[Federal Register Volume 63, Number 192 (Monday, October 5, 1998)]
[Notices]
[Pages 53409-53415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26463]


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DEPARTMENT OF ENERGY

Southeastern Power Administration


Notice of Proposed Rate Adjustment

AGENCY: Southeastern 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, on an interim basis, of Rate 
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1, 
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1. The rates were approved on an 
interim basis through September 30, 2003, and are subject to 
confirmation and approval by the Federal Regulatory Commission on a 
final basis.

DATES: Approval of rates on an interim basis is effective through 
September 30, 2003.

FOR FURTHER INFORMATION CONTACT: Leon Jourolmon, Assistant 
Administrator, Finance & Marketing, Southeastern Power Administration, 
Department of Energy, Samuel Elbert Building, 2 South Public Square, 
Elberton, Georgia 30635-2496,(706) 213-3800.

SUPPLEMENTARY INFORMATION: The Federal Energy Regulatory Commission by 
Order issued March 18, 1994, in Docket No. EF93-3011-000, confirmed and 
approved Wholesale Power Rate Schedules GA-1-D, GA-2-D, GA-3-C, GU-1-D, 
ALA-1-H, MISS-1-H, MISS-2-D, SC-3-C, SC-4-B, CAR-3-C, SCE-2-C, GAMF-3-
B. Rate schedules SOCO-1,SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, 
Duke-1, Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, 
SCE&G-1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1 replace these schedules.

    Dated: September 18, 1998.
Elizabeth A. Moler,
Deputy Secretary.

    In the matter of: Southeastern Power Administration--Georgia-
Alabama-South Carolina System Power Rates. Rate Order No. SEPA-37.

Order Confirming and Approving Power Rates on an Interim Basis

    Pursuant to Sections 302(a) and 301(b) of the Department of Energy 
Organization Act, Pub. L. 95-91, the functions of the Secretary of the 
Interior and the Federal Power Commission under Section 5 of the Flood 
Control Act of 1944, 16 U.S.C. 825s, relating to the Southeastern Power 
Administration (Southeastern) were transferred to and vested in the 
Secretary of Energy. By Delegation Order No. 0204-108, effective May 
30, 1986, 51 FR 19744 (May 30, 1986), the Secretary of Energy delegated 
to the Administrator the authority to develop power and transmission 
rates, and delegated to the Under Secretary the authority to confirm, 
approve, and place in effect such rates on an interim basis, and 
delegated to the Federal Energy Regulatory Commission (FERC) the 
authority to confirm and approve on a final basis or to disapprove 
rates developed by the Administrator under the delegation. On November 
4, 1993, the Secretary of Energy issued Amendment No. 3 to Delegation 
Order No. 0204-108, granting the Deputy Secretary authority to confirm, 
approve, and place into effect Southeastern's rates on an interim 
basis. This rate is issued by the Deputy Secretary pursuant to said 
notice.

Background

    Power from the Georgia-Alabama-South Carolina System of Projects is 
presently sold under Wholesale Power Rate Schedules GA-1-D, GA-2-D, GA-
3-C, GA-1-D, ALA-1-H, ALA-3-D, MISS-1-H, MISS-2-D, SC-3-C, SC-4-B, CAR-
3-C, SCE-2-C, and GAMF-3-B. These rate schedules were approved by the 
FERC on March 18, 1994, for a period ending September 30, 1998 (66 FERC 
62168).

Discussion

System Repayment
    An examination of Southeastern's revised system power repayment 
study, prepared in July 1998, for the Georgia-Alabama-South Carolina 
System shows that with an annual revenue increase of $1,877,000 over 
the revenues in the current repayment study using current rates, all 
system power costs are paid within the 50-year repayment period 
required by existing law and DOE Procedure RA 6120.2. The Administrator 
of Southeastern has certified that the rates are consistent with 
applicable law and that they are the lowest possible rates to customers 
consistent with sound business principles.
Public Notice and Comment
    Opportunities for Public Review and Comment on Wholesale Power Rate 
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1, 
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1, was announced by notice 
published in the Federal Register March 24, 1998. Public Information 
and Comment Forums were held April 29, 1998, in College Park, Georgia, 
and April 30, 1998, in Columbia, South Carolina, and written comments 
were invited through June 22, 1998. The notice proposed rates with a 
revenue increase of $14.6 million in Fiscal Year 1999 and all future 
years. An alternative set of rates including the costs associated with 
the Pump Storage Units at the Richard B. Russell Project was also 
proposed. There were 22 comments received and evaluated. Written 
comments were received from five (5) sources by mail and facsimile 
during the comment period. Transcripts of the Public Information and 
Comment Forums are included as Exhibits A-4-A and A-4-B. A review of 
comments is included as Exhibit A-5. The following is a summary of the 
22 comments.
Staff Evaluation of Public Comments
    1. Comment: Using the 1997 Corps of Engineers' O&M amount, which is 
significantly higher than prior years, as a base for the 1998 study 
amount for O&M yields an unrealistically high number. In computing 
Corps O&M Expense, Southeastern should take 1993-1997 average costs and 
escalate them at a rate of about 4% for 2.5 years yielding an average 
annual cost of $34,307,000.
    Response: Two responders suggested an alternative way to estimate 
Corps of Engineers O&M expenses. Because the

[[Page 53410]]

estimates provided by the Corps of Engineers were based on an 
accounting number which appears to be suspect, and because the 
accounting system that created that number is new and people do not 
feel comfortable with the accuracy of the numbers, Southeastern agrees 
that an alternative method should be used. Southeastern used a method 
that in some ways was similar to the one described in the two 
responders comments. Southeastern took the actual escalation rate for 
the 5-year period 1992 through 1996, thereby not including 1997. The 
actual rate of escalation over the 5-year period was 3.7%. Southeastern 
then escalated the actual 1996 amount of $30,461,000 at a 3.7% rate 
until half way through the cost evaluation period or midway through 
fiscal year 2001 or 4.5 years. The resultant O&M Expense is $32,784,927 
in 1998, $34,012,547 in 1999, $35,286,135 in 2000, and $35,946,773 in 
2001 to the end of the study.
    2. Comment: Corps of Engineers should analyze joint O&M costs and 
any inappropriate joint costs should be excluded.
    Response: The Corps of Engineers and Southeastern are discussing 
which of the costs that are currently recorded as Joint Costs should be 
recorded more appropriately as specific costs to purposes other than 
power. Corps of Engineers personnel believe that any decision to record 
costs to other purposes would need to be approved at the Headquarters 
level in Washington, D.C. Southeastern will continue to investigate 
methods to allocate as many costs as possible to specific purposes. 
However, Southeastern has made no modification to the present rate 
proposal in regard to this comment.
    3. Comment: The Corps of Engineers' projections of capitalized 
costs from 1999 through 2003 should be reexamined.
    Response: The Corps of Engineers reexamined the projections of the 
capitalized costs for the period 1998 through 2003. In the 
reexamination, they looked at the question of whether costs were a 
capitalized item or an expenditure. The corrected numbers are intended 
to be included when they will be capitalized and modified to be the 
Corps of Engineers' best estimate. The corrected numbers are included 
in the proposed rates. The amount of costs decreased by a total of 
about $6,000,000 for the 1998 to 2003 period.
    4. Comment: The Southeastern projections of capitalized costs at 
the Corps of Engineers' projects after 2003 should be reexamined.
    Response: Southeastern reexamined the projections of capitalized 
costs for the fiscal years after 2003. Southeastern determined that the 
in-service dates should be modified to agree with the major 
rehabilitation work currently going on. Using the original in-service 
date overlooks the current work on the system. Changing these in-
service dates meant that replacement costs for fiscal years 2004 
through 2045 decreased from $238 million to $214 million.
    5. Comment: Southeastern marketing expenses should be recalculated 
using a more normal escalation rate and escalating the costs until 
midway through the cost evaluation period.
    Response: Southeastern agrees with the comment of the responders. 
Southeastern's marketing cost used in the repayment study at the time 
of the forum included costs escalated at 6.235% until the year 2003. 
The 6.235% was the actual annual rate of escalation over the period 
from 1993 through 1997. The amount used in the earlier study was 
$3,587,892. The period used to compute the escalation rate was 
determined to be an inappropriate period because the increase in costs 
were primarily one-time costs to begin an operating center and control 
areas. Southeastern has modified its projected marketing costs by using 
the escalation rate allowed in Federal budgeting and escalating the 
costs until the midpoint of the cost evaluation period, or midway 
through fiscal year 2001. Southeastern marketing expenses are now 
estimated to be $2,698,067 in 1998, $2,733,142 in 1999, $2,823,335 in 
2000, and $2,869,920 from 2001 to the end of the study.
    6. Comment: Southeastern should review all costs to determine if 
any can be reduced or eliminated. Areas to consider include personnel, 
communications, contract maintenance, competitive resources strategy 
(CRS) services and supplies, ADP supplies and equipment, and other 
services.
    Response: Southeastern is continually looking at the 
appropriateness of the costs including those mentioned. It is 
Southeastern's position that the costs used in the past and the costs 
requested for the present and near future are necessary and are the 
lowest possible costs consistent with sound business principles.
    7. Comment: Southeastern should include additional capacity 
resulting from rehabilitation work at various projects and the revenues 
resulting from that additional capacity in the rate proposal.
    Response: Southeastern has reexamined the capacity available for 
sale because of the rehabilitation work currently in progress. We 
believe that an additional 144,000 kilowatts of capacity will be 
available because of the rehabilitation work. For the next few years 
the increased amount will help provide reserves for the time units are 
out of service because of the rehabilitation work. Therefore, in the 
years 2001 through 2003 Southeastern has included an additional 79,000 
kilowatts and in 2004 through the end of the study Southeastern has 
included an additional 144,000 kilowatts marketed in the proposed 
repayment study.
    8. Comment: Southeastern should not include Civil Service 
Retirement System costs (CSRS) and pension health benefits costs that 
are funded by the Office of Personnel Management.
    Response: The Department of Energy has made a determination that it 
is appropriate for the Power Marketing Administrations to include the 
Civil Service Retirement System costs and pension health benefits costs 
that are funded by the Office of Personnel Management in the rates 
charged to customers. Therefore, Southeastern has included the costs in 
the repayment study and thereby included them in the rates that 
Southeastern proposes to charge to the customers.
    9. Comment: Southeastern does not have legal authority to collect 
Civil Service Retirement System costs that are funded by the Office of 
Personnel Management.
    Response: One of the responders made several legal arguments 
contending the Southeastern did not have the requisite legal authority 
to collect Civil Service Retirement System costs and pension health 
benefits costs that are funded by the Office of Personnel Management 
(OPM). On July 1, 1998, the Department of Energy's General Counsel Mary 
Anne Sullivan issued a Memorandum of same date entitled ``PMA Authority 
To Collect In Rates, And Reimburse To Treasury, Government's Full Costs 
Of Post-Retirement Benefits.'' (Opinion) A copy of the Opinion is 
included as Attachment 1 to this notice, as well as part of the 
Administrator's record of decision as Exhibit A-5 filed with the 
Federal Energy Regulatory Commission (FERC) pursuant to 18 CFR 300.10 
et seq. in support of this rate action.
    Preliminarily, the Opinion relates that the Administration's FY 
1998 budget documentation states that starting in FY 1998 Southeastern 
and the three other Power Marketing Administrations (PMA's) `` `* * * 
will set rates, consistent with current law, to begin to recover the 
full cost of the Civil Service Retirement System and Post-Retirement

[[Page 53411]]

Health Benefits for its employees that have not been recovered in the 
past' ''. (Opinion, p. 1.) The Opinion notes that (1) PMA rates 
generally have not reflected the cost to the Government of the unfunded 
liability related to the Retirement Fund or post-retirement health and 
life insurance benefits, and (2) that these undercollected amounts are 
eleven percent in the case of Civil Service Retirement System 
employees. (Opinion, pp. 1 & 6)
    As a matter of background Congress addressed the problem of 
potential shortfalls * * * of funding for retiree benefits by 
authorizing a permanent indefinite appropriations to the Retirement 
Fund to finance the unfunded liability created by: (1) New or 
liberalized benefits payable from the Fund; (2) extension of coverage 
of the Fund to new groups of employees or; (3) increases in pay on 
which benefits are computed. (Opinion, p. 2), citing 5 U.S.C. 8348(f).
    The relevant statutory authority for Southeastern to set rates is 
found in the Flood Control Act of 1944 16 U.S.C. 825s (the Act), which 
applies to projects built by the Army Corps of Engineers and provides 
that rates shall be set (by Southeastern) ``* * * having regard to the 
recovery * * * of the costs of producing and transmitting such electric 
energy.'' This statutory obligation is also coupled with the obligation 
to:

    * * * transmit and dispose of such power and energy in such 
manner as to encourage the most widespread use thereof at the lowest 
possible rates to consumers consistent with sound business 
principles * * *

All PMA revenues are required to be deposited in a statutorily 
specified fund or account in the Treasury.
    The Opinion also notes that, ``pursuant to the Flood Control Act 
requirements, monies received from power rates to recover costs of 
unfunded liabilities from power marketed by Southeastern * * * would be 
deposited into the general fund of the Treasury as miscellaneous 
receipts (Opinion, p. 10).
    The Opinion recognizes that Section 5 of the Act (as to 
Southeastern) leaves considerable discretion to the Southeastern 
regarding the recovery of costs. Courts have noted the broad 
discretionary authority conferred upon the Secretary of Energy, 
Southeastern and the other PMAs regarding actions taken pursuant to the 
Act. The 9th Circuit has observed that Section 5 of the Act, ``* * * 
`breathes discretion at every pore' * * * (it) permits the exercise of 
the widest administrative discretion by the Secretary. It does not 
supply `law to apply.' '' for purposes of judicial review under the 
Administrative Procedures Act. City of Santa Clara v. Andrus, 572 F.2d 
660 at 668 (cert. den. 439 U.S. 859 (1978). See also Greenwood 
Utilities Commission v. Hodel, 764 F.2d 1459, 1464 (11th Cir. 1985) 
Electricities of North Carolina v. Southeastern Power Administration, 
774 F.D. 1262, 1267 (4th Cir. 1985).
    With recognition of the broad discretionary authority conferred by 
Section 5 of the Act, the Opinion alludes, at page 4, to a ``Reasonable 
Interpretation of `Cost.' '' It concludes that it is ``* * * reasonable 
to interpret the term `cost' in the organic statutes to include the 
total costs to the Government of post-retirement benefits for PMA-
related employees'' * * * because ``courts accord considerable weight 
to an executive department's `construction of a statutory scheme it is 
entrusted to administer,'' citing Chevron v. Natural Resources Defense 
Council, 467 U.S. 837, 844 (1984).
    Also, the Opinion notes that ``in reviewing actions of the PMA's, 
courts give substantial deference to PMA interpretations of their 
organic statutes,'' citing Department of Water & Power of the City of 
Los Angeles v. Bonneville Power Administration., 759 F.2d 684, 690-91 
(9th Cir. 1985). In addition, Alcoa v. Central Lincoln Peoples' Util. 
Dist., 467 U.S. 380, 389 (1984) is cited for the proposition that the 
``* * * courts need not find that an agency's interpretation of its 
organic statutes `is the only reasonable one, or even that it is the 
result [the court] would have reached had the question arisen in the 
first instance in judicial proceedings.' '' (Citations omitted.) The 
court ``need only conclude that the interpretation is a reasonable 
one,'' citing Chevron v. Natural Resources Defense Council, 467 U.S. at 
845.
    The Department of Energy repayment policy is set forth in 
Department of Energy Order No. RA 6120.2, dated September 20, 1979. The 
Opinion cites Section 12(a)(1) of DOE Order No. RA 6120.2 (Sept. 20, 
1979), which states that rates for a power system are ``* * * adequate 
if, and only if, a power repayment study indicates that * * * expected 
revenues are at least sufficient to recover,'' inter alia, ``* * * 
(a)ll costs of operating and maintaining the power system during the 
year in which such costs are incurred.''
    The General Counsel concludes in the Opinion that, ``On a 
practical, common sense level, there seems little room to dispute that 
the full amount of the retiree benefits is a `cost' of hiring the 
employees to operate and maintain the PMA power systems.'' (Opinion, p. 
5.) The General Counsel further reasoned that ``* * * recovering those 
costs in rates is entirely consistent with the congressional objective 
that the PMA's operate on fiscally self-supporting basis.'' Ibid, at 5. 
Also, by way of analogy, The Opinion notes that:

    Similarly, FERC has recognized that the obligation for such 
retiree benefits is legitimately treated as a cost. For example, 
FERC recognizes, as a component of cost-based rates, allowances for 
prudently incurred cost of post-retirement benefits other than 
pensions (PBOPs) that are consistent with the accounting principles 
set forth in FASB Statement No. 106 (1991) 61 FERC para. 61,330, at 
62,200 (1992). Opinion, p. 5.

    The Opinion also notes that, at present, the ``four PMA's are 
recovering in rates the cost of their own direct contributions to the 
three OPM funds with respect to their own employees'' as well as 
``power-related generation and maintenance expenses of the Corps * * 
*.'' Such Corps costs ``include contributions'' by the Corps of 
Engineers ``to the OPM Funds to the extent Corps of Engineers employees 
conduct these functions.'' The Opinion concludes that ``[t]hus there is 
no question as to the authority to include in rates the agency funded 
contributions to these funds.'' (Opinion, p. 6). It also notes that 
although ``PMA rates generally have not reflected the cost to the 
Government of the unfunded liability related to the Retirement Fund or 
post-retirement health and life insurance benefits,'' however the 
``Alaska Power Administration, has recovered these costs in rates since 
FY 1991.'' Also, the Western Area Power Administration rates included 
these costs for two years (FY 1992 and 1993). (Opinion, p. 6).
    Western Area Power Administration included retirement costs as a 
function of operation and maintenance expense. Notice of proposed Salt 
Lake City Integrated Project Rates (56 FR 47203; September 18, 1991); 
and Notice of Boulder Canyon Project Rate Adjustment (57 FR 61,074, 
61,080, December 23, 1992).
    DOE's Order RA No. 6120.2 holds power rates are adequate only it 
they recover all costs of operating and maintaining the power system. 
Employee salaries and post-retirement personnel benefits are in 
Southeastern's opinion in the nature of operating costs.
    The General Counsel elaborates by stating:

    The relevant statutory text provides that the PMA's must set 
rates that fully recover costs. Because the statutes provide 
direction as to how the agencies are to interpret the term ``costs'' 
and leave considerable discretion to the PMAs (including

[[Page 53412]]

Southeastern) in applying the standard, it is entirely reasonable 
for the PMAs to interpret costs to include all employer costs of 
employee retirement benefits. The PMA rate practices to date 
acknowledge that PMA customers bear responsibility for some of the 
Government's costs of post-retirement benefits for PMA employee and 
for the power operations employees of the Bureau (of Reclamation) 
and the Corps. DOE policy, (Financial Accounting Standards Board) 
FASB principles, and FERC ratemaking policy indicate the inclusion 
in rates applicable for a given period of all employer costs 
accruing in that period is a reasonable interpretation of the 
statutory obligation to recover costs. A reasonable interpretation 
adopted by DOE and the PMA's is entitled to judicial deference. On 
these grounds, we conclude that it is within the discretion of the 
PMA Administrators to include in rates the allocated 
undercollections for post-retirement benefits. (Opinion, pp. 6-7).

The General Counsel also determined that the ``flow of rate revenues 
for * * * Southeastern * * * is governed by the Flood Control Act of 
1944'' which provides that ``[a]ll moneys received from * * * 
(electric) sales shall be deposited in the Treasury of the United 
States as miscellaneous receipts.'' 16 U.S.C. 825s and that, ``any 
monies received in rates to recover the costs of unfunded liabilities 
would be deposited directly into the miscellaneous receipts fund of the 
Treasury, and could not be expended without further appropriation. See 
31 U.S.C. 3302(b).'' (Opinion, p. 7). For these reasons, Southeastern 
has included these costs in the repayment study and in the rates that 
Southeastern proposes to charge the customers.
    10. Comment: FERC ratemaking requirements imposed upon regulated 
electric and natural gas utilities derived from Statement 106 of the 
Financial Accounting Standards Board (FASB) including establishment of 
an ``irrevocable external trust fund'' to receive monies collected as 
post-retirement benefit costs in these rates should apply to 
Southeastern and the other PMAs.
    Response: At the outset it should be recognized that the 
jurisdiction conferred by The Federal Power Act (FPA) (18 U.S.C. 824 et 
seq.) upon FERC to regulate electric and natural gas public utilities 
does not apply to the PMAs. Jurisdiction to review PMA rates is 
conferred and limited by a delegation from the Secretary of Energy to 
FERC. See Department of Energy Delegation Order No. 0204-108, as 
amended. 58 F. R. 59716 (November 10, 1993). For example, the 
Commission recognizes that, as to the FPA's prohibition regarding 
``retroactive ratemaking'', ``* * * [it] does not apply to PMAs 
including Southeastern (Power Administration), that operate subject to 
a different statutory and regulatory scheme''. U.S. Department of 
Energy--Southeastern Power Administration 55 FERC para. 61, 016, p. 
61045 (1991), appeal pending sub nom. Central Electric Power Corp. v. 
Southeastern, Civil No. 3-91-2449-0 (D. S. C. Filed August 15, 1991). 
See also: US Department of Energy-Southwestern Power Administration, 56 
FERC para. 61,398, p. 62,469 (1991) and U.S. Department of Energy, 
Western Area Power Administration, 65 FERC para. 61,186, p. 61,914 
(1993). Since Southeastern is not a regulated public utility under the 
FPA, the ratemaking requirements of FERC advocated by the responder 
should not be applied herein.
    Also because Southeastern is required by Flood Control Act of 1944 
as well as the Miscellaneous Receipts Act (31 U.S.C. 3302) to deposit 
all monies received to the Treasury of United States as miscellaneous 
receipts, it is not possible for Southeastern to establish an 
``irrevocable external trust fund'' for these monies as FERC has in 
some instances required of regulated electric and gas public utilities.
    11. Comment: Collection of full CSRS costs as proposed in 
Southeastern's rates and deposit to the U.S. Treasury will constitute 
an illegal augmentation of appropriations.
    Response: Although the Opinion does not directly address this 
comment, it noted, however, that, ``In 1969, Congress addressed the 
problem of potential shortfalls in the sufficiency of funding for 
retiree benefits by authorizing a permanent indefinite appropriation 
for transfer of general funds from the Treasury,'' (Opinion p. 2), 
citing 5 U.S.C. 8348(f). The Opinion concludes that the 1969 Act 
``authorizes appropriations to the Retirement Fund to finance the 
unfunded liability created by new or liberalized benefits payable from 
the Fund, extension of the coverage of the Fund to new groups of 
employees, or increases in pay on which benefits are computed.'' 
(Opinion, p.2.)
    It was found that, ``All PMA rate revenues are required to be 
deposited in a statutorily specified fund or account of the Treasury,'' 
and that ``(p)ursuant to Flood Control Act requirements, monies 
received from power rates to recover costs of unfunded liabilities from 
power marketed by Southeastern and SWPA'' are to ``* * * be deposited 
into the general fund of the Treasury as miscellaneous receipts.'' The 
Opinion concludes that such deposits to miscellaneous receipts would 
``therefore offset the appropriation for unfunded liability made to the 
OPM Funds,'' from the general fund of the Treasury. (Opinion p.10).
    By adoption of Public Law 91-93 of Oct. 20, 1969, 5 U.S.C. 8348 (f) 
and (g), ``Congress made it clear that increases in the unfunded 
liability of the Civil Service Retirement Fund were not to be 
permitted.'' In the matter of Dr. Katsura Fukui, (B-191321), 58 Comp. 
Gen. 115, 118 (November 30, 1978). The Comptroller General explained 
such unfunded liability would be avoided by the addition of subsections 
(f) and (g) of the 1969 Act which authorizes appropriations to the 
Civil Service Retirement Fund to fund the ``new liability'' under ``any 
statute authorizing new or more liberal annuity payments, extension of 
retirement coverage to new groups, or increases in the pay used to 
compute retirement benefits.'' Id. at p. 118. The Comptroller General 
also said that ``Taken together, these provisions express a 
congressional mandate limiting further increases to the unfunded 
liability of the Retirement Fund.'' See Senate Report 91-339, 91st 
Cong., 1st Sess., August 1, 1969. Id.
    Since Congress provided for a permanent indefinite appropriations 
(ie: without imposing a dollar ceiling on a particular fund) for the 
transfer of general funds from the Treasury to address the unfunded 
utility of the CSRS, the augmentation of appropriations prohibition 
would not apply. Rather the reason for such a prohibition is to:

    ``* * * protect Congress' power of the purse and its prerogative 
to determine the level at which an agency of Federal program may 
operate.'' See Nolan: Public Interest, Private Income: Conflicts and 
Control Units on the Outside Income of Government Officials, 87 Nw. 
U. L. Rev. 57, 122 (1992).

    Again, in this instance, Congress has addressed an ongoing problem 
by placing no dollar limits on appropriations from the general fund (or 
derived from miscellaneous receipts) to assure full funding of these 
employee benefits. Southeastern is depositing the revenues to 
miscellaneous receipts, no funds are remitted to OPM, and therefore 
there is no augmentation of appropriations.
    12. Comment: Southeastern's proposed increase in PMA rates to 
collect post-retirement benefits is an unexplained departure from 
previous interpretations.
    Response: The Opinion acknowledges Congress's 1969 effort to 
address the ongoing problem of agencies' underfunding of retiree 
benefits under the Civil Service Retirement Act and other acts. 
(Opinion, p. 2) The Opinion concludes `` * * *that the PMA's have 
sufficient statutory authority to include

[[Page 53413]]

these costs in their rates and can deposit such funds into an 
appropriate Treasury account so as to effectively offset the 
appropriations made to the OPM funds from which these post-retirement 
costs are paid to retirees.'' Id., at p. 2. By passing Public Law 91-93 
of Oct. 20, 1960, (5 USC 8348 (f) & (g)) Congress made it clear that 
further increases in the unfunded liability of the Civil Service 
Retirement Fund were not to be permitted and, as demonstrated in the 
legislative history, there is a Congressional mandate limiting such 
increases in unfunded liability. See Senate Report 91-339, 91st 
Congress 1st Sess., August 1, 1969.
    The Southeastern Power Administration like non-Federal enterprises 
must be mindful of the Generally Accepted Accounting Principles adopted 
by the Financial Accounting Standards Board. PMAs are required by 
Section 6(a) of DOE Order No. RA 6120.2 to use ``accounting practices'' 
in ``accordance'' with Financial Accounting Standards Board principles. 
FERC, for example, regards RA 6120.2 and its accounting principles and 
Financial Standards as a substantive regulation binding upon BPA when 
FERC reviews BPA's rates under Section 7(a)(2) of the Northwest Power 
Act, 16 U.S.C. 839(e)(a)(2). See: U.S. Department of Energy, Bonneville 
Power Administration 72 FERC para. 62,045, p. 64,064, fn. 4 (1995); 67 
FERC para. 61,351, p. 62,217, fn. 8 (1994); 65 FERC para. 62,179, p. 
64,396, fn. 4 (1993); and 64 FERC para. 61,375, p. 63,606, fn. 5 
(1993).
    In the view of Southeastern and DOE, Section 6(a) of DOE Order No. 
RA 6120.2 requires the PMAs to use accounting practices consistent with 
the Generally Accepted Accounting Principles prescribed by the 
Financial Accounting Standards Board. The requirement to set rates 
consistent with this DOE order has been judicially recognized. E.g. 
Overton Power Dist. No. 5 v. Watkins, 829 F. Supp.1523, 1530 n.5 (D. 
Nev.1993).
    The Financial Accounting Standards Board (FASB) in December 1985 
established standards for financial reporting and accounting of 
employee pension benefits. The standard is Statement of Accounting 
Standards No. 87 (FAS 87). Under FAS 87, ``a company must recognize 
future pension benefits earned by current employees as current pension 
costs rather than when the pension benefits are actually paid.'' 
Southwestern Bell Telephone Co., Missouri Public Service Commission. 
(case No. TC-93-224), 2 Mo. P.S.C. 3d 479; 1993 Mo. P.S.C. Lexis 62 
(Dec. 17, 1993).
    The Opinion, likewise, notes FAS 87, stating (1) ``The Financial 
Accounting Standards Board (FASB)'' by ``FASB Statement No. 87 (1990)'' 
has ``issued rules and audit procedures for pensions'' and that (2) 
``FASB 87 recognizes that unfunded pensions promised to current and 
retired employees are actual liabilities'' so that there must be 
``recognition as a cost in any period of ``the actuarial present value 
of benefits attributed by the pension benefit formula to employee 
service during the period.'' Opinion at p. 5, f.n. 5.
    In 1991, the Financial Accounting Standards Board issued FAS No. 
106, (``FAS 106''). This ``changes generally accepted accounting 
principles * * * for post-retirement, medical and life insurance 
benefits from accounting on a pay-as-you-go basis to an accrual 
basis.'' Pennsylvania Public Utility Commission v. Metropolitan Edison 
Company. Case No. R-00922314) 78 Penn, PUC 124; 141 P.U.R. 4th 336 
(January 21, 1993).
    Prior to FAS 106, ``most companies expensed these benefits as they 
were paid.'' Puget Sound Power and Light Co., (Docket No. UE-920433) 
(Washington Utilities and Transportation Commission), 147 P.U.R. 4th 80 
(September 21, 1993).
    In this connection, it should be noted that the Federal Government 
since 1969 has operated in essentially the same manner. It has 
established a general indefinite appropriation from the Federal 
Treasury to the Civil Service Retirement Fund of amounts needed to fund 
retiree benefits not covered by employer-employee contributions to the 
Fund.
    The Opinion also addressed FAS 106, stating: ``the FASB in 
``December 1990'' by ``FASB Statement No. 106'' recognized post-
retirement benefits to be broader than simply pensions.'' The General 
Counsel stated, the FASB issued ``standards, regarding post-retirement 
benefits other than pensions,'' and that ``post-retirement benefits 
include post-retirement health care and life insurance provided outside 
a pension plan to retirees * * *.'' (Opinion, p. 5, fn. 5).
    The General Counsel concluded stating that, ``(a) post-retirement 
benefits are part of the compensation paid to an employee for services 
rendered,'' citing FASB 106.18. (Ibid at 5, fn. 5). This was so because 
the General Counsel was of the view that (1) ``the (FASB) believes that 
the cost of providing the benefits should be recognized over those 
employee service periods,'' citing FASB 106.03 and (2) ``(b)ecause the 
obligation to provide benefits arises as employees render services.'' 
(Opinion, p. 5, f.n. 5).
    Southeastern did not in prior rate proceedings include the unfunded 
portion of employee benefit costs in its rates. It does so now in light 
of Administration policy as set forth in and confirmed by General 
Counsel Sullivan's Opinion.
    Also, the non-collection of these costs by the PMAs has recently 
received ongoing congressional scrutiny and criticism. See e.g.: 
Reports of United State General Accounting Office: Power Marketing 
Administrations: Repayment of Power Cost Need Closer Monitoring (GAO/
AIMED-98-164, June 30, 1998), Federal Electricity Activities: The 
Federal Government's Net Cost and Potential for Future Losses, volumes 
1 and 2 (GAO/AIMD-97-110 and 110A, September 19, 1997), Addressing The 
Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year 
1998 (GAO/O.G.-97-2, March 14, 1997), Power Marketing Administrations: 
Cost Recovery Financing, and Comparison to Nonfederal Utilities, (GOA/
AIMD-96-145, September 19, 1996). The Opinion also acknowledges the 
Administration's FY 1998 budget documentation that states that, 
``starting in FY 1998'' Southeastern (and two other PMAs) ``* * * will 
set rates, consistent with current law, to begin to recover the full 
cost of the Civil Service Retirement system and post-retirement health 
benefits for its employees that have not been recovered in the past.'' 
(Opinion, p. 1). This seems to implement the 1969 Congressional effort 
to deal with ongoing underfunding problems in this regard.
    The Opinion reviews; (1) legal and statutory authorities; (2) 
establishment of a reasonable interpretation of ``cost'; and (3) DOE 
and FERC policy on ratemaking and rate practices of PMAs. The Opinion 
states that:

    Given the PMA's previous practice of not securing recovery in 
rates of the unfunded portion of employee retirement benefits, it 
may be argued that the PMAs' inclusions of such costs now would 
represent a change in agency interpretation. We do not understand 
this practice, however, to have been premised on an articulated 
legal judgment that it would be legally impermissible. (Opinion, 
p.).

    The Opinion further states in regards to current and past rate 
practices of PMAs that:

    At present, the four PMA's are recovering in rates the cost of 
their own direct contributions to the three OPM funds with respect 
to their own employees. They also are recovering in rates the power-
related operation and maintenance expenses of the Corps and the 
Bureau, which we understand to include contributions by those two 
agencies to the OPM funds to the extent that

[[Page 53414]]

their employees conduct these functions. Thus, there is no question 
as to the authority to include in rates the agency-funded 
contributions to these funds.
    The PMA rates generally have not reflected the cost to the 
Government of the unfunded liability related to the Retirement fund 
or post-retirement health and life insurance benefits. However, the 
Alaska Power Administration has recovered these costs in rates since 
FY 1991, and WAPA rates included these costs for two years (FY 1992 
and FY 1993). (Opinion, p. 6)

Given the current and prior recoveries of these funds it is clear that 
no ``articulated legal judgment'' was in place to bar to the inclusion 
of such costs in rates. Rather the proposal here is to comply with a 
congressional mandate that these costs be recovered in accordance with 
the law and DOE Order No. RA 6120.2 that Southeastern establish its 
rates in accordance with generally accepted accounting principles as 
enunciated by the Financial Accounting Standards Board.
    13. Comment: The estimates of the CSRS costs and pensions health 
benefits cost that are funded by the Office of Personnel Management are 
not accurate.
    Response: Southeastern estimated the CSRS and pensions health 
benefits cost of the Corps of Engineers and Southeastern that are 
funded by the Office of Personnel Management by analyzing the 
computation of the General Accounting Office discussed in their report 
Power Marketing Administrations: Cost Recovery Financing, and 
Comparison to Nonfederal Utilities (GAO/AIMD-96-145). The relevant 
excerpt from this General Accounting Office Report is designated 
Appendix III at page 100 of the Report. The GAO ``Estimated 1995 
Pension and Postretirement Health Benefit Costs Not Recovered from 
Power Customers.'' They state ``GAO estimates based on information 
provided by the PMA's, operating agencies and OPM.'' Southeastern 
recomputed the data using similar methodology. Southeastern received 
data on the hours allocated to power at the different projects in the 
Georgia-Alabama-South Carolina System and the percentage of employees 
that are covered by the CSRS for fiscal year 1995. Health Benefits were 
estimated by multiplying the number of Full Time Equivalents (FTEs) for 
Southeastern and the Power FTEs for the Corps of Engineers by the 
Federal Employee Health Benefits Plan (FEHBP) participation percentage 
(82%). The product was then multiplied by $1,973, which is the FY 1995 
estimated cost of post-retirement health benefits provided to GAO by 
the OPM. The estimated annual health benefits costs for Southeastern 
and the Corps are $565,000 per year ($61,000 for Southeastern, $504,000 
for the Corps). CSRS costs were estimated by multiplying the 
Southeastern and Corps payroll expenses for FTEs covered under CSRS 
times the estimated percentage shortfall by which combined employee and 
employer contributions toward CSRS pensions fell short of the normal 
cost of these pensions in FY 1995. The estimated percentage shortfall 
as provided by OPM for 1995 was 11.14 per cent. The estimated annual 
unrecovered pension benefits costs for Southeastern and the Corps are 
$970,000 per year ($109,000 for Southeastern, $861,000 for the Corps). 
The total estimated annual expenses for CSRS and pension health 
benefits for Southeastern and the Corps is $1,535,000 per year. 
Southeastern and the other Power Marketing Administrations are 
requesting more accurate numbers from the Corps of Engineers in the 
future.
    14. Comment: Richard B. Russell pumped storage unit costs should be 
included only if the units are declared commercially operable first.
    Response: One responder made several legal arguments about the 
ability of Southeastern to include the costs of the pumping units at 
the Richard B. Russell project prior to the time that the project is 
declared commercially operable. Southeastern has made no attempt to 
determine whether it is possible to include the costs in the study. 
However, Southeastern agrees with the responder that the project should 
be declared commercially operable before the costs are included in the 
repayment study. Accordingly the costs of the pumping units at the 
Richard B. Russell have not been included because the present estimate 
of the earliest time that the units could be declared commercially 
operable is after September 30, 1998. Southeastern will file for 
increased rates that include the costs of the pumping units as soon as 
the units are declared commercially operable.
    15. Comment: If the Richard B. Russell pumped storage units costs 
are included, they should be phased in over a 5 year period.
    Response: Southeastern has determined not to include the costs of 
the pumping units in the present rate adjustment. At the time of the 
next rate proposal, interested parties will have the opportunity to 
comment on the advisability of phasing in the rate increase.
    16. Comment: If the Richard B. Russell pumped storage units costs 
are included, Southeastern should review the costs with the Corps of 
Engineers to make sure they are appropriate.
    Response: Southeastern has determined not to include the costs of 
the pumping units in the proposed rates.
    17. Comment: If the Richard B. Russell pumped storage units costs 
are included, the environmental litigation and mitigation costs should 
not be included in the amount allocated to power.
    Response: Southeastern has made no attempt to determine the 
environmental litigation and mitigation costs and whether they should 
be included in the rates. Southeastern believes this issue should be 
addressed when the costs are included in a future rate filing.
    18. Comment: If the Richard B. Russell pumped storage units costs 
are included, the interest during construction from the period from 
March 1993 until the units are declared commercially operable should 
not be allocated to power and should not be recovered in the rates.
    Response: This issue is under discussion between the Corps of 
Engineers and Southeastern. Southeastern believes this issue should be 
readdressed when the costs are included in a future rate filing.
    19. Comment: If the Richard B. Russell pumped storage units costs 
are included, the repayment study should be corrected to show that 260 
megawatts will be marketed.
    Response: Southeastern is in the process of examining the reserves 
and losses in all marketing areas of the Georgia-Alabama-South Carolina 
System. If reserves or losses have been inappropriately taken out of 
the capacity marketed Southeastern will restore them.
    20. Comment: Southeastern should demonstrate that depreciation and 
interest for marketing expense capital expenditures are included in 
Southeastern's marketing expense component of the rate and not the 
capital expenditure lump sum.
    Response: Financial statements for the Southeastern Federal Power 
Program are prepared in accordance with Generally Accepted Accounting 
Principles, including computation of depreciation and interest in 
Southeastern marketing expense and capitalizing items with a useful 
life of more than one year. Southeastern has received an unqualified 
opinion from its auditors since 1991.
    21. Question: Does Southeastern foresee any other specific changes 
which would affect marketing expense, but are not in the 1999-2003 
study?

[[Page 53415]]

    Response: Marketing expenses have been changing markedly over the 
past few years primarily because of the Open Access Tariff orders 
promulgated by the Federal Energy Regulatory Commission. These changes 
have been complex and dramatic. Southeastern believes that changes like 
these may continue because of the volatility of the industry. However, 
Southeastern does not know of any specific changes which would affect 
the marketing expense.
    22. Comment: Southeastern should return the losses to the customers 
that gave up the losses beginning in October 1, 1996.
    Response: Southeastern agrees and plans to return the capacity to 
the customers in the Southern Company area during fiscal year 1999. The 
repayment study includes the return of the capacity effective the 
beginning of fiscal year 2000.

Environmental Impact

    Southeastern has reviewed the possible environmental impacts of the 
rate adjustment under consideration and has concluded that, because the 
adjusted rates would not significantly affect the quality of the human 
environment within the meaning of the National Environmental Policy Act 
of 1969, the proposed action is not a major federal action for which 
preparation of an Environmental Impact Statement is required.

Availability of Information

    The rates hereinafter confirmed and approved on an interim basis, 
together with supporting documents, will be submitted promptly to the 
Federal Energy Regulatory Commission for confirmation and approval on a 
final basis for a period beginning on October 1, 1998, and ending no 
later than September 30, 2003.

Order

    In view of the foregoing and pursuant to the authority delegated to 
me by the Secretary of Energy, I hereby confirm and approve on an 
interim basis, effective October 1, 1998, attached Wholesale Power Rate 
Schedules SOCO-1, SOCO-2, SOCO-3, SOCO-4, ALA-1-I, MISS-1-I, Duke-1, 
Duke-2, Duke-3, Duke-4, Santee-1, Santee-2, Santee-3, Santee-4, SCE&G-
1, SCE&G-2, SCE&G-3, SCE&G-4, and Pump-1. The Rate Schedules shall 
remain in effect on an interim basis through September 30, 2003, unless 
such period is extended or until the FERC confirms and approves them or 
substitute Rate Schedules on an final basis.

    Dated: September 18, 1998.
Elizabeth A. Moler,
Deputy Secretary.
[FR Doc. 98-26463 Filed 10-2-98; 8:45 am]
BILLING CODE 6450-01-P