Central Arizona Project-Rate Order No. WAPA-124

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of order concerning transmission service rates.

SUMMARY:

The Deputy Secretary of Energy confirmed and approved Rate Order No. WAPA-124 and Rate Schedules CAP-FT2, CAP-NFT2, and CAP-NITS2, placing transmission rates from the Central Arizona Project (CAP) of the Western Area Power Administration (Western) into effect on an interim basis. The provisional 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 they are replaced by other rates. The provisional rates will provide sufficient revenue to pay all annual costs, including interest expense, and repayment of power investment, within the allowable periods.

DATES:

Rate Schedules CAP-FT2, CAP-NFT2, and CAP-NITS2 will be placed into effect on an interim basis on the first day of the first full billing period beginning on or after January 1, 2006, and will be in effect until the Commission confirms, approves, and places the rate schedules in effect on a final basis through December 31, 2010, or until the rate schedules are superseded.

FOR FURTHER INFORMATION CONTACT:

Mr. J. Tyler Carlson, Regional Manager, Desert Southwest Customer Service Region, Western Area Power Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, (602) 605-7348, e-mail carlson@wapa.gov, or Mr. Jack D. Murray, Rates Team Lead, Desert Southwest Customer Service Region, Western Area Power Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, (602) 605-2442, e-mail jmurray@wapa.gov.

SUPPLEMENTARY INFORMATION:

The Deputy Secretary of Energy approved Rate Schedules CAP-FT1, CAP-NFT1, and CAP-NITS1 for transmission service on December 11, 2000 (Rate Order No. WAPA-88, 65 FR 77368, December 11, 2000). The Commission confirmed and approved the rate schedules on July 31, 2001, in FERC Docket No. EF01-5111-000. The existing rate schedules CAP-FT1, CAP-NFT1, and CAP-NITS1 are effective from January 1, 2001, through December 31, 2005.

The existing rate schedules are being superseded by rate schedules CAP-FT2, CAP-NFT2, and CAP-NITS2. The provisional formula rates for point-to-point transmission service and Network Integration Transmission Service (NITS) on the CAP 115kV and 230-kV transmission lines are based on the calculation of a revenue requirement that recovers the CAP 115kV and 230-kV transmission lines costs for facilities associated with providing transmission service and the non-facilities costs allocated to transmission service. These rate formulas include costs for scheduling, system control, and dispatch service. The provisional rates for point-to-point transmission service on the CAP 115-kV/230-kV transmission system are determined by combining the average annual amortization costs with the average annual operations and maintenance costs, and dividing them by the average annual contract rate of delivery for the 5-year period FY 2006-FY 2010.

The revised formula rates reflect a 2.87-percent decrease for 2006 when compared to the existing CAP transmission rates, which expire December 31, 2005. The decrease in the firm point-to-point rate is the result of increased transmission reservations combined with relatively stable expenses since the approval of Rate Order WAPA-88. Implementation of the revised formula rates will result in a firm transmission service rate of $9.55 per kilowattyear for 2006.

NITS allows a transmission customer to integrate, plan, economically dispatch, and regulate its network resources to serve its native load in a way comparable to how a transmission provider uses its own transmission system to service its native load customers. The monthly charge methodology for NITS on the CAP 115-kV and 230-kV transmission lines is the product of the transmission customer's load-ratio share times one-twelfth of the annual transmission revenue requirement. The customer's load-ratio share is calculated on a rolling 12-month basis. The customer's load-ratio share is equal to that customer's hourly load coincident with the CAP 115-kV and 230-kV transmission lines monthly transmission system peak divided by the resultant value of the CAP 115-kV and 230-kV transmission lines monthly transmission system peak minus the CAP 115-kV and 230-kV transmission lines coincident peak for all firm point-to-point transmission service plus the CAP 115-kV and 230-kV transmission lines firm point-to-point transmission service reservations.

By Delegation Order No. 00-037.00, 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. 00-037.00 and 00-001.00B, and in compliance with 10 CFR part 903, and 18 CFR part 300, I hereby confirm, approve, and place Rate Order No. WAPA-124, the proposed formula rate for CAP transmission, into effect on an interim basis. The new Rate Schedules CAP-FT2, CAP-NFT2, and CAP-NITS2, will be promptly submitted to the Commission for confirmation and approval on a final basis.

DEPARTMENT OF ENERGY

Deputy Secretary

[Rate Order No. WAPA-124]

In the Matter of: Western Area Power Administration Rate Adjustment for the Central Arizona Project. Order Confirming, Approving, and Placing the Central Arizona Project Transmission Service 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 Department 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 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.

By Delegation Order No. 00-037.00, 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.

Acronyms and Definitions

As used in this rate order, the following acronyms and definitions apply:

Administrator: The Administrator of the Western Area Power Administration (Western).

BATO: Balancing Authority and Transmission Operations area. Formerly referred to as a Control Area.

Capacity: The electric capability of a generator, transformer, transmission circuit, or other equipment. It is expressed in kW.

CAP: Central Arizona Project, one of three related water development projects that make up the Colorado River Basin Project.

Commission: Federal Energy Regulatory Commission.

CROD: Contract rate of delivery. The maximum amount of capacity made available to a customer for a period specified under a contract or service agreement.

Customer: An entity with a contract [BF8] or service agreement that is receiving service from Western's Desert Southwest Region.

CY: Calendar year; January 1 through December 31.

DOE: United States Department of Energy.

DOE Order RA 6120.2: An order dealing with power marketing administration financial reporting and ratemaking procedures.

Energy: Measured in terms of the work it is capable of doing over a period of time. It is expressed in kilowatthours.

FERC: The Commission (to be used when referencing Commission Orders).

Firm: A type of product and/or service available at the time requested by the customer.

Formula Rates: A rate which is based upon a formula calculated yearly.

FY: Fiscal year; October 1 to September 30.

kV: Kilovolt—the electrical unit of measure of electric potential that equals 1,000 volts.

kW: Kilowatt—the electrical unit of capacity that equals 1,000 watts.

kWmonth: Kilowattmonth—the electrical unit of the monthly amount of capacity.

kWh: Kilowatthour—the electrical unit of energy that equals 1,000 watts in 1 hour.

mill: A monetary denomination of the United States that equals one tenth of a cent or one thousandth of a dollar.

NEPA: National Environmental Policy Act of 1969 (42 U.S.C. 4321, et seq.).

NITS: Network Integration Transmission Service.

Non-firm: A type of product and/or service not always available at the time requested by the customer.

O&M: Operation and Maintenance.

Power: Capacity and energy.

Reclamation: United States Department of the Interior, Bureau of Reclamation.

Revenue Requirement: The revenue required to recover annual expenses (such as O&M, transmission service expenses, interest, deferred expenses) and repayment of Federal investments, and other assigned costs.

SCADA: Supervisory Control and Data Acquisition.

WALC: Western Area Lower Colorado BATO, operated by Desert Southwest Region.

Western: United States Department of Energy, Western Area Power Administration.

Effective Date

The new interim rates will take effect on the first day of the first full billing period beginning on or after January 1, 2006, and will remain in effect until December 31, 2010, pending approval by the Commission on a final basis.

Public Notice and Comment

Western followed the Procedures for Public Participation in Power and Transmission Rate Adjustments and Extensions, 10 CFR part 903, in developing these rates. The steps Western took to involve interested parties in the rate process were:

1. On June 22, 2005, Western mailed a notice announcing an informal meeting, which was held July 12, 2005. At this informal meeting, Western explained the rationale for the rate adjustment, presented rate designs and methodologies, and answered questions.

2. A Federal Register notice published on July 1, 2005 (70 FR 38130), announced the proposed rates for the Central Arizona Project, began a public consultation and comment period, and announced the public information and public comment forums.

3. On July 18, 2005, Western's Desert Southwest Region mailed letters to all the Central Arizona Project customers and interested parties transmitting the Brochure for Proposed Rates and the Federal Register notice published on July 1, 2005.

4. On July 21, 2005, Western mailed data to the Central Arizona Project customers and interested parties, in response to customers' data request at the informal customer meeting.

5. On July 22, 2005, beginning at 10 a.m., Western held a public information forum at the Desert Southwest Regional office in Phoenix, Arizona. Western provided detailed explanations of the proposed rates for CAP, and a list of issues that could affect the proposed rates. Western also answered questions, provided rate brochures, supporting documentation, and informational handouts.

6. On August 22, 2005, beginning at 1 p.m., Western held a comment forum to give the public an opportunity to comment for the record. There were no comments at this forum.

7. Western received one comment letter during the consultation and comment period, which ended September 29, 2005. All formally submitted comments have been considered in preparing this Rate Order.

Comments

Written comments were received from the following organizations: Central Arizona Water Conservation District.

Project Description

The CAP was authorized by passage of the Colorado River Basin Project Act (Act of September 30, 1968, Pub. L. 90-537, 82 Stat. 885) for the purposes of furnishing irrigation water and municipal water supplies to the water-deficient areas of Arizona and western New Mexico through direct diversion or exchange of water, conservation and development of fish and wildlife resources, enhancement of recreation opportunities, and for other purposes.

The Secretary of the Interior was directed to construct, operate and maintain the CAP, consisting of the following principal works: (1) A system of main conduits and canals, including a main canal and pumping plants for diverting and carrying water; (2) water storage facilities and power-pumping plants; (3) aqueducts and pumping plants; (4) related canals, regulating facilities, hydroelectric power plants, and electrical transmission facilities required for the operation of said principal works; (5) related water distribution and drainage works; and (6) appurtenant works.

The Colorado River Basin Project Act also authorized Federal participation with non-Federal interests for construction, operation, and maintenance of a thermal generating power plant (Navajo Generating Station or NGS) whereby the United States acquired the rights to plant capacity, including the delivery of power and energy over appurtenant transmission facilities to mutually agreed upon delivery points, as the Secretary of the Interior determines is required to provide pumping power for the CAP.

When not required for the CAP, the NGS power and energy may be disposed of by the Secretary of the Interior for other purposes at such prices the Secretary determines, including its marketing in conjunction with the sale of power and energy from Federal power plants in the Colorado River system, so as to produce the greatest practicable amount of power and energy that can be sold at firm power and energy rates.

On August 4, 1977, the Department of Energy Organization Act (Pub. L. 95-91, 91 Stat. 565; 42 U.S.C. 7101) was signed into law, establishing the DOE. Section 302(a)(3) of the Act created Western within DOE. Section 302(a)(1)(E) transferred the power marketing functions of the Bureau of Reclamation, including the construction, operation, and maintenance of transmission lines and attendant facilities to the DOE.

Transmission Rate Methodology Study

Western prepared a transmission rate methodology study to ensure that transmission service rates are adequate to recover the costs associated with providing transmission service on the CAP 115/230-kV transmission system. The design includes all transmission expenses and associated offsetting revenues.

Western reviews the CAP rate design each year to determine if revenues will be sufficient to repay, within the required time, all costs assigned to the Central Arizona Project revenues. Repayment criteria are based on law, policies including DOE Order RA 6120.2, and authorizing legislation.

The revised firm transmission rate for CAP firm transmission reflects an overall rate decrease of approximately 2.87 percent for 2006 when compared to the existing CAP firm transmission rate in Rate Schedule CAP-FT1.

Western's revised rate formula will be used to calculate rates annually for all current and future CAP transmission service. The current CAP transmission rate formula became effective on January 1, 2001. The current CAP rate under WAPA Rate Order No. 88 will expire December 31, 2005. The revised transmission rate formula is expected to be effective January 1, 2006, through December 31, 2010. These rate formulas include costs for scheduling, system control, and dispatch service.

The methodology is an annual formula that will divide the average annual transmission revenue requirement by the average annual transmission reservations to determine the rate for firm point-to-point transmission service. The annual transmission revenue requirement includes O&M expenses, administrative and general expenses, investment costs, and interest expense. This revenue requirement is offset by any CAP transmission system revenue credits, such as revenue from non-firm or short-term sales, to determine the net revenue requirement.

Firm Point-to-Point

Western seeks approval of the rate design formula to calculate the transmission rate to be applied annually. Using this formula, the provisional rate for firm CAP transmission service is $9.55 per kW-year for 2006, a 2.87-percent decrease from the existing transmission rate of $9.83 per kW-year, which became effective January 1, 2001. The decrease is due to transmission capacity reservations increasing more rapidly than increases in total annual costs. The rate formula is calculated annually, using the most recent 5-year projections of total expenses and revenues. If needed, a revised rate will become effective each January 1. The proposed rate formula would be effective January 1, 2006, through December 31, 2010.

The cost/kW-year is calculated using the following two-step formula:

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Where:

ARR = Annual Revenue Requirement. The costs associated with facilities that support the transfer capability of the CAP transmission system, excluding generation facilities. These costs include investment costs, interest expense, administrative and general expenses, and operation and maintenance expense. The revenue requirement for CAP is based on projected average costs for the upcoming 5-year rate-setting period.

TRC = Transmission Revenue Credits. The revenues generated by the CAP transmission system not related to the revenues from the sale of long-term firm transmission.

NARR = Net Annual Transmission Revenue Requirement. The Annual Revenue Requirement minus Transmission Revenue Credits.

TSTL = CAP Transmission System Total Load. The sum of the total average CAP transmission capacity under long-term reservation, including the total network integration loads at system peak for the upcoming 5-year rate-setting period.

Nonfirm Point-to-Point

The proposed rate for nonfirm point-to-point CAP transmission service is a mills/kWh rate, based upon the current firm point-to-point rate and may be discounted. This rate will remain in effect for the same period as the firm point-to-point rate and will also be reviewed annually. The provisional rate for CAP non-firm transmission service is based on the current CAP firm point-to-point transmission rate. The provisional rate is expressed in mills/kWh and is a maximum of 1.09 mills/kWh for 2006. Transmission availability will be posted on Western's OASIS.

Network Integration Transmission Service

The proposed rate for network transmission is a formula calculation based upon the annual transmission revenue requirement. There are no changes to the existing network integration transmission service formula under Rate Schedule CAP-NITS2.

NITS allows a transmission customer to integrate, plan, economically dispatch, and regulate its network resources to serve its native load in a way comparable to how a transmission provider uses its own transmission system to service its native load customers. The monthly charge methodology for NITS on the CAP 115-kV and 230-kV transmission lines is the product of the transmission customer's load-ratio share times one-twelfth of the annual transmission revenue requirement. The customer's load-ratio share is calculated on a rolling 12-month basis. The customer's load-ratio share is equal to that customer's hourly load coincident with the CAP 115-kV and 230-kV transmission lines monthly transmission system peak divided by the resultant value of the CAP 115-kV and 230-kV transmission lines monthly transmission system peak minus the CAP 115-kV and 230-kV transmission lines coincident peak for all firm point-to-point transmission service plus the CAP 115-kV and 230-kV transmission lines firm point-to-point transmission service reservations.

The proposed revenue requirement includes the costs for scheduling, system control, and dispatch service. The reactive supply and voltage control ancillary service must be purchased from the WALC BATO. The transmission customer may self-supply the four remaining ancillary services or request them from WALC. These four ancillary services are regulation and frequency response service, energy imbalance service, spinning reserve service, and supplemental reserve service. The rates for these ancillary services are set forth in Rate Schedules DSW-SD1, DSW-RS1, DSW-EI1, DSW-FR1, DSW-SPR1, and DSW-SUR1. Western is currently engaged in a public process to implement new Rates Schedules for ancillary services, which are expected to be effective April 1, 2006.

Certification of Rates

Western's Administrator certified that the provisional rates for CAP transmission service are the lowest possible rates consistent with sound business principles. The provisional rates were developed following administrative policies and applicable laws.

Basis for Rate Development

According to Reclamation Law, Western must establish transmission rates sufficient to recover operation, maintenance, purchased power and interest expenses, and repayment of investment.

The existing rate for CAP firm transmission under Rate Schedule CAP-FT1 expires December 31, 2005. Effective January 1, 2006, Rate Schedule CAP-FT1 will be superseded by the new rates in Rate Schedule CAP-FT2. The provisional rate for CAP firm point-to-point transmission is $9.55 per kW per year.

Statement of Revenue and Related Expenses

The following table provides a summary of projected revenue and expense data for the CAP firm transmission rate through the 5-year provisional rate approval period.

The cost data reflects an increase in total costs when comparing the existing rates to the proposed rates. The increases in total costs, however, are outpaced by increases in total transmission reservations, resulting in a proposed rate decrease of 2.87 percent effective January 1, 2006.

Comments

The comments and responses regarding the firm transmission rate, paraphrased for brevity when not affecting the meaning of the statement(s), are discussed below. Direct quotes from comment letters are used for clarification where necessary. The rate process issues discussed are, (1) Central Arizona Water Conservation District (CAWCD) O&M costs, (2) Western expenses to the CAP transmission system, and (3) capital additions and replacements.

1. CAWCD O&M Costs

Comment: The CAWCD representative strongly supports including the costs identified during the public process. However, there are other CAP transmission system O&M costs incurred by CAWCD, in addition to the McCullough O&M charge, which are not reflected in Western's rate review.

Response: Western has committed to continue to work with CAWCD to ensure that costs appropriately attributed to the CAP 115/230-kV transmission system will be included in the rate calculation. O&M expenses incurred by CAWCD to aid in maintaining the Federal transmission system are appropriately included in the transmission rate. Costs will be reviewed annually as part of the annual review to determine adequacy of the transmission rate.

2. Western Expenses to the CAP Transmission System

Comment: The CAWCD representative indicated the CAP transmission line miles and SCADA point values that are used to allocate costs for transmission system studies (“STUDM” costs) and costs for assets providing benefit to multiple power systems (“RENTM” costs), respectively, are too high and should be adjusted.

Response: Western has responded to CAWCD's review of the allocation practices and stated that adjustments will be made where appropriate in FY 2006. Any resulting increase or decrease in the revenue requirement which results in an over or under collection will be accounted for in the subsequent year.

3. Capital Additions and Replacements in Rate

Comment: The CAWCD representative indicated that Western's July 2005 rate adjustment brochure states that no capital additions or replacements are projected for FY 2006 through FY 2010. The customer believes the brochure statement to be untrue, and anticipates annual costs for capital additions or replacements in FY 2007 and beyond to average at least $500,000. Those costs should be included in the CAP transmission rate methodology. CAWCD encourages Western to modify the proposed CAP transmission rate to be charged for CY 2006 to include projections for new capital investments.

Response: Western is working with CAWCD and the Bureau of Reclamation to ensure appropriate amortization costs for capitalized replacements or additions are included in the rate calculation. Based on reviews of available data, Western has included an estimate of $625,000 in replacements for the rate to be charged in CY 2006. In the event capitalized replacements or additions are added to plant-in-service in a given year, and the amortization costs (principal and interest) were not included in the rate calculation, they will be included in the subsequent year.

Availability of Information

Information about this rate adjustment, including power repayment studies, comments, letters, memorandums, and other supporting material made or kept by Western to develop the provisional rates, is available for public review in the Desert Southwest Customer Service Region, Western Area Power Administration, 615 South 43rd Avenue, Phoenix, Arizona.

Regulatory Procedure Requirements

Regulatory Flexibility Analysis

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601, et seq.) requires Federal agencies to perform a regulatory flexibility analysis if a final rule is likely to have a significant economic impact on a substantial number of small entities and there is a legal requirement to issue a general notice of proposed rulemaking. Western has determined that this action does not require a regulatory flexibility analysis since it is a rulemaking of particular applicability involving rates or services applicable to public property.

Environmental Compliance

In compliance with the NEPA of 1969 (42 U.S.C. 4321, et seq.); Council on Environmental Quality Regulations (40 CFR parts 1500-1508); and DOE NEPA Regulations (10 CFR part 1021), Western has determined that this action is categorically excluded from preparing an environmental assessment or an environmental impact statement.

Determination Under Executive Order 12866

Western has an exemption from centralized regulatory review under Executive Order 12866; accordingly, no clearance of this notice by the Office of Management and Budget is required.

Small Business Regulatory Enforcement Fairness Act

Western has determined that this rule is exempt from congressional notification requirements under 5 U.S.C. 801 because the action is a rulemaking of particular applicability relating to rates or services and involves matters of procedure.

Submission to the Federal Energy Regulatory Commission

The interim rates herein confirmed, approved, and placed into effect, together with supporting documents, will be submitted to the Commission for confirmation and final approval.

Order

In view of the foregoing and under the authority delegated to me, I confirm and approve on an interim basis, effective January 1, 2006, Rate Schedules CAP-FT2, CAP-NFT2, and CAP-NITS2 for the Central Arizona Project of the Western Area Power Administration. The rate schedules shall remain in effect on an interim basis, pending the Commission's confirmation and approval of them or substitute rates on a final basis through December 31, 2010.

Rate Schedule CAP-FT2

Supersedes Rate Schedule CAP-FT1

United States Department of Energy Western Area Power Administration

Central Arizona Project

Schedule of Rate(s) for Firm Point-to-Point CAP 115-kv/230-kv Transmission Service

Effective: The first day of the first full billing period beginning on or after January 1, 2006, through December 31, 2010.

Available: In the area served by the Central Arizona Project (CAP) 115-kV/230-kV transmission system.

Applicable: The transmission service customers shall compensate the CAP where firm capacity and energy are supplied to the CAP 115-kV/230-kV transmission system at points of interconnection with other systems and transmitted and delivered, less losses, to points of delivery on the CAP 115-kV/230-kV system specified in the contract or service agreement. The formula for the annual revenue requirement used to calculate the charges for this firm service under this schedule was promulgated and may be modified pursuant to applicable Federal laws, regulations, and policies.

The Desert Southwest Region may modify the charges for firm point-to-point transmission service upon written notice to the transmission customer. Any change to the charges to the transmission customer for firm point-to-point transmission, shall be as set forth in a revision to this rate schedule promulgated pursuant to applicable Federal laws, regulations, and policies and made part of the applicable service contract or service agreement. DSW shall charge the transmission customer in accordance with the revenue requirements then in effect.

Character and Conditions of Service: Alternating current at 60 Hertz, three-phase, delivered and metered at the voltages and points of delivery established by contract or service agreement over the CAP 115-kV/230-kV transmission system.

Formula Rate for Firm Point-to-Point Transmission Service

Annual Rate = 5-Year Average Annual Revenue Requirement divided by the 5-Year Average Contract Rate of Delivery, rounded to the nearest penny.

Monthly Rate = Annual Rate divided by 12, rounded to the nearest penny.

Calculated Rates

For 2006, the annual firm rate calculates to $9.55 per kW year, and the monthly firm rate calculates to $0.80 per kW month. Based on updated financial and load data, recalculated rates will go into effect on January 1 of each year during the effective rate schedule period.

Adjustments

For Reactive Power: There shall be no entitlement to transfer of reactive kilovolt amperes at delivery points, except when such transfers may be mutually agreed upon by contractor and contracting officer or their authorized representatives.

For Losses: Capacity and energy losses incurred in connection with the transmission and delivery of capacity and energy under this rate schedule shall be supplied by the customer in accordance with the contract or service agreement.

Billing for Unauthorized Overruns: For each billing period in which there is a contract violation involving an unauthorized overrun of the contractual firm transmission obligations, such overrun shall be billed at 10 times the above rates.

Rate Schedule CAP-NFT2

Supersede Rate Schedule CAP-NFT1

United States Department of Energy Western Area Power Administration

Central Arizona Project

Schedule of Rate(s) for Nonfirm Point-to-Point CAP 115-kV/230-kV Transmission Service

Effective: The first day of the first full billing period beginning on or after January 1, 2006, through December 31, 2010.

Available: In the marketing area served by the Central Arizona Project 115-kV/230-kV transmission system.

Applicable: The transmission service customer shall compensate the Central Arizona Project (CAP) for nonfirm point-to-point transmission service where capacity and energy are supplied to the CAP 115-kV/230-kV transmission system at points of interconnection with other systems, transmitted subject to the availability of the transmission capacity, and delivered less losses, to points of delivery on the CAP 115-kV/230-kV system specified in the contract or service agreement.

Character and Conditions of Service: Alternating current at 60 Hertz, three-phase, delivered and metered at the voltages and points of delivery established by contract or service agreement over the CAP 115-kV/230-kV transmission system.

Formula Rate for Nonfirm Point-to-Point Transmission Service

Nonfirm Point-To-Point Transmission Service Rate: Each Contractor shall be billed monthly a mills per kilowatthour rate of scheduled or delivered kilowatthours at point of delivery, established by contract, payable monthly. This rate is equal to the CAP 115-kV/230-kV Firm Transmission dollar per kilowattyear rate then in effect divided by 8760, multiplied by 1,000, rounded to two decimal places.

Calculated Rate

For 2006, the nonfirm rate calculates to 1.09 mills/kWh. Based on updated financial and load data, a recalculated rate will go into effect on January 1 of each year during the effective rate schedule period.

Adjustments

For Reactive Power: There shall be no entitlement to transfer of reactive kilovolt amperes at delivery points, except when such transfers may be mutually agreed upon by contractor and contracting officer or their authorized representatives.

For Losses: Capacity and energy losses incurred in connection with the transmission and delivery of capacity and energy under this rate schedule shall be supplied by the customer in accordance with the contract or service agreement.

Rate Schedule CAP-NITS2

Supersedes Rate Schedule CAP-NITS1

United States Department of Energy Western Area Power Administration

Central Arizona Project

Schedule of Rate(s) for Network Integration Transmission Service

Effective: The first day of the first full billing period beginning on or after January 1, 2006, through December 31, 2010.

Applicable: The transmission customer shall compensate the CAP each month for Network Integration Transmission Service (NITS) pursuant to the applicable Network Integration Transmission Service Agreement and annual revenue requirement referred to below. The formula for the annual revenue requirement used to calculate the charges for this service under this schedule was promulgated and may be modified pursuant to applicable Federal laws, regulations, and policies.

The Desert Southwest Region (DSW) may modify the charges for NITS upon written notice to the transmission customer. DSW shall charge the transmission customer in accordance with the revenue requirement then in effect.

Formula Rate

Monthly Charge = Transmission Customer's Load-Ratio Share × (Revenue Requirement/12)

Calculated Rate

The NITS rate is calculated using a projected annual revenue requirement. Based on updated financial and load data, a recalculated revenue requirement will go into effect on January 1 of each year during the effective rate schedule period.