White River Minimum Flows-Addendum to Final Determination of Federal and Non-Federal Hydropower Impacts, 35786-35792 [2010-15227]

Agencies

• DEPARTMENT OF ENERGY
• Southwestern Power Administration

[Federal Register Volume 75, Number 120 (Wednesday, June 23, 2010)]
[Notices]
[Pages 35786-35792]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15227]


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DEPARTMENT OF ENERGY

Southwestern Power Administration


White River Minimum Flows--Addendum to Final Determination of 
Federal and Non-Federal Hydropower Impacts

AGENCY: Southwestern Power Administration, DOE.

ACTION: Notice of addendum to final determination.

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SUMMARY: Southwestern Power Administration (Southwestern) has finalized 
an addendum to its January 2009 Final Determination Report concerning 
the Federal and non-Federal

[[Page 35787]]

hydropower impacts of the White River Minimum Flows project. The 
addendum documents changes to Southwestern's final determination. The 
changes were made to account for the impacts that the increase in 
average pool elevation has on the operation of the Federal Bull Shoals 
and Norfork projects and to include impacts to non-Federal hydropower 
resulting from the loss of renewable energy under the state renewable 
energy standard in Missouri.
    Southwestern published a draft addendum to its final determination 
by Federal Register Notice (74 FR 27135) on June 8, 2009. Written 
comments were invited through July 8, 2009. The Federal Register notice 
stated that comments would be accepted only on the proposed changes in 
the draft addendum. Public comments received were considered in 
revising the June 2009 draft addendum and developing Southwestern's 
finalized addendum.
    Based on an October 28, 2009, date of implementation for the White 
River Minimum Flows project as established by Section 314 of Public Law 
111-85 and values for the specified parameters as of that date, 
Southwestern's modified final determination results in a present value 
of $26,563,700 for the estimated future lifetime replacement costs of 
the electrical energy and capacity at Federal Energy Regulatory 
Commission (FERC) Project No. 2221. Southwestern's modified final 
determination results in a present value of $52,576,600 for the 
estimated future lifetime replacement costs of the electrical energy 
and capacity for Federal hydropower at the Bull Shoals and Norfork 
projects.

FOR FURTHER INFORMATION CONTACT: Mr. George Robbins, Director, Division 
of Resources and Rates, Southwestern Power Administration, U.S. 
Department of Energy, One West Third Street, Tulsa, Oklahoma 74103, 
(918) 595-6680, george.robbins@swpa.gov.
    If you desire a copy of the addendum, submit your request to Mr. 
George Robbins, Director, Division of Resources and Rates, 
Southwestern, at the above-mentioned address for Southwestern's office 
or by electronic mail.

SUPPLEMENTARY INFORMATION: Originally established by Secretarial Order 
No. 1865 dated August 31, 1943, as an agency of the U.S. Department of 
the Interior, Southwestern is now an agency within the U.S. Department 
of Energy. Southwestern markets power from 24 multi-purpose reservoir 
projects with hydroelectric power facilities constructed and operated 
by the U.S. Army Corps of Engineers (Corps). These projects are located 
in the states of Arkansas, Missouri, Oklahoma, and Texas. 
Southwestern's marketing area includes these states, as well as Kansas 
and Louisiana.
    Section 132 of Public Law 109-103 authorized and directed the 
Secretary of the Army to implement alternatives BS-3 and NF-7, as 
described in the Corps' White River Minimum Flows Reallocation Study 
Report, Arkansas and Missouri, dated July 2004. The law provides that 
the Administrator of Southwestern, in consultation with the project 
licensee and the relevant state public utility commissions, shall 
determine any impacts on electric energy and capacity generated at FERC 
Project No. 2221 caused by the storage reallocation at Bull Shoals 
Lake. Further, the licensee of Project No. 2221 is to be fully 
compensated by the Corps for those impacts on the basis of the present 
value of the estimated future lifetime replacement costs of the 
electrical energy and capacity at the time of implementation of the 
White River Minimum Flows project.
    The law also provides that losses to the Federal hydropower purpose 
at the Bull Shoals and Norfork Projects shall be offset by a reduction 
in the costs allocated to the Federal hydropower purpose. Further, such 
reduction in costs shall be determined by the Administrator of 
Southwestern on the basis of the present value of the estimated future 
lifetime replacement cost of the electrical energy and capacity at the 
time of implementation of the White River Minimum Flows project.
    Section 314 of Public Law 111-85, enacted October 28, 2009, amended 
the authorizing language for the minimum flows project and provided 
that the licensee of FERC Project No. 2221 will be compensated by 
Southwestern rather than the Corps based on the present value of the 
impacts to the non-Federal project as determined by Southwestern at the 
time of project implementation. Section 314 also provided that the time 
of project implementation is the date of the legislation's enactment, 
October 28, 2009. The final calculation will be based on the value of 
the specified parameters in effect at that time.
    Southwestern developed a procedure for calculating projected energy 
and capacity losses for FERC Project No. 2221 and the Bull Shoals and 
Norfork projects in accordance with Section 132 of Public Law 109-103. 
Input from affected parties and from the public was invited and 
utilized in the development of the determination.
    Southwestern's draft determination was published on February 5, 
2008 (73 FR 6717). Written comments were invited through March 6, 2008. 
All public comments received were considered, and Southwestern's draft 
determination was revised as necessary to incorporate the public 
comments. Because there were significant changes to Southwestern's 
draft determination, Southwestern published a proposed determination 
for additional public review and comment prior to its final 
determination.
    Southwestern's proposed determination was published on July 3, 2008 
(73 FR 38198). Written comments were invited through August 4, 2008. 
After receiving several requests for additional time to provide public 
comments, Southwestern reopened the public comment period through 
September 18, 2008 (73 FR 46901, August 12, 2008). All public comments 
received were considered in revising the proposed determination and 
developing Southwestern's final determination.
    Southwestern's final determination was published on January 23, 
2009 (74 FR 4183). Southwestern's final determination is fully 
documented in its Final Determination Report dated January 2009, which 
was prepared in consultation with the non-Federal licensee and the 
relevant public utility commissions. The report documents the procedure 
to be used to calculate the present value of the future lifetime 
replacement cost of the electrical energy and capacity lost due to the 
White River Minimum Flows project at the non-Federal FERC Project No. 
2221 and the Federal Bull Shoals and Norfork projects.
    Southwestern published a draft addendum to its final determination 
on June 8, 2009 (74 FR 27135). The June 2009 draft addendum proposed 
several changes to Southwestern's final determination. Written comments 
were invited through July 8, 2009. The Federal Register notice stated 
that comments would be accepted only on the proposed changes in the 
draft addendum. Public comments received were considered in revising 
the June 2009 draft addendum and developing Southwestern's finalized 
addendum. Changes to Southwestern's final determination are discussed 
here and documented in the addendum.
    During an extensive internal review of its calculations in the 
final determination, Southwestern discovered an inadvertent omission of 
a portion of the energy benefits associated with the higher pools at 
the Federal Bull Shoals and Norfork projects. A detailed review of the 
energy loss calculations revealed that a portion of the energy benefits 
at the Federal projects which were believed to be included in the 
calculations had been inadvertently omitted. While the gains from the

[[Page 35788]]

increase in head (the vertical distance between the lake, or pool 
elevation, and the river, or tailwater elevation) that resulted from 
the higher pool elevations were included in the computation of benefits 
received from the generation of minimum flows releases at Bull Shoals, 
including an additional gain from a lower tailwater, the head gains 
were omitted for the remainder of the generation. Southwestern's 
addendum corrects the computation of energy loss and associated 
replacement costs for both Federal projects to include those gains.
    The portion of the energy benefits due to higher head from the 
raised pools that were omitted amounted to an additional 11,669 
megawatt-hours (MWh) at Bull Shoals and 1,459 MWh at Norfork. Inclusion 
of those benefits reduces the net energy losses at Bull Shoals and 
Norfork, respectively. The net annual energy loss at Bull Shoals will 
be 12,186 MWh, and the net annual energy loss at Norfork will be 12,065 
MWh. As discussed in Southwestern's Final Determination Report, all of 
the lost energy at Bull Shoals is considered off-peak energy, and the 
lost energy at Norfork is considered one-half on-peak energy and one-
half off-peak energy. There are no changes in the capacity loss at 
Norfork or in the capacity or energy loss at the non-Federal project.
    As part of its review of the impacts that the average pool 
elevation increase has on the normal operation of the Federal projects, 
Southwestern concluded that it should quantify dissolved oxygen (DO) 
impacts due to the average increase in pool elevation. Southwestern's 
final determination recognized that generation at both Bull Shoals and 
Norfork is impacted annually due to low DO conditions. Southwestern 
also noted that the higher pool elevations at both projects will cause 
the hypolimnion to be higher relative to the penstock elevations at 
both projects, causing water with lower DO levels to flow through the 
turbines during generation. Southwestern noted but did not quantify the 
value of the potential DO impact in its final determination.
    Southwestern has developed a procedure for quantifying the 
estimated impacts and costs of lower DO levels on Federal hydropower. 
The procedure estimates the costs of mitigating the DO impacts 
resulting from the increased pool elevations at the Federal projects. A 
number of alternative solutions have been proposed for improving DO 
levels downstream of the Federal projects. Southwestern considered the 
initial capital cost and annual operation and maintenance expenses 
associated with these systems in determining the total impacts of the 
White River Minimum Flows project on hydropower production. The 
procedure is based on historical DO level data and is detailed in 
Southwestern's addendum. Based on the procedure and on values of the 
specified parameters corresponding to the time of implementation 
specified in Section 314 of Public Law 111-85, the present value of the 
lifetime impact of lower DO levels on Federal hydropower is $8,934,300. 
It should be noted that the $8,934,300 amount only addresses the 
incremental impact of the increased pool elevation on DO levels and is 
not representative of an amount to satisfy all DO issues at the Federal 
projects.
    Southwestern's final determination provided for the inclusion of 
the impacts of the minimum flows project with regard to a renewable 
portfolio standard, stating ``If a state or Federal mandatory renewable 
portfolio standard that qualifies any of the three projects studied is 
implemented before the final payment or offset is completed, the 
impacts to both Federal and non-Federal hydropower should be quantified 
and included in the compensation calculation.'' Absent any established 
rules, it was not initially apparent to Southwestern that FERC Project 
No. 2221 qualified under Proposition C, a state renewable energy 
standard passed in Missouri in November 2008. The Missouri Public 
Service Commission (MoPSC) confirmed that FERC Project No. 2221 
qualifies under Proposition C, a state renewable energy standard passed 
in Missouri in November 2008. As a result, Southwestern worked with the 
non-Federal licensee and the MoPSC to develop a procedure for 
quantifying an appropriate credit for the loss of renewable energy at 
FERC Project No. 2221 resulting from the minimum flows project. Based 
on the procedure defined in the addendum, the present value of the 
lifetime impact for the loss of renewable energy at FERC Project No. 
2221 resulting from the minimum flows project is $470,700.
    Southwestern proposed a revised discount rate selection for 
calculation of the present value of the losses for both the Federal and 
non-Federal projects in its June 2009 draft addendum. Subsequently, 
Section 314 of Public Law 111-85 amended the authorizing language for 
the project, specifying that ``At the end of each fiscal year 
subsequent to implementation, any remaining balance to be paid to the 
licensee of Project No. 2221 shall accrue interest at the 30-year U.S. 
Treasury bond rate in effect at the time of implementation of the White 
River Minimum Flows project.'' Consistent with Section 314 of Public 
Law 111-85, Southwestern utilized the 30-year U.S. Treasury bond rate 
in its calculation as shown in its final determination rather than the 
discount rate selection proposed in the June 2009 draft addendum. 
Therefore, no change is required to the final determination related to 
the discount rate. The discount rate change proposed in the June 2009 
Draft Addendum was not adopted, and the discussion in Southwestern's 
June 2009 draft addendum on the discount rate is removed from the 
addendum.
    Based on an October 28, 2009, date of implementation for the White 
River Minimum Flows project as established by Section 314 of Public Law 
111-85 and values for the specified parameters as of that date, 
Southwestern's modified final determination results in a present value 
of $26,563,700 for the estimated future lifetime replacement costs of 
the electrical energy and capacity at FERC Project No. 2221. 
Southwestern's modified final determination results in a present value 
of $52,576,600 for the estimated future lifetime replacement costs of 
the electrical energy and capacity for Federal hydropower at the Bull 
Shoals and Norfork projects.

    Dated: June 17, 2010.
Jon C. Worthington,
Administrator.

Comments on Southwestern's June 2009 Draft Addendum

    Southwestern received comments from four entities and one 
individual during the public comment period. The comments, by category, 
and Southwestern's responses thereto, are set forth below:

A. Federal Energy Losses

    1. Comment. The commenter stated they ``believe that the most 
accurate and technically sound engineering methods must be used to 
determine capacity and energy losses from water storage reallocation 
impacts,'' and they ``were pleased to see that Southwestern is 
continuing to question procedures and when an inaccuracy was 
discovered, Southwestern corrected the issue.''
    Response: Concur.

B. Low Dissolved Oxygen (DO) Impact Quantification

    1. Comment. The commenter stated they ``agree with Southwestern 
that the increase in average pool elevation at Bull Shoals will cause 
water containing lower DO levels to flow through the turbines during 
generation.''
    Response: Concur.
    2. Comment. ``It appears from the addendum that Southwestern has 
used

[[Page 35789]]

and evaluated the most current and accurate DO cost data available to 
them. When the White River Minimum Flow Project is implemented, 
negative impacts will occur from the low DO and those negative impacts 
should be offset with credit provided to hydropower.''
    Response: Concur.
    3. Comment. The commenter stated they ``believe that the procedure 
developed by Southwestern appears to be reasonable and sound and should 
be used in the determination for credits to hydropower.''
    Response: Concur.

C. Interest Rate Used for Present Value Determination

    1. Comment. The commenter disagreed with the discount rate 
selection proposed in Southwestern's June 2009 draft addendum, stating 
``While increasing the discount rate from 4.5% to 6.1% certainly 
accomplishes the goal of lessening the economic cost of the project, 
the selection of Empire's embedded long-term debt costs is arbitrary 
and capricious, unduly places the economic impact of the project on 
Empire and its customers, and is quite frankly flawed in many ways.''
    Response: Southwestern reviewed the validity of using the discount 
rate selection in its June 2009 Draft Addendum for both the Federal and 
non-Federal projects based on the non-Federal licensee's comment 
referencing its ``cost of cash'' prior to the Final Determination. 
Consistent with Section 314 of Public Law 111-85 amending the White 
River Minimum Flows legislation, Southwestern utilized the 30-year U.S. 
Treasury bond rate as in its Final Determination. The discount rate 
change proposed in the June 2009 Draft Addendum was not adopted.
    2. Comment. ``First, the debt interest rate information SWPA 
gathered from Empire's FERC Form No. 1 is correct. However, the debt 
Empire reports relates to financing projects, events and circumstances 
related to the past and does not contemplate impacts on Empire due to 
the White River Minimum Flows Project. Any rates derived from debt 
placed in the past are irrelevant.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See previous response.
    3. Comment. ``Second, SWPA inappropriately puts themselves in the 
position of making management decisions for Empire. SWPA states `If the 
discount rate drops below the cost of long term debt for either the 
Federal or non-Federal projects it is reasonable to assume that any 
offset or compensation would wisely be used to pay off those debts 
rather than invest the funds in lower interest bearing accounts.' In 
this instance, SWPA makes a broadly incorrect assumption that Empire 
could pay off a pro rata portion of each of the 12 different long-term 
securitized debt issuances that are outstanding. SWPA furthers this 
mistake by not including any costs for debt prepayment or early 
redemption fees that would be due bond holders or whether the issues 
even allow for an early redemption without bond holder approval.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    4. Comment. ``Third, the Addendum provided by SWPA utilized 
Empire's long-term debt as of December 31, 2008 to determine a discount 
rate which is inconsistent with the remainder of the damage 
calculation. The weighted-average maturity of Empire's debt is just 
under fifteen years while the impact utilized in the initial study was 
based on fifty years.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    5. Comment. The commenter ``recommends the current rate (4.25% as 
stated by SWPA at the time of the Addendum issuance) be used as the 
discount rate. While SWPA contends `The recent changes in the 
investment sector have resulted in the current rate being artificially 
lowered' (emphasis added), this is the real and currently effective 
rate and no one can accurately predict the future rate or even the 
future of the investment sector.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. The 30-year U.S. Treasury bond rate on the 
date of implementation specified in Public Law 111-85 was 4.50%. See 
response to comment 1.
    6. Comment. ``* * * we believe SWPA's application of Empire's cost 
of debt is arbitrary and capricious.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    7. Comment. ``The SWPA makes an error in using an estimate of 
Empire's opportunity cost as a basis for determining the non-Federal 
discount rate used to calculate the present value of the increase in 
fuel expense that Empire would incur from the loss of energy from the 
White River Minimum Flows project.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    8. Comment. ``First, the issue is not the use to which Empire might 
or might not make of the upfront compensation for the loss. The issue 
is the cost of the upfront payment to the Federal government. To put 
this in clear language: If the Federal government were to take this 
lump sum payment and invest it to produce the payments due Empire over 
the fifty-year period, what rate of interest could it earn at zero risk 
to make those payments? The clear and unequivocal answer is the risk-
free treasury rate, which in August 2008 was 4.5% and is currently 
4.23%, not Empire's cost of long-term debt.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    9. Comment. ``Second, even if it is incorrectly assumed that the 
relevant issue is Empire's opportunity cost, the rate used by the SWPA 
is an average rate from 12 different long-term securitized debt 
issuances that are outstanding at this time. The SWPA has no knowledge 
of when these debt issuances are due or of any early redemption fees 
that Empire would have to pay the bond holders. The SWPA should not be 
using a measure of opportunity cost for Empire, and in particular 
should not use a measure associated with instruments with which it 
lacks familiarity. While a lack of familiarity with private bond 
markets by a public agency that does not deal with these markets on a 
day-to-day basis is understandable, had the SWPA consulted with the 
MoPSC in a timely manner on this matter, because it does deal with 
these markets, the MoPSC could have provided expertise and information 
on private bond markets and perhaps this error could have been 
avoided.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    10. Comment. ``Third, the risk at issue here is that of the Federal 
government, not Empire's risk, however if Empire's risk were at issue, 
its investment risk would not be relevant to operational issues related 
to its hydroelectric facility. Instead, the only plausible risk would 
be related to the expected loss of energy from the Ozark Beach 
facility, and not the investment risk associated with the debt that 
Empire is currently holding. Therefore, the MoPSC does not agree with 
the SWPA in using a different discount rates for Federal

[[Page 35790]]

versus non-Federal projects, as both types of projects have similar, if 
not identical, operational risks.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    11. Comment. ``Fourth, using embedded cost of long-term debt to 
lower the lump-sum payment to a non-Federal project and raise the 
amount paid to Federal project based on different investment risk 
profiles makes little sense. It assumes that because owners of the non-
Federal project have a higher investment risk they can earn a higher 
rate of return on their lump sum payment. If Empire's investment risk 
were at issue, a higher risk should demand a higher rather than lower 
up-front payment. The opposite result of the SWPA's findings (higher 
risk means lower up-front payment) demonstrates the flaw in using the 
opportunity cost of the recipients in calculating the lump sum 
payment.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    12. Comment. ``Fifth, by the SWPA finding the current treasury rate 
to be ``artificially lowered,'' this means that the SWPA has better 
knowledge of financial risk than the markets. To state it another way, 
if the SWPA were to make the investment of the lump-sum payment and pay 
Empire from that investment, can it in fact make the full payment(s) 
required? If not, then the SWPA is literally `gambling' against what 
the markets say can be achieved with Empire's, i.e., ratepayers', 
money. This is not in Empire's ratepayers' interest, and is therefore 
contrary to the public interest.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    13. Comment. ``Sixth, the SWPA's concern with the changes in the 
investment sector resulting in a low Treasury bill rate, as reflected 
in the SWPA's mistaken use of Empire's supposed cost of capital for a 
discount rate, is inconsistent with the SWPA's lack of concern about 
the recent impact of the downturned economy on wholesale electricity 
prices, as reflected in the SWPA's adoption of the revised Platts' 
price forecast.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    14. Comment. ``SWPA proposes to use a discount rate for the non-
Federal Ozark Beach hydroelectric project in Missouri that is at least 
160 basis points higher than the discount rate being used for the two 
Federal projects. This action unfairly discriminates against Empire and 
ultimately Empire's customers who have been receiving the benefits of 
this low-cost electricity for more than half a century. Just this one 
change proposed by SWPA would, in effect, `cheat' Missouri electric 
consumers out of more than $7 million dollars in compensation for the 
taking of their hydroelectric capacity.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.
    15. Comment. ``SWPA should not treat the non-Federal Ozark Beach 
Hydroelectric Project any differently than the two other Federal 
projects. The correct discount rate to use and update is the Treasury 
30-year bond rate as the discount rate in its calculation of the 
present value of the energy loss over the fifty-year period.''
    Response: The discount rate change proposed in the June 2009 Draft 
Addendum was not adopted. See response to comment 1.

D. Replacement Cost of Energy

    1. Comment. The commenter ``concurs that the March 2009 Platts high 
fuel data is lower than the November 2008 Platts high fuel data. We 
agree with SWPA's prior comment that prices should be updated at the 
time of implementation.''
    Response: Concur.
    2. Comment. ``SWPA should continue to use the Platts' price 
forecast, but should update that forecast prior to the final 
calculations.''
    Response: Concur.

E. Missouri Renewable Energy Standard

    1. Comment. ``* * * one parameter that has changed is Missouri 
voters' approval on November 4, 2008, via Initiative Petition Vote, of 
a Renewable Energy Standard (RES).'' ``Energy from Empire's Ozark Beach 
hydroelectric facility would qualify as renewable energy under the 
draft MPSC rule for Missouri's RES.''
    Response: FERC Project No. 2221 did not initially appear to qualify 
under the new standard. The Missouri Public Service Commission (MoPSC) 
confirmed that FERC Project No. 2221 does qualify under the new 
standard. Southwestern's Final Determination provides that an 
appropriate credit for a state or Federal renewal standard be 
quantified and included in the compensation calculation. Subsequently, 
Southwestern worked with the non-Federal licensee and the MoPSC to 
quantify an appropriate credit for the loss of renewable energy at FERC 
Project No. 2221 resulting from the minimum flows project. The credit 
is included in the Addendum.
    2. Comment. ``SWPA failed to take into account a recent initiative 
petition voted into law in Missouri requiring investor-owned utilities 
to meet certain renewable energy standards. Since the new statutes 
state that ``hydropower (not including pumped storage) that does not 
require a new diversion or impoundment of water and that has a 
nameplate rating of ten megawatts or less'' 393.1025(5) RSMo Cum. Sup. 
2008, meet the definition of renewable energy resources and Empire's 
Ozark Beach hydroelectric facility consists of 4 identical units, each 
with nameplate ratings of 4 MWh, energy from the Ozark Beach 
hydroelectric facility should qualify as renewable energy under these 
standards, with the first compliance year being calendar year 2011.''
    Response: Southwestern included a credit for the loss of renewable 
energy at FERC Project No. 2221. See previous response.
    3. Comment. ``Since the output from Ozark Beach will be reduced, 
Empire most likely will need to use 1.25 Renewable Energy Credits 
(RECs) from its out-of-state wind generation for each MWh of in-state 
lost Ozark Beach generation. In-state generation receives an additional 
25% of renewable credit compared to out-of-state generation.''
    Response: Concur. Southwestern included an additional 25 percent 
credit for the loss of energy from a renewable energy source within the 
state of Missouri as provided for in Proposition C.
    4. Comment. ``Empire's other renewable energy resources are wind 
units in Kansas. Therefore, Empire will need an additional 1.25 
Renewable Energy Credits (RECs) from other renewable energy sources to 
replace each MWh of lost energy from the Ozark Beach hydroelectric 
facility caused by the storage reallocation at Bull Shoals Lake. The 
addition of 25% is due to the fact that in-state sources of renewable 
energy get 1.25 times the credit as out-of-state renewable energy. The 
SWPA should add the cost of RECs to the energy prices it is using to 
value the Ozark Beach hydroelectric facility lost energy. This would be 
calculated at the estimated cost of the REC times 1.25 to compensate 
for the loss from a within state source of renewable energy.''
    Response: Concur. See previous response.
    5. Comment. ``Although a market for the value of a REC to comply 
with the Missouri RES is not readily transparent,

[[Page 35791]]

a one-cent per kWh ($10 per MWH) cost appears to be a reasonable 
estimate. SWPA should update their analysis to reflect the Missouri RES 
that is now law.''
    Response: Southwestern worked with the non-Federal licensee, the 
MoPSC, and two of its Federal hydropower customers in Missouri in 
estimating the value of the renewable energy credits lost due to the 
minimum flows project. That process is described in Southwestern's 
Addendum.
    6. Comment. ``A reasonable and conservative estimate of the cost of 
a REC that would be added to the market price of energy is 
approximately $10 per MWh factored up to $12.50 per MWh for the loss of 
an in-state renewable energy source. This estimate is conservative 
since the U.S. Environmental Protection Agency's (``EPA's'') Green 
Power Partnership Web site lists three Missouri programs with pricing 
from $15 per MWh to $50 per MWh and a national average of $19.47 per 
MWh.''
    Response: Southwestern updated the REC price to reflect the 
implementation date specified in Public Law 111-85. See previous 
response.
    7. Comment. ``SWPA should include a $12.50 per MWH adder escalating 
at 2.1% per year to Platt's energy prices to account for the lost RECs, 
and should increase this to $38.50 per MWh if the Federal government 
removes production tax credits for renewable energy production.''
    Response: See responses to Comments 5 and 6.

F. Federal Carbon Legislation

    1. Comment. The commenter ``continues to assert that an amount 
should be included for carbon tax risks. On June 26, 2009, the United 
States House of Representatives passed that Waxman-Markey Bill, HR 
2454, now referred to as the American Clean Energy and Security Act of 
2009, which places limits on carbon dioxide (CO2). Although 
the Senate has not yet passed a similar bill, it is more and more 
likely that Empire's customers will see increased CO2 costs 
due to the White River Minimum Flows Project.''
    Response: Southwestern's Final Determination provides that an 
appropriate credit for a cap-and-trade system should be quantified and 
included if legislation is enacted into law before the final 
calculations and payment to the non-Federal licensee. However, no such 
legislation has been enacted.
    2. Comment. ``Because Federal carbon legislation has not passed 
both the U.S. House and U.S. Senate, it is not yet a Federal mandate. 
However, the House has passed HR 2454 (Waxman-Markey Bill) that 
includes carbon caps restricting carbon output to be the following 
percentages of 2005 output by the following years: 97% by 2012; 83% by 
2020, 58% by 2030; and 17% by 2050.''
    Response: See previous response.
    3. Comment. ``* * * the Congressional Budget Office predicts a 
carbon price to be $16/ton by 2012 and that escalates to a price of 
$26/ton by 2019 or an escalation rate of approximately 7.1% per year. 
With Empire's average production of carbon equal to 1 ton of carbon per 
MWh, this will increase the price of lost energy an additional $16 per 
MWh starting in 2012 and escalate at a 7.1% annual rate until the end 
of the fifty-year period. If the Senate passes this legislation in 
similar form, then SWPA needs to add these costs to the lost energy 
from the Ozark Beach hydroelectric facility.''
    Response: See response to Comment 1.
    4. Comment. ``SWPA should update its calculations for carbon 
legislation if such legislation is passed by both House and Senate and 
signed into law prior to the final calculations.''
    Response: See response to Comment 1.
    5. Comment. ``SWPA should update its calculations for carbon 
legislation and use Waxman-Markey as the basis for those calculations. 
To my great dismay, either Congress is going to pass cap-and-trade 
legislation or EPA is poised to enforce even more onerous regulations 
under the Clean Air Act. It no longer appears to be a question of `if' 
but `when' and your analysis contains no recognition of what the 
President and Congress are doing. Accordingly, you should include a $16 
per MWh adder starting in 2012 with an escalation rate of 7.1% 
compounded for each subsequent year based on the present Waxman-Markey 
Bill.''
    Response: See response to Comment 1.

G. Federal Income Tax Considerations

    1. Comment. The commenter stated, ``This issue has been neglected 
by all parties up until this time.'' ``* * * a lump sum receipt of an 
amount to compensate the Company for the loss of future revenues will 
be taxable income to the Company in the year received.'' ``Therefore, 
regardless of the SWPA's final determination, the result needs to be 
grossed up for income taxes in order for Empire to be `fully 
compensated' as required by Section 132 of the Energy and Water 
Development Appropriations Act, 2006.''
    Response: Do not concur. Throughout three years of public review 
and consultation with the non-Federal licensee and the state public 
service commission prior to publication of the Final Determination, 
neither the non-Federal licensee nor the state public service 
commission provided any comments or methodology addressing income tax 
implications, and it was not considered in Southwestern's Final 
Determination. Further, neither the original White River Minimum Flows 
legislation, nor more recent Congressional action in Public Law 111-85 
provide that Southwestern address income tax considerations or provide 
additional compensation to the non-Federal licensee so as to in effect 
treat the non-Federal licensee as if it were tax exempt for the 
purposes of the legislation. Under Public Law 109-103, compensation to 
the non-Federal licensee is to be made ``on the basis of the present 
value of the estimated future lifetime replacement costs of the 
electrical energy and capacity at the time of implementation of the 
White River Minimum Flows project.'' Southwestern does not consider the 
exclusion of income taxes as an error in the compensation calculations. 
Southwestern calculated the compensation to the non-Federal licensee as 
directed in the authorizing legislation. Absent specific Congressional 
direction to treat the compensation to the non-Federal licensee as non-
taxable or address income taxes in some manner, Southwestern will not 
include a provision to gross-up the compensation to the non-Federal 
licensee.
    2. Comment. ``The compensation received by Empire should be the 
funds necessary to recompense Empire for the increased fuel cost it is 
expecting to experience as a result of the White River Minimum Flows 
project. These funds should be provided from the lump sum payment 
Empire receives from the SWPA and the earnings Empire realizes by 
investing those funds at a risk free rate equal to the discount rate 
used in the analysis of the project. However, since the lump sum 
payment from the SWPA, barring some preferred tax treatment, will be 
fully taxable in the year received, Empire will lose over 38% of the 
lump sum payment due to income taxes. In addition, annual earnings on 
the remaining amount of the lump-sum are also likely to be taxable in 
the year received. As a result, the remaining amount of the lump sum 
that is available for investment at a risk free rate equal to the 
discount rate will not provide sufficient compensation for the

[[Page 35792]]

increase in fuel cost that is expected to occur. Therefore, the lump-
sum payment from the SWPA should be factored-up to offset the effect of 
income taxes to ensure that Empire is adequately compensated for the 
increased fuel cost that Empire expects to experience as a result of 
the White River Minimum Flows project.''
    Response: Do not concur. See previous response.
    3. Comment. ``SWPA should increase the lump-sum payment it 
determines is appropriate, based on the other variables, by factoring-
up the amount for income taxes. This calculation will offset the loss 
of funds, as a result of income taxes, and ensure that Empire receives 
adequate compensation for the increased fuel cost that it expects to 
incur as a result of the White River Minimum Flows project.
    Response: Do not concur. See response to Comment 1.
    4. Comment. ``SWPA should increase the lump-sum payment it 
determines is appropriate, based on the other variables, by multiplying 
the amount by a tax factor. As of today, I have not been able to 
determine what this factor should be. My point is that there should 
definitely be a calculation to off-set the loss of funds available for 
investment, as a result of the income taxes in the year Empire receives 
the lump-sum payment, and ensure that Empire receives adequate 
compensation for the increased fuel cost that it expects to incur as a 
result of the White River Minimum Flows project.''
    Response: Do not concur. See response to Comment 1.

H. Lack of Consultation by Southwestern

    1. Comment. The non-Federal licensee commented, ``Section 132 of 
the Energy and Water Development Appropriations Act, 2006 states `The 
Administrator of the Southwestern Power Administration, in consultation 
with the project licensee and the relevant state public utility 
commissions, shall determine any impacts on electric energy and 
capacity generated at Federal Energy Regulatory Commission Project No. 
2221 caused by the storage reallocation of Bull Shoals Lake, based on 
data and recommendations provided by the relevant state public utility 
commissions.' To Empire's knowledge, despite the fact Empire feels 
there was constructive dialogue during the development of the initial 
January 22, 2009 Final Determination, no consultation occurred between 
the Final Determination and the Draft Addendum to the Final 
Determination. Empire stands ready to discuss any of our comments with 
SWPA before the Addendum to the Final Determination is finalized.''
    Response: Southwestern consulted with the non-Federal licensee and 
the MoPSC in a September 28, 2009, meeting to discuss their comments 
and concerns with Southwestern's June 2009 Draft Addendum. Southwestern 
subsequently consulted with the non-Federal licensee and the MoPSC in 
developing a source for REC prices to be utilized in the final 
compensation calculations.

[FR Doc. 2010-15227 Filed 6-22-10; 8:45 am]
BILLING CODE 6450-01-P