Proposed Energy Planning and Management Program

DEPARTMENT OF ENERGY

Western Area Power Administration

RIN: 1901-AA50

Proposed Energy Planning and Management Program

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of proposed Program and request for public comments.

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SUMMARY: The Western Area Power Administration (Western) proposes to

adopt an Energy Planning and Management Program (Program). The Program

is being proposed in part to implement section 114 of the Energy Policy

Act. The proposed Program would require the preparation of integrated

resource plans (IRP) by Western's customers and establish a framework

for extension of existing firm power resource commitments.

DATES AND ADDRESSES: Combined public information/comment forums on the

proposed Program will be held on the following dates and at the

following locations:

September 7, 1994, 9 a.m., Doublewood Inn, 3333 Thirteenth Avenue

South, Fargo, ND (701) 235-3333

September 8, 1994, 1 p.m., Ramkota Convention Center, 2400 North Louise

Avenue, Sioux Falls, SD (605) 336-0650

September 9, 1994, 10 a.m., Red Lion, 2001 Point West Way, Sacramento,

CA (916) 929-8855

September 13, 1994, 10 a.m., Holiday Inn, 10 East 120 Avenue,

Northglenn, CO (303) 452-4100

September 15, 1994, 1 p.m. Doubletree Hotel, 215 West South Temple,

Salt Lake City, UT (801) 531-7500

September 26, 1994, 1 p.m., Airport Hilton, 700 North Haven Avenue,

Ontario, CA (909) 980-0400

September 27, 1994, 1 p.m., Phoenix Area Office Conference Room, 615

South 43rd Avenue, Phoenix, AZ (602) 352-2662

Written comments on the proposed Program should be submitted to

Western by October 11, 1994.

FOR FURTHER INFORMATION CONTACT: To submit written comments, or for

additional information, please contact:

Robert C. Fullerton, Western Area Power Administration, P.O. Box 3402,

A6100, Golden, CO 80401-0098 (303) 275-1610

James D. Davies, Billings Area Office, Western Area Power

Administration, P.O. Box 35800, Billings, MT 59107-5800 (406) 657-6532

Stephen A. Fausett, Loveland Area Office, Western Area Power

Administration, P.O. Box 3700, Loveland, CO 80539-3003 (303) 490-7201

J. Tyler Carlson, Phoenix Area Office, Western Area Power

Administration, P.O. Box 6457, Phoenix, AZ 85005-6457 (602) 352-2453

James C. Feider, Sacramento Area Office, Western Area Power

Administration, 1825 Bell Street, Suite 105, Sacramento, CA 95825-1097

(916) 649-4418

Kenneth G. Maxey, Salt Lake City Area Office, Western Area Power

Administration, P.O. Box 11606, Salt Lake City, UT 84147-0606 (801)

524-6372

SUPPLEMENTAL INFORMATION:

Background

On April 19, 1991, Western proposed in concept an Energy Planning

and Management Program (56 FR 16093). The goal of the Program was to

require planning and efficient electric energy use by Western's long-

term firm power customers and to extend Western's firm power resource

commitments. On May 1, 1991, Western announced its intention to prepare

an environmental impact statement (EIS) on the Program due to

potentially significant environmental and economic issues that may be

of interest to the public (56 FR 19995).

Combined public information/environmental scoping meetings on the

Program were held in seven States in June of 1991. Based on the

feedback received from these meetings, Western developed alternatives

to be analyzed in the EIS. Alternatives workshops were held in eight

cities during March and April 1992. Based on further public input

received during these workshops, as well as comments previously

received, Western announced a tentative preferred alternative for the

EIS in a Program newsletter in June of 1992.

On October 24, 1992, the President signed into law the Energy

Policy Act of 1992 (EPAct), Public Law 102-486. Section 114 of that

legislation requires the preparation of IRPs by Western's customers and

amends Title II of the Hoover Power Plant Act of 1984. Western has

adjusted its Program proposal to reflect fully the provisions of this

law.

On March 31, 1994, a notice of public availability of the draft EIS

was published in the Federal Register (59 FR 15198). The Environmental

Protection Agency also published a notice of availability of the draft

EIS on April 1, 1994, officially starting a 45-day public comment

period. Eight hearings were held throughout Western's service

territory, with over 130 members of the public in attendance. About 200

written comments were received on the draft EIS. Discussion of all

comments is attached to this Federal Register notice.

Western is now at the point in the Program development process when

issuance of proposed procedures is appropriate. A 60-day consultation

and comment period starts with the publication of this notice in the

Federal Register.

Proposed Action

The Program goal is to promote the efficient use of electric energy

by Western's customers and to extend Western's long-term firm power

resource commitments in support of customer IRPs. A major purpose of

this action is to assure the customers who purchase Federal power

greater stability in planning for future resources than would exist in

the absence of the Program. The Program proposal has two major

components: (1) an IRP provision conforming to the requirements of

EPAct and (2) a Power Marketing Initiative (PMI). The IRP provision,

formerly known as the Energy Management Program, would require most

long-term firm power customers to (1) develop and implement an IRP, (2)

submit an updated IRP every 5 years, and (3) submit an annual progress

report. A different requirement for small customers with an annual load

or usage of 25 gigawatthours (GWh) or less is proposed, as allowed in

the Energy Policy Act of 1992. This IRP provision and small customer

provision will amend Western's Final Amended Guidelines and Acceptance

Criteria (G&AC) for Customer Conservation and Renewable Energy (C&RE)

Programs of August 21, 1985 (50 FR 33892). Western will continue to

provide a wide range of technical assistance services to customers. A

penalty provision for noncompliance with the IRP provision would

consist of a 10-percent surcharge for the first 12 months of

noncompliance, 20 percent for the next 12 months of noncompliance, and

30 percent thereafter for as long as noncompliance persists. In lieu of

a surcharge after the first 12 months of noncompliance, Western

proposes to impose a 10-percent resource reduction penalty if such an

approach is more effective in assuring compliance or is more cost-

effective for Western. Penalties in existing contracts will continue to

be in effect until changed. The penalties proposed in this Program will

be incorporated into the contracts that extend resources and will be

effective upon contract execution.

The proposed PMI would extend a major portion of the power

currently under contract with existing purchasers. Western proposes to

extend its existing long-term firm resource commitments, subject to the

outcome of project-specific environmental work as appropriate. Western

projects proposed for initial coverage under this PMI are the Pick-

Sloan Missouri Basin Program-Eastern Division and the Loveland Area

Projects. The term of the extension would be 18 years from the date

that existing contracts expire. The level of the commitment to existing

customers would be a project-specific percentage of the resource

available when existing contracts expire, as described in section IV.C

of the proposed Program, with two withdrawals at 5-year intervals after

the new contracts become effective. Unextended resources would be

available for allocation to new customers and other purposes as

determined by Western. In addition, marketable resources placed under

contract could be adjusted on 5 years' notice, and then only in

response to changes in hydrology and river operations.

Western believes that customer actions taken as a result of

preparing an IRP should (1) either maintain or enhance existing energy

services provided to consumers served by Federal power customers; (2)

produce savings or benefits equal to or exceeding investment and

operational costs over some reasonable period of time for demand-side

management (DSM) alternatives, renewable energy investments, or supply-

side efficiency improvements; (3) produce measurable energy and/or

capacity benefits as a result of customer investments; and (4)

demonstrate sensitivity to environmental impacts and values.

In these proposed procedures, Western commits to the use of IRP

principles in its own resource acquisition and transmission planning

programs. Western's commitment concerning the use of IRP principles

will be pursued independently from the Program through a separate

public process by Western starting within 90 days after the publication

of this Federal Register notice. This separate public process will

commence with publication in the Federal Register of a draft set of IRP

principles, with opportunity for public comment prior to adoption of

formal IRP procedures applicable to Western.

The Program is being developed pursuant to Secs. 302(a) and 501 of

the Department of Energy (DOE) Organization Act, 42 U.S.C. Secs. 7152

and 7191; the Reclamation Act of 1902, 32 Stat. 388, as amended by

subsequent enactments and acts specifically applicable to the projects

involved; and section 114 of the Energy Policy Act of 1992, Public Law

102-486.

Proposed Program

Section I--Contents

Section II--Definitions

Section III--Integrated Resource Planning

A. Applicability

B. IRP Content

C. Submittal Information

D. Approval Criteria

E. Special Provisions

F. Processing of IRPs and Small Customer Plans

G. Annual IRP Progress Reports

H. Noncompliance

I. Administrative Appeal Process

J. Periodic Review by Western

K. IRP by Western

L. Western Annual Report

M. Freedom of Information Act

N. Program Review

Section IV--Power Marketing Initiative

A. Applicability

B. Term

C. Resource Extensions and Resource Pool Size

D. Extension Formula

E. Adjustment Provisions

F. New Purchaser Eligibility

G. Marketing Criteria

H. Process

Section V--Energy Services

Section VI--Effective Date

Section II--Definitions

A. The term ``Administrator'' means the Administrator of the

Western.

B. For any customer, the term ``applicable integrated resource

plan'' or ``applicable IRP'' means the IRP approved by Western under

these procedures for that customer.

C. The term ``customer'' or ``customers'' means any entity or

entities purchasing firm capacity with or without energy from Western

under a long-term firm power contract. Such terms include member-based

associations (MBA) and their distribution or user members that receive

direct benefit from Western's power.

D. The term ``integrated resource planning'' or ``IRP'' means a

planning process for new energy resources that evaluates the full range

of alternatives, including new generating capacity, power purchases,

energy conservation and efficiency, cogeneration and district heating

and cooling applications, and renewable energy resources, in order to

provide adequate and reliable service to a customer's electric

consumers at the lowest system cost. The process shall take into

account necessary features for system operation, such as diversity,

reliability, dispatchability, and other factors of risk; shall take

into account the ability to verify energy savings achieved through

energy conservation and efficiency and the projected durability of such

savings measured over time; and shall treat demand and supply resources

on a consistent and integrated basis.

E. The term ``least-cost option'' means an option for providing

reliable electric services to electric consumers which will, to the

extent practicable, minimize life-cycle system costs, including adverse

environmental effects, of providing such service. To the extent

practicable, energy efficiency and renewable resources may be given

priority in any least-cost option.

F. The term ``long-term firm power contract'' means any contract

with Western for the sale of firm capacity, with or without energy,

which is to be delivered over a period of more than 1 year. This term

includes contracts for the long-term sale of power from the Boulder

Canyon Project.

G. The term ``member-based association,'' or ``MBA,'' means a

parent-type entity composed of utilities or user members.

H. The term ``purchaser'' means the entity that has signed a long-

term firm power contract with Western. It does not include distribution

or user members where the MBA is the purchaser, and it does not include

the MBA where the distribution or user members are the purchasers.

I. A ``small customer'' is defined as a customer with total annual

sales or usage of 25 GWh or less which is not a member of a joint

action agency or a generation and transmission (G&T) cooperative with

power supply responsibility, and that Western finds has limited

economic, managerial, and resource capability to conduct integrated

resource planning.

Section III--Integrated Resource Planning

A. Applicability: All customers of Western must prepare an IRP,

regardless of a customer's resource needs, with the following two

exceptions:

1. Those meeting the criteria for a ``small customer'' as detailed

in section III.E(1) of these procedures; and

2. State-regulated, investor-owned utilities.

Nothing in these procedures shall require a customer to take any

action inconsistent with a requirement imposed by the Rural

Electrification Administration.

B. IRP Content: An integrated resource plan should support

customer-developed goals and schedules. The plan should evaluate the

full range of practicable alternatives for energy resources, including

the appropriate use of cost-effective renewable and DSM resources to

meet future needs.

IRPs submitted pursuant to these procedures must consider

electrical energy resource needs and may also consider, at the

customer's option, water, natural gas, and other energy resources. Each

IRP submitted to Western must meet the requirements of the EPAct,

section 114, which provides that IRPs must:

1. Identify and accurately compare all practicable energy

efficiency and energy supply resource options available to the

customer.

2. Include a 2-year action plan and a 5-year action plan which

describe specific actions the customer will take to implement its IRP.

3. Designate least-cost options to be utilized by the customer for

the purpose of providing reliable electric service to its retail

consumers and explain the reasons why such options were selected.

4. To the extent practicable, minimize adverse environmental

effects of new resource acquisitions.

5. In preparation and development of the plan (and each revision or

amendment of the plan), have provided for full public participation,

including participation by governing bodies.

6. Include load forecasting.

7. Provide methods of validating predicted performance in order to

determine whether objectives in the plan are being met.

8. Meet such other criteria as the Administrator shall require in

this Program or subsequent revisions.

These criteria are discussed with more detail and guidance in

section III.D(1)(a-h).

C. Submittal Information:

1. General Information: An IRP submitted to Western for approval

may be a summary document with sufficient detail for Western to confirm

it meets the requirements of these procedures, or it may be the full

plan. Compliance with these procedures is primarily the responsibility

of the purchaser of long-term firm power from Western. If more than one

long-term firm power contract exists between Western and a purchaser,

only one IRP is required for that purchaser.

2. Submittal Options: Customers may submit IRPs to Western under

one of the following options:

a. Individual Submittal: Purchasers of long-term firm power may

submit IRPs individually.

b. MBAs: MBAs may submit individual IRPs for each of their members

or submit one IRP on behalf of all of their members, so long as

individual member responsibilities and participation levels are

identified. It is acceptable for any member of a purchaser MBA to

submit an individual IRP to Western.

c. IRP Cooperative: With Western's approval, customers may form

integrated resource planning cooperatives. Western believes the

benefits of joint integrated resource planning can be significant and

encourages customer consideration of this approach when an appropriate

resource planning ``decision block'' exists. Western will allow the

submittal of joint IRPs if an appropriate resource planning decision

block exists, such as if all the entities covered by an IRP are

contained within a power supply chain, so long as individual member

responsibilities and participation levels are identified.

Examples of eligible entities include (1) existing first-level MBAs

which were formed to meet the load growth of their members through

supply-side resources, such as G&T cooperatives; (2) existing second-

level MBAs, such as organizations with G&T cooperative members, which

may acquire IRP cooperative status due to the magnitude and effort

involved in development of such comprehensive IRPs; and 3) new

associations where potential members have not previously evaluated

supply-side and demand-side resources on a joint basis.

3. Small Customers: Customers approved by Western as small

customers according to the small customer provision, discussed in

section III.E(1) of these procedures, shall submit a small customer

plan in place of an IRP.

4. Schedules: Every customer must provide written notification to

Western regarding how it intends to submit its initial IRP. This

notification must be provided to the Area Manager of the area in which

the customer is located within 60 days of the effective date of these

procedures. The submittal options are discussed in section III.C(2).

a. IRP Cooperative Status Requests: Requests for IRP cooperative

status must be made to the Area Manager of the area in which the

customer is located within 60 days of the effective date of these

procedures, and Western shall respond to the requests within 30 days of

their receipt. If a request for IRP cooperative status is disapproved,

the requesting purchasers must submit their initial IRPs no later than

1 year after the date of the letter of disapproval. Any subsequent

requests by customers for IRP cooperative status will be responded to

by Western within 30 days of receipt of the request.

b. Small Customer Requests: Requests for small customer status must

be made to the Area Manager of the area in which the customer is

located within 60 days of the effective date of these procedures.

Western shall respond to the requests within 30 days of receipt of the

request. If a request for small customer status is disapproved, the

requesting customer must submit its initial IRP no later than 1 year

after the date of the letter of disapproval. Any subsequent requests by

customers for small customer status will be responded to by Western

within 30 days of receipt of the request.

c. Initial IRP Submittals: Each customer must submit its initial

IRP to the appropriate Area Manager no later than 1 year after the

effective date of these procedures. Approved IRP cooperatives shall be

allowed 18 months from the effective date of these procedures to submit

an initial IRP.

d. IRP Resubmittals: If an IRP submittal is found to be

insufficient after Western review, a notice of deficiencies will be

provided to the entity that submitted the IRP. Western, working

together with the customer, will determine the time allowable for

resubmitting the IRP. However, the time allowed for resubmittal will be

not greater than 9 months after the date of the disapproval.

e. Updated IRPs: Updated IRPs must be submitted to the appropriate

Area Manager every 5 years, beginning 5 years after Western's approval

of the initial IRP submitted.

D. Approval Criteria: IRP approval will be based upon (1) whether

or not the IRP criteria as defined within these procedures are

satisfactorily addressed, and (2) the reasonableness of the IRP given

the size, type, resource needs, and geographic area of the customer.

Customers will make their own choices regarding resource type,

quantity, and timing in accordance with their IRP. Western will not

dictate resource choices.

Where a customer or group of customers implements the IRP process

under a program responding to other Federal, State, or other

initiatives, Western shall accept and approve such a plan as long as

the IRP substantially complies with the requirements of these

procedures, and therefore meets the IRP criteria.

Important elements of an IRP are (1) an assessment of resources on

an equitable basis, where supply-side, demand-side, and renewable

resources are compared on a fair and accurate basis to determine an

appropriate low cost resource portfolio, and (2) an integration of all

options in a comprehensive manner, as opposed to a piecemeal and

sequential approach.

1. The IRP criteria must be addressed as follows:

a. Identification and Comparison of All Practicable Energy

Efficiency and Energy Supply Resource Options: This is an assessment

and comparison of existing and future supply- and demand-side resource

options available to a customer based upon its size, type, resource

needs, and geographic area. Identification of resource options

evaluated by the specific customer, or members in the case of IRP

cooperatives or MBAs, must be provided. The options evaluated should

relate to the resource situation unique to each Western customer as

determined by profile data (such as service area, geographical

characteristics, customer mix, historical loads, projected growth,

existing system data, rates, and financial information) and load

forecasts.

Supply-Side Options: Supply-side options include, but are not

limited to, purchased power contracts or conventional or

nonconventional generation options.

Demand-Side Options: Demand-side options alter the customer's use

pattern in a manner that provides for an improved combination of energy

services at least cost to the customer and the ultimate consumer.

Considerations that may be used to develop the potential options

include cost, market potential, consumer preferences, environmental

impacts, demand or energy impacts, implementation issues, and

commercial availability.

The IRP should discuss the comparisons made between resource

options by describing (1) the method(s) or rationale used to select the

options to be compared, (2) the options evaluated, (3) the assumptions

and costs related to the options, and (4) the evaluation methods.

Resource Comparison--The IRP should describe any quantitative and

qualitative methods used to compare the resource options.

b. Action Plans: Customers must submit an action plan covering a

minimum period of 5 years describing specific actions the customer will

take to implement its IRP. These plans must outline both short- (2

years) and long-term (5 years) actions proposed for implementation

during the period covered by the plan. Where a customer is implementing

IRP in response to State, Federal, and other initiatives, Western will

accept action plans of other than 2 and 5 years if they substantially

comply with EPAct. This action plan must summarize the load profile

data and address the results of the IRP resource evaluation. In

addition, the action plan must include the following:

(1) Actions the customer expects to take in accomplishing the goals

identified in the IRP process.

(2) Milestones to be used to evaluate accomplishment of those

actions during implementation.

(3) Quantified estimated energy and capacity benefits for each

action planned.

(4) Estimated or proposed costs for implementing each action.

c. Designated Least-Cost Options to be Utilized: This is a

comparative evaluation of supply- and demand-side resources using a

consistent economic evaluation method. An objective of the evaluation

should be to achieve the most cost-effective energy services to the

consumer, taking into account reliability, economics, price risk, and

all other factors influencing the quality of energy services. The

analysis should consider impacts on suppliers, distribution entities,

and end-use consumers, as applicable. The resource selection process

and criteria should be explicit and identify the rationale for

selection.

Cost-effectiveness is basic to this evaluation and therefore must

be undertaken. Western recognizes the criteria for determination of

least-cost options in each IRP will by nature vary between Western's

customers by size, type, resource needs, and geographic area. For

Western's smaller customers that prepare an IRP, this may be a

generalized analysis which describes the cost comparison processes

utilized and economic assumptions. These may be limited to the total

resource cost test for demand-side resources and may involve simplified

methods and procedures to analyze important variations in supply-side

characteristics such as service lives, construction periods, and price

inflation influences. For Western's larger customers Western would

expect a much more in-depth evaluation of demand and supply resource

cost effectiveness, on a levelized basis. This may include evaluation

of demand-side resources under some combination of the total resource

cost, participant, rate impact measure, utility, and societal tests;

life-cycle screening and screening curve analyses for the supply-side

resources; production costing analysis; rate impact analysis; risk

analysis; and impacts to the power supply chain as applicable.

Exceptions to least-cost-based decisions may be made if the

customer explains the basis for the decision and can show in the IRP

document that decisions were made on a clear analysis of resource

options and environmental effects.

d. Environmental Effects: To the extent practicable, the customer

should minimize adverse environmental effects of new resource

acquisitions and document these efforts in the IRP document. Customers

are neither precluded from nor required to include environmental

externalities as a part of their IRP process. Western will not

determine for its customers the level of environmental compliance

appropriate for each action.

e. Full Public Participation: Full public participation means that

ample opportunity exists for the public to participate in or influence

the preparation and development of an IRP. An effective public

participation program includes techniques for getting information to

the public (information techniques) as well as techniques for getting

information from the public (involvement techniques). Examples of

information techniques include newsletters, briefings, feature stories,

newspaper inserts, and bill stuffers. Involvement techniques include

activities such as interviews, meetings or workshops, informal

meetings, task force/advisory committees, and polls.

Member-based associations and their distribution or user members

must demonstrate public participation in the development and

implementation of the IRP. Given the wide diversity of customers that

Western serves and the variety of resource planning circumstances that

they face, Western is not proposing to mandate that customers hold a

specific number of public meetings. The summary of the public

participation process in the IRP must include descriptions of how the

public was involved, resolutions to public concerns, and how the public

influenced IRP decisions.

As part of the public participation process, the governing body of

each MBA member (such as a board of directors or city council) must

approve the IRP, confirming that all requirements have been met. In

addition to MBA approval, customer/member approvals must be indicated

by signature of a responsible official in the IRP document submitted to

Western or by documentation of passage of an approval resolution by the

appropriate governing body. The customer/member approvals should also

be included or referred to in the IRP document submitted to Western.

Several Western customers, such as Department of Defense

installations, Department of Energy laboratories, and State agencies,

do not have boards or consumers in the normal utility sense. The public

participation requirement for these customers is satisfied if there is

review and concurrence by a top management official with resource

acquisition responsibility, and the concurrence is noted in the IRP

document submitted to Western.

f. Load Forecasts: Load forecasting, as a planning process used to

estimate future electrical demand and energy consumption patterns,

should include data which reflects the size, type, resource conditions,

and demographic nature of the customer using an accepted methodology

(such as the time series method, end-use method, and/or econometric

method).

g. Methods of Validating Predicted Performance: Customers must

provide methods of validating predicted performance in order to

determine whether objectives in the IRP are being met. Validation must

include identification of the baseline from which a customer will

measure the benefits of its IRP implementation and then demonstrate its

performance against targeted objectives. Western will assess the merits

of the validation methods and give latitude for any identified lack of

unavailable baseline data. A reasonable balance should be struck

between the cost of data collection and the benefits resulting from

obtaining exact information.

h. Other Criteria: Customers must meet such other criteria as the

Administrator shall require in this Program or subsequent revisions.

2. Reasonableness Test: Western will use a ``reasonableness test''

in the review and approval of IRPs and small customer plans to

determine plan adequacy. It shall answer both of the following

questions:

a. Is the IRP consistent, overall and for individual criteria, with

customer achievement of its own defined IRP goals?

b. Does the customer meet the full intent of EPAct and these

procedures in their definition of an IRP for each of the eight IRP

criteria, and are they appropriate for the customer's size, type,

resource needs, and geographic circumstances?

E. Special Provisions: 1. Small Customer Provision: Western

realizes that it may not be administratively or economically feasible

for small customers to submit an IRP. Therefore, as an alternative,

small customers may submit a request to prepare a small customer plan

which (1) considers all reasonable opportunities to meet future energy

service requirements using DSM techniques, new renewable resources, and

other programs that will provide retail consumers with electricity at

the lowest possible cost; and (2) minimizes, to the extent practicable,

adverse environmental effects. There is no expectation for small

customers to expend significant resources--time and money--in acquiring

the expertise and data with which to prepare these plans. Western will

be available to assist customers in developing an appropriate strategy

for preparing the plans.

In order to meet these criteria, an entity approved for small

customer status must submit in writing a small customer plan every 5

years which presents in summary form the following information: (a)

customer name, address, phone number, and contact person; (b) type of

customer; (c) current energy and demand profiles; (d) future energy

services projections; (e) the manner in which items (1) and (2) in the

preceding paragraph were considered; and (f) actions to be implemented

over the next 5 years. The first small customer plan is due to the

appropriate Western Area Manager 1 year after Western's approval of the

request to prepare the plan.

Every year on the anniversary of submittal of the plan, small

customers must submit a letter to Western verifying that their annual

energy sales or usage is 25 GWh or less and identifying their

achievements against their targeted action plans. The letter will be

used for overall program evaluation and comparison with the customer's

plan.

When a small customer exceeds total annual energy sales or usage of

25 GWh, becomes a member of a joint action agency or G&T cooperative

with power supply responsibility, or no longer has a limited economic,

managerial, and resource capability, it will no longer be eligible for

the small customer provision. In this case, Western will work with the

customer in developing an appropriate timeframe, no longer than 1 year,

for submittal of an IRP.

2. Irrigation District IRP: For purposes of these procedures,

Western shall equate water planning, efficiency improvements, and

conservation to energy planning and efficiencies. Therefore, irrigation

districts may comply with EPAct by quantifying results through

submission of their IRPs in terms of water conservation plans. However,

to the extent practical, irrigation district customers should convert

their water savings to energy values. In recognition of the impact of

weather and commodity prices on energy usage, progress in implementing

IRPs may be reported and measured based upon efficiency improvements

instead of power usage. These procedures do not require a customer to

engage in complex cost-benefit analysis when information on resource

cost-effectiveness is available from other sources. For example, an

irrigation district preparing an IRP may use information available from

an extension service or a university to judge the merits of a demand-

side resource opportunity; there is no requirement to hire a consultant

to independently verify this kind of information. The customer's

knowledge and experience should be central in the IRP resource

evaluation and selection process.

F. Processing of IRPs and Small Customer Plans: Western shall

review all IRP and small customer plan submittals and respond to

customers as to each plan's acceptability within 120 days after

receipt.

In order to ensure consistent application of these procedures in

all Area Offices, Western will utilize IRP evaluation criteria and

small customer plan checklists. The checklists will be provided to the

public as part of a future Program public involvement newsletter and

will provide for consistent review of IRPs. These are internal

documents to Western and are made available to the public for

informational purposes only.

G. Annual IRP Progress Reports: IRP progress reports must be

submitted each year within 30 days of the anniversary date of the

currently applicable IRP. Western will use this information to (1)

ascertain compliance with an approved IRP, (2) analyze overall program

impacts, (3) provide a basis for preparation of Western's annual

report, and (4) provide a basis for Western to furnish appropriate

technical assistance for customers.

Generally, annual progress reports must include actions taken by

the customer to implement its IRP and an evaluation of associated

quantitative and qualitative benefits achieved. The most important

subject in the annual progress report is quantification of the energy

and capacity saved under the IRP, dollars saved, renewable energy

benefits achieved, or other quantifiable benefits identified by the

customer. Measured values are preferred, but credible estimates are

acceptable if measurement is infeasible or not cost-effective. Western

is also interested in reporting on the qualitative benefits of IRP

related to (1) risk, (2) competition, (3) planning flexibility, and (4)

public involvement. Events or circumstances may occur which could

significantly alter the content or implementation of a customer's IRP.

Therefore, modifications to an approved IRP should be submitted in the

annual progress report.

Following is a list of items which must be included in annual

progress reports:

1. General customer information (i.e., name, address, phone,

contacts).

2. Accomplishments achieved pursuant to the action plan (i.e.,

projected goals, implementation schedules with anticipated quantifiable

benefits, milestones, and resource expenditures).

3. Quantitative and qualitative benefits (i.e., energy and capacity

savings and renewable energy developments) achieved as compared to

those anticipated.

4. Problems, issues, or achievements of note.

5. Any significant changes that may be planned for the IRP in the

coming year.

H. Noncompliance:

1. Definition of Noncompliance: A penalty for noncompliance shall

be imposed for (1) nonsubmittal of an IRP or an annual progress report

within the designated timeframe, (2) failing to obtain Western

acceptance of an IRP, or (3) failing to implement an IRP approved by

Western, unless Western determines that a good-faith effort has been

made to comply. A penalty for noncompliance will be imposed following

periodic review (see section III.J) if a customer's actions are

inconsistent with its approved IRP and it is found that there are no

mitigating circumstances which justify those actions.

2. Assessment of Penalties: If the entity submitting the IRP to

Western is in violation of these procedures, a notice of noncompliance

will be issued to the purchaser which will trigger the penalty

provisions. The 10-percent resource withdrawal penalty in existing

contracts will continue to be in effect until changed. The penalties

proposed below will be incorporated into the contracts that extend

resources and will be effective upon contract execution.

Beginning with the first full billing period following the notice,

a surcharge penalty of 10 percent of the monthly power charges will be

assessed for each of the next 12 months of noncompliance. The penalty

will then increase to 20 percent of the monthly power charges for each

of the following 12 months of noncompliance. If the entity remains in

noncompliance thereafter, Western will assess a 30-percent surcharge.

As an alternative to imposing the 20- and 30-percent graduated

surcharge on power charges, Western proposes a penalty which would

reduce the resource delivered under a purchaser's long-term firm power

contract(s) by 10 percent. The power withdrawal penalty may be imposed

in cases of either (1) when it is determined that the power withdrawal

will be more effective to assure compliance than the surcharge penalty

by itself, or (2) when the power withdrawal is more cost-effective for

Western, by avoiding acquisitions of resources from another entity to

meet the contractual obligation.

The surcharge will be assessed on the total charges for all power

obtained by a customer from Western and will not be limited to firm

power charges. When a customer resolves the deficiencies, the imposed

surcharge and/or power withdrawal will cease, beginning with the first

full billing period after compliance is achieved.

In situations involving an IRP submitted by a member-based

association on behalf of its members or an IRP cooperative where a

single member does not comply, a penalty or withdrawal shall be imposed

upon the member-based association or IRP cooperative on a pro rata

basis in proportion to that member's share of the total member-based

association's power received from Western.

If a customer has more than one long-term firm power contract with

Western, the penalty would be imposed under each contract.

If a small customer is found in noncompliance with any of the

requirements of the small customer provision, it will be subject to the

penalty conditions stipulated in this section.

I. Administrative Appeal Process: If a customer disagrees with

Western's determination of the acceptability of its IRP submittal, its

compliance with an approved IRP, or any other compliance issues, the

customer may request reconsideration by filing a written appeal with

the appropriate Area Manager. Appeals may be submitted any time such

disagreements occur and should be very specific as to the nature of the

issue, the reasons for the disagreement, and any other pertinent facts

which the customer believes should be brought to Western's attention.

The Area Manager will respond within 45 days of receipt of the appeal.

If resolution is not achieved at the Area Office level, a further

appeal may then be made to the Administrator who will respond within 30

days of receipt.

Upon request, Western is open to mutually agreeable alternative

dispute resolution procedures, to the extent allowed by law, on the

issues of IRP compliance and acceptability. Western will not impose a

penalty while an appeal process/alternative dispute resolution is

pending. However, if the appeal/alternative dispute resolution is

unsuccessful for the customer, Western will impose the penalty

retroactively from the date Western made the determination of

deficiency that led to the use of the appeal process/alternative

dispute resolution.

J. Periodic Review by Western:

1. Timeframe: Beginning 3 years after the effective date of these

procedures, Western shall periodically review a representative sample

of applicable IRPs and the customer's implementation of the applicable

IRP. These reviews are in addition to, and separate and apart from, the

review of initial IRP submittals and updated IRPs made under section

III.D of these procedures.

2. Purpose: The purpose of the review shall be to determine if

customer actions are consistent with the approved IRP. Small customer

plans are not subject to this periodic review.

3. Selection of Representative Sample: A representative sample of

IRPs from each of Western's marketing areas will be developed. The

representative samples will consist of IRPs that reflect the diverse

characteristics and circumstances of the customers that purchase power

from Western. At a minimum, Western will review a sample of IRPs from

the following:

--IRPs indicating a need to acquire resources in the IRP study period.

--IRPs prepared by individual customers, IRP cooperatives, and member-

based associations.

--IRPs that do not show plans to implement DSM programs in the IRP

study period.

4. Method of Review: Periodic reviews may consist of any

combination of (1) Review of the customer's annual IRP progress

reports, (2) telephone interviews, or (3) on-site visits. Western will

document these periodic reviews and shall report on the results of the

reviews in Western's annual report.

K. IRP by Western: In these proposed procedures, Western commits to

the use of IRP principles in its resource acquisition and transmission

planning programs. Western's commitment concerning the use of IRP

principles will be pursued independently from the Program through a

separate public process by Western starting within 90 days after the

publication of this Federal Register notice. This separate public

process will commence with publication in the Federal Register of a

draft set of IRP principles, with opportunity for public comment prior

to adoption of formal IRP procedures applicable to Western.

L. Western Annual Report: Western must prepare and include in its

annual report a description of the activities undertaken by Western and

by customers under these procedures and an estimate of the energy

savings and renewable resource benefits achieved as a result of such

activities.

M. Freedom of Information Act: IRPs and associated data submitted

to Western are not exempt from public access under the Freedom of

Information Act (FOIA). However, customers may request confidential

treatment of all or part of a submitted document under FOIA's exemption

for ``Confidential Business Information.'' Materials so designated and

which meet the criteria stipulated in the FOIA will be treated as

exempt from FOIA inquiries.

N. Program Review: Within 1 year after January 1, 1999, and at

appropriate intervals thereafter, Western shall initiate a public

process to review these IRP procedures. Western may at that time revise

the eight criteria for approval of IRPs to reflect changes, if any, in

technology, needs, or other developments.

Section IV--Power Marketing Initiative

A. Applicability: The proposed PMI provides a general framework for

the marketing of Western's long-term firm hydroelectric resources. Many

project-specific determinations are necessary before any final

decisions can be made on marketing power. Such important issues as the

resource available for marketing in the future, the size of a resource

pool, any adjustments to the size of this pool, and allocation criteria

for new purchasers must be decided on a project-specific basis, with

public input and appropriate environmental documentation.

Western proposes to make a major portion of the resources currently

under contract available to existing long-term firm power purchasers

for a period of time beyond the expiration date of their current

contracts. The PMI would apply if consistent with other contractual and

legal rights, subject to the outcome of project-specific environmental

work as appropriate. Western projects proposed for initial coverage

under this PMI are the Pick-Sloan Missouri Basin Program-Eastern

Division and the Loveland Area Projects (LAP).

For Central Valley Project and Washoe Project resources, all power

contracts between Western and its long-term firm power customers expire

in 2004, as do the Western-Pacific Gas & Electric Company contracts.

Western is at an early stage of the post-2004 decision-making process

and is preparing an EIS for the Sacramento Area Office (SAO) 2004

marketing plan. Western will not make any decision at this time about

application of the PMI to SAO resources for the post-2004 time period.

Western will include the PMI as an alternative in the SAO marketing

plan EIS for purposes of impact assessment and comparison with other

alternatives. As a result of further analysis in the 2004 marketing

plan process, Western may at a later date propose through the public

process adoption of the PMI for SAO resources in the post-2004 time

period. If the PMI provision is implemented, Western estimates that an

initial extension level of 95 to 98 percent of the SAO resources

available at the end of the term of existing contracts would be made.

The additional resource pool increments described in section IV.C would

also be applicable.

Application of the PMI to the Salt Lake City Area/Integrated

Projects (SLCA/IP) resources would be evaluated after its electric

power marketing EIS is completed and the associated marketing criteria

and contract changes are implemented. Western's ongoing project-

specific EIS for the SLCA/IP analyses power marketing between now and

the year 2004. For customer planning purposes, Western estimates that

an initial extension level of 98 percent of the SLCA/IP resources

available at the end of the term of existing contracts would be made

upon PMI adoption. The additional resource pool increments described in

section IV.C would also be applicable.

If necessary, the resource pool size estimates for SAO and SLCA/IP

resources may be adjusted during a project-specific public process to

reflect the actual fair share needs of eligible new customers and other

purposes as determined by Western.

Western also proposes to evaluate application of this PMI to other

Western firm power contracts that expire after January 1, 2005--

principally the Parker-Davis and Boulder Canyon Projects. This

evaluation would be published after a separate public process and would

take place no more than 10 years before termination of these contracts.

B. Term: For existing customers with long-term firm power

contracts, and in accordance with the applicability criteria in section

IV.A, Western proposes to extend resource commitments for 18 years from

the date existing contracts expire. All long-term firm power contracts

for a particular project would expire at the same time.

C. Resource Extensions and Resource Pool Size: Western proposes to

extend a project-specific percentage of the marketable resource

available at the time current contracts expire to existing customers

with long-term firm power contracts (see extension formula in section

IV.D below). The remaining unextended power would be used to establish

project-specific resource pools. The proposed project-specific resource

pools (including both the initial pool and future increments) could be

as large as 6 percent over the term of the contracts. Initially, an

extension level of 97 percent is proposed for the Pick-Sloan Missouri

Basin Program-Eastern Division and 97 percent for the Loveland Area

Projects. These percentages are based on Western's judgment of the

hydropower needed to meet a fair share of the projected power needs of

potential new customers in the applicable marketing area at the time

existing contracts expire.

Western proposes an incremental resource pool that makes power

available for potential new customers over time, without the disruptive

influence of creating a large pool all at once, before the need exists.

Another purpose of a graduated resource pool is to provide Western with

the flexibility that is necessary when long-term contracts are offered

to customers.

At two intervals of 5 years after the effective date of the

extension to existing customers, Western proposes to create a project-

specific resource pool increment of up to an additional 1.5 percent of

the marketable resource available at the time current contracts expire.

The size of the additional resource pool increment would reflect the

actual fair-share needs of eligible new customers and other purposes as

determined by Western. Since Western estimates a 3-year public process

will be needed to market resources after PMI extension contracts

expire, no additional resource pool increment is proposed for the last

8 years of the PMI contract term.

The additional resource pool increments will be established by pro

rata withdrawals from existing customers which could be mitigated or

delayed if good water conditions exist, or if Western acquires

sufficient energy made available as a result of investment in energy

efficiency and DSM, conventional supply-side, or renewable resources to

create the additional resource pool increments.

The following table illustrates the timing and size of the proposed

resource pool creation, as applied to the Pick-Sloan Missouri Basin

Program-Eastern Division and the Loveland Area Projects. In all cases,

the percentages are applied to the marketable resource available at the

time current contracts expire.

------------------------------------------------------------------------

Year P-SMBP-ED LAP

------------------------------------------------------------------------

2000................................ 3%..............

2004................................ ................ 3%

2005................................ up to 1.5%......

2009................................ ................ up to 1.5%

2010................................ up to 1.5%......

2014................................ ................ up to 1.5%

------------------------------------------------------------------------

Once the extensions for existing customers and allocations to new

purchasers from the resource pool have been made, additional power

resources may become available for various reasons.

Power reserved for new purchasers but not allocated and resources

offered but not placed under contract may become available. This power

would be offered on a pro rata basis to existing customers that

contributed to the resource pool through application of the extension

formula described in section IV.D.

Power resources freed up by Western's acquisition of cost-effective

energy efficiency/DSM may become available. Resources resulting from

the enhancement of existing generation, project-use load efficiency

upgrades, the development of new resources or resources turned back to

Western may also become available. Western proposes that this power be

used to reduce the need to acquire firming resources, retained for

operational flexibility, or allocated by the Administrator.

Resources may become available due to penalty imposition pursuant

to section III.H of these procedures; this power may be made available

to existing customers, subject to withdrawal on 30 days' notice.

For the Pick-Sloan Missouri Basin Program-Eastern Division, both

the State of South Dakota and the Department of Defense have been

allowed to transfer Western power from one location to another. After

existing contracts expire, Western proposes to require that power

commitments to specific State and Defense sites not be changed unless

the contract rate of delivery exceeds the total load at that site. If

the contract rate of delivery exceeds the total load at a State or

Defense site, Western proposes that only the excess power at that site

may be transferred to other State or Defense sites. Transfers are

subject to negotiation of transmission service contracts for the

delivery of transferred power. To be consistent with requirements for

other firm power deliveries, Western further proposes to require the

delivery of a proportional share of firm Pick-Sloan Missouri Basin

Program-Eastern Division power at each State or Defense site in both

the summer and winter seasons. If there is closure of a Defense

installation or facility after the year 2000, the allocation may be

impacted by the report required in section 2929 of the 1993 National

Defense Authorization Act, Pub. L. No. 103-160. Section 2929 requires

the Secretary of Energy, in consultation with the Secretary of Defense,

to submit a report to Congress by November 30, 1994; this report must

contain recommendations regarding the disposition of hydroelectric

power allocations to military installations closed or approved for

closure outside of the marketing area of the Central Valley Project.

D. Extension Formula: The amount of power to be extended to an

existing purchaser would be determined according to this formula:

(Purchaser contract rate of delivery (CROD) today/total project

CROD under contract today x project-specific percentage x resource

available at the end of the term of existing contracts) = CROD

extended.

If a purchaser's CROD is or would become (except for a resource

withdrawal penalty under section III.H) less than 1 megawatt (MW), no

reduction would take place.

Where contract rates of delivery vary by season, the formula would

be used on a seasonal basis. A similar pro rata approach would be used

for energy extensions. Determination of the amount of resource

available after existing contracts expire, if significantly different

from existing resource commitments, would take place only after an

appropriate public process.

Amounts of firm power subject to withdrawal at 5-year intervals

after the effective date of the extension to existing customers also

would use the formula set forth above, except the percentage used would

be up to 1.5 percent for each of the two withdrawal opportunities. New

customers who have received power from the resource pool would not be

subject to withdrawal to create a resource pool increment for other new

customers.

If no better information is available, for initial IRP planning

purposes, Western would provide existing customers with estimated

resource commitments (based on application of the percentages set forth

in these procedures to the resources currently under contract). Actual

resource commitment numbers would be developed and included in

contracts as soon as practicable.

E. Adjustment Provisions: Western proposes to adjust marketable

resources committed to all customers with long-term firm power

contracts only in response to changes in hydrology and river

operations. Under the terms of contracts that extend resources under

this PMI, existing purchasers would be given at least 5 years' notice

before adjustments are made. Depending on when new customer contracts

are signed, new customers may receive less notice. The earliest that

any notice under this section would become effective is the date that

existing contractual commitments expire. Adjustment would only take

place after an appropriate public process. Withdrawals to serve project

use would continue to take place based on existing contract/marketing

criteria principles.

F. New Purchaser Eligibility: Allocations to new purchasers from

the project-specific resource pool would be determined through separate

public processes in each project's marketing area. New purchasers

receiving an allocation must execute a long-term firm power contract to

receive the allocated power and would be required to comply with the

IRP procedures. Contracts with new customers would expire on the same

date as firm power contracts with all other customers of a project.

To be eligible for an allocation, a potential new purchaser must be

a preference entity, as defined in Reclamation law, within the

currently established marketing area for a project. In order to

increase widespread distribution of hydropower resources, Western will

allocate a fair share of power to eligible new preference entities who

do not have a contract with Western or are not a member of a parent

entity that has a contract with Western.

The specific terms and conditions associated with allocations to

new purchasers would be determined during future, project-specific

public processes. All new applicants for power would be considered and

be given an opportunity to receive an allocation in accordance with

Reclamation law. For example, Western expects to make allocations to

Native American tribes (as that term is defined in the Indian Self

Determination Act of 1975, 25 U.S.C. Sec. 450b) for use on the

reservation and will consider making allocations to national parks and

public mass transit agencies. Western also will consider making power

available to preference entities in support of fish and wildlife (such

as power to pump water to increase or improve wildlife habitat) and to

firm up renewable resources. Proposals for providing allocations

directly to Native American tribes will be developed on a project-by-

project basis, during the allocation of project-specific resource

pools. This flexibility is critical, because an allocation of power is

of no value unless an organization has the means to receive power; the

potential customer must be ready, willing, and able to take delivery of

power. Ready, willing, and able means that (1) the potential customer

has the facilities needed for the receipt of power or has made the

necessary arrangements for transmission service, (2) the potential

customer's power supply contracts with third parties permit the

delivery of Western's power, and (3) metering, scheduling, and billing

arrangements are in place. Limits on the power received by any

customer, as well as minimum load requirements, also may be adopted.

Certain entities, such as municipalities, cooperatives, public

utility districts and public power districts, must have utility status

to purchase power from Western. Utility status means that the entity

has responsibility to meet load growth, has a distribution system, and

is ready, willing, and able to purchase power from Western on a

wholesale basis for resale to retail consumers. To be eligible to apply

for power available from a project's initial resource pool, those

entities that desire to purchase Western power for resale to consumers

must have attained utility status by January 1, 1996, for the Pick-

Sloan Missouri Basin Program-Eastern Division, and by September 30,

2000, for the Loveland Area Projects. To be eligible to apply for power

from subsequent resource pool increments, these entities must have

attained utility status no later than 3 years prior to availability of

the incremental addition to the resource pool. Deadlines for attaining

utility status for other projects would be established at a later date.

All potential new customers, both utilities and nonutilities, would

be required to apply for power in a project-specific marketing plan by

a date to be determined in the project-specific process. All potential

new customers must be ready, willing, and able to receive and

distribute or use power from Western. A potential new purchaser would

be responsible for transmission arrangements beyond Western's system/

points of delivery necessary to receive power from Western.

An existing customer would not be eligible to receive power from a

resource pool unless Western provides otherwise on a project-specific

basis. A new customer receiving power from a project-specific resource

pool would not be eligible to receive additional power from a

subsequently available resource pool increment unless Western provides

otherwise on a project-specific basis.

G. Marketing Criteria: Western proposes to retain applicable

provisions of existing marketing criteria for projects where resource

commitments are extended beyond the current expiration date of long-

term firm power sales contracts. Western must retain important

marketing plan provisions such as classes of service, marketing area,

and points of delivery, to the extent that these provisions are

consistent with the proposed PMI. The PMI, eligibility and allocation

criteria for potential new customers, retained or amended provisions of

existing marketing criteria, the project-specific resource definition,

and the size of a project-specific resource pool would constitute the

future marketing plan for each project. Any necessary amendments to

existing power marketing criteria could be pursued at the time Western

determines the amount of resource available after existing contracts

expire.

H. Process: Resource extensions and allocations to new customers

from the initial resource pool would take effect when existing

contracts terminate. These dates would be the year 2000 for the Pick-

Sloan Missouri Basin Program-Eastern Division and 2004 for the Loveland

Area Projects. For the Pick-Sloan Missouri Basin Program-Eastern

Division, Western proposes to offer contracts to existing purchasers

for resource extensions as IRPs are received by Western from existing

purchasers. For the Loveland Area Projects, existing contracts provide

for potential adjustments to marketable resources in 1999. Western

proposes that no contracts be offered to existing customers for post-

2004 Loveland Area Projects resources until the analysis of potential

resource adjustments in 1999 has been completed and any adjustments are

implemented. Existing power sales contracts require that this analysis

be completed by 1996.

The timing of offers of power to existing Salt Lake City Area/

Integrated Projects customers for the time period after 2004 may be

impacted by the replacement power process relating to loss of capacity

due to changes in operations at Glen Canyon Dam. For the SLCA/IP,

existing contracts provide for potential resource adjustments in 1999.

Western proposes that no contracts be offered to existing customers for

post-2004 SLCA/IP resources until the analysis of potential resources

in 1999 has been completed and any adjustments are implemented.

Existing power sales contracts require that this analysis be completed

by 1996.

Modified contractual language would be required to place resource

extensions under contract. For all projects receiving resource

extensions under the PMI, Western will develop contractual language

which would allow the customer to assume the responsibility of

acquiring resources to firm up Western's hydroelectric commitments if

the customer so chooses.

Section V--Energy Services

Western will provide technical assistance to customers to conduct

integrated resource planning, implement applicable IRPs, and otherwise

comply with the requirements of these procedures. Technical assistance,

which may include publications, workshops, conferences, individual

assistance, equipment loans, technology and resource assessment

studies, marketing studies, and other mechanisms to transfer

information on energy efficiency and renewable energy options and

programs to customers, will be provided under Western's energy services

functions and will not be addressed as a part of these customer IRP

procedures. Customers will be kept informed at all times of the

technical assistance available to them in support of their development

and implementation of IRPs through Western's energy services

publications.

Section VI--Effective Date

Western proposes that the final Program procedures become effective

on the date that the Record of Decision on the Program EIS is published

in the Federal Register, or 30 days after the final Program rule is

published in the Federal Register, whichever date is later.

Regulatory Procedure Requirements

Determination Under Executive Order 12866

DOE has determined that this is not a significant regulatory action

because it does not meet the criteria of Executive Order 12866, 58 FR

51735. 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 (OMB) is required.

Regulatory Flexibility Analysis

Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et

seq., each agency, when required to publish a proposed rule, is further

required to prepare and make available for public comment an initial

regulatory flexibility analysis to describe the impact of the rule on

small entities. Western has determined that this Program relates to

services offered by Western and therefore is not a rule within the

purview of the Act. In addition, the requirements of this Act can be

waived if the head of the agency certifies that the rule will not, if

promulgated, have a significant adverse economic impact on a

substantial number of small entities. By his execution of this Federal

Register notice, Western's Administrator certifies that this Program,

if promulgated, will not have a significant adverse economic impact on

a substantial number of small entities.

Paperwork Reduction Act of 1980

In accordance with the Paperwork Reduction Act of 1980, 44 U.S.C.

3501-3520, Western has received approval from OMB for the collection of

customer information proposed herein.

National Environmental Policy Act

Western is preparing an environmental impact statement on the

Program, pursuant to the National Environmental Policy Act of 1969.

Issued in Golden, Colorado August 1, 1994.

William H. Clagett,

Administrator.

Response to Comments on the Energy Planning and Management Program.

The Western Area Power Administration (Western) has received

numerous comments on the proposed Energy Planning and Management

Program (Program) during the public process to date. The following

section responds to those comments and is intended to assist the public

in understanding Western's rationale for the proposed Program. Each

issue is presented in a format featuring background, public comments,

and discussion.

Contents

A. Energy Planning and Management Program-Overview

1. General

2. Public Process

3. Environmental Impact Statement

B. Integrated Resource Planning

1. Proposed Procedures

2. Specificity of Procedures

3. IRP Content

4. IRP Review and Approval

5. Member-Based Associations

6. IRPs Prepared for Others

7. IRPs for Utilities in Surplus

8. Economic Feasibility and Administrative Burden

9. IRP Cooperatives

10. Technical Assistance

11. Submittal Timing

12. Irrigator Issues

13. Future Program Review

14. Penalty

C. Power Marketing Initiative

1. Extension Term

2. Extension Percentage

3. Resource Pool Uses

4. Resource Adjustment Provisions

5. PMI Implementation

6. Purchase Power

7. Other Marketing Issues

D. Other Issues

1. IRP by Western

2. Price and Rate Design

3. Incentives

4. Project Use

5. Support of Renewables and DSM

6. Profile Data

7. Proprietary Information

8. Transmission Access

A. Energy Planning and Management Program-Overview

1. General

a. Background

Western has proposed to make future commitments of long-term firm

power at the same time that customers commit to identify and pursue

cost-effective supply- and demand-side resources through preparation of

an integrated resource plans (IRP).

b. Comments

--Western should link power marketing and energy management.

--If the current program were strengthened to the satisfaction of both

customers and its detractors, the perceived need to link resource

allocations with energy efficiency performance would prove unnecessary.

--Linkage should not take place, especially if the Energy Management

Program (EMP) is subject to change every 5 years.

--Some linkage between allocations and efficient energy use is

desirable; but, if linked, flexibility and cost-based rates should

continue.

--Linkage is an important incentive to promote demand-side management

(DSM) on the part of Western's customers.

--Western's ability to link power allocations to energy efficiency

gains is one of the few options available for providing an affirmative

incentive to customers that promote DSM.

--The linkage should be expanded to holders of nonfirm power sales

contracts, such as investor-owned utilities. Nonfirm sales encourage

inefficiency, so the Program should apply to nonfirm purchasers from

Western.

--Western should either break the linkage, or couple a more modest

linkage proposal with a package of reforms. Western practices in need

of reform include the acquisition of supplementary resources to meet

customer needs, construction and use of transmission, moving of

renewables to market, and encouraging efficiency. Better decisional

processes based on IRP are needed.

--To our knowledge, no other power marketing administration has

combined the issues of long-term power allocations and conservation.

--If this environmental impact statement (EIS) takes longer than 2

years, Western should separate the Power Marketing Initiative (PMI)

from the EMP.

c. Discussion

Prior to the passage of the Energy Policy Act of 1992 (EPAct), the

PMI was viewed by Western as an important incentive to encourage energy

efficiency and promote cost-effective DSM by its customers. The

character of the incentive has now changed, as Congress has mandated

IRP preparation whether resources are extended or not. The IRP title in

the EPAct, while not referring to the PMI, certainly does not prohibit

making decisions on resource commitments in a time frame that promotes

the quality of integrated resource planning. The PMI remains an

incentive for potential new customers to apply for power and prepare

IRPs. In addition, the improved planning stability that results from an

appropriately timed extension of resources can be seen as an incentive

for future planning. Western creates a disincentive to energy efficient

resource choices, with their associated economic and environmental

benefits, when the existing customer resource base is uncertain.

Western has proposed a Program to meet a number of changes that are

taking place in the utility industry. The business of generating,

transmitting, and distributing electrical power is increasingly

dynamic. More competition and uncertainty exists in the industry than

ever before. Integrated resource planning, coupled with the resource

stability needed to effectively plan for the future, can meet the

challenges of the 1990s and beyond.

Diverse interests are reflected in the users of the multipurpose

water projects from which Western markets hydroelectric power. In the

past, such interests as irrigation, flood control, navigation, treaty

obligations, and hydropower generation dominated discussions on the use

of these multipurpose facilities. More recently, such purposes as

recreation and preservation and enhancement of endangered and

threatened species have become more prominent. Timely commitments of

hydropower resources are more difficult to make as a result of the

ongoing debate on the purpose and operations of Federal resources.

Western has designed the Program to provide the resource stability

necessary for integrated resource planning, while allowing for

adjustments in marketable resources in response to changing priorities

for multipurpose water projects.

Environmental issues are critically important to Western. Western

believes that the Program can and must be responsive to environmental

issues and concerns. For example, the PMI provides for flexibility in

the determination and marketing of Western's hydropower resources in

response to operational changes due to environmental factors. In

addition, Western believes that integrated resource planning must be

sensitive to the environmental effects of resource options. IRPs

should, to the extent practicable, minimize the adverse environmental

effects of new resource acquisitions.

Western's proposed Program will respond to all of these changes and

achieve several objectives. The Program has been proposed to promote

greater planning stability, to encourage energy efficiency, and to

promote the evaluation of both demand- and supply-side resource

alternatives through integrated resource planning by Western's

customers. Western is committed to achieving all of these goals and

objectives as a group, with a Program that meets several related

objectives simultaneously. The proposed Program meets all of these

goals and objectives as an integrated solution to the identified

issues.

Strengthening the existing Conservation and Renewable Energy (C&RE)

Guidelines and Acceptance Criteria (G&AC) alone does not meet the goals

and objectives that underlie Western's Program proposal. The existing

G&AC only require that a customer perform a certain number of

activities, usually demand-side or renewable in nature, to be in

compliance. When these activities are identified as the best resource

choice in an IRP, as required by the EPAct, only then do they represent

the most appropriate approach for meeting customer needs for cost-

effective electricity. Integrated resource planning, with its emphasis

on considering both cost-effective supply- and demand-side resource

opportunities, fulfills the goal of making Western's customers better

equipped to provide low-cost power to consumers and to meet the

challenges that exist in the more competitive utility environment of

today. The Program also provides Western's customers with the resource

stability necessary to effectively engage in integrated resource

planning, an objective that could not be met simply by strengthening

the existing G&AC.

Western agrees with the viewpoint that Energy Management Program

stability is undercut and the goals of the Program are not met if the

EMP is subject to change every 5 years. The EPAct is consistent with

this view. In accordance with this legislation, Western presently

anticipates no change in the integrated resource planning process

requirements until at least 1999, and then only if technology or other

developments warrant. No change will take place without a full and open

public process.

Western concurs with the comment that flexibility should be part of

the Program approach and philosophy. Western also concurs with the

comment that cost-based rates should continue, pursuant to applicable

law.

Western does not agree that the IRP requirement should be expanded

to purchasers of nonfirm power. Extension of the IRP requirement to

nonfirm purchasers would not significantly expand the scope of the

Program. Nonfirm purchasers who are also long-term preference customers

must comply with the IRP preparation requirement by virtue of the

conditions set forth in their long-term firm contracts with Western.

Although section 205(c) of the IRP title set forth in section 114 of

the EPAct specifically exempts investor-owned utilities from IRP

preparation pursuant to the bill, to the extent that nonfirm purchasers

of power are investor-owned utilities, they likely are or will soon be

preparing IRPs in response to State public utility commission

regulations.

Requiring preparation of IRPs as a condition of commitments that

can be terminated on telephone notice by either party offers little

opportunity for penalty imposition for noncompliance. Revenue levels

could be adversely impacted if purchasers who offer to pay an

attractive price for surpluses decide to stop purchasing nonfirm energy

due to Western's attempts to expand the scope of IRP preparation.

Preparation of an EIS on this Program has been proceeding, and

comments have been received on the draft. Western sees no reason to

abandon its proposed approach at this point in the process due to

delays in developing the necessary environmental documentation.

Western agrees that its purchase power and transmission planning

processes should be based on integrated resource planning principles.

Detailed responses to comments on this subject can be found in section

D.1 of these responses to comments.

2. Public Process

a. Background

Western has committed to preparing an EIS on the Program. A public

involvement process, including the development of a mailing list of

diverse members of the interested public, has been pursued. Newsletters

and brochures have been developed and distributed, and public meetings

and workshops have been held throughout Western's service area on the

substance of the Program and the draft EIS.

b. Comments

--Preparation of an EIS is not warranted. No negative environmental

impacts are foreseen, so an EIS need not be prepared.

--An EIS should be prepared, but in an expedited, 12- to 15-month time

period.

--Considering the diversity among Western's customers and service

territories, 12 to 15 months for EIS preparation is too short. Do not

go too quickly, as customers must respond to the radical changes that

have been proposed in the EMP.

--An EIS should be done because of the significant impacts that power

generation facilities could have on major river systems and on fishery

resources.

--Western should let customers know how it is reacting to and

evaluating issues before the draft EIS is made available.

--Western should address the issues raised in the scoping meetings.

Where in the alternatives are such options as 100-percent extension of

power resources for 40 years? Carrots versus sticks options on the EMP?

Retain existing G&AC with quantification of benefits?

--Western should tie the Salt Lake City Area/Integrated Projects (SLCA/

IP) Power Marketing Criteria EIS to the Program EIS.

--Western needs to integrate more fully the EIS with the decision

making process so that reviewers can understand both the economic and

environmental effects of Program alternatives.

--The several separate public processes currently envisioned under the

Program over the next 10 years should be abbreviated.

--The public development process is a good one that shows what can be

accomplished when cooperation exists between the private sector and

Government.

--Although an EIS is unneeded for this Program, socioeconomic impacts

do need to be evaluated.

--The lack of detailed Program regulations hampers review of the draft

EIS.

c. Discussion

Western initially decided that the proposed Program may involve

potentially significant environmental and economic issues and impacts

that may be of interest to the public. Preparation of an EIS would

document any significant impacts which could be taken into account by

Western's Administrator in his final decision on the Program.

After Western decided to prepare an EIS through its Federal

Register notice of May 1, 1991, Congress enacted the Energy Policy Act

of 1992. Section 205(a) of the integrated resource planning title of

that legislation mandates the preparation of an EIS by defining the IRP

provision as a major Federal action significantly affecting the quality

of the human environment. Therefore, Western will continue its EIS

preparation.

Western is taking all prudent steps to assure that the preparation

of the EIS is accomplished as soon as practicable so that the benefits

of integrated resource planning are realized by Western's customers and

their electrical consumers in the near future.

Western is responding to all comments received on the Program in

this Federal Register notice. Comments that were previously advanced

are addressed so that the public understands why Program development

has progressed in the way that it has.

Western is sensitive to the public's need for information as the

Program development process moves forward. In recognition of this need,

Western has held 46 meetings and workshops during the Program

development process to date and has issued a brochure and a series of

11 newsletters to entities who have expressed an interest in the

Program prior to the publication of this Federal Register notice.

Western has also scheduled several public meetings in this Federal

Register notice to receive comments on the Program proposal. Through

these mechanisms, Western keeps the public apprised of progress in

overall Program development.

Western has fully integrated the Program development process with

the ongoing environmental documentation. The notice of Western's intent

to prepare an EIS was published in the Federal Register soon after the

first notice announcing the proposed Program. EIS scoping meetings and

informational meetings on the substance of the Program were held on the

same day throughout Western's marketing area. Although not required by

the National Environmental Policy Act of 1969 (NEPA), a public meeting

was held in Denver to inform the public of the comments received during

the scoping meetings and to describe the range of alternatives under

consideration for evaluation in the draft EIS. Western also held a

series of alternatives workshops to gather public input on defined

alternatives in the spring of 1992. This Federal Register notice is

being published soon after the draft EIS was made available for public

comment. While open to more specific comments on how the integration of

the decision making and environmental processes could be enhanced,

Western believes that the process to date has demonstrated its

commitment to this goal.

Comment was received that the Power Marketing Criteria EIS for the

SLCA/IP should be tied to the Program EIS. Western agrees that a

relationship exists between these two processes. The Program EIS is

programmatic in nature. It analyzes on a Western-wide basis the

environmental impacts of the Program, including customer integrated

resource planning and the extension of resources for projects, with the

timing of the extension to be project-specific. Any necessary

environmental analysis resulting from project-specific application of

Program principles (e.g., significant changes in marketable resources,

size of the resource pool, and allocations to new customers) will be

tiered off the Program EIS. The SLCA/IP Power Marketing Criteria EIS

recognizes the programmatic nature of the Program EIS and further

recognizes Western's Program proposal that customers purchasing power

from the SLCA/IP will be required to prepare IRPs as soon as the

Program becomes final. The Program EIS will be incorporated into the

SLCA/IP Power Marketing Criteria EIS.

Western agrees that the lack of detailed Program procedures has

made it difficult for the public to comment on the draft EIS. Due to

the lack of a preferred alternative in the draft EIS, Western did not

find it appropriate to issue proposed procedures when the draft EIS was

released for public review. The detailed Program procedures are part of

this Federal Register notice.

3. Environmental Impact Statement

a. Background

Western has prepared a draft EIS on the Program. The draft EIS

predicts that environmental benefits will be realized upon Program

implementation. The majority of the projected benefits result from

implementation of integrated resource planning. Additional

environmental benefits are attributable to resource certainty and

stability resulting from implementation of the PMI.

b. Comments

--Although the draft EIS is not perfect, we agree with the general

trends identified within the document.

--We agree with the aggregated simulation in the draft EIS, as opposed

to a system-specific approach.

--The draft EIS does not adequately recognize the significant

conservation, renewable resource, and energy efficiency accomplishments

of Western's customers.

--The predicted energy savings and associated environmental benefits

projected in the draft EIS should not be used as a standard against

which future customer IRP implementation will be measured.

--Western should recognize that some end-use technologies are so

efficient that adoption leads to net reductions in CO2 emissions;

this is recognized in the Administration's Climate Control Action Plan.

--The environmental benefits associated with the extension of resources

identified in the draft EIS would be even stronger if the analysis

extended beyond 2015.

--Western should coordinate environmental mitigation strategies with

the Bonneville Power Administration (BPA).

--Rate stability and cost containment should be part of the purpose and

need statement for the EIS.

--There is no recognition in the draft EIS of the impact of resource

extensions on purchases of thermal power.

--The draft EIS is flawed in its lack of analysis of its relationship

to other EISs.

--Some numbers, trends, and assumptions in the draft EIS are

questionable.

--An alternative should be added allowing a 70-percent extension of

existing resources to existing customers.

--Due to the greater environmental benefits that would result, we

suggest an alternative of 35 to 40 years at a 100-percent level be

adopted.

--Wind energy will be a larger resource in the future than the draft

EIS suggests.

--The impact of extension options on SO2 emission credits needs to

be recognized.

--An alternative should be added reserving a noncompetitive allocation

of Federal power for Indian tribes in Western's service territory.

--The environmental benefits of long-term extensions may be far greater

than the draft EIS suggests.

--The draft EIS is flawed, as it does not provide a basis for

determining whether a 10-percent resource pool is too small, and does

not analyze disposition of new power resources, allocation criteria

based upon need, the economic impact of marketing policies on new

customers, the benefits of allocating power to Native Americans, the

need for utility status to receive an allocation of power, or the need

for equity in Western's marketing policies.

--The environmental benefits associated with resource certainty and

stability are understated in the draft EIS. Such factors as the ability

to borrow money, the impact on utility revenue requirements, the need

to acquire more supply-side resources at the expense of customer

efficiency programs, and the character of supply-side resources

acquired are impacted by short-term contracts.

c. Discussion

Western appreciates these comments and suggestions and will address

them in the final EIS. Several comments deserve brief responses here.

Western did not analyze the environmental impact of uses of the

resource pool, as we cannot predict with any certainty who will apply

successfully for power from project-specific resource pools during

future allocation processes. For example, entities considering

submitting an application for Western power may not be able to acquire

transmission access, or existing power supply contacts may be an

obstacle to receipt of hydropower from Western. Western will engage in

environmental analysis on issues arising from resource pool size and

allocation criteria on a project-specific basis at a time closer to the

expiration dates of existing contracts.

Although environmental benefits associated with Program

implementation are forecast in the Program draft EIS, Western will not

use those predicted energy savings as the measure of successful

customer IRP implementation. The predicted energy savings in the draft

EIS are useful in identifying regional trends for purposes of

environmental analysis, but the assumptions and analysis approach are

far too broad to be useful in setting customer-specific energy savings

goals. In fact, the establishment of customer conservation goals by

Western would be totally inappropriate, as an IRP should consist of

customer-defined goals and objectives.

B. Integrated Resource Planning

1. Proposed Procedures

a. Background

Options considered in the draft EIS include:

1. No change to the existing C&RE Program.

2. An IRP requirement for all customers.

3. An IRP requirement with a small customer provision. Western's

proposal is an IRP requirement with a small customer provision.

b. Comments

i. Comments Concerning Applicability:

--IRP provisions should be mandatory.

--IRP provisions should be voluntary.

--There should be exemption provisions.

--No exemption provisions should be proposed.

--Is there a possibility of waiver of the IRP provision for new

customers? Does the EPAct require it?

--The IRP rule should apply to contractors only and not all recipients

of Federal power.

--Some customers are concerned about the practicality of the IRP

analysis and process.

Discussion

Section 114 of the EPAct requires all of Western's firm power

customers to develop and implement IRP. The EPAct also provides Western

with the option of developing a small customer provision. Only State

regulated investor-owned utilities (IOU) are exempt from the IRP

requirement under EPAct. Beyond the State regulated IOU exemption,

Western has no flexibility to exempt new or existing customers from the

IRP requirement. The EPAct defines customer as including parent-type

entities and their distribution or user members. The IRP procedures are

not limited to contractors only because of this broad definition.

ii. Comments Concerning Special Provisions:

--Western should adopt a small customer provision for those

unaffiliated with member-based associations. The size for small

customers should be below 75 gigawatthours (GWh).

--Small customers should be allowed to submit an IRP but should be

allowed an option to invest a specific percentage of gross revenues

(\1/2\ to 1 percent) in DSM targeted to end-users. Western should allow

up to one third of this investment to be used for technical or economic

feasibility studies and evaluations.

Discussion

Western has included the small customer provision in response to

public comment. The small customer provision, as defined in section

114, will apply to customers whose annual sales or consumption is equal

to or less than 25 GWh and who have limited economic, managerial, and

resource capability to conduct integrated resource planning. Customers

may request small customer status, and Western will make a

determination as to the customers' qualifications. This Program does

not limit a customer that could otherwise qualify under the small

customer provision from preparing an IRP. In addition, there is nothing

in the proposed Program that restricts a customer from adopting a

policy to invest a percentage of gross revenues in DSM as part of its

small customer plan.

iii. Comments Concerning Flexibility:

--There are local and regional differences.

--Any final requirement must be reasonable and achievable.

--The level of effort required may be too much/little.

--IRP regulations should be flexible enough to respond to regional and

project differences.

Discussion

In the development of the proposed procedures, consideration was

given to the administrative burden, flexibility, and equity of the

alternatives on Western's diverse customers. In addition, consideration

was given to the regional diversity in Western's service area. We

believe that with the IRP requirement and small customer provision,

each customer will have the flexibility necessary to adequately address

regional needs and to expend an appropriate level of resources, such as

time and money, on these planning efforts. Western will not dictate

energy decisions a customer makes based upon regional conditions or

needs as long as all of the IRP criteria are met.

2. Specificity of Procedures

a. Background

Section 114 of the EPAct provides the framework for the IRP

requirement. It sets forth IRP criteria as well as administrative

principles and requirements. As defined by section 114, Western shall

approve an IRP if, in developing the plan, the customer in a reasonable

manner has:

1. Identified and accurately compared all practicable energy

efficiency and energy supply resource options available to the

customer.

2. Included a 2-year action plan and 5-year action plan which

describe specific actions the customer will take to implement its IRP.

3. Designated least-cost options to be utilized by the customer for

the purpose of providing reliable electrical service to its retail

consumers and explained the reasons why such options were selected.

4. To the extent practicable, minimized adverse environmental

effects of new resource acquisitions.

5. In preparation and development of the plan (and each revision or

amendment of the plan) has provided for full public participation,

including participation by governing boards.

6. Included load forecasting.

7. Provided methods of validating predicted performance in order to

determine whether objectives in the plan are being met.

8. Met such other criteria as the Administrator shall require.

b. Comments

--The IRP option needs to be more specific and less subjective.

--There are too many specifics which could lead to insufficient

flexibility.

--Will Western recognize customer size and type differences?

--Should Western be specific in its definition of content and

evaluation criteria?

c. Discussion

In developing the IRP requirement, it is important to balance needs

for flexibility and equity among Western's diverse customers. For this

reason, the proposed Program is based upon the premise that the

development of each IRP must be tailored to each customer's unique

characteristics, reflecting that customer's size, type, resource needs,

and geographic area. Western's primary interest is in providing an

adequate framework for customer use of the IRP process as a tool for

meeting resource needs.

While some comments have expressed a preference for specific

standards, Western believes that quantitative standards are likely to

limit the potential of an IRP process, assuring only the achievement of

minimum standards. Flexible and general guidance will lead to locally

tailored, relevant, and meaningful IRP as the customer works with its

consumers in this planning process. Any need for specific technical

guidance on how to prepare and implement an IRP can be met through

technical services provided by Western's energy services program.

3. IRP Content

a. Background

During the early portion of the public process on this Program,

Western proposed in concept that IRPs address several subjects. The

EPAct directed Western to develop procedures regarding IRP content.

b. Comments

i. Comments of General Nature:

--The final requirements should not address small versus big customers,

but power suppliers versus all-requirements customers.

--Some customers should not have to address all elements.

ii. Comments on Identification and Comparison of Alternatives:

--Western should require customers to analyze the costs and benefits of

all options.

--Western's Program should identify and target all practicable

potential opportunities to save energy.

--Western should not stipulate the type of test (i.e., RIM test, total

resource cost test, etc.) that a customer uses in its IRP.

iii. Comments on Action Plans:

--IRPs should include budgets, milestones, and completion dates.

iv. Comments on Environmental Analysis:

--How far need a customer go on the supply-side for environmental

analysis?

--Western should not require customers to consider environmental

externalities in their IRPs. It should accept the decision of

individual States on externality issues.

--Quantification of environmental externalities should not be a

requirement.

--Environmental externalities should be required.

--Do not require a customer to prepare an EIS as a part of an IRP.

v. Comments on Public Involvement:

--Boards and city councils should be sufficient public involvement.

--Only local consumers and not the general public should be involved in

IRP development or implementation.

--Public review of an IRP is costly.

vi. Comments on Load Forecasting:

--Load forecasting methodologies which require lengthy lead times

(e.g., end-use) should not be required before the second round of IRPs.

vii. Comments on Quantification:

--IRPs should emphasize cost-effectiveness and demonstrated benefits.

--IRP approval criteria should include minimum standards for energy

efficiencies in each customer class, minimum annual progress

requirements for each customer class, recognition of the relative

environmental cost of resource alternatives, and guidelines for the

selection of new resources which always address environmental costs and

encourage selecting alternatives that minimize environmental damages.

--Western should let customers evaluate energy and capacity on an equal

level, so that demand options such as load shifting and peak reduction

are on an equal DSM level with conservation.

viii. Comments on IRP Updates:

--Updates should not require public review.

c. Discussion

The EPAct defines the elements or content that must be included in

IRPs. Western is proposing that the extent to which the elements are

addressed should reflect each customer's size, type, resource needs,

and geography. It would be expected that a power supplier and an all-

requirements customer would address each of the IRP criteria in a

unique manner and to a different extent. Western is not attempting to

develop different procedures for each type of customer situation, but

rather one Program which is flexible enough to be applied to any

customer situation.

Western is requiring that each customer identify and compare all

practicable demand- and supply-side alternatives. Western will not

prescribe the methods to be utilized in making these comparisons.

Western will require the customer to describe the method used to select

the options to be compared; describe the options, assumptions, and

costs related to the options; and describe the evaluation methods.

Western is proposing that each customer submit an action plan that

sets forth both short- (2 years) and long-term (5 years) actions that

it will take to implement its IRP. The action plans must contain goals

and milestones, quantify energy and capacity benefits, and give the

estimated or actual implementation costs for each action. Annual

progress reports will also be required. To the extent possible, Western

has attempted to combine reporting requirements in order to reduce

paperwork and avoid duplication of effort.

The IRP procedures require that, to the extent possible, customers

should minimize adverse environmental effects of new resources, either

supply or demand. Customers will not be required to quantify

environmental externalities since this is not required by the EPAct,

and the States within Western's marketing area have taken different and

sometimes conflicting positions on this issue. Western is not proposing

to require customers to prepare an EIS or any other environmental

compliance as part of their IRP submittal. In addition, Western will

not determine for its customers or review or approve plans with respect

to the level of environmental compliance appropriate for each proposed

action.

The EPAct requires governing board and full public involvement.

Western believes that public involvement will help assure that resource

planning and choices meet local needs. Western has defined full public

participation to mean that ample opportunity exists for the public to

participate in or influence the preparation and development of an IRP.

Western will be interested in how the public was involved, how

resolutions to public concerns were handled, and how the public

influenced IRP decisions. Western believes that each customer can

manage the costs of its public involvement process by planning a

process appropriate to the scope and magnitude of its IRP process.

Western is not requiring customers to adopt a specific load

forecasting method, only that customers utilize an accepted

methodology. We are proposing however that customers develop forecasts

upon which to base their IRPs.

The EPAct requires that least-cost options be adopted by utilities

as well as annual reporting on the benefits achieved under the IRP.

Western is proposing to allow exemptions to the least-cost requirement

if the customer can show in the IRP that decisions were made on a clear

analysis of demand- and supply-side resource options and environmental

effects.

Updated IRPs, at a minimum, must be submitted at least every 5

years after the anniversary date of approval of the initial IRP

submittal. The criteria utilized to review updated IRPs will be the

same as for initial IRP submittals. However, periodic changes and

updates to IRPs may be submitted as part of the customer's annual

progress report.

4. IRP Review and Approval

a. Background

Western has proposed that the required elements of an IRP must be

addressed in a reasonable manner by a customer before Western approves

the IRP.

b. Comments

--How much will Western expect from its customers in developing and

implementing an IRP?

--On what basis will customer IRPs be graded?

--Western should focus on having customers develop productive IRPs, not

on ``window dressing.''

--Western's IRP review should be administrative and not regulatory or

judicial. Acceptance of an IRP should be based on process and customer

goals. Western should not be analyzing customer choices or decisions.

--Western should be flexible for surplus utilities. It should accept

IRPs prepared for other governmental entities.

--Past customer efforts should be recognized.

--There should be a peer review of IRPs.

--Western should not hire consultants to review customer IRPs.

--A dispute resolution provision should be included.

c. Discussion

Western will apply a reasonableness test in its review and approval

of customer IRPs. The following two questions will be answered by

Western in the review and approval process:

1. Is the IRP consistent, overall and for individual criteria, with

customer achievement of its own defined IRP goals?

2. Does the customer meet the full intent of the EPAct and this

Program in their definition of an IRP for each of the IRP criteria, and

are they appropriate for the customer's size, type, resource needs, and

geographic circumstances?

Western will not direct a customer to utilize specific

methodologies in the development of its IRP. Customers will make their

own choices regarding resource type, quantity, and timing in accordance

with their IRP.

Western will not dictate resource choices but will review them for

reasonableness.

Western will accept an IRP prepared for another Federal, State, or

other regulatory body if the IRP substantially complies with the

requirements of Western's IRP procedures. Western recognizes that the

past efforts of many of its customers in implementing conservation and

demand-side management have been significant. Historic investments by

Western's customers will influence the future resources available for

consideration in an IRP or a small customer plan. However, the EPAct

makes no allowances for the approval of IRPs or small customer plans

based upon past efforts.

Only Western personnel will review customer IRPs. Western does not

plan to employ consultants to review IRPs, nor does it propose to use

peers for the review of customer IRPs. Western considered the merits of

peer reviews, but issues related to proprietary or sensitive customer

data and administrative burden seem to outweigh any potential benefits.

Most importantly, the EPAct requires Western's Administrator to review

IRPs; this responsibility should not be delegated to consultants or

customer peers.

Western has included an administrative appeal process that provides

for appeals to the Area Manager or Administrator in the event the

customer does not agree with Western's determination of the

acceptability of an IRP or small customer plan or its compliance with

an approved IRP or small customer plan. In addition, Western will

consider the use of mutually agreeable alternative dispute resolution

practices, to the extent allowed by law, on issues of IRP acceptability

and compliance.

5. Member Based-Associations

a. Background

There is a considerable mix of contractual arrangements among

Western's member-based associations (MBA) customers. Some MBAs are the

sole supplemental power supplier for the members and have load growth

responsibility, while others act as a representative for the members

and have no generation or transmission capabilities.

b. Comments

--In order to achieve the most cost-effective and operational IRPs

possible in their situations, all of the members/participants must

support the IRP with data and during the final decision making process.

--While most MBAs or power suppliers may wish to prepare a unified IRP

on behalf of all their membership, not all members may be supportive of

such a centralized approach and prefer the option of doing their own

IRP.

--Western should accommodate the variations represented by its

customers and their numerous organizational and supply arrangements.

c. Discussion

Western has proposed an IRP requirement which allows MBAs to submit

individual IRPs for each of their members, or submit one IRP on behalf

of all of their members, so long as individual member responsibilities

and participation are identified. Western has also provided an option

for any member of an MBA to submit an individual IRP to Western. While

Western agrees that members should support the IRP process with data

and during the decision making process, it is the responsibility of

each MBA to work with its membership on these issues. Each member will

be required to sign the IRP or a resolution accepting the IRP prior to

submittal to Western.

All customers will be required to notify Western within 60 days of

the effective date of the final Program of their intent to submit an

IRP individually, through an MBA, or as an IRP cooperative.

6. IRPs Prepared for Others

a. Background

A number of Western customers are required to submit IRPs to

regulatory bodies and other agencies in addition to the requirement to

submit an IRP to Western.

b. Comments

--Western should accept IRPs prepared by its customers for other

entities.

--The Rural Electrification Administration requires an IRP only when a

customer applies for financing; Western should have a similar timing

requirement.

--Would Western adopt a different criteria for review and acceptance of

IRPs prepared for other entities than for IRPs prepared specifically

for Western?

--Western's energy planning and marketing programs are intruding into

customers' traditional utility responsibilities. Customers are

concerned about multiple jurisdictions requiring IRPs.

--The IRP regulations should not be burdensome or duplication for

customers preparing to meet State and other Federal requirements.

Conflicts with IRP requirements should be avoided. If IRP rules are

stringent or specific, they should not apply to entities subject to

IRPs from State regulations.

c. Discussion

The EPAct stipulates that Western will accept IRPs prepared for

other governing agencies if those IRPs substantially comply with

Western's Program. In addition, it stipulates that State-regulated IOUs

are exempt from Western's procedures. Western has, in the development

of this Program, considered resource planning regulations and policies

of other entities, particularly State public utilities commissions and

the Rural Electrification Administration. We have reviewed and compared

those other requirements and proposals with the fundamentals of this

proposal. While we have not found any other proposals, regulations, or

policies that are mirror images of the Western proposal, we believe

that this proposed Program is generally compatible with other

requirements. The EPAct does not provide an option to require IRPs only

when a new resource and/or associated financing are necessary.

7. IRPs for Utilities in Surplus

a. Background

Within Western's 15-State marketing area there is a great deal of

diversity in the resource situation in various regions and in the types

of customers. There are utilities and regions with surplus power and

utilities and regions facing the next resource acquisition decision.

There are both large and small utilities that may or may not have

direct control over generation decisions of their power supplier.

b. Comments

--Customers suffering from loss of load should be exempted from the new

programs for conservation and efficiency.

--In situations where utilities have surplus generation, marketing

should be considered an acceptable option.

--Western should not mandate additional expenditures on DSM which would

create additional surpluses and increase rates.

c. Discussion

Utilities in surplus could be viewed as having the time and tools

necessary today to plan better for the future without being under the

time pressure facing utilities with a more immediate need for

resources. The EPAct does not give Western the flexibility to exempt

customers with surpluses or in a load-loss situation from the IRP

requirements. The IRP process has no predetermined outcomes. Western

will not mandate the selection of a DSM technology over other resource

options; however, we are requiring the evaluation of the economics of

DSM technologies compared with other resource options. Should a DSM

technology be the least cost, Western believes that it should be

adopted or that there should be documentation explaining why another

option fits better with the utility's objectives. Exceptions to least-

cost-based decisions may be made if the customer can show in the IRP

document that decisions were made on a clear analysis of demand- and

supply-side resource options and environmental effects.

8. Economic Feasibility and Administrative Burden

a. Background

A number of Western's customers are smaller or medium-sized

utilities. To date, there are more examples of the costs of preparation

and implementation of IRPs by larger utilities, mostly IOUs. These

examples have tended to set the baseline for what smaller and medium-

sized utilities expect to incur in preparation and implementation of

IRPs. Western is not proposing to define how much time and money a

customer should invest in IRP development and implementation. Rather

Western's review will be focused on the end-product IRP. The EPAct

requires that customers develop and submit annual progress reports to

Western. Western is interested in both quantitative and qualitative

reporting. The draft IRP procedures list five items that must be

included in the annual report. A penalty may be assessed for

nonsubmittal of an annual report to Western.

b. Comments

i. Comments on Cost of IRP Development

--Some customers believe that the cost of preparing an IRP would be a

higher percentage of their revenues (as compared to a larger utility)

and subsequently serves to be a double penalty or inequity as compared

to larger customers.

--There should be a ceiling on the costs customers should be expected

to incur in preparation of an IRP; i.e., it has been suggested that IRP

costs should not be in excess of 1 percent of the customer revenues,

while others have suggested a ceiling based on 2 percent of annual

administrative cost (as averaged over 5 years).

--Do not stipulate an IRP funding percentage.

ii. Comments on Cost of IRP Implementation

--Some customers are concerned about the economic feasibility of

demand-side management for small utilities.

--The proposal threatens to shift load away from electricity toward

more reliance on petroleum and natural gas if, as a result of IRP

development and implementation, electric rates increase.

--The administrative cost of IRPs estimated in the draft EIS does not

appropriately recognize the cost of monitoring and verification.

--The IRP implementation costs may be too imposing.

--Western's actions could impact rates.

--Customers have resource limitations.

iii. Comments on Burden of Reporting

--Reporting requirements should be kept to a minimum.

--The administrative burden of reporting for small customers could be

too much.

--Since growth, weather, and changing economics drive power use as much

as or more than conservation, most data cannot be used to measure the

Program's effectiveness.

--Research and development should be recognized, even if no measurable

benefits are evident today.

--Western needs to simplify and streamline its reporting requirements.

c. Discussion

Western is sensitive to and understands the concerns about the

costs of development and implementation of an IRP and the importance of

practicality. Western believes that the benefits of preparing an IRP

could outweigh IRP development and implementation costs. The IRP

process holds the potential for customers to make better decisions,

develop greater credibility with their end-users, and provide more

cost-effective and valued service. The level of resources a customer

expends in the development and implementation of its IRP is not a

factor in the review and approval of the IRP.

Western believes that many of its customers are already performing

some of the aspects of IRP and subsequently incurring costs associated

with good planning and customer service activities. The costs of

developing and implementing an IRP are also somewhat staged. In this

sense, an IRP can be viewed as a risk management tool, since the

assessment of the best resource options can take place before the

resource need is imminent so that less start-up time is necessary when

resource needs are apparent. Western anticipates that the benefits from

IRP implementation will outweigh the administrative burden of data

collection, data preparation, and reporting.

The level and extent of reporting should be consistent with each

customer's size, type, resource needs, and geographic area in the same

manner as the IRP preparation itself. The IRP procedures identify

specific items that should be included in annual progress reports. The

most important portion of the annual progress report is quantification

of benefits achieved. Credible estimates of benefits are appropriate if

actual measurement is infeasible or not cost-effective. Western will

prepare a summary of customer IRP activity and publish it in its annual

report.

References to benefits in the procedures are not limited to

conservation. Integrated resource plans may lead to a variety of

different resource acquisition strategies, including the development of

supply-side resources. Although Western is proposing that customers

quantify both demand-side and supply-side investments that add to

supply or reduce demand, other less quantifiable benefits may result

from a successful IRP. Examples include creating a more diverse,

flexible, or reliable resource mix; improving external and internal

customer communications; improving the environmental sensitivity in

resource planning; and developing improved customer knowledge of its

system and its consumers. For utilities in surplus conditions, a

marketing program developed pursuant to an IRP also presents an

opportunity to measure benefits.

Research and development efforts related to a customer's IRP should

be valid components of the plan, since the result would eventually lead

to tangible and measurable benefits.

Western expects that the costs and methods of verifying,

monitoring, and reporting on IRPs will vary substantially among

Western's customers. For this reason we believe it is infeasible to

attempt to set a specific verification standard because of the

differences in customer size, type, resource needs, and geography

associated with the plans. Western will provide technical assistance,

upon request, to its customers in monitoring and verifying the results

of IRPs.

9. IRP Cooperatives

a. Background

Customers may form IRP cooperatives under the EPAct and request

Western's approval to submit IRPs for those cooperatives.

b. Comments

--Western should consider permitting the formation of cooperatives that

could represent the common interests of several customers.

--IRPs should be accepted from generation and transmission (G&T)

cooperatives.

c. Discussion

The IRP proposal allows purchasers with common interests, such as

where a resource decision block exists, to form an IRP cooperative for

the purpose of jointly developing and implementing an IRP. Western is

proposing to extend IRP cooperative status to existing first-level and

second-level G&T cooperatives that make such requests. For MBAs and IRP

cooperatives, individual member responsibilities and participation

levels must be identified in the IRP.

10. Technical Assistance

a. Background

Western has provided technical assistance to customers, which

includes workshops, equipment loan programs, technical studies and

analyses, peer-match evaluations, and other support since 1980.

b. Comments

i. Comments Related to the Cost of Services and Resources

--Caution should be exercised in considering the rate and revenue

impacts which offering technical assistance may entail.

--The proposed action should indicate the level of effort that Western

intends to devote to the program (budget, staff, etc.).

--How can Western provide technical assistance, review, and approval of

IRPs within 120 days as required by the EPAct when it is reducing its

personnel?

--Anything beyond nominal technical assistance should be paid for by

the benefiting customer.

ii. Comments Related to Services

--Western should develop an idea list by activity and should cofund

IRPs and develop packaged demand-side management programs.

--Technical assistance should include cash, grants, reinstating cost-

share programs, and other financial assistance for such things as

circuit riders, plan monitoring techniques, developing a `cookbook' for

doing IRPs, and/or a general sharing of customer IRPs through an

electronic bulletin board or library.

--If IRPs are necessary, we need a copy of the Resource Planning Guide

(RPG) and technical assistance.

--In general, we are impressed with the comprehensive and thoughtful

nature of the IRP materials Western plans to provide to its customers.

--Western should do less technical assistance on IRPs and emphasize

customer acquisition of efficiency instead.

c. Discussion

Technical assistance will continue to be an integral part of

Western's programs and services. Western's present technical assistance

budget is about $5 million per year. Western also acquires cost sharing

and cosponsors whenever possible. We will continue to seek additional

funding and resources from potential cosponsors of services and

activities in order to leverage the benefits of the service, reduce

financial risk, and remove barriers to the successful application of

emerging technologies. While Western expects to continue to experience

limitations on staffing, we will make every effort to assure that the

technical assistance is available to customers upon request, while

ensuring review and approval of customer IRPs as provided by the EPAct.

The majority of Western's customers have not done an IRP before and

need technical assistance. The EPAct specifically directs Western to

give priority to providing technical assistance to customers that have

limited capability to conduct IRP. Requiring the benefiting customer to

pay for technical assistance would raise an obstacle to effective IRP

for those customers that have limited resources.

The range of customer technical assistance activities has been

extremely diverse and customer driven over the last decade. We do not

expect this to change as we focus on technical assistance in the

customer preparation and implementation of IRPs. Western is willing to

look at reinstating the cost-share program, has provided financial

assistance for circuit riders, developed the RPG to assist customers in

developing IRPs, and has instituted an electronic bulletin board

service. We are willing to assist in the development of IRPs and

demand-side management programs. Copies of the RPG are available upon

request to Western.

Western believes that an emphasis on IRP technical assistance is

appropriate at present and consistent with the EPAct emphasis. A

customer should not acquire an efficiency resource before an analysis

of cost-effectiveness takes place pursuant to an IRP.

Western's energy services program utilizes a 5-year planning

process, reviewed annually to ensure that customers are receiving the

best and most appropriate assistance possible. Customers can telephone

Western's energy service managers in the appropriate Area Office to

discuss their needs for technical assistance.

11. Submittal Timing

a. Background

The EPAct requires updated IRPs to be submitted to Western for

review every 5 years. The Program is drafted to assure that customers

are benefiting from IRP development and implementation and to ensure

that customers meet the IRP criteria. The 5-year timeframe is also

consistent with a long-term action plan timeframe thereby ensuring that

the action plan is fully updated.

b. Comments

--Every 2 years is too frequent for IRP submittal because power

requirements studies for large generation and transmission cooperatives

are done every 3 years and end-use surveys are done every 3 years in

some utilities, and an IRP would be based on these documents.

--The frequency of submittal could be based on need to meet load growth

development.

--Suggestions included 5-year IRP submittal with biannual status

reports, and plans should be evaluated and revised every 5 years.

--There should be an evaluation period every 10 years for IRP

submittals.

c. Discussion

Western has proposed the 5-year IRP submittal period as set forth

in the EPAct. We believe that this period is more compatible with the

power requirements study and end-use survey frequencies of many Western

customers than other shorter periods of time. The proposal also allows

customers to submit other changes to their IRPs to Western as part of

the annual progress report.

12. Irrigator Issues

a. Background

Western is proposing that the IRP provisions required by the EPAct

apply to all customers, with the exception of those qualifying for the

small customer provision. Irrigation districts may qualify for small

customer status. This supersedes earlier proposals for accepting

previously approved and implemented energy and water efficiency plans

submitted to other Federal or State governmental agencies.

b. Comments

--Public review of irrigation district IRPs would be costly and staff-

consuming.

--Irrigators should not have to address all IRP elements--some elements

apply only to generating entities (e.g., resource comparisons,

environmental impacts of actions); it is not cost-effective for small

customers to look at all of this.

--Western must recognize water conservation activities.

--IRP rules need to recognize that agriculture is different from other

loads and that progress must be measured differently. Western must

recognize the unique character of irrigators and give credit for past

investments that are still providing benefits. Western's regulations

must take into account constraints such as water conservation mandates,

weather changes, and individual farmer decisions.

--Irrigators have no access to other sources of power supply.

--Irrigators cannot meet the rigid definition of IRPs as set forth in

Western's periodic newsletter; make the language more flexible and

allow irrigators to do a different type of energy management plan.

--Western should consider the best management practices plan and State

conservation plan as alternatives.

--Preparation of an IRP would be so costly and sophisticated in terms

of cost-benefit analysis that irrigators would have to hire consultants

at considerable expense to prepare the plan.

--Water districts of 2 megawatts (MW) or less should be exempt from

IRP.

c. Discussion

The EPAct limits Western's ability to propose special program

requirements or exemptions for irrigators. However, Western believes

that IRPs can be beneficial for irrigation customers. IRPs can be

developed to assess possible efficiencies in the use of power and water

and document accomplishments in water conservation.

An irrigation district might find that its IRP would consider more

demand-side resources in its assessment because it has limited control

over the supply side. An IRP prepared for a district in one area may

look entirely different from one prepared elsewhere due to regional

issues such as different soil types, irrigation practices, and water

availability and quality, which would necessitate different approaches

to planning.

Western recognizes that water conservation may be equated to energy

conservation practices and that the IRP process may easily address

both. Western feels that the IRP process, as we have now defined it,

can accommodate the wide range of differences among its customers. The

flexibility contained in the IRP language will allow for creativity in

the planning process and in resource selection. An IRP allows customers

to use their own resources, experiences, and talents to address the

requirements. Consultants need not be retained to do extensive analysis

of the costs and benefits of various resource opportunities when the

evaluation and resource decision is based on an irrigator's experience

or the preexisting analysis of agencies and institutions as it relates

to prudent management of resources.

13. Future Program Review

a. Background

The historic program review interval was based upon the existing

G&AC requirement of a C&RE program review every 5 years. Western

published its initial G&AC on November 13, 1981. An amendment to the

G&AC was issued on August 21, 1985, as a result of a 5-year review and

passage of the Hoover Power Plant Act of 1984. There is concern that

continued 5-year reviews of the program will create uncertainty and

work against acceptance of integrated resource planning.

b. Comments

--Western needs to clarify its intentions concerning the current 5-year

review period for the C&RE program to assure customers that radical

program changes are not anticipated in the near future.

--Western's 5-year review of conservation programs is not acceptable

unless significant changes in the Program are mutually agreed to by

Western and its customers.

--Periodic review of the Program is necessary; there was objection to

linking power contracts to an EMP which might undergo radical revisions

every 5 years.

--Customers cannot plan and achieve stability if subject to wholesale

revisions every 5 years.

--Program changes should be phased in gradually and done with the

approval of Western's customers once the Program is established.

c. Discussion

Western is sensitive to customer concerns and interest in the

planning stability that this Program offers. The EPAct requires that

Western review the IRP program requirement beginning 1 year after

January 1999 and at appropriate intervals thereafter. The review will

be for the purpose of reflecting changes, if any, in technology, needs,

or other developments. This review will take place pursuant to a public

process.

14. Penalty

a. Background

Western proposed that penalty imposition would be triggered by (1)

nonsubmittal of an IRP or a required annual progress report or (2) not

addressing each of the required IRP elements. Prior to the alternatives

workshops, Western proposed a rate penalty of 10 percent of the firm

monthly bill for each of the first 6 months of noncompliance with

Program requirements, increasing to 20 percent of the firm power

monthly bill for each of the next 6 months of noncompliance, followed

by withdrawal of the entire Federal resource commitment if

noncompliance persists for more than 1 year. Pursuant to the EPAct,

Western is now proposing a graduated surcharge on all power purchased

from Western for noncompliance with the Program.

b. Comments

--The allocation loss provision is unacceptable; the addition of

another rate penalty layer is better than a resource loss.

--Penalty provisions should be eliminated. Instead, the focus should be

on providing incentives.

--The existing 10-percent resource penalty provision should be

continued.

--A penalty provision with a sliding scale should be adopted. For

example, if a customer comes up 10 percent short of its energy

efficiency goals, the penalty should be a 10-percent resource

reduction.

--An appeals process is necessary. Western should use arbitration or

mediation to resolve disputes under the Alternative Dispute Resolution

Act.

--Be realistic about the ``death penalty'' loss of the entire

allocation approach. Western cannot be serious about pulling the plug

on a customer.

--Penalties should start 1 year after the noncompliance notice, then

10-percent rate penalty for the next year, 20 percent for the next

year, followed by a total resource loss.

--Western should adopt a 10-percent penalty for the first year of

noncompliance, followed by a 20-percent penalty for the second year,

with an additional 10-percent penalty for each succeeding year. A

partial loss of an allocation (up to 25 percent) should occur only if a

customer is more than 12 months behind in the payment of late charges.

--Compliment Western on the proposal of rate penalties before any

resource withdrawal.

--A resource withdrawal penalty is not favored, as it would be the most

severe for a customer and probably the most difficult to administer for

Western. Resource withdrawal would necessitate customer acquisition of

replacement power at higher rates, while Western would be faced with a

possible loss of revenues and would create an administrative burden of

marketing the withdrawn power.

--Federal agencies that are long-term firm power customers should be

exempt from penalty imposition.

--The withdrawal of the total Federal resource should not be permanent.

Customers losing their allocation due to noncompliance should be

allowed to recapture the power once compliance is achieved.

--Sanctions should be imposed at the final customer level and not on

the member-based association.

--How will Western impose a penalty when an IRP is being prepared by an

MBA and only one member of the MBA refuses to comply with Western's

program?

--There should be only one penalty imposition on a customer.

--Western begins by penalizing existing customers by proposing the

extension of less than the resource they possess today and then offers

nothing but more penalties for failure to comply with the EMP.

--We recommend a 1.0 mill per kilowatthour (mill/kWh) rate penalty for

the first year of customer noncompliance, increasing by .5 mill/kWh

increments annually up to a maximum rate penalty of 5.0 mills/kWh. The

resulting funds should be used for environmental mitigation activities

and energy conservation projects.

--A rate penalty is much preferred because it provides an appropriate

penalty without jeopardizing community health or safety. Impacts would

be economic rather than operational.

--A resource reduction penalty for noncompliance with the IRP

requirements may not be permissible under Federal law for Hoover

contractors.

c. Discussion

Since Western's original penalty proposal, Congress enacted the

Energy Policy Act of 1992. This law mandates the use of a graduated

surcharge on all power purchased by a customer from Western for

noncompliance with the Program. An alternative penalty of loss of 10

percent of the resource delivered under a long-term firm power contract

after the first 12 months of noncompliance has been proposed by

Western.

Due to the action by Congress, Western has lost its flexibility to

respond to many comments through changes to Program procedures

regarding penalties. Western will adopt the provisions of the EPAct on

this issue. Penalties in existing contracts, which provide for a 10-

percent reduction in firm power resources for noncompliance with the

G&AC, will continue to be in effect for the Program until changed. The

EPAct recognizes the appropriateness of the 10-percent resource penalty

approach. The graduated surcharge provisions in the EPAct and proposed

in these procedures will be incorporated into the contracts that extend

resources.

Western does not intend to impose Program penalties in an

unreasonable way. Western is much more interested in working with its

customers to comply with the IRP requirement so that the benefits of

IRPs are realized by electrical consumers. During customer interviews

that took place to help Western assess the organizational impacts of

the Program, many customers indicated that they supported integrated

resource planning. Western will continue to provide technical

assistance to customers so that IRP preparation can take place in a

timely and acceptable way.

In situations involving an IRP submitted by a member-based

association on behalf of its members where a single member does not

comply, the proposed penalty would be applied to the member-based

association on a pro rata basis in proportion to that member's share of

the total member-based association's long-term firm power contract.

Western does not believe that exempting Federal installations from

the proposed penalty provisions is good policy. As in the past, Western

does not believe that special treatment for any customer is fair or

appropriate. Federal installations would have a lesser incentive to

realize the potential benefits that may be identified in an IRP if a

penalty exemption were to be granted. Cost savings in acquiring

appropriate supply- and demand-side resources should be as beneficial

to Federal installations as any other customer. Moreover, the EPAct

does not exempt Federal installations from the statutory penalty

provisions.

Revenues resulting from the imposition of penalties cannot be used

to fund environmental mitigation activities and energy conservation

projects. By law, all of Western's revenues, including those from

penalty imposition, must be deposited in the United States Treasury and

are applied to project repayment. For most of Western's projects,

revenues cannot be used to fund activities; appropriations from

Congress are the budgetary resource from which expenditures are made.

Western does not agree that a resource reduction penalty for

noncompliance with the IRP requirements is not allowed for Hoover

customers. Section 114 of the EPAct amends Title II of the Hoover Power

Plant Act, indicating that Congress intended to apply the penalty to

Boulder Canyon Project purchasers. Moreover, existing Hoover contracts

already have a resource reduction penalty as part of their terms and

conditions. Western sees no obstacle to enforcement of the penalty, if

necessary, for purchasers of Boulder Canyon Project power.

Western has adopted several of the comments received. Provisions

for dispute resolution and administrative appeal have been included in

the proposed Program.

C. Power Marketing Initiative

1. Extension Term

a. Background

Western is proposing to extend resource commitments to existing

customers beyond the expiration date of currently effective contracts.

In the early stages of the Program public process, Western suggested

that 10 to 40 years would be an appropriate range of extension terms.

After receiving comments during the EIS scoping process, Western

developed a limited extension alternative of 10 years from the date of

IRP approval and three extension alternatives for evaluation in the

draft EIS: 15 years, 25 years, and 35 years, all from the date existing

contracts expire.

b. Comments

--We favor alternative eight in the draft EIS, with a term of 25 years.

--Recommendations for the length of resource extensions to existing

customers included 10 or more years, 15 years, at least 20 years, 25

years, 30 or more years, 40 years, and 50 years.

--Preference was expressed for a 15-year extension at a higher level,

as opposed to the other alternatives with lower levels of extension.

--Why should I opt for anything longer than 15 years? With

uncertainties that exist over Western's marketable resources due to

environmental concerns and the rising costs of Western's power, we may

not want to be tied into long-term contracts.

--Those who have paid for projects in the past should have first call

on future resources.

--Western customers who have developed resource plans with a planning

horizon beyond 10 years should be considered for allocation terms of a

comparable length.

--As many customers base load their Western allocation, an extension

should be for as long as the useful life of base-load capacity, such as

a thermal plant.

--The draft EIS alternatives do not provide resource stability.

--In order to meet the needs of fish and wildlife, Western needs to

extend resources for a minimal time period or provide for resource

adjustment capability. Western should explain the impact of resource

stability on fish.

--Western should extend resources for a 50-year period of time,

comparable to Federal Energy Regulatory Commission (FERC) licenses.

--A longer-term extension should be granted if the power is linked to a

specific renewable resource project with long-term benefits.

--Longer resource extensions at a high level have environmental

benefits.

--Resources should be extended for at least 25 years.

--Thirty-five-year contracts have superior environmental benefits as

compared to 25 years.

--Suggest 35- to 40-year contracts.

--We support a limited 10-year extension with a resource pool to

promote energy conservation and the use of renewables.

--Western should consider extending 70 percent of existing commitments

for 10 years.

--We strongly support nonextension alternatives, as resource extensions

are not needed for effective IRPs.

--Heavy reliance on long-term contracts is inconsistent with current

IRP practices and utility planning in the 1990s.

--Shorter-term planning horizons are needed to be competitive. The

trend is moving away from relative stability associated with exclusive

franchise monopolies.

--Many public utility commissions are discouraging utilities from

incurring costs associated with acquiring long-term resources.

--Customer willingness to fund environmental improvements will be

impacted if the Western resource is short-term.

--Twenty-five year contracts are objectionable on environmental

grounds; it will be more difficult to change hydropower operations to

protect the environment if resources are locked in.

--While it is true that long-term contracts will discourage

construction of new generating facilities, this will also be a

disincentive to improving energy efficiency and will frustrate IRP.

--The cost of borrowing goes up when resource uncertainty exists,

especially for renewables/DSM.

--Western power helps us remain competitive in a changing utility

industry.

--We prefer 25-year extensions of 100 percent of our current

allocations.

--Existing customers have provided enormous financial support to

Western; this should be recognized.

--Long-term contracts maintain the competitive balance in the utility

industry.

--Renewable resources, in particular, can require a longer period to

amortize and would be easier to select when a dependable cost-effective

long-term Western resource complements them in a customer resource mix.

c. Discussion

In developing a proposal for the length of the resource

extensions, Western has considerable discretion. One of the limits on

that discretion is the prohibition, as set forth in the Reclamation

Project Act of 1939, on power sales contracts with terms in excess of

40 years. Western may legally consider commitments of power up to, but

not beyond, this 40-year maximum.

Western proposes a resource extension period of 18 years for

several reasons. This time period is long enough to maintain a

sufficient customer planning horizon. Long-term project financing,

whether for supply-side, demand-side, or renewables, would be feasible

with such an extension. Western agrees that financing of renewable

resources is particularly sensitive to Federal hydropower resource

uncertainty. Eighteen years will maintain the resource stability

necessary for effective integrated resource planning. At the same time,

18 years is not so long that Western cannot reasonably guarantee the

availability of the extended resource. The proposal of a graduated

resource pool available to new customers gives Western the flexibility

to allocate power equitably over the term of the contract.

Western's goal is to provide a sufficient incentive for new

customer preparation of IRPs and to offer an extension compatible with

the time horizon for other resources evaluated in IRPs. Another goal is

to reduce the amount of Western, customer, and public time and

resources spent on marketing plan development. An extension of resource

commitments for 18 years beyond the expiration date of contracts with

existing customers would mean that new contracts would be in place

until at least 2020. Initial extensions would be about 23 years from

the date that extension commitments are offered to customers of the

Pick-Sloan Missouri Basin Program--Eastern Division; this time period

approaches the average useful life of thermal generation.

The concern about being locked into long-term arrangements with

Western is answered by existing contractual language. The General Power

Contract Provisions, which are part of every long-term contract for the

sale of power by Western, allow a customer to terminate the contract if

a rate adjustment causes power to become uneconomical. This principle

will be retained in contracts extending resources pursuant to the PMI.

Western has provided for resource adjustment capability as part of

the PMI. Extensions would be based on the resource available at the

time existing contracts expire. This allows Western to respond to

changes in operations at Corps of Engineers (Corps) and Bureau of

Reclamation (Reclamation) hydroelectric plants before the term of

contract starts for extended resources. In addition, Western can make

further adjustments in its marketable resources in response to changes

in hydrology and operations upon 5 years' notice. Because of this

capability, no need exists to extend resources for a minimal time

period to protect fish and wildlife resources. The impact of resource

stability on fish can be summarized as an extension of existing

commitments, with the recognition that adjustments to the marketable

resource as a result of operational accommodations for fish and other

wildlife resources can be accomplished within the extension framework.

Western prefers to encourage the development of cost-effective

renewable resources through means other than tailoring the extension

period to particular renewable resource development/payback time

periods. Such an approach would lead to varying contract terms, making

project-wide marketing difficult in the future. The proposed extension

term of 18 years is sufficiently long to make the long-term financing

of renewable resources feasible.

Western realizes that the draft EIS predicts relatively greater

environmental benefits for contract terms in excess of 18 years. At the

same time, an 18-year proposal has clear future environmental

advantages over a shorter extension period, such as those represented

by the limited extension alternatives. An even greater environmental

advantage exists for 18-year future resource extensions under the

Program as compared to the uncertainty and delays associated with a

potential project-specific marketing plan approach. Western's proposal

balances environmental benefits associated with resource certainty

against the need for flexibility to respond to changing circumstances

over time.

Some of Western's customers suggest that since they have paid for

projects in the past, they should have first call on resources in the

future. Western agrees that the resource choices made by customers in

the past have led to the construction or purchase of certain

supplemental generating resources, as well as investment in

transmission resources or negotiation of transmission service

contracts. Certainly, Western does not want to disrupt regional power

supply and transmission arrangements at considerable economic and

environmental cost to the area. At the same time, Western's existing

customers have no equity position in Western's facilities, and they

have no right to receive power from Western in the absence of a

contract. Western believes the public interest is served by having the

flexibility to meet a fair share of the needs of new customers from the

publicly owned, taxpayer-financed hydroelectric facilities in the West.

Western agrees that the Program does not provide its customers with

absolute resource certainty. Instead, the Program attempts to provide

as much certainty as possible to facilitate the development of

integrated resource plans, while retaining the flexibility to respond

to changing conditions and evolving needs.

The holder of a FERC license typically plans, funds, and constructs

the hydropower resource itself. A long-term license is appropriate in

such a case, given the length of the construction debt service and the

responsibilities of the licensee. With Western's resources, the

planning, construction, financing, operation, and maintenance of the

hydroelectric generation and high-voltage transmission is usually the

responsibility of the United States. Since the two situations are not

strictly comparable, Western feels that a proposal of an 18-year term

of contract is appropriate.

Western does not concur with comments advocating adoption of either

a limited extension alternative or 10-year extensions of resources from

the date existing contracts expire. Integrated resource planning is a

future-oriented planning process that is enhanced by resource

stability. Instead of planning for the replacement of Western's

resources or customer hedging of bets on the future availability of

Western's resources, IRPs can be focused on implementing cost-effective

resources, including energy efficiency and renewables, to meet load

growth in the future. The Program public process to date illustrates

how long Western's marketing initiatives can take to implement. A 10-

year resource extension would require Western to commence the

development of post-extension, project-specific marketing plans in the

near future. The time and resources spent by Western and the public in

the continuous development of marketing plans could be better spent on

pursuing cost-effective energy efficiency and renewable resource

opportunities.

According to the attachments submitted as part of the comments of

the Edison Electric Institute, 25 States have mandated planning

horizons for regulated utility integrated resource planning; 13 of

these States have established a planning horizon of 20 years. Western's

18-year resource extension proposal is consistent with a planning

horizon of 20 years.

A comment was received stating that heavy reliance on long-term

contracts is unwarranted and incompatible with current IRP practices

and utility planning. Western's proposal does not lock a customer into

a long-term, take-or-pay arrangement, as the extension contracts would

allow a customer the option to terminate a contract upon implementation

of a rate adjustment by Western. Western agrees that the utility

industry is increasingly dynamic, and that utilities must be flexible

and forward-looking in order to be successful. The IRP requirement in

this Program will provide Western's customers with the tools necessary

to succeed in a changing utility climate. Many comments were received

from the public indicating that an extension of resources would assist

IRP and not hinder future resource planning.

Western does not agree that long-term contracts will be a

disincentive to improving energy efficiency. Short-term contracts cause

customers to focus on the uncertainty surrounding the Western resource,

rather than looking to implementation of cost-effective energy

efficiency and DSM to meet future needs. Western only provides a

portion of the resource needs of its customers, about 30 percent on

average Western-wide. The cost of supplemental resources, whether

supply-side or demand-side, is usually significantly higher than the

cost of Western's resources. Supplemental resource prices provide a

significant incentive to implementation of cost-effective energy

efficiency improvements.

Some customers indicated that their willingness to fund

environmental improvements would be impacted by short-term contracts.

Western agrees that short-term contracts could be a disincentive to the

implementation of environmentally beneficial project improvements.

Several comments were received stating that Western power

preserves the competitive balance in the utility industry. Western's

hydropower commitments provide a yardstick that enhances competition in

the utility industry within Western's marketing area. Eighteen-year

contracts help preserve the competitive balance in the regional utility

industry.

2. Extension Percentage

a. Background

Western is proposing to extend a major percentage of the power

currently under contract with long-term firm customers. In the early

stages of the Program public process, Western suggested that 70 percent

to 100 percent might be an appropriate extension range. The possibility

of extending resources on a graduated scale, weighted towards some

customer characteristic, was suggested. After receiving public comments

during the EIS scoping process, Western developed three extension

alternatives for evaluation in the draft EIS: 98 percent, 95 percent,

and 90 percent. A limited extension alternative would extend resources

at a 100-percent level for 10 years, starting at the time of IRP

approval by Western.

b. Comments

--The extension percentage should be as high as possible. Requests were

made for a 100-percent extension and a 98-percent extension.

--Extensions of resources at a high level have environmental benefits.

--The concept of a resource pool goes against Western's expressed goal

of providing customers with resource certainty.

--The PMI shifts the risk of resource availability to customers--this

does not promote long-term resource stability! Western should meet the

risk issue through power pooling or other creative approaches. Western

can do this more efficiently than customers due to economies of scale,

its extensive transmission system, and its experience.

--Twenty-five percent of Pick-Sloan Missouri Basin Program-Eastern

Division power should be made available to Native Americans.

--Get rid of the resource pool. A resource pool is unnecessary given

your marketable resource adjustment windows. What is the risk if

Western can withdraw?

--If necessary, extension reductions should be phased in. As part of a

35-year extension, Western should extend 98 percent of existing

commitments for the first 15 years, 95 percent for the next 10 years,

and 90 percent for the last 10 years.

--The impact of changes in hydroelectric commitments on auxiliary

suppliers must be considered.

--Extensions of firm, long-term resources should be provided sparingly,

and only to customers who are very diligent in setting and meeting

energy efficiency goals.

--The Program should be a requirement in all of Western's contracts and

should apply to the Central Valley Project's (CVP) post-1994 power

marketing criteria.

--Clean Air Act concerns exist if power is not renewed to existing

customers. Not only will a customer lose part of the Western power

allocation, but a utility must obtain Clean Air Act allowances to

generate to meet the shortfall.

--Western should extend 70 percent of the marketable resource presently

under contract, as opposed to a higher percentage of a resource to be

determined at a later date.

--Twenty-five percent of the power extended to Western's customers

should be designated as an ``efficiency allocation'' that must be

earned through energy efficiency efforts and results.

--Western should let customers know how much of their allocation is

tied to successful energy efficiency accomplishments.

--Western should allocate only 80 to 90 percent of the marketable

resource available to customers on a firm basis, rather than the 98

percent under consideration.

--The need for a resource pool is acknowledged. The resource pool is a

good answer to critics of long-term extensions of power to existing

customers.

--The resource pool would undermine the tremendous benefit derived by

the ``yardstick'' service to preference customers in sparsely populated

areas.

--Up to 10 percent of existing resources would be sitting in a pool and

not being used. This policy has a major environmental impact for those

customers needing to acquire replacement resources.

--Withdraw capacity only, not both capacity and energy. The withdrawn

capacity could be used to firm up renewable resource or cogeneration

facilities.

--Build the resource pool with turnbacks of power from existing

contractors or out of project-use efficiency upgrades. Pool could also

be derived from contractual terminations or new resources that become

available.

--Capacity allocation reductions should be phased in at no more than 2

percent per year and should be applied on a pro rata basis to all

customers.

--Customers should have the ability to increase their allocations

through compliance with the Program.

--Extensions should be given on a pro rata basis; a graduated scale

approach is not warranted.

--Opposition is strongly expressed to any type of ``graduated scale''

extension concept.

--We prefer an extension of resources on an equal percentage basis to

all customers. If another concept must be used, the stepped-inverse

approach appears best.

--Prefer extension at 100-percent level for those who comply with

program regulations.

--Priority in the commitment of resources should be given to existing

customers who committed to Federal power when it was not the lowest

priced resource in the region. Western should recognize the historic

risk that many existing customers took in committing to hydropower and

the equity that existing customers have in the existing resources due

to their payment of bills through the years.

--Since CVP hydroelectric resources are more than 2,000 MW nameplate,

plus 400 MW or more Intertie capacity, a resource pool can be developed

without a mandatory reduction of existing contract rates of delivery.

--Reductions in the allocations could degrade the customer's ability to

meet obligations with respect to the financing of renewables and would

send the wrong signal regarding renewable resource development.

--Instead of reducing resources, Western has the responsibility to

develop additional resources.

--Due to the substantial impact on smaller customers of a reduction in

resources, Western should purchase power to cover any shortfalls.

--Small customer rates are high enough already. A reduction in the

Federal resource would unduly impact consumers and threaten the

continued financial stability of small customers.

--A reduction of power is unfair for our cooperative when Western

serves a higher percentage of the needs of other customers; this is

especially inequitable for Native Americans served by our cooperative.

--A relatively small extension of power would create a shortfall of

power for the customer that could not be made up by DSM alone. DSM

works well to meet incremental load growth, but a major loss of

resource would require supply-side action.

--Western should extend a customer's current allocation in full and

provide a 10- to 20-percent bonus if it currently meets Western's EMP

criteria.

--A lower extension amount would be unfair to CVP customers whose

contracts expire in 1994.

c. Discussion

Western believes that the Program proposal set forth in this

Federal Register notice provides certainty in customer planning

efforts. An extension of resources at this level is substantial enough

so that existing purchasers will not have to build new generation or

enter into large purchases of thermal generation. A lesser level of

extension could cause customer pursuit of other resources, with

potential associated economic and environmental impacts. The resource

planning of auxiliary suppliers would be disrupted by the nonextension

of a significant percentage of Federal power. Western agrees with the

comment that a substantial near-term shortfall in the Federal resource

could not likely be met in the short term by DSM alone.

Western agrees with the comment that significant reductions in

future allocations could degrade the purchaser's ability to meet

obligations with respect to the financing of renewables and would send

the wrong signal regarding renewable resource development.

Western also agrees that it is not appropriate under this Program

to shift the majority of the risk of resource availability onto

purchasers without their consent. Western's contracts will allow

customers to take on the responsibility of acquiring firming resources

in the future if the customer chooses to do so. If a purchaser prefers

that Western carry out this responsibility, Western can take advantage

of its extensive transmission system to purchase firming resources, in

accordance with IRP principles, to meet contractual obligations during

drought conditions. The use of resource adjustment provisions, rather

than a large resource pool, meets Western's need for flexibility in

making long-term resource commitments. Western agrees that reservation

of a large percentage of existing firm resources in an initial resource

pool could have economic and environmental impacts. Instead, Western is

proposing an incremental resource pool over time. This approach avoids

the disruption of one large resource pool implemented all at once, with

the potential for power being reserved for future needs but not being

used at present.

Western has developed a proposed extension formula that provides

equitable treatment to all existing purchasers, as the risk of change

in marketable resources before existing contracts expire is shared.

Existing purchasers may get more or less power if marketable resources

are redefined to a different amount.

Western has reserved the right to change the marketable resource

on 5 years' notice. Any change would take place only after an

appropriate public process. This flexibility balances the ``firm''

nature of Western's resource with the need to address changing

conditions throughout the contract term. Western agrees that the risk

of changing operational constraints is addressed by the resource

adjustment capability and a resource pool need not be created for this

purpose.

Withdrawal of only capacity from existing purchasers would not meet

the needs of new customers in the absence of energy availability from

other sources. Purchasing energy to go with this capacity would create

additional pressure on Western's firming resource acquisition budget

This text is long and has been trimmed here. Open the source document for the complete record.