irrespective of statistical data. One commenter pointed 
out that if Western supports CSTRR through this or a modified version 
of the Concept, then Nevada will have a better opportunity to develop a 
safe and reliable use for the Nevada Test Site as well as promoting the 
abundant solar resource in southern Nevada. Commenters suggested that 
Western should give priority to purchasing solar energy produced at the 
Nevada Solar Enterprise Zone. Another

[[Page 43054]]

commenter suggests that Western team up with the Utility Photovoltaic 
Group and other partners to develop solar projects in the West.
    Response: Western believes it can facilitate additional markets for 
entities such as CSTRR through partnering and coordinating operations 
with these and similar entities. The policy adopted will promote these 
developments to assure that CSTRR and other renewable developments have 
the maximum probability of success.
    Comments: Several commenters expressed concern over the problems 
with the dispatchability of the non-hydropower renewable resources.
    A commenter pointed out that due to the intermittent, non-
dispatchable nature of renewable power generation, Western should allow 
projects the flexibility to sell power in the off peak seasons. Another 
commenter stated that the solar resource is significantly better for 
the integrated operation of the Western system than the spot market, 
non-firm fossil thermal resource presently used. Comment was received 
that stated transmission requirements on the part of the supplier of 
the renewable power is an important element. One comment suggests that 
any switch to power from alternative uses should be directed to 
residential end users. Comments also supported Western providing 
discounted or free transmission and ancillary services. One commenter 
suggested a modified Concept could provide for transmission services or 
discounted ancillary services.
    Response: Western agrees there are unique dispatching problems with 
solar and wind generation. Western also believes that the dispatching 
problems can be mitigated when the solar and wind resources are mixed 
with traditional generation resources. Western will continuously seek 
operational strategies to integrate non-hydropower renewable resources.
    Comments: A significant number of commenters stated that they 
support Western being a facilitator and providing staffing resources to 
assist those entities that are willing to purchase non-hydropower 
renewable resources at their own expense. Several commenters also 
support a ``green pricing'' alternative strategy for non-hydropower 
renewable resources.
    One comment suggested that Western participate in identifying 
locations that would be suitable for solar generation and that 
preference for solar development at Bureau of Reclamation projects 
should be extended. In addition, that commenter suggested Western 
assist its customers in surveying the environmental preferences of 
their retail users. Several commenters suggest developing a ``green 
power'' marketing program and for Western to facilitate market 
opportunities for non-hydropower renewable resources.
    Response: Commenters that agreed and disagreed with the proposed 
Concept suggest or imply that Western should facilitate non-hydropower 
renewable resource transactions and consider developing ``green power'' 
programs. Western agrees with these comments and as part of the policy 
will facilitate such services to assure renewable resources are fully 
evaluated.
    Comments: One commenter requested clarification as to whether an 
ethanol facility would qualify as a non-hydropower renewable resource 
and another commenter as to whether small wind generators would be 
considered solar power.
    Response: For purposes of this proposed Concept the ethanol 
facility would not have been considered a non-hydropower renewable 
resource and the small wind generators would have been considered wind 
generation, not solar generation.
    Policy: Western will not mandate that each project must purchase a 
portion of its firming power requirements from non-hydropower renewable 
resources. Western will continue to consider the purchase of non-
hydropower renewable resources where they are competitive with other 
supplies, consistent with Western's IRP principles.
    Western shall establish a program to facilitate the voluntary use 
of renewable resources by Western's wholesale customers. Western shall 
provide technical expertise, marketing information, and act as a 
facilitator with Western's customers and renewable energy developers. 
The goal of the program is to identify customers that desire renewable 
resources in their generation mix, and provide the technical and 
marketing assistance required for them to fully evaluate the option.

Determination Under Execution Order 12866

    DOE has determined this policy does not meet the criteria of 
Executive Order 12866 and is not a significant regulatory action. 
Western has an exemption from centralized regulatory review under 
Executive Order 12866; accordingly, no clearance of this notice by the 
Office of Management and Budget is required.

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 
Concept, Western's Administrator certified that, if promulgated, it 
would not have significant adverse economic impact on a substantial 
number of small entities. Western did not receive any comments that 
addressed the certification.

Review Under the National Environmental Policy Act

    As per Department of Energy 10 CFR 1021 National Environmental 
Policy Act (NEPA) Implementing Procedures and Guidelines; Final Rule 
and Notice section 1021.102, Applicability, this action is not a major 
federal action affecting the quality of the environment of the United 
States, and therefore no NEPA documentation is required.

Review Under Executive Order 12612

    Executive Order 12612 requires review of regulations or rules for 
any substantial direct efforts on States, on the relationship between 
National Government and the States, or on the distribution of power and 
responsibilities among various levels of Government. Western has 
assessed this policy in light of the criteria in sections 2 through 5 
of Executive Order 12612. Western has determined that its policy is 
consistent with those criteria, and that the policy will not impose 
significant costs or burdens on States or affect the States' ability to 
discharge traditional State functions.

Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1966), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation, and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by Section 3(a), section 3(b) of Executive Order 12988 
specifically requires the Executive agencies make every reasonable 
effort to ensure that the regulation: (1) clearly specifies preemptive 
effect, if any; (2) clearly specifies any effect on existing

[[Page 43055]]

Federal Law or regulations, (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. The Administrator has 
completed the required review and determined that, to the extent 
permitted by law, today's action meets the relevant standards of 
Executive Order 12988.

    Issued in Golden, Colorado, August 2, 1996.
J.M. Shafer,
Administrator.
[FR Doc. 96-21151 Filed 8-19-96; 8:45 am]
BILLING CODE 6450-01-P