[Federal Register Volume 67, Number 34 (Wednesday, February 20, 2002)]
[Notices]
[Pages 7707-7710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4025]


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DEPARTMENT OF THE INTERIOR

Bureau of Reclamation


Pick-Sloan Missouri Basin Program (P-SMBP), Eastern and Western 
Division Project Use Power Rate Adjustment

AGENCY: Bureau of Reclamation, Interior.

ACTION: Approval of new rate for Pick-Sloan Missouri Basin Program (P-
SMBP), Eastern and Western Division Project Use Power.

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SUMMARY: The Bureau of Reclamation (Reclamation) determined, after 
public input, that the proposed P-SMBP project use power rate of 10.76 
mils/kWh is approved and will become effective 30 days after this 
notice is published.

DATES: The P-SMBP project use power rate of 10.76 mils/kWh will become 
effective March 22, 2002.

ADDRESSES: All booklets, studies, comments/letters that were utilized 
to develop the rate for project use power are available for inspection 
and copying at the Great Plains Regional Office, located at 316 North 
26th Street, Billings, Montana 59101.

FOR FURTHER INFORMATION CONTACT: Kent Heidt at (406) 247-7761.

SUPPLEMENTARY INFORMATION: Power rates for the P-SMBP are established 
pursuant to the Reclamation Act of 1902

[[Page 7708]]

(43 U.S.C. 371 et seq.), as amended and supplemented by subsequent 
enactments, particularly Section 9(c) of the Reclamation Project Act of 
1939 (43 U.S.C. 485h(c)) and the Flood Control Act of 1944 (58 Stat. 
887).
    The project use power rate will be reviewed by Reclamation each 
time Western Area Power Administration (Western) adjusts the P-SMBP 
Firm power rate. Western will conduct the necessary studies and will 
use the same Reclamation-established methodology that was used to 
develop the 10.76 mils/kWh rate to calculate any new rate. The P-SMBP 
project use rate will be adjusted by Reclamation when Western adjusts 
the P-SMBP Firm power rate.

Explanation of Public Comment Format

    Reclamation published a Federal Register notice on December 18, 
2000 (65 FR 79122, Dec. 18, 2000) stating our intent to adjust the 
project use power rate with a 30-day written comment period ending on 
January 17, 2001. Reclamation published another Federal Register notice 
on January 16, 2001 (66 FR 3611, Jan. 16, 2001), that extended the 
comment period to February 26, 2001. A total of 18 letters with written 
comments were received during the comment period.

Project Use Power Rate Adjustment Comments

    The following comments were received during the public comment 
period. Reclamation paraphrased and combined comments when it did not 
affect the meaning. Reclamation's response follows each comment.
    Comment: Reclamation should grant a 60-day extension of time for 
comments on proposed P-SMBP project use power rate adjustment.
    Response: The comment period was extended by Federal Register 
notice dated January 16, 2001 (66 FR 3611, Jan. 16, 2001), to February 
26, 2001, a 41-day extension.
    Comment: The rate adjustment is the first step in a base rate 
change for all projects utilizing P-SMBP project use power.
    Response: The ``Flood Control Act of 1944'' (Act) provides for a 
2.5 mils/kWh project use power rate which was considered at that time 
to cover the cost of generation, transmission, and distribution while 
at the same time be within the irrigators ability to pay. The Act does 
not preclude rate adjustments, within ability to pay. The rate for 
project use power will be adjusted to reflect actual operating, 
maintenance, and replacement (OM&R) costs, subject to ability to pay. 
In all cases the rate will not be less than 2.5 mils/kWh.
    Comment: The rate adjustment has the potential to put irrigation 
units out of business.
    Response: As it has been the case with project use power contracts 
initially executed by this Region, the pumping power contractors will 
pay according to ability-to-pay. Should a district's ability to pay not 
increase, irrigators will continue to pay 2.5 mils/kWh. The water 
contracts will contain a 5-year ability-to-pay review provision 
consistent with Reclamation-wide policy following the Office of 
Inspector General Audit ``Repayment of Irrigation Investments by Water 
Districts: 93-1468,'' issued February 8, 1993.
    Comment: The rate adjustment is a major policy change in the manner 
in which wheeling costs and ability-to-pay are applied to the rate.
    Response: The rate adjustment does not result from any change in 
policy concerning the inclusion of wheeling costs in the project use 
power rate or the application of ability to pay these costs. The Act 
contains the rationale and congressional intent for incorporating 
wheeling costs in the project use power rate as well as applying the 
ability-to-pay concept to irrigation pumping power costs.
    Comment: Third party wheeling costs will be transferred from the 
irrigators to all preference power customers due to ability to pay. 
Third party wheeling costs are being reclassified as annual O&M 
expenses.
    Response: The intent of P-SMBP was to provide power to the pump. 
The 2.5 mils/kWh project use power rate was established under the 
assumption that energy would be transmitted and distributed to the pump 
over federally owned lines. If Reclamation had built its own lines all 
the way to the pumps, OM&R would be included in the basic pumping power 
rate. Therefore, wheeling costs will be included similarly as if 
Reclamation had built the lines.
    Comment: Including wheeling costs in the project use power rate 
opens the door wide for further cost reallocation on other irrigation 
costs.
    Response: No. Reclamation law generally requires that districts pay 
all power and water OM&R costs. However, the Pick-Sloan program is 
unique due to SD 191's application of ability to pay to power, i.e., 
irrigation pumping power. Since the mid-1970's, the difference between 
the 2.5 mil irrigation pumping power rate set in 1944 and full OM&R 
costs has been incorporated into the preference power rate.
    Comment: Reclamation should provide the legal basis for the charge 
and enunciate a clear policy for treatment of costs related to P-SMBP 
irrigation projects.
    Response: General Reclamation law requires that districts pay all 
power and water OM&R costs. The P-SMBP has a unique legal provision, 
the application of ability-to-pay to project use power. A rate 
adjustment does not affect the treatment of cost related to P-SMBP 
irrigation projects.
    Comment: Reclamation shall provide clear justification for the 
proposed cost transfer and explain how the original congressional 
intent with respect to cost/benefit evaluation can be justified as 
legal.
    Response: On P-SMBP projects the Congress intended that there be a 
substantial subsidy for irrigation development and made special 
allowance for the payment of power costs to assure success on those 
projects that required pumping to provide 10 feet of head at the farm 
turnout. The October 31, 1947, memorandum from the Acting Assistant 
Commissioner states: ``In the event Reclamation elects to provide 
service by wheeling arrangements, Reclamation should properly make 
arrangements for wheeling service and absorb the cost thereof as an 
operation expense. Such is merely an expense in lieu of the costs of 
providing service over federally owned facilities.''
    Comment: Reclamation's proposed methodology for determining the 
project use power rate does not properly reflect all costs and 
accounting for those costs. Spreading the irrigation third party 
wheeling costs across all P-SMBP Firm power sales artificially reduces 
the proposed project use power rate to 10.76 mils/kWh. If third party 
wheeling costs for P-SMBP irrigation projects were properly allocated 
only to P-SMBP irrigation projects, the project use power rate would be 
almost 18 mils/kWh. That methodology and resulting rate would establish 
an accurate project use power rate. Reclamation should adopt the 
methodology that properly classifies third party wheeling as a 
component of irrigation sales and not based on total P-SMBP sales.
    Response: The proposed rate of 10.76 mils/kWh has all current OM&R 
costs, including wheeling, from the three Federal agencies spread over 
all the sales, not just irrigation sales. Third party wheeling cost for 
project use power, along with other Federal wheeling costs, is 
considered the same as any other OM&R expense in the P-SMBP power 
repayment study.
    Comment: Using the methodology that spreads third party wheeling 
costs only over irrigation sales will ensure

[[Page 7709]]

proper accounting and not adversely affect the irrigators.
    Response: Reclamation will spread the third party wheeling for 
project use power over the entire rate structure just as if the power 
were wheeled over Federal lines.
    Comment: The methodology of the ability-to-pay studies seems 
seriously flawed as private irrigation districts in the same area of 
irrigation units receiving P-SMBP project use power are currently 
paying as much as 30 times the project use power rate and pay 100 
percent of the capital costs of their project, but 20 percent is 
typical repayment for a P-SMBP irrigation unit.
    Response: The methodology for ability to pay is a form of 
recognized farm budgeting techniques employed by USDA, the Cooperative 
Extension Service, and other entities. The assertions that other 
projects can pay their full costs appear to be anecdotal, and no 
definitive studies have been put forth that make a full comparison of 
the fixed and variable costs of like farm enterprises in the private 
and Federal sector. Farm budget studies for Reclamation ability-to-pay 
analysis first account for all on-farm expenses, including on-farm 
irrigation expense. It is out of the remaining net farm income that 
district operating expense, project capital, and project use power are 
paid. Farms using groundwater or pumping out of surface streams do not 
have large distribution system capital and operating expenses assigned 
to them as do Reclamation projects.
    Comment: The 1999 Power Repayment Study used as a basis for the 
proposed rate shows an annual decrease in energy sales due to 
depletions associated with future irrigation development, but 
Reclamation has stated most irrigation developments are no longer 
feasible; therefore, the ultimate development concept should be changed 
and more realistic energy numbers used throughout the repayment period.
    Response: Regardless of the current economic feasibility of future 
P-SMBP irrigation development, Federal statutes require that the 
ultimate development concept remain the standard by which the economic, 
financial, and hydrologic assumptions are incorporated into overall P-
SMBP financial analyses. Reports to the Congress on future project 
feasibility have not resulted in any legislation that would permit 
changes. Moreover, removing the depletions because of implied 
infeasibility would also have to be accompanied by removing the 
irrigation investment associated with those depletions and changing the 
cost allocations, including suballocation of investment associated with 
project use power and reservoir storage. All of these components are 
interrelated to ultimate development and cannot be treated separately.
    Comment: Replacement costs in the power repayment study for year 
2000 to 2099, appear high ($2,638,052,924) compared to the actual 
historical expenses for 1950 to 1999 ($159,391,916).
    Response: Historical costs were booked at their acquisition cost. 
Reclamation's construction cost index shows that the powerplant cost 
index has gone from 26 in 1950 to 231 in 1999, over an 800 percent 
increase. Comparing today's cost with historical costs on a nominal 
basis will generally show today's costs to be higher because of 
inflation alone. Comparison would have to be done in constant dollar 
values to draw any meaningful conclusions.
    Comment: The power repayment study shows an investment of $1.3 
billion from 1970 to 1998, and commentor believes the additional 
investment is mostly due to transmission costs for preference customers 
as most of the power system to serve irrigation was in place prior to 
1970. The commentor recommends that Reclamation not utilize all the 
investment costs since 1970, as those costs are a benefit to firm power 
customers. If all the investment costs and associated OM&R costs were 
not utilized in the study the proposed rate would be different (lower).
    Response: The system as a whole is integrated and irrigation would 
most likely be as affected by outages on the grid as the commercial 
customers, regardless of whose load caused the outage. Since irrigation 
pumping would benefit from overall increased reliability, it should 
share in the cost of those benefits. Seventy-six million of the $1.3 
billion is due to the new power generation at Buffalo Bill Dam.
    Comment: Peaking sales appear to decrease in the power repayment 
study in out years due to depletion associated with future irrigation 
development which we do not believe will take place.
    Response: This is associated with the ultimate development concept 
and cannot change without congressional action.
    Comment: The column titled ``Other Revenue'' in the power repayment 
study includes peaking, maintenance, and other power sales.
    Response: Yes.
    Comment: If adjustments were made in the study for decreased energy 
sales due to depletion, transmission costs since 1970, reduced 
replacement cost estimates, and power sales for peaking, the rate would 
be reduced.
    Response: Yes, but depletion, which reduces energy and peaking 
power sales, is associated with the ultimate development concept and 
cannot be changed without congressional action. Additions after 1970 
were for system reliability, and replacement dollars are current-day 
dollars instead of inflated dollars.
    Comment: Congressional intent was that the project use power rate 
remains at 2.5 mils/kWh.
    Response: In 1944, 2.5 mils/kWh was sufficient to cover OM&R costs. 
OM&R costs have significantly increased, and since the Act does not 
direct that the project use power rate be fixed, but only be ``within'' 
the ability-to-pay, the rate is being adjusted to reflect current 
costs.
    Comment: A project use power rate adjustment would discourage new 
irrigation development and jeopardize existing projects.
    Response: Existing projects and new irrigation developments 
currently authorized, will pay subject to their ability to pay. Newly 
authorized projects will be subject to the new project use power rate 
subject to specific legislation.
    Comment: Instead of a rate adjustment, Reclamation should take a 
lead role in securing additional P-SMBP power for new and existing 
irrigation projects as well as individual irrigators.
    Response: With respect to construction of any new projects or 
inclusion of existing non-Federal projects into the P-SMBP, Reclamation 
must operate according to its congressionally mandated authority.
    Comment: Reclamation has chosen not to conduct ability-to-pay tests 
on P-SMBP irrigation projects in conjunction with its proposed rate 
adjustment, yet states the application of the ability to pay will 
reduce the rate to the current level of 2.5 mils/kWh.
    Response: Over the past several years, ability-to-pay studies have 
been conducted on 10 irrigation units and updated on 3 others. Twelve 
of the 13 studies found no additional ability to pay. One unit had a 
small increase in ability to pay. Some existing and all renewed 
repayment and water service contracts will contain requirements for 
periodic reviews of ability to pay, normally accomplished on a 5-year 
basis, in accordance with the Commissioner's ``Ability-To-Pay Policy'' 
dated July 7, 1999. The periodic reviews will be used, along with 
published agricultural statistics, as indicators of economic 
conditions; if they indicate the likely potential of additional ability

[[Page 7710]]

to pay, it would lead to ability-to-pay studies for project use power 
contractors.
    Comment: Since Reclamation intends to maintain the effective 
project use power rate at 2.5 mils/kWh, through application of the 
ability-to-pay test, what is the purpose of Reclamation's proposed rate 
adjustment?
    Response: While present economic conditions create depressed 
agriculture and the majority of the irrigators will pay 2.5 mils/kWh, 
the adjusted rate will allow Reclamation to capture additional revenues 
if and when the economics of agriculture improve. It will also provide 
current rate structure for use in decisions and legislation related to 
proposed new projects. Reclamation is required to have accurate numbers 
for operations, maintenance, and replacement costs.

NEPA

    In compliance with the National Environmental Policy Act of 1969 
(NEPA), 43 U.S.C. 4321 et seq. Council on Environmental Quality 
Regulations (40 CFR parts 1500-1508); and the Department of Energy's 
NEPA Implementing Procedures (10 CFR part 1021), Reclamation has 
determined that this action is categorically excluded from the 
preparation of an Environmental Assessment or Environmental Impact 
Statement.

Power Rate Schedules

    The existing rate schedule MRB-P10 placed into effect on November 
1, 1986, will be replaced by rate schedule MRB-P11. Rate Schedule MRB-
P11 is as follows: Effective: 30 days after being published in the 
Federal Register. Location: In the areas generally described as central 
and eastern Montana, North and South Dakota, Nebraska, eastern 
Colorado, Wyoming, Kansas, western Iowa, and western Minnesota.

Applicable

    For use in the operation of congressionally authorized irrigation 
and drainage pumping plants on irrigation projects for power service 
supplied through metering at specified points of delivery.

Character and Conditions of Service

    Alternating current, 60 hertz, three phase, delivered and metered 
at the point identified in the contract upon demand during the summer 
irrigation season.

Availability

    Available at 60 hertz at the pumping plant upon demand during the 
summer irrigation season.

Monthly Rate

    Demand Charge: None.
    Energy Charge: 10.76 mils/kWh for all energy use; subject to 
ability-to-pay but not less than 2.5 mils/kWh.
    Seasonal Minimum Bill: $2.75 per kilowatt of the maximum 30-minute 
integrated demand established during service months of each year 
specified in the contract.

Adjustments

    For Power Factor: The customer will normally be required to 
maintain a power factor at a point of delivery of not less than 95 
percent lagging or leading.

Approval of Project Use Power Rate by the Commissioner, Bureau of 
Reclamation

    The Commissioner approved the rate of 10.76 mils/kWh by memorandum 
dated January 15, 2002.

    Dated: January 23, 2002.
Gerald W. Kelso,
Assistant Regional Director.
[FR Doc. 02-4025 Filed 2-19-02; 8:45 am]
BILLING CODE 4310-MN-P