Federal Register: NOTICES Power rates:: The Central Valley Project-Rate Order No. WAPA-128

DEPARTMENT OF ENERGY

Western Area Power Administration

NOTICE: NOTICES

ACTION: Power rates:

DOCUMENT ACTION: Notice of Order Concerning Reactive Power and Voltage Control Revenue Requirement Component.

SUBJECT CATEGORY: The Central Valley Project-Rate Order No. WAPA-128

DATES: Rate Schedules CV-F12, CV-T2, CV-NWT4, PACI-T2, and COTP-T2 will be placed into effect on an interim basis on the first day of the first full billing period beginning on or after September 1, 2006, and will be in effect until the Commission confirms, approves, and places the rate schedules in effect on a final basis through September 30, 2009, or until the rate schedules are superseded.

DOCUMENT SUMMARY: The Deputy Secretary of Energy confirmed and approved Rate Order No. WAPA128 and Rate Schedules CVF12, CVT2, CVNWT4, PACIT2, and COTPT2 that revise the Transmission Revenue Requirement (TRR) associated with Reactive Power and Voltage Control from the Central Valley Project (CVP) and other nonFederal Generation Sources Service (VAR Support) and place new formula rates into effect on an interim basis. The provisional formula rates will be in effect until the Federal Energy Regulatory Commission (Commission) confirms, approves, and places them into effect on a final basis or until replaced by other rates. The provisional rates will provide sufficient revenue to pay all annual costs, including interest expense, and repay power investment and irrigation aid, within the allowable periods.

SUMMARY: Central Valley Project,

SUPPLEMENTAL INFORMATION

The current formula rates for transmission service on the CVP (CVT1 and CVNWT3), the Pacific Alternating Current Intertie (PACI) (PACIT1), and the CaliforniaOregon Transmission Project (COTP) (COTPT1) transmission systems are based on a TRR that includes CVP and other nonFederal generator costs for providing VAR Support. This rate adjustment will remove the VAR Support (also known as reactive power) costs from the TRR. The Western Area Power Administration (Western) will collect the revenue requirement for CVP VAR Support costs in the power revenue requirement (PRR) under power rate schedule CVF12.

The Deputy Secretary of Energy approved existing Rate Schedules CV T1, CVNWT3, PACIT1, and COTPT1 for transmission service and CVF11 for Base Resource and First Preference Power on November 18, 2004 (Rate Order No. WAPA115, 69 FR 70510, December 6, 2004), and the Commission confirmed and approved the rate schedules on October 11, 2005, under FERC Docket No. EF05011000 (113 FERC ] 61,026). The existing rate schedules are effective from January 1, 2005, through September 30, 2009.

The April 1, 2006, update of the approved transmission rates resulted in annual CVP VAR Support costs of $358,374. Western's Sierra Nevada Region (SNR) currently estimates its annual costs associated with the CVP and other nonFederal generator VAR Support to be $1,221,240. This increase in cost is attributable to the inclusion of nonFederal generator VAR Support costs that SNR began paying in December 2005. VAR Support costs are assigned pro rata to the respective transmission systems on a capacity basis and are one of the cost components contained in Component 1 of the CVP, PACI, and COTP formula rates.

In implementing Western's Open Access Transmission Tariff (OATT), Western separated its merchant function from Western's reliability function. All generators connected to Western's transmission system have an obligation to provide reactive power within the bandwidth (commonly referred to as the deadband) as a part of their obligation to maintain interconnected transmission system reliability. By including CVP reactive power and voltage control costs in SNR's TRR, SNR in certain circumstances, may be treating its merchant in a manner not comparable with other transmission customers. Under SNR's current rates, all transmission customers, including a transmission customer with a generator directly connected to SNR's system, are obligated to pay SNR for the cost of VAR Support. As a result, a transmission customer with a generation interconnection with SNR that provides VAR Support according to the Western Electric Coordinating Council reliability requirements would also be paying SNR for CVP VAR Support; however, SNR would not be paying such a transmission customer. Western believes that both Federal generators and nonFederal generators should be treated comparably when they provide VAR Support.

To mitigate the current comparability discrepancy between Federal and nonFederal generators, SNR asked for comments from interested parties on whether SNR should:
(1) Take no action and continue with the existing rate, (2) roll all VAR Support costs from both types of generators into SNR's TRR, or (3) exclude all VAR Support from both types of generators from SNR's TRR. SNR proposed to exclude all VAR Support costs from SNR's TRR (71 FR 10666, March 2, 2006). After considering comments received, SNR recommended implementation of the third option to the Deputy Secretary of the Department of Energy (DOE).

As part of a settlement agreement approved by the Commission on February 29, 2006, in FERC Docket No. ER05912000, Calpine
Construction Finance Company, L.P. (114 FERC ] 61,217), SNR agreed to pay the Calpine Construction Finance Company (CCFC) for reactive power subject to the outcome of this rate proceeding. Currently, CCFC is the only nonFederal, interconnected generator being compensated by SNR for VAR Support under the settlement agreement. SNR intends to mitigate this disparity and treat every generator directly connected to SNR's transmission system in a comparable fashion. One reason for this decision is that SNR cannot determine the cost that SNR would be required to pay in the future for all the costs associated with all such facilities. The obligation to provide such payments could create an open, indefinite, and undefined future liability for SNR. Under the AntiDeficiency Act, 31 U.S.C. 1341, Western cannot commit to paying an open, indefinite future obligation. On the other hand, if SNR excludes both the Federal and nonFederal generator costs for VAR Support in the TRR, it would ultimately fall to the customers who purchase power from the generator to pay for such costs. Customers who receive power from SNR, through Rate Schedule CVF11, currently pay VAR Support costs in the PRR including the VAR Support associated with network service. Also included are VAR Support costs associated with the Rate Schedules PACI T1 and COTPT1 if not recovered from contracted sales. By excluding the VAR Support component from the TRR, SNR can accurately determine the costs associated with transmission service. Furthermore, Western has a statutory duty to ensure that its rates are the
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lowest cost possible consistent with sound business principles under Delegation Order No. 00037.00. While SNR's power customers would be obligated to pay SNR for all costs associated with reactive power from the generators in its power rates, the overall cost to SNR's power customers would be lower and more predictable since they are paying for only the costs associated with the Federal generators. Excluding all reactive power costs for SNR's TRR is consistent with Western's statutory duties, therefore, SNR has adopted option 3. SNR has compensated CCFC beginning in December 2005 for reactive power costs within the deadband. This rate action will terminate these payments.

This rate action is consistent with a recent Commission order denying rehearing in Entergy Services, Inc., Docket No. EL05149001 (114 FERC ] 61,303). This order articulated the Commission's position that compensation for reactive power is based on comparability principles. The Commission emphasized that an interconnecting generator should not be compensated for reactive power when operating its generating facility within the specified deadband (+/95 percent) since it is only meeting its reliability and interconnection obligations. The transmission owner would be violating the comparability standard only if it compensated its own generating units for providing reactive power and did not compensate the thirdparty generators. By excluding VAR Support from the TRR, no transmission customers, including thirdparty generators, are required to pay for VAR Support. Therefore, SNR does not plan to compensate thirdparty generators interconnected with its transmission system for VAR Support. This outcome is both consistent with Western's statutory duties and with the Commission's comparability standard. CCFC and/or other generators that are or may be
interconnected with Western's transmission system will continue to recover their costs (real and reactive) as a bundled product or market based rate as CCFC did prior to its comparability filing at the Commission.

Under the 2004 Power Marketing Plan, Base Resource and First Preference power is primarily CVP hydrogeneration available subject to water conditions and operating constraints. The Base Resource and First Preference power formula rates recover a PRR through an allocation of percentages of costs to First Preference and Base Resource Customers.

Component 1 of the PRR for Base Resource and First Preference Power, as approved in the rate schedule (CVF11), includes operations and maintenance (O&M), purchased power for project use and First Preference Customer loads, interest expense, annual expenses (including any other statutorily required costs or charges), investment repayment for the CVP, and the Washoe Project annual PRR that remains after project use loads are met. Revenues from project use, transmission, ancillary services, and other services are applied to the total PRR and the remainder is collected from Base Resource and First Preference Customers.

The provisional rate formula change for CVF12 for the Base Resource and First Preference PRR results in a .04 percent decrease when compared to the fiscal year (FY) 2006 PRR.

By Delegation Order No. 00037.00, effective December 6, 2001, the Secretary of Energy delegated: (1) The authority to develop power and transmission rates to Western's Administrator, (2) the authority to confirm, approve, and place such rates into effect on an interim basis to the Deputy Secretary of Energy, and (3) the authority to confirm, approve, and place into effect on a final basis to remand or to disapprove such rates to the Commission. Existing DOE procedures for public participation in power rate adjustments (10 CFR part 903) were published on September 18, 1985.

Under Delegation Order Nos. 00037.00 and 00001.00B, and in compliance with 10 CFR part 903, and 18 CFR part 300, I hereby confirm, approve, and place Rate Order No. WAPA128, the CVP power, and CVP, PACI, and COTP transmission service formula rates into effect on an interim basis. The new Rate Schedules CVT2, CVNWT4, PACIT2, COTPT2, and CVF12 will be promptly submitted to the Commission for confirmation and approval on a final basis.

Dated: July 26, 2006.
Clay Sell,
Deputy Secretary.
Department of Energy, Deputy Secretary
In the matter of: Western Area Power Administration; Rate Adjustment for the Central Valley Project, the California Oregon Transmission Project, and the Pacific Alternating Current Intertie
[Rate Order No. WAPA128]
Order Confirming, Approving, and Placing the Central Valley Project Power Rates, the Central Valley Project, the CaliforniaOregon Transmission Project, and the Pacific Alternating Current Intertie Transmission Rates Into Effect on an Interim Basis

This rate was established in accordance with section 302 of the Department of Energy (DOE) Organization Act, (42 U.S.C. 7152). This Act transferred to and vested in the Secretary of Energy the power marketing functions of the Secretary of the U.S. Department of the Interior, Bureau of Reclamation (Reclamation) under the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent laws, particularly section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)), and other Acts that specifically apply to the project involved.

Acronyms and Definitions

As used in this Rate Order, the following acronyms and definitions apply:
2004 Power Marketing Plan: The 2004 CVP Power Marketing Plan (64 FR 34417) effective January 1, 2005.
Administrator: The Administrator of the Western Area Power Administration.
Ancillary Services: Those services necessary to support the transfer of electricity while maintaining reliable operation of the transmission provider's transmission system in
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accordance with standard utility practice.
Base Resource: The Central Valley and Washoe Project power output and existing power purchase contracts extending beyond 2004 as determined by Western to be available for marketing after meeting the requirements of Project Use and First Preference Customers and any adjustments for maintenance, reserves, transformation losses, and certain ancillary services.

FOR FURTHER INFORMATION CONTACT Mr. James D. Keselburg, Regional Manager, Sierra Nevada Customer Service Region, Western Area Power Administration, 114 Parkshore Drive, Folsom, CA 956304710, (916) 353 4418, or Mr. Sean Sanderson, Rates Manager, Sierra Nevada Customer Service Region, Western Area Power Administration, 114 Parkshore Drive, Folsom, CA 956304710, (916) 3534466, email: sander@wapa.gov.