Boulder Canyon Project-Base Charge and Rates

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of base charge and rates.

SUMMARY:

The Secretary of the Department of Energy (DOE) has approved Rate Schedule BCP-F6, FY 2003 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.

DATES:

The Rates will be effective the first day of the first full billing period beginning on or after October 1, 2002. These Rates will stay in effect through September 30, 2003, or until other Rates replace them.

FOR FURTHER INFORMATION CONTACT:

Ms. Gloria Jordan, Public Utilities Specialist, Western Area Power Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, telephone (602) 352-2649, e-mail jordan@wapa.gov.

SUPPLEMENTARY INFORMATION:

The Deputy Secretary of Energy approved the existing Rate Schedule BCP-F6 for BCP electric service on September 18, 2000 (Rate Order No. WAPA-94, 65 FR 60933, October 13, 2000), on an interim basis, effective on October 1, 2000, through September 30, 2005, that allowed for an annual recalculation of the rates. On July 31, 2001, the Federal Energy Regulatory Commission (FERC) approved Rate Order No. WAPA-94 on a final basis.

Under Rate Schedule BCP-F6, the existing composite rate, effective on October 1, 2001, was 10.32 mills per kilowatthour (mills/kWh), the base charge was $48,039,988, the energy rate was 5.33 mills/kWh, and the capacity rate was $0.99 per kilowattmonth (kWmonth). The newly calculated Rates for BCP electric service to be effective October 1, 2002, will result in an overall composite rate of 11.16 mills/kWh. This is an increase of approximately 8 percent when compared with the existing BCP electric service composite rate. The increase is due to an increase in the annual revenue requirement and a projected lower water year from the previous year that results in reduced energy sales. The FY 2003 base charge is increasing to $50,761,729. The increase is due mainly to higher operation and maintenance expenses, replacement costs, replenishing the working capital fund, and a reduction in revenues from reduced tour ticket sales at the Hoover Dam following the September 11, 2001, terrorist attack. The FY 2003 energy rate of 5.58 mills/kWh is approximately a 5-percent increase from the existing energy rate of 5.33 mills/kWh. The FY 2003 capacity rate of $1.08/kWmonth is approximately a 9-percent increase from the existing $0.99/kWmonth capacity rate.

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

1. On February 13, 2002, 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 public comment forums.

2. A Federal Register (FR) notice was published on February 27, 2002 (67 FR 8964), 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.

3. Discussion of the proposed Rates was initiated at an informal BCP Contractor meeting held March 21, 2002, 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 4, 2002, in Phoenix, Arizona, Western and Reclamation representatives explained the proposed Rates for FY 2003 in greater detail. A question and answer session was held.

5. A public comment forum was held on April 25, 2002, in Phoenix Arizona, to give the public an opportunity to comment for the record. Three persons representing customers made oral comments.

6. Two comment letters were received during the 90-day consultation and comment period. The consultation and comment period ended May 28, 2002. All comments were considered in developing the Rates for FY 2003. Written comments were received from: Irrigation & Electrical Districts Association of Arizona, Metropolitan Water District of Southern California.

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

Civil Service Retirement Costs

Comment: The Contractors are requesting Western and DOE reexamine the issue of including full civil service retirement costs in the BCP Rates. The Contractors have expressed that the pending legislation S. 1612, clearly demonstrates that no authority exists in law for DOE to collect these costs.

Response: Western began collecting the full costs (including the Office of Personnel Management funded portion) of the Civil Service Retirement System and other post-retirement benefits in the BCP rates after the issuance of a legal opinion from the DOE General Counsel dated July 1, 1998. The FERC approved the collection of these costs on July 31, 2001 (96 FERC ¶ 61,171). Although pending legislation (S. 1612, Section 201) has been proposed in Congress addressing full funding of Federal retiree costs, Western and DOE believe this legislation does not address the recovery of such costs by the Power Marketing Administrations through rates. Therefore, at this time, Western will continue to include these costs in its rate-setting power repayment study.

Non-reimbursable Costs

Comment: The Contractors expressed concern that the increase in security costs and the lost revenues from reduced tourism at the Hoover Dam Visitor Center due to the September 11, 2001, terrorist attack, should be treated as non-reimbursable.

Response: A memorandum dated April 4, 2002, from John W. Keys, III, Commissioner of Reclamation, established that supplemental appropriations received in response to the September 11, 2001, attacks for security at Hoover Dam and future expenditures for counter-terrorism measures should be considered non-reimbursable costs. Other costs associated with the security of the facilities and the lost revenues due to reduced tourism at Hoover Dam are considered reimbursable. Western has not received any appropriations to respond to post September 11th security concerns. If Western does, it will make a determination at that time with regard to the reimbursability of the expenses.

Allocation of Specific Costs

Comment: A Contractor requested Western provide the cost allocation methodology for Hoover-related common facilities at Mead Substation such as the Arizona and Nevada switchyard, potable water and fire system, Buchanan Boulevard, and any other transmission-related costs.

Response: Western presented a proposal, at the Engineering and Operating Committee (E&OC) meeting held May 15, 2002, for allocating future construction costs related to common facilities at Mead Substation. Several Contractors provided feedback and suggestions for Western to consider prior to proceeding forward. Western will continue to work with the Contractors through the E&OC in developing an equitable cost allocation methodology for common facilities at Mead Substation. Western will present the revisions to the proposed cost allocation methodology at the next quarterly E&OC meeting scheduled for October 16, 2002. Any resulting change in the costs allocated to BCP for the Mead Substation will be addressed in future rate processes.

Uprating Credit Program Discrepancies

Comment: A Contractor expressed concerns about the discrepancies in the administration of the uprating credits that still exist under the uprating program. A request was made for Western to hold another meeting in mid-June to resolve the outstanding issues.

Response: Western held a meeting with the Contractors on June 27, 2002. The outstanding issues were resolved.

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. 7101-7352), 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, acting by and through Western.

By Delegation Order No. 00-037.00, effective December 6, 2001, the Secretary of Energy delegated (1) the authority to develop long-term power and transmission rates on a non-exclusive basis to Western's Administrator, (2) the authority to confirm, approve, and place such rates into effect on a 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. 95-PAO-10616 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, shall become effective provisionally upon approval by the Deputy Secretary of Energy subject to final approval by the FERC. For all other rate years, the rates shall become effective on a final basis upon approval by the Deputy Secretary of Energy.

Western will continue to provide the Contractors annual rates by October 1 of each year using the same rate-setting 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 the project. 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 rate-setting formula set forth in Rate Order No. WAPA-70 was approved on April 19, 1996, in Docket No. EF96-5091-000 at 75 FERC ¶ 62,050, for the period beginning November 1, 1995, and ending September 30, 2000. Rate Order No. WAPA-94 extended the existing rate-setting formula beginning on October 1, 2000, and ending September 30, 2005. The BCP rate-setting formula includes a base charge, an energy rate, and a capacity rate. The rate-setting formula was used to determine the BCP FY 2003 Base Charge and Rates.

Western proposes the FY 2003 base charge of $50,761,729, the energy rate of 5.58 mills/kWh, and the capacity rate of $1.08/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 notice of the proposed FY 2003 Rates for electric service was published in the Federal Register on February 27, 2002.

Following review of Western's proposal within DOE, I approve, in the absence of a Deputy Secretary, the FY 2003 Rates, on a final basis for BCP electric service, under Rate Schedule BCP-F6, through September 30, 2003.