Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2383

from the Applicant. If an agency does

not file comments within the time

specified for filing comments, it will be

presumed to have no comments. One

copy of an agency’s comments must also

be sent to the Applicant’s

representatives.

Linwood A. Watson, Jr.,

Acting Secretary.

[FR Doc. 98–988 Filed 1–14–98; 8:45 am]

BILLING CODE 6717–01–M

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

Notice of Amendment of License

January 9, 1998.

Take notice that the following

hydroelectric application has been filed

with the Commission and is available

for public inspection:

a. Type of Application: Amendment

of License.

b. Project No.: 1025–020.

c. Date Filed: December 23, 1997.

d. Applicant: Safe Harbor Water

Power Corporation.

e. Name of Project: Safe Harbor.

f. Location: On the Susquehanna

River, in Lancaster County,

Pennsylvania.

g. Filed Pursuant to: Federal Power

Act, 16 U.S.C. 791(a)–825(r).

h. Applicant Contact: Marshall J.

Kaiser, President, Safe Harbor Water

Power Corporation, One Powerhouse

Road, Conestoga, PA 17516–9651, (717)

872–5441.

i. FERC Contact: James Hunter, (202)

219–2839.

j. Comment Date: February 27, 1998.

k. Description of Application: The

Applicant proposes to raise the normal

maximum level of Safe Harbor reservoir

by 0.8 feet, from elevation 227.2 feet to

elevation 228.0 feet above mean sea

level. Raising the elevation can be

accomplished operationally, and would

not require any modification to project

structures.

The higher level would benefit the

project by maximizing the operating

head and by providing 5,900 acre-feet of

additional usable storage capacity for

energy generation, under the normal

daily peaking operation. The Applicant

proposes to implement the increase in

reservoir elevation over several years, if

necessary, to minimize the potential

effects of the increase on migrant

shorebird usage of mudflat areas within

the reservoir.

1. This notice also consists of the

following standard paragraphs: B, C1,

and D2.

B. Comments, Protests, or Motions to

Intervene—Anyone may submit

comments, a protest, or a motion to

intervene in accordance with the

requirements of Rules of Practice and

Procedure, 18 CFR 385.210, .211, .214.

In determining the appropriate action to

take, the Commission will consider all

protests or other comments filed, but

only those who file a motion to

intervene in accordance with the

Commission’s Rules may become a

party to the proceeding. Any comments,

protests, or motions to intervene must

be received on or before the specified

comment date for the particular

application.

C1. Filing and Service of Responsive

Documents—Any filings must bear in

all capital letters the title

‘‘COMMENTS’’,

‘‘RECOMMENDATIONS FOR TERMS

AND CONDITIONS’’, ‘‘PROTEST’’, OR

‘‘MOTION TO INTERVENE’’, as

applicable, and the Project Number of

the particular application to which the

filing refers. Any of the above-named

documents must be filed by providing

the original and the number of copies

provided by the Commission’s

regulations to: The Secretary, Federal

Energy Regulatory Commission, 888

First Street, N.E., Washington, D.C.

20426. A copy of any motion to

intervene must also be served upon each

representative of the Applicant

specified in the particular application.

D2. Agency Comments—Federal,

state, and local agencies are invited to

file comments on the described

application. A copy of the application

may be obtained by agencies directly

from the Applicant. If an agency does

not file comments within the time

specified for filing comments, it will be

presumed to have no comments. One

copy of an agency’s comments must also

be sent to the Applicant’s

representatives.

Linwood A. Watson, Jr.,

Acting Secretary.

[FR Doc. 98–990 Filed 1–14–98; 8:45 am]

BILLING CODE 6717–01–M

DEPARTMENT OF ENERGY

Southwestern Power Administration

Integrated System Rates—Notice of

Order Approving New Power Rates on

an Interim Basis

AGENCY: Southwestern Power

Administration, DOE.

ACTION: Notice of rate order,

SUMMARY: The Deputy Secretary acting

under Amendment No. 3 to Delegation

Order No. 0204–108, dated November

10, 1993, has approved and placed in

effect on an interim basis Rate Order No.

SWPA–37 which provides for the

following Integrated System Rate

Schedules:

Rate Schedule P–98, Wholesale Rates for

Hydro Peaking Power

Rate Schedule NFTS–98, Wholesale Rates for

Point-to-Point and Network Transmission

Service

Rate Schedule EE–98, Wholesale Rate for

Excess Energy

The rate schedules supersede the

existing rate schedules shown below:

Rate Schedule P–90A, Peaking Power—

(superseded by P–98)

Rate Schedule P–90B, Peaking Power through

Oklahoma Utility Companies and/or

Oklahoma Municipal Power Authority—

(no longer applicable)

Rate Schedule F–90B, Firm Power through

Oklahoma Utility Companies—(no longer

applicable)

Rate Schedule TDC–90, Transmission

Service—(superseded by NFTS–98)

Rate Schedule IC–90, Interruptible

Capacity—(no longer applicable)

Rate Schedule EE–90, Excess Energy—

(superseded by EE–98)

DATES: The effective period for the rate

schedules specified in Rate Order No.

SWPA–37 is January 1, 1998, through

September 30, 2001.

FOR FURTHER INFORMATION CONTACT:

Forrest E. Reeves, Assistant

Administrator, Office of Corporate

Operations, Southwestern Power

Administration, Department of Energy,

P.O. Box 1619, Tulsa, Oklahoma 74101–

1619.

SUPPLEMENTARY INFORMATION:

Southwestern Power Administration’s

(Southwestern) Administrator has

determined, based on the November

1997 Integrated System Current Power

Repayment Study, that existing rates

will not satisfy cost recovery criteria

specified in Department of Energy Order

No. RA 6120.2 and Section 5 of the

Flood Control Act of 1944. The

Administrator prepared a November

1997 Integrated System Revised Power

Repayment Study based on additional

annual revenue of $1,805,772 beginning

January 1, 1998, which increases

ultimate annual revenues from

$96,344,200 to $98,149,972, in part to

recover increases in Corps of Engineers

and Southwestern Federal investments.

Southwestern has changed the rate

structure to conform with the intent of

the Federal Energy Regulatory

Commission’s (FERC) Order No. 888;

consequently, the actual rate impact on

each customer will vary based on the

type of service requested and provided.

Also, a credit, specifically designed for

each individual customer, will apply
2384 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

against the purchased power adder

component of the rate schedules to

refund both excess revenues and

interest accruing on such revenues in

the purchased power deferral account

during recent years of favorable water

conditions. This credit is intended to

equalize the customer’s average

purchased power adder cost. These

credits will be provided to each

applicable customer over a 6-month

service period beginning January 1,

1998. The customer specific credit,

along with the Administrator’s

discretionary purchased power adder

adjustment, will offset the immediate

impact of increasing the purchased

power adder to 1.1 mills/kWh, except

for those customers to which the

purchased power adder does not

currently apply. This rate proposal also

includes a provision to continue and

increase the Administrator’s

Discretionary Purchased Power Adder

Adjustment, from up to $0.0005 to up to

$0.0011 per kilowatthour as necessary,

and to adjust the purchased power

adder annually, at his/her discretion,

under a formula-type rate, with

notification to FERC.

Following review of Southwestern’s

proposal within the Department of

Energy, I approved, Rate Order No.

SWPA–37, on an interim basis through

September 30, 2001, or until confirmed

and approved on a final basis by FERC.

Dated: January 7, 1998.

Elizabeth A. Moler,

Deputy Secretary.

Order Confirming, Approving and

Placing Increased Power Rate in Effect

on an Interim Basis

[Rate Order No. SWPA–37]

January 1, 1998.

In the matter of: Southwestern Power

Administration System Rates

Pursuant to Sections 302(a) and

301(b) of the Department of Energy

Organization Act, Public Law 95–91, the

functions of the Secretary of the Interior

and the Federal Power Commission

under Section 5 of the Flood Control

Act of 1944, 16 U.S.C. 825s, for the

Southwestern Power Administration

(Southwestern) were transferred to and

vested in the Secretary of Energy. By

Delegation Order No. 0204–108,

effective December 14, 1983, 48 FR

55664, the Secretary of Energy delegated

to the Deputy Secretary of Energy on a

non-exclusive basis the authority to

confirm, approve and place into effect

on an interim basis power and

transmission rates, and delegated to the

Federal Energy Regulatory Commission

(FERC) on an exclusive basis the

authority to confirm, approve and place

in effect on a final basis, or to

disapprove power and transmission

rates. Amendment No. 1 to Delegation

Order No. 0204–108, effective May 30,

1986, 51 FR 19744, revised the

delegation of authority to confirm,

approve and place into effect on an

interim basis power and transmission

rates to the Under Secretary of Energy

rather than the Deputy Secretary of

Energy. This delegation was reassigned

to the Deputy Secretary of Energy by

Department of Energy (DOE) Notice

1110.29, dated October 27, 1988, and

clarified by Secretary of Energy Notice

SEN–10–89, dated August 3, 1989, and

subsequent revisions. By Amendment

No. 2 to Delegation Order No. 0204–108,

effective August 23, 1991, 56 FR 41835,

the Secretary of the Department of

Energy revised Delegation Order No.

0204–108 to delegate to the Assistant

Secretary, Conservation and Renewable

Energy, the authority which was

previously delegated to the Deputy

Secretary in that Delegation Order. By

Amendment No. 3 to Delegation Order

No. 0204–108, effective November 10,

1993, 58 FR 59717, the Secretary of

Energy revised the delegation of

authority to confirm, approve and place

into effect on an interim basis power

and transmission rates by delegating

that authority to the Deputy Secretary of

Energy. This rate order is issued by the

Deputy Secretary pursuant to said

Amendment to Delegation Order No.

0204–108. It is also made pursuant to

the authorities as implemented in 10

CFR 903.

Background

FERC confirmation and approval of

the following Integrated System

(System) rate schedules was provided in

FERC Docket No. EF90–4011–000

issued September 18, 1991, for the

period October 1, 1990, through

September 30, 1994:

Rate Schedule P–90A, Peaking Power—

(superseded by P–98)

Rate Schedule P–90B, Peaking Power through

Oklahoma Utility Companies and/or

Oklahoma Municipal Power Authority—

(no longer applicable)

Rate Schedule F–90B, Firm Power through

Oklahoma Utility Companies— (no longer

applicable)

Rate Schedule TDC–90, Transmission

Service—(superseded by NFTS–98)

Rate Schedule IC–90, Interruptible

Capacity—(no longer applicable)

Rate Schedule EE–90, Excess Energy—

(superseded by EE–98)

These rate schedules were

subsequently extended on an interim

basis by the Deputy Secretary under the

Rate Order No. and for the periods listed

below:

Rate Order SWPA–29, October 1, 1994–

September 30, 1995

Rate Order SWPA–32, October 1, 1995–

September 30, 1996

Rate Order SWPA–34, October 1, 1996–

September 30, 1997

Rate Order SWPA–35, October 1, 1997–

March 31, 1998

Southwestern’s November 1997

Current Power Repayment Study (PRS)

indicated that the existing rates would

not satisfy present financial criteria

regarding repayment of investment in a

50-year period due, in part, to

increasing Corps of Engineers (Corps)

and Southwestern Federal investment.

The Revised PRS indicated that an

increase in annual revenues of

$1,805,772 was necessary beginning in

FY 1998 to accomplish System

repayment in the required number of

years. Accordingly, Southwestern

developed proposed System rate

schedules in the November 1997 Rate

Design Study based on that additional

revenue requirement.

Title 10, Part 903, Subpart A of the

Code of Federal Regulations,

‘‘Procedures for Public Participation in

Power and Transmission Rate

Adjustment,’’ has been followed in

connection with the proposed rate

adjustments. More specifically,

opportunities for public review and

comment on proposed System power

rates during a 90-day period were

announced by notice published in the

Federal Register August 22, 1997, (62

FR 44670). A Public Information Forum

was held September 4, 1997, in Tulsa,

Oklahoma, and a Public Comment

Forum was held October 9, 1997, also in

Tulsa. Written comments were due by

November 20, 1997. On August 25,

1997, Southwestern mailed a copy of

the Federal Register Notice, making

copies of the proposed rate schedules

and supporting data for the August 1997

Power Repayment and Rate Design

Studies available to customers and

interested parties for review and

comment during the formal period of

public participation. In addition, and

prior to the formal 90-day public

participation process, Southwestern

held a number of informal meetings

with customer representatives during

preparation of the August 1997 Current

and Revised Power Repayment Studies

and Rate Design Study. Southwestern

personnel met informally with

representatives of the Southwestern

Power Resources Association (an

organization representing many of

Southwestern’s customers) on four

occasions and with the Oklahoma

Municipal Power Authority (OMPA)

member representatives once to explain

the studies, answer questions, and
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2385

consider comments and suggestions

concerning development of the

proposed System rates. Further,

Southwestern staff met with specific

customer representatives following the

Public Information and Comment

Forums to discuss the results of the

August 1997 Current and Revised Power

Repayment Studies and Rate Design

Study and how the proposals impacted

these customers directly.

Following the conclusion of the

comment period in November 1997,

modifications to the August 1997 Power

Repayment and Rate Design Studies and

the proposed rate schedules were

completed based on (1) Formal

comments received, (2) finalization of

the FY 1996 Southwestern Federal

Power System (SWFPS) financial audit,

and (3) resolution of a major power sales

contract. The comments presented

during the formal public participation

process were considered, responses

developed and, where deemed

appropriate, incorporated into the

studies. Once all comments had been

carefully considered, the Administrator

made the decision to submit the revised

(November 1997) rate proposal for

interim approval and implementation.

Responses to major comments are

contained herein. The proposed rate

schedules resulting from these changes

are designed to increase total annual

revenues to a level sufficient to repay all

costs by the 50th year.

Discussion

The rate schedules proposed by

Southwestern for implementation

increase ultimate annual revenue from

$96,344,200, to $98,149,972, or 1.9

percent, which will satisfy cost recovery

criteria outlined in Department of

Energy (DOE) Order No. RA 6120.2 and

Section 5 of the Flood Control Act of

1944, by increasing annual net revenues

by $1,805,772, beginning January 1,

1998. This amount is less than the

revenue level initially proposed in

August 1997 due to changes made to (1)

Correct errors in the August study cited

within comments received and noted by

staff review; (2) reflect the results of the

FY 1996 financial audit that had been

delayed (due to the Corps of Engineer’s

(Corps) switchover to a new financial

management system); and (3) better

show the impacts of specific power

sales contract provisions. The following

adjustments or corrections, which were

not included in the August 1997

studies, lowered the level of increase

needed:

1. Completion of the FY 1996 SWFPS

audit. This audit was not finalized until

September 1997 due to numerous problems

with Corps’ financial data for FY 1996. The

Corps implemented a new financial system

during FY 1996 within several of its district

offices and numerous problems developed

during retrieval of the 1996 financial data

which significantly delayed preparation of

financial statements and the financial audit.

Southwestern incorporated the audited

financial data for FY 1996 in its November

1997 Power Repayment Studies. This audited

financial data resulted in a decrease in the

level of revenues needed.

2. Reduction in the level of Service Charges

due to resolution of a major power sales

contract. Southwestern had been involved in

power sales contract negotiations with a

major customer for some time. Upon

successful negotiation of a new power sales

contract in August 1997, Southwestern

lowered its estimate of transmission service

charges to correspond with revised

anticipated rate levels. This change also

caused a decrease in the level of revenues

needed.

3. Minor corrections to revenues to reflect

effective dates of contract changes and

implementation of rates for new services for

specific customers. The corrections had both

increasing and decreasing impacts on the

revenues needed.

4. Minor revisions to estimates of revenues

expected from facilities charges based on

recently updated projections of future

individual customer transmission system

usage. These revisions had both increasing

and decreasing impacts on the revenues

needed also.

5. Adjusted revenues to include customerspecific purchased power credits not

identified in the August 1997 PRS due to the

unavailability of account data that

determines the level of participation for each

individual customer. Analysis of the

individual customer account activity has

been completed and specific purchased

power revenue credits have been determined

for those participating customers to place all

such customers on an equal level.

Not included in the above

adjustments are additional issues

related to rate design. Southwestern has

redesigned its rates for transmission

service in accordance with the intent of

FERC Order No. 888 on open

transmission access. Most of the

comments, concerns and requests for

information have been related to

Southwestern’s proposed August 1997

Rate Design and Rate Schedules, and in

particular, its charges for transmission

service. In consideration of comments

and suggested improvements to its rate

design, Southwestern has made

numerous changes to both its rate

design and rate schedules. The

following are changes made to

Southwestern’s August 1997 Rate

Design and Rate Schedules: (The

rationale for these changes is described

in Southwestern’s responses to major

comments section.)

1. The revenue requirement and

transmission capacity sales were changed

based on the November 1997 Revised Power

Repayment Study.

2. The Net Capacity or Energy Sales/

Deliveries divisor on ancillary services was

changed from the average 12 months’

coincidental peak (CP) of the fifteen projects

within Southwestern’s control area to the

capacity sales (billing units) associated with

the customers who are anticipated to be

taking the ancillary services.

3. The separate ancillary service charge for

Energy Imbalance was deleted while the

penalty provision for the service as proposed

in the August 1997 Rate Design was retained.

4. The calculation of the per MW cost for

providing generation for the two ancillary

services, (1) Operational Reserves-Spinning

and (2) Operational Reserves-Supplemental

were revised to divide the projected

generation expenses by the rated capacity of

the generation rather than the 12 CP value.

5. Switchyard costs on the transmission

side of the Corps’ facilities that previously

were included in generation have been

reassigned to transmission.

6. Before allocating Transmission Expenses

to Transformation, the costs for the

Scheduling, System Control and Dispatch

ancillary service have been removed.

7. An energy transmission loss analysis

was completed and the energy loss

percentage to be charged on transactions was

reduced from 5 percent to 4 percent. Also, a

determination was made to charge dollars for

losses, based on a formula described in Rate

Schedule NFTS–98, rather than have them

scheduled/repaid with energy.

8. Southwestern will be providing

secondary service, ‘‘headroom,’’ under its

firm transmission service for both Federal

and non-Federal power.

9. Southwestern will be offering Network

Integration Transmission Service. The charge

for this service will be based on the

calculation specified by FERC in its Order

No. 888 for this type of service.

In review, Southwestern is filing a

revised rate adjustment plan for two

reasons. These reasons include the need

for a minor increase in the annual

revenue requirements to satisfy cost

recovery criteria and also the

restructuring of rates to conform with

the intent of FERC Order Nos. 888 and

888–A. The PRSs indicated that current

revenue levels are insufficient, by

approximately 1.9 percent, to repay the

Federal investment within the

repayment period. That increased

requirement is due to increased

investments for both the Corps of

Engineers (Corps) hydroelectric projects

and Southwestern’s transmission system

facilities. Some of the factors causing

the Corps increases in project

investments include a finalization of the

Stockton cost allocation study, and

major rehabilitation of a few projects to

correct identified problems. Also, major

investments have been made in

Southwestern’s aging transmission

facilities to sustain the reliability of the

system. This filing represents the first
2386 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

revenue change for the Integrated

System in seven years. The second

reason is the restructuring of

Southwestern’s generation and

transmission rates and the development

of separate rates for ancillary services.

This restructuring conforms with the

intent of FERC Order Nos. 888 and 888–

A, and required a shift of certain costs

between generation and transmission to

provide for ancillary services and also to

reassign generation costs associated

with Corps transmission-related

switchyard facilities to transmission.

The reassignment of costs will have

varying financial impacts on

Southwestern’s customers based on the

service requested and provided.

In Southwestern’s 1988 and again in

the 1990 Rate Proposals, two

noteworthy issues, which have

previously been approved by FERC were

described in detail. The two issues were

(1) the treatment of a portion of the

Truman project investment as not

currently repayable, and (2) the

development of customer-specific

credits to the Purchased Power Adder to

refund excess revenues collected under

Southwestern’s purchased power rate

component.

Harry S. Truman Project

The Truman issue arose out of the

limitations placed on the project’s

operations by the Corps. The project

was designed and constructed to have

160 MW of dependable (marketable)

capacity through the use of six

reversible pump turbine generating

units which could return water to the

reservoir following normal generation,

to mitigate extreme variations in water

available for generation and the lack of

storage capacity in the project (only two

feet). Pumping ensures project

dependable capacity and allows

marketing of all six units. A substantial

fish kill during testing of the units and

considerable opposition to the project’s

operation, both in the pumping mode

and the full six-unit generation mode,

led the Corps to significantly restrict the

project’s operation. In particular, the

project’s pumps may not be used and

only a limited number of units may be

utilized simultaneously. Consequently,

Southwestern is unable to market full

capacity from the project and has

declared only two units in commercial

operation. Southwestern proposed to

FERC in the 1988 rate filing that, since

the entire project was neither revenueproducing, declared in commercial

operation, nor expected to be in service

within the then-existing cost evaluation

period, the total investment allocated to

power was not repayable under DOE or

FERC regulations. Southwestern further

proposed an adjustment to Truman’s

allocated costs and reduced the

repayable investment to an amount

equal to approximately 44 percent of

then-allocated costs, with the remaining

amount to be deferred until the project

can be operated as it was designed.

FERC approved this proposal as an

acceptable interim measure while the

Corps develops a cost allocation for

Truman based on actual operating

conditions. Southwestern also proposed

this concept to the Corps, and the Corps

agreed to consider it as an option in

developing the cost allocation for the

project. Subsequently, the Corps has

completed a major revision to the

Truman project cost allocation and has

utilized Southwestern’s proposed

concept for determining repayable

investment at the project during the

interim period until the project becomes

fully operational. Although not yet

approved on a final basis, the Interim

Cost Allocation proposed by the Corps

for the Truman project has been utilized

in the development of the 1990 PRSs

and in the 1997 PRSs in support of the

revenue requirements of Southwestern’s

System and the rate proposal, as the

most recent cost allocation available

which reasonably reflects the level of

costs expected to be payable at the

Truman project during the cost

evaluation period.

During February 1997, the Interagency

Committee on Cost Allocations (ICCA)

met to review and potentially approve

the Truman, Stockton, and Clarence

Cannon project cost allocations. The

Stockton cost allocation was

subsequently approved on a final basis

on May 8, 1997. The Clarence Cannon

cost allocation was sent back to the

Corps’ St. Louis District for a review of

the classification of a specific charge

and was to be returned to the ICCA for

final approval. The Truman cost

allocation was to be sent back to the

Corps’ Kansas City District office to

make changes in the allocation’s

assumptions and then be prepared for

finalization. However, in June 1997, a

second meeting of the ICCA was held

with several customer representatives to

discuss the Truman cost allocation. The

customers expressed their concern

about the significant level of costs being

proposed while the project continued to

be limited in its ability to produce

hydropower. At this meeting, the Corps

agreed to review the issue of assigning

hydro-related costs to another project

purpose that had contributed to limiting

the hydro operation of the project. The

allocation of those costs to another

purpose would be potentially

considered temporary and the costs

would be reallocated back to the

hydropower purpose in an amount

relational to the part of the hydropower

purpose functioning as originally

designed. Southwestern does not

anticipate finalization of the Truman

cost allocation within the 1997 PRS cost

evaluation period; therefore,

Southwestern has continued to use the

Interim Cost Allocation for the Truman

project in development of the 1997 PRS.

Purchased Power Deferral Account

(Credit and Adders)

In the 1988 and 1990 PRSs,

Southwestern implemented customerspecific purchased power credits to flow

back over a fixed period deferred

revenues and interest accrued on such

revenues in such a way as to equalize

the average purchased power adder rate

per kilowatthour (kWh) paid by each

customer. These credits remained in

effect through September 30, 1993, to

balance each customer’s average cost

irrespective of the condition or balance

of the Purchase Power Account

(Account), or the need for rate

adjustment in the meantime. The

customer-specific credits specified in

the 1990 PRS, like the previous credits,

were insufficient to totally equalize the

average purchased power adder rate

paid by each customer. Changing

interest rates, above average water

conditions during the period which

eliminated the need for estimated

average-year purchases, and different

rates for the credits over the credit

period kept the previous credits from

reaching the goal. Therefore, additional

customer-specific adjustments are

needed to bring all participating

customers to the same level. It is

important that the remaining revenues

to be credited flow back over a short

period to get all customers on the same

per kWh contribution basis.

Southwestern is proposing to flow back

the deferred revenues and interest

during the service period January 1,

1998, through June 30, 1998. However,

to avoid the potential for making cash

payments to customers in excess of

monthly charges, the rate schedules

again limit the amount of applicable

credit in any month to the level of total

charges for Southwestern’s services

rendered for such month, and allow for

any excess credit to be used in future

billing periods. Amounts of revenue and

interest in the Account at any time are

System revenues, entirely within the

purview of Southwestern. No customer

is considered to have escrowed these

funds, nor to have any specific

entitlement or ownership right in

contributions to the Account or accrued

interest, although Southwestern will
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2387

attempt to apply purchased power

adders, and credits, on a basis

reasonably proportional to applicable

customer purchases of peaking power

and energy.

During the time the purchased power

adders and the accounting mechanism

have been in place, they have proven to

be effective in assuring that purchased

power revenues equal purchased power

costs over time. The financial interests

of the Government have been protected

in this endeavor, and the rate

component has been adjusted as

necessary. In the 1988 and 1990 Rate

Proposals, Southwestern also requested

approval for the Administrator to have

authority to adjust the purchased power

rate component up to once annually,

based on a formula-type rate included in

the rate schedules, by up to $0.0005 per

kWh at his or her discretion. The

flexibility derived from this authority

enables Southwestern to react more

quickly to significant changes in water

conditions which may have occurred

during the preceding year or simply to

exercise better control on the amount of

revenue in the Account and to better

limit the over or under recoveries of

revenue. The Administrator utilized this

authority in December 1993, 1994, 1995,

and 1996 to implement adjustments of

up to $0.0005 per kWh additional credit

to help reduce excess revenues collected

in the Account during the previous

years of good water conditions and the

corresponding reduced need for

purchased power. This authority seems

to remain appropriate, particularly in

light of the fact that the Account has no

direct effect on System repayment

requirements and the separate rate

component serves to provide revenues

to meet expected costs which, if they do

not come to pass, are either held to meet

future costs or result in a lower

purchased power rate for customers.

However, experience has shown

Southwestern that the $0.0005 per kWh

adjustment level does not provide

significant impact to the Account

especially during times of widely

fluctuating water conditions. Therefore,

Southwestern’s Administrator requests

continuing authority to adjust the

purchased power rate component

annually based on a formula-type rate

included in the rate schedules, but

increasing his/her authority up to

$0.0011 per kWh, an increase of $0.0006

per kWh, as he/she determines

necessary, to provide better control over

the amount of revenue in the Account

and to provide greater flexibility in

limiting the over and under recoveries

of revenue.

An element directly related to the

Account and accrual of interest thereto

is the determination of the purchased

power adder itself. Southwestern is

proposing, as in all previous proposals

beginning with the 1983

implementation of the purchased power

rate component, that the adder be set

equal to the current average long-term

purchased power rate requirement. As

shown in the Rate Design Study, the

amount is determined by dividing the

estimated total average direct purchased

power costs by Southwestern’s total

annual contractual 1200-hour peaking

energy commitments to the customers

(exclusive of contract support

arrangements). In this rate proposal, the

resulting Purchased Power Adder

(Adder) is $0.0011 per kWh of peaking

energy. The total revenue created

through application of this Adder would

enable Southwestern to cover its average

annual purchased power costs.

Comments and Responses

The Southwestern Power

Administration (Southwestern) received

numerous comments from customers

and interested parties from the public

participation process. The issues

identified in these comments were given

careful and thorough consideration and,

where deemed appropriate, solutions

were developed and incorporated into

Southwestern’s final rate proposal, as

noted in the earlier Discussion section.

A summary of major comments and

Southwestern’s responses to the issues

raised in them follows:

Corps O&M Expenses

Comment: Southwestern’s updated

revenue requirement projections based

on audited financial statements for the

FY 1996 indicate that Corps of

Engineer’s (Corps) Operation &

Maintenance (O&M) expenses for 1996

were approximately $4,900,000 less

than estimated by Southwestern in its

revenue requirements projection.

However, Southwestern did not revise

its Corps O&M projection. It appears

that Corps O&M expenditures are

increasing as compared to historical

levels, while Southwestern is reducing

its expenditures. Corps O&M

expenditures are approximately 30

percent of the cost of Southwestern

hydropower. Reductions in Corps O&M

expenditures will reduce upward rate

pressure on Southwestern’s rates. When

Southwestern modifies rates in FY 2001,

it should consider reducing the Corps

O&M expense to reflect actual expenses

in 1996, 1997 and 1998.

Response: Southwestern agrees that

the audited financial statements for FY

1996 Corps O&M expense were

approximately $4.9 million less than

Southwestern estimated in the 1996

Power Repayment Study (PRS), but $4.2

million of this difference was due to

unforeseen and extraordinarily large

retirement losses which are not

projected by the Corps or Southwestern.

The Corps O&M expenses before the

retirement losses were $30.9 million,

less than 2 percent from the previous

projection for FY 1996. Projections for

Corps O&M are not developed by

Southwestern, but are developed by the

Corps and provided to Southwestern

annually. The Corps makes projections

using historical information and then

includes projections for large

maintenance items for each of the

projects that have been included in their

outyear budget estimates. These

projections are made in current year

dollars. Southwestern reviews this

information and adjusts the estimates to

future year dollars based on the Gross

Domestic Product Price Index projection

to incorporate inflationary trends.

Southwestern agrees that such costs

should be prudently and timely

incurred at reasonable levels consistent

with maintaining the high level of

reliability required in the utility

industry. Historically, the estimates that

the Corps provides have been

reasonably accurate in total, although

they fluctuate from actual expenditures

by individual project. The Corps

believes that its internal controls,

accounting system reviews, and funding

procedures effectively provide the

needed level of justification,

consistency, and control of its O&M

expenditures.

Southwestern agrees that a reduction

in Corps O&M expenditures would help

in reducing the upward pressure on

rates. However, the Corps O&M

expenditures have been quite stable for

most of the last ten years. There is no

indication by the Corps that O&M costs

will be increasing significantly, but

future PRSs will reflect any such trend.

It is true that Corps O&M expenditures

are a significant percentage of the cost

of hydropower; but, considering the

level of Corps power investment on the

financial statements, this percentage

does not appear to be out of line.

Southwestern will continue to monitor

the Corps estimates of O&M expenses to

assure the estimates are reasonably

comparable to actual expenses as noted

on each year’s financial statements.

Southwestern completes repayment

reviews each year and will include

actual expenses for the latest historical

year available in its review. When

Southwestern modifies rates in FY 2001,

it will incorporate actual Corps O&M

expenses for FY 1997, FY 1998, FY 1999

and FY 2000.
2388 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

Accelerated Repayment

Comment: Footnotes in the

Southwestern PRS indicate that

Southwestern plans in this PRS to repay

debt faster than required by its loan

obligations. Southwestern should not

repay its Federal obligations any faster

than required for purposes of

establishing cost of service and rates.

Southwestern should use amortization

and interest expenses that do not exceed

what is required to repay loan

obligations.

Response: The footnote in

Southwestern’s PRS indicates that

historical water conditions have been

above average allowing for increased

sales and amortization; however, this

PRS indicates that, even with above

average water conditions, current rates

are insufficient to meet repayment

criteria for the System. Southwestern’s

rate adjustment plan in the FY 1997 PRS

does not accelerate repayment of the

Federal investment. The comment’s

reference to loan obligations is actually

the repayment of the Federal

investment. Each year’s investment at

each project is treated as a separate

repayment obligation with a specific

term and interest rate. Southwestern’s

repayment policy is set forth in DOE

Order No. RA 6120.2. Section 8.c.(3) of

that Order states: ‘‘To the extent

possible, while still complying with the

repayment periods established for each

increment of investment and unless

otherwise indicated by legislation,

amortization of the investment will be

accompanied by application to the

highest interest-bearing investment

first.’’ The policy is based on Section 5

of the Flood Control Act of 1944 (Flood

Control Act) which requires that power

and energy from Federal projects be

marketed, ‘‘* * * at the lowest possible

rates to consumers consistent with

sound business principles * * *.’’

Amortization of the capital investment

is required by the Flood Control Act to

be accomplished, ‘‘* * * over a

reasonable period of years * * *.’’ This

period has been determined by Order

No. RA 6120.2 to be within 50 years

from the date of commercial service for

the hydroelectric projects and to be

shorter periods for transmission and

replacement investments based on their

service lives.

Southwestern sets its rates based on

average year water conditions.

Southwestern’s PRSs reflect the rate

adjustment plan based on average

hydrologic conditions. The repayment

system permits the Power Marketing

Administrations (PMAs) to vary the

amount of capital returned to the

Treasury from year to year, reflecting

the water conditions and the volume of

sales which they experience. From the

beginning, the U.S. Congress recognized

that marketable energy in a

hydroelectric system would vary from

year to year with fluctuations in

available water. The Congress agreed

that, in order to produce a stable rate

structure, repayment plans which are

based on average water conditions are a

reasonable approach. This model

permits Southwestern to apply a stable

rate over a period of years, regardless of

actual water conditions. In aboveaverage water years, the rate model

recovers more capital which balances

poorer returns during below average

water years.

During most of the past ten years,

Southwestern has experienced above

average water conditions; therefore,

Southwestern has returned more funds

to the U.S. Treasury than had been

planned. The Flood Control Act of 1944

requires that: ‘‘All moneys received

from such sales shall be deposited in the

Treasury of the United States as

miscellaneous receipts.’’ All revenues

from sales of power and energy and

non-Federal transmission are returned

to the Treasury. Revenues that exceed

expenditures for a particular year are

credited to the repayment of investment.

Revenues credited to repayment of the

Federal investment during the past ten

years have enabled Southwestern to

maintain stable rates since 1992. As a

rate increase of 1.9 percent is needed,

the Current PRS reflects that the 1997

rate adjustment plan, with existing

rates, is insufficient to meet anticipated

repayment obligations.

FY 2001 Test Year

Comment: Industry accepted practice

is to raise rates when there is a clear

need to raise them. There does not

appear to be information that supports

Southwestern’s need to increase its rates

before FY 2001. Typically, electric

utilities use one of three methods to

establish a test year. The test year

selection methods include (1) Historical,

based on actual results of a previous

year; (2) projected, based on the same

year the rates are established; or (3)

combination of actual and projected

data. Southwestern does not need a rate

increase until the year 2001. It would be

consistent with past precedent to

develop steps to these rates or

implement them for a test year in 1998.

Response: The existing repayment

study methodology prescribed by DOE

Order No. RA 6120.2 advocates a cost

evaluation period (CEP) that is

‘‘normally 5 years’’ to project future

costs and revenues to reflect changing

conditions. That methodology was

established, at least in part, (1) to

provide some protection for the

financial integrity and stability of the

PMAs, including Southwestern, which

must assure recovery of all annual costs

and repayment of investment from

revenues based on hydroelectric power

generation under highly variable water

conditions, and (2) to provide a

stabilizing effect on hydroelectric power

rates to minimize the need for more

numerous and potentially larger

increases caused by a single year or

event. While it is true that a five-year

cost evaluation period is not required,

Southwestern has utilized it

consistently, and it serves as a

‘‘reasonable’’ period over which

Southwestern can project future events

and costs. This repayment methodology

has been used consistently through

Southwestern’s history, and the FERC

has supported the process through its

approval of past rate adjustments.

Southwestern’s customers’ concerns

that would warrant pursuing a phasedin rate increase at this time have been

carefully considered. Southwestern is

faced with certain statutory (the Flood

Control Act of 1944) and regulatory

(DOE Order No. RA 6120.2)

requirements which limit the latitude

the Administrator can exercise in setting

the cost-based rates. Southwestern

remains committed to the continued

financial integrity and stability of its

System through the development of

regular annual PRSs based upon

average-water-year conditions and on

the implementation of rate increases, as

needed, in accordance with such legal

and regulatory requirements. This

process has been strongly supported in

recent years by customers and customer

organizations. The stepped-in rate

approved in 1990 was a one-time phasein approach that was intended as a

reasonable accommodation to customer

concerns regarding a single 14.4 percent

increase. At that time, there was a

unique situation regarding Corps O&M

costs and confusion over Corps policy

regarding preventive and breakdown

maintenance as well as inconsistency in

anticipated funding level restrictions.

The level of the rate adjustment in this

rate filing, 1.9 percent, is minor in its

application to rates, and Southwestern

does not have a compelling reason to

phase it in.

Some customers are impacted at a rate

greater than 1.9 percent, primarily due

to rate restructuring. Such restructuring

stems from Southwestern’s requirement

to conform to the intent of FERC Order

No. 888. However, an analysis of the

data indicates that the shift in

Southwestern’s expense patterns from

generation-related costs, which have
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2389

decreased, to increased transmission

system-related costs, would have caused

such customers to be impacted by

increased transmission costs, whether or

not an overall revenue increase were

warranted. In addition, with all the

changes in the electric industry, this is

considered a ‘‘sound business

principle’’ in that it reduces

Southwestern’s financial risk (albeit,

only slightly) of repaying its Federal

investment in a timely manner.

Losses

Comment: Capacity losses are

approximately 2.8% of total peaking

and firm capacity. Losses and station

services are approximately 3.3% of total

energy resources available for sale.

Typically demand losses are greater

than energy losses, stated on a

percentage basis. Station service should

not be included as energy losses; only

losses that occur on the transmission

system should be considered when

calculating transmission losses. Request

Southwestern prepare a transmission

loss study. Transmission loss rates for

transmission customers should be

established and updated each year. 5%

power factor losses are higher than

surrounding control areas. Anything

over 3% must be justified by a loss

study.

Response: The percentages used in

the above comment are believed to have

been developed from numbers in the

1997 PRS and were based on

Southwestern’s Load Resource Study

which, for simplicity, combines losses

and station service to show total energy

usage. Southwestern recently performed

a transmission loss study. Station

service was not included in our loss

study. Only losses that occur on the

transmission system were considered in

the calculation of transmission losses in

the loss study. Southwestern’s loss

study indicates that Southwestern’s loss

percentage is approximately 4 percent.

Consequently, Southwestern has

reduced the loss percentage from 5

percent to 4 percent for real power

losses and included that figure in its

rate schedules. Southwestern will also

begin charging for losses, as compared

to its previous practice of requiring

losses to be scheduled as energy.

Isolated Projects and Bundled Rates

Comments: Isolated projects should

not be required to pay for transmission

and ancillary services that they do not

use. Isolated projects should receive

credit for incurring costs that the typical

Southwestern customer does not. It is

not appropriate to charge ancillary

services for isolated project power.

SWPA must offer unbundled service

to all of its customers under nondiscriminatory terms and conditions.

Proposal to require all customers,

regardless of whether they take power

from SWPA’s Integrated System or use

any of SWPA’s transmission facilities, to

pay for their hydro power purchases

under a bundled rate that includes

transmission and a charge for

scheduling and reactive power services

is contrary to Order No. 888 and will

not be approved by FERC.

Response: Southwestern’s sale of

Federal power and energy are based on

a ‘‘postage-stamp’’ type rate, which is

based on the financial integration of all

the projects marketed under the

Integrated System, as well as various

components of Southwestern’s

transmission system. The capacity rate

for all Federal power customers

includes a transmission component and

the two required ancillary services. This

rate has been set to assure that

Southwestern charges itself the same

rates it charges for the use of the

transmission system for wheeling nonFederal power. The customers which

receive the output of Corps projects that

are presently electrically isolated from

Southwestern’s primary interconnected

system requested integration of such

projects into the Integrated System to

receive that system’s benefits, including

lower costs. In addition, such customers

receive a number of benefits from their

project sales which other Federal

customers do not, such as overload

capacity, condensing, greater scheduling

flexibility, and exclusion from paying

the Purchased Power Adder.

Additionally, such projects also include

components of Southwestern’s

transmission system and switchyard

facilities used to deliver power and

energy from the dams. In addition,

revenues from all sales within the

Integrated System are applied toward

repayment of all Federal investment for

all projects, regardless of their electrical

integration status.

Southwestern is not required by FERC

Order No. 888 to offer unbundled

services to its customers. Section 5 of

the Flood Control Act of 1944 sets forth

the statutory requirements for the sale

and delivery of Federal power and

energy. Based on DOE policy, ‘‘each of

the PMAs that own transmission

facilities will publish generally

applicable open access wholesale

transmission tariffs and will take service

itself under such tariffs. The tariffs will

include rates, terms, and conditions,

and will offer transmission services,

including ancillary services, to all

entities eligible to seek a transmission

order under section 211 of the Federal

Power Act . . .’’ Southwestern has

complied with this policy in separating

its non-Federal transmission service to

provide for ancillary services.

Other Issues

Other issues are discussed in the

Administrator’s Record of Decision.

Availability of Information

Information regarding this rate

proposal including studies, comments

and other supporting material, is

available for public review and

comment in the offices of Southwestern

Power Administration, One West Third

Street, Tulsa, OK 74101.

Administrator’s Certification

The November 1997 Revised Power

Repayment Study indicates that the

increased power rates will repay all

costs of the Integrated System including

amortization of the power investment

consistent with the provisions of

Department of Energy Order No. RA

6120.2. In accordance with Section 1 of

Delegation Order No. 0204–108, as

amended November 10, 1993, 58 FR

59717, and Section 5 of the Flood

Control Act of 1944, the Administrator

has determined that the proposed

System rates are consistent with

applicable law and the lowest possible

rates consistent with sound business

principles.

Environment

The environmental impact of the

proposed System rates was evaluated in

consideration of DOE’s guidelines for

implementing the procedural provisions

of the National Environmental Policy

Act and was determined to fall within

the class of actions that are categorically

excluded from the requirements of

preparing either an Environmental

Impact Statement or an Environmental

Assessment.

Order

In view of the foregoing and pursuant

to the authority delegated to me by the

Secretary of Energy, I hereby confirm,

approve and place in effect on an

interim basis, effective January 1, 1998,

the following Southwestern System Rate

Schedules which shall remain in effect

on an interim basis through September

30, 2001, or until the FERC confirms

and approves the rates on a final basis.

Dated: January 7, 1998.

Elizabeth A. Moler,

Deputy Secretary.

[FR Doc. 98–1060 Filed 1–14–98; 8:45 am]

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