Final Provo River Project Marketing Plan

DEPARTMENT OF ENERGY

Western Area Power Administration

Final Provo River Project Marketing Plan

AGENCY: Western Area Power Administration, DOE.

ACTION: Final Provo River Project Marketing Plan.

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SUMMARY: In December 1993, Western Area Power Administration (Western)

proposed to change the way it markets power and energy produced by the

Provo River Project (PRP) and to include PRP as one of the Salt Lake

City Area/Integrated Projects (Integrated Projects). During the comment

period on the proposal, comments were received which indicated that

customers of Western's Integrated Projects would not support inclusion

of the PRP in the Integrated Projects. Subsequently, on July 11, 1994,

Western announced its intent to modify its original proposal and market

this power and energy independent of the Integrated Projects. Western

has determined that capacity and energy produced by the PRP will be

allocated to those members of Intermountain Consumers Power Association

(ICPA) and Utah Municipal Power Agency (UMPA) located in Utah and

Wasatch Counties in Utah. ICPA and UMPA are hereinafter referred to as

the Contractors. Power will be allocated to the Contractors

proportional to their load. Separate power sales contracts will be

offered to each of the Contractors. The term of the contracts will

extend until September 30, 2008. Contractors will pay all of the annual

powerplant expenses of the PRP including an amount to assist the Provo

River Water Users Association (Water Users) repayment of the United

States original investment in the PRP. In return, the Contractors will

receive all of the marketable output of the PRP. Service to the

Contractor's will begin upon execution of the electric service

contracts.

FOR FURTHER INFORMATION CONTACT:

Mr. Kenneth G. Maxey, Area Manager, Salt Lake City Area Office, Western

Area Power Administration, P.O. Box 11606, Salt Lake City, UT 84147-

0606, (801) 524-5497 or

Mr. Edmond Chang, Assistant Area Manager for Power Marketing, Salt Lake

City Area Office, Western Area Power Administration, P.O. Box 11606,

Salt Lake City, UT 84147-0606, (801) 524-5493.

SUPPLEMENTARY INFORMATION: Background. In a Federal Register notice

dated December 13, 1993 (58 FR 65180-65189), Western proposed to

include the PRP with the Integrated Projects and to market the power

and energy produced by the PRP to members of ICPA and UMPA within a

marketing area comprised of Utah and Wasatch Counties, Utah. Western

accepted comments on its proposal until January 12, 1994. A public

information/comment/scoping meeting was held in Spanish Fork, Utah, on

January 4, 1994. As a result of comments received, at both the meeting

and in writing, Western revised its proposed marketing plan for the PRP

in a Federal Register notice dated July 11, 1994 (59 FR 35334-35337).

Western accepted comments on its revised proposal until August 10,

1994. Based on the response, Western has decided that the proposal

shall become effective upon execution of the electric service

contracts.

Marketing Issues. Comments on Western's revised proposal were

received from six commentors. These included UMPA, ICPA, Colorado River

Energy Distributors Association (CREDA), the Bureau of Reclamation

(Reclamation), the Water Users, and the Central Utah Water Conservancy

District (CUWCD). Commentors were supportive of Western's revised

proposal. The following addresses the issues that were identified and

explains how they were resolved.

I. Issue: Inclusion of the PRP in the Integrated Projects.

Discussion: This issue had been included in the original proposal

but was objected to by CREDA because the payment of power revenues to

assist the Water Users repayment obligation would help repay investment

in municipal and industrial water. In response to this objection,

Western revised its proposal to market the PRP independently from the

Integrated Projects. UMPA, ICPA, and CREDA commented that they support

Western marketing the PRP independent from the Integrated Projects.

Decision: Western will market the output of the PRP through

contractual arrangements separate from the Integrated Projects.

II. Issue: Marketing area for the PRP.

Discussion: Western proposed to define the marketing area for the

PRP as Utah and Wasatch Counties in Utah, essentially the drainage of

the Provo River. Two entities, Weber Basin Water Conservancy District

(Weber Basin) and the city of Bountiful (Bountiful), Utah, claimed that

since water was diverted from the Weber River into the Provo River

above powerplants that were controlled by them, they were entitled to

an allocation of energy from the PRP to compensate them for energy lost

because of this diversion. Western, through Reclamation, was able to

demonstrate that water rights for the Provo River diversion predated

water rights held by Weber Basin and Bountiful for generation. Neither

Weber Basin nor Bountiful commented on the revised proposal. In

responding to the revised proposal, ICPA was the only entity to comment

on this issue. ICPA supported establishing the Provo River Drainage as

the marketing area for the PRP.

Decision: PRP power will be marketed within Wasatch and Utah

Counties, Utah.

III. Issue: Marketing the output of the Deer Creek Powerplant to

preference entities located in the marketing area.

Discussion: Marketing of the PRP production to preference entities

in the marketing area was supported by the commentors. All of these

entities are members of either ICPA or UMPA, organizations established

as purchasing agents for Federal power. Heber City, Lehi, Springville,

Strawberry Electric Service District, and Payson are members of ICPA.

Provo, Salem, and Spanish Fork are members of UMPA.

Decision: Western will offer firm power sales contracts to ICPA and

UMPA to purchase PRP power and energy in behalf of their members in the

marketing area.

IV. Issue: Relationship of ICPA and UMPA to their members

concerning the allocation of PRP power.

Discussion: In its comments, UMPA requested that language be

included in its power sales contract which would clarify the

relationship of UMPA and its members concerning the allocation of PRP

power. If a member withdraws from either organization, the allocation

of Federal power stays with the member, not UMPA or ICPA.

Decision: Western will include language in both UMPA and ICPA's

contracts to clarify the relationship between the members and the

organization. The language will state that if a member withdraws from

either organization, the percentage entitlement of PRP power remains

with the member and not with UMPA or ICPA.

V. Issue: Payment of all of the PRP's annual costs including an

amount for the Water Users repayment obligation by the Contractors in

return for receiving all of the marketable energy produced by the plant

each year.

Discussion: Generation from Deer Creek Powerplant has varied

considerably from year to year. Without the Integrated Projects to back

up Deer Creek, it is very difficult to determine the amounts of firm

and nonfirm energy and capacity that should be used as marketable

energy in ratesetting. Basing rates on average generation could result

in surplus revenues in some years, and deficits in others. The proposal

which was supported by UMPA, ICPA, CUWCD, and CREDA would eliminate the

need to identify a specific rate for PRP power and would still allow

Contractors to take full advantage of PRP generation.

Decision: PRP power sales contracts will include provisions for

Contractors to pay all of the PRP's annual operation, maintenance, and

replacement (OM&R) expenses as well as an annual payment to Reclamation

for application toward the Water Users' annual repayment obligation. In

return, the Contractors will receive the total annual output of

marketable energy produced by the Deer Creek Powerplant. Every year

Western will prepare a power repayment study (PRS) that will identify

the OM&R costs to be collected in the upcoming year.

VI. Issue: Effect of operation of Jordanelle Reservoir on Deer

Creek generation.

Discussion: Jordanelle Reservoir is intended to store surplus water

from high flow years and the winter flows of the Provo River and

release it in dry years and in the late summer. Prior to Jordanelle,

the winter flow of the Provo River was released from Deer Creek through

the generators. Under the Deer Creek/Jordanelle Operating Agreement,

only enough water to meet minimum stream flow requirements will be

released. The result is that winter generation is greatly reduced.

However, there is the potential for generation to be enhanced when the

water is released during the summer months.

Reducing winter generation levels creates a problem in providing

enough energy to repay PacifiCorp for its foregone generation when the

Water Users are operating under the December 20, 1938, Power Contract

(1938 Contract) (see discussion below under section II of Marketing

Criteria). In the Deer Creek/Jordanelle Operating Agreement, the CUWCD

agreed to make up any shortfalls in repaying PacifiCorp. On the other

hand, CUWCD releases should augment summer generation levels. CUWCD has

requested that this energy be applied toward the deficit it creates in

the winter. Both Reclamation and the Water Users support this position.

Discussions have been held with the Contractors, and they have

agreed that the increase in summer energy attributable to CUWCD

releases should be available to offset reductions in the winter.

Decision: A separate agreement among Western, Reclamation, CUWCD,

PacifiCorp, the Water Users, and the Contractors will be developed

which will provide for the increase in summer energy to offset deficits

in winter generation. Negotiations are continuing on the methodology

used to verify the impact to generation and on the best method to

deliver the energy to PacifiCorp.

VII. Issue: Application of net power revenues from the Contractors

toward the obligation of the Water Users to repay the Federal

Government for its investment in the PRP.

Discussion: Several commentors, including UMPA, ICPA, Reclamation,

and the Water Users, commented on this issue. Both the Water Users and

Reclamation support the claim that there is a contractual obligation

for this payment and document the level of annual payments as

$102,243.80 through 2008, and $76,520 thereafter until the obligation

is liquidated. UMPA stated that it supports the level of the annual

payments. ICPA stated that it supports the payment through 2008 but

objected to the payment beyond that date. However, the Water Users and

Reclamation have demonstrated that the contractual obligation extends

until the Water Users' repayment obligation is liquidated. Reclamation

has documented that the net revenues available to the Water Users

beyond 2008 should be $76,520 annually.

Decision: Include provisions in the power sales contracts which

would pay $102,243.80 through 2008 toward the Water Users' repayment

obligation. Any contracts for the sale of power thereafter would

include annual assistance payments of $76,520 until the obligation is

liquidated. After the obligation is repaid, the net revenue of $76,520

will need to be paid to Western to be disposed of as Congress directs.

VIII. Issue: Term of Contracts.

Discussion: UMPA, Reclamation, and the Water Users commented that

the term of the power sales contracts should be extended long enough to

ensure that the obligation to use net power revenues to assist the

Water Users is completed. Reclamation stated that this should be

through FY 2032 to ensure that the Water Users' contract will be paid

off. Both Reclamation and the Water Users have established that there

is a contractual obligation that binds the Federal Government to make

surplus revenue from the sale of power available to help repay the

Water Users' obligation. Also, both assert that commitments were made

by Reclamation that this amount should be $76,520 per year after 2008.

Decision: Contractors will be given the option of extending the

contracts at least 3 years before the contracts expire. Adjustments to

contract provisions could be made at that time, including provisions

for new customers. The contracts will provide for annual payments of

$102,243.80 through 2008; extended contracts would include annual

assistance payments of $76,520 thereafter to be made by the Contractors

to Reclamation for application to the Water Users' annual repayment

obligation until the Water Users' repayment obligation is liquidated.

IX. Issue: Power revenues should not be used to subsidize the

repayment of municipal and industrial water developments.

Discussion: ICPA noted that it supported the position of CREDA that

power revenues should not be used to subsidize the repayment of

municipal and industrial water developments. As discussed above, both

Reclamation and the Water Users have demonstrated that even though a

majority of the water developed by the PRP is used for municipal and

industrial uses, the contracts between the Water Users and Reclamation

establish a commitment for net power revenues to be used to help the

Water Users meet their annual repayment requirements.

Decision: Western's contract should be consistent with the

provisions of the contracts between Reclamation and the Water Users.

The obligation to provide for payments to the Water Users until their

repayment obligation is liquidated will be reflected in the contracts.

X. Issue: What happens in the event of a major equipment failure at

the Deer Creek Powerplant?

Discussion: Reclamation commented that Western's proposal does not

address what would happen in the event of a major equipment failure at

the Deer Creek Powerplant, and that ``the contract terms should be

sufficiently flexible to address this and other significant issues.''

Given the age of the powerplant, it is necessary to take this into

consideration.

Decision: Include language in the power sales contracts which

provides that in the event extraordinary replacement costs are incurred

at the Deer Creek Powerplant, the payment thereof shall take precedence

over the application of net power revenues toward the Water User's

repayment obligation, and may result in a reduction or deferral of such

payment until the replacement costs are fully recovered. This language

has been agreed to by the Water Users and is included in the Deer

Creek/Jordanelle Operating Agreement.

Marketing Criteria

I. Applicability. Congress granted to the Secretary of Energy,

acting by and through Western's Administrator, the authority to market

Federal power. In response to requests from UMPA and ICPA to receive

power produced by the PRP, Western has examined the merits of marketing

the PRP resource. Western believes these marketing criteria will

benefit the Contractors, the Water Users, Reclamation, and Western.

II. Marketable Resource. The 1938 Contract among Reclamation, the

Water Users, the Weber River Water Users Association, and PacifiCorp

provides for diversion of water from the Weber River into the Provo

River for storage in Deer Creek Reservoir and for use by the Water

Users. Because PacifiCorp operated generating units on the Weber River

below the point of diversion to the Provo River, PacifiCorp's ability

to generate was reduced when water was diverted. The 1938 Contract

provides for PacifiCorp to receive all of the electrical generation of

the PRP during the period of time that water is diverted. This means

that for up to 6 months, from October 15 to April 15 of each year,

there may be no marketable energy generated by the PRP. Historically,

however, marketable energy has averaged 23,000,000 kilowatthours (kWh),

with 15,000,000 kWh generated during summer months, and the remaining

8,000,000 kWh from winter surplus energy. Typically, about 3,000,000

kWh are available in each of the three peak summer months of June,

July, and August; approximately 1,000,000 kWh are available in April,

2,500,000 kWh in May, and another 2,500,000 kWh in September.

III. Establishment of Rate Methodology. Western, through a separate

public process, will establish a rate methodology for the PRP. Western

will prepare an annual PRS which will identify the anticipated OM&R

expenses. Minor replacements and additions shall be included in the

annual OM&R expenses. However, if major replacements or additions which

cost more than $5,000 are needed, the Contractors will be given the

option of financing their individual share of the cost or of having the

cost capitalized at the Department of Energy's current interest rate

and amortized over the life of the replacement or addition. Rather than

set a specific rate for power and energy, the Contractors will pay the

PRP's total annual powerplant expenses in return for the total

marketable PRP production. Each will pay its proportional share of the

OM&R expenses identified in the PRS in 12 monthly installments. In

addition to the annual OM&R expenses, before January 1 of each year,

each Contractor will pay its share of net power revenues to Reclamation

to be applied toward the Water Users' annual payment. Through 2008, the

total annual payment will be $102,243.80. Thereafter, until the Water

Users' obligation is liquidated, the total annual payment will be

$76,520. After the Water Users' repayment obligation is liquidated, the

annual payment of $76,520 will continue to be paid to Western to be

disposed of as Congress directs.

IV. Marketing Area. Because of the size of the resource, Western

has limited marketing of this resource to preference entities within

the drainage area of the Provo River. All of the eligible utilities are

members of ICPA and UMPA and are located in Utah and Wasatch Counties,

Utah. The cities of Heber City, Lehi, Payson, Springville, and the

Strawberry Electric Service District (Strawberry) are members of ICPA.

The cities of Provo, Salem, and Spanish Fork are members of UMPA. It is

anticipated that marketing of the PRP resource to these Contractors

would assure that each would receive a beneficial amount of power.

V. Class of Service. PRP generation is dependant upon water

releases that are dictated by minimum stream flow requirements and the

Water Users' needs. No load following ability exists. Since April 1,

1994, the PRP has been included in Western's Upper Colorado/Missouri

Basin control area. With the PRP in Western's control area, Western is

able to enhance the usability of the product and to allow it to be

scheduled, even though it has no control over PRP generation. Western

provides control area and regulating services for several other

customers and has a developed methodology to share the expenses of

operating a control area and providing for regulating capacity. The PRP

will be required to pay for its share of these services. These costs

will be included in the PRS as an operating expense.

Energy will be scheduled to the Contractors in megawatts in

accordance with anticipated generation levels from the PRP. When

variations occur, the hourly schedules will be adjusted to reflect

actual operation.

Western will maintain an energy deviation account between the PRP

and the Integrated Projects. At the end of each year, an accounting of

scheduled and generated energy will be made. Differences between the

two projects will be made up by adding to or subtracting from the

following year's schedules to the Contractors. The Contractors will be

responsible for reserves in accordance with Inland Power Pool

requirements.

VI. Resource Allocation. Western will allocate PRP resources in

proportion to the historical sales of each of the ICPA and UMPA

members. UMPA members serve approximately 70 percent of the load in the

marketing area, while ICPA members serve approximately 30 percent.

Proportional allocation of the PRP's average annual output of

23,000,000 kWh would mean UMPA members could expect an average of

16,100,000 kWh and 3,500 kilowatts (kW) of contingent capacity, and

ICPA members could expect an average of 6,900,000 kWh and 1,500 kW of

contingent capacity.

The following table shows the percentage entitlement of ICPA and

UMPA and each of their members.

Percentage Entitlement of ICPA and UMPA and Their Members

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Percentage

Entity entitlement

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ICPA Total............................. .................. 30.0

Heber City........ 6.0

Lehi.............. 2.7

Springville....... 12.9

Payson............ 4.8

Strawberry........ 3.6

UMPA Total............................. .................. 70.0

Provo............. 60.9

Salem............. 1.4

Spanish Fork...... 7.7

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Western will offer firm power sales contracts to ICPA and UMPA on

behalf of their members which specify the terms and conditions of

receiving PRP power. The power sales contracts will be structured so

that if a member withdraws from either ICPA or UMPA, the member retains

its entitlement of PRP power.

VII. Term of Contract. The power sales contracts will become

effective upon execution and shall terminate on September 30, 2008.

ENVIRONMENTAL COMPLIANCE: Western has complied with the National

Environmental Policy Act of 1969 through preparation of an

environmental assessment on the impacts of the proposed marketing

changes and has issued a Finding of No Significant Impact on November

8, 1994.

REGULATORY FLEXIBILITY ANALYSIS: Pursuant to the Regulatory

Flexibility Act of 1980 (5 U.S.C. 601 et seq.), each agency, when

publishing 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 (1) this rulemaking relates to services offered by

Western and, therefore, is not a rule within the purview of the Act,

and (2) the impacts of an allocation from Western would not cause an

adverse economic impact to such entities.

DETERMINATION UNDER EXECUTIVE ORDER 12866: DOE has determined 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 is required.

Issued in Golden, Colorado, November 8, 1994.

J.M. Shafer,

Administrator.

[FR Doc. 94-28684 Filed 11-18-94; 8:45 am]

BILLING CODE 6450-01-P