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**WESTERN AREA POWER ADMINISTRATION**

**CONSIDERATION**

**of**

**IMPLEMENTING**

**CERTAIN FEDERAL STANDARDS UNDER**

**SECTIONS 1251, 1252, AND 1254**

of the

**ENERGY POLICY ACT OF 2005**

**Date:** September 25, 2006

**Email:** DSW_PURPA@wapa.gov

**Fax:** (602) 605-2828

**Telephone:** (602) 605-2566

**Western Area Power Administration**

**Energy Policy Act of 2005**

**Public Utility Regulatory Policies Act**

**Standard Revision Pre-consideration**

**Western Profile**

The Western Area Power Administration (Western) annually markets about
10,000 megawatts (MW) of renewable power from 56 hydropower plants.
Western sells and delivers about 40 percent of hydroelectric generation
in the western and central United States. Western also markets the
United States' 547-MW entitlement from the coal-fired Navajo Generating
Station near Page, Arizona, and transmits power across more than 17,000
circuit-miles of high voltage transmission lines.

Western's mission is to market and deliver reliable, cost-based
hydroelectric power and related services. Our service area covers 1.3
million square miles in 15 states. Western sells firm and nonfirm power
to more than 750 customers, including municipal utilities, rural
electric cooperatives, public utility and irrigation districts, Federal
and state agencies, Native American tribes, and investor-owned
utilities. Our utility customers, in turn, provide retail electric
service to millions of consumers in these central and western states:
Arizona, California, Colorado, Iowa, Kansas, Minnesota, Montana,
Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Texas, Utah
and Wyoming.

Western operates and maintains an extensive, integrated and complex
high-voltage transmission system to deliver federally generated electric
power to customers and the market. Using our Federal transmission
system, Western sells and delivers reliable electric power to most of
the western half of the United States. Western is the third largest
transmission provider in the United States.

Except for the Central Arizona Project's Navajo generation, the
generation and transmission facilities from which Western sells power
are part of ten rate-setting systems. These are made up of 14
multipurpose water resource projects and one transmission project. The
systems include Western's transmission facilities and power generation
facilities that the Bureau of Reclamation, the U.S. Army Corps of
Engineers and the International Boundary and Water Commission own and
operate. Although close coordination occurs, Western and the generation
entities are separately managed and financed. Each entity operates and
maintains its portion of a multipurpose project and allocates its
operating expenses among the project's purposes.

**Background**

Generally, the Public Utility Regulatory Policies Act of 1978 (PURPA)
created a regulatory framework that "provid\[ed\] for increased
conservation of electric energy, increased efficiency in the use of
facilities and resources by electric utilities, and equitable retail
rates for electric consumers" (16 U.S.C. §2611). PURPA's "Retail
Regulatory Policies for Electric Utilities" (Title I) apply to an
electric utility if it sells more than 500 million kilowatt-hours (kWh)
during the year for purposes other than resale (16 U.S.C. § 2612(a)). An
"electric utility" is specifically defined by PURPA as "any person,
State agency, or Federal agency, which sells electricity" (16 U.S.C. §
2602(4)). A "non-regulated electric utility" is defined as "any electric
utility other than a State regulated utility" (16 U.S.C. §2602(9)).
Accordingly, Western is categorized as a non-regulated electric utility
for the purpose of determining PURPA's applicability.

Western is predominantly a wholesaler of hydroelectricity. Most of our
energy sales are for resale. However, Western also sells power to
irrigation districts, Native American tribes, and Federal and State
agencies; the majority of these sales are not for resale. Because
Western is a non-regulated electric utility that supplies more than 500
million kWh to non-utility customers Western-wide, it must comply with
the regulatory framework established by PURPA.

Under 16 U.S.C. §2612(c), the Department of Energy (DOE) must publish a
list of electric utilities that are either subject directly to the terms
of PURPA or that are regulated by PURPA through a state regulatory
authority. DOE most recently published this list in 1998, and listed
Western as a covered utility.

Therefore, in cases where Western sells to non-utility customers, it is
subject to the regulatory framework established by Title I of PURPA.

The recently enacted Energy Policy Act of 2005 (EPAct) made substantial
changes and additions to the provisions of the PURPA. Western staff
analyzed several sections of EPAct of 2005 to determine their
applicability to Western. Those sections are as follows:

-   Net Metering, *(Section 1251 (a) (11))*

-   Fuel Sources Standard, *(Section 1251 (a) (12))*

-   Fossil Fuel Generation Efficiency Standard, (*Section 1251* *(a)
    (13))*

-   Smart Metering (with Time-Based Schedules), *(Section 1252 (a)
    (14))*

-   Interconnection, *(Section 1254 (a) (15))*

Sections 1251, 1252, and 1254 of the EPAct of 2005 require each state
regulatory authority or non-regulated electric utility subject to PURPA
to conduct formal assessments to consider implementing Federal standards
relating to fuel sources, fossil fuel generation efficiency, net
metering, smart metering, and consumer interconnections. The EPAct does
not require adoption of any of the standards; however, it does
necessitate consideration.

Western published a Federal Register Notice (FRN) on August 4, 2006
initiating its consideration of the five PURPA standards (71 FR 44276)
The FRN provides the date, time, and location of the public hearing, and
can be found at: http://www.wapa.gov/dsw/pwrmkt/PURPA/.

**INITIAL PRECONSIDERATION ANALYSIS**

Western staff reviewed the PURPA standards on a Western-wide basis.
These Western projects were included in the review:

-   Amistad-Falcon Project

-   Boulder Canyon Project

-   Central Arizona Project

-   Central Valley Project

-   Falcon-Amistad Project

-   Fryingpan-Arkansas Project

-   Pacific Northwest / Pacific Southwest Intertie Project

-   Parker-Davis Project

-   Pick-Sloan Missouri Basin Program

-   Provo River Project

-   Salt Lake City Area Integrated Projects (Colorado River Storage
    Project, Collbran Project, and Rio Grande Project)

-   Washoe Project

The pertinent PURPA standards and Western's initial analysis are
described below.

**Net Metering *(Section 1251 (a) (11))***

*"Each electric utility shall make available upon request net metering
service to any electric consumer that the electric utility serves. For
purposes of this paragraph, the term 'net metering service' means
service to an electric consumer under which electric energy generated by
that electric consumer from an eligible on-site generating facility and
delivered to the local distribution facilities may be used to offset
electric energy provided by the electric utility to the electric
consumer during the applicable billing period."*

This standard relates to energy deliveries to electric consumers with
on-site generating facilities that could be operated by the consumer to
offset energy provided by an electric utility with a corresponding
billing credit to that consumer. The standard cannot be reasonably
applied to most customers served by Western because Western does not
typically meet the entire load of its customers. A majority of customers
use a combination of Western power, and higher priced power purchased
from other suppliers or customer-owned generation, to meet their loads.
Net metering would typically result in a reduction of other power
supplies, not Western hydropower. For those few customers for which
Western is an all-requirements power supplier, Western today allows net
metering to offset power billing for energy delivered by Western.
Therefore, there appears to be no need for action on Western's part in
response to this standard.

**Fuel Sources Standard *(Section 1251 (a) (12))***

*"Each electric utility shall develop a plan to minimize dependence on
one fuel source and to ensure that the electric energy it sells to
consumers is generated using a diverse range of fuels and technologies
including renewable technologies."*

Western is primarily a bulk wholesale electric provider that provides a
very limited amount of energy to end-use loads. Western's power is
marketed by individual projects primarily to preference customers, most
of which are electric utilities. These electric utilities in turn blend
the Federal hydropower resource into their resource base and sell it to
their retail customers. Western does not have load growth
responsibility, and does not construct any new generation.

Generation resources marketed by Western are renewable hydropower, with
the exception of the United States Government's interest in the Navajo
Generating Station (Navajo), the output of which is used to support the
Central Arizona Project pumping requirements. Therefore, fuel source
diversification would not be a component in managing Western's projects.

**Fossil Fuel Generation Efficiency Standard (*Section 1251* *(a)
(13))***

*"Each electric utility shall develop and implement a 10 year plan to
increase the efficiency of its fossil fuel generation."*

Western is primarily a bulk wholesale electric provider that provides a
very limited amount of energy to end-use loads. Western's power is
marketed by individual projects primarily to preference customers, most
of which are electric utilities. These electric utilities in turn blend
the Federal hydropower resource into their resource base and sell it to
their retail customers. Generation marketed by Western is hydropower;
except for Navajo surplus. The Navajo Generating Station is a joint
participation project among several utilities in the southwestern United
States. The United States has a 24.3% interest in the power plant, and
Western participates on the operating committee where decisions are made
regarding projects intended to increase the efficiency of the Navajo
Generating Station. The Salt River Project is the operator of the Navajo
Generating Station and is primarily responsible for maintaining the plan
to increase the efficiency of the Generating Station. The Salt River
Project is considering adoption of this standard for its generation
including Navajo; its report on this subject can be found at
<http://www.srpnet.com/prices/purpa/pdfx/fossilfuelefficiency.pdf> Since
Western is not the operator of the Navajo Generating Station and the
remainder of our projects are hydropower, the requirement to develop
plans to increase efficiency of fossil fuel would not be applicable to
our operations.

**Smart Metering (with Time-Based Schedules) *(Section 1252 (a) (14)***

*''Each electric utility shall offer each of its customer classes, and
provide individual customers upon customer request, a time-based rate
schedule under which the rate charged by the electric utility varies
during different time periods and reflects the variance, if any, in the
utility's costs of generating and purchasing electricity at the
wholesale level. The time-based rate schedule shall enable the electric
consumer to manage energy use and cost through advanced metering and
communications technology."*

This standard mandates that electric utilities offer each customer
information relating to time-based rates. The time-based rate would
facilitate the customer's management of energy usage by time period
through advanced metering and communications technology.

Western is a predominantly wholesale power supplier and does not have
utility responsibility. Western does not typically meet the entire load
of its customers; their remaining power is delivered from higher-priced
sources. Smart metering would likely reduce a customer's need for those
resources and in almost all cases would likely have no impact on
Western's deliveries. A very small portion of Western's energy is
delivered to all requirements' customers who could potentially benefit
from smart metering. As Western has received no requests to establish
time-based rate schedules, there appears to be no need to adopt this
standard because of lack of demand.

**Interconnection *(Section 1254 (a) (15))***

*"Each electric utility shall make available, upon request,
interconnection service to any electric consumer that the electric
utility serves. For purposes of this paragraph, the term
'interconnection service' means service to an electric consumer under
which an on-site generating facility on the consumer's premises shall be
connected to the local distribution facilities. Interconnection services
shall be offered based upon the standards developed by the Institute of
Electrical and Electronics Engineers: IEEE Standard 1547 for
Interconnecting Distributed Resources with Electric Power Systems, as
they may be amended from time to time. In addition, agreements and
procedures shall be established whereby the services are offered shall
promote current best practices of interconnection for distributed
generation, including but not limited to, practices stipulated in model
codes adopted by associations of state regulatory agencies. All such
agreements and procedures shall be just and reasonable, and not unduly
discriminatory or preferential.''*

Western is primarily a bulk wholesale electric provider that provides a
very limited amount of energy to end-use loads. Western's power is
marketed by individual projects primarily to preference customers, most
of which are electric utilities. These electric utilities, in turn,
blend the Federal hydropower resource into their resource base to sell
to their retail customers. Those preference customers would principally
be responsible for interconnection service "to the local distribution
facilities", as opposed to Western.

Western's facilities are primarily bulk transmission system facilities.
Western\'s policies and procedures for interconnections to its power
system are set forth in Western\'s Open Access Transmission Tariff,
dated December 2005, which is on file with the Federal Energy Regulatory
Commission. These policies and procedures are used to manage all
interconnection requests that Western receives. As Western has not
received any requests for consumer interconnection service, there
appears to be no need to propose adoption of this standard.

**Next Steps**

Based on initial analysis, Western does not propose to adopt the
standards under consideration.

Those interested in presenting comments at the formal public hearing on
October 26, 2006, are invited to notify Western of his or her interest
prior to the hearing. Notification may be made electronically to:
DSW_PURPA@wapa.gov; or by mail to: Desert Southwest Region, Attention:
Financial Manager, 615 S. 43^rd^ Avenue, P.O. Box 6457, Phoenix, AZ
85005-6457. Submissions should include the interested person's name and
organization he or she represents.

Western's October 26, 2006 formal public hearing will begin at 10:00
a.m., at Western's Corporate Service Office to hear public comments. The
Corporate Service Office is located at 12155 West Alameda Parkway,
Lakewood, CO. A map can be obtained by contacting the PURPA Project
Manager.

As access to Western facilities is controlled, any U.S. citizen wishing
to attend the hearing must present an official form of picture
identification, such as a U.S. driver's license, U.S. passport, U.S.
Government ID, or U.S. Military ID, at the time of the hearing. Foreign
nationals must contact Western in advance of the hearing to obtain the
necessary form to be admitted to Western's offices. Contact the PURPA
Project Manager for assistance, if needed.

Written comments may be forwarded to: <DSW_PURPA@wapa.gov> or mailed to
the following address: Western Area Power Administration, Desert
Southwest Region, P.O. Box 6457, Phoenix, AZ 85005-6457, or faxed to
(602) 605-2828, Attention: Deborah Emler, Project Manager. Comments
received by November 10, 2006 will be reviewed and analyzed as part of
Western's consideration of these five standards. A determination will be
made only after all comments are received and fully analyzed.

Western anticipates that a decision of the actions to be taken regarding
the amended PURPA sections will be made by early spring 2007. Notice of
Western's final action will be published in the Federal Register and
will be made available to the public at
<http://www.wapa.gov/dsw/pwrmkt/PURPA/>.

If you have questions regarding the public hearing, please contact
Deborah Emler at <emler@wapa.gov> or telephone (602) 605-2566.