[Federal Register Volume 76, Number 177 (Tuesday, September 13, 2011)]
[Notices]
[Pages 56430-56433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23329]


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DEPARTMENT OF ENERGY

Western Area Power Administration


Boulder Canyon Project

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of base charge and rates.

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SUMMARY: In this notice, the Deputy Secretary of Energy approves the 
Fiscal Year (FY) 2012 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 repay investments 
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, 2011. These Rates will 
stay in effect through September 30, 2012, or until superseded by other 
rates.

FOR FURTHER INFORMATION CONTACT: Mr. Jack Murray, Rates Manager, Desert 
Southwest Customer Service Region, Western Area Power Administration, 
P.O. Box 6457, Phoenix, AZ 85005-6457, (602) 605-2442, e-mail 
[email protected] .

SUPPLEMENTARY INFORMATION: Hoover Dam, authorized by the Boulder Canyon 
Project Act (45 Stat. 1057, December 21, 1928), sits on the Colorado 
River along the Arizona and Nevada border. Hoover Power Plant has 
nineteen (19) generating units (two for plant use) and an installed 
capacity of 2,078,800 kW (4,800 kW for plant use). High-voltage 
transmission lines and substations make it possible for consumers in 
southern Nevada, Arizona, and southern California to receive power from 
the Project. BCP electric service rates are adjusted annually using an 
existing rate formula established on April 19, 1996.
    Rate Schedule BCP-F8, Rate Order No. WAPA-150, effective October 1, 
2010, through September 30, 2015, allows for an annual recalculation of 
the rates.\1\ This notice sets forth the recalculated rates for FY 
2012. Under Rate Schedule BCP-F8, the existing composite rate effective 
on October 1, 2010, was 19.73 mills per kilowatthour (mills/kWh). The 
base charge was $75,182,522, the energy rate was 9.86 mills/kWh, and 
the capacity rate was $1.90 per kilowattmonth (kW-month).
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    \1\ FERC confirmed and approved Rate Order No. WAPA-150 on 
December 9, 2010, in Docket No. EF10-7-000, See United States 
Department of Energy, Western Area Power Administration, Boulder 
Canyon Project, 133 FERC ] 62,229 (December 9, 2010).
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    The re-calculated rates for BCP electric service, effective October 
1, 2011, will result in an overall composite rate of 21.11 mills/kWh. 
The proposed rates were calculated using the FY 2011 Final Master 
Schedule. This results in an increase of approximately 6.99 percent 
when compared with the existing BCP electric service composite rate. 
The increase is due to an increase in the annual revenue requirement. 
The

[[Page 56431]]

FY 2012 base charge increased to $84,536,772. The major contributing 
factors to the base charge increase are the increases in annual 
operation and maintenance expenses and replacement costs. The FY 2012 
energy rate of 10.56 mills/kWh is approximately a 7 percent increase 
from the existing energy rate of 9.86 mills/kWh. The increase in the 
energy rate is an outcome of the increase in the annual revenue 
requirement, caused by the previously mentioned increases in 
replacement costs and annual operating expenses. The FY 2012 capacity 
rate of $1.84/kW-month reflects a decrease of approximately 3.16 
percent compared to the existing capacity rate of $1.90/kW-month. The 
decrease in the capacity rate is due to the increase in the annual 
capacity sales when compared with FY 2011. Although the revenue 
requirement for FY 2012 is increasing, the large projected increase in 
capacity results in a decrease to the capacity rate.
    The following summarizes the steps taken by Western to ensure 
involvement of all interested parties in determining the Rates:
    1. A Federal Register notice was published on February 14, 2011 (76 
FR 8359), 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. Discussion of the proposed Rates was initiated at an informal 
BCP Contractor meeting held March 10, 2011, 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.
    3. At the public information forum held on April 6, 2011, in 
Phoenix, Arizona, Western and Reclamation representatives explained the 
proposed Rates for FY 2012 in greater detail and held a question and 
answer session.
    4. A public comment forum held on April 27, 2011, in Phoenix, 
Arizona, provided the public an opportunity to comment for the record. 
Three individuals commented at this forum.
    5. Western received three comment letters during the 90-day 
consultation and comment period. The consultation and comment period 
ended May 16, 2011. All comments were considered in developing the 
Rates for FY 2012. Written comments were received from:
     Arizona Power Authority, Phoenix, Arizona.
     Irrigation & Electrical Districts Association of Arizona, 
Phoenix, Arizona.
     Moyes Sellers, Ltd., Phoenix, Arizona.

Comments and responses, paraphrased for brevity when not affecting the 
meaning of the statements, are presented below.

Significant Rate Impact

    Comment: A commenter expressed concern over the magnitude of the 
rate increase and questioned whether some replacement cost estimates 
are higher than the actual costs will be. The commenter suggested the 
estimates be reduced to mitigate the rate increase for FY 2012. Another 
commenter suggested that the formula used by Reclamation for estimating 
breaker capacities and service lives is not commonly used in the 
electric industry, and since the breaker costs are a main contributor 
of the rate increase, Reclamation should provide additional information 
on why the formula is being used.
    Response: Western and Reclamation reviewed the replacement costs 
based on these comments. Reclamation engineers use current industry 
testing evaluation methodologies to determine potential shortfalls in 
the existing breaker capacity ratings and associated transfer trip 
schemes. Based on this analysis, the decision to replace the two 
breakers in question in FY 2012 will ensure the continued safe and 
reliable operation of the project.
    Comment: A commenter suggested that Western and Reclamation explore 
ways to capitalize and amortize replacement costs instead of expensing 
them each year, as is the existing practice. The commenter further 
states that such an approach would result in a significant decrease to 
the FY 2012 base charge, and would conform to the Boulder Canyon 
Project Implementation Agreement (BCPIA). The commenter states that 
under the terms of the BCPIA, Reclamation is to seek annual 
appropriations prior to utilizing other sources of funding.
    Response: Western and Reclamation appreciate the commenter's 
concern over rate increases and continuously look for ways to contain 
costs while maintaining a safe, reliable system. The existing process 
for the treatment of replacement costs is outlined in the BCPIA. This 
process provides BCP Contractors the opportunity for input into 
decisions on replacements and includes quarterly Engineering and 
Operating Committee (E&OC) meetings, an annual technical review 
committee meeting, and the annual Coordinating Committee meeting. The 
contractors are provided with several opportunities throughout the year 
to review Western's and Reclamation's 10-year plans and debate and 
discuss the plans for the upcoming year at each meeting. All data has 
been reviewed by Contractors prior to being included in the annual 
calculation of the base charge.
    The existing treatment of replacement in the Boulder Canyon Project 
is consistent with the BCPIA. One of the key objectives of the 
agreement when it was executed in 1995 was to eliminate the need for 
Reclamation to seek Federal appropriations. The formula for calculating 
replacement capital advances in Section 6 of the BCPIA recognizes the 
intent to operate the project without appropriations, while developing 
a method to recognize that existing Contractors' payments for expensed 
replacements are potentially higher each year than if the replacements 
had been funded via appropriations and repaid over the useful life of 
the asset. While a capitalized, amortized replacement program may 
result in reduced annual expenses, it will increase overall costs to 
the project due to future interest costs. Additionally, since 
Reclamation has not requested Federal appropriations for BCP since 
1996, a request for appropriations would represent a significant change 
in policy and would be unusual given the successful operation of the 
current structure. Further, the earliest opportunity to make such a 
request would likely be for FY 2015, resulting in no change for the 
FY2012 base charge.
    Comment: A commenter requested an explanation regarding why the 
projected increase in the Base Charge as reflected in the initial 
notice published in the Federal Register differed significantly from 
the projected increase disclosed at the Public Information Forum.
    Response: Differences in projected changes to the base charge 
between publication of the initial proposal in February and that 
disclosed in the public forums in April/May are the result of the 
availability of final, audited financial data. When the initial notice 
is sent for publication in early February, the final audited data for 
the previous year is typically not available. The inclusion of this 
data into the Power Repayment Study (PRS) will almost always result in 
adjustments to the estimated base charge.
    It is also important to note that the total base charge increase 
for FY 2012 is a result of an increase in total costs along with the 
fact that prior year carryover is significantly reduced when compared 
to previous years.

[[Page 56432]]

Future Rates

    Comment: A commenter suggested that one way to mitigate the FY 2012 
rate increase would be to restructure capital plans, reducing rates for 
the next few years, and increasing rates in the later years.
    Response: Western and Reclamation are responsible for ensuring the 
safe and reliable operation of the power system while keeping rates as 
low as possible consistent with sound business principles. Moving costs 
into future years may result in a short term savings and a lower rate 
for the upcoming year, but is otherwise not consistent with the 
agencies' responsibilities. Prior to the annual rate process, Western, 
Reclamation and the BCP Contractors engage in quarterly E&OC meetings, 
a technical review committee and, when necessary, subcommittee 
processes where the projected annual expenses are reviewed thoroughly. 
The rates announced in today's notice were developed after 
consideration of all the information generated in these meetings and 
reviews.

Reduction to Annual Costs

    Comment: BCP commenters have concerns that Reclamation rescheduled 
the spillway drum gate seal work to mitigate the rate impact for FY 
2012. The commenters believe this item is critical to dam safety and 
would prefer that Reclamation reschedule breaker replacements or other 
alternatives listed in the work plan that do not appear to be critical 
to safety at this time.
    Response: Western notes that Reclamation chose not to spend $1.7 
million on the Spillway Drum Gates in FY 2011 for the following 
reasons: The first is to help lower the FY 2012 Base Charge. Secondly, 
due to the low lake level, moving this work into the future would not 
pose a risk to Dam safety because there is very low probability that 
Lake Mead will be at an elevation that will require drum gate usage in 
the foreseeable future. Lastly, the decision was due to a recent Value 
Engineering study that proposes to combine and restructure the four 
major maintenance tasks associated with the spillway drum gates, which 
are: drum gate seals, drum gate drain hoses, drum gate pivot pins, and 
drum gate re-coating.

Visitor Center Revenues and Expenses

    Comment: A commenter expressed concern that the visitor center 
revenue projections are not broken out separately in the cost 
projections as the visitor center expenses are. The commenter stated 
that it appears the visitor center revenue projections are a place 
holder, and further stated projections should be based on past 
experience as well as having supportable evidence upon which to base 
future projections.
    Response: Western and Reclamation appreciate the commenter's 
concern over the visitor center revenues and continue to look for ways 
to maximize revenues. In its monthly Hoover Fax sent to all 
Contractors, Reclamation reports year-to-date revenue as well as a 
comparison to the previous year. For the last 5 years, the Visitor 
Center revenue and expense projections were as follows:

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         Visitor Center               FY 2008         FY 2009         FY 2010         FY 2011         FY 2012
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Projected Revenues..............     $11,564,000     $12,769,000     $14,625,000     $12,000,000     $12,000,000
Projected Expenses..............       8,435,000       9,024,000       9,148,000       9,173,000       8,996,000
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    Reclamation projects the revenue to the best of its ability based 
on recent experience as well as projecting future revenues based on 
specific assumptions and known factors (e.g., bridge construction, 
estimated number of visitors to the region based on historical visitor 
numbers and on general economic conditions, and other factors). The 
projected revenues are updated each year based on these factors. The 
$12 million projection is felt to be reasonably conservative and was 
done in consultation with the BCP Contractors and in line with the 
BCPIA. The Contractors expressed concerns that visitor center revenue 
estimates be somewhat conservative so as to not create a situation 
where an over estimation of visitor center revenues would result in an 
under collection of the base charge in a given year.

Security Costs

    Comment: A commenter expressed concern that the security costs are 
increasing even while the expectation was that once the by-pass bridge 
was completed, costs would decrease.
    Response: Reclamation continually reviews its security costs and 
seeks ways to reduce its overall costs. Hoover Dam security costs from 
FY 2010 to FY 2012 were reduced by approximately $780,000. This 
reduction was due to the opening of the Mike O'Callaghan-Pat Tillman 
Memorial Bridge and the closure of the Arizona security checkpoint. An 
estimated $400,000 in additional costs related to the Hoover Defense 
Plan and operation and maintenance of the Electronic Access Control and 
Surveillance System have been factored into the proposed FY 2012 and 
out-year budgets to meet minimum requirements for protection of the 
facility. Projected costs are identified each fiscal year and routinely 
shared with the BCP Contractors. Reclamation's annual security costs 
are spent in accordance with current Reclamation Legislative 
Guidelines, and the BCP Contractors receive annual reimbursement for 
costs in excess of the identified cost reimbursement ceiling. 
Information on Reclamation's Legislative Guidelines regarding site 
security costs may be found online at http://www.usbr.gov/ssle/documents.

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, the uprating program, 
replacements, investment repayment, and interest expense. Western's PRS 
allocates the projected annual revenue requirement for electric service 
equally between capacity and energy.

Availability of Information

    Information about this base charge and rate adjustment, including 
PRS, comments, letters, memorandums, and other supporting material 
developed or maintained by Western used to develop the FY 2012 BCP 
Rates is available for public review at the Desert Southwest Customer 
Service Regional Office, Western Area Power Administration, 615 South 
43rd Avenue, Phoenix, AZ 85005. The information is also available on 
Western's Web site at http://www.wapa.gov/dsw/pwrmkt/BCP/RateAdjust.htm.

Ratemaking Procedure 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 Reclamation 
under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended 
and supplemented by subsequent

[[Page 56433]]

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 non-exclusive 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 FERC. 
Existing Department of Energy procedures for public participation in 
electric service rate adjustments are located at 10 CFR part 903, 
effective September 18, 1985 (50 FR 37835), and 18 CFR part 300. DOE 
procedures were followed by Western in developing the rate formula 
approved by FERC on December 9, 2010, at 133 FERC ] 62,229.\2\
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    \2\ The existing rate-setting formula was established in Rate 
Order No. WAPA-70 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, extending the 
existing rate-setting formula beginning on October 1, 2000, and 
ending September 30, 2005, was approved on July 31, 2001, in Docket 
No. EF00-5092-000,at 96 FERC ] 61,171. Rate Order No. WAPA-120, 
extending the existing rate-setting formula for another five-year 
period beginning on October 1, 2005, and ending September 30, 2010, 
was approved on June 22, 2006, in Docket No. EF05-5091-000 at 115 
FERC ] 61,362. WAPA-150, extending the existing rate-setting formula 
for another five-year period beginning on October 1, 2010, was 
approved on December 9, 2010, in Docket No. EF10-7-000 at 133 FERC ] 
62,229.
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    The Boulder Canyon Project Implementation Agreement requires that 
Western determine the annual rates for the next fiscal year before 
October 1 of each rate year. The rates for the first rate year, and 
each fifth rate year thereafter, become effective provisionally upon 
approval by the Deputy Secretary of Energy (Deputy Secretary) and 
subject to final approval by FERC. For all other rate years, the rates 
become effective on a final basis upon approval by the Deputy 
Secretary. Because FY 2012 is an interim year, these rates become 
effective on a final basis upon approval by the Deputy Secretary.
    Western will continue to provide annual rates to the BCP 
Contractors by October 1 of each year using the same rate-setting 
formula. The rates are reviewed annually and adjusted to assure 
sufficient revenues are collected to achieve payment of all costs and 
financial obligations associated with the project. Each fiscal year, 
Western prepares a PRS for the BCP to update actual revenues and 
expenses including interest, estimates of future revenues, expenses, 
and capitalized costs.
    The BCP rate-setting formula includes a base charge, an energy 
rate, and a capacity rate. The rate-setting formula was used to 
determine the BCP FY 2012 Rates.
    Western proposed a FY 2012 base charge of $84,536,772, an energy 
rate of 10.56 mills/kWh, and a capacity rate of $1.84/kW-month.
    Consistent with procedures set forth in 10 CFR part 903 and 18 CFR 
part 300, Western held a consultation and comment period. The notice of 
the proposed FY 2012 Rates for electric service was published in the 
Federal Register on February 14, 2011 (76 FR 8359).
    Under Delegation Order Nos. 00-037.00 and 00-001.00C, and in 
compliance with 10 CFR part 903 and 18 CFR part 300, I hereby approve 
the FY 2012 Rates for BCP Electric Service on a final basis under Rate 
Schedule BCP-F8 through September 30, 2012. By this order I am placing 
the rates into effect in less than 30 days to meet contract deadlines 
and to avoid financial difficulties.

    Dated: September 2, 2011.
Daniel B. Poneman,
Deputy Secretary of Energy.
[FR Doc. 2011-23329 Filed 9-12-11; 8:45 am]
BILLING CODE 6450-01-P