[Federal Register Volume 69, Number 160 (Thursday, August 19, 2004)]
[Notices]
[Pages 51458-51461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19046]


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DEPARTMENT OF ENERGY

Western Area Power Administration


Boulder Canyon Project--Base Charge and Rates

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of Base Charge and Rates.

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SUMMARY: The Deputy Secretary of the Department of Energy (DOE) has 
approved the FY 2005 Base Charge and Rates (Rates) for Boulder Canyon 
Project (BCP) electric service provided by the Western Area Power 
Administration (Western). The Rates will provide sufficient revenue to 
pay all annual costs, including interest expense, and investment 
repayment within the allowable period.

DATES: The Rates will be effective the first day of the first full 
billing period beginning on or after October 1, 2004. These Rates will 
stay in effect through September 30, 2005, or until superseded by other 
rates.

FOR FURTHER INFORMATION CONTACT: Mr. Jack Murray, Rates Team Lead, 
Desert Southwest Customer Service Region, Western Area Power 
Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, telephone (602) 
352-2442, e-mail [email protected].

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved the 
existing Rate Schedule BCP-F6 for BCP electric service on September 18, 
2000 (Rate Order No. WAPA-94, 65 FR 60932, October 13, 2000), on an 
interim basis. Rate Schedule BCP-F6, effective October 1, 2000, through 
September 30, 2005, allows for an annual recalculation of the rates. On 
July 31, 2001, the Federal Energy Regulatory Commission (Commission) 
approved Rate Order No. WAPA-94 on a final basis.
    Under Rate Schedule BCP-F6, the existing composite rate, effective 
on October 1, 2003, was 12.91 mills per kilowatthour (mills/kWh), the 
base charge was $51,719,075, the energy rate was 6.46 mills/kWh, and 
the capacity rate was $1.17 per kilowattmonth (kWmonth). The newly 
calculated Rates for BCP electric service, to be effective October 1, 
2004, will result in an overall composite rate of 14.82 mills/kWh. This 
is an increase of approximately 15 percent when compared with the 
existing BCP electric service composite rate. The increase is due to an 
increase in the annual base charge and a decrease in the projected 
energy sales. The Fiscal Year (FY) 2005 base charge is increasing to 
$57,654,683. The increase is due mainly to an increase in annual 
operation, maintenance, visitor services expenses, and replacement 
costs. A contributing factor to the increases is the additional 
security costs incurred at the Hoover Dam. The FY 2005 energy rate of 
7.41 mills/kWh is approximately a 15-percent increase from the existing 
energy rate of 6.46 mills/kWh. The increase in the energy rate is due 
to a decrease in the projected energy sales resulting from a continuing 
drop in lake elevations due to poor hydrology in the lower Colorado 
River basin. The FY 2005 capacity rate of $1.39/kWmonth is 
approximately a 19-percent increase

[[Page 51459]]

from the existing $1.17/kWmonth capacity rate. The capacity rate is 
increasing due to decreased generation ratings resulting from lower 
lake elevations. Another factor that contributes to the increase in the 
energy and capacity rates is the increase in the annual base charge due 
to increasing annual costs.
    The following summarizes the steps taken by Western to ensure 
involvement of all interested parties in determining the Rates:
    1. A Federal Register (FR) notice was published on February 18, 
2004 (69 FR 7627), announcing the proposed rate adjustment process, 
initiating a public consultation and comment period, announcing public 
information and public comment forums, and presenting procedures for 
public participation.
    2. On February 27, 2004, a letter was mailed from Western's Desert 
Southwest Customer Service Region to the BCP Contractors and other 
interested parties announcing an informal customer meeting and public 
information and comment forums.
    3. Discussion of the proposed Rates was initiated at an informal 
BCP Contractor meeting held March 11, 2004, in Phoenix, Arizona. At 
this informal meeting, representatives from Western and the Bureau of 
Reclamation (Reclamation) explained the basis for estimates used to 
calculate the Rates and held a question and answer session.
    4. At the public information forum held on March 25, 2004, in 
Phoenix, Arizona, Western and Reclamation representatives explained the 
proposed Rates for FY 2005 in greater detail and held a question and 
answer session.
    5. A public comment forum held on April 15, 2004, in Phoenix, 
Arizona, gave the public an opportunity to comment for the record. Five 
persons representing the BCP Contractors and Interested Parties made 
oral comments.
    6. Western received three comment letters during the 90-day 
consultation and comment period. The consultation and comment period 
ended May 18, 2004. All comments were considered in developing the 
Rates for FY 2005. Written comments were received from: Irrigation & 
Electrical Districts Association of Arizona, Metropolitan Water 
District of Southern California, Southern California Edison.
    Comments and responses, paraphrased for brevity, are presented 
below.

Security Costs

    Comment: A number of Contractors expressed concern about the 
additional security costs that Hoover Dam is incurring in FY 2005. It 
is troubling to the BCP Contractors that Hoover Dam, as one of the five 
national critical infrastructures in the Western United States, is 
unable to receive annual nonreimbursable security funding, which in FY 
2005 would total approximately $4 million. The BCP Contractors stated 
that if the Federal Government is unwilling to spread the costs to all 
beneficiaries of the multi-purpose facility (flood control, river 
regulation, water storage and irrigation, municipal and industrial 
uses, international treaties, power generation, recreation, and 
environmental mitigation), then the government should assume the 
obligation to pay for the increased security costs. One Contractor 
asked Western to represent its position on increased security costs 
during discussions concerning the FY 2005 Energy and Water 
Appropriations Development Bill.
    Response: Western and Reclamation recognize the concerns the BCP 
Contractors have regarding additional security costs at Hoover Dam. The 
decision regarding reimbursement of security costs is based on 
congressional enactment of the annual budget for Federal agencies and 
reflects a decision of reimbursability adopted during the President's 
budget formulation process. The beneficiaries' reimbursable obligations 
in FY 2005 are being determined consistent with Reclamation policy and 
Hoover Dam's specific authorizations. Western will implement any 
congressional decision to make these costs nonreimbursable in its rate 
development and project repayment.
    Comment: What happens if the Contractors are successful in getting 
the additional costs declared nonreimbursable in FY 2005? How do the 
Contractors get the benefit of this?
    Response: If the Contractors are successful in obtaining 
nonreimbursable authority for the additional Hoover security costs, and 
depending on the timing, the benefit to the BCP Contractors would occur 
at year end when actual expenses are reconciled with estimated 
expenses.
    Comment: In Reclamation's green book provided to a House 
subcommittee just a few weeks ago, Hoover Dam was among other 
Reclamation facilities singled out to pay for security costs. If Hoover 
Dam is a national critical infrastructure, why are security costs for 
Hoover Dam not a national obligation, instead of being treated as 
reimbursable in Western's power rates?
    Response: Reimbursability of security costs at Hoover Dam is being 
determined consistent with Reclamation policy and Hoover Dam's specific 
authorizations. Security upgrades at Hoover Dam continue to be critical 
to improving our security posture and improving effectiveness. Hoover 
Dam has received substantial support for security through the 
appropriation process in the past 2 years. Reclamation is aggressively 
pursuing appropriations to complete upgrades to systems and processes 
in future years.
    Comment: An Interested Party stated that Reclamation has an 
obligation to assess a surcharge associated with incurred security 
costs similar to those imposed at airports, Disneyland, and 
entertainment facilities.
    Response: Reclamation has no obligation to assess a surcharge, but 
will review this option for possible implementation in the future.

Visitor Center

    Comment: The Contractors have stressed the importance of 
Reclamation's efforts to manage the Visitor Center budget. With rising 
costs, fewer visitors, and reduced revenues since the September 11, 
2001, terrorist attack, the BCP Contractors feel the need to find other 
sources of income. The BCP Contractors claim they were promised that 
Reclamation would manage the Visitor Center so that revenues would 
offset at least 50 percent of the capital repayment requirements so 
that the Visitor Center did not cause high power rate increases.
    Response: Reclamation agreed to strive for generation of revenues 
to fund operation, maintenance, and replacement expenses associated 
with the Visitor Facilities, together with approximately 50 percent of 
the capital repayment requirements. Refurbishment of the exhibits and 
ongoing new product development are aimed at bringing repeat and new 
business to the facility. Reclamation has received a $538,000 grant for 
renovating the old exhibit building, a $275,000 grant for the canoe 
launch area, a $545,000 grant for the River Mountains Loop pedestrian 
trail, and is pursuing other grant opportunities.

Future Budgets

    Comment: An Interested Party suggested Reclamation postpone every 
possible replacement in FY 2005 to mitigate the increase in replacement 
costs in the proposed base charge and rates. They further state that 
replacements need to be prioritized and only those absolutely necessary 
should be made in FY 2005.
    Response: Reclamation agrees and supports efforts to mitigate the 
increase in the proposed base charge and rates. Reclamation's effort is 
demonstrated and implemented during the annual

[[Page 51460]]

Technical Review Committee (TRC) process. FY 2005 replacement costs 
were examined and reviewed during the TRC process in September 2003, by 
Reclamation, Western, and the BCP Contractors. The FY 2005 Final Ten 
Year Operating Plan includes the increased replacement costs that are 
included in the upcoming proposed FY 2005 Base Charge and Rates.
    Comment: A Contractor asked Western to consider deferring principal 
payments in FY 2005 and the next couple of years while the replacement 
costs are abnormally high. They also suggested that Western investigate 
the ability to refinance over a longer period or find another way to 
finance future replacement costs.
    Response: Western and Reclamation are open to any discussions with 
the BCP Contractors related to lowering the annual revenue requirement. 
The existing rate methodology is designed to recover all annual costs 
including principal payments and complies with Department of Energy 
Order RA 6120.2, Basic Policy for Rate Adjustments. Additionally, the 
Boulder Canyon Project Implementation Agreement (BCPIA) sets forth the 
expectation that the project's full revenue requirement will be funded 
each year, including the principal payments on a ``house type'' 
levelized debt payment. While there may be some flexibility to defer 
principal payments, Western and Reclamation believe the Contractors 
must raise this issue to the Engineering and Operating Committee (E&OC) 
for resolution. Likewise, the BCP Contractors must bring up proposals 
for alternate methods of financing future replacement costs (i.e., 
capitalizing replacements vs. annual expensing) to the E&OC for review, 
discussion, and resolution before implementation by Western.
    Comment: An Interested Party expressed concern over the effects of 
the anticipated long-term drought. The BCP Contractors are faced with 
less energy and capacity due to less water storage behind Hoover Dam 
and the falling level of Lake Mead means units are de-rated. He said it 
is time for a new paradigm on financial planning for this Project and 
suggested that the BCP Contractors, Western, and Reclamation take a 
hard look at costs and do some inventive thinking about future costs.
    Response: Both Western and Reclamation have expended significant 
effort on keeping costs down and increasing efficiency and 
productivity, and will continue their ongoing effort to manage costs. 
If a constant 3 percent escalation factor used for budgeting was 
applied to Western's actual expenses beginning in FY 1998, Western 
would have expended approximately $806,000.00 more in FY 2003 than the 
actual expenditures. FY 2003 demonstrates Western's success in cost 
containment. See table below:

------------------------------------------------------------------------
                                                             3% annual
                                             Western's    inflation rate
               Fiscal year                  actual O&M     from FY 1998
                                              program         actuals
------------------------------------------------------------------------
1998....................................      $3,814,306      $3,814,306
1999....................................       4,431,417       3,928,735
2000....................................       4,606,203       4,046,597
2001....................................       4,321,965       4,167,995
2002....................................       4,353,469       4,293,035
2003....................................       3,615,829       4,421,826
------------------------------------------------------------------------

    In addition to ongoing cost containment, Western will continue to 
identify sources that have historically provided additional revenue to 
the BCP, which reduces the amount paid by the BCP Contractors. For FY 
1998 through FY 2003 other revenues transferred to the BCP totaled 
$5,049,942. See table below:

------------------------------------------------------------------------
                                                        Western's other
                                                            revenues
                     Fiscal year                         transferred to
                                                              BCP
------------------------------------------------------------------------
1998.................................................         $1,195,321
1999.................................................          1,382,369
2000.................................................          1,738,317
2001.................................................            238,657
2002.................................................             64,318
2003.................................................            430,960
------------------------------------------------------------------------

    In FY 2004, approximately $2 million in sales of generator-based 
ancillary services provided by the BCP will be credited to help reduce 
the overall revenue requirement. While Western does not expect these 
amounts to continue at this magnitude, it illustrates Western's 
commitment to minimizing the net revenue requirement.
    As one customer pointed out, over the past few years, Reclamation 
has improved unit availability and dramatically reduced critical items 
identified in the comprehensive power review. In FY 2004, Reclamation 
will have completed two overhauls using roughly the same number of 
employees required for one unit due to improvements in productivity, 
planning, and scheduling. High costs to establish reliability should 
taper off somewhat in the future years. See table below:

------------------------------------------------------------------------
                                                             3% annual
                                           Reclamation's  inflation rate
               Fiscal year                  actual O&M     from FY 1998
                                            program\1\        actuals
------------------------------------------------------------------------
1998....................................     $27,134,796     $27,134,796
1999....................................      28,145,636      27,948,840
2000....................................      29,699,462      28,787,305
2001....................................      34,579,410      29,650,924
2002....................................      33,567,080      30,540,452
2003....................................      36,507,037      31,456,666
------------------------------------------------------------------------
\1\ Includes Operations, Maintenance, Post Civil Service Retirement,
  Administrative & General Expenses, Extraordinary Operation and
  Maintenance, Replacements, Visitor Services.

Rate Adjustment

    Comment: An Interested Party commented that adding the additional 
security costs to the FY 2005 rate base at this time is premature. He 
further commented that Western and Reclamation need to face the reality 
of the budgeting situation and not raise rates until they have some 
specific authorization from Congress concerning FY 2005. Since both 
agencies will be operating under continuing resolutions for some time 
into FY 2005, the rate increase can be planned, but any rate increase 
should be postponed until a budget is finally decided upon.
    Response: The BCP Base Charge and Rates are determined by using the 
most current budget projections. The costs are all estimated based on 
historical data and inflation. Under Hoover Dam legislation, we cannot 
allow for a deficiency in any given year, nor does the existing rate 
methodology allow for delaying annual repayment of the BCP. Section 
13.12 under the BCPIA requires an annual rate review to adjust the base 
charge either upward or downward annually to assure sufficient revenues 
to pay all costs and financial obligations associated with the BCP. Any 
under- or over-collection of revenues is recognized at year end when 
actual expenses are reconciled with estimated expenses. It is true that 
Western has operated under a continuing resolution at times in the 
past. FY 2005 could be similar; however, waiting until Western receives 
legislative direction is not justification for postponing an annual 
rate adjustment.

BCP Electric Service Rates

    BCP electric service rates are designed to recover an annual 
revenue requirement that includes operation and maintenance expenses, 
payments to States, visitor services, uprating program, replacements, 
investment repayment, and interest expense. Western's power repayment 
study (PRS) allocates the projected annual revenue requirement for 
electric service equally between capacity and energy.

[[Page 51461]]

Procedural Requirements

    BCP electric service rates are developed under the Department of 
Energy Organization Act (42 U.S.C. 7101-7352), through which the power 
marketing functions of the Secretary of the Interior and the Bureau of 
Reclamation under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), 
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 other acts that specifically apply to the project 
involved, were transferred to and vested in the Secretary of Energy, 
acting by and through Western.
    By Delegation Order No. 00-037.00, effective December 6, 2001, the 
Secretary of Energy delegated (1) the authority to develop long-term 
power and transmission rates on a nonexclusive basis to Western's 
Administrator, (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 
Commission. Existing DOE procedures for public participation in 
electric service rate adjustments are located at 10 CFR 903, effective 
September 18, 1985 (50 FR 37835). DOE procedures were followed by 
Western in developing the rate formula approved by the Commission on 
July 31, 2001, at 96 FERC ] 61,171.
    The Boulder Canyon Project Implementation Agreement Contract No. 
95-PAO-10616 requires Western, prior to October 1 of each rate year, to 
determine the annual rates for the next fiscal year. The rates for the 
first rate year and each fifth rate year thereafter, will become 
effective provisionally upon approval by the Deputy Secretary of Energy 
subject to final approval by the Commission. For all other rate years, 
the rates will become effective on a final basis upon approval by the 
Deputy Secretary of Energy.
    Western will continue to provide the BCP Contractors annual rates 
by October 1 of each year using the same ratesetting formula. The rates 
are reviewed annually and adjusted upward or downward to assure 
sufficient revenues to achieve payment of all costs and financial 
obligations associated with the project. Each fiscal year, Western 
prepares a PRS that updates actual revenues and expenses and includes 
future estimates of annual revenues and expenses for the BCP including 
interest and capitalized costs.
    Western's BCP electric service ratesetting formula set forth in 
Rate Order No. WAPA-70 was approved on April 19, 1996, in Docket No. 
EF96-5091-000 at 75 FERC ] 62,050, for the period beginning November 1, 
1995, and ending September 30, 2000. Rate Order No. WAPA-94 extended 
the existing ratesetting formula beginning on October 1, 2000, and 
ending September 30, 2005. The BCP ratesetting formula includes a base 
charge, an energy rate, and a capacity rate. The ratesetting formula 
was used to determine the BCP FY 2005 Base Charge and Rates.
    Western proposes the FY 2005 base charge of $57,654,683, the energy 
rate of 7.41 mills/kWh, and the capacity rate of $1.39/kWmonth be 
approved on a final basis.
    Consistent with procedures set forth in 10 CFR 903, Western held a 
consultation and comment period. The notice of the proposed FY 2005 
Rates for electric service was published in the Federal Register on 
February 18, 2004.
    Following review of Western's proposal, I approve the FY 2005 
Rates, on a final basis for the BCP electric service, under Rate 
Schedule BCP-F6, through September 30, 2005.

    Dated: August 5, 2004.
Kyle E. McSlarrow,
Deputy Secretary.
[FR Doc. 04-19046 Filed 8-18-04; 8:45 am]
BILLING CODE 6450-01-P