[Federal Register Volume 64, Number 131 (Friday, July 9, 1999)]
[Notices]
[Pages 37120-37136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17500]


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DEPARTMENT OF ENERGY


Proposed Rate Adjustment

AGENCY: Southeastern Power Administration, DOE.

ACTION: Notice of rate order.

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SUMMARY: The Secretary of Department of Energy, confirmed and approved, 
on an interim basis, Rate Schedules CBR-1-D, CSI-1-D, CEK-1-D, CM-1-D, 
CC-1-E, CK-1-D, CTV-1-D, and SJ-1-A. The rates were approved on an 
interim basis through June 30, 2004, and are subject to confirmation 
and approval by the Federal Energy Regulatory Commission on a final 
basis.

DATES: Approval of rate on an interim basis is effective through June 
30, 2004.

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 December 14, 1994, in Docket No.EF94-3021-000, confirmed 
and approved Wholesale Power Rate Schedules CBR-1-C, CSI-1-C, CK-1-C, 
CC-1-D, CM-1-C, CEK-1-C, and CTV-1-C. By order issued August 11, 1997, 
in Docket No. EF97-3021-000, the Federal Energy Regulatory Commission 
confirmed and approved rate schedule SJ-1. Rate schedules CBR-1-D, CSI-
1-D, CEK-1-D, CM-1-D, CC-1-E, CK-1-D, CTV-1-D, and SJ-1-A replace these 
schedules.

    Dated: June 29, 1999.
Bill Richardson,
Secretary.

Southeastern Power Administration--Cumberland; Order Confirming and 
Approving Power Rates on an Interim Basis

[Rate Order No. SEPA-38]

    Pursuant to Sections 302(a) and 301(b) of the Department of Energy 
Organization Act, Public Law 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. On November 4, 1993, the Secretary of Energy 
issued Amendment No. 3 to Delegation Order No. 0204-108, published 
November 10, 1993 at 58 FR 59716, which delegated (1) The authority to 
develop long-term power and transmission rates on a nonexclusive basis 
to the Administrator of the Southeastern (Southeastern); (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). By subsequent

[[Page 37121]]

Order effective April 15, 1999, the Secretary rescinded all delegations 
of authority to the Deputy Secretary, whether contained in Delegation 
Orders, Departmental Directives, or elsewhere, concerning the 
Department's Power Marketing Administrations, including, but not 
limited to, authority delegated or affirmed in Delegation Order No. 
0204-108, as amended. 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. This rate is issued by the Secretary by pursuant to said 
notice.

Background

    Power from the Cumberland System of Projects is presently sold 
under Wholesale Power Rate Schedules CBR-1-C, CSI-1-C, CEK-1-C, CM-1-C, 
CC-1-D, CK-1-C, CTV-1-C, and SJ-1. These rate schedules were approved 
by the FERC on December 14, 1994 and August 11, 1997, for a period 
ending June 30, 1999 (69 FERC 61333 and 80 FERC 62123).

Discussion

System Repayment

    An examination of Southeastern's revised system power repayment 
study, prepared in January 1999, for the Cumberland System shows that 
with an annual revenue increase of $2,272,000 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

    Opportunity for Public Review and Comment on Wholesale Power Rate 
Schedules CBR-1-D, CSI-1-D, CEK-1-D, CM-1-D, CC-1-E, CK-1-D, CTV-1-D, 
and SJ-1-A, was announced by notice published in the Federal Register 
February 9, 1999. A Public Information and Comment Forum was held March 
16, 1999, in Nashville, Tennessee, and written comments were invited 
through May 10, 1999. The notice proposed rates with a revenue increase 
of $2,272,000 in Fiscal Year 1999 and all future years. Transcript of 
the Public Information and Comment Forum is included as Exhibit A-4. A 
review of comments is included as Exhibit A-5. The following is a 
summary of the comments.

Staff Evaluation of Public Comments

    Comments and questions from four sources were received at the 
Public Comment Forum held in Nashville, Tennessee on March 16, 1999. 
These are included in the Forum Transcripts which are included as 
Exhibit A-4. Written comments and questions from four sources were 
received by mail and facsimile during the comment period and are 
attached. The comments were received pursuant to Federal Register 
Notice 64 Fed. Reg. 6341 dated February 9, 1999.
    Comments have been condensed into six major categories. An outline 
of the six major categories and subcategories of each is as follows:

1. Justification of the TVA transmission rate
2. Rate design
    A. Inclusion of the TVA transmission credit with the other costs 
of providing service
    B. Comparative value of service provided
    C. Cost recovery from energy and capacity
    D. Disproportionate impact on the Kentucky Utilities Municipals
    E. Phase-in of the rate adjustment
3. SEPA Power Marketing Policy
    A. Allocation of Energy
    B. Ability to negotiate power contracts
4. SEPA's contract with TVA and TVPPA
    A. Use of TVA transmission facilities
    B. Amount of Capacity Wheeled
5. Cost of Service Issues
    A. Budgeted replacements
    B. CSRS
6. Rate Implementation
1. Justification of the TVA Transmission Rate
    Comment 1: Historically, Southeastern Power Administration's (SEPA 
or Southeastern) rate treatment of the SEPA transmission credit to TVA 
resulted in TVA realizing significantly less than the total cost to TVA 
of transmitting SEPA power across the TVA transmission system. This is 
a problem that needs to be corrected.
    Comment 2: TVA's proposed transmission charges to SEPA are plainly 
excessive. When the current TVA transmission charges were established 
about five year ago, the rate under TVA's transmission tariff (or 
equivalent) was about $2.00 per kW/Month. In the intervening years, 
TVA's tariff rate has decreased to about $1.57 per kW/Month, yet TVA 
seeks an increase in its charges to SEPA of approximately $2.5 million, 
for a total of about $9.5 million. On its face, TVA's proposed increase 
is unjustified.
    Comment 3: The purportedly cost-based TVA transmission charges 
contain many elements that are excessive or questionable. For example:

    a. TVA has not properly determined the facilities to be include 
in transmission rate base for ratemaking purposes. For example, TVA 
has improperly included generator step-up facilities and has not 
justified its inclusion of such facilities as radial lines and 
customer-specific facilities.
    b. TVA exclusion of certain loads from its rate divisors and its 
use of revenue credits for certain services, rather than allocating 
costs to those services, tend to inflate TVA's transmission rates.
    c. TVA's inclusion of a 10% margin is unjustified.
    d. TVA's inclusion of a 5% ``factor'' for payments in lieu of 
taxes has not been justified.
    e. TVA's charges should be adjusted to reflect the limited 
service that TVA provides in the transmission of SEPA allocations, 
which include limitations on the amounts and scheduling of energy 
associated with the capacity being purchased. Alternatively, if SEPA 
and its customers are to be required to pay for transmission 
capacity year-round, they should be entitled to make full use of the 
transmission services for which they are paying.
    f. The annual, levelized carrying charge rate implicit in TVA's 
revenue requirement as a percentage of gross plant investment 
appears excessive in relation to those of other utilities in the 
region, even before taking into account the fact that TVA does not 
pay income taxes.
    g. With declining TVA transmission costs during recent years, 
its proposed rates based upon a single year's costs should be 
scrutinized for the applicability in SEPA rates that are to be in 
effect for five years.
    h. Administrative and general expenses do not appear to have 
been properly functionalized prior to their allocation.
    i. TVA's derivation of charges for scheduling service are not 
supported and appear excessive in relation to corresponding charges 
of other utilities.
    j. TVA proposes to establish the new transmission rates 
applicable to SEPA based upon fiscal year 1997, which ended 
September 30, 1997, or nearly two years prior to the effective date 
of TVA's proposed rate increase.
    k. It is SeFPC's understanding that TVA is proposing to apply 
its transmission tariff formula rate to SEPA's service and thus 
change SEPA's rate annually. TVA's formula rate procedures under its 
tariff call for annual rate changes effective January 1 of each year 
based upon data for the second preceding fiscal year. For example, 
rate changes under the tariff effective January 1, 1999 are based 
upon fiscal year 1997 data. The lag is only fifteen (15) months. 
Since adjustments to the rate applicable to SEPA would change each 
July 1, this makes the lag twenty-one (21) months without 
justification. If TVA is to use a formula rate which adjusts 
annually on July 1, it is reasonable, under facts specific to SEPA, 
to use a test year ending no earlier than the preceding fiscal year 
(e.g., fiscal 1998 for rates effective July 1, 1999).
    l. SeFPC questions the inclusion of facilities with voltage less 
than 166 kV in the determination of TVA's proposed transmission 
rate.

    Response: Section 9.1 of the TVA-SEPA-TVPPA Contract, executed

[[Page 37122]]

October 1, 1997, allows TVA to adjust rates for delivering power to the 
points of delivery to the ``Other Customers'' defined as customers 
outside the TVA area. Section 9.1 does not provide any means for SEPA 
to determine an appropriate transmission rate. TVA and the ``Other 
Customers'' are disagreeing over the appropriateness of the rate 
increase. SEPA's only recourse, when TVA and the Outside Customers 
disagree, is to try to determine an equitable split of the costs; 
therefore, SEPA has determined to allocate a comparable increase to all 
customers. SEPA will support discussions between TVA and the customers 
outside the TVA system in an effort to reach a negotiated settlement on 
an appropriate amount for the TVA transmission charge.
2. Rate Design
A. Inclusion of the TVA Transmission Credit With the Other Costs of 
Providing Service
    Comment 1: TVA is paying approximately 60 percent of the increased 
charges for TVA transmission service to transport SEPA power to other 
SEPA customers. The proposed methodology fails to compensate TVA 
adequately for the use of its transmission facilities to deliver SEPA 
power to customers outside the TVA area and shifts costs from certain 
of SEPA's customer to TVA distributors and directly served customers.
    Comment 2: It is entirely inappropriate for TVA to bear the costs 
for transmitting the SEPA power to others in what amounts to an 
arbitrary assignment of costs to TVA and its customers.
    Comment 3: The manner in which SEPA charges TVA for power the 
Cumberland Projects results in discriminatory charges for use of TVA's 
system.
    Comment 4: SEPA's proposed rate would mean that those who receive 
SEPA power over TVA's transmission system receive the benefit of firm 
transmission service on the TVA system but do not pay their fair share 
of TVA's cost-based transmission service, while TVA power customers and 
other transmission customers pay a higher rate for the same type of 
transmission service. This is an unfair shifting of costs.
    Comment 5: The SEPA rate should pass through the TVA published 
cost-based transmission charges to those SEPA preference customers 
receiving power wheeled across the TVA system, as SEPA does with other 
transmission providers' charges.
    Comment 6: By combining together TVA's transmission charges with 
the cost of SEPA's power, SEPA arbitrarily disregards Federal Energy 
Regulatory Commission (FERC) policy and utility industry practice of 
separating (unbundling new arrangements for) transmission charges from 
power and energy charges. SEPA is similarly arbitrary in singling out 
TVA transmission charges for this ``rolled in'' rate: those SEPA 
customers served through the transmission system of Carolina Power & 
Light Company (CP&L) have their transmission charge unbundled from the 
SEPA power cost as a separate pass-through, as do other SEPA customers 
taking power from projects other than the Cumberland Basin Projects.
    Comment 7: The CP&L transmission cost component is clearly broken 
out as a separate charge in the very same rate proposal in which TVA's 
transmission cost component is deceptively buried. SEPA does not 
provide a reasoned basis for this arbitrarily disparate ratemaking 
treatment of transmission charges attributable to TVA.
    Comment 8: The proposed SEPA methodology would have the effect of 
allowing the customers outside the TVA area to obtain a type of premium 
on-peak firm transmission service at charges that do not fully recover 
the costs of providing such service and that are less than charges that 
would be charged others requesting other types of premium service 
(point-to-point firm transmission service).
    Comment 9: While TVA recognizes that ratemaking is a highly complex 
process, one basic premise is that customers should not be forced to 
pay for services or benefits provided for other customers. If the costs 
of providing services to one group are different from the costs of 
serving another, the two groups are, in one important respect, 
different, and it is appropriate for that difference to be addressed in 
the ratemaking process. TVA recommends remedying this defect in SEPA's 
proposed rates by treating TVA's transmission costs solely as a pass-
through, like those of CP&L, rather than adjusting the energy charge, 
which effectively results in TVA paying some 53 percent of the 
increased costs of providing transmission service to SEPA customers 
outside the TVA area.
    Comment 10: SEPA arbitrarily disregards FERC and industry practice 
of transmission unbundling.
    Comment 11: To the extent that TVA does not recover from SEPA the 
costs for SEPA's use of TVA's transmission facilities to wheel power to 
SEPA's preference customers outside the TVA region, the those costs are 
unfairly and unlawfully shifted to TVPPA member systems. TVPPA opposes 
such cost-shifting to its members.
    Response: SEPA will support continued discussions between TVA and 
the customers outside the TVA system in an effort to reach a negotiated 
settlement on an appropriate amount of the TVA transmission charge. 
TVA's proposed transmission charge appears to be substantially higher 
than the transmission charges SEPA pays to investor owned utilities in 
the southeastern region. TVA's transmission rates are not subject to 
the same review as investor owned utilities. Considering these factors, 
SEPA does not at this time consider it appropriate to treat the TVA 
transmission charges as a pass-through rate, which is how SEPA treats 
most of the transmission charges of other utilities. Rather, SEPA has 
determined to allocate a comparable increase to all customers.
B. Comparative Value of Service Provided
    Comment 1: SEPA's allocation of energy has resulted in TVA 
receiving greater value from the Cumberland River System Projects than 
the customers outside the TVA area. This has not been taken into 
consideration in the development of the rate.
    Comment 2: Please provide an explanation of why the energy 
allocation values were not considered in the development of the rate.
    Response: Energy allocations are a part of the Southeastern Power 
Marketing Policy for the Cumberland System of Projects published in the 
Federal Register August 5, 1993, 58 FR 41762, and are not subject to 
review in these proceedings. A determination of the value of these 
allocations in the development of the rates would require an assessment 
of market rates for power in the relevant markets. SEPA is required to 
market power at cost-based rates, rather than at market-based rates. 
SEPA does not believe it can appropriately assess the relative value of 
the energy allocations.
C. Cost Recovery From Energy and Capacity
    Comment: SEPA distorts transaction economics and arbitrarily 
disregards ratemaking practice by assigning significant fixed costs to 
energy charges.
    Response: Traditional utility rate design practice assigns fixed 
costs to capacity charges and variable costs to energy charges. In a 
hydroelectric system, where there is no fuel cost and almost all of the 
costs are fixed, the capacity charge would be designed to recover 
nearly 100 percent of the cost. Having only a capacity charge is not a

[[Page 37123]]

common method of setting rates, and does not provide an incentive for 
the customers to manage energy wisely. SEPA looked for a more equitable 
way to allocate costs. For the period from 1984 to 1994, SEPA compared 
its rates to the wholesale rates charged by utilities in the 
Southeastern portion of the United States. Based on these results, a 
rate design that recovered 40 percent of the costs from capacity and 60 
percent from energy. In 1994 TVA objected to this rate design. After 
negotiations between SEPA, TVA, and the customers outside the TVA 
system, a rate design that included 1500 hours of energy with each 
kilowatt of capacity and an additional energy charge for energy above 
1500 hours use was implemented as a negotiated settlement. SEPA is 
proposing to continue this rate design to allow for equal sharing of 
the cost increase.
D. Disproportionate Impact on the Kentucky Utilities Municipals
    Comment: SEPA's rate design imposes a disproportionate increase on 
the KU Area Preference Customers. Given that the KU Area Preference 
Customers were denied access to the benefits of SEPA power for years 
(because of the actions of Kentucky Utilities Company, not of SEPA), it 
seems unfair for these utilities to bear the greatest percentage rate 
increase, after receiving the power for only two and one-half years. To 
the extent that any rate increase is found to be justified, an equal 
percentage increase to all customers would be more equitable and more 
consistent with the principles of cost-based ratemaking.
    Response: The Kentucky Utilities Municipals are unique among the 
customers outside the TVA area. They are the only group that receives 
more than 1500 hours use per kilowatt per year. The Kentucky Utilities 
Municipals receive 1800 hours use, which means that they incur an 
additional energy charge for 300 hours use per kilowatt per year. 
Because of this additional energy, the rate increase for the Kentucky 
Utilities Municipals is slightly higher (7% versus 6%) than for the 
other customers of the Cumberland System.
E. Phase-in of the Rate Adjustment
    Comment: SEPA should allow its customers the option of phasing in 
the proposed rate increase over the five-year period.
    Response: The total rate adjustment is an increase of about seven 
percent to the most adversely affected customer group, which is the 
municipal customer in the Kentucky Utilities area. Because of the 
continued disagreement over the TVA transmission costs, it is very 
likely the rate will be modified prior to expiration of the 5 year 
rate. SEPA does not believe it is appropriate to use a phase-in of a 
rate adjustment for an increase of this relatively small magnitude.
3. SEPA Power Marketing Policy
A. Allocation of Energy
    Comment: TVA was already overcompensated for transmission services 
under the existing arrangement, which includes not only charges to SEPA 
for services, but also make available ``excess'' energy to TVA in 
substantial amounts. TVA's transmission charges are unjustified, even 
without consideration of these additional benefits to TVA not reflected 
in the charges SEPA pays to TVA.
    Response: The comment links the allocation of energy from the 
Cumberland System with TVA's compensation for providing transmission. 
The allocation of energy, which is a part of Southeastern Power 
Marketing Policy for the Cumberland System of Projects published in the 
Federal Register August 5, 1993, 58 FR 41762, is not subject to review 
in these proceedings. These proceedings pertain only to the rates for 
Cumberland System Power.
B. Ability to Negotiate Power Contracts
    Comment: SEPA should allow SEPA's customers an option to purchase 
transmission service directly from TVA, with a corresponding reduction 
in the price of SEPA power to eliminate the currently bundled component 
for TVA transmission charges that is included in SEPA's proposed rates.
    Response: SEPA negotiates transmission service contracts in behalf 
of SEPA's customers when it is determined to be in the best interest of 
the customers for SEPA to do so. If the customers wish to negotiate for 
transmission service in their own behalf, SEPA will support their 
efforts. Such arrangements may require modification or replacement of 
existing contracts between SEPA, the preference customers involved, TVA 
and TVPPA, and other area utilities.
4. SEPA's Contract With TVA and TVPPA
A. Use of TVA Transmission Facilities
    Comment 1: Customer's outside the TVA area are being asked to pay 
what is described as TVA's full transmission costs. Yet the customers 
outside the TVA area have firm use of that transmission capacity for 
only 1500 hours per year.
    Comment 2: SeFPC believes the 1500 hours limitation on the annual 
use of TVA's transmission system is unreasonable and does not represent 
the true value of the availability.
    Comment 3: SeFPC customers should be allowed to utilize this excess 
capacity reservation to engage in non-firm transactions to other 
customers and fully utilize TVA's transmission system.
    Response: These comments relate to the use of headroom, or the 
difference in the capacity that SEPA has reserved on the TVA system and 
the capacity that SEPA is actually using in any given hour. The current 
contract between SEPA, TVA, and TVPPA does not allow the use of 
headroom. SEPA is willing to negotiate modifications to the existing 
agreement that will allow the use of headroom.
B. Amount of Capacity Wheeled
    Comment 1: SEPA has previously indicated that, notwithstanding 
TVA's clear contractual commitment to transmit up to 475 MW for the 
SEPA customers outside TVA, TVA somehow actually transmits less than 
that amount because two of SEPA's Cumberland projects are directly 
connected to two systems receiving Cumberland output (Big Rivers 
Electric Corporation and East Kentucky Power Cooperative). Contrary to 
SEPA's contentions, TVA's commitment to transmit 475 MW of power to the 
periphery is not lessened because of the location of specific 
Cumberland projects on the TVA system since the fully integrated TVA 
transmission system (not isolated pieces of the system) is utilized in 
providing the service.
    Comment 2: TVA allocates 475,000 kW of transmission capacity to 
SEPA each month of the contract year. SeFPC believes that there are 
months or periods during the month that the full 475,000 kW of 
transmission capacity is not required by TVA.
    Response: The current contract between SEPA, TVA, and TVPPA 
provides for the delivery of 475 MW of capacity at the TVA border. This 
includes the delivery of 190 MW to Big Rivers Electric Corporation, 
which has an interconnection with the Barkley Project, and 100 MW to 
East Kentucky Power Cooperative, which has an interconnection with the 
Wolf Creek Project. TVA has the right to schedule the output of eight 
of the ten Cumberland Projects, including these two projects. The 
output of the Barkley Project is 158 MW, and the output of the Wolf 
Creek Project is 274 MW. Big Rivers could receive 158 MW of their 
delivered capacity from the Barkley Project without utilization of the 
TVA

[[Page 37124]]

transmission system, and East Kentucky could receive all 100 MW of 
their delivered capacity from the Wolf Creek Project without 
utilization of the TVA transmission system. Under the existing contract 
between SEPA, TVA, and TVPPA it is unclear how much capacity is being 
transmitted across the TVA system. Reducing the amount of capacity 
transmitted would likely require modification of the existing 
agreement. This is a contractual matter, and is not appropriately 
addressed in these proceedings, which pertain to rates for the 
Cumberland System capacity and energy.
5. Cost of Service Issues
A. Budgeted Replacements
    Comment: SEPA has paid into the treasury over $62 million 
cumulatively which has been applied to reduce the long-term debt owed 
by SEPA. SeFPC requests that SEPA review its construction expenditures 
budget to collect only those revenues required to meet its actual 
construction requirements.
    Response: The DOE Order RA6120.2 requires SEPA to include the cost 
of replacements in the repayment studies used to support rate filings. 
SEPA has used the best estimates that were available over the years to 
determine the levels of future replacement costs. Over the years, 
SEPA's estimates have been in excess of the actual replacement costs, 
and by end of fiscal year 1998, the difference between estimated and 
actual replacement cost has grown to $62 million for the Cumberland 
System of projects. SEPA agrees with this comment and has joined with 
the Corps and the customers' organized committees to examine the future 
rehabilitation of the projects. SEPA is using the best estimates of the 
Corps in this repayment study. The Corps is estimating that a large 
amount of replacements will occur in the near future.
B. CSRS
    The preference customers have objected to the inclusion of Civil 
Service Retirement System Costs and Health Benefit Costs (CSRS) that 
are funded by the Office of Personnel Management (OPM) in a prior SEPA 
rate filing. The Georgia-Alabama-South Carolina Rates were filed with 
the Commission on September 22, 1998, and approved by the Commission on 
February 26, 1999. See Southeastern Power Administration 86 FERC 
para.61,195 (1999). The customers have requested a rehearing and the 
request is currently pending before the Commission. Many of these 
issues were responded to in the prior rate filing. We will respond to 
each comment individually.
    Comment 1: The members of the SeFPC do not believe that the 
collection of CSRS costs remains within the cost recovery guidelines 
which the PMAs must follow.
    Response: On July 1, 1998, DOE General Counsel Mary Anne Sullivan 
responded to the issue of SEPA's discretion to collect the full CSRS 
costs in rates by a memorandum opinion of same date entitled, ``PMA 
Authority To Collect In Rates, and Reimburse To Treasury, Government's 
Full Costs of Post Retirement Benefits' (Opinion). The Opinion is cited 
hereafter as (Mem. Opinion, July 1, 1998). A copy of the Memorandum 
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. The Opinion concludes at page 
4:

    * * * 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.

The July 1, 1998 Opinion also concludes, at page 7:

    DOE policy, 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.

    Comment 2: The failure to follow Financial Accounting Standards 
Board represents an unexplained departure from the existing regulations 
which pertain to the recovery of costs by the PMAs.
    Response: As explained more fully at page 4 of the July 1, 1998 DOE 
General Counsel's Opinion, there was no ``articulated legal judgment'' 
to bar to the inclusion of the cost of unfunded post-retirement 
benefits in rates. As explained in said Opinion, and in SEPA's 
responses to comments 4 and 16, SEPA is implementing the said Opinion 
to recover in our rates such costs.
    The July 1, 1998 Opinion concluded on page 10, that ``* * * monies 
received from power rates to recover costs of unfunded liabilities from 
power marketed by SEPA * * *, would be deposited into the general fund 
of the Treasury as miscellaneous receipts,'' and that such ``* * * 
(p)ayments would therefore offset the appropriation for unfunded 
liability made to the OPM Funds.''
    In accordance with such Opinion, SEPA is including a component in 
our rates which will operate as an offset against the annual 
appropriations by Congress to the Office of Personnel Management to 
fund post-retirement benefits promised to Federal retirees under 
existing law.
    In the view of SEPA, such actions as we are undertaking for the 
second time since the July 1, 1998 Opinion was issued, were in 
accordance with the Congressional mandate, applicable law, and the 
requirements of DOE Order RA 6120.2 that SEPA establish its rates in 
accordance with generally accepted accounting principles as adopted by 
the Financial Accounting Standards Board (FASB).
    Comment 3: Information SEPA has relied upon in calculating the rate 
increase [regarding CSRS] fails to comport with the regulations that 
SEPA and other PMAs must follow.
    Response: SEPA used the best estimates for future years of the CSRS 
costs by estimating that future years would be the same as the actual 
1998 CSRS cost of $818,991. The actual costs for 1998 were determined 
by using the ratio of OPM's share of the costs applied to the actual 
annual salaries for each Corps employee allocated to power. The same 
method was used to compute SEPA's CSRS cost. It should be noted that 
this comment was directed toward estimated costs used in the proposed 
rate filing presented to the customers at the rate forum. The estimate 
at that time was $789,000.
    Comment 4: The inclusion of CSRS costs in the proposed rate 
increase also raises questions whether SEPA may recover CSRS costs for 
Corps employees. By operation of law, each federal agency makes 
deductions, contribution and deposits for retirement benefits for the 
agency's federal employees. The SEFPC submits that the discretion 
afforded by the Flood Control Act of 1944 to collect (full) CSRS costs 
must yield to the more explicit statutes, i.e. 5 U.S.C. 8334, placing 
an obligation upon the employing agency to deduct a percentage of the 
employee's pay and to contribute an equal amount from the appropriation 
or fund used to pay the employee to fund retirement costs.
    Response: The Department of Energy has made a determination that it 
is appropriate for the PMAs to include the CSRS costs and pension 
health benefits costs that are funded by the OPM in the rates charged 
to customers. Therefore, SEPA has included the costs in the repayment 
study and thereby included them in the rates that SEPA proposes to 
charge to the customers. The DOE General Counsel's July 1, 1998 Opinion

[[Page 37125]]

reviewed SEPA's statutory framework to determine whether SEPA, under 
current law, (1) may collect in rates the costs of post-retirement 
benefits, and (2) pay these rates revenues into a non-revolving 
Treasury account ``* * * as an effective offset to appropriations 
1 into the OPM funds from which these benefits are 
financed.''
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    \1\ The Government's full costs of the post retirement benefits 
not recovered by employer-employee contributions to the OPM Funds 
are funded by permanent and mandatory ``such sums as may be 
necessary'' annual appropriations to these funds. There are three 
such funds.
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    The July 1, 1998 DOE General Counsel's Opinion synopsized them as 
follows:

    A. The Civil Service Retirement Act provides retirement and 
disability benefits for federal employees. The employing agency 
deducts a percentage of an employee's basic pay, combines it with an 
equal amount contributed by the appropriate governmental agency, and 
deposits it in the Treasury to the credit of the Civil Service 
Retirement and Disability Fund (Retirement Fund), citing Clark v. 
United States, 691 F.2d 837, 841 (7th Cir. 2d 1982), 5 U.S.C. 
Sec. 8334. Mem. Opinion (July 1, 1998), at 2;
    B. The Federal Employees' Health Benefits Fund (Health Fund) 
consists of funds withheld from employees plus specified 
contributions by the employing agencies, citing 5 U.S.C. 8906, 8909. 
Id. at 2; and
    C. The Employees' Life Insurance Fund (Insurance Fund) consists 
of funds withheld from employees plus specified contributions by the 
employing agencies. 5 U.S.C. 8707, 8708, 8714. Id. at 2.

    Congress provides in annual appropriations acts, as part of the 
appropriations to the OPM ``such sums as may be necessary'' for 
payments, to retirees to the extent these funds are underfunded. See, 
e.g., Omnibus Consolidated and Emergency Supplemental Appropriations 
Act, FY 1999, 112 Stat. 2681-509, Pub. L. No. 105-277, Act of October 
21, 1998; and Treasury and General Government Appropriations Act, 1998; 
111 Stat. 1303, Pub. L. No. 105-61, Act of October 10, 1997.
    The DOE General Counsel took cognizance of the fact that at present 
the four PMAs are recovering in rates the cost of their own direct 
contributions to the three OPM funds with respect to their own 
employees.
    The DOE General Counsel cited the statute, 5 U.S.C. 8334 (a)(1), 
establishing the Civil Service Retirement and Disability Fund, stating 
that it provides that ``* * * government contributions for an employee 
shall be `contributed from the appropriation or fund used to pay the 
employee' * * *'' Mem. Opinion, (July 1, 1998) at 3, and that the 
statutes, 5 U.S.C. 8708(a) and 8906(f)(1), creating the Insurance and 
Health Funds ``contain similar language,'' Mem. Opinion (July 1, 1998), 
at 3. Also, with ``* * * respect to Bureau of Reclamation (Bureau) and 
Corps of Engineers (Corps) employees that are involved in power 
operations and maintenance, the Bureau and Corps make the agency 
contributions to the OPM Funds directly.'' Mem. Opinion (July 1, 1998), 
at 3. The General Counsel also noted that the four PMAs were recovering 
in rates the cost of their own ``* * * direct contributions to the 
three OPM funds with respect to their own employees.'' See id. at 6. 
The General Counsel likewise noted that the PMAs were ``* * * 
recovering in rates the power-related operation and maintenance 
expenses of the Corps and the Bureau,'' including ``* * * contributions 
by those two agencies to the OPM funds to the extent that their 
employees conduct these functions.'' See Id. at 6. There was a problem 
by reason of the fact 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 under-collected amounts are eleven 
percent in the case of Civil Service Retirement System employees. Mem. 
Opinion (July 1, 1998), at 1, 2 and 6.
    The General Counsel reviewed the 1969 Congressional enactment, 
i.e., 5 U.S.C. 8348(f), which ``* * * 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.'' Mem. Opinion (July 1, 1998), at 2. 
The opinion noted that, ``* * * prior to 1969 * * *, the Retirement 
Fund had an unfunded deficit created ``by the Government's failure to 
contribute sufficient funds, the gradual increase in liability caused 
by past increased retirement benefits and salary increases.' '' Mem. 
Opinion (July 1, 1998), at 2. The General Counsel concluded, after an 
extensive review of all relevant factors, that the PMAs, including 
SEPA, have sufficient statutory authority to include unfunded costs in 
their rates and can deposit such funds into an appropriate Treasury 
account so as to effectively ``offset'' the said ``such sums as 
necessary'' appropriations made to the OPM funds from which these post-
retirement costs are paid to retirees. Mem. Opinion (July 1, 1998), at 
2, 7, 10, and 11.
    The General Counsel noted that SEPA is required to set rates for 
electric power that cover costs, and the relevant statutes leave 
``considerable discretion'' to the PMAs in applying this standard. The 
General Counsel cited Section 5 of the Flood Control Act of 1944, which 
applies to projects built by the Army Corps of Engineers, and power 
marketed by SEPA, provides that the rates ``shall be set `having regard 
to the recovery * * * of the cost of producing and transmitting such 
electric energy.' '' `` 16 U.S.C. 825s. Mem. Opinion (July 1, 1998), at 
3. The General Counsel emphasized that, under Section 12 of DOE Order 
No. RA6120.2, ``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, `(all) costs of operating and 
maintaining the power system during the year in which such costs are 
incurred,' '' and that the said order further ``requires the PMAs to 
use accounting practices consistent with the principles prescribed by 
the Financial Accounting Standards Board.'' Mem. Opinion (July 1, 
1998), at 5, citing Section 6 of RA6120.2. The General Counsel also 
observed that, ``* * * the requirement to set rates consistent with the 
DOE order has been judicially recognized,'' citing Overton Power Dist. 
No. 5 v. Watkins, 829 F. Supp. 1523, 1530 n. 5 (D. Nev. 1993).'' Mem. 
Opinion (July 1, 1998), at 5.
    The FASB, whose principles are referenced in DOE Order RA6120.2, 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 Company, 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). See also, SEPA Georgia-Alabama-South 
Carolina System Rate Order No. SEPA-37, 63 Fed. Reg. 53,409, 53,413 
(October 5, 1998). The ``* * * `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,' '' 
Southwestern Bell Telephone Co., at 5, f.n. 5. See also, SEPA Rate 
Order 37, 63 Fed. Reg. 53,413.
    FAS No. 106, * * * ``changes generally accepted accounting 
principle * * * for post retirement, medical and life insurance 
benefits from accounting on a pay-as-you-go basis to an accrual 
basis.'' Pennsylvania Public Utility

[[Page 37126]]

Commission v. Metropolitan Edison Company. (Case No. R-00922314) 78 
Penn, PUC 124; 141 P.U.R. 4th 336 (January 21, 1993). See also, SEPA 
Rate Order 37, 63 Fed. Reg. 53,413, supra. The General Counsel, citing 
Section 106 of FASB Statement No. 106, stated that ``FASB has 
recognized post-retirement benefits to be broader than simply pensions, 
issuing in December 1990 standards regarding post-retirement benefits 
other than pensions.'' Mem. Opinion (July 1, 1998), at 5, f.n. 5. The 
General Counsel, who noted that under FAS 106, ``* * * post retirement 
benefits include post-retirement health care and life insurance 
provided outside a pension plan to retirees,'' also stated that under 
FAS 106, ``* * * `(a) post retirement benefit is part of the 
compensation paid to an employee for services rendered.' Thus, under 
FAS 106, ``* * * `the cost of providing the benefits should be 
recognized over those employee service periods.' This was ``* * * 
`(b)ecause the obligation to provide benefits arises as employees 
render services * * *' '' Mem. Opinion (July 1, 1998), at 5, f.n.5.
    The DOE General Counsel emphasized that ``* * * FERC has recognized 
that the obligation for such retiree benefits is legitimately treated 
as a cost,'' and that ``FERC recognizes, as a component of cost-based 
rates, allowances for prudently-incurred costs of post-retirement 
benefits other than pensions (PBOPs) that are consistent with the 
accounting principles set forth in FASB Statement No. 106 (1991).'' 
Mem. Opinion (July 1, 1998), at 5, citing 61 FERC para.61,330, at 
62,200 (1992). Further, FERC ``interpreted the FASB statement to find 
`that PBOP plans are deferred compensation arrangements whereby an 
employer promises to exchange future benefits for employees' current 
service and that their cost should be recognized over that employee's 
service periods for financial accounting and reporting purposes,' '' 
Mem. Opinion (July 1, 1998), at 6, citing 61 FERC at 62,199.
    The DOE General Counsel found it very significant that FERC had 
concluded that, ``PBOP are a form of deferred compensation to employees 
for the services that they provide during their working years * * * 
Therefore, * * * the costs of providing these benefits are properly 
included in the cost of service during the period that the benefits are 
earned.'' Mem. Opinion (July 1, 1998), at 6, citing 61 FERC, at 62,201. 
Also, ``FERC's uniform system of accounts recognizes accruals to 
provide for pensions as an element of operation and maintenance 
expenses where the utility has, by contract, committed to a pension 
plan.'' Mem. Opinion (July 1, 1998), at 6, citing 18 CFR 101.926.
    The General Counsel stated that, under case law precedent courts, 
``* * * in reviewing actions of the PMA's, `give' substantial deference 
to PMA interpretations of their organic statute,'' Mem. Opinion (July 
1, 1998), citing Department of Water & Power of the City of Los Angeles 
v. Bonneville Power Administration, 759 F.2d. 684, 690-91 [9th Cir. 
1985] and 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.' 
``Id., citing Alcoa v. Central Lincoln Peoples'' Util. Dist., 467 U. S. 
380, 389 (1994). Id. at 4. The court ``* * * need only conclude that 
the interpretation is a reasonable one,'' Id. at 4, citing Chevron v. 
Natural Resources Defense Council, 467 U.S. at 845. The relevant 
statute, i.e., Section 5 of the Flood Control Act of 1944 and DOE Order 
RA 6120.2, provides that the PMAs must set rates that fully recover 
costs. Because the statutes provide little direction as to how the 
agencies are to interpret the term ``costs,'' this confers discretion 
upon DOE and SEPA. There is no indication that Congress intended to 
preclude the collection of full costs. Congress appropriates such sums 
as may be necessary to OPM to provide promised post retirement 
benefits. 2 Congress provides additional sums to OPM to 
supply benefits to retirees whose costs are only partially recovered by 
the Government agency and its employees' contributions to the OPM 
funds.
---------------------------------------------------------------------------

    \2\ See discussion at f.n. 1.
---------------------------------------------------------------------------

    Chevron, Inc. v. National Resources Defense Council, Inc., supra, 
is the landmark case in determining judicial deference to 
administrative interpretation of statutes. See Thomas W. Merrill, 
Judicial Deference to Executive Precedent, 101 Yale L.J. 969, 975 
(1992). In Chevron, the Supreme Court adopted a two-step analysis for 
determining whether to defer to agency interpretation of statutes. See 
Chevron, 467 U.S. at 842-43. First, the court determines whether 
Congress has ``directly spoken'' on the issue. If the court concludes 
that the intent of Congress is clear, it must enforce the ascertained 
intent. See id. at 842-43. If the court determines that Congress has 
not directly spoken on the issue, or has been silent or ambiguous, the 
court merely asks whether the agency's interpretation is reasonable.
    The General Counsel reasoned that, ``* * * post retirement benefits 
`are part of the compensation paid to an employee for services 
rendered,' '' Mem. Opinion (July 1, 1998), at 5, f.n.5. The FASB `` 
`believes that the cost of providing the benefits should be recognized 
over those employee service periods.' '' Id. citing FASB 106.03 and 
106.18). The obligation ``* * * `to provide benefits arises as 
employees render services * * *' '' Id. at 5, f.n. 5. Further, the DOE 
General Counsel was of the view 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'' and that, ``* * * recovering those 
costs in rates is entirely consistent with the congressional objective 
that the PMAs operate on a fiscally self-supporting basis.'' Mem. 
Opinion (July 1, 1998), at 5, citing Department of Water & Power v. 
BPA, 759 F.2d at 695 (9th Cir. 1985). It is entirely reasonable that 
agencies like SEPA be required to recover in their rates a component 
for costs attributable to retirement benefits of Federal employees 
producing power in the period covered by the rates, where such charges 
offset the appropriation of funds necessary to provide promised 
benefits to all retirees, including such future SEPA and Corps of 
Engineers retirees who are engaged in producing power sold by SEPA in 
the period covered by such rates.
    The DOE General Counsel, concluding by way of summary, stated that 
the above-described DOE ratemaking policy, FASB 87 and FASB 106 
Accounting Principles, and FERC ratemaking policy, ``indicate that the 
inclusion in rates `in a given period of' all employer costs, 
`including unfunded post-retirement costs' accruing in that period is a 
reasonable interpretation of the statutory obligation to recover 
costs.'' Mem. Opinion (July 1, 1998), at 6-7. Since DOE's General 
Counsel has upheld the reasonableness of the recovery of all such SEPA 
employer costs by the said July 1, 1998 Memorandum Opinion, SEPA must 
reject this objection.
    Comment 5: Deposits into the Treasury of SEPA's charge for post-
retirement benefits in rates violates the principle of cost-based rate 
making that there be a matching of costs collected with costs actually 
incurred. At page 19 of their May 10, 1999 comments, the Southeastern 
Federal Power Customers object to the collection of a separate post 
retirement component for post retirement benefits in rates. They 
stated:


[[Page 37127]]


    Cost-based ratemaking requires a matching of costs collected 
with costs actually incurred. With respect to the PMA's, the 
collection of CSRS in rates, deposited in the Treasury, provides no 
assurance that amounts paid by ratepayers will match the benefits 
actually paid.

    Response: The commenters fail to understand the matching principle 
in the context of FAS 106 as interpreted by FERC and the courts. The 
matching principle within ratemaking, as defined by Kohler's A 
Dictionary for Accountants, is `` * * * identifying related revenue and 
expense with the same accounting period.'' Accrual basis of accounting, 
as defined by the same dictionary, is, ``The method of accounting 
whereby revenues and expenses are identified with specific periods of 
time, such as a month or year * * *'' In the case of CSRS costs and 
post-retirement health benefits costs, the expenditures for these costs 
will be in the future after employees retire. However, accrual 
accounting would require that the current expenses should be recorded 
for these future costs.
    Historically, for many organizations not including the Federal 
Government or SEPA, post-retirement benefit expenses have been 
recognized on a cash basis for both ratemaking and accounting purposes. 
Under the cash basis approach, the cost of post-retirement benefits 
``provided to retirees (and their dependents and beneficiaries) is 
included in a utility's rates when the benefits are actually received 
by the retirees after retirement, i.e., when cash expenditures are made 
from general corporate assets in satisfaction of the company's 
obligation to provide such benefits.'' New England Power Company, 61 
FERC para.61,331, at 62,207. Under the cash method, these expenses are 
not recognized for ratemaking purposes (or for accounting purposes) 
during the current period if no cash outlay has been made. Id. at 
62,207.
    In December 1990, the FASB issued Statement of Financial Accounting 
Standards No. 106, Employers' Accounting for Postretirement Benefits 
Other than Pensions (FAS 106), which requires all companies subject to 
FASB accounting standards with over 500 plan participants to adopt 
accrual accounting for PBOP expenses no later than fiscal years 
beginning after December 15, 1992. FAS 106 applies to both regulated 
and unregulated companies. New England Power Company, 61 FERC at 
62,207.
    Under FAS 106, companies will be required, for financial reporting 
purposes, to recognize PBOP expenses as a current expense during the 
years an employee provides service to the employer (and, accordingly, 
earns such benefits) rather than when they are actually paid. FERC 
stated that ``FAS 106 requires that each accounting period be charged 
with the present value of the cost * * *'' [of post retirement 
benefits] ``* * * earned by the employees during that period.'' New 
England Power Company, 61 FERC para.61,331, at 62,207.
    FAS 106 instructed companies to adopt the accrual accounting method 
for determining post-retirement benefit. This method prescribes that 
companies must ``account now for the post-retirement benefits they 
expect to pay in the future to their current employees.'' Town of 
Norwood, 53 F.3d at 377, 378 (D.C. Cir. 1995).
    The protestants are wrong when they assert that cost-based 
ratemaking requires a matching costs actually incurred. Such assertion 
is not necessarily so, in a case where the utility is attempting to 
apply FAS 106. In New England Power Company, the Commission recognized 
that the matching principle was not violated, even though rate payers 
in future rates would become liable for both costs of prior service, 
referred to as the transition obligation, and costs of current service, 
even though the costs of prior services far exceeded the cost of 
current service by nearly three and one-half times. See, 60 FERC 
para.63,006, at 65,084 (A.L.J. initial decision) and 61 FERC 
para.61,331 at 62,213-15.
    The development of SEPA's rate does not involve the complicated 
step of calculating costs of prior service involved in their 
calculation of the transition obligation.3 No such 
complication is presented by SEPA's rates. SEPA, under Administration 
policy, looks only to recovery of future costs for current service in 
rates to be approved as provided for in the subject Cumberland rates. 
As FERC stated:

    \3\ In the case of a private utility (but not of SEPA) an 
``integral component of conversion to the accrual method is the 
calculation of (and recovery schedule for) the PBOP obligation 
associated with the past service of employees and retirees (known as 
the transition obligation). The transition obligation represents a 
company's accumulated liability for PBOP expenses for both present 
employees and current retirees during the period up to the date of 
conversion from a cash to an accrual method which had been deferred 
for future periods.''
    Under FAS 106, companies have the option either to expense the 
transition obligation immediately or to recognize the expense over 
time (i.e., to amortize the transition obligation over a specified 
period of time). If recognized over time, a company has the further 
option to amortize the transition obligation on a straight-line 
basis over the average remaining service period of active plan 
participants over 20 years if greater. New England Power Company, 61 
FERC para.61,331 at 62,208.
    The Federal Government has always been on an accrual basis and 
therefore no transition obligation is necessary.
---------------------------------------------------------------------------

    When the accrual method is employed, the company first estimates 
the future liability of the PBOPs for the current employees, and 
then, collects the costs for that liability from current 
ratepayers.'' Note effects of Financial Accounting Standard 106 on 
Electric Ratemaking, 64, George Washington Law Review 1180, 1183 
(1966) citing Town of Norwood, 53 F.3d 378-79.

    SEPA need only take the first step in the accrual accounting 
system. This requires that the future costs for current service be 
calculated. The policy of matching has as its purpose to have 
``ratepayers * * * pay for the production of the services they 
receive.'' Id., citing Town of Norwood, 53 F.3d 381 (D.C. Cir. 1995).
    In SEPA's case, this means calculation of those future costs which 
are not recovered from the SEPA's and the employees' contributions to 
the Civil Service Retirement Fund, the Life Insurance Fund, and the 
Federal Employees Health Benefits Fund, described above. SEPA, in 
accordance with Administration policy, only recovers in this rate the 
costs of current service of those of its employees and the Corps of 
Engineers employees, who render services to the Cumberland rate payers 
over the period of the effectiveness of the Cumberland rate which are 
not recovered pursuant to the aforementioned laws. The OPM provides the 
instructions for the recording of accrual basis of costs for pension 
expense and for post-retirement health benefits. The cost factor 
applicable for CSRS employees for 1998 was 24.2% of the salary. The 
amount withheld from employees was 7.0% for part of the year and 7.25% 
for part of the year, and the amount paid by SEPA was 8.51% of the 
salary for the entire year. Therefore, the amount paid by the OPM was 
9.69% for part of the year and 9.44% for the rest of the year. This 
9.69% and 9.44% was multiplied times the salaries of the SEPA employees 
during the appropriate period for the employees during 1998. The post-
retirement health benefits costs was computed by taking actual 
enrollment in FEHB on 10-1-97, 3-31-98, & 9-30-98. The number of 
enrollees on 10-1-97 and on 9-30-97 was multiplied times one (1), and 
the number of enrollees on 3-31-98 was multiplied times two (2). The 
total was divided by four (4), thereby creating an average enrollment 
for the year. The product is multiplied times the cost factor provided 
by the OPM of $2,493. Life benefits funded by OPM are computed by 
multiplying the salaries of the enrollees by two percent (2%). We have

[[Page 37128]]

confirmed that the Corps is using a similar method for fiscal year 1998 
to determine their actual costs.
    All SEPA must do is to take the first step, which is the 
establishment of reasonable estimate of the costs of post-retirement 
benefits currently earned by those utility employees serving SEPA's 
customers during the period of effectiveness of SEPA's proposed 
Cumberland rates, to the extent such costs are not covered in the 
future by said laws. SEPA has done this.
    Comment 6: SEPA's CSRS proposal contains none of the customer 
protections that FERC has required.
    Response: SEPA believes that the protection that FERC requires is 
that the cost be a true actual cost. The actual costs for Fiscal Year 
1998 were $818,991, and SEPA has projected this amount for all future 
years. However, the actual cost that is recorded by SEPA and the Corps 
in future years will be the costs the customers actually repay 
according to the repayment recovery criteria set forth in DOE Order RA 
6120.2.
    Comment 7: Moneys collected go to the Treasury and are available 
for general purpose along with all other taxpayer receipts. They are 
not separately accounted for or held like Treasury payments or the 
illusory Social Security ``trust funds.'' They would be bookkeeping 
entries at best, nothing more. SEPA's proposal contains none of the 
protections that arise from ``irrevocable external trust funds[s]'' 
such as FERC has required to be established in the case of post-
retirement benefits collected by regulated utilities from rate payers.
    Response: SEPA can, under existing law, make no disposition of its 
post-retirement benefit collection, other than payment into 
miscellaneous receipts account. The DOE General Counsel recognizes that 
Section 5 of the Flood Control Act requires all SEPA revenues, 
``received in rates to recover costs of unfunded liabilities would be 
deposited directly into the Treasury as miscellaneous receipts fund of 
the Treasury, and could not be expended without further 
appropriation.'' Mem. Opinion (July 1, 1998), at 7, citing 31 U.S.C. 
3302(b). SEPA must comply with this requirement, as it is not subject 
to the Federal Power Act, pursuant to which FERC adopted such an 
irrevocable trust requirement for utilities subject to FERC 
jurisdiction. SEPA is exempt from FERC's Federal Power Act 
jurisdiction.
    Payments of SEPA revenues into the Treasury, including the 
component thereof for unfunded retirement benefits, constitutes, in the 
view of DOE General Counsel, an ``offset'' to the appropriations to the 
OPM funds to meet the large unfunded liability of the Government for 
retirement benefits. Id. at 10 and 11. Congress meets this obligation 
by annual ``such sums as may be necessary'' appropriations to the 
Office of Personnel Management's Funds to assure retirement benefits 
are paid.
    The Opinion addresses the authority of the Power Marketing 
Administrations (PMA) to collect in rates an amount that would offset 
the Government's full cost of post-retirement employee benefits. It 
stated, quoting the Testimony of William E. Flynn, Associate Director 
for Retirement and Insurance of the Office of Personnel Management 
Before the Senate Committee on Governmental Affairs, Subcommittee on 
Post Office and Civil Service (May 15, 1995), that:

    The elements of the historically under collected amounts are 
approximately 11 percent of salary for CSRS employees (cost of 
approximately 25 percent of salary less the 7 percent employee 
contribution and the 7 percent agency contribution), plus the FY 
1998 accrual for the Government's share of post retirement health 
and life insurance benefits for current employees.

    The DOE General Counsel, citing 5 U.S.C. 8348 (f), Pub. L. 91-93, 
Act of October 20, 1969, 83 Stat. 136, noted that, ``In 1969, 
Congress,'' had ``authorize(d) appropriations to the Retirement Fund to 
finance the unfunded liability'' for retiree benefits ``* * *by 
authorizing a permanent indefinite appropriation for transfer of 
general funds from the Treasury.'' Mem. Opinion (July 1, 1998), at 2.
    Since FY 1998, Congress has, by a separate line item in 
Appropriations Acts to the Office of Personnel Management, pursuant to 
the authority of said 1969 Act, appropriated ``such sums as may be 
necessary'' to finance the unfunded Civil Service Retirement Fund 
obligation. See the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act for FY 1999, Pub. L. 105-277, Act of October 21, 
1998; 112 Stat 2681, 2681-509. This Act states:

Payment to Civil Service Retirement and Disability Fund

    For financing the unfunded liability of new and increased 
annuity benefits becoming effective on or after October 20, 1969, as 
authorized by 5 U.S.C. 8348, and annuities under special Acts to be 
credited to the Civil Service Retirement and Disability Fund, such 
sums as may be necessary: Provided, The annuities authorized by the 
Act of May 29, 1994, as amended, and the Act of August 19, 1950, as 
amended (33 U.S.C. 771-775), may hereafter be paid out of the Civil 
Service Retirement and Disability Fund.'' Id.

See, also the Treasury and General Government Appropriations Act, for 
FY 1998 (PL 105-61; Act of October 10, 1997; 111 Stat. 1303) which 
states:

Payment to Civil Service Retirement and Disability Fund

    For financing the unfunded liability of new and increased 
annuity benefits becoming effective on or after October 20, 1969, as 
authorized by 5 U.S.C. 8348, and annuities under special Acts to be 
credited to the Civil Service Retirement and Disability Fund, such 
sums as may be necessary: Provided, The annuities authorized by the 
Act of May 29, 1944, as amended, and the Act of August 19, 1950, as 
amended (33 U.S.C. 771-775), may hereafter be paid out of the Civil 
Service Retirement and Disability Fund.

    The underlying Office of Personnel Management Budget Justification 
for FY 1998, in support of the FY 1998 Appropriation to the Civil 
Service Retirement Fund to meet the annual unfunded liability, stated 
that this was a mandatory appropriation. OPM estimated that $8.3 
billion would be needed for this purpose in FY 1998. See, Hearings 
Before a Subcommittee of House Committee on Appropriations on Treasury, 
Postal Service and General Government Appropriations for FY 1998, 105th 
Congress, 1st Session, 732 (1997).
    The statement of Honorable Janice R Lachance, Director, OPM, before 
the Subcommittee on Treasury, Postal Service, and General Government 
Committee on Appropriations, U. S. House of Representatives on OPM's 
Fiscal Year 1999 Appropriations Request stated:

    ``* * * as mandated by the financing system established in 1969 
by Public Law 91-93, we are requesting a `such sums as may be 
necessary' appropriation for the civil service retirement and 
disability fund. This payment, which we estimate to be $8.7 billion, 
represents the 30-year amortization of liabilities resulting from 
changes since 1969 (principally pay increases) which affected 
benefits.'' See Hearings Before a Subcommittee of the House 
Committee on Appropriations on Treasury, Postal Service, and General 
Government Appropriations for fiscal year 1999, 105th Congress, 2d 
Session 636 (1998).

    The General Counsel noted the other two funds that provide benefits 
to retirees. These are funds for health and insurance benefits, which 
are likewise underfunded. Congress, likewise, makes provisions for 
them. The said FY 1999 Appropriations Act, appropriating funds to OPM, 
makes appropriations for the unfunded health and life insurance 
benefits. This Act provides:

Government Payment for Annuitants, Employees Health Benefits

    For payment of Government contributions with respect to retired 
employees, as

[[Page 37129]]

authorized by chapter 89 of title 5, United States Code, and the 
Retired Federal Employees Health Benefits Act (74 Stat. 849), as 
amended, such sums as may be necessary.

See Public Law 105-277; Act of October 21, 1998, 112 Stat 2681-509.

Government Payment for Annuitants, Employee Life Insurance

    For payment of Government contributions with respect to 
employees retiring after December 31, 1989, as required by chapter 
87 of title 5, United States Code, such sums as may be necessary.

    Id. at 112 Stat at 2681-509.
    The FY 1999 Budget Statement of OPM Director Lachance stated:

    ``As always, the OPM budget request includes mandatory 
appropriations to pay the government's contributions to the federal 
employee life insurance and health benefits programs on behalf of 
annuitants since those enrollees have no employing agencies to 
contribute the government's share for them. We are requesting a 
`such sums as may be necessary' appropriation for each of these 
accounts because of their mandatory nature. We estimate that $35.2 
million will be required for the 323,000 non-postal annuitants 
retiring after 1989 and electing post retirement life insurance, 
while an estimated $4.6 billion will be needed to finance the 
government's contribution toward health benefits coverage for the 
1.9 million participating annuitants.'' See FY 1999 House Treasury , 
Postal Service, and General Government Appropriations Hearings, 
supra, at 635-636.

    So long as Congress continues to provide all retirees these health 
and life insurance benefits, SEPA's retirees and Corps retirees engaged 
in the production of power, will not suffer.
    As indicated, payments of SEPA revenues into the Treasury, 
including the component thereof for unfunded retirement benefits, 
constitutes in the view of DOE's General Counsel an offset against the 
large unfunded liability of the government for retirement benefits. The 
General Counsel stated:

    All PMA rate revenues are required to be deposited in a 
statutorily specified fund or account of the Treasury. Pursuant to 
Flood Control Act requirements, monies received from power rates to 
recover costs of unfunded liabilities from power marketed by SEPA * 
* * would be deposited into the general fund of the Treasury as 
miscellaneous receipts. Payments into the general fund from these 
sources would therefore offset the appropriation for unfunded 
liability made to the OPM funds.

See Mem. Opinion (July 1, 1998), at 10.
    The comments are a basic attack against the Administration decision 
to charge ratepayers for unfunded post-retirement benefit liabilities. 
So long as Congress honors the federal government's commitments to all 
its retirees, SEPA's retirees and Corps retirees engaged in the 
production of power will receive the benefits as promised. The only 
difference is that SEPA's customers will bear the total estimated 
future government cost thereof attributable to current SEPA and Corps 
employees providing electric service to SEPA customers who retire in 
the future.
    The DOE General Counsel Opinion states in detail how Administrator 
policy respecting post-retirement benefits in PMA rates may be legally 
implemented. SEPA must prepare its rates accordingly. It must reject 
the Southeastern Power Customers' challenge to SEPA's treatment of 
post-retirement benefits, as they embody Administration policy as set 
forth in the DOE General Counsel's Opinion.
    Comment 8: SEPA's imposition of the post-benefit retirement charge 
fails to meet the requirement of the FERC rule that funds so collected 
be placed in an irrevocable trust.
    Response: SEPA is not bound by such FERC rule, which is applicable 
to utilities subject to the Federal Power Act. See New England Power 
Company, 61 FERC para. 61,331, at 62,213 (1992). FERC stated:

    We will require, however, that NEP use external funding in 
irrevocable trusts for all amounts collected for PBOP obligations as 
a condition of rate recovery under the accrual method. External 
funding in irrevocable trust will remove any incentive for NEP to 
overestimate its costs because NEP will not have use of the funds 
for any other corporate purpose. Moreover, external funding will 
ensure that the revenues collected will be available for their 
intended purpose--to provide post retirement benefits to employees. 
Additionally, to the extent that overfunding ever occurs, NEP is 
also directed to reserve any over-collection expressly for the 
benefit of customers, through reduced expense projections in 
subsequent filings. Id. at 62,213 (footnotes omitted).

    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 FR 59716 (November 10, 1993). Hence, the foregoing rule 
has no application to SEPA. All SEPA can do under applicable law, is to 
place the post-retirement benefits it receives into miscellaneous 
receipts account of the treasury. This becomes an offset against annual 
``such sums as may be necessary'' appropriations to OPM to finance 
unfunded but promised benefits. Mem. Opinion (July 1, 1998), at 10-11.
    SEPA is required by Flood Control Act of 1944, as well as the 
Miscellaneous Receipts Act (31 U.S.C. 33020), to deposit all monies 
received to the Treasury of United States as miscellaneous receipts. It 
is, therefore, not possible for SEPA to establish an ``irrevocable 
external trust fund'' for these monies, as FERC has in some instances 
required of regulated electric and gas public utilities.
    Comment 9: The data relied upon by SEPA illustrates how the 
proposed rate increase fails to comply with RA6120.2.
    Response: RA 6120.2 says SEPA must recover costs. The Legal Opinion 
defines CSRS costs as reasonable costs. See response to 1 above.
    Comment 10: Because SEPA has failed to incorporate any provisions 
that would adjust or modify CSRS rates on an annual basis which would 
ensure a more accurate representation of CSRS costs to SEPA, the 
customers have no assurances that the costs of operating and 
maintaining the system are incurred during the year in which the rates 
are effective.
    Response: The customer will pay the actual CSRS costs. See response 
to 6 above.
    Comment 11: Because a significant component of the CSRS costs 
includes cost recovery for Corps employees, the SeFPC requested 
background information from the Corps pertaining to the Corps's 
calculations of CSRS costs.
    Response: The Corps has provided SEPA actual costs for FY 1998, 
which were used to estimate costs in future years.
    Comment 12: SeFPC notes that there appear to be inconsistencies in 
the determination of Full-Time Equivalents (``FTEs''). SeFPC wishes to 
raise this specific issue to express its overall concern with its 
inability to determine (based upon the data provided to date) whether 
the CSRS costs are reasonable and whether the assumptions are 
justified. Absent such determination, and for other reasons explained 
by SeFPC, SEPA should not be allowed to flow-through the CSRS cost to 
its customers.
    Response: The Corps and SEPA have determined actual costs of CSRS 
of $818,991 for fiscal year 1998.
    Comment 13: SeFPC submits that recovery of CSRS costs for Corps 
employees is without legal basis and constitutes an illegal 
augmentation of both the Corps' and OPM's appropriations. SeFPC asks 
SEPA to explain how the discretion afforded by the Flood Control Act of 
1944 allows

[[Page 37130]]

DOE to augment the appropriations of the Corps and OPM without 
violating statutory restrictions against augmenting appropriations. 
Government is in essence ``double-dipping'' into taxpayer's pockets to 
pay the costs of the retirement program.
    Response: The legal basis for the recovery of costs of Corps and 
SEPA employees is set forth in SEPA's response to Comment 4.
    There is no double dipping by the Government of the taxpayer. The 
simple fact of the matter is that employer-employee contribution to the 
three OPM funds fails to recover benefits of all Federal retirees, 
including SEPA employees and Corps employees whose efforts are 
attributable to production of Cumberland power. Congress must supply 
from general revenues of the Government the unfunded portion of such 
costs. SEPA's inclusion of component in its rates for unfunded 
liabilities, by reason of the fact that SEPA's revenues are deposited 
into miscellaneous receipts in the Treasury, offsets the amount that 
must be appropriated.
    Congress places no dollar limits on appropriations from the general 
fund to assure full funding of these employee retirement benefits. 
SEPA's inclusion in rates of a component to recover unfunded retirement 
properly assigns to the SEPA customers the full costs of the post-
retirement benefits of Federal employees producing the power which such 
customers consume. This reduces the burden on Federal taxpayers, and is 
justified by reason of the fact that SEPA customers enjoy the benefits 
of SEPA power.
    There is no augmentation of appropriations. Congress appropriates 
``such sums as may be necessary'' to fully fund retirement benefits.
    The Flood Control Act requires that SEPA's power revenues be 
deposited in the miscellaneous receipts of the Treasury. The 
Miscellaneous Receipts Act is a general statute of like effect. The 
purpose of the Miscellaneous Receipts Act is to ensure that the 
Congress retains control of the public purse, and to effectuate 
Congress' constitutional authority to appropriate monies. See in Matter 
of Nuclear Regulatory Commission's Authority to Mitigate Civil 
Penalties, B-238419, 70 Comp. Gen. 17; 1990 U.S. Comp. Gen. Lexis 1060 
(October 9, 1990).
    The reason for the prohibition against augmentation of 
appropriation is to protect Congress' power of the purse and its 
prerogative to determine the level at which an agency of Federal 
programs may operate. See Nolan: Public Interest, Private Income: 
Conflicts and Control Unit on the Outside Income of Government 
Officials, 87 Nw. U.L. Rev. 57,122 (1992). The prohibition against 
augmentation of appropriation would not apply. Congress places no 
dollar limit on what OPM spends. OPM is free to draw from the Treasury 
such sums as may be necessary to pay the retirement benefits Congress 
has promised Federal retirees. Use of SEPA's component for unfunded 
retirement benefits in rates, as a source to pay these benefits, does 
not violate the power of Congress to determine how much shall be spent. 
Congress has agreed to allow OPM to spend what is needed to pay 
promised retirement benefits.
    Comment 14: Until SEPA clears up the glaring discrepancies with 
existing legal authority to recover CSRS costs for SEPA and the Corps 
and sets forth a clear understanding of how the estimated figures for 
the Corps employees was determined and relates to the actual costs of 
the Corps in the future, SeFPC submits that the proposed rate increase 
should not include CSRS costs at this time.
    Response: The Department of Energy has determined that it is 
appropriate for the PMA's to include CSRS costs in rates charged to 
customers. Therefore, SEPA has included the costs in the repayment 
study and thereby included them in rates that SEPA proposes to charge 
to the customers.
    Comment 15: SeFPC submits that the statutory duty for the Corps to 
collect and pay retirement benefits obviates the need for SEPA to 
recover CSRS costs for the Corps. In different terms, if the federal 
government already imposes an obligation of the Corps to deduct funds 
for benefits, in addition to paying the remaining balance from 
appropriations, SEPA has imposed a burden on the customers of the 
Cumberland System of Projects.
    Response: SEPA interprets Section 5 of the Flood Control Act of 
1944, RA6120.2 and FAS 87 and 106 to mean that the full cost of post-
retirement benefits of Corps of Engineers and SEPA employees, engaged 
in the production of power which SEPA markets, must be covered in 
SEPA's rates. As demonstrated in Responses to Comment 5, the 
statutorily-mandated deductions for retirement benefits and employee 
contributions for these purposes do not fully recover the costs or 
retirement benefits. To meet the gap, SEPA is of the view that it must 
add a component to recoup in rates being established by this rate order 
to fund the cost of future unfunded retirement benefits attributable to 
its current employees and current Corps employees who are engaged in 
the production of power during the effective period of such rate. See 
Response to Comment 5.
    Comment 16: Due process of law, as interpreted by United States 
Circuit Court of Appeals decisions, i. e., Sacred Heart Medical Center 
vs. Sullivan, 958 F.2d 537 (3rd Cir. 1992) (holding that an agency must 
offer a ``reasoned justification'' for the change in its interpretation 
of statute or modification of its policy); and Mobil Oil Corporation 
vs. EPA, 871 F. 2d 129 (D. C. Cir. 1989) (requiring an agency to 
acknowledge and explain the departure from its prior views) obligates 
SEPA to ``* * * explain how the proposal to collect pension and health 
benefit costs comports with existing FASB guidance which requires the 
creation of separate accounts.''
    Response: We interpret this due process of law assertion to at 
least require an explanation by SEPA why SEPA did not establish an 
irrevocable trust from the portion of SEPA's Cumberland rate 
attributable to unfunded retirement benefits earned by current SEPA and 
Corps employees who market and produce the power SEPA sells.
    The use of revenues from SEPA rates 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. Because 
SEPA 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 SEPA to establish an ``irrevocable external trust 
fund'' for these monies as FERC has in some instances required of 
regulated electric and gas public utilities.
    Such ``sums as may be necessary'', in the view of the 
Administration and DOE General Counsel Sullivan, offset the general 
fund of the Treasury made to the OPM Funds for unfunded retirement 
liabilities. Given the permanent and mandatory nature of the ``such 
sums as may be necessary'' appropriations to the three OPM funds 
identified in SEPA's Response to Comments 1, 4, 5, and 7. The use of 
such funds to ``offset'' appropriations of unfunded liabilities 
achieves the same purpose that an irrevocable trust would, were it 
legally possible for SEPA to create such a trust. Mem. Opinion (July 1, 
1998), at 10-11. To the extent that an explanation is required of SEPA 
why it decided to include unfunded benefit costs in rates, SEPA states 
by way of historical

[[Page 37131]]

explanation. SEPA did not, prior to 1998, include in its rate the 
unfunded portion of employee benefit costs. It did so in the Georgia-
Alabama-South Carolina (GA-AL-SC) rates in 1998. At that time SEPA 
first proposed recovery of CSRS costs. The rate increase for the 
Georgia-Alabama-South Carolina system was considered by FERC in Docket 
No. EF98-3011-000. FERC approved the inclusion of unfunded retirement 
benefits in SEPA rates in United States Department of Energy--
Southeastern Power Administration, 86 FERC para. 61,195 (1999). On 
April 23, 1999, the Commission issued an order in this docket granting 
rehearing for the limited purpose of further consideration of SeFPC's 
request.
    SEPA continues to include the unfunded portion of its employee 
benefit costs in the case of the subject Cumberland rate order for many 
of the same reasons. See In the Matter of Southeastern Power 
Administration-Georgia-Alabama-South Carolina System Power Rates, Rate 
Order No. SEPA-37, signed by Deputy Secretary Elizabeth A. Moler, on 
September 18, 1998, 63 Fed. Reg. 53409 (October 5, 1998). It also does 
so in light of Administration policy, as set forth in and confirmed by 
General Counsel Mary Anne Sullivan's July 1, 1998 Memorandum Opinion, 
referenced above in SEPA's responses to Comments 4.
    The Financial Accounting Standards Board (FASB) in December 1985 
Statement of Accounting Standards N. 87 (FAS 87) states that, 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.' '' See Southeastern Power Administration-
Georgia-Alabama-South Carolina System Power Rates, Rate Order No. SEPA-
37 at 53,413. 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.' '' Id. at 53,413.
    The DOE General Counsel has concluded that under FASB 106.18, ``* * 
* `a post retirement benefit is part of the compensation paid to an 
employee for services rendered * * *' '' and that, under FASB 106.03, 
``* * * `the cost of providing the benefits should be recognized over 
those employee service periods.' '' Mem. Opinion (July 1, 1998), at 5, 
f.n.5. In the view of SEPA and the DOE General Counsel, under Section 5 
of the Flood Control Act of 1944, DOE Order RA6120.2 and the said FASB 
accounting principles, SEPA has an obligation to provide post-
retirement benefits in its rates as its employees and those of the Corp 
render services by producing power that SEPA sells.
    The Cumberland rates, as were the Georgia-Alabama-South Carolina 
rates, were prepared by SEPA in light of DOE's guidance, both as to 
interpretation of statues and DOE orders, as well as in accordance with 
Administration policy.
6. Rate Implementation
    Comment: KU Area Preference Customers request that SEPA include an 
express commitment, as part of its implementation of the rates, that 
SEPA will refund and flow through to its customers any and all 
reductions that are achieved in TVA's charges to SEPA.
    Response: SEPA cannot make a commitment regarding any future rate 
filings; however, SEPA will be more than willing to listen to any 
suggestions as to how any reductions in TVA charges to SEPA should be 
handled.

Environmental Impact

    SEPA 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 July 1, 1999, and ending no later 
than June 30, 2004.

Order

    In view of the foregoing and pursuant to the authority vested in me 
as the Secretary of Energy, I hereby confirm and approve on an interim 
basis, effective July 1, 1999, attached Wholesale Power Rate Schedules 
CBR-1-D, CSI-1-D, CEK-1-D, CM-1-D, CC-1-E, CK-1-D, CTV-1-D, and SJ-1-A. 
The Rate Schedules shall remain in effect on an interim basis through 
June 30, 2004, unless such period is extended or until the FERC 
confirms and approves them or substitutes Rate Schedules on a final 
basis.

    Dated: June 29. 1999.
Bill Richardson,
Secretary.

Wholesale Power Rate Schedule CBR-1-D

Availability

    This rate schedule shall be available to Big Rivers Electric 
Corporation and includes the City of Henderson, Kentucky, (hereinafter 
called the Customer).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Barkley, J. Percy Priest and Cordell Hull 
Projects (all of such projects being hereinafter called collectively 
the ``Cumberland Projects'') and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 13,800 volts and 
161,000 volts to the transmission system of Big Rivers Electric 
Corporation.

Points of Delivery

    Capacity and energy delivered to the Customer will be delivered at 
points of interconnection of the Customer at the Barkley Project 
Switchyard, at a delivery point in the vicinity of the Paradise steam 
plant and at such other points of delivery as may hereafter be agreed 
upon by the Government and TVA.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $2.900 per kilowatt/month of total contract demand
Energy Charge: None

Energy To Be Furnished by the Government

    The Government shall make available each contract year to the 
customer from the Projects through the customer's interconnections with 
TVA and the customer will schedule and accept an allocation of 1,500 
kilowatt-hours of energy delivered at the TVA border for each kilowatt 
of contract demand. A contract year is defined as the 12 months 
beginning July 1 and ending at midnight June 30 of the following

[[Page 37132]]

calendar year. The energy made available for a contract year shall be 
scheduled monthly such that the maximum amount scheduled in any month 
shall not exceed 240 hours per kilowatt of the customer's contract 
demand and the minimum amount scheduled in any month shall not be less 
than 60 hours per kilowatt of the customer's contract demand. The 
customer may request and the Government may approve energy scheduled 
for a month greater than 240 hours per kilowatt of the customer's 
contract demand; provided, that the combined schedule of all SEPA 
customers outside TVA and served by TVA does not exceed 220 hours per 
kilowatt of the total contract demands of these customers.

Billing Month

    The billing month for power sold under this schedule shall end at 
2,400 hours CDT or CST, whichever is currently effective, on the last 
day of each calendar month.

Conditions of Service

    The customer shall at its own expense provide, install, and 
maintain on its side of each delivery point the equipment necessary to 
protect and control its own system. In so doing, the installation, 
adjustment, and setting of all such control and protective equipment at 
or near the point of delivery shall be coordinated with that which is 
installed by and at the expense of TVA on its side of the delivery 
point.

Service Interruption

    When delivery of capacity is interrupted or reduced due to 
conditions on the Administrator's system beyond his control, the 
Administrator will continue to make available the portion of his 
declaration of energy that can be generated with the capacity 
available.
    For such interruption or reduction due to conditions on the 
Administrator's system which have not been arranged for and agreed to 
in advance, the demand charge for capacity made available will be 
reduced as to the kilowatts of such capacity which have been 
interrupted or reduced in accordance with the following formula:
[GRAPHIC] [TIFF OMITTED] TN09JY99.040

July 1, 1999

Wholesale Power Rate Schedule CSI-1-D

Availability

    This rate schedule shall be available to Southern Illinois Power 
Cooperative (hereinafter the Customer).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Barkley, J. Percy Priest and Cordell Hull 
Projects (all of such projects being hereinafter called collectively 
the ``Cumberland Projects'') and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 13,800 volts and 
161,000 volts to the transmission system of Big Rivers Electric 
Corporation.

Points of Delivery

    Capacity and energy delivered to the Customer will be delivered at 
points of interconnection of the Customer at the Barkley Project 
Switchyard, at a delivery point in the vicinity of the Paradise steam 
plant and at such other points of delivery as may hereafter be agreed 
upon by the Government and TVA.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $2.900 per kilowatt/month of total contract demand
Energy Charge: None

Energy To Be Furnished by the Government

    The Government shall make available each contract year to the 
customer from the Projects through the customer's interconnections with 
TVA and the customer will schedule and accept an allocation of 1,500 
kilowatt-hours of energy delivered at the TVA border for each kilowatt 
of contract demand. A contract year is defined as the 12 months 
beginning July 1 and ending at midnight June 30 of the following 
calendar year. The energy made available for a contract year shall be 
scheduled monthly such that the maximum amount scheduled in any month 
shall not exceed 240 hours per kilowatt of the customer's contract 
demand and the minimum amount scheduled in any month shall not be less 
than 60 hours per kilowatt of the customer's contract demand. The 
customer may request and the Government may approve energy scheduled 
for a month greater than 240 hours per kilowatt of the customer's 
contract demand; provided, that the combined schedule of all SEPA 
customers outside TVA and served by TVA does not exceed 220 hours per 
kilowatt of the total contract demands of these customers.

Billing Month

    The billing month for power sold under this schedule shall end at 
2400 hours CDT or CST, whichever is currently effective, on the last 
day of each calendar month.

Service Interruption

    When delivery of capacity is interrupted or reduced due to 
conditions on the Administrator's system beyond his control, the 
Administrator will continue to make available the portion of his 
declaration of energy that can be generated with the capacity 
available.
    For such interruption or reduction due to conditions on the 
Administrator's system which have not been arranged for and agreed to 
in advance, the demand charge for capacity made available will be 
reduced as to the kilowatts of such capacity which have been 
interrupted or reduced in accordance with the following formula:
[GRAPHIC] [TIFF OMITTED] TN09JY99.041


[[Page 37133]]


July 1, 1999

Wholesale Power Rate Schedule CEK-1-D

Availability

    This rate schedule shall be available to East Kentucky Power 
Cooperative (hereinafter called the Customer).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Percy Priest and Cordell Hull Projects (all of 
such projects being hereinafter called collectively the ``Cumberland 
Projects'') and power available from the Laurel Project and sold in 
wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 161,000 volts to the 
transmission systems of the Customer.

Points of Delivery

    The points of delivery will be the 161,000 volt bus of the Wolf 
Creek Power Plant and the 161,000 volt bus of the Laurel Project. Other 
points of delivery may be as agreed upon.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule from the Cumberland Projects shall be:

Demand charge: $2.900 per kilowatt/month of total contract demand
Energy Charge: None

Energy To Be Furnished by the Government

    The Government shall make available each contract year to the 
customer from the Projects through the customer's interconnections with 
TVA and the customer will schedule and accept an allocation of 1,500 
kilowatt-hours of energy delivered at the TVA border for each kilowatt 
of contract demand plus 369 kilowatt-hours of energy delivered for each 
kilowatt of contract demand to supplement energy available at the 
Laurel Project. A contract year is defined as the 12 months beginning 
July 1 and ending at midnight June 30 of the following calendar year. 
The energy made available for a contract year shall be scheduled 
monthly such that the maximum amount scheduled in any month shall not 
exceed 240 hours per kilowatt of the customer's contract demand and the 
minimum amount scheduled in any month shall not be less than 60 hours 
per kilowatt of the customer's contract demand. The customer may 
request and the Government may approve energy scheduled for a month 
greater than 240 hours per kilowatt of the customer's contract demand; 
provided, that the combined schedule of all SEPA customers outside TVA 
and served by TVA does not exceed 220 hours per kilowatt of the total 
contract demands of these customers.

Billing Month

    The billing month for power sold under this schedule shall end at 
2,400 hours CDT or CST, whichever is currently effective, on the last 
day of each calendar month.

Conditions of Service

    The customer shall at its own expense provide, install, and 
maintain on its side of each delivery point the equipment necessary to 
protect and control its own system. In so doing, the installation, 
adjustment and setting of all such control and protective equipment at 
or near the point of delivery shall be coordinated with that which is 
installed by and at the expense of TVA on its side of the delivery 
point.

Service Interruption

    When delivery of capacity is interrupted or reduced due to 
conditions on the Administrator's system beyond his control, the 
Administrator will continue to make available the portion of his 
declaration of energy that can be generated with the capacity 
available.
    For such interruption or reduction due to conditions on the 
Administrator's system which have not been arranged for and agreed to 
in advance, the demand charge for capacity made available will be 
reduced as to the kilowatts of such capacity which have been 
interrupted or reduced in accordance with the following formula:
[GRAPHIC] [TIFF OMITTED] TN09JY99.042

July 1, 1999

Wholesale Power Rate Schedule CM-1-D

Availability

    This rate schedule shall be available to the South Mississippi 
Electric Power Association and Municipal Energy Agency of Mississippi 
(hereinafter called the Customers).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Barkley, J. Percy Priest and Cordell Hull 
Projects (all of such projects being hereinafter called collectively 
the ``Cumberland Projects'') and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 161,000 volts to the 
transmission systems of Mississippi Power and Light.

Points of Delivery

    The points of delivery will be at interconnection points of the 
Tennessee Valley Authority system and the Mississippi Power and Light 
system. Other points of delivery may be as agreed upon.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $2.900 per kilowatt/month of total contract demand
Energy Charge: None

Energy To Be Furnished by the Government

    The Government shall make available each contract year to the 
Customer from the Projects through the Customer's interconnections with 
TVA and the Customer will schedule and accept an allocation of 1,500 
kilowatt-hours of energy delivered at the TVA border for each kilowatt 
of contract demand. A contract year is defined as the 12 months 
beginning July 1 and ending at midnight June 30 of the following 
calendar year. The energy made available for a contract year shall be 
scheduled monthly such that the maximum amount scheduled in any month 
shall not exceed 240 hours per

[[Page 37134]]

kilowatt of the Customer's contract demand and the minimum amount 
scheduled in any month shall not be less than 60 hours per kilowatt of 
the Customer's contract demand. The Customer may request and the 
Government may approve energy scheduled for a month greater than 240 
hours per kilowatt of the Customer's contract demand; provided, that 
the combined schedule of all SEPA Customers outside TVA and served by 
TVA does not exceed 220 hours per kilowatt of the total contract 
demands of these Customers.
    In the event that any portion of the capacity allocated to the 
Customers is not initially delivered to the Customers as of the 
beginning of a full contract year, the 1500 kilowatt hours shall be 
reduced 1/12 for each month of that year prior to initial delivery of 
such capacity.

Billing Month

    The billing month for power sold under this schedule shall end at 
2400 hours CDT or CST, whichever is currently effective on the last day 
of each calendar month.

Service Interruption

    When delivery of capacity is interrupted or reduced due to 
conditions on the Administrator's system beyond his control, the 
Administrator will continue to make available the portion of his 
declaration of energy that can be generated with the capacity 
available.
    For such interruption or reduction due to conditions on the 
Administrator's system which have not been arranged for and agreed to 
in advance, the demand charge for capacity made available will be 
reduced as to the kilowatts of such capacity which have been 
interrupted or reduced in accordance with the following formula:
[GRAPHIC] [TIFF OMITTED] TN09JY99.043

July 1, 1999

Wholesale Power Rate Schedule CC-1-E

Availability

    This rate schedule shall be available to public bodies and 
cooperatives served through the facilities of Carolina Power & Light 
Company, Western Division (hereinafter called the Customers).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Barkley, J. Percy Priest and Cordell Hull 
Projects (all of such projects being hereinafter called collectively 
the ``Cumberland Projects'') and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 161,000 volts to the 
transmission system of Carolina Power & Light Company, Western 
Division.

Points of Delivery

    The points of delivery will be at interconnecting points of the 
Tennessee Valley Authority system and the Carolina Power & Light 
Company, Western Division system. Other points of delivery may be as 
agreed upon.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $3.301 per kilowatt/month of total contract demand
Energy Charge: None
Transmission Charge: $1,2828 per kilowatt of total contract demand

    The transmission rate is subject to annual adjustment on April 1 of 
each year and will be computed subject to the formula in Appendix A 
attached to the Government-Carolina Power & Light Company contract.

Energy To Be Furnished by the Government

    The Government will sell to the customer and the customer will 
purchase from the Government energy each billing month equivalent to a 
percentage specified by contract of the energy made available to 
Carolina Power & Light Company (less six percent (6%) losses). The 
Customer's contract demand and accompanying energy allocation will be 
divided pro rata among its individual delivery points served from the 
Carolina Power & Light Company's, Western Division transmission system.

Billing Month

    The billing month for power sold under this schedule shall end at 
2,400 hours CDT or CST, whichever is currently effective, on the last 
day of each calendar month.

July 1, 1999

Wholesale Power Rate Schedule CK-1-D

Availability

    This rate schedule shall be available to public bodies served 
through the facilities of Kentucky Utilities Company, (hereinafter 
called the Customers.)

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy available from the Dale Hollow, Center Hill, Wolf Creek, 
Cheatham, Old Hickory, Barkley, J. Percy Priest and Cordell Hull 
Projects (all of such projects being hereinafter called collectively 
the ``Cumberland Projects'') and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of sixty hertz. The 
power shall be delivered at nominal voltages of 161,000 volts to the 
transmission systems of Kentucky Utilities Company.

Points of Delivery

    The points of delivery will be at interconnecting points between 
the Tennessee Valley Authority system and the Kentucky Utilities 
Company system. Other points of delivery may be as agreed upon.

Monthly Rate

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $2.900 per kilowatt/month of total contract demand
Energy Charge: None
Additional Energy Charge: 8.631 mills per kilowatt-hour

Energy To Be Furnished by the Government

    The Government shall make available each contract year to the 
Customer from the Projects through the Customer's interconnections with 
TVA and the Customer will schedule and accept an

[[Page 37135]]

allocation of 1,500 kilowatt-hours of energy delivered at the TVA 
border for each kilowatt of contract demand. A contract year is defined 
as the 12 months beginning July 1 and ending at midnight June 30 of the 
following calendar year. The energy made available for a contract year 
shall be scheduled monthly such that the maximum amount scheduled in 
any month shall not exceed 240 hours per kilowatt of the Customer's 
contract demand and the minimum amount scheduled in any month shall not 
be less than 60 hours per kilowatt of the Customer's contract demand. 
The Customer may request and the Government may approve energy 
scheduled for a month greater than 240 hours per kilowatt of the 
Customer's contract demand; provided, that the combined schedule of all 
SEPA Customers outside TVA and served by TVA does not exceed 220 hours 
per kilowatt of the total contract demands of these Customers. In the 
event that any portion of the capacity allocated to the Customers is 
not initially delivered to the Customers as of the beginning of a full 
contract year, the 1500 kilowatt hours shall be reduced \1/12\ for each 
month of that year prior to initial delivery of such capacity.
    For billing purposes, each kilowatt of capacity will include 1500 
kilowatt-hours energy per year. Customers will pay for additional 
energy at the additional energy rate.

Billing Month

    The billing month for power sold under this schedule shall end at 
2400 hours CDT or CST, whichever is currently effective on the last day 
of each calendar month.

July 1, 1999

Wholesale Power Rate Schedule CTV-1-D

Availability

    This rate schedule shall be available to the Tennessee Valley 
Authority (hereinafter called TVA).

Applicability

    This rate schedule shall be applicable to electric capacity and 
energy generated at the Dale Hollow, Center Hill, Wolf Creek, Old 
Hickory, Cheatham, Barkley, J. Percy Priest, and Cordell Hull Projects 
(all of such projects being hereafter called collectively the 
``Cumberland Projects'') and the Laurel Project sold under agreement 
between the Department of Energy and TVA.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a frequency of approximately 60 Hertz at 
the outgoing terminals of the Cumberland Projects' switchyards.

Monthly Rates

    The monthly rate for capacity and energy sold under this rate 
schedule shall be:

Demand Charge: $1.434 per kilowatt/month of total demand as determined 
by the agreement between the Department of Energy and TVA.
Energy Charge: None
Additional Energy Charge: 8.631 mills per kilowatt-hour

Energy To Be Made Available

    The Department of Energy shall determine the energy that is 
available from the projects for declaration in the billing month.
    To meet the energy requirements of the Department of Energy's 
customers outside the TVA area (hereinafter called Other Customers), 
749,400 megawatt-hours of net energy shall be available annually 
(including 36,900 megawatt-hours of annual net energy to supplement 
energy available at Laurel Project) provided, that if additional energy 
is required to make a marketing arrangement viable for other customers 
which do not own generating facilities and which are within service 
areas of Kentucky Utilities Company and Carolina Power & Light Company, 
Western Division, such additional energy required shall be made 
available from the Cumberland Projects and shall not exceed 300 
kilowatt-hours per kilowatt per year. The energy requirement of the 
Other Customers shall be available annually, divided monthly such that 
the maximum available in any month shall not exceed 220 hours per 
kilowatt of total Other Customers contract demand, and the minimum 
amount available in any month shall not be less than 60 hours per 
kilowatt of total Other Customers demand.
    In the event that any portion of the capacity allocated to Other 
Customers is not initially delivered to the Other Customers as of the 
beginning of a full contract year, (July through June), the 1500 hours, 
plus any such additional energy required as discussed above, shall be 
reduced \1/12\ for each month of that year prior to initial delivery of 
such capacity.
    The energy scheduled by TVA for use within the TVA System in any 
billing month shall be the total energy delivered to TVA less (1) an 
adjustment for fast or slow meters, if any, (2) an adjustment for 
Barkley-Kentucky Canal of 15,000 megawatt-hours of energy each month 
which is delivered to TVA under the agreement from the Cumberland 
Projects without charge to TVA, (3) the energy scheduled by the 
Department of Energy in said month for the Other Customers plus losses 
of two (2) percent, and (4) station service energy furnished by TVA.
    Each kw of capacity received by TVA includes 1500 kwh of energy. 
Energy received in excess of 1500 kwh will be subject to an additional 
energy charge identified in the monthly rates section of this rate 
schedule.

Billing Month

    The billing month for capacity and energy sold under this schedule 
shall end at 2400 hours CDT or CST, whichever is currently effective, 
on the last day of each calendar month.

Contract Year

    For purposes of this rate schedule, a contract year shall be as in 
Section 13.1 of the Southeastern Power Administration--Tennessee Valley 
Authority Contract.

Service Interruption

    When delivery of capacity to TVA is interrupted or reduced due to 
conditions on the Department of Energy's system which are beyond its 
control, the Department of Energy will continue to make available the 
portion of its declaration of energy that can be generated with the 
capacity available.
    For such interruption or reduction (exclusive of any restrictions 
provided in the agreement) due to conditions on the Department of 
Energy's system which have not been arranged for and agreed to in 
advance, the demand charge for scheduled capacity made available to TVA 
will be reduced as to the kilowatts of such scheduled capacity which 
have been so interrupted or reduced for each day in accordance with the 
following formula:
    The agreement capacity related to the 76,000 kilowatts of capacity 
allocated to the Other Customers in the Carolina Power & Light Company 
and Kentucky Utilities service areas shall, irrespective of sale to 
Other Customers, remain in effect in the formula throughout the term of 
this rate schedule.

Power Factor

    TVA shall take capacity and energy from the Department of Energy at 
such power factor as will best serve TVA's system from time to time; 
provided, that TVA shall not impose a power factor of

[[Page 37136]]

less than .85 lagging on the Department of Energy's facilities which 
requires operation contrary to good operating practice or results in 
overload or impairment of such facilities.

July 1, 1999

Wholesale Power Rate Schedule 
SJ-1-A

Availability

    This rate schedule shall be available to Monongahela Power Company 
for energy from the Stonewall Jackson Project (hereinafter called the 
Project).

Applicability

    This rate schedule shall be applicable to energy made available by 
the Government from the Project and sold in wholesale quantities.

Character of Service

    The electric capacity and energy supplied hereunder will be three-
phase alternating current at a nominal frequency of 60 cycles per 
second delivered at the delivery points of the customer.

Monthly Rate

    The monthly rate for energy made available or delivered under this 
rate schedule shall be the lower of:
    (a) The energy equivalent rate of Cumberland Rate Schedule CC-1-E, 
which is 34.2 mills per kwh, or;
    (b) The sum, as reasonably determined by Monongahela Power Company 
(Buyer), of (1) and (2) below calculated for each period as to which 
the determination is being made, (normally monthly) based on costs and 
net generation of Buyer and other regulated subsidiaries of Allegheny 
Power System, Inc. to produce energy from: Ft. Martin Units Nos. 1 and 
2, Hatfield Ferry Units Nos. 1, 2, and 3, Harrison Units Nos. 1, 2, 3, 
and Pleasants Units Nos. 1 and 2.
    (1) The accrued expense in FERC Account 501 (fuel expense) or such 
appropriate similar account as the FERC may from time to time establish 
for fuel expense for steam power generation, divided by the actual net 
generation in kilowatt-hours, exclusive of plan use, plus
    (2) One-half of the accrued expenses in FERC Accounts 510-514 
(maintenance expense), inclusive, of such other appropriate similar 
accounts as FERC may from time to time establish for maintenance 
expense for steam power generation, divided by the actual net 
generation in kilowatt-hours, exclusive of plant use.

Energy Made Available

    Project energy generated by the District at the Project except 
energy use in the production of such energy or utilized by the District 
for its operations at the location of the project.

Billing Month

    Buyer shall read the metering devices within three business days of 
the end of each calendar month will render payment within 15 days of 
such reading.

Conditions of Service

    The customer shall at its own expense provide, install, and 
maintain on its side of each delivery point the equipment necessary to 
protect and control its own system. In so doing, the installation, 
adjustment, and setting of all such control and protective equipment at 
or near the point of delivery shall be coordinated with that which is 
installed by and at the expense of the Monongahela Power Company on its 
side of the delivery point.

July 1, 1999

[FR Doc. 99-17500 Filed 7-8-99; 8:45 am]
BILLING CODE 6450-01-P