White River Minimum Flows-Proposed Determination of Federal and Non-Federal Hydropower Impacts, 38198-38202 [E8-15135]

Agencies

• DEPARTMENT OF ENERGY
• Southwestern Power Administration

[Federal Register Volume 73, Number 129 (Thursday, July 3, 2008)]
[Notices]
[Pages 38198-38202]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15135]



[[Page 38198]]

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DEPARTMENT OF ENERGY

Southwestern Power Administration


White River Minimum Flows--Proposed Determination of Federal and 
Non-Federal Hydropower Impacts

AGENCY: Southwestern Power Administration, DOE.

ACTION: Notice of public review and comment.

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SUMMARY: Section 132 of Public Law 109-103 (2005) authorized and 
directed the Secretary of the Army to implement alternatives BS-3 and 
NF-7, as described in the White River Minimum Flows Reallocation Study 
Report, Arkansas and Missouri, dated July 2004.
    The law states that the Administrator, Southwestern Power 
Administration (Southwestern), shall determine any impacts on electric 
energy and capacity generated at Federal Energy Regulatory Commission 
(FERC) Project No. 2221 caused by the storage reallocation at Bull 
Shoals Lake. Further, the licensee of Project No. 2221 shall be fully 
compensated by the Corps of Engineers for those impacts on the basis of 
the present value of the estimated future lifetime replacement costs of 
the electrical energy and capacity at the time of implementation of the 
White River Minimum Flows project.
    The law also states that losses to the Federal hydropower purpose 
of the Bull Shoals and Norfork Projects shall be offset by a reduction 
in the costs allocated to the Federal hydropower purpose. Further, such 
reduction shall be determined by the Administrator of Southwestern on 
the basis of the present value of the estimated future lifetime 
replacement cost of the electrical energy and capacity at the time of 
implementation of the White River Minimum Flows project.
    Southwestern's draft determination was published by Federal 
Register Notice (73 FR 6717) dated February 5, 2008. Written comments 
were invited through March 6, 2008. All public comments received were 
considered, and Southwestern's draft determination was revised as 
necessary to incorporate the public comments. Since there were 
significant changes to Southwestern's draft determination, due in part 
to public comments received supporting higher energy values, 
Southwestern is publishing a proposed determination for public review 
and comment prior to its final determination.
    Assuming a January 1, 2011, date of implementation for the White 
River Minimum Flows project, Southwestern's proposed determination 
results in a present value for the estimated future lifetime 
replacement costs of the electrical energy and capacity at FERC Project 
No. 2221 of $33,935,100. Southwestern's proposed determination results 
in a present value for the estimated future lifetime replacement costs 
of the electrical energy and capacity for Federal hydropower of 
$86,712,100.

DATES: The consultation and comment period will begin on the date of 
publication of this Federal Register notice and will end on August 4, 
2008.

ADDRESSES: Written comments on Southwestern's proposed determination 
are due on or before August 4, 2008. Comments should be submitted to 
George Robbins, Director, Division of Resources and Rates, Southwestern 
Power Administration, U.S. Department of Energy, One West Third Street, 
Tulsa, Oklahoma 74103.

FOR FURTHER INFORMATION CONTACT: Mr. George Robbins, Director, Division 
of Resources and Rates, (918) 595-6680, george.robbins@swpa.gov.

SUPPLEMENTARY INFORMATION:

I. Discussion

    Originally established by Secretarial Order No. 1865 dated August 
31, 1943, Southwestern is an agency within the U.S. Department of 
Energy which was created by an Act of the U.S. Congress, entitled the 
Department of Energy Organization Act, Public Law 95-91 (1977). 
Southwestern markets power from 24 multi-purpose reservoir projects 
with hydroelectric power facilities constructed and operated by the 
U.S. Army Corps of Engineers. These projects are located in the states 
of Arkansas, Missouri, Oklahoma, and Texas. Southwestern's marketing 
area includes these states plus Kansas and Louisiana.
    Southwestern developed projected energy and capacity losses for 
FERC Project No. 2221 and the Bull Shoals and Norfork projects, 
including additional losses related to the reallocation for minimum 
flows as appropriate. Currently, the calculated compensation due to the 
licensee of FERC Project No. 2221 is $33,935,100, and the calculated 
credit due to Federal hydropower is $86,712,100. The values were 
calculated on the basis of the present value of the estimated future 
lifetime replacement cost of the electrical energy and capacity 
assuming an implementation date of January 1, 2011, for the White River 
Minimum Flows project. The final calculation will depend on the 
official date of implementation as specified by the Corps of Engineers 
and the value of the specified parameters in effect at that time.
    FERC Project No. 2221, the non-Federal Ozark Beach hydroelectric 
project, will be directly affected by the minimum flow plan. The 
implementation of the authorized plan will result in a reduction of the 
amount of gross head (headwater elevation minus the tailwater 
elevation) available for generation at the non-Federal project at Ozark 
Beach. The reduction in gross head will result in an annual energy loss 
of 6,029 megawatt-hours (MWh) of on-peak energy and 2,969 MWh of off-
peak energy, or an annual total energy loss of 8,998 MWh. Also 
associated with the loss of gross head, there will be a capacity loss 
of 3.00 MW at the project.
    Section 132 of Public Law 109-103 (2005) authorized alternative BS-
3 at Bull Shoals, as described in the White River Minimum Flows 
Reallocation Study Report, Arkansas and Missouri, dated July 2004. 
Under the authorized plan for the Bull Shoals project, five feet of 
storage for minimum flows will be reallocated from the flood control 
pool with provisions to provide a portion of the reallocated storage 
for hydropower's use to maintain the yield of the current hydropower 
storage. The current seasonal pool plan will be superimposed on the new 
top of conservation pool. As a result, both the conservation and 
seasonal pool levels at Bull Shoals will be raised five feet. The 
additional downstream releases for minimum flows will be accomplished 
by generating with one of the main units at a low, inefficient rate. 
Since the current hydropower yield will be maintained, there will be no 
loss of marketable capacity or peaking energy at Bull Shoals. The 
energy loss, 23,855 MWh per year of off-peak energy, will be the result 
of making the required minimum downstream releases by generating energy 
at a much lower plant efficiency than normal generation. Since the 
energy that is produced from the minimum flow releases will be 
generated at a time when the energy is not needed to fulfill Federal 
peaking energy contracts, it is similar in value to the off-peak energy 
normally generated during flood control operations. Operating a main 
unit at the lower efficiency will also increase the average maintenance 
costs at the project by an estimated $68,000 per year.
    Section 132 of Public Law 109-103 (2005) authorized alternative NF-
7 at Norfork, as described in the White River Minimum Flows 
Reallocation Study Report, Arkansas and Missouri, dated July 2004. 
Under the authorized plan for the Norfork project, 3.5 feet of storage 
will be reallocated for minimum flows.

[[Page 38199]]

One-half of the storage for minimum flows will be reallocated from the 
flood control pool and the other half from hydropower storage. The 
reallocation portion from the flood control storage is similar to the 
storage reallocation at Bull Shoals in that the hydropower storage 
yield for that portion will be maintained and the existing seasonal 
pool plan will be superimposed on the new top of conservation pool. As 
a result, both the conservation and seasonal pool levels at Norfork 
will be raised 1.75 feet. Unlike Bull Shoals, all minimum flow releases 
at Norfork, whether from reallocated flood or hydropower storage, will 
be spilled through a siphon with no energy generated from the water. 
Although there is no marketable capacity loss associated with the flood 
control storage portion of the reallocation, there will be an off-peak 
energy loss. The portion of the reallocation from the hydropower 
storage will reduce the yield available to hydropower and will directly 
impact the marketable capacity and on-peak energy available at Norfork. 
The annual energy loss at Norfork associated with the reallocation will 
be 6,762 MWh of off-peak energy and 6,762 MWh of on-peak energy, for a 
total annual energy loss of 13,524 MWh. The marketable capacity loss 
will be 3.93 megawatts (MW).

II. Public Review and Comment Procedures

    Opportunity is presented for interested parties to receive copies 
of the Proposed Determination Report detailing Southwestern's 
determination of the Federal and non-Federal hydropower impacts. If you 
desire a copy of the report, submit your request to Mr. George Robbins, 
Director, Division of Resources and Rates, Southwestern Power 
Administration, One West Third Street, Tulsa, OK 74103, (918) 595-6680, 
george.robbins@swpa.gov.
    Written comments on Southwestern's proposed determination are due 
on or before August 4, 2008. Comments should be submitted to George 
Robbins, Director, Division of Resources and Rates, Southwestern, at 
the above-mentioned address for Southwestern's offices.
    Southwestern will review and address the written comments, making 
any necessary changes to the proposed determination. The Administrator 
will publish the results of Southwestern's final determination in the 
Federal Register and will submit a report to the Corps of Engineers.

    Dated: June 26, 2008.
Jon Worthington,
Administrator.

Comments on Southwestern's January 2008 Draft Determination

    Southwestern received comments from four entities during the public 
comment period. All of the comments received were considered. The major 
comments, by categories, and Southwestern's responses thereto, included 
the following:

A. Energy Losses

    1. Comment. ``We specifically question the applicability of the 
SUPER program to accurately model relatively small changes in actual 
conditions at Ozark Beach as opposed to overall macro level changes in 
an entire river basin.''
    Response: SUPER was designed and programmed to simulate the 
operation of a multipurpose reservoir system. SUPER models the 
reservoir system for the entire period of record as it exists today and 
is operated under a specific operational scenario. The value in using 
SUPER is the ability to model various scenarios and to determine the 
relative differences in the results. The Corps has successfully used 
SUPER for much smaller changes in many water storage reallocation 
studies. Southwestern believes the combination of SUPER and 
Southwestern's spreadsheet model accurately captures the ``relatively 
small changes'' in conditions at Ozark Beach.
    2. Comment. Southwestern's spreadsheet analysis of the SUPER output 
shows an average 3.3-foot difference in the Ozark Beach tailwater 
elevation between the base and minimum flow runs. The Bull Shoals pool 
level is being raised 5 feet. The 1.7-foot difference represents a 34% 
understatement in the results for Ozark Beach.
    Response: It is not reasonable to assume that the Bull Shoals pool 
elevation will always be five feet higher after the minimum flows 
project is implemented. While five feet of flood control storage will 
be reallocated at Bull Shoals for minimum flows, any water stored in 
that reallocated storage will be released for minimum flow 
requirements. Those releases will be made whenever Southwestern is not 
generating at Bull Shoals Dam. As a result of those releases from the 
reallocated storage, the pool level will be drawn down on a regular 
basis and the reallocated storage will not typically be full. The 
desired downstream minimum flow releases are greater than the storage 
will yield. Therefore, the storage is frequently depleted. During the 
critical drought period, the pool level would be near pre minimum flow 
levels.
    3. Comment. The non-Federal energy loss should be, as a minimum, 
the non-Federal licensee's computed value of 12,436 MWh.
    Response: The non-Federal licensee's calculated energy loss was 
based on the assumption that the loss of head at Ozark Beach will be a 
constant five feet after minimum flows are implemented. That will not 
be the case. See Southwestern's response to Comment 2 above.
    4. Comment. The commenter ``does not believe the SUPER program is 
accurately capturing the efficiency and energy gains due to the 
addition of new water wheels at Ozark Beach.'' The commenter compared 
the calculated generation in the spreadsheet model for the SUPER Base 
Run (with the new wheels) versus the calculated generation for the 
corresponding time period in the spreadsheet verification model (with 
the old wheels) and also with the non-Federal licensee's actual energy 
generation. The commenter also noted that there is only a 3.5% increase 
in generation while they believe it should show a 16% increase.
    Response: The historical Table Rock outflows and Bull Shoals pool 
elevations are slightly different from the SUPER output because SUPER 
is modeling the reservoir system as it exists today, with all current 
water supply contracts and the current plan of operation. If the 
performance data for the old and new wheels are used with the same 
inflow data, a reasonable difference in generation is determined.
    Southwestern performed the daily generation calculation for the 
SUPER Base Run with the performance data for the old wheels to verify 
the model with existing historical data. With the assumed generating 
efficiency for the old wheels of 75% and the assumed friction loss of 
one-half foot, there was a very strong correlation with historical 
generation at the project. The calculated average annual generation 
with the new wheels is about 17% higher than the calculated average 
annual generation with the old wheels. The historical data was used 
only to verify that Southwestern's spreadsheet model could reasonably 
predict the generation at Ozark Beach with the Table Rock outflows and 
Bull Shoals pool elevations as inputs.
    The new wheels were used in both the base and alternative 
computations in order to determine the difference caused by the 
operation of Bull Shoals to meet the minimum flow requirements, not the 
increase from the installation of the

[[Page 38200]]

new wheels. The main use of SUPER is in comparing the relative 
differences between the two operational scenarios, not in trying to 
reproduce history.
    5. Comment. The commenter questioned the 1940-2003 period of record 
in SUPER which includes 18 years before Table Rock Dam was built. They 
do not ``understand how the modeling can be accurate for those early 
years and properly reflect the operation of Ozark Beach.''
    Response: It is standard practice in hydrologic engineering to use 
existing stream gage information to develop historical flow data at dam 
sites. The flow data are used in hydrologic models to model the 
reservoir system over as long a period of record as gage data is 
available. Reservoirs were designed based on hydrologic models that 
predicted the system operation with the reservoir in place. That is not 
unique to SUPER or Southwestern, but it is standard practice in 
hydrologic engineering and simulation modeling.
    6. Comment. The commenter noted that Southwestern used only the 
releases from Table Rock Dam as the inflows for Ozark Beach, and they 
stated that the Ozark Beach inflows are about 8% higher than Table Rock 
outflows due to intervening area inflow.
    Response: Southwestern agrees that the inflows into Ozark Beach 
will typically be larger than the outflows from Table Rock Dam. 
Southwestern did not consider the intervening area inflow between Table 
Rock Dam and Ozark Beach in its initial analysis. The Ozark Beach 
drainage area is about 8.5 percent larger than the Table Rock drainage 
area.
    The analysis has been updated using a drainage area ratio analysis 
of the intervening area inflow originating between Table Rock Dam and 
Bull Shoals Dam (as developed for the SUPER model) to add to the Table 
Rock outflows in estimating the Ozark Beach inflows. Using that 
technique, the average daily inflows into Ozark Beach are about 9 
percent larger than the average daily outflows from Table Rock. The 
updated daily inflows were used in the computations for both the base 
and alternative cases. After the change, the calculated average annual 
energy loss at Ozark Beach increased from 8,645 MWh to 8,998 MWh.
    7. Comment. ``We are very cognizant that the Empire ratepayers are 
the ones who shoulder the risk of analysis that does not properly 
account for the loss of energy and capacity at Ozark Beach. We are 
striving to protect their interests.''
    Response: Likewise, the Federal hydropower customers bear the risk 
that Southwestern's analysis does not properly quantify the impacts at 
the Bull Shoals and Norfork projects. Southwestern's intent is, to the 
extent possible, to accurately identify and quantify the impacts of the 
White River Minimum Flows project for both the Federal and non-Federal 
hydropower projects.
    8. Comment. ``the SWPA model failed to account for the efficiency 
gain actually seen at the dam with the new turbine wheel replacements 
and the model was unable to capture the expected five (5) feet of head 
loss. Thus, Staff considers that there are significant reasons to doubt 
the accuracy of SWPA's calculations.''
    Response: Southwestern disagrees. See responses to Comments 2, 3, 
and 4 above.
    9. Comment. ``Southwestern presents a reasonable approach to the 
calculation of lost energy and capacity from storage reallocation.''
    Response: Concur.
    10. Comment. The commenter ``strongly supports the process 
Southwestern uses for identifying and quantifying the energy and 
capacity lost due to reallocation of storage at Bull Shoals and 
Norfork, as well as the process for determining whether particular 
energy lost is peaking energy versus off-peak energy.''
    Response: Concur.

B. Capacity Losses

    1. Comment. The commenter ``agrees with SWPA that the capacity lost 
at Ozark Beach is 3 MW.''
    Response: Though our techniques for determining the capacity loss 
at Ozark Beach were different, we agree on the amount of lost capacity.
    2. Comment. ``The capacity loss calculation in the report 
accurately determines the amount of loss based on how much capacity is 
lost during the peak demand period and during the critical drought 
period of the water storage project.''
    Response: Concur.
    3. Comment. The commenter ``strongly supports the process 
Southwestern uses for identifying and quantifying the energy and 
capacity lost due to reallocation of storage at Bull Shoals and 
Norfork, as well as the process for determining whether particular 
energy lost is peaking energy versus off-peak energy.''
    Response: Concur.

C. Replacement Costs of Energy

    1. Comment. The commenter proposed that Southwestern use cost data 
that is more reflective of the entire market, and they noted that off-
peak energy is often supplied by natural gas and not only coal-fired 
generation. The non-Federal licensee previously proposed and still 
believes that an industry source such as Platts would provide more 
appropriate values for replacement costs of on-peak and off-peak 
energy.
    Response: The preliminary analysis of the impacts at Ozark Beach by 
the Corps proposed the use of the ``High Fuel Value'' energy cost data 
developed by Platts Power Outlook Research Service, a wholesale North 
American power market forecast service. Platts is a division of McGraw-
Hill Companies, Inc. The non-Federal licensee agreed with the Corps on 
the use of the Platts energy cost data for the Corps analysis.
    Southwestern initially used energy values developed by the Corps 
using Federal Energy Regulatory Commission (FERC) methodology for both 
the Federal and non-Federal impacts in order to be consistent with its 
evaluation of previous Corps reallocation studies, including its 
previous evaluation of White River Minimum Flows. While Southwestern 
was aware that the values produced by the Corps under older FERC 
criteria undervalue the energy benefits foregone in storage 
reallocations, we believed it was important to be consistent with our 
previous evaluations. The FERC values that Southwestern used for on-
peak energy compare favorably with the Platts on-peak values. However, 
the FERC values that Southwestern used for off-peak energy are 
significantly lower than the Platts off-peak values.
    After receiving public comments on our Draft Determination Report, 
Southwestern requested and received a copy of the spreadsheet 
``program'' developed at FERC and used by the Corps in the development 
of replacement energy costs. The Corps' Hydropower Analysis Center 
(HAC) modified the program several years ago (pre-2000), but FERC has 
terminated support of the program. HAC continues to update the indices 
in the spreadsheet, but there is no active support for the program.
    Southwestern revised its analysis for its Proposed Determination to 
use the Platts High Fuel Value energy cost forecast instead of the FERC 
energy values. The change was made for three primary reasons: (1) The 
Corps and Empire had previously agreed that the Platts High Fuel Value 
energy cost forecast numbers most accurately represented the 
replacement cost of energy; (2) comments from electric industry 
participants strongly supported the use of an industry source such as 
Platts; and (3) Southwestern's additional research revealed that the 
Platts values

[[Page 38201]]

for on-peak energy compare favorably with the FERC and current market 
values; however, the Platts values for off peak energy are much more 
reflective of the current market than the FERC values.
    As a result of the revision, the annual energy losses (in 2008 
dollars) are different than those reflected in Southwestern's initial 
analysis. The Federal on-peak energy value decreased from $91.44/MWh to 
$85.05/MWh, and the off-peak energy value increased from $17.50/MWh to 
$50.49/MWh. The non-Federal on-peak energy value increased from $56.45/
MWh to $86.06/MWh, and the off-peak energy value increased from $13.75/
MWh to $50.75/MWh.
    2. Comment. One commenter argues the energy values developed by the 
Corps using the FERC methodology are too low, and they used the average 
spot purchase energy price from three rate cases for their analysis.
    Response: See response to Comment 1.
    3. Comment. ``In today's market place coal-fired energy is not 
available to wholesale customers who have to go out and replace lost 
hydropower energy. Low cost coal energy is generally reserved for rate 
base paying customers.'' The comment also states that ``Coal is not an 
appropriate replacement for the lost hydropower energy. A more likely 
alternative is some form of natural gas energy.''
    Response: Concur. See response to Comment 1.
    4. Comment. The commenter noted that Southwestern's current rate 
for losses is over $50.00/MWh. They believe that off-peak energy should 
be valued in the $50.00/MWh range, which would be more reasonable in 
today's market.
    Response: Southwestern's rate for replacing non-Federal 
transmission losses is not determined from either the FERC or Platts 
values. It is based on actual purchases to replace losses incurred in 
transmitting non-Federal power and has no correlation to this 
determination.
    5. Comment. The commenter stated that the Corps on-peak energy 
value is reasonable, but conservative. Based on current and projected 
prices for natural gas, they believe that on-peak energy values should 
begin at $100.00/MWh.
    Response: See response to Comment 1.
    6. Comment. The commenter encourages Southwestern to use Platts 
values or to update the FERC program to properly reflect market values 
of on-peak and off-peak energy.
    Response: Concur. See response to Comment 1.

D. Replacement Costs of Capacity

    1. Comment. The commenter agrees with Southwestern that a combined 
cycle facility would be appropriate for replacing lost capacity at 
Ozark Beach. They prefer that Southwestern use capacity costs from 
Platts but did not state what the Platts cost would currently be. The 
commenter's calculation uses $1,093/kW (which they say is equivalent to 
the $128.47/kW-yr used by Southwestern) and produces a present value of 
$9.2 million compared to $11.0 million calculated by Southwestern.
    Response: While public comments expressed much disagreement with 
the replacement costs of energy used by Southwestern in its initial 
evaluation, there was limited discussion of the replacement costs of 
capacity used by Southwestern. The non-Federal licensee recommended 
Platts capacity cost data but used the FERC value in their updated 
calculation. One commenter stated that the capacity value used is 
reasonable but conservative. Southwestern will continue to utilize the 
capacity cost data produced by the Corps using FERC methodology in its 
analysis.
    2. Comment. The commenter says FERC capacity values as computed and 
used by HAC for Federal hydropower are ``reasonable'', but 
``conservative''. They ``assume the cost of new combustion turbine 
peaking capacity to be above $70.00/kW-yr.''
    Response: See response to Comment 1.

E. Maintenance Costs

    1. Comment. The non-Federal licensee added fixed O&M costs of 
$11.18/kW in 2007 dollars for the replacement capacity. That added 
about $800,000 to the present value non-Federal impacts. They did not 
detail how the O&M cost figure was derived or cite a source for 
referral at the time of the final calculation.
    Response: According to the Corps, the FERC method capacity value 
calculation performed by HAC includes fixed O&M costs. The inclusion of 
additional O&M costs would double count those costs. Therefore, no 
additional costs are required and none will be included.

F. Inflation

    1. Comment. The non-Federal licensee did not discuss Southwestern's 
use of the ``reference case'' inflation rate of 2.0 percent from the 
Energy Information Administration (EIA) Annual Energy Outlook. They 
used the EIA ``low growth'' inflation rate of 2.5 percent in their 
initial and updated analysis.
    Response: Southwestern recognizes that historical inflation rates 
have been higher than the EIA ``reference case'' rate proposed by 
Southwestern in its draft determination. Economic conditions over the 
next 50 years are difficult if not impossible to reliably predict. 
Since the EIA is the independent statistical and analytical agency 
within the U.S. Department of Energy, Southwestern will defer to the 
projection of the EIA and will continue to use the ``reference case'' 
inflation rate in the latest Annual Energy Outlook in the determination 
of the Federal and non-Federal hydropower impacts.
    2. Comment. The commenter used 2.5 percent inflation in their 
energy cost analysis and the non-Federal licensee's numbers for all 
other costs.
    Response: See response to Comment 1.
    3. Comment. The commenter cites the EIA Annual Energy Outlook 
2007--``from 1980 to 2005, inflation has averaged 3.5 percent per year* 
* *'', and they ``question the applicability of the all-urban Consumer 
Price Index (`CPI') to accurately reflect the long-term costs of 
replacing CO2 emissions-free federal hydropower.'' The 
commenter suggests looking to ``an industry specific producer price 
index which more closely mirrors the increased costs associated with 
electric power generation.''
    Response: See response to Comment 1. Southwestern researched to 
find a source for a long-term, energy-specific inflation forecast but 
was unsuccessful.
    4. Comment. ``at a minimum, the `low growth' EIA value of 2.5 
percent should be used.''
    Response: See response to Comment 1.

G. Present Value Determination

    1. Comment. The non-Federal licensee, in its August 2007 report 
detailing its analysis of the impacts at Ozark Beach (Appendix I in 
Southwestern's draft report), proposed the use of the current rate on 
30-year U.S. Treasury notes for the discount rate. They used 4.8 
percent in their initial analysis, which was the 30-year Treasury rate 
in effect at that time. The rate had gone up to 5.0 percent by the time 
of Southwestern's analysis. In February 2008, the rate dropped to 4.375 
percent. The non-Federal licensee continued to use 4.8 percent in its 
review of Southwestern's draft determination report.
    Response: There is no disagreement on the parameters for the 
present value determination. The 50-year project life was used by the 
Corps in its preliminary analysis, and the non-Federal licensee

[[Page 38202]]

and Southwestern agreed on that term. The non-Federal licensee used 4.8 
percent for the discount rate in both its initial and follow-up 
analysis, but that number was based on the 30-year U.S. Treasury rate 
in effect at the time of their initial analysis. The use of the 30-year 
Treasury rate in the analysis was first proposed by the non-Federal 
licensee. Southwestern will use the 30-year Treasury rate in effect at 
the time of the final calculation as the discount rate.
    2. Comment. ``The selection of the current rate on 30-year U.S. 
Treasury notes to be used as the discount rate in the present value 
calculation is a reasonable rate to use for capital projects.''
    Response: Concur. See response to Comment 1.
    3. Comment. The commenter ``supports the use of the interest rate 
for 30-year U.S. Treasury notes in effect at the time minimum flow 
releases are implemented as the appropriate discount rate for 
determining net present value of hydropower impacts. This is the same 
interest rate charged on new capital investments in the federal power 
system, and this rate was reaffirmed by Congress in its Department of 
Energy appropriation for FY 2008.''
    Response: Concur. See response to Comment 1.

H. Carbon Tax and Renewable Portfolio Standard

    1. Comment. The non-Federal licensee included a $20/ton carbon tax 
and a 5% renewable risk premium in their calculation of the non-Federal 
impacts.
    Response: Since there is no way to reliably estimate if, when, or 
how a carbon dioxide tax would be implemented, Southwestern did not 
include losses based on a carbon dioxide tax. The impacts to both 
Federal and non-Federal hydropower should be quantified and included in 
the compensation calculation if any carbon dioxide tax legislation is 
implemented before the final payment or offset is completed.
    Also, since there is no way to reliably estimate if, when, or how a 
renewable portfolio standard would be implemented, the impacts would be 
difficult to quantify. The State of Missouri currently has voluntary 
goals for adopting renewable energy, but there are no mandatory 
targets. Southwestern's position on a renewable risk premium is the 
same as on a possible carbon dioxide tax: If a state or Federal 
mandatory renewable portfolio standard that qualifies any of the three 
projects studied is implemented before the final payment or offset is 
completed, the impacts to both Federal and non-Federal hydropower 
should be quantified and included in the compensation calculation.
    The authorizing legislation for the White River Minimum Flows 
project states that the non-Federal licensee will be compensated with a 
one-time payment ``on the basis of the present value of the estimated 
future lifetime replacement costs of the electrical energy and capacity 
at the time of implementation of the White River Minimum Flows 
project.'' If the compensation to the non-Federal licensee were changed 
from a one-time payment to payments over a number of years, 
compensation for the impacts of a carbon dioxide tax or a renewable 
portfolio standard for the remainder of the payments should be computed 
and applied if either were implemented during that series of payments.
    2. Comment. ``With a carbon tax of some type expected to be enacted 
in the near future, Staff believes that a factor must be added to 
account for it. While it is true, as the SWPA study pointed out, that 
the level of the tax is not now known, Staff does not consider `zero' 
to be an acceptable estimate.''
    Response: See response to Comment 1.
    3. Comment. ``While there is not currently in place any statutory 
or regulatory scheme which places a price upon the emission of 
CO2, such potential costs exist during the lifetime of the 
study.''
    Response: See response to Comment 1.

I. Other

    1. Comment. ``Please change the references in your report from 
`Powersite Dam' to `Ozark Beach' as that is the official name of the 
facility.''
    Response: Concur. All references to Powersite Dam in Southwestern's 
report have been changed to Ozark Beach.

[FR Doc. E8-15135 Filed 7-2-08; 8:45 am]
BILLING CODE 6450-01-P