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###### Department of Energy

###### Southwestern Power Administration

# AGENCY:

Southwestern Power Administration, DOE.

# ACTION:

Notice of public review and comment.

# SUMMARY:

Southwestern Power Administration (Southwestern) has developed a draft addendum to its January 2009 Final Determination Report concerning the Federal and non-Federal hydropower impacts of the White River Minimum Flows project. The draft addendum documents proposed changes to Southwestern's final determination. The proposed changes include: (1) Accounting for the impacts that the increase in average pool elevation has on the operation of the Federal Bull Shoals and Norfork projects, and (2) the inclusion of an additional discount rate source to be used by Southwestern in determination of the present value of the losses to both Federal projects and Federal Energy Regulatory Commission (FERC) Project No. 2221.

Assuming a January 1, 2011, date of implementation for the White River Minimum Flows project and current values for the specified parameters, Southwestern's modified final determination results in a present value of $22,340,800 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 $60,851,800 for the estimated future lifetime replacement costs of the electrical energy and capacity for Federal hydropower.

# DATES:

                        The consultation and comment period will begin on the date of publication of this                         **Federal Register**                         notice and will end on July 8, 2009.                    

# ADDRESSES:

                        Written comments on Southwestern's draft addendum to its final determination should be submitted to George Robbins, Director, Division of Resources and Rates, Southwestern Power Administration, U.S. Department of Energy, One West Third Street, Tulsa, Oklahoma 74103, or e-mail                         *george.robbins@swpa.gov.*                         Comments will be accepted only on the proposed changes in the draft addendum and not on any other aspect of Southwestern's final determination.                    

# 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.*

# SUPPLEMENTARY INFORMATION:

## I. Discussion

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 which was created by an Act of the U.S. Congress, entitled the Department of Energy Organization Act, Public Law 95-91 (1977). 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 plus Kansas and Louisiana.

                    Section 132 of Public Law 109-103 (2005) 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                           ( print page 27136)                        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.

In accordance with the legislation, Southwestern developed a procedure for calculating projected energy and capacity losses for FERC Project No. 2221 and the Bull Shoals and Norfork projects, including additional losses related to the reallocation for minimum flows as appropriate. Input from affected parties and from the public was invited and utilized in the development of the determination.

                    Southwestern's draft determination was published by                     **Federal Register**                     Notice (73 FR 6717) dated February 5, 2008. 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. Since 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 by                     **Federal Register**                     Notice (73 FR 38198) on July 3, 2008. 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, by                     **Federal Register**                     Notice (73 FR 46901) dated 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 by                     **Federal Register**                     Notice (74 FR 4183) on January 23, 2009. 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.                

As a result of 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 from the calculations. While the gains from the 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 draft 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 also believed it should quantify dissolved oxygen (DO) impacts due to the average increase in pool elevation. In Southwestern's final determination it was recognized that generation at both Bull Shoals and Norfork is impacted annually due to low DO conditions. It was 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 draft addendum. Based on the procedure and on current values of the specified parameters, the present value of the lifetime impact of lower DO levels on Federal hydropower is $10,207,900. It should be noted that the $10,207,900 amount only addresses the incremental impact of the increased pool elevation on DO levels and is not representation of an amount to satisfy all DO issues at the Federal projects.

                    Southwestern is also proposing to include an additional source for the discount rate to be used in the present value computation for all three projects. The 30-year Treasury bond rates in effect at the time of publication of Southwestern's draft, proposed, and final determinations were as high as 5.0 percent. The recent changes in the investment sector have resulted in the current rate being artificially lowered. In early 2009, the rate dropped as low as 3.5 percent. The rate is currently 4.25 percent. The discount rate used should be reflective of the “cost of cash” during the period of analysis. 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                           ( print page 27137)                        lower interest bearing accounts. Therefore, using the lower 30-year Treasury bond rate for the present value calculation would not be appropriate and would result in too much compensation for the losses. Southwestern's draft addendum revises the discount rate selection for calculation of the present value of the losses as follows: In calculating the present value of the Federal and non-Federal losses, Southwestern will use the higher of the current 30-year Treasury bond rate or each entity's, Southwestern and Empire, respectively, cost of long-term debt.                

Based on an analysis of the long-term debt for Southwestern, the current 30-year Treasury bond rate is higher than Southwestern's cost of long-term debt. Using the updated procedure, the current discount rate to be used in the calculation of the present value of the Federal hydropower losses is the 30-year Treasury bond rate. Based on an analysis of the long-term debt for the non-Federal licensee utilizing information in its filings with FERC, the current 30-year Treasury bond rate is lower than the non-Federal licensee's cost of long-term debt. The updated procedure results in the use of the non-Federal licensee's cost of long-term debt as the current discount rate in the calculation of the present value of the non-Federal hydropower losses.

Southwestern's draft addendum details the proposed changes to Southwestern's final determination. Assuming a January 1, 2011 date of implementation for the White River Minimum Flows project and current values for the specified parameters, Southwestern's modified final determination results in a present value for the estimated future lifetime replacement costs of the electrical energy and capacity at FERC Project No. 2221 of $22,340,800. Southwestern's modified final determination results in a present value for the estimated future lifetime replacement costs of the electrical energy and capacity for Federal hydropower of $60,851,800. The actual compensation values are to be calculated using the method presented in Southwestern's modified final determination and current values for the specified parameters based on the official implementation date.

II. Public Review and Comment Procedures

                    Opportunity is presented for interested parties to receive copies of Southwestern's draft addendum detailing the proposed changes to Southwestern's final determination of the Federal and non-Federal hydropower impacts. If you desire a copy of the draft addendum, submit your request to Mr. George Robbins, Director, Division of Resources and Rates, Southwestern Power Administration, One West Third Street, Tulsa, OK 74103, (918) 595-6680,                     *george.robbins@swpa.gov.*

Written comments on Southwestern's draft addendum are due on or before July 8, 2009. Comments should be submitted to George Robbins, Director, Division of Resources and Rates, Southwestern, at the above-mentioned address for Southwestern's offices. Comments will be accepted only on the proposed changes in the draft addendum and not on any other aspect of Southwestern's final determination.

                    Southwestern will review and address the written comments, making any necessary changes to the draft addendum. The Administrator will publish the results of Southwestern's finalized addendum in the                     **Federal Register**                    .                

Dated: June 1, 2009.

Jon C. Worthington,

Administrator.

[FR Doc. E9-13322 Filed 6-5-09; 8:45 am]

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