Loveland Area Projects-Rate Order No. WAPA-142, 3015-3022 [E9-897]

Agencies

• DEPARTMENT OF ENERGY
• Western Area Power Administration

[Federal Register Volume 74, Number 11 (Friday, January 16, 2009)]
[Notices]
[Pages 3015-3022]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-897]


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DEPARTMENT OF ENERGY

Western Area Power Administration


Loveland Area Projects--Rate Order No. WAPA-142

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of order concerning firm electric rates.

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SUMMARY: The Acting Deputy Secretary of Energy has confirmed and 
approved Rate Order No. WAPA-142 and Rate Schedule L-F8, placing firm 
electric service rates from the Loveland Area Projects (LAP) of the 
Western Area Power Administration (Western) 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 Schedule L-F8 will be placed into effect on an interim 
basis on the first day of the first full billing period beginning on or 
after February 1, 2009, and will remain in effect until FERC confirms, 
approves, and places the rate schedule in effect on a final basis 
ending December 31, 2013, or until the rate schedule is superseded.

FOR FURTHER INFORMATION CONTACT: Mr. James D. Keselburg, Regional 
Manager, Rocky Mountain Customer Service Region, Western Area Power 
Administration, 5555 East Crossroads Boulevard, Loveland, CO 80538-
8986, telephone (970) 461-7201, or Mrs. Sheila D. Cook, Rates Manager, 
Rocky Mountain Customer Service Region, Western Area Power 
Administration, 5555 East Crossroads Boulevard, Loveland, CO 80538-
8986, telephone (970) 461-7211, e-mail scook@wapa.gov.

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved 
existing Rate Schedule L-F7 for firm electric service on an interim 
basis on November 1, 2007 (72 FR. 64061, November 14, 2007), for a 5-
year period beginning on January 1, 2008, and ending December 31, 
2012.\1\
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    \1\ FERC confirmed and approved Rate Order WAPA-134 on May 16, 
2008, in Docket No. EF08-5181. See United States Department of 
Energy, Western Area Power Administration, Loveland Area Projects, 
123 FERC ] 62,137 (May 16, 2008).
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    The LAP firm electric service rates must be increased due to the 
economic impacts of the ongoing drought. The drought is causing a 
decrease in hydro-power generation, leading to an increase in purchase 
power expenses and a decrease in revenue from non-firm energy sales.
    Rate Schedule L-F7 is being superseded by Rate Schedule L-F8. Under 
Rate Schedule L-F7, the composite rate is 32.42 mills per kilowatthour 
(mills/kWh), the firm energy rate is 16.21 mills/kWh, and the firm 
capacity rate is $4.25 per kilowattmonth (kWmonth). Under Rate Schedule 
L-F8, the Provisional Rates for firm electric service will result in a 
combined composite rate of 37.24 mills/kWh. The firm energy rate will 
be 18.62 mills/kWh (a Base component of 12.23 mills/kWh and a Drought 
Adder component of 6.39 mills/kWh) and the capacity rate will be $4.88/
kWmonth (a Base component of $3.21/kWmonth and a Drought Adder 
component of $1.67/kWmonth). This is a 14.9 percent increase when 
compared to the LAP firm electric rates under Rate Schedule L-F7.
    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 the Administrator of Western; (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 00-001.00C, 10 CFR part 
903, and 18 CFR part 300, I hereby confirm, approve, and place Rate 
Order No. WAPA-142, the proposed LAP firm electric service rates, into 
effect on an interim basis.
    The new Rate Schedule L-F8 will be promptly submitted to FERC for 
confirmation and approval on a final basis.

Jeffrey F. Kupfer,
Acting Deputy Secretary of Energy.

Department of Energy Deputy Secretary

In the matter of: Western Area Power Administration, Rate Adjustment 
for the, Loveland Area Projects; Rate Order No. WAPA-142; Order 
Confirming, Approving, and Placing the Loveland Area Projects Firm 
Electric Service Rates Into Effect on an Interim Basis
    These rates for the Loveland Area Projects 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 under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), 
as amended and supplemented by subsequent laws, particularly section 
(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)) and 
section 5 of the Flood Control Act of 1944 (16 U.S.C. 825s); and other 
acts that specifically apply to the project involved.
    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 the Administrator of Western; (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. 
Existing DOE procedures for public participation in power rate 
adjustments (10 CFR part 903) were published on September 18, 1985.

[[Page 3016]]

Acronyms and Definitions

    As used in this Rate Order, the following acronyms and definitions 
apply:
Administrator: The Administrator of the Western Area Power 
Administration.
Base: Revenue requirement component of the firm electric service rate 
including annual operation and maintenance expenses, investment 
repayment and associated interest, normal timing power purchases, and 
transmission costs.
Capacity: The electric capability of a generator, transformer, 
transmission circuit, or other equipment. It is expressed in kilowatts.
Capacity Rate: The rate which sets forth the charges for capacity. It 
is expressed in dollars per kilowattmonth.
Composite Rate: The rate for commercial 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 per kilowatthour and used 
for comparison purposes.
Corps: United States Army Corps of Engineers.
Criteria: The Post-1989 General Power Marketing and Allocation Criteria 
for the sale of energy with capacity from the Pick-Sloan Missouri Basin 
Program--Western Division and the Fryingpan-Arkansas Project.
Customer: An entity with a contract that is receiving service from 
Western's Rocky Mountain Region.
Deficits: Deferred or unrecovered annual and/or interest expenses.
DOE: United States Department of Energy.
DOE Order RA 6120.2: An order outlining power marketing administration 
financial reporting and rate-making procedures.
Drought Adder: Formula-based revenue requirement component including 
costs associated with the drought.
Energy: Measured in terms of the work it is capable of doing 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 per kilowatthour and applied to each kilowatthour 
delivered to each customer.
FERC: The Federal Energy Regulatory Commission.
Firm: A type of product and/or service available at the time requested 
by the customer.
FRN: Federal Register notice.
Fry-Ark: Fryingpan-Arkansas Project.
FY: Fiscal year; October 1 to September 30.
kW: Kilowatt--the electrical unit of capacity that equals 1,000 watts.
kWh: Kilowatthour--the electrical unit of energy that equals 1,000 
watts in 1 hour.
kWmonth: Kilowattmonth--the electrical unit of the monthly amount of 
capacity.
LAP: Loveland Area Projects.
L-F7: Loveland Area Projects existing firm electric service rate 
schedule (expires December 31, 2012, or until superseded).
L-F8: Loveland Area Projects provisional firm electric service rate 
schedule to be effective February 1, 2009 (to expire December 31, 2013, 
or when superseded).
M&I: Municipal and industrial water development.
mills/kWh: Mills per kilowatthour--the unit of charge for energy (equal 
to one tenth of a cent or one thousandth of a dollar).
MW: Megawatt--the electrical unit of capacity that equals 1 million 
watts or 1,000 kilowatts.
MISO: Midwest Independent Transmission System Operator.
NEPA: National Environmental Policy Act of 1969 (42 U.S.C. 4321, et 
seq.).
Non-timing Power Purchases: Power purchases that are not related to 
operational constraints such as management of endangered species, 
species habitat, water quality, navigation, and control area purposes.
O&M: Operation and Maintenance.
P-SMBP: The Pick-Sloan Missouri Basin Program.
P-SMBP--ED: Pick-Sloan Missouri Basin Program--Eastern Division.
P-SMBP--WD: Pick-Sloan Missouri Basin Program--Western Division.
Power: Capacity and energy.
Power Factor: The ratio of real to apparent power at any given point 
and time in an electrical circuit. Generally it is expressed as a 
percentage ratio.
Preference: The provisions of Reclamation Law which require Western to 
first make Federal power available to certain entities. For 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.
Provisional Rate: A rate which has been confirmed, approved and placed 
into effect on an interim basis by the Acting Deputy Secretary.
PRS: Power Repayment Study.
Rate Brochure: An August 2008 document explaining the rationale and 
background for the rate proposal contained in this Rate Order.
Ratesetting PRS: The PRS used for the rate adjustment period.
Reclamation: United States Department of the Interior, Bureau of 
Reclamation.
Reclamation Law: A series of Federal laws. Viewed as a whole, these 
laws create the originating framework under which Western markets 
power.
Regions: Western's Rocky Mountain Region and Upper Great Plains Region.
Revenue Requirement: The revenue required to recover annual expenses 
(such as O&M, purchase power, transmission service expenses, interest 
and deferred expenses) and repay Federal investments and other assigned 
costs.
Rocky Mountain Region: The Rocky Mountain Customer Service Region of 
Western Area Power Administration.
SPP: Southwest Power Pool.
Timing Power Purchases: Power purchases that are due to operational 
constraints (e.g., management of endangered species, species habitat, 
water quality, navigation, control area purposes, etc.) not associated 
with the drought.
Upper Great Plains Region: The Upper Great Plains Customer Service 
Region of Western Area Power Administration.
Western: United States Department of Energy, Western Area Power 
Administration.

Effective Date

    The Provisional Rates will take effect on the first day of the 
first full billing period beginning on or after February 1, 2009, and 
will remain in effect until December 31, 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 April 9, 2008, when 
Western's Rocky Mountain Region mailed a notice announcing informal 
meetings to all LAP preference customers and interested parties. The 
informal meetings were held on April 29, 2008, in Denver, Colorado, and 
on April 30, 2008, in Sioux Falls, South Dakota. At these informal 
meetings, Western explained the rationale for the rate adjustment, 
presented rate designs and methodologies, and answered questions.

[[Page 3017]]

    2. A Federal Register was published on August 15, 2008 (73 FR 
47942), which announced the proposed rates for LAP, began the public 
consultation and comment period, and announced the public information 
and public comment forums.
    3. On August 22, 2008, Western mailed letters to all LAP preference 
customers and interested parties transmitting the FRN published on 
August 15, 2008.
    4. On September 9, 2008, beginning at 9 a.m. (MDT), Western held a 
public information forum at the Ramada Plaza Hotel in Northglenn, 
Colorado. Western provided updates to the proposed firm electric 
service rates for LAP and P-SMBP--ED. Western also answered questions 
and gave notice that more information was available in the Rate 
Brochure.
    5. On September 9, 2008, beginning at 11:30 a.m. (MDT), following 
the public information forum, a public comment forum was held. The 
comment forum gave the public an opportunity to comment for the record. 
No oral or written comments were received at this forum.
    6. On September 10, 2008, beginning at 8 a.m. (CDT), Western held a 
public information forum at the Holiday Inn in Sioux Falls, South 
Dakota. Western provided updates to the proposed firm electric service 
rates for LAP and P-SMBP--ED. Western also answered questions and gave 
notice that more information was available in the rate brochure.
    7. On September 10, 2008, beginning at 10:30 a.m. (CDT), following 
the public information forum, a public comment forum was held. The 
comment forum gave the public an opportunity to comment for the record. 
One oral comment was received at this forum.
    8. Western provided a Web site with all of the letters, time 
frames, dates and locations of forums, documents discussed at the 
information meetings, FRN, Rate Brochure, and all other information 
about this rate process. The Web site is located at https://www.wapa.gov/rm/ratesRM/2009/default.htm.
    9. Western received 15 comment letters and one oral comment during 
the consultation and comment period, which ended November 13, 2008. All 
formally submitted comments have been considered in preparing this Rate 
Order.

Comments

    Written comments were received from the following organizations:

City of Bayard, Nebraska
City of Benkelman, Nebraska
City of Fort Morgan, Colorado
City of Holyoke, Colorado
City of Gering, Nebraska
City of Imperial, Nebraska
City of Kimball, Nebraska
City of Mitchell, Nebraska
City of Torrington, Colorado
Midwest Electric Consumers Association
Prairie Band Potawatomi Nation
Town of Fleming, Colorado
Town of Julesburg, Colorado
Town of Lyons, Colorado
Village of Morrill, Nebraska

    A representative of the following organization made an oral 
comment: Minnesota Municipal Utilities

Project Descriptions

Loveland Area Projects

    The Post-1989 General Power Marketing and Allocation Criteria, 
published in the Federal Register on January 31, 1986 (51 FR 4012), 
integrated the resources of the P-SMBP--WD and Fry-Ark. This 
operational and contractual integration, known as LAP, allowed an 
increase in marketable resource, simplified contract administration, 
and established a blended rate for LAP power sales.
    The P-SMBP--WD and Fry-Ark retain separate financial status. For 
this reason, separate PRSs are prepared annually for each project. 
These PRSs are used to determine the sufficiency of the firm electric 
service rate to generate adequate revenue to repay project investment 
and costs during each project's prescribed repayment period. The 
revenue requirement of the Fry-Ark PRS is combined with the P-SMBP--WD 
revenue requirement, derived from the P-SMBP PRS, to develop one rate 
for LAP firm electric sales.

Pick-Sloan Missouri Basin Program--Western Division

    The P-SMBP was authorized by Congress in section 9 of the Flood 
Control Act of December 22, 1944, commonly referred to as the Flood 
Control Act of 1944. This multipurpose program provides flood control, 
irrigation, navigation, recreation, preservation and enhancement of 
fish and wildlife, and power generation. Multipurpose projects have 
been developed on the Missouri River and its tributaries in Colorado, 
Montana, Nebraska, North Dakota, South Dakota and Wyoming.
    In addition to the multipurpose water projects authorized by 
section 9 of the Flood Control Act of 1944, certain other existing 
projects have been integrated with the P-SMBP for power marketing, 
operation and repayment purposes. The Colorado-Big Thompson, Kendrick, 
and Shoshone Projects were combined with the P-SMBP in 1954, followed 
by the North Platte Project in 1959. These projects are referred to as 
the ``Integrated Projects'' of the P-SMBP.
    The Flood Control Act of 1944 also authorized the inclusion of the 
Fort Peck Project with the P-SMBP for operation and repayment purposes. 
The Riverton Project was integrated with the P-SMBP in 1954, and in 
1970 was reauthorized as a unit of P-SMBP.
    The P-SMBP is administered by two regions. The Rocky Mountain 
Region with a regional office in Loveland, Colorado, markets the 
Western Division power of P-SMBP and the Upper Great Plains Region with 
a regional office in Billings, Montana, markets power from the Eastern 
Division of P-SMBP. The Rocky Mountain Region markets LAP power (a 
combination of P-SMBP--WD and Fry-Ark power) in northeastern Colorado, 
east of the Continental Divide in Wyoming, west of the 101st meridian 
in Nebraska, and most of Kansas. The Upper Great Plains Region markets 
power in western Iowa, western Minnesota, Montana east of the 
Continental Divide, North Dakota, South Dakota, and the eastern two-
thirds of Nebraska. P-SMB power is marketed to approximately 60 firm 
power Customers by the Rocky Mountain Region and approximately 300 firm 
power Customers by the Upper Great Plains Region.

Fryingpan-Arkansas Project

    Fry-Ark is a trans-mountain diversion development in southeastern 
Colorado authorized by the Act of Congress on August 16, 1962 (Pub. L. 
87-590, 76 Stat. 389, as amended by Title XI of the Act of Congress on 
October 27, 1974 (Pub. L. 93-493, 88 Stat. 1486, 1497)). The Fry-Ark 
diverts water from the Fryingpan River and other tributaries of the 
Roaring Fork River in the Colorado River Basin on the West Slope of the 
Rocky Mountains to the Arkansas River on the East Slope. The water 
diverted from the West Slope, together with regulated Arkansas River 
water, provides supplemental irrigation, M&I water supplies, and 
produces hydroelectric power. Flood control, fish and wildlife 
enhancement, and recreation are other important purposes of Fry-Ark. 
The only generating facility in Fry-Ark is the Mt. Elbert Pumped-
Storage powerplant on the East Slope.

Power Repayment Studies--Firm Electric Service Rate

    Western prepares PRSs each FY to determine if revenues will be 
sufficient to repay, within the required time, all costs assigned to 
the LAP. Repayment

[[Page 3018]]

criteria are based on law, policies including DOE Order RA 6120.2, and 
authorizing legislation. To meet Cost Recovery Criteria outlined in DOE 
Order RA 6120.2, revised studies and rate adjustments have been 
developed to demonstrate that sufficient revenues will be collected 
under the proposed rates to meet future obligations.

Existing and Provisional Rates

    A comparison of the existing and Provisional Rates for LAP firm 
electric service follows:

                 Table 1--Comparison of Existing and Provisional Rates LAP Firm Electric Service
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                                                          Existing rate
                Firm electric service                   (January 1, 2008)    Provisional rate    Percent change
                                                               L-F7                L-F8                (%)
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LAP Revenue Requirement (million)....................                $66.1               $75.9              14.9
LAP Composite Rate (mills/kWh).......................                32.42               37.24              14.9
Firm Energy Rate (mills/kWh).........................                16.21               18.62              14.9
Firm Capacity Rate ($/kWmonth).......................                $4.25               $4.88              14.9
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Certification of Rates

    Western's Administrator certified that the Provisional Rates for 
LAP firm electric service under Rate Schedule L-F8 are the lowest 
possible rates consistent with sound business principles. The 
Provisional Rates were developed following administrative policies and 
applicable laws.

LAP Firm Electric Service Rate Discussion

    According to Reclamation Law, Western must establish power rates 
sufficient to recover operation, maintenance, purchased power and 
interest expenses, and repay power investment and irrigation aid.
    The Criteria, published in the Federal Register on January 31, 1986 
(51 FR 4012), operationally and contractually integrated the resources 
of the P-SMBP--WD and Fry-Ark (thereafter referred to as LAP). A 
blended rate was established for the sale of LAP firm electric service. 
The P-SMBP--WD portion of the revenue requirement for LAP firm electric 
service rates was developed from the revenue requirement calculated in 
the P-SMBP Ratesetting PRS. The P-SMBP--WD revenue requirement 
increased approximately 18.6 percent from the previous revenue 
requirement due to the economic impact of the drought, increased annual 
expenses, increased investments, and increased interest expenses 
associated with deficits. The revenue requirements for P-SMBP--WD are 
as follows:

        Table 2--Summary of P-SMBP-WD Revenue Requirements ($000)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Current Revenue Requirement (Jan 08) (26.04 mills/kWh x          $51,767
 1,988,000,000 kWh).....................................
Provisional Increase (4.85 mills/kWh x 1,988,000,000               9,642
 kWh)...................................................
Provisional Revenue Requirement (26.04 + 4.85 = 30.89             61,409
 mills/kWh x 1,988,000,000 kWh).........................
------------------------------------------------------------------------

    The adjustment to the P-SMBP revenue requirement is a separate 
formal rate process which is documented in Rate Order No. WAPA-140.

Fry-Ark

    The Fry-Ark portion of the revenue requirement for LAP firm 
electric service rates was developed from the revenue requirement 
calculated in the Fry-Ark Ratesetting PRS. The Fry-Ark revenue 
requirement increased approximately 1.25 percent due to increased O&M 
expenses and the economic impact of the drought. The revenue 
requirements for Fry-Ark are as follows:

         Table 3--Summary of Fry-Ark Revenue Requirements ($000)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Current Revenue Requirement (Jan 08)..........................   $14,365
Provisional Increase..........................................       180
Provisional Revenue Requirement...............................    14,545
------------------------------------------------------------------------

    The following table compares LAP existing revenue requirements to 
the proposed revenue requirements:

           Table 4--Summary of LAP Revenue Requirements ($000)
------------------------------------------------------------------------
                                                  Existing
                                                  (January   Provisional
                                                   2008)
------------------------------------------------------------------------
P-SMBP--WD....................................      $51,767      $61,409
Fry-Ark.......................................       14,365       14,545
Total LAP.....................................       66,132       75,954
------------------------------------------------------------------------

    Western will continue to identify its firm electric service revenue 
requirement using Base and Drought Adder components. The Base component 
is a fixed revenue requirement for each project that includes annual 
O&M expenses, investment repayment and associated interest, normal 
timing power purchases, and transmission costs. Normal timing power 
purchases are purchases due to operational constraints (e.g., 
management of endangered species habitat, water quality, navigation, 
control area purposes, etc.) not associated with the current drought in 
the Regions. The Base component can not be adjusted by Western without 
a public process.
    The Drought Adder component for each project is a formula-based 
revenue requirement that includes costs attributable to the present 
drought conditions in the Regions. The Drought Adder component includes 
costs associated with future non-timing power purchases to meet firm 
electric service contractual obligations not covered with available 
system generation due to the drought, previously incurred deficits due 
to purchased power debt that resulted from non-timing power purchases 
made during this drought, and the interest associated with the 
previously incurred and future drought debt. The Drought Adder 
component is designed to repay the drought debt within 10 years from 
the time the debt was incurred using balloon-payment methodology. For 
example, the drought debt incurred by Western in 2007 will be repaid by 
2017. Adjustments to the Drought Adder rate component of less than or 
equal to 2

[[Page 3019]]

mills/kWh to the LAP composite rate will be made by Customer 
notification of a revised rate schedule with a January implementation 
date.
    The annual revenue requirement calculation formula is: Annual 
Revenue Requirement = Base Revenue Requirement + Drought Adder Revenue 
Requirement. Under this Provisional Rate, the LAP annual revenue 
requirement is $75.9 million (Base revenue requirement of $49.9 million 
plus a Drought Adder revenue requirement of $26 million).
    A comparison of the current and proposed rate components is listed 
in the following table:

                                       Table 5--Summary of LAP Components
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                                                      Existing rates L-F7             Provisional rates L-F8
                                               -----------------------------------------------------------------
                                                            Drought                          Drought
                                                   Base      adder      Total       Base      adder      Total
----------------------------------------------------------------------------------------------------------------
Firm Capacity ($/kW-month)....................      $3.13      $1.12      $4.25      $3.21      $1.67      $4.88
Firm Energy (mills/kWh).......................      11.92       4.29      16.21      12.23       6.39      18.62
----------------------------------------------------------------------------------------------------------------

    Continuing to identify the firm electric service revenue 
requirement using Base and Drought Adder rate components will assist 
Western in presenting the effects of the drought within the Regions, 
demonstrating repayment of the drought related costs, and being more 
responsive to changes in drought related expenses. Western will 
continue to charge and bill Customers firm electric service rates for 
energy and capacity, which are the sum of the Base and Drought Adder 
rate components.
    Western reviews its firm electric service rates annually. Western 
will review the Base rate component after the annual PRSs are complete, 
generally in the first quarter of the calendar year. If an adjustment 
to the Base rate component is necessary, Western will initiate a public 
process pursuant to 10 CFR part 903 prior to making an adjustment.
    In accordance with the original implementation of the Drought Adder 
rate component, Western will review the Drought Adder rate component 
each September to determine if drought costs differ from those 
projected in the PRSs. If drought costs differ, Western will determine 
whether an adjustment to the Drought Adder rate component is necessary. 
Western will use recent Corps and Reclamation hydrological estimates 
and historical data to determine the estimated amounts for future 
purchase power costs. For any drought-related adjustments of less than 
or equal to 2 mills/kWh to the LAP Composite Rate, Western will notify 
Customers by letter in October and implement the adjustment in the 
following January billing cycle. For the portion of any planned 
incremental adjustment greater than 2 mills/kWh to the LAP composite 
rate, Western will engage in a public process pursuant to 10 CFR part 
903 prior to implementing that portion of the adjustment. Although 
decremental adjustments to the Drought Adder will occur, the adjustment 
cannot result in the Drought Adder being a negative number. Western 
will conduct a preliminary review of the Drought Adder in early summer 
and advise Customers by letter of any estimated change to the Drought 
Adder for the following January, with the final Drought Adder rate 
component adjustment verified by notification in the October letter to 
the Customers. Implementing the Drought Adder rate component adjustment 
on January 1 of each year will help keep the drought deficits from 
escalating, lower the interest expense due to drought deficits, 
demonstrate responsible deficit management, and provide prompt drought 
deficit repayments.
    Western's current and Provisional Rate schedules permit a formula-
based adjustment of the Drought Adder rate component of up to 2 mills/
kWh. The 2 mills/kWh cap is intended to place a limit on the amount the 
Drought Adder formula can be adjusted relative to associated drought 
costs without initiating a public process to recover costs attributable 
to the Drought Adder formula rate for any one-year cycle.

Statement of Revenue and Related Expenses

    The following table provides a summary of projected revenue and 
expense data for the Fry-Ark firm electric service revenue requirement 
through the 5-year Provisional Rate approval period:

                    Table 6--Fry-Ark Comparison of 5-Year Rate Approval Period (FY 2009-2013)
                                       [Total revenue and expense ($000)]
----------------------------------------------------------------------------------------------------------------
                                                              Existing rate   Provisional rate     Difference
----------------------------------------------------------------------------------------------------------------
Total Revenues............................................           $76,744           $78,983            $2,239
Revenue Distribution:
Expenses:
    O&M...................................................            25,336            28,868             3,532
    Purchase Power........................................                82             1,398             1,316
    Transmission..........................................            19,889            20,027               138
    Interest \1\..........................................            22,676            21,383            -1,293
                                                           -----------------------------------------------------
        Total Expenses....................................            67,983            71,676             3,693
Principal Payments:
    Capitalized Expenses (deficits).......................                 0                 0                 0
    Original Project and Additions........................               315             1,762             1,447
    Replacements \2\......................................             8,446             5,545            -2,901
                                                           -----------------------------------------------------
        Total Principal Payments..........................             8,761             7,307            -1,454

[[Page 3020]]

 
        Total Revenue Distribution........................            76,744            78,983            2,239
----------------------------------------------------------------------------------------------------------------
\1\ The decrease in interest expense is primarily due to a decrease in projected replacements.
\2\ The decrease in replacement payments is primarily due to a reduction of planned capital replacements at Mt.
  Elbert by Reclamation.

    The summary of P-SMBP--WD revenues and expenses for the 5-year 
Provisional Rate approval period is included in the P-SMBP Statement of 
Revenue and Related Expenses that is part of Rate Order No. WAPA-140.

Basis for Rate Development

    The existing rates for LAP firm electric service in Rate Schedule 
L-F7, which expire December 31, 2012, no longer provide sufficient 
revenues to pay all annual costs, including interest expense, and repay 
investment and irrigation aid within the allowable period. The adjusted 
rates reflect increases due to the economic impact of the drought, 
annual expenses, investments, and interest expense associated with 
drought deficits. The Provisional Rates will provide sufficient revenue 
to pay all annual costs, including interest expense, and repay power 
investment and irrigation aid within the allowable periods. The 
Provisional Rates will take effect on the first day of the first full 
billing period beginning on or after February 1, 2009, and will remain 
in effect on an interim basis, pending FERC's confirmation and approval 
of them or substitute rates on a final basis, through December 31, 
2013.

Emergency Fund Discussion

    Due to continuing below normal hydropower generation, Western may 
need to use the Continuing Fund (Emergency Fund) to pay for 
unanticipated purchase power and wheeling expenses necessary to meet 
its contractual obligations for the sale and delivery of power to its 
Customers. Should Western use this funding mechanism, Western will 
replenish the Continuing Fund (Emergency Fund) in accordance with law 
and Western's current repayment policy.\2\
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    \2\ Western's Continuing Fund (Emergency Fund) Policy can be 
found at https://www.wapa.gov/powerm/pdf/repaypolicy.pdf.
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Comments

    The comments and responses below regarding the firm electric 
service rates are paraphrased for brevity when not affecting the 
meaning of the statement(s). Direct quotes from comment letters are 
used for clarification when necessary.
    The issues discussed are (1) Firm Electric Service Rate and (2) 
MISO Markets.
1. Firm Electric Service Rate
    Comment: Western received numerous comments from Customers stating 
that they understand the need for the rate increases and support the 
concept of the Drought Adder, which establishes a window during which 
drought-related expenses are repaid.
    Response: Western appreciates the Customer support received for the 
rate adjustment proposal. Western continues separation of the annual 
revenue requirement into the Base and Drought Adder rate components.
    Comment: Many comments were received from Customers expressing 
appreciation for Western's commitment to keep them informed and 
involved throughout this rate process. Customers were grateful for past 
cost-cutting measures and encouraged Western's continued vigilance in 
keeping controllable costs as low as possible.
    Response: Western is pleased with the level of Customer interest 
and participation in the public meetings. Under the Flood Control Act 
of 1944, power is to be sold at the lowest possible rates consistent 
with sound business principles. Western is committed to keeping 
controllable costs as low as possible while continuing to meet our firm 
electric service commitments.
    Comment: Customers state that they are looking forward to working 
with Western's staff on the projected Base rate adjustments as they 
pertain to Western's draft Strategic Plan and Western's potential 
involvement in changes associated with MISO and SPP.
    Response: Western's goal is to work closely with our Customers 
throughout this and future rate adjustments. Changes to the Base rate 
are made through a public process and allow for Customer input.
    Comment: One Customer recognized the impacts that the extended 
drought has had on the current financial status of the P-SMBP and 
expressed support for the proposed firm power rate increases. The 
Customer also stated that the repayment of Federal investment through 
Federal power rates is taken very seriously. In the future, the Drought 
Adder will help to avoid a repetition of the financial impacts that are 
seen today.
    Response: Western acknowledges the financial impact of the extended 
drought, and the need for a firm power rate increase as well. The 
Drought Adder will allow Western to be more responsive to the changing 
hydrological conditions.
    Comment: A Customer representative acknowledged the financial 
challenges of this drought and made note of the difficulties Federal 
power customers are confronted with in fulfilling their financial 
responsibilities to the Federal government. They noted the good water 
years in the 1990's generated significant revenue surplus to P-SMBP's 
financial requirements. Also noted was Western's administration of 
repayment according to repayment policies and the repayment of a 
significant amount of capital investment ahead of schedule. This early 
repayment benefitted both P-SMBP Customers and the Federal government, 
but left no financial resources to deal with the drought. Thus, the 
current repayment practices and policies exacerbate the impacts of the 
natural swings in hydrology. When the drought deficit is repaid, there 
will still be a substantial amount of paid ahead investments for the P-
SMBP. The Customer would like to work with Western to address this 
issue.
    Response: Western acknowledges the financial impacts of the current 
drought and believes the ratemaking policy of identifying the Base and 
Drought Adder components will make the rates more responsive to 
hydrological changes caused by both drought and flush water years. The 
Drought Adder component may be adjusted annually up to 2 mills/kWh 
without a public process to quickly address drought impacts, and the 
Base Rate component can only be adjusted through a public process. This 
practice will lower interest expense due to drought deficits and 
demonstrate responsible deficit management. Western acknowledges the 
statements regarding Western's adherence to repayment policies and the 
associated repayment of a significant amount of

[[Page 3021]]

capital investment ahead of schedule in the 1990s. Prepayment is an 
integral part of the long-term plan for the project and has provided 
rate stability for Consumers while meeting Federal repayment 
obligations. The ability to reduce the Drought Adder rate component 
when normal hydrological conditions return to P-SMBP will allow 
appropriate recognition of repayment obligations. Western appreciates 
the Customer's support and willingness to work with Western and will 
continue to discuss issues, impacts, and possible solutions with the 
Customers.
2. MISO Markets
    Comment: Western has received numerous comments concerning the 
issue of whether the Upper Great Plains Region should join MISO and its 
Day Two Markets. The comments support a thorough review of costs and 
benefits to all of Western's Customers, before a change is made. 
Comments suggest that administrative costs associated with the Day Two 
markets may impose a significant burden, especially on smaller 
Customers. There were concerns that if Western joins MISO and other 
area transmission owners that serve the Customers join the SPP, there 
could be significant cost issues associated with the delivery of 
Western's allocation to preferred customer loads. Comments stated that 
if there are benefits to participating in the Day Two market, those 
benefits should flow to all of Western's Customers, not just those that 
participate in joint dispatching arrangements inside the Integrated 
System. Concerns are that costs associated to deliver Western's 
allocations to the edge of the system should be recovered as part of 
the total system transmission rate recovery, as it has been done in the 
past.
    Response: This comment is not directly related to the proposed rate 
adjustment and it is outside the scope of this rate process. However, 
Western is actively addressing these issues as well as other options 
and evaluating them based on cost and benefit to Western's Customers.
    Comment: A commenter noted that MISO intends to start an ancillary 
service market. When that occurs, Western has preference power 
customers that are served in the MISO footprint. The question asked 
was, does Western have avoided cost due to the MISO market providing 
those ancillary services? Specifically, are there avoided cost in 
Schedule 3, Regulation and Frequency Response, Schedule 5, Operating 
Reserves Spinning, and Schedule 6, Operating Reserves Supplemental?
    Response: This comment is not directly related to the proposed rate 
action and is outside the scope of this rate process. However, Western 
is actively evaluating the MISO Module F, as well as other options. 
Changes in the electric utility market are still evolving. As Western 
moves forward in evaluating the impacts on market participation and 
changes for our Customers, we will continue to keep our Customers 
informed of our decisions regarding these matters.

Availability of Information

    Information about this rate adjustment, including the PRSs, 
comments, letters, memorandums, and other supporting materials that 
were used to develop the Provisional Rates are available for public 
review in the Rocky Mountain Regional Office, Western Area Power 
Administration, 5555 E. Crossroads Boulevard, Loveland, Colorado.

Ratemaking Procedure Requirements

Environmental Compliance

    In compliance with the National Environmental Policy Act (NEPA) of 
1969 (42 U.S.C. 4321-4347); Council on Environmental Quality 
Regulations (40 CFR parts 1500-1508); and DOE NEPA Regulations (10 CFR 
part 1021), Western has determined that this action is categorically 
excluded from preparing an environmental assessment or an environmental 
impact statement.

Determination Under Executive Order 12866

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

Submission to the Federal Energy Regulatory Commission

    The Provisional Rates herein confirmed, approved, and placed into 
effect, together with supporting documents, will be submitted to FERC 
for confirmation and final approval.

Order

    In view of the foregoing and under the authority delegated to me, I 
confirm and approve on an interim basis, effective on the first full 
billing period on or after February 1, 2009, Rate Schedule L-F8 for the 
Loveland Area Projects of the Western Area Power Administration. The 
rate schedule shall remain in effect on an interim basis, pending 
FERC's confirmation and approval of them or substitute rates on a final 
basis through December 31, 2013.

    Dated: January 8, 2009.
Jeffrey F. Kupfer,
Acting Deputy Secretary of Energy.

Rate Schedule L-F8
(Supersedes Rate Schedule L-F7)
Effective February 1, 2009

United States Department of Energy Western Area Power Administration

Loveland Area Projects; Colorado, Kansas, Nebraska, Wyoming

Schedule of Rates for Firm Electric Service

(Approved Under Rate Order No. WAPA-142)
    Effective: The first day of the first full billing period beginning 
on or after February 1, 2009, through December 31, 2013.
    Available: Within the marketing area served by the Loveland Area 
Projects.
    Applicable: To the wholesale power customers for firm electric 
service supplied through one meter at one point of delivery, or as 
otherwise established by contract.
    Character: Alternating current, 60 hertz, three phase, delivered 
and metered at the voltages and points established by contract.
    Monthly Rates:
    Capacity Charge: $4.88 per kilowatt of billing capacity.
    Energy Charge: 18.62 mills per kilowatthour (kWh) of monthly 
entitlement.
    Billing Capacity: Unless otherwise specified by contract, the 
billing capacity will be the seasonal contract rate of delivery.
    Charge Components:
    Base: A fixed revenue requirement that includes operation and 
maintenance expense, investment repayment and associated interest, 
normal timing power purchases (purchases due to operational 
constraints, not associated with drought), and transmission costs. The 
Base revenue requirement is $49.9 million.

[[Page 3022]]

[GRAPHIC] [TIFF OMITTED] TN16JA09.016

    Drought Adder: A formula-based revenue requirement that includes 
future purchase power expense excluding timing power purchases, 
previous purchase power drought deficits, and interest on the purchase 
power drought deficits. For the period beginning on or after the first 
day of the first full billing period beginning on or after February 1, 
2009, the Drought Adder revenue requirement is $26 million.
[GRAPHIC] [TIFF OMITTED] TN16JA09.017

    Process: Any proposed change to the Base component will require a 
public process. The Drought Adder may be adjusted annually using the 
above formula for any costs attributed to drought of less than or equal 
to the equivalent of 2 mills/kWh to the LAP composite rate. Any planned 
incremental adjustment to the Drought Adder component greater than the 
equivalent of 2 mills/kWh to the LAP composite rate will require a 
public process.
    Adjustments:
    For Drought Adder: Adjustments pursuant to the Drought Adder 
component will be documented in a revision to this rate schedule.
    For Transformer Losses: If delivery is made at transmission voltage 
but metered on the low-voltage side of the substation, the meter 
readings will be increased to compensate for transformer losses as 
provided for in the contract.
    For Power Factor: None. The customer will be required to maintain a 
power factor at all points of measurement between 95-percent lagging 
and 95-percent leading.

[FR Doc. E9-897 Filed 1-15-09; 8:45 am]
BILLING CODE 6450-01-P