# Appendix w 

# Federal Register Notice

# Draft copy

6450-01-P

**DEPARTMENT OF ENERGY**

**Western Area Power Administration**

**Desert Southwest Customer Service Region-Rate Order No. WAPA-127**

**AGENCY:** Western Area Power Administration, DOE.

**ACTION:** Notice of Proposed Network Integration Transmission and
Ancillary Services Rates.

**SUMMARY:** The Western Area Power Administration (Western) is
proposing revised rate methodologies for network integration
transmission service (network service) for the Parker-Davis Project
(PDP), and the Pacific Northwest-Pacific Southwest Intertie Project
(Intertie) and for ancillary services from the PDP, Boulder Canyon
Project (BCP), and part of the Colorado River Storage Project (CRSP)
located in the Desert Southwest Customer Service Region's (DSWR)
Balancing Authority and Transmission Operations Area (BATO). Current
rates, under Rate Schedules DSW-SD1, DSW-RS1, DSW-FR1, DSW-EI1,
DSW-SPR1, DSW-SUR1, PD-NTS1, and INT-NTS1, extend through March 31,
2006. The proposed rates will provide sufficient revenue to pay all
annual costs, including interest expense and repayment of required
investment within the allowable period. Western will prepare a brochure
that provides detailed information on the rates. The proposed rates,
under Rate Schedules DSW-SD2, DSW-RS2, DSW-FR2, DSW-EI2, DSW-SPR2,
DSW-SUR2, PD-NTS2, INT-NTS2, WS-NTS1, are scheduled to go into effect on
April 1, 2006, and will remain in effect through March 31, 2011.
Publication of this [Federal Register]{.underline} notice begins the
formal process for the proposed rates.

**DATES:** The consultation and comment period begins today and will end
**\[INSERT DATE 90 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL
REGISTER\]**. Western will present a detailed explanation of the
proposed rates at a public information forum to be held on November 2,
2005, 1 p.m. MST, Phoenix, AZ. Western will accept oral and written
comments at the public comment forum. The public comment forum will be
held on November 29, 2005, 1 p.m. MST, Phoenix, AZ. Western will accept
written comments any time during the consultation and comment period.

**ADDRESSES:** Send written comments to Mr. J. Tyler Carlson, Regional
Manager, Desert Southwest Customer Service Region, Western Area Power
Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, e-mail
[carlson@wapa.gov]{.underline}. Western will post information about the
rate process on its external Web site at
[http://www.wapa.gov/dsw/dsw.htm]{.underline}. Western will post
official comments received via letter and e-mail to its Web site after
the close of the comment period. Western must receive written comments
by the end of the consultation and comment period to ensure they are
considered in Western's decision process. The location for the Public
Information and Public Comment Forums is Desert Southwest Regional
Office, 615 South 43rd Avenue, Phoenix, AZ.

**FOR FURTHER INFORMATION CONTACT:** Mr. Jack Murray, Rates Team Lead,
Desert Southwest Customer Service Region, Western Area Power
Administration,

P.O. Box 6457, Phoenix, AZ 85005-6457; telephone (602) 605-2442, e-mail
[jmurray@wapa.gov.]{.underline}

**SUPPLEMENTARY INFORMATION:** The proposed rates for DSWR network
service for the PDP and the Intertie and ancillary services for the
Western Area Lower Colorado (WALC) BATO are designed to recover an
annual revenue requirement that includes investment repayment, interest,
operation and maintenance expense, and other expenses. The ancillary
services apply to specified transmission service in the WALC BATO
including firm point-to-point, non-firm and network services on the PDP,
the Intertie, the Central Arizona Project (CAP), and the portions of the
CRSP in WALC. All firm point-to-point and non-firm transmission service
and network service on the CAP and CRSP are defined under existing Rate
Orders and are not a part of the proposed rates.

The Deputy Secretary of Energy approved Rate Schedules DSW-SD1, DSW-RS1,
DSW-FR1, DSW-EI1, DSW-SPR1, DSW-SUR1, PD-NTS1, and INT-NTS1 for the DSWR
network service for PDP and Intertie and ancillary services for the WALC
BATO on May 3, 1999 (Rate Order No. WAPA-84, 64 FR 25323, May 11, 1999),
and the Federal Energy Regulatory Commission (Commission) confirmed and
approved the rate schedules on January 20, 2000, under FERC Docket No
EF99-5041-000, (90 FERC 62,032). Approval for Rate Schedules DSW-SD1,
DSW-RS1, DSW-FR1, DSW-EI1, DSW-SPR1, DSW-SUR1, PD-NTS1, and INT-NTS1
covered 5 years beginning on April 1, 1999, and ending on March 31,
2004. These rate schedules were extended by a series of Rate Orders
through March 31, 2006, with the most recent Rate Order being Rate Order
No. WAPA-121 (70 FR 15622, March 28, 2005). The rate schedules were
extended to accommodate the DSWR Multi-System Transmission Rate (MSTR)
process. An MSTR has not been approved. However, Rate Schedule WS-NTS1
is structured to allow multi-system network service on the DSWR System
if and when an MSTR is approved.

Under Rate Schedules PD-NTS2, INT-NTS2, and WS-NTS1, the methodology for
calculating the customer's monthly charge is the product of the
transmission customer\'s load-ratio share times one-twelfth of the
annual transmission revenue requirement. The customer\'s load-ratio
share is equal to the network transmission customer\'s coincidental peak
(CP), which is the load coincident with the appropriate Project's
monthly transmission system peak averaged with the previous 11 months
(12 CP) divided by the resultant value of the appropriate Project's
average monthly transmission system load at the hour of the system peak
in each month.

The monthly hour of the system peak is determined as the hour that the
sum of the network customers' metered loads is the greatest. The system
load at the peak hour is determined by adding the point-to-point firm
transmission reservations to the sum of the network customer's metered
loads. The point-to-point firm transmission reservations can include the
Open Access Transmission Tariff (OATT) firm point-to-point reservations,
the PDP Firm Electric Service (FES) contract rates of delivery (CROD),
the pre-OATT Firm Transmission Service (FTS) and the Salt Lake City Area
Integrated Project FES with delivery points on the PDP.

The methodology to determine the network service charges is the same for
the single system (PDP-NTS2 and INT-NTS2) and the whole system (WS-NTS1)
services. One complication is that under WS-NTS1, the determinants
(system load, peak hour, and revenue requirement) apply to the combined
PDP, Intertie and CAP system (CRSP is excluded from this calculation).

Under Rate Schedule DSW-SD2, Scheduling, Dispatch, and System Control
Ancillary Service, the rate is calculated as an annual cost of all
personnel, capital costs (such as the dispatch center building), and
other expenses incurred in providing the service for DSWR customers.
These costs are recovered through a rate applied on a per tag basis.
That rate is determined in two major steps: first, the yearly costs
associated with capital improvements are determined and divided by the
number of tags issued during the year; second, the average labor cost
per tag is determined and added to the capital cost per tag. This rate
design differs from the previous methodology in two ways: 1) the
proposed rates are based on tags rather than schedules, and 2) the
proposed methodology does not differentiate as to new vs. existing tags
or as to whether or not a tag involves an intra-bus transfer.

Under Schedule DSW-RS2, Reactive Supply and Voltage Control Service (Var
Support) from generation sources, the rate is determined by dividing the
revenue requirement for the service by the reservations requiring the
service. The revenue requirement for the service is one minus the power
factor (1-PF) times the combined generation revenue requirement of the
PDP, BCP and CRSP. The previous methodology used the factor (1-PF^2^) to
determine the Var Support revenue requirement for BCP and PDP, and used
an amount for the CRSP Var Support revenue requirement supplied by the
CRSP Management Center.

Under Schedule DSW-FR2, Regulation and Frequency Response Service
(Regulation), the rate is determined using the revenue requirement for
the service divided by the load in the WALC requiring the service. The
revenue requirement for the service is the product of the generation
capacity that is used for regulation and the capacity rate of the
Project, plus any regulation purchases the transmission provider must
make. This total is multiplied by a use factor, which takes into
consideration the customer load in the WALC BATO. The denominator in the
equation and the load in the BATO requiring the service includes a
portion of the CRSP load and the DSWR load.

Regulation is not available from DSWR resources on a long-term basis.
However, if necessary, DSWR will purchase regulation on the open market
for a charge that covers the cost of procuring and supplying the
service. Regulation will be supplied from DSWR resources only on a
short-term basis, if such resources are available. Under Rate Schedule
DSW-FR1, Western also indicated that this service would only be supplied
under short-term sales, but set the charge equal to the capacity rate of
the Project supplying the service rather than basing the charge on a
formula as with the proposed rate methodology.

Non-standard load refers to large, volatile loads (such as those
associated with certain smelters and arc furnaces), which can require a
BATO to acquire significant amounts of generation capacity for
regulation. Such non-standard loads require separate metering of their
moment-to-moment load values to accurately calculate their effects on
the system, and will not be covered under the proposed regulation rate.

For this rate order, DSWR is defining a non-standard load as either a
single plant or site: 1) with a regulation capacity requirement of 5
megawatts (MW) or greater on a recurring basis, and 2) whose capacity
requirement is equal to 10 percent or greater of their average load.
Regulation for non-standard loads, as determined by Western, must be
delineated in a service agreement, which recognizes the additional
burden required to supply this service.

Rate Schedule DSW-EI2, Energy Imbalance Service, proposes a different
bandwidth for on-peak and for off-peak, because Western's ability to
supply this service is different for these two scenarios, especially
during periods of low water. The bandwidth for on-peak is proposed to be
plus or minus 1.5 percent of the customer's load with a minimum of 5 MW
of either over- or under-delivery. The off-peak bandwidth is 1.5 percent
to a negative 3 percent of a customer's load with a minimum of 2 MW of
over-delivery and 5 MW of under-delivery.

The settlement with the customer will be different for excursions within
the bandwidth than for excursions outside the bandwidth. However, in all
cases it is at Western's discretion whether to require a scheduled
return of energy or a financial settlement. If the customer's Imbalance
Energy is within the bandwidth for either on-peak or off-peak, the
customer will be either charged or credited 100 percent of a weighted
index price chosen by Western or a scheduled return of an equal amount
of energy.

For energy outside the bandwidth during the on-peak hours, the
methodology proposes 110 percent of a weighted index price for
under-deliveries and 90 percent of the weighted index price for
over-deliveries. For energy outside the bandwidth during the off-peak
hours, the methodology proposes 110 percent of a weighted index price
for under-deliveries. However, for over-deliveries in the off-peak
hours, the methodology proposes the lesser of 60-percent of a weighted
index price, or a WALC weighted sales price. In lieu of a financial
settlement for energy outside the bandwidth, an amount of energy
equivalent to the financial settlement will be scheduled.

The proposed rate methodology differs from the previous methodology in
that previously DSWR used the FERC pro-forma methodology to define the
service. Better metering and data sorting capabilities and the drought,
which persists in the southwest, have shown that Western is
disadvantaged when using the FERC pro-forma methodology. Under the
previous methodology, a 3-percent bandwidth with a 2 MW deviation was
used, and under-deliveries were assessed 100 mills per kilowatthour
penalty and over-deliveries were credited at 50 percent of market value.

Under Schedule DSW-SPR2, Operating Reserves-Spinning Reserve Service is
not available from DSWR resources on a long-term firm basis. If a
customer cannot self-supply or purchase this service from another
provider, Western may obtain the reserves on the open market for a
charge that covers the cost of procuring the service. The transmission
customer will be responsible for the transmission service to get these
reserves to their destination.

Under Schedule DSW-SUR2, Operating Reserves-Supplemental Reserve Service
is not available from DSWR resources on a long-term firm basis. If a
customer cannot self-supply or purchase this service from another
provider, at the customer's request, Western may obtain the reserves on
the open market for a charge that covers the cost of procuring the
service. The transmission customer will be responsible for the
transmission service to get these reserves to their destination.
Spinning and Supplemental Reserve Services were handled in the same way
in the previous rate methodology as in this proposal.

**Legal Authority**

Since the proposed rates constitute a major rate adjustment as defined
by 10 CFR part 903, Western will hold both a public information forum
and a public comment forum. After review of public comments, and
possible amendments or adjustments, Western will recommend the Deputy
Secretary of Energy approve the proposed rates on an interim basis.

Western is establishing network service for the PDP and the Intertie and
ancillary services for the PDP, Intertie, CAP, and the part of the CRSP
located in the WALC BATO under the Department of Energy Organization Act
(42 U.S.C. 7152); 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 projects 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

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 Commission.
Existing Department of Energy (DOE) procedures for public participation
in power rate adjustments (10 CFR part 903) were published on September
18, 1985.

**Availability of Information**

All brochures, studies, comments, letters, memorandums, or other
documents that Western initiates or uses to develop the proposed rates
are available for inspection and copying at the Desert Southwest
Regional Office, 615 South 43rd Avenue, Phoenix, Arizona. Many of these
documents and supporting information are also available on DSWR's
external Web site (http://www.wapa.gov/dsw/dsw.htm).

**REGULATORY PROCEDURE REQUIREMENTS:**

**Regulatory Flexibility Analysis**

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601, [et
seq]{.underline}.) requires Federal agencies to perform a regulatory
flexibility analysis if a final rule is likely to have a significant
economic impact on a substantial number of small entities, and there is
a legal requirement to issue a general notice of proposed rulemaking.
This action does not require a regulatory flexibility analysis since it
is a rulemaking of particular applicability involving rates or services
applicable to public property.

**Environmental Compliance**

In compliance with the National Environmental Policy Act of 1969 (NEPA)
(42 U.S.C. 4321, [et seq]{.underline}.); Council on Environmental
Quality Regulations (40 CFR parts 1500-1508); and DOE NEPA Regulations
(10 CFR part 1021), Western has determined 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.

**Small Business Regulatory Enforcement Fairness Act**

Western has determined that this rule is exempt from congressional
notification requirements under 5 U.S.C. 801 because the action is a
rulemaking of particular applicability relating to rates or services and
involves matters of procedure.

Dated:

Michael S. Hacskaylo

Administrator