[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6344-6351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3114]


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DEPARTMENT OF ENERGY

Western Area Power Administration
[Rate Order No. WAPA-76]


Pacific Northwest-Pacific Southwest Intertie Project--Point-To-
Point Transmission Service Rates for the 230/345-kV Transmission 
System--Rate Order No. WAPA-76

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 Acting 
Deputy Secretary of the Department of Energy (DOE) of Rate Order No. 
WAPA-76 and Rate Schedule INT-FT3 placing provisional rates for the 
230/345-kV Pacific Northwest-Pacific Southwest Intertie Project (AC 
Intertie) firm point-to-point transmission service into effect on an 
interim basis. The provisional rates will remain in effect on an 
interim basis until the Federal Energy Regulatory Commission (FERC) 
confirms, approves, and places them into effect on a final basis or 
until they are replaced by other rates. The provisional rates will 
provide sufficient revenue to pay all annual costs, including interest 
expense, and repayment of required investment within the allowable 
period.

DATES: The provisional rates will be placed into effect on an interim 
basis on January 1, 1999, and will be in effect until FERC confirms, 
approves, and places the provisional rates in effect on a final basis 
for a 5-year period ending December 31, 2003, or until superseded.

FOR FURTHER INFORMATION CONTACT: Mr. Maher A. Nasir, Rates Team Lead, 
Desert Southwest Customer Service Region, Western Area Power 
Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, telephone (602) 
352-2768.

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved the 
existing Rate Schedule INT-FT2 for AC Intertie firm transmission 
service on January 31, 1996 (Rate Order No. WAPA-71, 61 FR 4650, 
February 7, 1996); and FERC confirmed and approved the rate schedule on 
July 24, 1996, under FERC Docket No. EF96-5191-000 (76 FERC para. 
62,061). The existing Rate Schedule INT-FT2 became effective on 
February 1, 1996, for the period ending September 30, 2002. Rate 
Schedule INT-FT2 provides separate rates for firm transmission service 
on the AC Intertie 230/345-kV transmission system and AC Intertie 500-
kV transmission system. This Rate Order (WAPA-76) seeks to put into 
place Rate Schedule INT-FT3 that will supersede Rate Schedule INT-FT2 
as it relates to 230/345-kV firm transmission service only. Under Rate 
Schedule INT-FT3, the firm point-to-point transmission service rate on 
the AC Intertie 230/345-kV transmission system on January 1, 1999, is 
$12.00/kW/year or $1.00/kW/month and includes the cost for the 
ancillary service of scheduling, system control and dispatch service. 
The remaining ancillary services, which comply with FERC Order Nos. 888 
and 888-A, will be provided through Western Area Power Administration's 
(Western) Open Access Transmission Service Tariff, published on January 
6, 1998 (63 FR 521). The provisional rate of $12.00/kW/year represents 
an increase of approximately 82 percent over the existing rate for firm 
transmission service on the AC Intertie 230/345-kV transmission system.
    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 of Energy; and (3) the authority to 
confirm, approve, and place into effect on a final basis, to remand, or 
disapprove such rates to FERC.
    Rate Order No. WAPA-76 was prepared pursuant to Delegation Order 
No. 0204-108, existing DOE procedures for public participation in power 
rate adjustments in 10 CFR Part 903, and procedures for approving Power 
Marketing Administration rates by the FERC in 18 CFR Part 300. Rate 
Order No. WAPA-76, confirming, approving, and placing the proposed AC 
Intertie 230/345-kV transmission system firm point-to-point 
transmission service rate into effect on an interim basis, is issued, 
and the new Rate Schedule INT-FT3 will be submitted promptly to FERC 
for confirmation and approval on a final basis.


[[Page 6345]]


    Dated: January 28, 1999.
Ernest J. Moniz,
Acting Deputy Secretary.

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

January 1, 1999.
    These rates are developed pursuant to the Department of Energy 
Organization Act (42 U.S.C. 7101 et seq.), through which the power 
marketing functions of the Secretary of the Interior and the Bureau of 
Reclamation under the Reclamation Act of 1902 (43 U.S.C. 371 et seq.), 
as amended and supplemented by subsequent enactments, particularly 
section 9c 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 
November 10, 1993 (58 FR 59716), the Secretary delegated: (1) the 
authority to develop long-term power and transmission rates on a non-
exclusive basis to the Administrator of 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 of Energy; and (3) the authority to confirm, approve, and 
place into effect on a final basis, to remand, or to disapprove such 
rates to the Federal Energy Regulatory Commission (FERC). Existing DOE 
procedures for public participation in power rate adjustments are found 
at 10 CFR Part 903. Procedures for approving Power Marketing 
Administration rates by FERC are found at 18 CFR Part 300.

Acronyms and Definitions

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

AC:  Alternating Current.
AC Intertie:  Pacific Northwest-Pacific Southwest Intertie Project.
Administrator:  The Administrator of Western Area Power Administration 
(Western).
BPA:  Bonneville Power Administration.
Existing PRS:  The PRS used in this rate order, which was used to test 
the adequacy of the existing rate.
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 and rate-making procedures.
DSW:  Desert Southwest Customer Service Region.
FERC:  Federal Energy Regulatory Commission.
FRN:  Federal Register notice.
FY:  Fiscal Year.
kV:  Kilovolt.
kW:  Kilowatt.
$/kW/year:  Annual charge for capacity usage--($ per kilowatt per 
year).
kWh:  Kilowatthour.
LCRBDF:  Lower Colorado River Basin Development Fund established under 
Section 403 of the Colorado River Basin Project Act of 1968 (82 Stat. 
885).
MAP:  Mead-Adelanto Project. A 500-kV transmission system joint 
participation construction project with termination points in southern 
Nevada and southern California.
MPP:  Mead-Phoenix Project. A 500-kV transmission system joint 
participation construction project with termination points in Phoenix, 
Arizona and southern Nevada.
mills/kWh:  Mills per kilowatthour.
Multi-Project Costs:  These are costs for facilities being charged to 
one project that benefit other projects.
MW:  Megawatt.
O&M:  Operations and Maintenance.
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 demonstrates that potential revenue 
levels will satisfy the cost.
Reclamation:  Bureau of Reclamation.
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.
Retirement Benefits:  Civil Service Retirement Costs and Post 
Retirement Health Benefits.
Secretary:  Secretary of Energy.
Western:  Western Area Power Administration.

Effective Date

    The new rate will become effective on an interim basis on the first 
day of the first full billing period beginning on or after January 1, 
1999, and will be in effect pending FERC's approval of it or a 
substitute rate on a final basis for the 5-year period ending December 
31, 2003, or until superseded. Western is implementing a rate for firm 
point-to-point transmission service on the AC Intertie 230/345-kV 
transmission system only.

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 point-to-point transmission 
service rate. The provisional firm point-to-point transmission service 
rate for the AC Intertie 230/345-kV transmission system represents a 
rate increase of 82 percent over the existing rate. This rate is 
classified as a major rate adjustment as defined at 10 CFR Part 
903.2(e) and 903.2(f)(1). The distinction between a minor and a major 
rate adjustment is used only to 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 April 
28, 1997, at the Desert Southwest Customer Service Region (DSW) office 
located in Phoenix, Arizona. Approximately 13 customers of the AC 
Intertie were present. Western explained the need for the proposed rate 
adjustment and answered questions from those attending.
    2. Western held its second informal public information meeting on 
June 25, 1997, at the DSW office. Approximately 11 customers of the AC 
Intertie were present. Western staff provided and discussed responses 
to data requested at the first informal public meeting.
    3. Western held its third informal public information meeting on 
July 24, 1997, at the DSW office. Approximately 20 customers of the AC 
Intertie were present. Western staff provided and discussed responses 
to data requested at the second informal public meeting.
    4. Western provided responses to the questions and comments raised 
at the third informal customer information meeting by letter dated 
January 12, 1998.
    5. On April 3, 1998, Western announced in Federal Register notice 
(FRN) 63 FR 16497 the start of the public process for the approval of 
the proposed AC Intertie 230/345-kV transmission system firm point-to-
point transmission service rate. The FRN identified the end of the 
consultation and comment period as July 2, 1998.
    6. On May 4, 1998, beginning at 10 a.m., a public information forum 
was held at Western's DSW office. At the start of the forum, a handout 
containing

[[Page 6346]]

information regarding the updated rate was provided. Western publicly 
presented the Proposed Rate for the AC Intertie 230/345-kV transmission 
system, provided a detailed explanation of the changes to the Proposed 
Rate, and answered questions from the public. On May 20, 1998, a 
letter, responding to questions not answered at the public information 
forum, was mailed to the AC Intertie customers.
    7. On June 1, 1998, beginning at 10 a.m., a public comment forum 
was held at Western's DSW office. Western gave the public an 
opportunity to comment for the record, verbally and in written form. 
Eight representatives made oral comments.
    8. Twenty-four comment letters were received during the 
consultation and comment period. The consultation and comment period 
ended July 2, 1998. All formally submitted comments have been 
considered in the preparation of this rate order.

Project Description

    The AC Intertie was authorized by section 8 of the Pacific 
Northwest Power Marketing Act of August 31, 1964. Originally, the AC 
Intertie was to be a combined Alternating Current (AC) and Direct 
Current (DC) system which was to connect the Pacific Northwest with the 
southwest regions of the United States. As authorized, the overall 
project was to be a cooperative construction venture between Federal 
and non-Federal entities. In May 1969, the Department of the Interior 
indefinitely postponed construction because of several delays in 
congressional funding, revising the DC line's estimated in-service date 
to the point that some of the potential users withdrew their interest. 
Consequently, the facilities constructed provide only AC transmission 
service.
    Western's portion of the AC Intertie consists of two parts, a 
northern portion and a southern portion. The northern portion is 
administered by Western's Sierra Nevada Customer Service Region and is 
incorporated, for repayment, with the Central Valley Project. The 
northern portion consists of a 94-mile (151 km), 500-kV line from Malin 
Substation (Oregon) to Round Mountain to Cottonwood Substation 
(California). By agreement, the Central Valley Project has transmission 
rights for 400 MW of northern Intertie capacity.
    The southern portion is administered by Western's DSW office and is 
treated as a separate project for repayment and operational purposes. 
It consists of a 238-mile (383 km) 345-kV line from Mead Substation 
(Nevada) to Liberty Substation (Arizona), a 19-mile, (31 km) 230-kV 
line from Liberty to Westwing Substation (Arizona), a 22-mile (35 km), 
230-kV line from Westwing to Pinnacle Peak Substation (Arizona), and 
two new segments which came on-line in April 1996: the 260-mile (419 
km) Mead-Phoenix 500-kV AC Transmission Line between Marketplace 
Substation (Nevada) and Perkins Substation (Arizona) and the 202-mile 
(325 km) Mead-Adelanto 500-kV AC Transmission Line between Marketplace 
Substation and the existing Adelanto Switching Substation in southern 
California.

Existing and Provisional Rates

AC Intertie Project Firm Point-to-Point Transmission Service
    The following table displays the existing rates and the Provisional 
Rates for the AC Intertie 230/345-kV transmission system:

                                Existing Point-to-Point Transmission Service Rate
[AC intertie 230/345-kV transmission system rate schedule firm point-to-point transmission rate ($ per kW/year)]
----------------------------------------------------------------------------------------------------------------
                                         Existing  (effective 10/                               Percent change
           Effective period                 01/96 to 09/30/02)            Provisional         from existing rate
----------------------------------------------------------------------------------------------------------------
01/01/99 to 12/31/03..................  $6.58/kW/Year............  $12.00/kW/Year...........               82.0
----------------------------------------------------------------------------------------------------------------

Certification of Rate

    Western's Administrator has certified that the AC Intertie 230/345-
kV transmission system firm point-to-point transmission service rate 
placed into effect on an interim basis herein is the lowest possible 
rate consistent with sound business principles. The Provisional Rate 
has been developed in accordance with administrative policies and 
applicable laws.

Discussion

AC Intertie Transmission Service
    The existing AC Intertie transmission service rate schedule was 
placed into effect on February 1, 1996, under Rate Order WAPA-71 (61 FR 
4850) until September 30, 2002, and was approved on a final basis by 
FERC on July 24, 1996. Under Rate Order WAPA-71, three types of 
transmission service rates were approved and they are: (1) a rate for 
firm transmission service on the AC Intertie 230/345-kV transmission 
system; (2) a rate for firm transmission service on the AC Intertie 
500-kV transmission system; and (3) a rate for non-firm transmission 
service on both the 230/345-kV and the 500-kV transmission systems. 
Western proposes, through Rate Order WAPA-76, to supersede only the 
rate for firm transmission service on the AC Intertie 230/345-kV 
transmission system placed in effect under Rate Order WAPA-71.
Basis for Rate Development
    Two major issues have prompted the transmission rate adjustment. 
First, the Provisional Rate accounts for recovery of abandoned project 
costs with interest. These costs were incurred primarily between 1964 
and 1969 during the planning and early construction phases of the 
Celilo-Mead-Los Angeles 750-kV DC Transmission Line. In May 1969, the 
Department of the Interior indefinitely postponed construction because 
of several delays in congressional funding, revising the DC line's 
estimated in-service date to the point that some of the potential users 
withdrew their interest.
    The second issue is that costs and revenues relating to the new AC 
Intertie 500-kV transmission system are now being accounted for in the 
Power Repayment Study (PRS). It is estimated that it will take 
approximately 10 years for the AC Intertie 500-kV transmission system 
to be subscribed to a level sufficient to meet its own revenue 
repayment requirements. The Provisional Rate for firm transmission 
service on the AC Intertie 230/345-kV transmission system takes into 
account the phasing-in of the AC Intertie 500-kV transmission system 
revenues starting with a revenue contribution of $1,500,000 in Fiscal 
Year (FY) FY 1999, and increasing annually by $1,410,000 through FY 
2008.
Power Repayment Study
    As a result of phasing in the AC Intertie 500-kV transmission 
system revenues, and in order to maintain a marketable rate of $12/kW/
year, annual deficits are incurred through FY 2005. These deficits 
allow for the very

[[Page 6347]]

acceptable industry practice of marketing, over time, a major capitol 
improvement such as the AC Intertie 500-kV transmission system. The 
annual deficits incurred are all repaid by FY 2017.

Statement of Revenue and Related Expenses

    The following table provides a summary of revenues and expenses for 
the 5-year rate period:

                                  AC Intertie Rate Period Revenues and Expenses
                                                    [$1,000]
----------------------------------------------------------------------------------------------------------------
                                                                    Provisional    Existing rate
                                                                   rate PRS  FY    PRS  FY 1999-    Difference
                                                                     1999-2003         2003
----------------------------------------------------------------------------------------------------------------
        Total Revenues..........................................          91,067          43,435          47,632
Revenue Distribution:
    O&M.........................................................          20,690          13,226           7,464
    Abandoned Plant.............................................           1,837               0           1,837
    Interest....................................................          91,428          22,474          68,954
    Other.......................................................           4,056           1,848           2,208
    Investment Repayment........................................               0           5,887         (5,887)
    Capitalized Expenses........................................        (26,943)               0        (26,943)
----------------------------------------------------------------------------------------------------------------

    The following table provides a summary of the average annual 
revenues and expenses for the 5-year rate period:

             AC Intertie Comparison of Period Average Annual Revenues and Expenses for FY 1999-2003
                                                    [$1,000]
----------------------------------------------------------------------------------------------------------------
                                                                    Provisional
                                                                   rate average    Existing rate    Difference
                                                                      annual      average annual
----------------------------------------------------------------------------------------------------------------
        Total Revenues..........................................          18,213           8,687           9,526
Revenue Distribution:
    O&M.........................................................           4,138           2,645           1,493
    Abandoned Plant.............................................             367               0             367
    Interest....................................................          18,286           4,495          13,791
    Other.......................................................             811             370             441
    Investment Repayment........................................               0           1,177         (1,177)
    Capitalized Expenses........................................         (5,389)               0         (5,389)
----------------------------------------------------------------------------------------------------------------

    The following table provides a summary of revenues and expenses for 
the 50-year study period:

                          AC Intertie Cost Evaluation Rate Period Revenues and Expenses
                                                    [$1,000]
----------------------------------------------------------------------------------------------------------------
                                                                    Provisional    Existing rate
                                                                   rate PRS  FY    PRS  FY 1999-    Difference
                                                                     1999-2049         2049
----------------------------------------------------------------------------------------------------------------
        Total Revenues..........................................       1,369,275         441,987         927,288
                                                                 -----------------------------------------------
Revenue Distribution:
    O&M.........................................................         222,164         132,885          89,279
    Abandoned Plant.............................................           9,921               0           9,921
    Interest....................................................         497,108          81,851         415,257
    Other.......................................................          23,191          12,468          10,723
    Investment Repayment........................................         269,849         116,159         153,690
    Capitalized Expenses........................................          22,550               0          22,550
    LCRBDF Transfer.............................................         324,492          98,543         225,949
----------------------------------------------------------------------------------------------------------------

    The following table provides a summary of the average annual 
revenues and expenses for the 50-year study period:

   AC Intertie Comparison of Cost Evaluation Rate Period Average Annual Revenues and Expenses for FY 1999-2049
                                                    [$1,000]
----------------------------------------------------------------------------------------------------------------
                                                                    Provisional
                                                                   rate average    Existing rate    Difference
                                                                      annual      average annual
----------------------------------------------------------------------------------------------------------------
        Total Revenues..........................................          27,386           8,840          18,546
                                                                 -----------------------------------------------
Revenue Distribution:

[[Page 6348]]

 
        O&M.....................................................           4,443           2,658           1,785
    Abandoned Plant.............................................             198               0             198
    Interest....................................................           9,407           1,637           7,770
    Other.......................................................             464             249             215
    Investment Repayment........................................           4,230           2,323           1,907
    Capitalized Expenses........................................             451               0             451
    LCRBDF Transfer.............................................           8,192           1,971           6,221
----------------------------------------------------------------------------------------------------------------

Comments

    During the public consultation and comment period, Western received 
24 written comments on the rate adjustment. In addition, eight customer 
representatives orally commented during the June 1, 1998, public 
comment forum. All comments received by the end of the public 
consultation and comment period, July 2, 1998, were reviewed and 
considered in the preparation of this rate order.
    Written comments were received from the following sources:

Aguila Irrigation District (Arizona)
Arizona Power Authority (Arizona)
Arizona Public Service Company (Arizona)
BDJ Farms, LLC (Arizona)
Central Arizona Project (Arizona)
Charles A. Ditsch, Attorney at Law (Arizona)
City of Safford (Arizona)
Colorado River Commission of Nevada (Nevada)
Colorado River Energy Distributors Association (Arizona)
Electrical District No. 3 (Arizona)
Electrical District No. 5 (Arizona)
Electric Resource Strategies (Arizona)
Gladden Farms II (Arizona)
Harquahala Valley Power District (Arizona)
James N. Warkomski, P.E., R.L.S. (Arizona)
John DelMar, Electrical District No. 8 Member (Arizona)
McMullen Valley Water Conservation and Drainage District (Arizona)
Meyer, Hendricks, Bivens & Moyes, P.A. (Arizona)
Nevada Power Company (Nevada)
Robert S. Lynch, Attorney at Law (Arizona)
Salt River Project (Arizona)
Thatcher (Arizona)
Tonopah Irrigation District (Arizona)

    The following is a summary of the comments received by the end of 
the consultation and comment period and Western's responses to those 
comments. The comments are paraphrased for brevity and responses are 
presented below. Specific comments are used for clarification where 
necessary.
    Comment: Several commentors protested the inclusion of the 
abandoned project costs relating to the Celilo-Mead-Los Angeles 750-kV 
DC transmission line in the rate order stating that doing so would be 
inequitable and inconsistent with the financial reporting policies, 
procedures, and methodology established under DOE Order RA 6120.2. The 
commentors also referenced a longstanding rate making principle that 
customers should only be required to pay for facilities that are 
``prudent'' investments and which are ``used and useful'' in providing 
electric service.
    Response: Western held the abandoned project costs from 1969 until 
1993 in a deferred asset account. In 1993, these costs were booked in 
Western's financial statements as an expense against Operation and 
Maintenance. Western has withheld the inclusion of these costs from the 
PRS in any of the previous rate orders while it determined the 
appropriate course of action. Western's auditors issued findings in 
1994 and 1995 that the proper treatment of abandoned project costs is 
the full cost recovery through project rates of the costs plus any 
accrued interest. In 1996, Western's Administrator committed to comply 
with the auditor recommendation before a Congressional subcommittee 
hearing.
    Comment: Several commentors questioned Western's legal authority to 
collect the abandoned project costs relating to the Celilo-Mead-Los 
Angeles 750-kV DC transmission line.
    Response: Fundamental principles of Reclamation Law require the 
recovery of the Government's construction investment, with interest 
(Reclamation Project Act of 1939, Section 9(c); 53 Stat. 1187, 1194). 
Western is not aware of any authority exempting the abandoned project 
costs from this requirement.
    Comment: Several commentors questioned the difference in Western's 
proposed treatment of the abandoned project costs relating to the 
Celilo-Mead-Los Angeles 750-kV DC transmission line from the position 
stated by the Bonneville Power Administration (BPA) with regard to 
costs incurred under the Teton Dam Project. In 1976, the Teton Dam 
Project failed, and a decision was subsequently made by the Bureau of 
Reclamation (Reclamation) not to recommence construction. To date, the 
costs associated with the Teton Dam Project have not been included in 
BPA's customer rates for repayment.
    Response: The debt incurred by Western relating to the Celilo-Mead-
Los Angeles 750-kV DC transmission line was funded through government 
appropriations. The Reclamation Project Act of 1939 requires repayment 
of appropriations. Through this rate order, these costs will be repaid 
through the project rates. The costs associated with the Teton Dam 
Project remain a part of BPA's appropriated debt balance. The debt 
balance can be reduced through repayment or through Congressional 
action to de-authorize the project and declare the costs as non-
reimbursable. To Western's knowledge, BPA is currently not pursuing 
either of the two options available for reducing appropriated debt. 
Western, however, recognizes the AC Intertie customers' intention of 
seeking, through Congressional action, to declare the abandoned project 
costs related to the Celilo-Mead-Los Angeles 750-kV DC transmission 
line as non-reimbursable. In order to avoid the costly process 
associated with reversing the costs should the customers' efforts be 
successful, Western is willing to allow the deposit of customer monies 
associated with these disputed abandoned project costs in an escrow 
account, for a 2-year period, thereby allowing sufficient time for the 
customers' efforts to be concluded.

[[Page 6349]]

    Comment: A commentor questioned the amount of funds appropriated 
for the Celilo-Mead-Los Angeles 750-kV DC transmission line.
    Response: The specific amount of funds appropriated to Reclamation 
for the construction of the Celilo-Mead-Los Angeles 750-kV DC 
transmission line is not readily available. However, appropriations 
funded construction activities from 1964 through 1969 were recorded as 
capitalized costs in Reclamation's AC Intertie financial statements. 
These capitalized costs, plus accrued interest, make up the abandoned 
project costs.
    Comment: A commentor protested the inclusion of costs associated 
with the AC Intertie 500-kV transmission system into the proposed 
rates.
    Response: Western has maintained maximum flexibility for the AC 
Intertie Project by maintaining independent transmission service rates 
for the 230/345-kV transmission system and the 500-kV transmission 
system. However, DSW is responsible for demonstrating repayment for 
those AC Intertie facilities constructed with appropriated funds 
allocated to DSW. The firm point-to-point transmission service rate 
being proposed under this rate order will satisfy the repayment 
criteria that Power Marketing Administrations are subject to while 
maintaining the flexibility of a possible reduction to the 230/345-kV 
transmission system rate in future years should revenues from the AC 
Intertie 500-kV transmission system materialize as projected.
    Comment: A commentor questioned the existence of any specific Act 
authorizing Western to construct the AC Intertie 500-kV transmission 
system.
    Response: Construction of the Intertie was initially authorized by 
the Pacific Northwest Preference Act of 1964 (P.L. 88-552; 78 Stat. 
756). Subsequently, the Energy and Water Development Appropriation Act 
of 1985, Public Law No. 98-360, 98 Stat. 403, 416, authorized Western's 
participation in the construction of the AC Intertie 500-kV 
transmission system.
    Comment: A commentor stated that the construction and inclusion in 
the proposed rate of the AC Intertie 500-kV Intertie transmission 
system violates Western's goals with regards to limiting increases in 
annual operating expenses in order to maintain competitive rates.
    Response: Western's goal of limiting increases in annual operating 
expenses, exclusive of debt service, in order to maintain competitive 
rates in the markets served by Western was first published in September 
1994 and was not in existence when construction began on the AC 
Intertie 500-kV transmission system. Nevertheless, the overwhelming 
majority of costs relating to the AC Intertie 500-kV transmission 
system is for debt service and not annual operating expenses. 
Furthermore, the proposed firm point-to-point transmission service rate 
of $12/kW/year remains less than Western's Parker-Davis Project 
transmission service rate of $12.99/kW/year and also less than the firm 
point-to-point transmission rates offered by the other utilities that 
operate in the same regional markets served by DSW.
    Comment: A commentor stated that the construction and inclusion in 
the proposed rate of the AC Intertie 500-kV transmission system 
violates Western's operating rules with regards to subjecting new 
facilities for construction to at least one of three criteria: (1) 
increased revenues from the new facilities must exceed the annual cost 
over the cost evaluation period; (2) customers must benefit 
sufficiently to support the new facilities in spite of a possible rate 
increase; or (3) the new facilities must be funded by others.
    Response: Western's operating rules for construction of new 
facilities were first published in September 1994 and were not in 
existence when construction began on the AC Intertie 500-kV 
transmission system. However, Western had conducted studies and surveys 
prior to the construction of the AC Intertie 500-kV transmission system 
that supported Western's participation in the Mead-Phoenix Project 
(MPP) and Mead-Adelanto Project (MAP). Studies conducted in 1989 
indicated that given Western's generation capability and load patterns, 
Western's transmission system existing at the time of the studies did 
not have the capacity to effectively market Federal power resources. 
Western's decision to participate in the MPP and MAP was substantiated 
by an independently-produced resources and transmission study conducted 
in 1990. The MPP and MAP were joint participation construction projects 
with 11 other entities. The entities are as follows: Arizona Public 
Service Company; City of Anaheim; City of Azusa; City of Banning; City 
of Burbank; City of Colton; City of Glendale; City of Pasadena; City of 
Riverside; City of Vernon; Los Angeles Department of Water and Power; 
Public Power Agency of Modesto, Santa Clara, and Redding; and Salt 
River Project.
    This vast number of participants only underscores the perceived 
need by the participants at the time of construction. Furthermore, 
Western conducted a number of surveys between November 1990, and 
January 1996, all of which resulted in substantial interest by 
prospective customers for transmission capacity. In February 1996, 
Western began contract negotiations with prospective customers. During 
negotiations, it became apparent that various external industry issues 
were emerging and that these issues were having an impact on the 
negotiations. The prospective customers decided to delay contracting 
for long-term firm transmission capacity over the AC Intertie 500-kV 
transmission system. FERC Order No. 888 became effective July 9, 1996. 
FERC Order No. 888 is designed to promote competition through open 
access and has brought many new players to the wholesale bulk power 
business. As a result, utilities are striving to improve their short-
term competitive position, and prospective customers are staying away 
from committing to long-term transmission contracts.
    Comment: A commentor referenced 10 CFR. 903.21(g) in conjunction 
with a statement concerning the AC Intertie 500-kV transmission 
facilities, that ``Western is not legally permitted to construct 
speculative transmission facilities on the backs of the preference 
customers it has a statutory obligation to serve at the lowest possible 
rates consistent with sound business principles.''
    Response: The reference to 10 CFR 903.21(g) is erroneous because no 
such section exists. Moreover, as explained previously, Western's 
participation in the construction of the AC Intertie 500-kV 
transmission system was specifically authorized by Public Law No. 98-
360. In response to the criticism that the construction of the AC 
Intertie 500-kV transmission system was a speculative enterprise, it 
should be noted once again that the MPP and MAP were joint 
participation construction projects with 11 other entities. The 
entities are as follows: Arizona Public Service Company; City of 
Anaheim; City of Azusa; City of Banning; City of Burbank; City of 
Colton; City of Glendale; City of Pasadena; City of Riverside; City of 
Vernon; Los Angeles Department of Water and Power; Public Power Agency 
of Modesto, Santa Clara, and Redding; and Salt River Project. Due to 
changes in the electric industry as a whole, utilities are having to 
defend stranded investments that the electric utility industry has 
undertaken. At the present time, many of the participants are trying to 
effectively market their entitlement of the MPP and MAP. Stranded 
investments, due to industry restructuring in California alone, are 
projected to be more than $4 billion. At the time Western and other 
utilities made the decision to participate in the

[[Page 6350]]

MPP and MAP, the decision was sound. As late as February 1996, 
utilities were requesting 649 MW of capacity on the AC Intertie 500-kV 
transmission system.
    Comment: Several commentors protested the inclusion of the unfunded 
portion of the Civil Service Retirement Costs and Post-Retirement 
Health and Life Insurance Benefits (Retirement Benefits) in the rate 
order and in some cases stated that Western did not possess the legal 
authority to either collect the funds, to divert the funds to the 
Office of Personnel Management prior to their deposit in the 
Reclamation Fund, or to withdraw the funds from the Reclamation Fund 
for these same purposes.
    Response: Under a legal opinion provided by the General Counsel of 
the DOE by memorandum dated July 1, 1998, the Power Marketing 
Administrations have the authority to collect through the rates the 
full costs of the Retirements Benefits. Based on the FY 1998 data 
expected to be booked to the AC Intertie, this amounts to $120,359 for 
FY 1999, representing less than one percent of the AC Intertie revenue 
requirements for FY 1999. At this time, Western's only intention is to 
deposit the funds into the Reclamation Fund.
    Comment: A commentor requested that the construction work planned 
for replacing the 345-kV series capacitor banks at Mead and Liberty 
Substations be reevaluated and that the projected cost be removed from 
the rate order.
    Response: Western agrees with the commentor's request to reevaluate 
the necessity of replacing the series capacitor banks and has removed 
the projected costs from the rate order.
    Comment: A commentor requested an explanation as to why Multi-
Project Costs are no longer being booked in the PRS.
    Response: Western had intended to separate the investment costs 
that are the basis for the Multi-Project Cost calculation and allocate 
them to their respective projects for repayment. Western has 
reevaluated the benefit of such action and will continue to book the 
Multi-Project Costs in the PRS consistent with previously established 
procedures.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980 (5 U.S.C. 601, et seq.) 
requires Federal agencies to perform a regulatory flexibility analysis 
if a final rule is likely to have a significant economic impact on a 
substantial number of small entities and there is a legal requirement 
to issue a general notice of proposed rulemaking. Western has 
determined that this action does not require a regulatory flexibility 
analysis since it is a rulemaking of particular applicability involving 
rates or services applicable to public property.

Small Business Regulatory Enforcement Fairness Act

    Western has determined that this rule is exempt from Congressional 
notification requirements under 5 U.S.C. 801 because the action is a 
rulemaking of a particular applicability relating to rates or services 
and involves matters of procedure.

Environmental Compliance

    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 an environmental assessment or an environmental 
impact statement.

Determination Under Executive Order 12866

    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.

Availability of Information

    Information regarding this rate adjustment, including project 
repayment studies, comments, letters, memorandums, and other supporting 
material made or kept by Western for the purpose of developing the 
Provisional Rates, is available for public review in the Desert 
Southwest Regional Office, Western Area Power Administration, Office of 
the Power Marketing Manager, 615 South 43rd Avenue, Phoenix, Arizona.

Submission to the Federal Energy Regulatory Commission

    The rates herein confirmed, approved, and placed into 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 January 1, 1999, Rate Schedule INT-FT3 for the Pacific 
Northwest-Pacific Southwest Intertie Project 230/345-kV transmission 
system of the Western Area Power Administration. The rate schedule 
shall remain in effect on an interim basis, pending FERC confirmation 
and approval of it or a substitute rate on a final basis through 
December 31, 2003.

    Dated: January 28, 1999.
Ernest J. Moniz,
Acting Deputy Secretary.

Schedule of Rate(s) for Long-Term and Short-Term 230/345-kV Firm 
Point-to-Point Transmission Service

    Rate Schedule INT-FT3 (Supersedes Schedule INT-FT2) for 230/345-
kV Firm Transmission.

    Effective: The first day of the first full billing period beginning 
on or after January 1, 1999, and will remain in effect through December 
31, 2003, or until superseded, whichever occurs first.
    Available: Within the marketing area served by the Pacific 
Northwest-Pacific Southwest Intertie Project (AC Intertie) 230/345-kV 
transmission system.
    Applicable: To firm transmission service customers where capacity 
and energy are supplied to the AC Intertie 230/345-kV transmission 
system at points of interconnection with other systems and transmitted 
and delivered, less losses, to points of delivery on the AC Intertie 
230/345-kV transmission system pursuant to the applicable firm point-
to-point transmission service agreement and the rates referred to 
below.
    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 AC Intertie 230/345-kV 
transmission lines.
    Long-Term Rate on the AC Intertie 230/345-kV Transmission System: 
For transmission service of longer than one year, the rate to be in 
effect January 1, 1999, through December 31, 2003, is $12.00 per 
kilowatt per year for each kilowatt delivered at the point of delivery, 
as established by contract, payable monthly at the rate of $1.00 per 
kilowatt per month.
    Short-Term Rates on the AC Intertie 230/345-kV Transmission System: 
For transmission service up to one year, the maximum rate to be in 
effect from January 1, 1999, through December 31, 2003, is as follows:

Yearly:  $12.00/kW
Monthly:  $1.00/kW
Weekly:  $.23/kW
Daily:  $.03/kW
Hourly: $.00137/kWh

    Discounts may be offered from time-to-time in accordance with 
Western's open access transmission service tariff.

[[Page 6351]]

    Billing: The rates listed above will be applied to the amount of 
capacity reserved, payable whether utilized or not.
    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 
transmission service agreement.

[FR Doc. 99-3114 Filed 2-8-99; 8:45 am]
BILLING CODE 6450-01-P