[Federal Register Volume 69, Number 35 (Monday, February 23, 2004)]
[Notices]
[Pages 8191-8197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3819]


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

DEPARTMENT OF ENERGY

Western Area Power Administration


Operational Alternative for Post-2004 Operations

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of final decision.

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

[[Page 8192]]

SUMMARY: The Western Area Power Administration (Western), a Federal 
power marketing administration within the Department of Energy (DOE), 
markets Federal power from the Central Valley and Washoe projects 
through the Sierra Nevada Region (SNR). Western published its Notice of 
Intent announcing the operational alternatives it was considering for 
post-2004 operations in the Federal Register on June 24, 2003. Western 
held public meetings in July 2003 and accepted comments through August 
8, 2003. On December 2, 2003, Western published its proposed decision 
to implement a contract-based sub-control area and stated it would 
approach the California Independent System Operator (ISO) and the 
Sacramento Municipal Utility District (SMUD) to collect data and 
initiate discussions. Western's final decision is to proceed to 
implement a contract-based sub-control area.

DATES: This final decision on an operational alternative for post-2004 
operations shall become effective 30 days after publication in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Tom Carter, Power Operations Manager, 
Sierra Nevada Region, Western Area Power Administration, 114 Parkshore 
Drive, Folsom, CA 95630-4710, (916) 353-4427, or by e-mail at 
[email protected].

SUPPLEMENTARY INFORMATION: 

Authorities

    The selection of an alternative for post-2004 operations is made 
under the authorities contained in the Department of Energy 
Organization Act (42 U.S.C. 7101-7352); the Reclamation Act of June 17, 
1902 (ch. 1093, 32 Stat. 388) as amended and supplemented by subsequent 
laws, particularly section 9(c) of the Reclamation Act of 1939 (43 
U.S.C. 485h(c)); and other acts that specifically apply to the projects 
involved.

Introduction

    On December 31, 2004, a number of existing transmission contracts 
between Western and the Pacific Gas and Electric Company (PG&E) expire. 
When these contracts expire, Western will become responsible for 
arranging and meeting most of its own supplemental power and 
transmission needs. This new responsibility will require Western to 
adopt and implement a preferred post-2004 operational configuration, as 
well as to select a preferred control area operator to host Western's 
operations. Under existing contracts, PG&E provides Western with the 
ISO interface services. The preferred post-2004 operational 
configuration must ensure Western will be able to implement its 2004 
Power Marketing Plan and allow it to fulfill its statutory obligations 
to the Bureau of Reclamation (Reclamation) as well as meet its 
contractual obligations to its Preference Power customers. The final 
decision to implement sub-control area operations is based on the 
alternative meeting all five of the evaluation criteria; i.e., 
flexibility, certainty, durability, operational transparency, and cost-
effectiveness, presented in the June 24, 2003, Federal Register and 
finalized in the December 2, 2003, Federal Register.

Public Process

    Western published its Notice of Intent to consider certain post-
2004 operational alternatives in the Federal Register (68 FR 37484) on 
June 24, 2003. The notice described each alternative and the factors 
Western would use in making a decision on which alternative to select. 
On July 9, 2003, Western held a Public Information Forum where each 
alternative was described, and the evaluation factors that would be 
used by Western when making its proposed decision were presented. 
Navigant Consulting, Inc., presented results from its comparative 
economic benefits study performed on behalf of Reclamation and Western, 
which compared the net benefits of each alternative.
    Western held a Public Comment Forum in Folsom, California, on July 
30, 2003, during which representatives from 12 entities commented on 
the proposed alternatives, the decision-making factors, and the 
comparative economic benefits study. The comment period closed on 
August 8, 2003. Western received written comments from twenty-six (26) 
different entities. Western considered these comments and published its 
proposed decision in the December 2, 2003, Federal Register (68 FR 
67417) on a post-2004 operational alternative.

Summary of Western's Proposed Decision

Summary of Comments on Western's Proposed Decision

    After Western published its proposed decision on December 2, 2003, 
twenty-three (23) different entities submitted written comments. These 
letters may be viewed at: http://www.wapa.gov/sn/initiatives/post2004/opScenarios/Comments01-02-04/. Sixteen (16) comments indicated general 
support for Western's contract-based sub-control area approach. Four 
(4) comments recommended Western forego discussions with the ISO or 
SMUD and proceed directly to the formation of a Federal control area. 
Many comments recognized the need for Western to avoid the no action 
alternative and move as expeditiously as possible to select and 
initiate steps to implement a post-2004 operational solution. Fourteen 
(14) comments recommended Western proceed simultaneously on a parallel 
track with control area formation activities as a contingency in the 
event negotiations to form a contract-based sub-control area with the 
ISO or SMUD are not successful. Ten (10) comments recommended Western 
consider forming a customer support committee to assist Western in 
analyzing the differences between the ISO's and SMUD's contract-based 
sub-control area proposals and to ensure that customer needs are 
adequately considered.
    In addition to providing comments on Western's proposed action, 
many comments also repeated the same issues and concerns raised earlier 
during the public process, which closed on August 8, 2003. These 
previous comments may be viewed at: http://www.wapa.gov/sn/initiatives/post2004/opScenarios/Comments08-08-03/. The ISO communicated its 
appreciation at seeing a contract-based sub-control area option with 
the ISO as one of the preferred approaches to meeting Western's 
objectives. The ISO indicated, however, it continues to have the same 
operational concerns it previously expressed about the formation of a 
Federal control area should Western choose to become a sub-control area 
with SMUD. In addition to operational issues, the ISO continued to 
express reservations about cost shift issues. Finally, the ISO 
expressed reservations related to the selection of an approach 
(contract-based sub-control area agreement with SMUD), which in its 
judgment did not follow Western's public process. The ISO requested 
Western consider a separate public process to evaluate a contract-based 
sub-control area arrangement with SMUD. PG&E expressed three general 
concerns related to the environmental documentation for the proposed 
action, clarification of the proposed action to either acquire existing 
facilities or construct new facilities at specific interconnection 
points, and concern about the relative lack of specific details related 
to the proposed action of implementing a contract-based sub-control 
area.

[[Page 8193]]

Western's Response to Comments on its Proposed Decision

    As part of preparing this document, Western reviewed and considered 
all comments it received as part of this process in making its final 
decision. Western concurs with the comments that an accelerated 
approach is needed in its discussions with the ISO and SMUD. Because of 
the impending termination of existing contracts, Western concurs that a 
contingency plan is desirable if discussions with the ISO and SMUD to 
form a contract-based sub-control area are not successful.
    Because of the pre-decisional nature of its discussions with the 
ISO and SMUD, Western considers these deliberations privileged and 
confidential. As such, Western does not believe it is appropriate to 
include third parties while the negotiations are actively under way. 
Western, however, welcomes any advice, assistance, and support that 
stakeholders may be willing to furnish as part of implementing the 
final decision. Once Western completes its negotiations, it anticipates 
sharing non-business sensitive information concerning its deliberations 
with interested stakeholders.
    Western's process has been open and allowed stakeholders to 
participate in the identification and consideration of other 
alternatives. As such, whenever new approaches are presented, Western 
has the discretion to consider them to ensure that its decision-making 
process encompasses the full range of possible choices. Although 
Western may not have initially contemplated forming a contract-based 
sub-control area arrangement with SMUD, once this implementation 
approach was proposed by stakeholders, Western has the discretion to 
consider it as an alternative as part of its decision-making process. 
In fact, Western included the approach of executing a contract-based 
sub-control area agreement with SMUD as a means to accomplish its 
proposed decision in the December 2, 2003, Federal Register and sought 
comments on the different ways to implement this alternative. As 
negotiations proceed with the ISO and SMUD, Western anticipates 
collecting sufficient data to make an informed judgment as to the 
merits of each host control area operator's proposal.
    Comments about cost-shift issues provided by the ISO are outside 
the scope of this process and will be considered by Western in its Rate 
Process for implementation of its post-2004 Operational Alternative and 
the 2004 Power Marketing Plan.
    Western finalized an environmental assessment on January 21, 2004, 
on its proposed action and determined that it qualifies for a 
categorical exclusion. As discussions with the ISO and SMUD proceed, 
the relative merits of these different ways to implement Western's 
final decision and the actions Western may need to undertake with 
respect to its transmission boundaries will emerge. Western will 
implement only those actions which are prudent, are consistent with the 
factors used in evaluating the post-2004 operational alternatives, 
allow it to fully implement its 2004 Power Marketing Plan, and ensure 
it meets its statutory obligations to Reclamation and contractual 
obligations to the Preference Power customers.

Decision-Making Criteria

    Finalized criteria used by Western to reach its proposed decision 
were published in the December 2, 2003, Federal Register. Western 
defined the five criteria it would use to evaluate alternatives in the 
June 24, 2003, Federal Register. The criteria are flexibility, 
certainty, durability, operating transparency, and cost-effectiveness.

Evaluation of Approaches

ISO Sub-Control Area Approach

    To implement the sub-control area alternative through a contract 
with the ISO, Western would execute a non-tariff-based agreement, with 
specific terms and conditions acknowledging the Federal statutory 
obligations under which Reclamation and Western operate the water and 
hydropower generation and transmission facilities of the Central Valley 
Project (CVP). Since the CVP is primarily an irrigation project, 
Project Use energy requirements have first priority for the hydropower 
generated from the facilities. Hydropower generation in excess of 
Project Use energy requirements is available for sale to CVP Preference 
Power customers. Reclamation and Western would continue to retain 
responsibility and operational control over their respective 
facilities. Western would retain operational control over switching 
operations and the maintenance and replacement of its transmission 
facilities, while Reclamation would continue to retain responsibility 
and operational control over its hydropower generation facilities, as 
well as any ongoing maintenance and replacement, since responsibility 
and operational control over the water and power operations of the CVP 
cannot be impaired.
Operating Scenario To Evaluate the ISO Sub-Control Area Approach
    Under the contract-based ISO sub-control area approach, Western 
would establish a physically defined contiguous system. Western 
contemplates using a segregated approach when implementing its proposed 
sub-control area. Under a segregated sub-control area operation, 
Western would provide reserves and regulation associated with its 
direct-connected customers and firm exports. In addition, Western would 
regulate hourly to a net scheduled interchange quantity with a host 
control area. As a sub-control area operator, Western would manage the 
net power flows through its interconnection points with the ISO, the 
Bonneville Power Administration, the proposed Turlock Irrigation 
District control area, and SMUD under reliability criteria and 
guidelines issued by the Western Electricity Coordinating Council 
(WECC) and the North American Electric Reliability Council (NERC). 
Western would be responsible for scheduling energy deliveries to 
Project Use loads, First Preference customers, and other customers 
within its sub-control area boundaries and in other control areas. In 
addition, Western would match its generation and load, provide 
reserves, provide frequency support for the WECC interconnection under 
NERC and WECC criteria, and submit generation schedules developed in 
coordination with Reclamation to the host control area.
    Western would self-provide imbalance energy and ancillary services 
and may participate in the ISO markets whenever generation or reserves 
in excess of its needs are available. Although off-system customers 
would not be included in the initial phase of sub-control area 
development, Western intends to dynamically schedule off-system 
customers with the ISO after it gains sufficient experience as a sub-
control area operator and the ability of Reclamation's generation to 
dynamically follow loads is ascertained.
    Western's customers directly connected to Western's system would 
not be subject to use of the ISO grid for Federal power deliveries. 
However, off-system Project Use loads and Preference customers would 
incur all of the ISO transmission and related charges associated with 
the Federal power deliveries. Western would market transmission service 
on its system to its customers on an open access and non-discriminatory 
basis.
    From an operational perspective, Western would have a 24-hour

[[Page 8194]]

Merchant Desk to purchase energy required for Western's Variable 
Resource and Full Load Service customers and would act as the 
Scheduling Coordinator (SC) for Reclamation's generation and Project 
Use loads, as well as for interested customers. The 24-hour staffing of 
the Merchant Desk is required by the ISO for Western to maintain its SC 
status, as well as to implement its 2004 Power Marketing Plan. Western 
would also maintain a 24-hour Switching Desk to perform switching for 
outages of system elements (such as transmission lines and breakers) 
for maintenance, repair, or replacement or to assist the interconnected 
systems in restoring the system following a disturbance. Since Western 
would schedule the use of its transmission system and those elements of 
the California Oregon Intertie (COI) it owns or is responsible for 
under contract, Western would also maintain a 24-hour Transmission 
Scheduling Desk. To provide regulation for the sub-control area, 
Western would need to maintain a 24-hour Automatic Generation Control 
Desk.
    Western anticipates the ISO would continue to remain the single 
path operator for the three-line COI system. Scheduling activities and 
maintenance outages would be coordinated closely with the ISO.
    From an organizational perspective, Western would continue to need 
a power accounting, billing, and settlements function to account for 
services purchased and sold, reconcile billings from the ISO and others 
to the accounting records, and issue invoices to Western's customers 
and the ISO. Staff would be required to verify the accuracy and 
integrity of the accounting records and issue invoices to Western's 
customers and the ISO. Depending on the nature and complexity of the 
future financial settlements, this function could require additional 
staffing above current levels.
Evaluation of the Flexibility Criteria Under the ISO Sub-Control Area 
Approach
    Under the contract-based ISO sub-control area approach, Western 
would establish transmission boundaries. Western contemplates 
implementing a segregated sub-control area operation. Under a 
segregated sub-control area operation, Western would provide reserves 
and regulation associated with its direct-connected customers and firm 
exports. In addition, Western would regulate hourly to a net scheduled 
interchange quantity with a host control area. This operational 
configuration will allow Western the maximum flexibility to remain 
intact and become responsible for its own internal operations and to 
retain the capability of joining a Regional Transmission Organization 
(RTO) in the future as a separate and distinct entity.
    Western contemplates a 12-month termination window in its contract-
based sub-control area agreement. When, and if, Western chooses to join 
an RTO, it could do so as a stand-alone entity with only minimal 
disruptions to its operation. Because this option preserves Western's 
ability to join an RTO of its own choice in the future, Western 
concludes the sub-control area approach meets the flexibility criteria.
Evaluation of the Certainty Criteria Under the ISO Sub-Control Area 
Approach
    Under the contract-based ISO sub-control area approach, neither 
Western nor the direct-connected customers would be assessed ISO 
charges except for those services purchased from the ISO. Western, 
however, would charge the direct-connected customers for capacity, 
energy, transmission, and ancillary services with rates determined 
through a public process. Western's off-system Project Use loads and 
Preference customers would be subject to the ISO charges for 
transmission and delivery of Federal power and ancillary services. 
Western intends to dynamically schedule off-system loads after it has 
sufficient experience operating as a sub-control area. Consequently, 
non-direct connected customers may be able to avoid some of the 
imbalance energy and reserve charges of the ISO shortly after the sub-
control area is established and operational.
    Costs associated with the sub-control area approach for direct 
connected Project Use and Preference Power customers are expected to be 
reasonably predictable and include charges for labor and equipment to 
operate, maintain, and replace the CVP transmission facilities of 
Western and the costs allocated to hydropower generation facilities 
owned and operated by Reclamation. These costs have historically been 
included in the CVP power rates established by Western. The CVP rates 
are cost based and established at the lowest possible rates consistent 
with sound business principles. Additional costs associated with 
operating a sub-control area include purchased power costs. Such costs 
are necessary to balance sub-control area operations during the fall 
and winter months when insufficient generation is available to meet 
Project Use and First Preference loads. Power purchased for these 
purposes is expected to be purchased in the forward markets as blocks, 
rather than purchased on the spot market, to reduce price volatility 
and ensure stable rates. With the ongoing development of generation 
optimization tools, Western expects the timing and quantity of 
purchased power amounts to be predictable within reasonable certainty 
after the existing resource integration contract with PG&E expires. 
Western concludes that for its sub-control area participants, the 
contract-based sub-control area approach with the ISO meets the 
certainty criteria.
    The ISO is in the midst of implementing new operating guidance for 
its market redesign initiative (MD02). This new initiative would 
implement the concept of locational marginal pricing to deal with 
transmission congestion. If MD02 is implemented in its current format, 
during congestion periods the ISO would re-dispatch all generation 
based on economic factors. Under this approach, the CVP Preference 
customers and Project Use loads remaining in the ISO control area could 
potentially end up paying a different price than the cost-of-service 
rates associated with the delivery of Federal hydropower resources. 
Non-Federal entities on the ISO-controlled system could potentially end 
up receiving deliveries based on Federal cost-of-service rates. This 
potential inconsistency with Reclamation law may require Western to 
consider alternative mitigation measures.
Evaluation of the Durability Criteria Under the ISO Sub-Control Area 
Approach
    Under the contract-based ISO sub-control area, Western would 
continue to be responsible for responding to industry-wide changes to 
its business and operating practices promulgated by NERC and WECC. 
Since a contract-based sub-control area would be subject to mutual 
amendment and not unilateral revision as under a tariff, this approach 
would meet the durability criteria.
Evaluation of the Operating Transparency Criteria Under the ISO Sub-
Control Area Approach
    As a sub-control area operator with the ISO, Western would operate 
under NERC and WECC operating criteria and guidelines. These criteria 
and guidelines require Western to operate its system so that it does 
not negatively affect the operation of the host control area as well as 
adjacent control areas. Western concludes the sub-control area approach 
with the ISO meets the operating transparency criteria.

[[Page 8195]]

Evaluation of the Cost-Effectiveness Criteria Under the ISO Sub-Control 
Area Approach
    As discussions progress with the ISO and SMUD, Western anticipates 
collecting sufficient cost data to make an informed judgment as to 
which option makes the best business case. Western anticipates 
comparing and contrasting each option to determine which best allows 
Western to fulfill its statutory and contractual obligations in a 
manner which is economic, financially prudent, and best meets the needs 
of its customers. If neither contractual approach appears to be 
economically and financially prudent, Western would not seek to 
implement them.
    A contract-based sub-control area agreement provides the long-range 
business stability needed by Western, Reclamation, and its customers to 
engage in long-range planning and enter into long-term business 
arrangements. This business stability is not readily available in many 
of the other alternatives considered by Western.
Summary Analysis of the ISO Sub-Control Area Approach
    Implementing the contract-based ISO sub-control area approach would 
allow the Federal transmission system to operate as one physically 
distinct unit. Project Use loads and customers directly connected to 
Western's system would not be assessed the ISO charges for transmission 
and related services but would incur similar charges from Western. Off-
system Project Use loads and Preference customers would, however, incur 
the ISO transmission and related charges. These charges represent a 
significant increase in costs to off-system Project Use loads and 
Preference customers.
    From an infrastructure standpoint, the sub-control area alternative 
would still require the development and implementation of all of the 
systems described previously in the December 2, 2003, Federal Register 
in the section entitled, ``Implementing the post-2004 Power Marketing 
Plan.'' Western intends to fill the vacant positions from within its 
organization to the maximum extent possible to minimize the need for 
new staff and to continue transforming its organization to meet the 
needs of its new Marketing Plan.
    The relative ratings for the ISO Sub-Control Area are as follows:

                                     ISO Sub-Control Area Evaluation Summary
----------------------------------------------------------------------------------------------------------------
                       Evaluation factors                             Meets        Almost meets    Does not meet
----------------------------------------------------------------------------------------------------------------
Flexibility....................................................              XX   ..............  ..............
Certainty......................................................              XX   ..............  ..............
Durability.....................................................              XX   ..............  ..............
Operating Transparency.........................................              XX   ..............  ..............
Cost-effectiveness.............................................              XX   ..............  ..............
----------------------------------------------------------------------------------------------------------------

SMUD Sub-Control Area Approach

    A contract-based sub-control area with SMUD is similar in concept 
to the ISO sub-control area approach, except the signatory would be 
SMUD instead of the ISO. Western would execute an agreement with 
specific terms and conditions acknowledging the Federal statutory 
obligations under which Reclamation and Western operate the water and 
hydropower generation and transmission facilities of the CVP. 
Reclamation and Western would continue to retain responsibility and 
operational control over their respective facilities. Western would 
retain operational control over switching operations and the 
maintenance and replacement of its transmission facilities, while 
Reclamation would continue to retain responsibility and operational 
control over its hydropower generation facilities, as well as any 
ongoing maintenance and replacement since responsibility and 
operational control over the water and power operations of the CVP 
cannot be impaired.
Operating Scenario To Evaluate the SMUD Sub-Control Area Approach
    Western anticipates the operating scenario under this approach 
would be similar in scope to the one described earlier for the ISO. 
Under this approach, the ISO would remain the single path operator for 
the three-line COI system. Scheduling and maintenance outages would be 
closely coordinated with the ISO and SMUD.
Evaluation of the Flexibility Criteria Under the SMUD Sub-Control Area 
Approach
    Western contemplates implementing a segregated sub-control area 
operation. Implementing this sub-control area operation will allow 
Western maximum flexibility to remain intact and become responsible for 
its internal operations and to retain the capability of joining an RTO 
in the future as a separate and distinct entity.
    In forming its contract-based SMUD sub-control area, Western would 
undertake the same steps identified earlier under the ISO contractual 
approach. Western contemplates a 12-month termination window in its 
contract-based sub-control agreement. When, and if, Western chooses to 
join an RTO, it could do so as a stand-alone entity, with only minimal 
disruptions to its operations. Because this option preserves Western's 
ability to join an RTO of its own choice in the future, Western 
concludes the SMUD sub-control approach meets the flexibility criteria.
Evaluation of the Certainty Criteria Under the SMUD Sub-Control Area 
Approach
    Under the contract-based SMUD sub-control area approach, Western 
would be subject to control area operator charges from SMUD as set 
forth in the contract. Western would charge the direct-connected 
customers for capacity, energy, transmission, and ancillary services 
with rates determined through a public process. Costs associated with 
SMUD's administration of the control area, as well as any services 
provided to Western, will also be assessed. Western's off-system 
Project Use loads and Preference customers would continue to be 
assessed charges by the ISO for transmission and delivery of Federal 
power and ancillary services. Western intends to implement dynamic 
scheduling after it has sufficient experience operating as a sub-
control area. Consequently, non-direct connected customers may be able 
to avoid some of the ISO's imbalance energy and reserve charges shortly 
after the sub-control area is established and operational.
    Costs associated with the SMUD sub-control area approach for 
direct-connected Project Use and Preference Power customers are 
expected to be fairly predictable and include charges for labor and 
equipment to operate,

[[Page 8196]]

maintain, and replace the CVP transmission facilities of Western and 
the costs allocated to hydropower generation facilities owned and 
operated by Reclamation. These costs have historically been included in 
CVP power rates established by Western. CVP rates are cost based and 
established at the lowest possible rates consistent with sound business 
principles. Additional costs associated with operating a SMUD sub-
control area are purchased power costs necessary to balance the sub-
control area during the fall and winter months when insufficient 
generation is available to meet Project Use and First Preference loads. 
Power purchased for these purposes is expected to be purchased in the 
forward markets as blocks, rather than purchased on the spot market, to 
reduce price volatility and ensure stable rates.
    The ISO is in the midst of implementing new operating guidance 
under MD02. This new initiative would implement the concept of 
locational marginal pricing to deal with transmission congestion. If 
MD02 is implemented in its current format, during congestion periods 
the ISO would re-dispatch all generation based on economic factors. 
Under this approach, the CVP Preference customers and Project Use loads 
remaining in the ISO control area could potentially end up paying a 
different price than the cost-of-service rates associated with the 
delivery of Federal hydropower resources. Non-Federal entities on the 
ISO-controlled system could potentially end up receiving deliveries 
based on Federal cost-of-service rates. This potential inconsistency 
with Reclamation law may require Western to consider alternative 
mitigation measures. Western concludes that for its sub-control area 
participants, the contract-based sub-control area approach with SMUD 
meets the certainty criteria.
Evaluation of the Durability Criteria Under the SMUD Sub-Control Area 
Approach
    Under the contract-based SMUD sub-control area approach, Western 
would need to respond to industry-wide changes in NERC- and WECC-issued 
operating protocols and business practices. Under a contract-based 
approach, any changes would have to be mutually agreed to and could not 
be unilaterally imposed by either party. Western concludes the SMUD 
sub-control area approach meets the durability criteria.
Evaluation of Operating Transparency Criteria Under the SMUD Sub-
Control Area Approach
    As a SMUD sub-control area operator, Western would operate under 
applicable NERC and WECC operating criteria and guidelines. Since the 
criteria require Western to operate its system so it does not 
negatively impact the host control area and its adjacent neighbors, by 
definition, Western concludes the SMUD sub-control area approach meets 
the operating transparency criteria.
Evaluation of the Cost-Effectiveness Criteria Under the SMUD Sub-
Control Area Approach
    As discussions progress with the ISO and SMUD, Western anticipates 
sufficient cost data will become available to make an informed business 
decision as to the economic and financial impacts of each option. 
Western anticipates comparing and contrasting each option to determine 
which best allows Western to fulfill its statutory and contractual 
obligations in a manner which is economic, financially prudent, and 
best meets the needs of its customers. If neither contract-based 
approach appears to be economically and financially prudent, Western 
would not seek to implement them.
    A contract-based sub-control area agreement provides the long-range 
business stability needed by Western, Reclamation, and its customers to 
engage in long-range planning and enter into long-term business 
arrangements. This business stability is not readily available in many 
of the other alternatives considered by Western.
Summary Analysis of the SMUD Sub-Control Area Approach
    Implementing the SMUD sub-control area approach would allow the 
Federal transmission system to be operated as a physically distinct 
unit. Western's summary is the same as that shown under the contract-
based ISO sub-control area option. The ratings for the sub-control area 
approach with SMUD are as follows:

                                    SMUD Sub-Control Area Evaluation Summary
----------------------------------------------------------------------------------------------------------------
                       Evaluation factors                             Meets        Almost meets    Does not meet
----------------------------------------------------------------------------------------------------------------
Flexibility....................................................              XX   ..............  ..............
Certainty......................................................              XX   ..............  ..............
Durability.....................................................              XX   ..............  ..............
Operating transparency.........................................              XX   ..............  ..............
Cost-effectiveness.............................................              XX   ..............  ..............
----------------------------------------------------------------------------------------------------------------

Conclusion

Western's Final Decision

    On December 31, 2004, a number of existing transmission contracts 
with PG&E expire. Western will then become responsible for arranging 
and meeting most of its own supplemental power and transmission needs. 
This new responsibility will require Western to select and implement a 
post-2004 operational configuration and select a preferred control area 
operator to host Western's operations. Under existing contracts, PG&E 
provides Western with interface services with the ISO. The preferred 
post-2004 operational configuration must ensure Western will be able to 
implement its 2004 Power Marketing Plan and allow it to fulfill its 
statutory obligations to Reclamation as well as meet its contractual 
obligations to its Preference Power customers. The final decision to 
implement sub-control area operations is based on the alternative 
meeting all five of the evaluation criteria; i.e., flexibility, 
certainty, durability, operational transparency, and cost-
effectiveness, presented in the June 24, 2003, Federal Register and 
finalized in the December 2, 2003, Federal Register.
    Western will proceed with its effort to establish a contract-based 
sub-control area. Western does not intend to form a new control area at 
this time. However, if Western is unable to negotiate a mutually 
acceptable agreement to implement a contract-based sub-control 
operation before the expiration of existing contracts, Western will 
initiate all reasonably prudent steps to ensure Western fulfills its 
statutory responsibilities and meets the requirements of its customers.

[[Page 8197]]

Other Considerations

Consistency With Federal Law

    As Western proceeds with negotiations with the ISO and SMUD, it 
will evaluate how Federal law will affect the implementation of each 
potential contract. Western will evaluate each approach to ensure that 
Western can continue to meet and fulfill its statutory and contractual 
obligations. For example, Federal Reclamation law requires Federal 
power be sold to Preference customers. Western implements such sales 
through a Federal marketing plan developed under the Administrative 
Procedure Act. The final CVP marketing plan was published on June 25, 
1999 (64 FR 34417). The sale of Federal power must not impair the CVP's 
primary purposes. The marketing plans have the full force and effect of 
law. Implementation of Western's operational decision must be 
consistent with Western's obligations under Federal law including 
Western's Marketing Plan. Consequently, any agreement that Western may 
execute with either the ISO or SMUD cannot impair Western's ability to 
deliver Federal power to Project Use loads and Federal Preference Power 
to Preference Power customers.

Regulatory Procedure Requirements

Regulatory Flexibility Analysis

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

Environmental Compliance

    Under the National Environmental Policy Act (NEPA) (42 U.S.C. 4321. 
et seq.), Council on Environmental Quality NEPA implementing 
regulations (40 CFR 1500-1508), and DOE NEPA implementing regulations 
(10 CFR 1021), Western completed an environmental impact statement 
(EIS) on its Energy Planning and Management Program. The Record of 
Decision was published in the Federal Register (60 FR 53181, October 
12, 1995).
    Western also completed the 2004 Power Marketing Program EIS (2004 
EIS). The Record of Decision was published in the Federal Register (62 
FR 22934, April 28, 1997). The Marketing Plan falls within the range of 
alternatives considered in the 2004 EIS. This NEPA review identified 
and analyzed environmental effects related to the Marketing Plan. 
Available reservoir storage and water releases controlled by 
Reclamation influences marketable CVP and Washoe project electrical 
capacity and energy. Reclamation completed a programmatic environmental 
impact statement (PEIS) under the CVP Improvement Act of 1992 (Pub. L. 
102-575, Title 34) in October 1999. Actions based on the PEIS may 
result in modifications to CVP facilities and operations that would 
affect the timing and quantity of electric power generated by the CVP. 
Such changes may affect electric power products and services marketed 
by SNR. The Marketing Plan has the flexibility to accommodate these 
changes. Western was a cooperating agency in Reclamation's PEIS 
process. The proposed action was also evaluated under a categorical 
exclusion analysis finalized by Western on January 21, 2004.

Determination Under Executive Order 12866

    Western has an exemption from centralized regulatory review under 
Executive Order 12866. No clearance of this notice by the Office of 
Management and Budget is required.

Small Business Regulatory Enforcement Fairness Act

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

    Dated: February 13, 2004.
Michael S. Hacskaylo,
Administrator.
[FR Doc. 04-3819 Filed 2-20-04; 8:45 am]
BILLING CODE 6450-01-P