Salt Lake City Area Integrated Projects and Colorado River Storage Project-Rate Order No. WAPA-137, 52980-52996 [E8-21176]

Agencies

• DEPARTMENT OF ENERGY
• Western Area Power Administration

[Federal Register Volume 73, Number 178 (Friday, September 12, 2008)]
[Notices]
[Pages 52980-52996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-21176]


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DEPARTMENT OF ENERGY

Western Area Power Administration


Salt Lake City Area Integrated Projects and Colorado River 
Storage Project--Rate Order No. WAPA-137

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of Order Concerning Power, Transmission, and Ancillary 
Services Rates.

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SUMMARY: The Acting Deputy Secretary of Energy confirmed and approved 
Rate Order No. WAPA-137 and Rate Schedule SLIP-F9, placing firm power 
rates for the Salt Lake City Area Integrated Projects (SLCA/IP) of the 
Western Area Power Administration (Western) into effect on an interim 
basis. The Acting Deputy Secretary also confirmed Rate Schedules SP-
PTP7, SP-NW3, SP-NFT6, SP-SD3, SP-RS3, SP-EI3, SP-FR3, and SP-SSR3, 
placing firm and non-firm transmission rates and ancillary services 
rates on the Colorado River Storage Project (CRSP) transmission system 
into effect on an interim basis. The provisional rates will be in 
effect until the Federal Energy Regulatory Commission (FERC) confirms, 
approves, and places them into effect on a final basis or until they 
are replaced by other rates. The provisional rates will provide 
sufficient revenue to pay all annual costs, including interest expense, 
and repayment of power investment and irrigation aid, within the 
allowable periods.

DATES: Rate Schedules SLIP-F9, SP-PTP7, SP-NW3, SP-NFT6, SP-SD3, SP-
RS3, SP-EI3, SP-FR3, and SP-SSR3 will be placed into effect on an 
interim basis on the first day of the first full billing period 
beginning on or after October 1, 2008, and will be in effect until FERC 
confirms, approves, and places the rate schedules in effect on a final 
basis through September 30, 2013, or until the rate schedules are 
superseded.

FOR FURTHER INFORMATION CONTACT: Mr. Bradley S. Warren, CRSP Manager, 
Colorado River Storage Project Management Center, Western Area Power 
Administration, 150 East Social Hall Avenue, Suite 300, Salt Lake City, 
UT 84111-1580, (801) 524-5493, e-mail warren@wapa.gov, or Ms. Carol A. 
Loftin, Rates Manager, Colorado River Storage Project Management 
Center, Western Area Power Administration, 150 East Social Hall Avenue, 
Suite 300, Salt Lake City, UT 84111-1580, (801) 524-6380, e-mail 
loftinc@wapa.gov.

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved Rate 
Order No. WAPA-117 on August 1, 2005 (70 Fed. Reg. 47823). This Order 
included existing Rate Schedule SLIP-F8 for SLCA/IP firm power.\1\ The 
existing firm power Rate Schedule SLIP-F8 is being superseded by Rate 
Schedule SLIP-F9. Under Rate Schedule SLIP-F8, the energy rate is 10.43 
mills/kilowatthour (mills/kWh), and the capacity rate is $4.43/
kilowattmonth ($/kWmonth). The composite rate is 25.28 mills/kWh. The 
provisional firm power rate will be implemented over a 2-year period. 
In the first year, the provisional firm power rate consists of an 
energy charge of 11.06 mills/kWh and a capacity charge of $4.70/
kWmonth. The second step of the rate will be effective October 1, 2009, 
and will be capped at the energy charge of 12.29 mills/kWh and a 
capacity charge of $5.22/kWmonth. The provisional rates for SLCA/IP 
firm power in Rate Schedule SLIP-F9 will result in an overall composite 
rate of 26.80 mills/kWh on October 1, 2008, and a composite rate capped 
at 29.68 mills/kWh on October 1, 2009, through September 30, 2013, or 
until superseded. This second step rate adjustment will result in an 
overall increase of about 17.4 percent when compared with the existing 
SLCA/IP firm power composite rate under Rate Schedule SLIP-F8.
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    \1\ FERC confirmed and approved Rate Order No. WAPA-117 on June 
13, 2006, in Docket EF05-5171. See United States Department of 
Energy, Western Area Power Administration, Salt Lake City Integrated 
Projects, 115 FERC ] 62,271 (June 13, 2006).
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    The firm power rate will continue to include a cost recovery 
mechanism called the Cost Recovery Charge (CRC). The CRC is necessary 
to adequately maintain a sufficient cash balance in the Upper Colorado 
River Basin Fund. The CRC is a charge on Sustainable Hydropower (SHP) 
energy, as determined by financial conditions. Every May, Western will 
provide customers with information concerning any anticipated CRC for 
the upcoming fiscal year (FY). If Western determines a CRC is 
necessary, firm power customers may choose not to take as much firm 
energy and, in exchange, Western will waive the CRC charge. In addition 
to the potential for a CRC being implemented every year, Western will 
consider assessing the CRC upon a 45-day notice to customers, should 
water releases at Glen Canyon Dam be reduced to less than 8.23 million 
acre-feet (MAF) in a FY.
    By Delegation Order No. 00-037.00, effective December 6, 2001, the 
Secretary of Energy delegated: (1) The authority to develop power and 
transmission rates 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 power rate adjustments (10 CFR part 903) 
were published on September 18, 1985.
    Under Delegation Order Nos. 00-037.00 and 00-001.00A, 10 CFR part 
903, and 18 CFR part 300, I hereby confirm, approve, and place Rate 
Order No. WAPA-137, the proposed SLCA/IP firm power rate, CRSP firm and 
non-firm transmission rates, and ancillary services rates into effect 
on an interim basis.
    The new Rate Schedules SLIP-F9, SP-PTP7, SP-NW3, SP-NFT6, SP-SD3, 
SP-RS3, SP-EI3, SP-FR3, and SP-SSR3 will be promptly submitted to FERC 
for confirmation and approval on a final basis.

    Dated: September 4, 2008.
Jeffrey F. Kupfer,
Acting Deputy Secretary.

Department of Energy
Deputy Secretary
[Rate Order No. WAPA-137]
    In the Matter of: Western Area Power Administration Rate 
Adjustment for the Salt Lake City Area Integrated Projects and 
Colorado River Storage Project; Order Confirming, Approving, and 
Placing the Salt Lake City Area Integrated Projects Firm Power, 
Colorado River Storage Project Transmission and Ancillary Services 
Rates Into Effect on an Interim Basis

    These rates were established in accordance with section 302 of the 
Department of Energy (DOE) Organization Act (42 U.S.C. 7152). This Act 
transferred to and vested in the Secretary of Energy the power 
marketing functions of the Secretary of the Department of the Interior 
and the Bureau of Reclamation (Reclamation) under the Reclamation Act 
of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by 
subsequent laws, 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.
    By Delegation Order No. 00-037.00, effective December 6, 2001, the

[[Page 52981]]

Secretary of Energy delegated: (1) The authority to develop power and 
transmission rates 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 Federal Energy Regulatory Commission 
(FERC). Existing DOE procedures for public participation in power rate 
adjustments (10 CFR part 903) were published on September 18, 1985.

Acronyms and Definitions

    As used in this Rate Order, the following acronyms and definitions 
apply:

Administrator: The Administrator of the Western Area Power 
Administration.
A.F.: Acre-feet.
AFC: Actual firming energy costs (MWh) as used in the PYA formula.
AHP: Available Hydropower.
ALP: Animas La Plata Project.
ATRR: Annual Transmission Revenue Requirement.
Basin Fund: Upper Colorado River Basin Fund.
BFBB: Basin Fund Beginning Balance as used in the CRC formula.
BFTB: Basin Fund Target Balance as used in the CRC formula.
Capacity: The electric capability of a generator, transformer, 
transmission circuit, or other equipment. It is expressed in kW.
Capacity Rate: The rate which sets forth the charges for capacity. It 
is expressed in $/kWmonth and applied to each kW of the Contract Rate 
of Delivery (CROD).
CDP: Customer Displacement Power.
Composite Rate: The rate for firm power which is the total annual 
revenue requirement for capacity and energy divided by the total annual 
energy sales. It is expressed in mills/kWh and used for comparison 
purposes.
CRC: Cost Recovery Charge. A mechanism to assist in recovery of 
purchased power costs during financial hardship.
CRCE: CRC Energy (GWh) as used in the CRC and PYA formulas.
CRCEP: CRC Energy Percentage of full SHP as used in the CRC and PYA 
formulas.
CROD: Contract Rate of Delivery. The maximum amount of capacity made 
available to a preference customer for a period specified under a 
contract.
CRSP: Colorado River Storage Project.
CRSP Act: An act to authorize the Secretary of the Interior to 
construct, operate, and maintain the Colorado River Storage Project and 
Participating Projects, and for other purposes. (Act of April 11, 1956, 
ch. 203, 70 Stat. 105)
CRSP MC: The CRSP Management Center of Western Area Power 
Administration.
Customer: An entity with a contract that is receiving firm electric 
service and transmission from Western's CRSP MC.
DOE: United States Department of Energy.
DOE Order RA 6120.2: An order outlining power marketing administration 
financial reporting and ratemaking procedures.
DSW: Desert Southwest Region of Western Area Power Administration.
EA: SHP Energy Allocation (GWh) as used in the CRC formula.
EAC: Sum of customers' energy allocations subject to the PYA formula.
Energy: Power produced or delivered over a period of time. It is 
expressed in kilowatthours.
Energy Rate: The rate which sets forth the charges for energy. It is 
expressed in mills/kWh and applied to each kWh delivered to each 
Customer.
EIS: Environmental Impact Statement.
FA: Funds Available as used in the CRC formula.
FA1: Basin Fund Balance Factor as used in the CRC formula.
FA2: Revenue Factor as used in the CRC formula.
FARR: Additional revenue to be recovered as used in the CRC formula.
FE: Forecasted purchased energy as used in the CRC formula.
FERC: Federal Energy Regulatory Commission.
FFC: Forecasted average energy price per MWh as used in the CRC and PYA 
formulas.
Firm: A type of product and/or service always available at the time 
requested by the customer.
FRN: Federal Register notice.
FX: Forecasted energy purchased expense as used in the CRC formula.
FY: Fiscal year is the period from October 1 to September 30.
GWh: Gigawatthour. The electrical unit of energy that equals 1 billion 
watt-hours or 1 million kWh.
HE: Forecasted hydro energy as used in the CRC formula.
Integrated Projects: The resources and revenue requirements of the 
Collbran, Dolores, Rio Grande, and Seedskadee projects blended together 
with the CRSP to create the SLCA/IP resources and rate.
kW: Kilowatt. The electrical unit of capacity that equals 1,000 watts.
kWh: Kilowatthour. The electrical unit of energy that equals 1,000 
watts produced or delivered in 1 hour.
kWmonth: Kilowattmonth. The electrical unit of the monthly amount of 
capacity.
kWyear: Killowattyear. A unit of electrical capacity demanded for 8,760 
hours.
Load: The amount of electric power or energy delivered or required at 
any specified point(s) on a system.
Load-Ratio Share: Network customer's hourly load (including its 
designated network load not physically interconnected with Western) 
coincident with Western's monthly CRSP transmission system peak.
M&I: Municipal and Industrial water.
MAF: Million Acre-Feet. The amount of water required to cover 1 million 
acres, 1 foot in depth.
Mill: A monetary denomination of the United States that equals one-
tenth of a cent or one-thousandth of a dollar.
Mills/kWh: Mills per kilowatthour. A unit of charge for energy.
MW: Megawatt. The electrical unit of capacity that equals 1 million 
watts or 1,000 kilowatts.
MWh: One million watt-hours of electric energy. A unit of electrical 
energy which equals 1 megawatt of power used for 1 hour.
NATRR: Net Annual Transmission Revenue Requirement.
NB: Net Balance as used in the CRC formula.
NEPA: National Environmental Policy Act of 1969 (42 U.S.C. 4321, et 
seq.).
Non-firm: A type of product and/or service not always available at the 
time requested by the customer.
NR: The net revenue remaining after paying all annual expenses as used 
in the CRC formula.
OASIS: Open Access Same-Time Information System.
O&M: Operation and Maintenance.
OM&R: Operation, Maintenance, and Replacements.
PAE: Projected Annual Expenses as used in the CRC formula.
PAR: Projected Annual Revenue without the CRC as used in the CRC 
formula.
Participating Projects: The projects participating with CRSP according 
to the CRSP Act of 1956 (43 U.S.C. 620).
PFE: Prior year actual firming energy as used in the PYA formula.
PFX: Prior year actual firming expenses as used in the PYA formula.
Pinch Point: The nearest future year in the PRS where cumulative 
expenses and required payments equal cumulative revenues.
Power: Capacity and energy.
Preference: The provisions of Reclamation Law which require Western to 
first make Federal power available to certain entities. For

[[Page 52982]]

example, section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 
485h(c)) states that preference in the sale of Federal power shall be 
given to municipalities and other public corporations or agencies and 
also to cooperatives and other nonprofit organizations financed in 
whole or in part by loans made under the Rural Electrification Act of 
1936.
Price: Average price per MWh for purchased power as used in the CRC 
formula.
Project Use: Power used to operate the CRSP Participating Projects 
facilities under Reclamation Law.
Proposed Rate: A rate that has been recommended by Western to the 
Deputy Secretary of DOE for approval.
Provisional Rate: A rate which has been confirmed, approved, and placed 
into effect on an interim basis by the Deputy Secretary of DOE.
PRS: Power Repayment Study.
PYA: Prior Year Adjustment as used in the CRC formula.
RA: Revenue Adjustment as used in the PYA formula.
Rate Brochure: A document explaining the rationale and background for 
the rate proposal contained in this Rate Order, dated January 2008.
Ratesetting PRS: The PRS used for the rate adjustment proposal.
Reclamation: United States Department of the Interior, Bureau of 
Reclamation.
Reclamation Law: A series of Federal laws, viewed as a whole that 
create the originating framework under which Western markets power.
Revenue Requirement: The revenue required to recover annual expenses, 
such as O&M, purchased power, transmission service expenses, interest, 
deferred expenses, repayment of Federal investments, and other assigned 
costs.
RMR: Rocky Mountain Region of Western Area Power Administration.
SHP: Sustainable Hydropower as defined in the firm power contracts for 
SLCA/IP.
SLCA/IP: Salt Lake City Area Integrated Projects. The resources and 
revenue requirements of the Collbran, Dolores, Rio Grande, and 
Seedskadee projects blended together with the CRSP to create the SLCA/
IP rate.
Supporting Documentation: A compilation of data and documents that 
support the Rate Brochure and the rate proposal.
TRC: Transmission Revenue Credits.
TSTL: CRSP Transmission System Total Load.
Western: United States Department of Energy, Western Area Power 
Administration.
WL: Waiver Level as used in the CRC formula.
WLP: Waiver Level Percentage of full SHP as used in the CRC formula.
WPR: Work Program Review. The work plan is a draft estimate of costs 
that are expected to be included in the Congressional Budget for 
Western and Reclamation and the basis for budget estimates to be used 
in the PRS.
WRP: Western Replacement Power as defined in the firm power contracts 
for SLCA/IP.

Effective Date

    The new interim rates will take effect on the first day of the 
first full billing period beginning on or after October 1, 2008, and 
will remain in effect until September 30, 2013, pending approval by 
FERC on a final basis.

Public Notice and Comment

    Western followed the Procedures for Public Participation in Power 
and Transmission Rate Adjustments and Extensions, 10 CFR part 903, in 
developing these rates. The steps Western took to involve interested 
parties in the rate process were:
    1. The proposed rate adjustment process began May 30, 2007, when 
Western mailed a notice announcing an informal customer meeting on June 
19, 2007, to all SLCA/IP customers and interested parties.
    2. On June 19, 2007, August 21, 2007, and October 10, 2007, 
beginning at 10:30 a.m., informal customer meetings were held to 
discuss the components and rationale for the rate adjustment, to 
discuss possible rate designs, and to answer questions.
    3. A Federal Register notice, published on January 4, 2008 (73 FR 
858), announced the proposed rate adjustments for the SLCA/IP, CRSP 
Transmission, and Ancillary Services Rates. This publication began a 
public consultation and comment period and announced the public 
information and public comment forums.
    4. On January 11, 2008, Western's CRSP MC mailed all SLCA/IP 
preference customers, CRSP transmission customers, and interested 
parties letters along with the Rate Brochure, which contains a copy of 
the published Federal Register notice proposal and a reminder of the 
February 5, 2008, public information forum.
    5. On February 5, 2008, beginning at 1:30 p.m., Western held a 
public information forum at the Radisson Hotel Salt Lake City Airport, 
Salt Lake City, Utah. Western provided detailed explanations of the 
proposed SLCA/IP firm power rate and the CRSP transmission and 
ancillary service rates. Western provided Rate Brochures, supporting 
documentation, and informational handouts at this meeting.
    6. On March 4, 2008, beginning at 1:30 p.m., Western held a comment 
forum at the Radisson Hotel Salt Lake City Airport, Salt Lake City, 
Utah, to give the public an opportunity to comment for the record. 
Western also notified its customers of its intent to extend the comment 
and consultation period through May 5, 2008, and to hold additional 
information and comment forums.
    7. On March 12, 2008, Western's CRSP MC mailed a flyer to all SLCA/
IP customers, CRSP transmission customers, and interested parties 
notifying them of a second public information forum and a second 
comment forum.
    8. A Federal Register notice, published March 24, 2008 (73 FR 
15519), announced the extension of the comment and consultation period 
for the SLCA/IP firm power, CRSP transmission and ancillary services 
rates.
    9. On March 24, 2008, CRSP MC mailed all SLCA/IP customers, CRSP 
transmission customers, and interested parties a letter with a copy of 
the published FRN extending the comment and consultation period for the 
SLCA/IP firm power, CRSP transmission and ancillary services rates.
    10. On April 10, 2008, beginning at 1:30 p.m., Western held its 
second public information forum at the Bureau of Reclamation, Wallace 
F. Bennett Federal Building, Room 8102, 125 South State Street, Salt 
Lake City, Utah.
    11. On April 10, 2008, beginning at 2:35 p.m., Western held its 
second comment forum at the Bureau of Reclamation, Wallace F. Bennett 
Federal Building, Room 8102, 125 South State Street, Salt Lake City, 
Utah.
    12. Western received 17 comment letters during the consultation and 
comment period, which ended May 5, 2008. All formally submitted 
comments have been considered in preparing this Rate Order.

Comments

    Written comments were received from the following organizations:

Arizona Tribal Energy Association, Arizona (2),
Farmington Electric Utility System, New Mexico,
Colorado River Energy Distributors Association, Arizona (3),
Grand Canyon Trust, Arizona,
Inter Tribal Council of Arizona, Inc., Arizona,
Irrigation & Electrical Districts Association of Arizona, Arizona,
Living Rivers, Utah (2),

[[Page 52983]]

Murray City Corporation, Utah (2),
Navajo Tribal Utility Authority, Arizona,
Salt River Pima-Maricopa Indian Community, Arizona,
Utah Associated Municipal Power Systems, Utah,
Yavapai-Apache Nation, Arizona.

    Representatives of the following organizations made oral comments:

Arizona Tribal Energy Association, Arizona, Colorado River Energy 
Distributors Association, Arizona,
Navajo Tribal Utility Authority, Arizona,
Utah Associated Municipal Power Systems, Utah.

Project Description

    The SLCA/IP consists of the CRSP, Rio Grande, and Collbran 
projects. The CRSP includes two participating projects that have power 
facilities: the Dolores and Seedskadee projects. Western integrated the 
Rio Grande and Collbran projects with CRSP for marketing and ratemaking 
purposes on October 1, 1987. The goals of integration were to increase 
marketable resources, simplify contract and rate development and 
project administration by creating one rate and to ensure repayment of 
the Projects' costs. All Integrated Projects maintain their individual 
identities for financial accounting and repayment purposes, but their 
revenue requirements are integrated into the SLCA/IP PRS for 
ratemaking.

Power Repayment Study--Firm Power Rate

    Western prepares a PRS each FY to determine if revenues will be 
sufficient to repay, within the required time, all costs assigned to 
the SLCA/IP. Repayment criteria are based on policies (including DOE 
Order RA 6120.2) and authorizing law.
    Provisional rates for SLCA/IP firm power result in an overall 
composite rate increase of approximately 17.4 percent, when compared to 
the existing SLCA/IP firm power rates in Rate Schedule SLIP-F8. The 
current composite rate under Rate Schedule SLIP-F8 is 25.28 mills/kWh. 
The provisional rates for SLCA/IP firm power in Rate Schedule SLIP-F9 
will be implemented over a 2-year period resulting in a composite rate 
of 26.80 mills/kWh on October 1, 2008, and a composite rate capped at 
29.68 mills/kWh on October 1, 2009. In the first year, the provisional 
firm power rate consists of an energy charge of 11.06 mills/kWh and a 
capacity charge of $4.70/kWmonth. The second step of the rate will be 
effective October 1, 2009 through September 30, 2013, or until 
superseded. The energy charge will not exceed 12.29 mills/kWh and the 
capacity charge will not exceed $5.22/kWmonth. The actual rates for the 
second step will be determined using 2008 actual data, updated 
estimates for purchased power and transmission, as well as other 
revised estimates that could affect the rate. Western will provide 
customers an opportunity to comment on the second step during a meeting 
scheduled for June 2009. The following table compares the current and 
proposed firm power rates.

                                                   Comparison of Current and Proposed Firm Power Rates
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                                                                                                     Percent
                                     Current rate October 1, 2005-  Proposed rate  October 1, 2008   increase   Proposed rate\1\  October 1,     Total
                                          September 30, 2010                   (1st step)            for 1st    2009-September 30, 2013  (2nd   percent
                                                                                                       step                 step)               increase
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Rate Schedule.....................  SLIP-F8.......................  SLIP-F9.......................  .........  SLIP-F9.......................  .........
Energy (mills/kWh)................  10.43.........................  11.06.........................        6.0  12.29.........................       17.8
Capacity ($/kWmonth)..............  4.43..........................  4.70..........................        6.0  5.22..........................       17.9
Composite Rate (mills/kWh)........  25.28.........................  26.80.........................        6.0  29.68.........................      17.4
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\1\ Maximum rate for FY 2010.

Cost Recovery Charge

    Western is proposing to continue the CRC calculation and assessment 
in the proposed rate schedule as it is in the current SLIP-F8 rate 
schedule and to add an additional triggering mechanism.
    The CRC is based on a Basin Fund cash analysis only and is 
independent of the PRS calculations. In the event that expenses 
significantly exceed estimates and in order to adequately recover and 
maintain a sufficient balance in the Basin Fund, Western will calculate 
and assess a CRC. The CRC is designed to maintain a Basin Fund Target 
Balance (BFTB) for the following FY and to limit the FY loss to the 
Basin Fund. The BFTB will be equal to 15 percent of the upcoming FY's 
total expenses but not less than $20 million. The allowable FY loss is 
limited to no more than 25 percent of the Basin Fund Beginning Balance 
(BFBB). For purposes of explaining how the CRC is calculated, please 
refer to Rate Schedule SLIP-F9.

Trigger for Shortage Criteria

    In the event that Reclamation's 24-month study projects that Glen 
Canyon Dam water releases will drop below 8.23 MAF in a water year 
(October through September), Western will recalculate the CRC to 
include those lower estimates of hydropower generation and the 
estimated costs for any additional purchased power. Western, as in the 
yearly projection for the CRC, will give the customers a 45-day notice, 
during which they may request a waiver of the CRC by voluntarily taking 
less energy than allowed under the customer's Firm Electric Service 
contract. This recalculation will remain in effect for the remainder of 
the current FY. In the event that hydropower generation returns to 8.23 
MAF or higher during the CRC implementation, a new CRC will be 
calculated for the next month, and the customers will be notified.

Narrative PYA Discussion

    Since the annual determination of the CRC is based upon estimates, 
an annual prior year adjustment (PYA) will be calculated. The CRC PYA 
for subsequent years will be determined by comparing the prior year's 
estimated firming energy cost to the prior year's actual firming energy 
cost for the energy provided above the Waiver Level. The PYA will 
result in an increase or decrease to a customer's firm energy costs 
over the course of the following year. Please see Rate Schedule SLIP-F9 
rate schedule for further explanation of the PYA calculation.

CRC Schedule for Customers

    Western will provide its customers with information concerning the 
anticipated CRC for the upcoming FY in May. The established CRC will be 
in effect for the entire FY. The table below displays the time frame 
for determining the amount of purchases needed,

[[Page 52984]]

developing customer's load schedules, and making purchases.

                              CRC Schedule
------------------------------------------------------------------------
                   Task                                Date\1\
------------------------------------------------------------------------
April 24-Month Study (Forecast to Model     April 1.
 Projections).
CRC Notice to Customers...................  May 1.
Waiver Request Submitted by Customers.....  June 15.
CRC Effective.............................  October 1.
------------------------------------------------------------------------
\1\ Note: This schedule does not apply if the CRC is triggered by the
  Glen Canyon Dam annual releases dropping below 8.23 MAF.

CRSP Transmission Rates Discussion

    The proposed firm and non-firm transmission rates apply to all 
transmission-only sales. The present CRSP point-to-point, network, and 
non-firm transmission rates, outlined in Rate Schedules SP-PTP6, SP-
NW2, and SP-NFT5 became effective on October 1, 2002. On June 29, 2007, 
the Deputy Secretary of Energy extended the transmission rates through 
September 30, 2010. The transmission rates include the cost for 
scheduling, system control, and dispatch service. Western is proposing 
that these three rates remain in effect for this new ratesetting 
period. The cost of transmission service for Western's SLCA/IP long-
term electric service will continue to be included in the SLCA/IP firm 
power rate. Transmission services are outlined in Western's Tariff.
    Western is proposing to use the current methodology, which is an 
annual fixed charge formula, to determine the revenue requirement to be 
recovered from firm and non-firm transmission service. The annual 
transmission revenue requirement includes O&M expenses, administrative 
and general expenses, interest expense, and depreciation expense. This 
methodology is updated annually using a test year, which is the most 
recent historical data available. This revenue requirement is offset by 
appropriate CRSP transmission system revenues.
    The provisional rate for network transmission service is a formula 
calculation based on the annual transmission revenue requirement. There 
are no changes to the existing network integration transmission service 
formula under Rate Schedule SP-NW2.

Firm Point-to-Point

    Western is seeking the continued approval of a rate formula for 
calculation of the firm point-to-point transmission rate to be applied 
annually. The provisional rate for firm point-to-point transmission 
service is $2.21/kWmonth for FY 2008.
    The firm point-to-point transmission rate is based upon the most 
recent historical year, using an annual fixed-charge methodology. The 
annual transmission revenue requirement is reduced by revenue credits 
such as non-firm transmission, existing contracts at different rates, 
scheduling and dispatch services, and phase-shifter revenues. The 
resultant net annual transmission revenue requirement is divided by the 
capacity reservation needed to meet firm power and transmission-only 
commitments in kW, including the total network integration loads at 
system peak, to derive a cost/kWyear. The formula is updated every year 
by applying the most current historical test year. If needed, a revised 
rate will become effective every October 1. The rate formula is 
proposed to be effective October 1, 2008, through September 30, 2013.
    The cost/kWyear is calculated using the following formula:
    [GRAPHIC] [TIFF OMITTED] TN12SE08.000
    
Where:

ATRR = Annual Transmission Revenue Requirement. The costs associated 
with facilities that support the transfer capability of the CRSP 
transmission system, excluding generation facilities. These costs 
include investment costs, interest expenses, depreciation expense, 
administrative and general expenses, and operation and maintenance 
expense, including transmission purchases. Transmission purchases 
reflect those costs associated with CRSP contractual rights.
TRC = Transmission Revenue Credits. The revenues generated by the 
CRSP transmission system not related to the revenues from the sale 
of long-term firm transmission.
NATRR = Net Annual Transmission Revenue Requirement. The Annual 
Revenue Requirement minus Transmission Revenue Credits.
TSTL = CRSP Transmission System Total Load. The sum of the total 
CRSP transmission capacity under long-term reservation including the 
total network integration loads at system peak.

Non-Firm Point-to-Point Transmission

    The proposed rate for non-firm point-to-point CRSP transmission 
service is a mills/kWh rate, which is based upon the current firm 
point-to-point rate and may be discounted. This rate will remain in 
effect concurrently with the firm point-to-point rate and will also be 
reviewed annually. Transmission availability will be posted on 
Western's OASIS.

Network Transmission

    The proposed rate for network transmission is a calculation based 
upon the annual revenue requirement then in effect, as determined by 
the annual fixed charge methodology.

Ancillary Services Discussion

    Six ancillary services will continue to be offered by CRSP MC, two 
of which are required as part of CRSP transmission service. These are 
(1) Scheduling, system control, and dispatch service and (2) reactive 
supply, and voltage control service. The remaining four ancillary 
services are (3) regulation and frequency response service, (4) energy 
imbalance service, (5) spinning reserve service, and (6) supplemental 
reserve service. These will be offered either from the balancing 
authority or from the CRSP MC Merchant Function. Sales of regulation 
and frequency response, energy imbalance, spinning reserve, and 
supplemental reserve services from SLCA/IP power resources are limited 
since Western has allocated the SLCA/IP power resources to preference 
entities under long-term commitments. Western has made a clarification 
to its spinning and supplemental reserve ancillary services and has 
removed its reference to the Western System Power Pool Agreement. 
Western will continue to use market-based rates to determine its rate 
for spinning and supplemental reserves under the Rate Schedule SSP-
SSR3. The availability and type of ancillary service will be determined 
based on excess resources available at the time the services are 
requested, except for the two ancillary services required to be 
provided in conjunction with the sale of CRSP transmission services.
    Since the CRSP transmission system lies in two balancing 
authorities, operated by Western's RMR and DSW, many of the ancillary 
services are offered through their respective balancing authorities.
    The provisional rates for ancillary services are designed to 
recover only the costs associated with providing the service(s). The 
costs for providing scheduling, system control, and dispatch service 
are included in the appropriate provisional transmission services 
rates. However, the charges for reactive supply and voltage control 
service will be in accordance with Western's RMR and DSW applicable 
rate schedules.

Existing and Provisional Rates

    A comparison of the existing and provisional SLCA/IP firm power 
rates,

[[Page 52985]]

CRSP Transmission and Ancillary Services, follows:

  Comparison of Existing and Provisional Salt Lake City Area Integrated Projects Firm Power, Colorado River Storage Project Transmission and Ancillary
                                                                        Services
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Provisional rate\1\
                                      Current rate  October     Provisional rate     Percent increase  for     October 1, 2009-        Total percent
                                       1, 2005-  September    October 1, 2008  (1st         1st step          September 30, 2013          increase
                                            30, 2010                  step)                                       (2nd step)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy (mills/kWh).................  10.43.................  11.06.................  6....................  12.29................  17.8.
CRC (if applicable)................  varies................  varies................  varies...............  varies...............  varies.
Capacity ($/kWmonth)...............  4.43..................  4.70..................  6....................  5.22.................  17.9.
Composite Rate (mills/kWh).........  25.28.................  26.80.................  6....................  29.68................  17.4.
Firm Transmission Rate.............  $2.21 (FY 08).........  To be determined for    To be determined for   To be determined for   To be determined for
                                                              FY 09.                  FY 09.                 FY 10.                 FY 10.
Network Transmission (net annual     $72,613,170 (FY 08)...  To be determined for    To be determined for   To be determined for   To be determined for
 revenue requirement).                                        FY 09.                  FY 09.                 FY 10.                 FY 10.
Non-firm Transmission Rate.........  3.03 mills/kWh, may be  To be determined for    To be determined for   To be determined for   To be determined for
                                      discounted (FY 08).     FY 09.                  FY 09.                 FY 10.                 FY 10.
Ancillary Services \2\.............  N/A...................  N/A...................  N/A..................  N/A..................  N/A.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Maximum rate for FY 2010-2013.
\2\ Since all of CRSP transmission facilities are located in two Western balancing authorities, these services are provided through these balancing
  authorities.

Certification of Rates

    Western's Administrator certified that the provisional rates for 
SLCA/IP firm power, CRSP transmission, and ancillary services are the 
lowest possible rates consistent with sound business principles. The 
provisional rates were developed following administrative policies and 
applicable laws.

SLCA/IP Firm Power Rate Discussion

    According to Reclamation Law, Western must establish power rates 
sufficient to recover O&M expenses, purchased power expenses, interest 
expenses, and repayment of power investment and irrigation aid.
    The existing rate for SLCA/IP firm power under Rate Schedule SLIP-
F8 expires September 30, 2010. Effective October 1, 2008, Rate Schedule 
SLIP-F8 will be superseded by the new rates in Rate Schedule SLIP-F9. 
The provisional rates for SLCA/IP firm power consist of a capacity rate 
and an energy rate. The provisional rates for SLCA/IP firm power in 
Rate Schedule SLIP-F9 will result in a composite rate of 26.80 mills/
kWh on October 1, 2008, and a composite rate capped at 29.68 mills/kWh 
on October 1, 2009. The provisional firm power rate will be implemented 
over a 2-year period. In the first year, the provisional firm power 
rate consists of an energy charge of 11.06 mills/kWh and a capacity 
charge of $4.70/kWmonth. The second step of the rate will be effective 
October 1, 2009, through September 30, 2013, or until superseded, and 
will be capped at the energy charge of 12.29 mills/kWh and a capacity 
charge of $5.22/kWmonth.

Statement of Revenue and Related Expenses

    The following table provides a summary of projected revenue and 
expense data for the SLCA/IP firm power rate through the 5-year 
provisional rate approval period.

 SLCA/IP Firm Power--Comparison of 5-Year Rate Period (FY 2009-FY 2013)
                       Total Revenues and Expenses
                                 [$000]
------------------------------------------------------------------------
                                                 Proposed
                                    Existing    rate with    Difference
                                      rate         cap
------------------------------------------------------------------------
Total revenues..................      828,785      919,125       90,340
 
      Revenue Distribution
Expenses:
    O&M.........................      314,501      348,731       34,230
    Purchased Power and                76,489      133,525       57,036
     Transmission...............
    Integrated Projects                38,820       37,733       (1,087)
     Requirements...............
    Interest....................       33,165       67,551       34,386
    Other.......................       17,789       14,784       (3,005)
                                 ---------------------------------------
        Total Expenses..........      480,764      602,324      121,560
Principal Payments:
    Capitalized Expenses                    0            0            0
     (deficits).................
    Original Project and              198,009       96,812     (101,197)
     Additions..................
    Replacements................      137,183      206,803       69,620
    Irrigation..................       12,829       13,186          357
    Irrigation to Participating             0            0            0
     Projects...................
                                 ---------------------------------------
        Total Principal Payments      348,021      316,801      (31,220)
                                 ---------------------------------------

[[Page 52986]]

 
            Total Revenue             828,785      919,125       90,340
             Distribution.......
------------------------------------------------------------------------

Basis for Rate Development

    The existing rates for SLCA/IP firm power in Rate Schedule SLIP-F8 
no longer provide sufficient revenues to pay all annual costs, 
including interest expense, and repayment of investment and irrigation 
aid within the allowable periods. The adjusted rates reflect increases 
primarily in O&M costs and purchased power and transmission costs. The 
provisional rates will provide sufficient revenue to pay all annual 
costs, including interest expense, and to repay power investment and 
irrigation aid within the allowable periods. To coincide with the start 
of each FY, the provisional rates for the first step will take effect 
on October 1, 2008. The provisional rates for the second step will take 
effect on October 1, 2009, and remain in effect through September 30, 
2013.
    Provisions for transformer losses adjustment, power factor 
adjustment, WRP administrative charge, and CDP administrative charge 
adjustments are part of the provisional rates for SLCA/IP firm power. 
Western will not modify the provisions and methodologies for these 
adjustments, which will remain as specified in Rate Schedule SLIP-F9.

Comments

    The comments and responses regarding the firm power rate, 
paraphrased for brevity when not affecting the meaning of the 
statement(s), are discussed below. Direct quotes from comment letters 
are used for clarity where necessary. The rate process issues discussed 
are (1) Firm Power Rate Design, (2) Cost Recovery Charge, (3) Stepped 
Rate, (4) Basin Fund, (5) Revenue, (6) Western Expenses, (7) 
Reclamation Expenses and Related Issues, (8) Project Use, (9) 
Environmental, (10) Hydrology, (11) Transmission and Ancillary 
Services, and (12) Miscellaneous.
1. Firm Power Rate Design
    Comment: Many customers expressed appreciation for the CRSP MC and 
its willingness to engage in meaningful dialogue, entertain 
suggestions, and develop alternatives to mitigate significant rate 
increases.
    Response: The CRSP MC is likewise appreciative of the customers' 
support.
    Comment: Pages 6 and 8 of the Rate Brochure reference the 
``ratesetting period'' of 17 years as opposed to 20 years. Please 
explain why a different ratesetting period was used. Are the current 
rates in effect based upon a 20-year ratesetting period?
    Response: The current rate is based on a 20-year ratesetting 
period. The ratesetting period begins the year the rate took effect (FY 
2006) and continues through the pinch point year (FY 2025). The pinch 
point year is the year of the PRS that has the largest revenue 
requirements.
    The proposed rate will take effect in October 2008, which is the 
beginning of FY 2009. Since the proposed ratesetting period extends 
through the same pinch point year, the ratesetting period of the 
proposed rate is 3 years shorter than that of the current rate.
    Comment: Some customers requested copies of all documents and 
information used to develop the cost basis for the O&M component of the 
new rate included in the PRS.
    Response: Documents and information used to develop the cost basis 
for the O&M component of the rate proposal were included in the 
Supporting Documentation Booklet, specifically Tab 10, which had been 
previously provided to requestors. In addition, the requestors were 
sent copies of the CRSP MC Work Program Review documents for FY 2006 
through FY 2010.
    Comment: One commenter asked Western to explain on what basis 
Western could extend the collection of revenues for apportionment such 
that rate impacts of those obligations are reduced.
    Response: Western adheres specifically to section 5(e) of the CRSP 
Act, which requires the inclusion of the apportionment of revenues for 
the States, in the Power Repayment Studies. In addition, DOE Order 
RA6120.2 provides further clarification of the treatment of repayment 
periods, specifically in section 12(b)(5), which states ``expected 
revenues are at least sufficient to recover other costs such as 
payments to basin funds, Participating Projects or States.''
    Comment: One commenter asked Western, ``Please run the PRS and 
provide the results excluding the funds categorized as `Available w/
Appor' found behind Tab 19 of the CRSP MC Supporting Documentation for 
Proposed Rates: SLCA/IP Firm Power, CRSP Transmission & Ancillary 
Services dates January 2008 on the sheet titled `Colorado River Storage 
Project, Aid to Participating Projects Irrigation Repayment Obligations 
and Apportioned Revenue Applied' totaling $642,582,791, which are not 
tied to authorized projects.''
    Response: The proposed rate includes the apportionment revenues 
required to be collected through FY 2025 (about $368 million). The PRS 
was rerun without the excess revenue collection for apportionment 
required by the CRSP Act. Removing these apportionment collections from 
the repayment period lowered the composite rate by 2.61 mills/kWh.
    Comment: Multiple comments were received concerning the inclusion 
of apportionment revenue collection in the rate, mentioning that $368 
million of revenues for apportionment payments would be received by FY 
2025. The customers objected to the inclusion of these apportionment 
revenues in the ratesetting period and recommended that apportionment 
costs associated with unauthorized, unconstructed projects be 
programmed into the PRS beyond the pinch point year.
    Response: Section 5(e) of the CRSP Act specifies that revenues in 
the Basin Fund in excess of the amounts needed to defray the cost of 
operation, maintenance and replacement of the CRSP Project, and to 
return to the general fund of the Treasury costs allocated to power, 
municipal water supply, irrigation and salinity control shall be 
apportioned to the four Upper Colorado Basin States to assist in the 
repayment of participating projects located within these States. 
Section 5(e) specifies that such excess ``revenues in the Basin Fund * 
* * shall be apportioned among the states of the Upper Division in the 
following percentages: Colorado, 46 per centum;

[[Page 52987]]

Utah, 21.5 per centum; Wyoming, 15.5 per centum; and New Mexico, 17 per 
centum * * *.'' Funds so apportioned must be used only for the 
repayment of construction costs of participating units located in the 
states to which such revenues are apportioned.
    Comment: A commenter stated that approximately 60 percent of the 
proposed rate increase appears to be due to apportionment expenses 
associated with presently non-existent, unauthorized projects.
    Response: The comment correctly observes that removing the 
apportionment obligation from the proposed rate would reduce the 
proposed rate increase by approximately 60 percent; however, as 
discussed above, the apportionment obligation is required by law, and 
as such, the apportionment obligations are already included in the 
current rate and therefore play no part in the proposed 17 percent 
increase. The 17 percent increase is due mainly to O&M and purchased 
power and transmission expense, not because of adding ``new'' 
Participating Projects costs.
    Comment: A comment was received referring to the 1983 agreement 
between Reclamation and Western that provides guidance for inclusion of 
Participating Projects into the PRS and believes that Western should 
follow this guidance.
    Response: Western currently abides by the 1983 agreement when 
including Participating Projects into the PRS by including only those 
authorized Participating Projects costs in the rate that meet the 
criteria. The apportionment methodology is then applied toward those 
projects.
    Comment: On what basis, other than historic practice or internal 
agency opinion, does Western justify inclusions of continued 
apportionment funds for non-authorized projects in the PRS?
    Response: Western adheres to the CRSP Act, specifically section 5, 
which requires the inclusion of the Participating Projects and the 
apportionment of revenues in the PRS. In addition, DOE Order RA 6120.2, 
specifically section 12(b)(5), states, ``expected revenues are at least 
sufficient to recover other costs such as payments to basin funds, 
Participating Projects or States.'' Western's obligation to collect 
apportionment revenues is independent of a state's authorization to 
spend their apportioned revenues.
    Comment: A commenter states it is undisputed that the current rate 
will collect sufficient revenues to meet all proposed expenditures over 
the 5-year rate window.
    Response: It is true that the current rate will collect sufficient 
revenues for a 5-year, rate cost evaluation period. However, DOE Order 
RA 6120.2, section 12, requires revenues to be sufficient to recover 
annual expenses and repayment through the ratesetting period (through 
FY 2025 in this ratesetting PRS). According to Reclamation Law, Western 
must establish power rates sufficient to recover O&M expenses, 
purchased power expenses, interest expenses, and repayment of power 
investment and irrigation aid. For the current 17-year ratesetting 
period, from FY 2009 through FY 2025, the current rate is not 
sufficient to cover expenses and repayment through this period. The 
current rate shows deficits in some of these years, including the final 
year of the study; therefore, the proposed rate adjustment is needed.
    Comment: Many comments were received stating that the comment 
period closing on May 5 was before the end of the formal FY 2010 WPR 
period of May 21 and wanted to ensure their comments on the FY 2010 WPR 
were incorporated into the final Rate Order. Some comments suggested 
Western extend the comment period for this rate process another 30 
days, closing on June 4, 2008. Others recommended that the O&M 
components of this rate proceeding continue to be scrubbed and refined 
in consultation with the customers prior to finalization of this rate 
proposal. One commenter went on to state, ``because the formal work 
program process has not yet concluded prior to the comment deadline * * 
* we reserve the right to comment on those adjustments prior to 
finalization of the rate.''
    Response: Western's FY 2010 WPR has been finalized; however, 
Western is committed to continue to work with its customers to try to 
reduce the budgeted estimates. Western also believes that since the 
second step is capped, the second step firm power rate can be reduced 
if the budget estimates are too high. In addition, Western is willing 
to work with its customers on the FY 2011 budget process which will be 
used to determine the second step of the rate that will be effective 
October 1, 2009.
    Comments: When will the FY 2010 WPR materials be available, and 
when will a new PRS be run with updated data? Will this update be 
provided before the comment forum, or will it be after the comment 
forum and before the close of the comment period? When will the FY 2010 
WPR be finalized?
    Response: The WPR process for the FY 2010 budget was held on 
February 28, 2008. Western has since reviewed those costs to streamline 
them as much as possible. Western presented these updates to planned 
O&M costs based on the updated FY 2010 WPR in the second public 
information forum, which was held on April 10, 2008.
    Comment: Another customer encouraged Western to come to some 
decisions so they can incorporate the forecasted rates into their 
budget planning process.
    Response: Western recognizes that its customers have a budget 
planning process and the rate adjustment has an effect on its 
customers' internal processes. Western will be forthcoming with the 
final rates as soon as the Acting Deputy Secretary places the rates 
into effect on an interim basis.
2. Cost Recovery Charge
    Comment: A comment was made that the early portions of the Rate 
Brochure indicate the CRC would remain in effect for an entire FY. 
However, page 17 proposes triggering criteria with a 45-day customer 
notice.
    Response: The firm power rate proposal includes the CRC similar to 
the existing rate except that it also includes a new, additional, 
triggering criteria caused by reduced releases from Glen Canyon Dam. 
This new triggering criteria has the same 45-day customer notice as the 
Basin Fund balance criteria, but could occur whenever Reclamation's 24-
month study indicates Glen Canyon water releases will be reduced to 
less than 8.23 million acre-feet in a water year. This can happen any 
time during the year.
    Comment: A comment was made regarding the CRC and the example shown 
on page 14 of the Rate Brochure. The commenter asked if the calculation 
of annual expenses includes other revenues as an expense offset or are 
they included in total revenue.
    Response: The CRC includes all revenues and expenses. No offsetting 
of revenue or expenses occurs except for the purpose of calculating the 
CRC, non-reimbursable environmental expenses are capped at $27 million 
and indexed for inflation.
    Comment: Several customers referenced a CRC ``adjuster'' or credit 
mechanism whereby when actual purchased power expenses do not meet 
projections, a credit would be returned to the firm power customers 
similar to one in place at the Southwestern Power Administration. 
``Consider if FX is less than projected, the differential could be 
spread over all MWh, OR if FA is greater than FARR, the differential 
could be a credit.''
    Response: The CRC already includes a PYA true-up from estimates to 
actuals. For Western to implement an adjustment similar to Southwestern 
Power Administration, purchased

[[Page 52988]]

power would have to be unbundled from the firm power rate. The current 
method of socializing all purchased power costs into the SLCA/IP firm 
electric service rate would not be conducive to using a purchased power 
adjustment. The CRC includes a PYA true-up from estimates to actuals 
that is only applicable to those customers actually assessed a CRC 
because they are the ones who paid the estimated costs of purchasing 
additional firming energy. The customers who receive a CRC waiver 
acquire their needed additional energy elsewhere.
3. Stepped Rate
    Comment: What internal process(es) would be required in order to 
change the CRSP MC ratemaking methodology from the pinch point to 
another methodology? Is Western open to this type of discussion?
    Response: Western would be willing to discuss any ratemaking 
methodology that is within its constraints of law and policy.
    Comment: When will the decision be made whether or not Western will 
implement the stepped rate?
    Response: Western has decided to implement the stepped rate with 
the first step being effective October 1, 2008.
    Comment: How would the stepped rate work? Would the rate be one 
certain percentage, and in the second year the rates would 
automatically go up? Would the rate be based on the most current PRS in 
that year?
    Response: The first year will be a composite rate of 26.80 mills/
kWh, which is a 6 percent increase. The second step will be capped at 
29.68 mills/kWh for the composite rate. This would be the maximum 
amount for the second step. The second step rate will be determined by 
using FY 2008 actual data, updated estimates for purchased power and 
transmission, as well as other estimates that could affect the rate. As 
of now, and for analysis purposes, the total composite rate of 29.68 
mills/kWh will be effective October 1, 2009.
    Comment: The majority of customers requested that Western consider 
delaying the proposed SLCA/IP rate adjustment by at least 1 year, 
stating that because there are a number of uncertainties associated 
with the proposed rate that may be resolved, thereby eliminating or 
reducing the need for such a high rate by October 1, 2009. These 
customers recommend a deferment of the rate until October 1, 2009. In 
the event Western is unable to defer the rate process, they recommend 
the implementation of a stepped rate with the first step October 1, 
2008, of zero percent and the second step October 1, 2009, not to 
exceed 18 percent.
    Response: Western believes that implementation of a zero-percent 
increase in the first year is the same as a 1-year deferment of the 
rate adjustment and is not fiscally responsible. Western is 
implementing a stepped rate with the first step being 26.80 mills/kWh, 
which is a 6 percent increase. The second step will not exceed the cap 
of 29.68 mills/kWh for an overall 17.4 percent increase from the 
current 25.28 mills/kWh rate. Western believes that this will allow 
sufficient time to adjust projections based on the current 
uncertainties and possibly a second step increase that is less than 
current projections.
    The second step will use the FY 2008 Final PRS, the FY 2011 WPR 
with the same 5-year cost evaluation period (2008-2012), the April 
2009, 24-month study from Reclamation, and the most current data 
available for all other projections.
4. Basin Fund
    Comment: Please provide an accounting of revenues and expenses 
which would explain the Basin Fund climbing from $40 million at the end 
of FY 2005 to $80 million at the end of the current operating year.
    Response: There are many variables that affect the Basin Fund 
balance increase; however, the main reason for the increase is the 
almost $116 million collected from power revenues for interest expense 
and principal payments during the years FY 2006 through FY 2008. The 
main offset to these collections is non-reimbursable environmental 
expenses.
    In addition, Western has not been able to return funds to Treasury 
since FY 1999 because of the continued drought. If the Basin Fund 
continues to be as healthy as it is today, Western is planning to 
return funds to Treasury this FY to satisfy the return of interest and 
principal obligations, as required under the CRSP Act.
    Comment: Several comments on the projected ``healthy'' ending 
balance of the Basin Fund suggest the rate process is not necessary. A 
commenter cited that Western has announced if the ending FY 2008 Basin 
Fund balance is at the current projected level, Western will probably 
make a transfer of funds to Treasury. They further stated that ``under 
these circumstances, holding the rate steady while adjusting for 
significantly increased hydrology and a change in law is perfectly 
appropriate and the sound course of action''.
    Response: Western reiterates the fact that the balance in the Basin 
Fund does not determine the need for a rate process. In accordance with 
DOE Order RA 6120.2, if revenues are not sufficient to cover expenses 
and repayment obligations as determined by the PRS, the current rate is 
inadequate and must be adjusted.
    Comment: One commenter stated concern that ``the fund itself may 
evaporate, for which Western has identified no contingencies. Such 
revenue losses would have tremendous repercussions on funding for those 
environmental programs to reduce salinity and remove jeopardy for 
endangered fish.''
    Response: Environmental program expenses are non-reimbursable by 
the power customers and are not included in the PRS for ratemaking 
purposes. However, the programs are funded out of the Basin Fund, and 
the costs are credited as funds returned to Treasury for repayment of 
CRSP obligations.
5. Revenue
    Comment: A commenter asked Western to explain the assumed reduction 
in transmission revenue given the strategic planning process to improve 
transmission marketing services and if the transmission revenues used 
in this PRS factor in the new increased transmission rate.
    Response: Firm transmission revenue estimates in the PRS are based 
on firm contracts and rates currently in place. Non-firm transmission 
revenue estimates are based on a 5-year average of historical data. 
Western has no way to estimate increased revenues that may occur due to 
efforts to improve transmission marketing services.
    Comment: One commenter requested the first part of 2008 be included 
in the historical averages.
    Response: Western only used actuals from FY 2003 through FY 2007. 
Western will include FY 2004 through FY 2008, when determining the 
second step of the firm power rate that will be effective October 1, 
2009.
6. Western Expenses
    Comment: One commenter questioned, ``Given Western's work on 
operational consolidation, what are the implications for this rate 
process, and specifically, what impacts will there be on RMR's work on 
the new billing system?''
    Responses: The increase in power billing is related to RMR 
information technology (IT) staff that will be supporting the new power 
billing system. Over the last 3 to 4 years, the Sierra Nevada Region 
maintained the

[[Page 52989]]

old system with minimal enhancements for RMR. As a result, the IT 
support costs have been very negligible. While the billing system is 
being developed, the costs will be capitalized. After that time, 
additional support will be expected the first year or so to get the 
system running smoothly and to document processes. As for cost 
allocation of the new power billing system, additional information will 
be provided next year. RMR and the CRSP MC will work with their 
customers on the allocation methodology based on the design of the new 
system and various other factors.
    Comment: One customer wanted to know if the ``50-5-5'' expenses 
drop back to a lower level after FY 2010.
    Response: The 50-5-5 initiative (50 ``over-hires,'' over 5 years, 
at an approximate cost of $5 million) is a recent Western-wide program 
designed to hire new staff into trainee positions as part of Western's 
succession planning. The funding for these additional over-hire 
positions has been placed in Western's FY 2010 budget submissions. The 
intent of this program is that for each trainee hired, there is a 
target retirement position. Once these retirements occur, the trainees 
will fill these positions and staffing levels will become flat again in 
FY 2013 and beyond.
7. Reclamation Expenses and Related Issues
    Comment: A commenter wanted to know if the amounts included in the 
ratesetting PRS take into account the new legislation with a cap on 
security costs. In addition, they wanted to know how the future years' 
projected amounts were derived, and what basis was used for the 94.7 
percent share to power. They suggest the rate process should be 
deferred until the impacts of the security cost cap are known.
    Response: At this time, these amounts do not factor in the 
Consolidated Natural Resources Act of 2008, which includes the 
limitation of costs to customers of security activities at Reclamation 
dams. Currently, the future year projected amount is based on amounts 
through the FY 2010 WPR. Western has not received updated security 
expenses from Reclamation that reflect impacts of the Consolidated 
Natural Resources Act of 2008. Western plans to continue to work with 
Reclamation, and these expenses are expected to be updated and applied 
in the second step of this rate adjustment. The 94.7 percent share to 
power is based on an average of allo