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DEPARTMENT OF ENERGY

Western Area Power Administration

NOTICE: NOTICES

ACTION: Power rates:

DOCUMENT ACTION: Notice of base charge and rates.

SUBJECT CATEGORY: Boulder Canyon Project--Base Charge and Rates

DATES: The Rates will be effective the first day of the first full billing period beginning on or after October 1, 2003. These Rates will stay in effect through September 30, 2004, or until other Rates replace them.

DOCUMENT SUMMARY: The Deputy Secretary of the Department of Energy (DOE) has approved Rate Schedule BCPF6, FY 2004 Base Charge and Rates (Rates) for Boulder Canyon Project (BCP) electric service provided by the Western Area Power Administration (Western). The Rates will provide sufficient revenue to pay all annual costs, including interest expense, and investment repayment within the allowable period.

SUMMARY: Boulder Canyon Project,

SUPPLEMENTAL INFORMATION

The Deputy Secretary of DOE approved the existing Rate Schedule BCPF6 for BCP electric service on September 18, 2000 (Rate Order No. WAPA94, 65 FR 60933, October 13, 2000), on an interim basis. Rate Schedule BCPF6, effective October 1, 2000, through September 30, 2005, allows for an annual recalculation of the rates. On July 31, 2001, the Federal Energy Regulatory Commission (FERC) approved Rate Order No. WAPA94 on a final basis.

Under Rate Schedule BCPF6, the existing composite rate, effective on October 1, 2002, was 11.16 mills per kilowatthour (mills/kWh), the base charge was $50,761,729, the energy rate was 5.58 mills/kWh, and the capacity rate was $1.08 per kilowattmonth (kWmonth). The newly calculated Rates for BCP electric service, to be effective October 1, 2003, will result in an overall composite rate of 12.91 mills/kWh. This is an increase of approximately 16 percent when compared with the existing BCP electric service composite rate. The increase is due to an increase in the annual base charge and a decrease in the projected energy sales. The Fiscal Year (FY) 2004 base charge is increasing to $51,719,075. The increase is due mainly to a reduction in visitor service revenues resulting from fewer tours at the Hoover Dam. The FY 2004 energy rate of 6.46 mills/kWh is approximately a 16percent increase from the existing energy rate of 5.58 mills/kWh. The increase in the energy rate is due to a decrease in the projected energy sales resulting from lake elevations continuing to drop due to poor hydrology in the lower Colorado River basin. The FY 2004 capacity rate of $1.17/ kWmonth is approximately an 8percent increase from the existing $1.08/ kWmonth capacity rate. The capacity rate is increasing due to decreased generation ratings resulting from lower lake elevations. Another factor that contributes to the increase in the energy and capacity rates is the increase in the annual base charge.

The following summarizes the steps taken by Western to ensure involvement of all interested parties in determining the Rates:

1. A Federal Register (FR) notice was published on February 27, 2003 (68 FR 9078), announcing the proposed rate adjustment process, initiating a public consultation and comment period, announcing public information and public comment forums, and presenting procedures for public participation.

2. On March 7, 2003, a letter was mailed from Western's Desert Southwest Customer Service Region to the BCP Contractors and other interested parties announcing an informal customer meeting, and public information and comment forums. The BCP Contractors consist of Municipalities in Arizona and Nevada, States Agencies from Arizona, Nevada, and Southern California and an Investor Owned Utility from Southern California.

3. Discussion of the proposed Rates was initiated at an informal BCP Contractor meeting held March 19, 2003, in Phoenix, Arizona. At this informal meeting, representatives from Western and the Bureau of Reclamation (Reclamation) explained the basis for estimates used to calculate the Rates. A question and answer session was held.

4. At the public information forum held on April 1, 2003, in Phoenix, Arizona, Western and Reclamation representatives explained the proposed Rates for FY 2004 in greater detail. A question and answer session was held.

5. A public comment forum was held on April 23, 2003, in Phoenix, Arizona, to give the public an opportunity to comment for the record. Four persons representing customers made oral comments.

6. One comment letter was received during the 90day consultation and comment period. The consultation and comment period ended May 28, 2003. All comments were considered in developing the Rates for FY 2004. Written comments were received from: Irrigation & Electrical Districts Association of Arizona, AZ.

Comments and responses, paraphrased for brevity, are presented below.

Agency Accountability

Comment: The Contractors stressed the importance of accountability, for both Western and the U. S. Bureau of Reclamation, under the implementation agreement processes, and indicated that there appears to be something wrong in the processes. Similarly, concern was expressed over the significant increases
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in Reclamation's costs over the last 8 years, particularly the administrative and general expenses increasing by 128 percent since 1996. The Contractors requested a specific breakdown and itemization of the expenses be provided for discussion at the next engineering and operating committee (E&OC) meeting on May 14, 2003. The E&OC is a committee established by the BCP Implementation Agreement.

Response: Western and Reclamation agreed that each agency has an obligation under the implementation agreement to uphold accountability in all the various processes. Both agencies have stated that they are willing to work with the Contractors to alleviate these concerns. This was an agenda item for discussion at the May 2003 E&OC meeting. Also, Reclamation provided the requested detail of the itemized
administrative and general costs for discussion at the meeting. Congressional Authorization

Comment: The Contractors expressed concern that some security costs resulting from activities made necessary after the September 11, 2001, terrorist attack are not being considered as nonreimbursable costs; specifically, $600,000 identified in Reclamation's budget in FY 2003 for Information Technology (IT) Security. The Contractors believe Congress was very specific in deeming such costs nonreimbursable and providing funding to cover the costs.

Response: Reclamation did receive a supplemental appropriation in FY 2003 for IT security related to counterterrorism, of which $3.3 million was earmarked for IT security ($1.8 million for implementation of the Office of Inspector General's audit recommendation including accreditation and certification, training, and background
investigations, and $1.5 million for implementation of network security improvements including system conversions). Appropriations for physical security, such as guards and surveillance, equipment, etc., are entirely separate from the appropriations for IT security. The $600,000 identified in Reclamation's budget is considered normal IT security costs. It covers Reclamation's perimeter security system (RECNET) assessment, fire walls and intrusion detection, accreditation and certification, and application conversions. Reclamation believes that Ninety thousand dollars ($90,000) of these funds may qualify as non reimbursable and therefore are being submitted for consideration for supplemental funding. If the supplemental funding is obtained, the $600,000 will be reduced by $90,000.

Revenue Transfers

Comment: An interested party representative expressed concern that Western was making a unilateral decision of transferring a portion of revenues from the ParkerDavis Project (PDP) to the BCP without the consent of either the PDP or BCP customers. The interested party indicated that the customers first needed to see the documentation supporting this determination.

Response: Western has the obligation under the BCP Electric Service Contracts to equitably apportion benefits and appropriate charges among the BCP, other Desert Southwest Projects, and other Federal Projects on the Colorado River. Western recognizes the customers' concerns with the methodology that is currently being applied to transmission losses, spinning reserves and regulation revenues. Western has chartered a team to establish a control area accounting methodology that identifies compensation due to all projects. The expected duration of the project is 12 months with an implementation phase to follow. As Western moves further into the project it will hold a meeting to share information and receive input regarding the accounting methodology.

BCP Electric Service Rates

BCP electric service rates are designed to recover an annual revenue requirement that includes the operation and maintenance expenses, payments to States, visitor services, uprating program, replacements, investment repayment, and interest expense. Western's power repayment study allocates the projected annual revenue requirement for electric service between capacity and energy, 50 percent to capacity and 50 percent to energy.

Procedural Requirements

BCP electric service rates are developed under the Department of Energy Organization Act (42 U.S.C. 71017352), through which the power marketing functions of the Secretary of the Interior and the Bureau of Reclamation under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent enactments, 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 project involved, were transferred to and vested in the Secretary of Energy.

By Delegation Order No. 00037.00, effective December 6, 2001, the Secretary of Energy delegated (1) the authority to develop longterm power and transmission rates on a nonexclusive basis to Western's Administrator, (2) the authority to confirm, approve, and place such rates into effect on an interim basis to the Deputy Secretary and (3) the authority to confirm, approve, and place into effect on a final basis, to remand or to disapprove such rates to the FERC. Existing DOE procedures for public participation in electric service rate adjustments are located at 10 CFR part 903, effective September 18, 1985 (50 FR 37835). DOE procedures were followed by Western in developing the rate formula approved by FERC on July 31, 2001, at 96 FERC ] 61,171.

The Boulder Canyon Project Implementation Agreement Contract No. 95PAO10616 requires Western, prior to October 1 of each rate year, to determine the annual rates for the next fiscal year. The rates for the first rate year and each fifth rate year thereafter, will become effective provisionally upon approval by the Deputy Secretary subject to final approval by the FERC. For all other rate years, the rates will become effective on a final basis upon approval by the Deputy Secretary.

Western will continue to provide the Contractors annual rates by October 1 of each year using the same ratesetting formula. The rates are reviewed annually and adjusted upward or downward to assure sufficient revenues to achieve payment of all costs and financial obligations associated with BCP. Each fiscal year, Western prepares a power repayment study that updates actual revenues and expenses and includes future estimates of annual revenues and expenses for the BCP including interest and capitalized costs.

Western's BCP electric service ratesetting formula set forth in Rate Order No. WAPA70 was approved on April 19, 1996, in Docket No. EF965091000 at 75 FERC ] 62,050, for the period beginning November 1, 1995, and ending September 30, 2000. Rate Order No. WAPA94 extended the existing ratesetting formula beginning on October 1, 2000, and ending September 30, 2005. The BCP ratesetting formula includes a base charge, an energy rate, and a capacity rate. The ratesetting formula was used to determine the BCP FY 2004 Base Charge and Rates.

Western proposes the FY 2004 base charge of $51,719,075, the energy rate of 6.46 mills/kWh, and the capacity rate of $1.17/kWmonth be approved on a final basis.

Consistent with procedures set forth in 10 CFR part 903, Western held a consultation and comment period. The
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notice of the proposed FY 2004 Rates for electric service was published in the Federal Register on February 27, 2003.

Following review of Western's proposal, I approve the FY 2004 Rates, on a final basis for BCP electric service, under Rate Schedule BCPF6, through September 30, 2004.

Dated: August 14, 2003.
Kyle E. McSlarrow,
Deputy Secretary.
[FR Doc. 0321776 Filed 82503; 8:45 am]
BILLING CODE 645001P

FOR FURTHER INFORMATION CONTACT Mr. Jack Murray, Rates Team Lead, Desert Southwest Customer Service Region, Western Area Power Administration, PO Box 6457, Phoenix, AZ 850056457, telephone (602) 3522442, email jmurray@wapa.gov.