Energy Planning and Management Program

SUMMARY: The Western Area Power Administration is publishing this final

rule to adopt an Energy Planning and Management Program. The Program is

being developed in part to implement section 114 of the Energy Policy

Act of 1992. The Program requires the preparation of integrated

resource plans by Western's customers and establishes a framework for

extension of existing firm power resource commitments.

EFFECTIVE DATE: These regulations will become effective November 20,

1995.

FOR FURTHER INFORMATION CONTACT: For additional information, please

contact: Robert C. Fullerton, Western Area Power Administration, P.O.

Box 3402, A3100, Golden, CO 80401-0098, (303) 275-1610.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. Discussion of comments

A. Energy Planning and Management Program-Overview

1. General

B. Integrated Resource Planning

1. Specificity of Regulations

2. IRP Content

3. IRP Review and Approval

4. Member-Based Associations

5. Economic Feasibility and Administrative Burden

6. IRP Cooperatives

7. Technical Assistance

8. Submittal Timing

9. Irrigator Issues

10. Future Program Review

11. Penalty

C. Power Marketing Initiative

1. Applicability

2. Contract Term

3. Extension Percentage

4. Resource Pool Creation

5. Resource Pool Uses

6. Resource Adjustment

7. Notice

8. Native American Issues

9. Resource Acquisition by Western

10. Implementation

11. Other Marketing Issues

D. Other Issues

1. Support of Renewables

2. Project Use

III. Summary of Changes from the Proposed Program

IV. Supplemental Explanation of the Rule

V. Regulatory Review

VI. Review under the Regulatory Flexibility Act

VII. Review under the Paperwork Reduction Act

VIII. Review under the National Environmental Policy Act

IX. Review under Executive Order 12612

X. Review under Executive Order 12778

I. Background

On April 19, 1991, the Western Area Power Administration (Western)

proposed an Energy Planning and Management Program (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 the Energy Policy Act of

1992 (EPAct), Public Law 102-486, into law. Section 114 of that

legislation requires the preparation of integrated resource plans (IRP)

by Western's customers and amends Title II of the Hoover Power Plant

Act of 1984. Western has adjusted its Program 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 more than 130 members of the public in attendance.

About 200 written comments were received on the draft EIS.

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 which purchase Federal power

greater stability in planning for future resources than would exist in

the absence of the Program. The Program has two major components: (1)

An integrated resource planning 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 GWh or less is

established, as allowed in the EPAct. 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 to customers.

As provided by EPAct, 42 U.S.C. (7276b(e)), a penalty provision for

noncompliance with the IRP provision will 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 may impose a 10-percent resource

reduction penalty if

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such an approach is more effective in assuring compliance or is more

cost-effective for Western. The penalties in this Program will be

incorporated into the contracts that extend resources and will be

effective upon contract execution. Penalties in existing contracts will

continue to be in effect until changed.

The PMI establishes a framework for extending a major portion of

the power currently under contract with existing customers. Western

will extend its existing long-term firm resource commitments, subject

to the outcome of project-specific environmental analysis as

appropriate. Initially, the Pick-Sloan Missouri Basin Program-Eastern

Division and the Loveland Area Projects are covered by the PMI. The

term of the extension would be 20 years from the date that existing

contracts expire. The level of the commitment to existing customers

would be a project-specific percentage of the marketable resource

determined to be available when future resource extensions begin, as

described in section 905.33 of the regulations, 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.

II. Discussion of Comments

On August 9, 1994, a notice of the proposed Program and request for

public comments was published in the Federal Register (59 FR 40543).

Seven combined public information/comment forums were held throughout

Western's service territory in September 1994. The original comment

period of 60 days was extended in response to a public request. 59 FR

53976 (October 27, 1994). The comment period closed 90 days after

publication of the notice of the proposed Program.

Western has received numerous comments as a result of publication

of the proposed Program in the Federal Register on August 9, 1994. The

following section responds to those comments. Each issue is presented

in a format featuring background, public comments and discussion.

Responses to all comments on Native American issues are in section C.8.

Comments pertaining to the environmental impact statement are addressed

in Appendix G of the final EIS.

A. Energy Planning and Management Program--Overview

1. General

a. Background

Western initially proposed the Program in April of 1991, and has

devoted over 4 years to public process and Program development. The

publication of the proposed program on August 9, 1994, included

comprehensive responses to public comments received as of that date.

This response to comments section includes only those comments received

since that date.

b. Comments and Discussion

Comments were received in favor of finishing the public process

quickly. Public comment was received in support of the spirit of

compromise that is reflected in the Power Marketing Initiative. Western

was asked to keep the hydroelectric resource reliable and cost-based.

Others commended Western for the time and attention it has devoted to

produce an improved Program proposal. The proposed rule was viewed as a

substantial improvement over the alternatives presented in the draft

EIS. This Federal Register notice represents the final step in the

development of the Program. The Power Marketing Initiative and the

Integrated Resource Planning Provision will become effective 30 days

after publication of this rule in the Federal Register. Western is

appreciative of the widespread participation in the public process by

customers, Indian tribes, environmental groups and other interested

parties. This extensive participation has resulted in an improved

Program that is responsive to the comments of the public.

Western was asked to publish the final Program as a rule within the

Code of Federal Regulations. Western agrees with this comment. The

Program regulations will appear in Title 10, which deals with energy-

related subjects. Explanatory text and the detailed description of the

future application of the PMI have been moved to the preamble.

Another comment suggested that Western adopt the section of the

Federal Register publication entitled ``Response to Comments on the

Energy Planning and Management Program,'' specifically found at 59 FR

40552-40562, as interpretative guidelines to accompany the IRP rules.

Western concurs that the responses to comments contained in the August

9, 1994, Federal Register notice are useful in providing insight and

guidance to assist the public in understanding Western's rationale for

the proposed Program. The responses to comments in this notice of final

rulemaking play a similar role. Although Western's responses to

comments will not be published in the Code of Federal Regulations, they

serve the purpose of interpretative guidelines and are available to

clarify the intent of Western in promulgating the final Program.

Western received a request for an additional 120 day extension of

the comment period. Western initially provided for a 60 day comment

period, and later extended the comment period by 30 days in response to

a public request. The total comment period of 90 days presented ample

opportunity for the public to understand and comment on the proposed

Program.

B. Integrated Resource Planning

1. Specificity of Regulations

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 set forth by section 114, Western shall

approve an IRP if, in developing the plan, the customer has addressed

the criteria provided.

b. Comments and Discussion

A number of customers commented that the distinction between

customers and purchasers should be dropped because the terms are

defined differently but used synonymously, so the term ``purchaser''

has been deleted from the rule to avoid confusion.

A commenter asked for clarification of the relationship between the

IRPs required under section 114 of EPAct and the requirement to

consider integrated resource planning under Section 111. Section

111(a)(7) of EPAct is an amendment to the Public Utility Regulatory

Policies Act. If a Western long-term firm power customer falls under

this regulatory authority, only one IRP will be required as long as the

IRP submitted to the State regulatory authority and to Western also

meets the approval criteria addressed in the IRP regulations and

section 114 of EPAct.

A few customers requested a refinement of IRP regulations to make

them ``more suitable for non-generating and end-use customers.'' Most

end-use customers will qualify for small customer status, which

requires that they submit a plan that (1) considers all reasonable

opportunities to meet future energy service requirements using demand-

side management (DSM) techniques, new renewable resources,

[[Page 54153]]

and other programs that are cost- effective, and (2) minimizes adverse

environmental effects to the extent practicable. For those that do not

qualify, Western will review IRPs based on the customer size, type,

resource needs, geographic area, and competitive situation. There is no

need to tailor these regulations further as the capabilities of non-

generating end-use customers are adequately recognized under the

``reasonableness'' review standard in 905.13.

Western was requested to delete the word ``new'' from the

definition of IRP, based on the viewpoint that integrated resource

planning is a planning process that can be applied to all resources.

Western has not removed the word ``new'' from the definition of IRP

because Congress included this adjective in section 114 of EPAct.

However, analysis of all resource options would allow the customer to

incorporate cost-effectiveness of current resources into utility

decision-making which in turn provides for sound long-term decisions

based on least-cost resource planning. To remain competitive in a

dynamic utility industry, Western's customers may find value in

evaluating continuously all costs, including those from both existing

and potential future resources.

2. IRP Content

a. Background

Section 114 of EPAct defines the elements and content that must be

addressed in an IRP. Although these requirements must be addressed,

Western understands the importance of balancing needs for flexibility

and equity among a diverse customer base. Western's primary interest is

in providing an adequate framework for customer use of the IRP process

as a tool for meeting resource needs.

b. Comments and Discussion

Many commenters requested that Western remove the ``Other

Criteria'' because it is overly broad. Western included element 8,

``Met such other criteria as the Administrator shall require,'' in the

proposed rules primarily to track the language and format of EPAct, and

to give the flexibility to add other requirements as might later become

necessary. In order to give customers reassurance that Western will not

arbitrarily change or add requirements without the proper public review

and comment process, this element has been dropped.

A stakeholder suggested that each IRP or small customer plan

submitted to Western should describe the formal and informal service

relationships the customer has with trade allies that can provide DSM

sales and service delivery to the utility and its customers if the IRP

or small customer action plan includes DSM resources. If a customer

chooses, partnerships can be formed with trade allies that can provide

DSM sales and services in support of IRP implementation plans. However,

it is not the intent of EPAct nor appropriate for Western to require

IRP or small customer plan submittals to describe the service

relationships that Western's customers have with trade allies. A trade

ally has the opportunity to participate in a customer's IRP process and

DSM pursuits through the customer's public process, and pursue a

voluntary partnership with Western's customers.

Western was asked to define practicable. EPAct states that IRPs

must identify and accurately compare all practicable energy efficiency

and energy supply resource options available to the customer. Using the

reasonableness test set forth in section 905.13(a), practicable in this

case means those energy efficiency and energy supply resource options

which are appropriate for the customer's size, type, resource needs,

geographic area, and competitive situation. Practicable resource

options are both economically and technically feasible. Western will

not dictate resource choices.

One customer noted that there is no option in the action plan to

report that there is nothing further that a customer can do than it is

already doing, and that this language needs to be added. Language has

been added in section 905.11 so that there is an option for customers

to report in an action plan that they are not experiencing or

anticipating load growth. Even when customers are not experiencing load

growth, action plans may describe how otherwise ``lost opportunities''

have been pursued, such as encouraging energy efficiency in new housing

to avoid the expense of retrofitting in the future.

Comment was received on the criteria for determining that customers

have complied with the requirements for minimizing adverse

environmental impacts associated with resource choices. The criteria

for assessing whether customers have complied with the requirements for

minimizing adverse environmental impacts of new resource acquisitions

are stated in EPAct and supplemented by this rule. In addition, Western

cannot exempt any organization from complying with existing

environmental laws and regulations due to customer size. Western will

not determine for its customers the level of environmental compliance

appropriate for each action.

A number of customers and stakeholders submitted comments regarding

environmental externalities. Western will not require customers to

include a quantitative analysis of environmental externalities in their

IRPs for the following reasons: (1) EPAct, which did not use the term

``externalities,'' created a different ``minimization to the extent

practicable'' review standard for IRPs; (2) the externality issue

continues to be subject to public debate and scientific analysis, with

no consensus being reached; (3) there is no consensus on the numbers

that should be used to value certain emissions and pollutants; (4)

quantification of externalities is a policy question that appears to

fall under state jurisdiction at the present time. Establishment of a

Western standard would not appropriately reflect comity between the

states within Western's service territory and the Federal government.

Complicating the issue is the fact, as described in more detail in the

EIS, that the Western states have widely varying policies on

quantification of externalities; (5) it would be impossible to

reconcile a common externality standard with the heterogeneous

approaches of the states; and (6) if Western were to require

quantification of externalities, Western's customers could find

themselves at a inappropriate competitive disadvantage as compared to

noncustomer utilities not bound by such a stringent standard under

state laws and regulations.

Customers asked what Western considers public involvement for a

rural electric cooperative. Additionally, customers and stakeholders

stated that Western should allow flexibility in interpreting the public

process requirements; outside entities should have the opportunity to

review and comment on submitted IRPs once Western receives them; and

Western should require that customer utilities meet minimum standards

for public participation, including the creation of public advisory

groups. Given the diversity of customers Western serves, Western

intentionally defined the term ``public participation'' in general

terms so as to allow customers the flexibility they need to comply with

this requirement. Full public participation will be interpreted to mean

that ample opportunity was provided for the public to participate in or

influence the preparation and development of an IRP, as required by

905.11. The summary of the public participation process in the IRP

should describe how the customer

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(1) gathered information from the public, (2) identified public

concerns, (3) shared information with the public, and (4) responded to

public comments. Additionally, Western feels that public participation

at the local/regional level is adequate and that it is not necessary to

provide another opportunity for public comment once the IRP has been

filed with Western.

One customer commented that the load forecasting examples in the

rule ``make no sense'' for Federal load. No load forecasting examples

are given in the Rule except as referred to for a methodology (i.e.,

time series method, end-use method, econometric method). These are the

three methods most used for load forecasting, but they are not required

by Western. The customer should determine the method(s) best suited for

its own needs, though that method should use an accepted methodology

such as one or more of the three listed above. Customers should develop

forecasts upon which to base their IRPs. EPAct requires that, with the

exceptions addressed in section 905.11(b)(3), least-cost options must

be adopted by customers under the IRP.

Many customers commented on quantification and resource tests. The

following questions were asked: Is Western prescribing that a levelized

cost method be used? If renewable resources are not cost-effective, how

can they be included in the least-cost plan? If they are cost-

effective, why should they be given priority if they will be in the

least-cost plan? Additionally, customers stated that they preferred

that Western not prescribe a method. There is concern about how

utilities will deal with the least-cost provisions or whether they can

still use supply- and demand-side projects in the IRP process and still

do their planning in order to minimize rates and remain competitive.

Comment was also received that Western needs to address the additional

exemptions to least-cost based decision-making related to state law

requirements; and that Western's IRP requirement should impose no

standard stricter than the standard used by the state public utility

regulatory agency in which a given customer does business. Western is

not prescribing that a levelized cost method be used. Instead, the

final rule requires that evaluation of demand and supply resource cost

effectiveness for larger customers be done on a comparable basis.

Examples of types of methods Western expects from a larger customer are

given, but no specific method is required. The least-cost provisions,

as part of the IRP, are meant to allow utilities to be more

competitive. Analyses of a variety of situations--including possible

exceptions to least-cost based decisions--will promote competitiveness

as well as rate minimization. Renewables do not have to be given

priority, but must be fully evaluated alongside demand- and other

supply-side resources. EPAct states that to the extent practicable,

energy efficiency and renewables may be given priority in any least-

cost option. Language has been added, under section 905.11, stating

that exceptions to least-cost-based decisions may be made where Federal

or State requirements mandate other than a least-cost based decision.

EPAct allows the choices in this area to be made at the reasonable

discretion of the customer as long as supply- and demand-side resources

are compared using a consistent economic analysis. As long as the

customer meets the criteria as defined in EPAct and these regulations,

Western will not impose any standard stricter than the standard used by

the state public utility regulatory agency in which a given customer

does business.

Western received comment that the rule needs to better define

economic tests and more clearly describe the economic evaluations made.

Comment was received that Western should require customers to use the

total resource test to screen demand-side measures and the societal

test to evaluate demand-side programs; and that customers should be

required to use minimization of revenue requirements as the standard to

choose least-cost options. Western will not mandate the use of a

particular test to screen resource options or as a standard in the

resource selection process. While examples of analyses are set forth

elsewhere in this Federal Register notice, EPAct does not require the

use of any particular tests. There is no compelling reason to force

customers to take the same approach when a number of different tests

are currently used in IRP preparation by utilities and utility

commission review throughout the United States. Western will review the

approach chosen by its customers for reasonableness, taking into

account each customer's size, type, resource needs, geographic area,

and competitive situation.

A few customers commented that they are opposed to quantification

of savings. Western is not requiring unreasonable efforts by customers

to quantify savings. Section 905.11 describes the need for customers to

establish methods of validating predicted performance.

3. IRP Review and Approval

a. Background

Western has proposed that the required elements of an IRP or a

small customer plan must be addressed in a reasonable manner by a

customer before Western approves the IRP or small customer plan.

b. Comments and Discussion

Customers commented that the flexibility to amend IRPs at any time

should be incorporated into the regulations. Western was asked to

clarify the difference between good faith efforts and mitigating

circumstances. Comment was received regarding an apparent conflict

between the time tables for requesting small customer status and the

general time line when activities need to be accomplished. One customer

stated that the size of the Western allocation should be a factor in

IRP review. Western will apply a reasonableness test in its review and

approval of customer IRPs and small customer plans which asks the

following two questions:

1. Is the customer's application of the IRP or small customer

criteria consistent with the intent of EPAct and these regulations?

2. Is such application appropriate for the customer's size, type,

resource needs, geographic area, and competitive situation?

Western will use the reasonableness test, as applied to the criteria in

Subpart B, as a basis for plan review and approval. Western will not

use the size of the Western allocation as a factor in review, as EPAct

does not allow for such an approach.

In using this reasonableness test as the basis for approval of

plans, other language has been incorporated into the regulations which

clarifies the review and approval process. Specifically, language has

been added which: allows amendments and revisions to IRPs to be

submitted at any time (under section 905.12(c)(5)); delineates ``good

faith effort'' and deletes the term ``mitigating circumstances'' (under

section 905.17(b)); and amends the originally proposed time table for

IRPs and small customer plans (under section 905.12(c)), so that

requests for IRP cooperative and small customer status must be made to

Western within 30 days (not 60) of the effective date of the Program,

allowing the time tables to match and allowing for a more expedient

process. Additionally, there is no longer a requirement for customers

to submit a notification of intent to prepare an individual or MBA IRP.

[[Page 54155]]

One customer asked how customers should act when preparing their

IRPs which are dependent on time-limited offers of power from third

parties. When preparing plans dependent upon time-limited resource

offers, a customer should develop the plan based upon the best

information available. The customer determines its own resource needs,

so it should accept the time-limited offer if that is in its best

interests, and then let Western know through its annual progress report

or an amended action plan. Western will not disapprove such a decision

if it is in the best interests of the customer, was evaluated alongside

supply- and demand-side resources, and was a ``least-cost option'' (or

is an adequate cost-effective exception as addressed in section

905.11).

4. Member-Based Associations

a. Background

There is considerable variety in the contractual arrangements among

Western's member-based association (MBA) customers. Some MBAs are the

sole supplemental power supplier for the members and have load growth

responsibility, others act as a representative for the members and have

no generation or transmission capabilities, and others act as agents

for or subcontract with but do not assume power supply responsibility

for their principals or subcontractors.

b. Comments and Discussion

Concerns were raised over the role of the MBA and its members.

Comment was received that the submittal requirements need to be defined

for an MBA and its members. One customer stated that Western needs to

broaden the definition of MBA to cover both parent-type entities and

their user members and entities which act as agents for, or subcontract

with but do not assume power supply responsibility for, their

principals or subcontractors. The definition of MBA has been broadened

to include both parent-type entities and their user members and

entities which act as agents for or subcontract with but do not assume

power supply responsibility for their principals or subcontractors so

that the wide variety of Western customers which are MBAs under the

revised definition can submit IRPs on behalf of one, some, or all of

their customers. In adding this definition, the submittal requirements

have been further delineated.

Two additional questions were asked: (1) To what extent must

members of an MBA be identified in the IRP and action plans? (2) What

is the responsibility of an MBA with members outside of its marketing

area for an IRP? 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 affected membership on

these issues. Each member receiving the benefit of long-term firm power

from Western will be required to sign the IRP or a resolution accepting

the IRP prior to submittal to Western. Additionally, for IRPs developed

and submitted on behalf of the MBA's members, the IRPs must clearly

show how each of the seven approval criteria is addressed for each

member. MBA members outside of Western's service territory need not be

included in the MBA's IRP, but the benefits of joint planning may be

diminished by such an approach.

5. Economic Feasibility and Administrative Burden

a. Background

A number of Western's customers are small or medium-sized

utilities. Western is not proposing to define how much time and money a

customer should invest in IRP and small customer plan development and

implementation. Rather, Western's review will be focused on the end-

product IRP or small customer plan.

EPAct requires that customers develop and submit annual progress

reports to Western, which Western will in turn use in developing its

own annual report.

b. Comments and Discussion

Many customers asked what criteria will be used to determine that a

small customer has ``limited economic, managerial, and resource

capability'' to conduct an IRP. Three criteria will be used in

determining small customer status: (1) Does the customer have total

annual energy sales or usage of 25 GWh or less averaged over the

previous 5 year period? (2) Is the customer not a member of a joint

action agency or a generation and transmission cooperative with power

supply responsibilities? (3) Does the customer have limited economic,

managerial and resource capability to conduct integrated resource

planning? Prior experience with customers under the 25 GWh threshold

that are not members of a joint action agency or a generation and

transmission cooperative with power supply responsibility has shown

that many of these customers possess limited economic, managerial and

resource capability to conduct integrated resource planning. If the

customer meets all of these criteria, it will then be granted small

customer status if requested.

Other customers also suggested that small customers be able to

normalize or average over a period of time their energy use or sales in

order to qualify for the 25 GWh threshold for small customer status

which might otherwise not be met due to extreme circumstances such as

weather. In order to account for weather-related or other circumstances

which might put the small customer over the 25 GWh threshold, customers

will be responsible for documenting average annual energy sales and

usage for the 5 years prior to the initial request. Subsequent annual

letters documenting energy sales and use will be averaged thereafter on

a rolling basis to determine the under 25 GWh threshold. If the

customer exceeds 25 GWh average sales and usage after already receiving

small customer status, an IRP will be required.

Comments on annual progress reports included statements that the

reports should not be required, to statements that they only be

required every 2 or 3 years. Customers also commented that the

requirements for the annual progress reports are excessive, especially

the obligation to perform post mortem analysis to quantify the energy

capacity and dollars saved under an IRP. EPAct requires that annual

progress reports be submitted by customers to Western. The requirement

can be satisfied by customers as long as the annual progress reports

contain information describing the customer's progress towards the

goals established in the plan submitted, including a report of the

measured or estimated energy savings and renewable resource benefits

achieved. Western is required by law to report to Congress annually

``an estimate of the energy savings and renewable resource benefits

achieved as a result'' of customer IRP. Western cannot develop a

credible estimate without customer input. In the absence of credible

data, the accomplishments of Western's customers cannot be fairly

described.

In lieu of a separate annual progress report, all information may

be combined with any other report that the customer submits to Western,

at the customer's discretion, as long as that report is submitted

within 30 days of the IRP approval anniversary date.

6. IRP Cooperatives

a. Background

Customers may form IRP cooperatives under EPAct and request

Western's approval to submit IRPs for those cooperatives. Approved

cooperatives

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shall have 18 months from the date of approval to submit their IRPs.

b. Comments and Discussion

Comments on IRP cooperatives concerned limitations to forming an

IRP cooperative, and clarification of the formation of an IRP

cooperative as being a matter solely between those potential members

and Western. Comment was also received that IRP cooperative status

should be based only on the determination that an appropriate resource

planning decision block exists; and the ``power supply chain'' example

be removed so that it is not read as an exhaustive sample. An IRP

cooperative allows customers 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. Individual

member responsibilities and participation levels, as with MBA IRPs,

must be identified in the IRP. A resource planning decision block

includes a situation such as if all entities covered by an IRP are

contained within a power supply chain, or regional entities covered by

an IRP will plan for joint supply-side, demand-side, and/or renewable

resources above and beyond the Western resource. It is permissible for

a customer to prepare an IRP jointly with an investor-owned utility.

These are examples and are not all-encompassing definitions.

Section IV of this supplementary information section gives examples

of entities that would be favorably considered for IRP cooperative

status.

7. 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. EPAct

authorizes Western to continue to provide technical assistance to help

customers with integrated resource planning.

b. Comments and Discussion

One customer commented that Western should charge for technical

assistance based on its use. At present, Western feels that technical

assistance, offered through its energy services program, is more

effective if offered to all customers without a use-based charge.

Western realizes the greatest need for technical assistance often falls

on the smallest customers which may not be able to pay for direct

technical assistance. Western will make every effort to cost-share

technical assistance activities to leverage costs so that many parties

benefit.

Some customers requested that Western develop sample IRP formats

for customers. Because of the great diversity of its customers, Western

will not develop sample IRP formats. A customer can, however, obtain

technical assistance from the appropriate Area Office to help it

prepare an IRP. Additionally, a customer's Area Office may already have

a collection of sample IRPs.

8. Submittal Timing

a. Background

Customers must submit their plans to the Area Manager of the area

in which they are located within 12 months of the effective date of

this rule for individual IRPs, within 12 months of the approval of a

request for small customer status for small customer plans, and within

18 months of the approval of a request for IRP cooperative status for

IRPs from IRP cooperatives. Additionally, EPAct requires updated IRPs

and small customer plans to be submitted to Western for review every 5

years.

b. Comment and Discussion

A comment was received that suggested that Western stagger IRP

submittals over 120 days, with small customer submittals processed

first. Western will not take additional steps to stagger the approval

of IRPs because the submittal time frame already is staged, and EPAct

offers Western limited ability to depart from defined submittal time

frames. Western expects that although many customers will submit IRPs

and small customer plans when due, others will submit them before the

plans are due. In addition, IRP cooperatives may submit IRPs 6 months

after individual IRPs and small customer plans are due.

9. Irrigator Issues

a. Background

The IRP provisions apply to all customers, including irrigators,

with the exception of those qualifying for small customer status.

Irrigation districts and other irrigation entities may qualify for

small customer status. Western shall consider water planning, water

efficiency improvements, and water conservation in evaluating an IRP or

small customer plan. Customers that provide water utility services and

customers that service irrigation load as part of their overall load

may include water conservation activities in the IRP.

b. Comments and Discussion

It was suggested that the irrigation provision language include

entities which are not necessarily irrigation districts but which have

irrigation loads. Language has been added to section 905.13, which has

the effect of expanding the term ``irrigation district'' to include

electrical districts, power and water conservation districts, and other

comparable entities. Therefore, entities with similar functions are

eligible for this provision.

It was also suggested that water efficiency should equate to

electrical savings for all customers that manage water utilities, not

just irrigators. Western agrees that customers with water utility

responsibility face the same issues as irrigators. In recognition of

the need for equity, new language has been added to section 905.13 to

cover customers that provide both energy and water utility services and

customers that serve irrigation load as part of their overall load.

Western requests that all types of customers covered by this section

convert their water savings to energy values to the extent practical.

10. Future Program Review

a. Background

EPAct requires that within 1 year after January 1, 1999, and at

appropriate intervals thereafter, Western shall initiate a public

process to review the Integrated Resource Planning provision

established by this rule.

b. Comments and Discussion

A customer commented that 1999 is too late to revise the Program,

given the increasingly competitive nature of the utility industry. 1999

is the date set forth by EPAct for review and revision, as appropriate,

of these regulations, and the point at which, using a public process to

review the program, Western has some ability to revise the criteria set

forth in EPAct to reflect any changes in technology, needs, or other

developments. However, IRPs may be amended or revised at any time, and

updated IRPs are required every 5 years. This flexibility allows

Western's customers to remain competitive.

11. Penalty

a. Background

As required by EPAct, penalties for noncompliance with these

regulations shall be imposed for failure to submit or resubmit an IRP

or small customer plan in accordance with these regulations and/or when

Western finds that the customer's activities are not consistent with

the applicable IRP or small customer plan unless a good faith effort

has been made to comply with the approved IRP or small customer plan.

[[Page 54157]]

b. Comments and Discussion

The public commented that Western should not impose the same

penalties for being late or not submitting an annual report as for not

submitting an IRP; that the time frame between receiving a notice of

noncompliance and the imposition of the penalty needs to be lengthened;

and that the phrase ``it is found that there are no mitigating

circumstances which justify those reactions'' should be removed. The

noncompliance section of this rule, section 905.17, has been revised

substantially in response to public comments. In recognition of the

severity of the proposal, Western has dropped the provision for

imposing penalties for failure to submit or for late submittal of

annual progress reports. Section 905.17 also has been revised to

provide that any penalties will be imposed beginning with the first

full billing period following the notice of noncompliance, allowing

customers 30 days to provide evidence of a good faith effort to comply.

A customer must still show evidence of a good faith effort to comply

which justifies its deficiency, but the term ``mitigating

circumstances'' has been deleted.

Customers also commented that customers should be able to choose

their own penalties (surcharge or allocation) and that penalties should

apply directly to the MBA member and not to or through the MBA. Comment

was also received that if a member of an MBA is not in compliance,

notice should be sent to both the member and the MBA. Customers will

not be allowed to choose the type of penalty that will be imposed for

noncompliance. Western will determine which penalty is most appropriate

for the situation in accordance with the criteria in section 905.17(d).

Language has been added to clarify the imposition of penalties on MBAs

and IRP cooperatives and their members. Members of MBAs and IRP

cooperatives which are found to be in noncompliance will be directly

penalized if they have a firm power contract with Western. For those

members which do not, the penalty will be imposed upon the member's MBA

or parent-type entity on a pro rata basis in proportion to that

member's share of the total MBA's power received from Western.

Assessment of penalties against MBAs is necessary in this situation to

ensure that MBA members comply with the IRP requirements in this rule.

The MBA or parent-type entity will be notified of a penalty assessment

on a member.

A comment was received that stated that the administrative appeal

process should allow a customer to appeal a decision about an IRP to

the Department of Energy's Deputy Secretary to ensure customers and

Western have an opportunity to seek an impartial ruling. A customer may

request reconsideration of an initial noncompliance determination by

filing a written appeal with the appropriate Area Manager. If the

customer disagrees with the Area Manager's decision, an appeal may be

filed with the Administrator. The Administrator's decision will be the

final agency decision for purposes of judicial review. Western will use

mutually agreeable alternative dispute resolution procedures, upon the

customer's request, to attempt resolution of any appeal. No penalty

will be imposed during the appeal, but if the dispute resolution is

unsuccessful for the customer, Western will impose the penalty

retroactively from the date the penalty would have been assessed

without an appeal.

One customer commented that resource withdrawal penalties should

not be imposed retroactively, as the impact on the annual ratchet

clause in supplemental power supply contracts is overly burdensome.

Western agrees that certain supplemental power supply contracts have

ratchets that could magnify the burden of a retroactive resource

penalty caused by an administrative appeal. However, Western will not

amend the regulations to address this unlikely event. This situation

would not arise under the final regulations until 12 months after the

initial 10 percent surcharge had been imposed. The customer can avoid

the impact of a ratchet by submitting an acceptable and timely IRP to

Western.

Finally, a customer asked why, if IRPs are not required of nonfirm

purchasers of Western energy, the penalty extends to nonfirm

interruptible/diversity contracts with customers. A penalty 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. If a customer

has more than one long-term firm power contract with Western, the

penalty will be imposed under each contract. Under EPAct, 42 U.S.C.

7276b(e), these penalties apply to ``all power'' purchased from Western

by a customer which is in non-compliance; the penalty is not limited to

firm power.

C. POWER MARKETING INITIATIVE

1. Applicability

a. Background

In the proposed Program, the Pick-Sloan Missouri Basin Program-

Eastern Division and the Loveland Area Projects were proposed for

initial coverage under the Power Marketing Initiative. Western proposed

to defer making any decision about applying the PMI to the Central

Valley Project, which is the subject of a project-specific marketing

plan and associated EIS for the post-2004 time period. Western further

proposed to evaluate application of the PMI to the Salt Lake City Area/

Integrated Projects after its power marketing EIS is completed and the

associated marketing criteria and contract changes are implemented.

Finally, Western also proposed to evaluate application of the PMI to

the Parker-Davis Project and the Boulder Canyon Project no sooner than

10 years before existing contracts expire.

b. Comments and Discussion

A comment was received concerning Western's statement that its

customers have no equity position in Western's facilities, and that no

right exists to power in the absence of a contract. The comment further

states that this is not precisely true for the Boulder Canyon Project,

where there is a statutory allocation of power and upratings funded by

certain customers. The first of two other comments received on this

subject suggests that Hoover should be excluded from PMI applicability

in the final rule due to the statutory nature of the Hoover allocation.

The second states that the customers do not understand Western's

intentions on application of the Power Marketing Initiative to Hoover

and that Western needs to conduct workshops and hearings before

implementation takes place. Western has not proposed to apply the Power

Marketing Initiative to the Boulder Canyon Project at the present time.

The Boulder Canyon Project long-term firm sales contracts do not expire

until 2014. Western cannot make sound decisions today about how this

power might be marketed starting 20 years into the future. Western will

evaluate the applicability of the PMI to the Boulder Canyon Project no

sooner than the year 2004. No decision to apply the PMI will take place

until an appropriate public process takes place. At that time,

statutory interpretation issues can be addressed.

Comments were received suggesting that the Central Valley Project

should recognize the Sacramento Municipal Utility District's right to

31 percent of CVP power through the year 2014 and that the first

preference customers under the 1962 Flood Control Act should be exempt

from any loss of allocation under the Power Marketing Initiative.

Western does not intend to abrogate the statutory right of CVP first

preference customers pursuant to the Flood Control

[[Page 54158]]

Act of 1962. Nor does the Power Marketing Initiative impact the

contractual right of the Sacramento Municipal Utility District to

receive a defined share of CVP resources between 2004 and 2014. Section

905.30(b) of the final rule accommodates these concerns by stating that

the PMI will apply ``if consistent with other contractual and legal

rights.'' This broad statement of applicability protects the interests

of the commenters.

Western received several comments that favored applying the PMI to

the CVP. The comments had a common theme that the stability and

certainty of the CVP resource is critically important and that Western

should apply the PMI to the CVP now, and not wait until the 2004

marketing plan to make a decision on resource levels or contract term.

Western was also asked if the application of the PMI to the CVP would

take place with or without a public process. These comments also state

that applying the PMI to the CVP will assure consistency across all of

Western, and allow the 2004 process and the customers to focus on other

issues. The commenters believe that a definite level of commitment and

contract term, known now, is worth trading for larger percentage

allocations and longer contract terms in a more uncertain future and

that applying the PMI to the CVP will streamline the CVP EIS process,

and integrate the planning process between the two programs. Western is

impressed by the comments favoring an immediate but limited application

of the PMI to the Central Valley Project, subject to the findings of

the project-specific EIS currently underway. However, Western wants to

protect the integrity of the ongoing project-specific marketing

process. Application of the PMI to the CVP is best addressed in the

separate public process.

One comment expressed appreciation for the decision not to propose

application of the PMI to CVP and the SLCA/IP at this time, as large

adjustments of marketable resources will be needed to meet

environmental concerns for these projects. This comment expressed

concern that the Program will create a precedent for these two

projects. Western sees no reason to change its initial proposal to

evaluate applicability of the PMI after the Salt Lake City Area/

Integrated Projects Electric Power Marketing EIS is completed and the

associated marketing criteria and contract changes are implemented.

These steps are scheduled for completion in the near future. Western

expects to start the evaluation process soon thereafter.

A comment was received questioning the decision to apply the Power

Marketing Initiative to the LAP given that existing contracts do not

expire for another 10 years. Other comment received supports

application of the PMI to the Loveland Area Projects after the 1999

resource adjustments are complete. Western did not change its proposal

regarding application of the Power Marketing Initiative to the Loveland

Area Projects. No resource extension offer will take place until the

analysis of potential LAP resource adjustments in 1999 has been

completed. The analysis and implementation of any 1999 resource

adjustments will take place no later than 1996. Given the time period

that it takes to develop alternative resources to replace unextended

LAP power, application of the PMI to LAP now is prudent. The resource

certainty that results will assist Western's customers in developing

effective integrated resource plans.

2. Contract Term

a. Background

In the proposed Program, an 18-year contract term was proposed,

with the contract term to start from the date existing contracts

expire.

b. Comments and Discussion

Western received many comments supporting extending the contract

term from 18 to 20 or 25 years. The reasons customers overwhelmingly

supported extending the contract term follow: a longer term would help

short and long range planning; a longer term would add resource and

rate stability; a longer term would benefit the environment by

customers being more willing to make financial commitments to

environmentally sound project enhancements; a 20 year term would be

consistent with the IRP submittal cycle of 5 years; a longer term would

be comparable to the amortization of long term investments in base load

power plants and renewable resources; a longer term would correspond to

existing all requirements contracts; an eighteen year term may

jeopardize Western's obligations under an existing exchange

arrangement; an eighteen year term would require existing customers

that contracted for Federal power when it was not economical to give up

too much of their existing benefits without equitable treatment; a

longer term conforms to the Tennessee Valley Authority practices; and a

longer term would allow customers to make commitments to demand side

management programs and capital-intensive renewables. Western is

persuaded by the comments supportive of a longer contract term. Section

905.31 of this final rule establishes a 20-year extension of resources.

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 adopts a resource extension period of 20 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.

Twenty years will maintain the resource and rate stability necessary

for effective integrated resource planning. At the same time, 20 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 a contract term 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 20 years beyond the expiration date of contracts with

existing customers would mean that new contracts would be in place

until at least 2020. In other words, initial extensions would be about

25 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.

Western agrees that a 20-year contract term is more comparable to

those existing between the Tennessee Valley Authority and its

customers. Western also agrees with the comments suggesting that a 20

to 25 year contract term is consistent with industry standards for firm

sales. Recently issued RFPs have also entertained resource acquisition

options on a long-term basis. Western also concurs with the comment

[[Page 54159]]

that a 20-year contract term fits better with the 5 year IRP

preparation and approval cycle.

The selection of a 20-year extension contract term helps to answer

the comment that the proposed Program asked existing customers to give

up too much. The additional 2 years helps to provide an appropriate

balance between existing customers, who in many cases chose to enter

into hydropower contracts with the United States before the economic

benefits of such a choice were clear, and other needs reflected in the

Program.

Western believes that adoption of a relatively short contract term

could impact the resource stability required to meet Western's

obligations under the exchange arrangement with the Salt River Project.

In particular, the pattern of power allocations over time could change

the use of Colorado River Storage Project transmission, which could in

turn impact the exchange arrangement. Twenty year contracts support the

resource stability that in turn impacts usage of Western's transmission

system.

A comment was received that stated eighteen year contracts are 3

years too long. According to this comment, most of the power contracts

that Western has signed have been for 15-year terms, and a 15-year

extension strikes the right balance between the customer's need for

certainty and the Federal government's desire for flexibility so the

changing needs of the West can be addressed. Western agrees that many

of its historic contract terms have been 15 years in length. Currently

effective contracts for the sale of power from the Pick-Sloan Missouri

Basin Program--Eastern Division, the Loveland Area Projects and the

Salt Lake City Area/Integrated Projects are all 15 years in length.

However, a significant number of contracts have been in excess of this

time period. Power sales contracts for the Parker-Davis Projects are 20

years in length, while the currently effective Boulder Canyon Project

contracts are 30 years. Contracts for the sale of Central Valley

Project power have variable terms, with the longest contracts

approaching 40 years in length. The historic precedent for contract

length is not confined to 15-year commitments, and is consistent with

the 20-year term adopted in the final Program regulations.

A comment received suggested rollover 18-year extensions every 5

years upon submittal of an updated IRP. A rolling extension of

contracts on a long-term basis at the customer's option, upon submittal

of future IRPs to Western, would cause hydropower resources to be

extended too far into the future for Western to respond to changing

circumstances over time.

Western has provided for resource adjustment capability as part of

the PMI. Initial 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 the PMI

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 realizes that the draft EIS predicted relatively greater

environmental benefits for contract terms in excess of 20 years.

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. 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

and financed hydroelectric facilities in the West.

Western agrees with a comment received that states 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.

A comment received stated Western should consider a longer contract

term, such as the 35-year term associated with FERC relicenses. This

comment recognized how virtually all access to hydropower is controlled

by Federal policy, either through FERC or the power marketing

administrations, but the costs for that power differ. FERC licensees

pay only for capital costs and O&M, while CVP customers must subsidize

other project purposes such as those under the Central Valley Project

Improvement Act. Differences in commitment lengths between FERC

licensees and CVP power sales contracts only compound the inequity in a

competitive and price-sensitive market. These comparability factors

should be an additional basis for extending contracts for the longest

possible term.

In response to these comments, Western notes that 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 a 20-year term of

contract is appropriate.

Western agrees with the comment 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 with the comment 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

[[Page 54160]]

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 in

support of the Clinton Administration's climate control action plan.

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. Twenty-year contracts

help preserve the competitive balance in the regional utility industry.

3. Extension Percentage

a. Background

Western proposed to extend a major percentage of the power

currently under contract with long-term firm power customers. The exact

percentage to be extended would be determined on a project-specific

basis, based on the amount of power needed to meet a fair share of the

needs of potential new customers within the marketing area.

b. Comments and Discussion

Western received numerous comments that support a contract rate of

delivery extension of 97 or 98 percent. One comment did not support a

resource pool. Some comments were specific and suggested that current

allocations should be the basis for application of the extension

percentage or that the percentage withdrawal should be based on

customer allocations existing in the year 2000 for Pick-Sloan Missouri

Basin Program--Eastern Division customers and that withdrawals after

that time should be based on the resource available to the customer at

the time. One comment received stated that a 100 percent extension was

preferred and another comment suggested that existing customers should

receive maximum allocations.

The amount of unextended resource was determined on a project-

specific basis by assessing the amount of power that must be reserved

in order to meet a fair share of the needs of potential new customers.

In deriving the size of the initial resource pool for each project,

Western reviewed letters of interest from potential new allottees,

potential new customer load information and analysis of any hydropower

benefits currently being received by a potential new customer. Due to

significant expressions of interest by Native Americans, Western has

increased the size of the initial resource pool for those projects

initially subject to the PMI. Subsequent resource pool increments have

been reduced to compensate for the increase in the initial pool.

Section 905.32 provides that for the Pick-Sloan Missouri Basin

Program--Eastern Division and the Loveland Area Projects, Western will

reserve 4 percent of the marketable resource determined to be available

at the beginning of future resource extensions. Subsequent increments

of the resource pool have been reduced to no more than 1 percent.

The final rule recognizes that power reserved for new customers but

not allocated and resources offered but not placed under contract may

become available. Section 905.32 (e) provides that this power will be

offered on a pro rata basis to existing customers that contributed to

the resource pool through application of the extension formula. No firm

power is expected to go unmarketed at any time.

The Program provides for the creation of two additional resource

pool increments in the future for all of Western's projects covered by

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

extension to existing customers, Western will create a project-specific

resource pool increment of up to an additional 1 percent of the

resource under contract at the time. The actual size of the additional

resource pool increment will reflect the actual fair share needs of new

customers and other purposes as determined by Western.

Western believes that the final Program provides an appropriate

balance that recognizes the importance of certainty in customer

planning efforts. An extension of Pick-Sloan Missouri Basin Program--

Eastern Division and Loveland Area Project resources at a 96 percent

level is substantial enough so existing customers 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.

One comment stated that the percentage reduction should be applied

to the allocation existing at the time, not the resource existing at

the time of the contract extension. The current allocations to the

customers will not be adopted as the basis for application of the

resource percentage, as this approach could limit Western's short-term

capability to adjust its marketable resources in response to changed

operations and hydrology. Western believes a more flexible approach

would be to apply the percentage to the marketable resource that is

determined to be available at the beginning of future resource

extensions. In this way, changes in operations or hydrology between

today and the time existing contracts expire can be readily

accommodated.

One of two comments received concerning the resource pool stated

that given the great sacrifice of an initial 3 percent resource pool,

the 1.5 percent additional increments should be based on the resource

available at the time, while the other comment said there was no need

for two additional resource pool increments. Another comment stated

that they support a 2 percent resource pool. In the case of creation of

resource pool increments subsequent to the initial pool, Western agrees

with the comments that the percentage should be applied to the resource

available at the time. The proposed Program, which suggested

application of all percentages to the resource available at the time

existing contracts expire, had some disadvantages. Application of the

percentage to the resource available when existing contracts expire

could create administrative confusion if the actual resource under

contract was different. If the resource available several years into an

extension contract was less than the marketable hydropower at the

beginning of extension contracts, application of a percentage to the

earlier, larger amount would create a higher effective percentage as

applied to the existing resource. Western agrees with the comments

recommending a change in the proposed approach. The final rule reflects

this more simplified method.

One commenter points out that Western has not shown any reason for

increasing the Pick-Sloan resource pool above 3 percent. The initial

Pick-Sloan resource pool has been increased to 4 percent in the final

rule, to assure that a fair share of the needs of Native Americans can

be met. The rationale for creating two future resource pool increments

of up to 1 percent each is to meet future needs that Western cannot

currently identify. This flexibility is necessary to support a 20 year

contract term.

[[Page 54161]]

Western understands the comment expressing concern about tying

future allocations to a percentage of an amount to be determined,

especially when Western may not know what it has to market from the

Missouri River Basin generation until after the year 2000. Although

Western appreciates the suggestion that a percentage of today's

contractual amount be extended with an option to adjust the extended

resource, others have expressed the concern that such an approach would

create unwarranted power availability expectations on the part of firm

power customers. Western believes that either adoption of this comment

or retention of the approach of the proposed Program will lead to the

same resource commitment. Western chooses to retain the approach of the

proposed regulations.

One customer commented that a 97 percent initial extension level

asks existing Pick-Sloan customers to give up too much, especially when

coupled with the additional resource pool increments, exposure to

adjustments due to changes in hydrology and operations, and withdrawals

for project use. In contrast, another comment was received that the

resource pool percentages should be increased to a 6 percent initial

level, followed by two additional increments at 5 percent each. For the

reasons stated earlier, Western believes the final rule strikes an

appropriate balance among the relevant considerations.

Western recognizes that existing customers made an historic choice

to pursue Federal hydropower and that some customers elected to

purchase this resource before the economic advantages were clear.

However, Western does not believe that the historic enjoyment of the

benefits of Federal hydropower means that a customer has a perpetual

right that cannot be diminished. Western's policy of promoting

widespread use and the potential allocation of power to new preference

customers must be balanced against the fact that existing customers

have developed contractual relationships with supplemental suppliers,

transmission arrangements with Western or third parties, and in some

instances have constructed transmission facilities to receive Federal

power. Western believes that this final rule provides for a proper

balance among these policy considerations.

Comments concerning the marketable resources or the loss thereof

for the Salt Lake City Area/Integrated Projects and the Central Valley

Project were received that suggest that an additional 2 percent

resource pool seems inappropriate for the Salt Lake City Area/

Integrated Projects; that the resource pool for the Central Valley

Project may be premature and too restrictive; that extensions for CVP

resources should be in the 90-95 percent range and CVP unbundled

services should be offered pro rata in 2004 in line with these

percentages; that there is support for limiting the CVP resource pool

to no more than 6 percent of the available resource which would

minimize any disruption of customer planning efforts and avoids

confusion between allocation issues and resource availability, yet

allows Western to distribute the benefits of Federal power to new

customer; that a 3-5 percent initial CVP resource pool is reasonable

given the changes that are taking place within the industry; and that

the initial CVP pool should not be larger than 2 percent given the two

additional increments.

In the final rule, Western has not defined the size of the initial

resource pool for the Central Valley Project and the Salt Lake City

Area/Integrated Projects. The actual size of resource pools for these

projects will be determined at a later date through project-specific

public processes. Comments relating to these resource pools should be

advanced at that time.

Western received a comment that stated that the Master Operating

Manual process and the adverse impact of Corps of Engineers operations

on wetlands, fish and wildlife and endangered species will likely

affect electricity production on the Missouri River. Similar changes

are possible on the Platte, Arkansas and Rio Grande rivers. Western's

proposal will create an expectation that 94 percent of existing

allocations will be reserved for existing customers. This will make it

difficult to modify dam operations in the future. Evidence from the

comments received on the draft EIS suggest that 6 percent is not enough

to meet the needs of new customers and to respond to changing

environmental concerns.

Western does not agree that the resource pools for the Eastern

Division of Pick-Sloan and the Loveland Area Projects should be

increased in size to enhance the ability to modify dam operations.

Ample opportunity exists under the Program to adjust marketable

resources in response to changes in reservoir operations. In the short-

term, Western can accommodate such changes by applying the extension

percentages to the marketable resource determined to be available at

the beginning of future resource extensions. Operational decisions by

the generating agencies in the shorter term will be reflected in the

initial commitment to customers, as the extension percentage will be

applied to the resource available at the time current contracts expire.

Over the longer term, Western can adjust its commitments on 5 years'

notice due to changes in operations and hydrology. Western is not

creating a customer expectation that a percentage of existing

allocations will be reserved for existing customers. Considerable

flexibility exists in the final regulations to address the concerns

raised in this comment.

No evidence has been produced to show that 6 percent is not enough

to meet the needs of new customers. Environmental concerns will be

addressed through the extension approach and withdrawal opportunities

explained above, and not through use of the resource pools. Six percent

should be more than is needed to meet a fair share of the needs of

potential new customers. Western sees no reason to create a resource

pool larger than that needed to meet a fair share of the needs of

potential new customers.

4. Resource Pool Creation

a. Background

In the August 1994 Federal Register notice, Western proposed the

creation of project-specific resources pools through a reservation of

power not extended to existing customers. Existing customers with an

allocation of one MW or less were not subject to the reservation. New

customers receiving an allocation from an initial resource pool were

not subject to withdrawal to form subsequent resource pool increments.

The possibility of extending resources on a graduated scale, weighted

towards some customer characteristic, was suggested early in the public

process.

b. Comments and Discussion

Western received many comments on the issue of equity in the

proposed creation of the resource pool. The majority of the comments on

the issue objected to special treatment for customers with an

allocation of one MW or less. Specific comments are that Western has

provided no justification for exempting entities with a contract rate

of delivery of one MW or less from resource pool creation, that the

administrative burden of withdrawing power from entities with small

allocations is not great; that it is inequitable to have an exemption

from contributing to resource pools for customers with allocations of

one MW or less; and that all resource reductions should be shared pro

rata, with no exceptions for certain customers.

Western's rationale for exempting small entities from a

contribution to the

[[Page 54162]]

resource pool was threefold. First, Western felt that the benefits

associated with small allocations of hydropower would be diluted if all

customers contributed to the resource pool. Second, the administrative

issues of applying resource extension percentages to small allocations

influenced Western's proposal. Third, there were not many entities with

allocations of one MW or less, so the impact of the proposal on other

customers was not large.

Upon further consideration, Western withdraws the proposal to

exempt entities with allocations of one MW or less from contributing to

the resource pool. For some small customers, an allocation of one MW

represents a high percentage of their total load. Exempting an entity

because of the size of their allocation is inequitable if that customer

has a high percentage of its needs met by Western. The administrative

issues underlying the original proposal are manageable. In fact,

creating separate classes of customers leads to its own set of

administrative issues. The fact that a small amount of power is

involved is not dispositive, as the issue is more one of equity and

fairness than one which hinges on the amount of power involved.

Western agrees that the proposed Program was not consistent in its

treatment of customers with small allocations. For example, Western did

not propose to insulate customers with small allocations from

withdrawals for project use or from withdrawals of marketable resources

due to changes in operations and hydrology. The final rule eliminates

this inconsistency by treating all customers alike.

Several comments suggested that the one MW limit on withdrawals

should apply even if the entity is a member of a member-based

association or an IRP cooperative. With the elimination of the one MW

exception, these comments are no longer relevant and need not be

addressed.

Other comments were that withdrawals should apply to all customers

with no exception for new customers; that allocations to new customers

should be allowed to increase rather than automatically be reduced in

their infancy through use of the extension formula; and that power

reserved for project use should be used for new customers instead of

taking it away from existing customers. This is another issue that

received a number of equity-based comments--Western's proposal to

exempt new customers receiving allocations out of the initial resource

pool from withdrawals to create future resource pool increments. The

rationale for this proposal was to avoid the dilution of recently-

received hydropower benefits.

After considering these comments, Western has decided to abandon

this aspect of its Program proposal. There is no strong policy reason

to depart from equitable treatment for all customers. A new customer

contribution to future resource pool increments would not be a large

amount of power, so the benefits of the Western allocation out of the

initial resource pool would not be diluted significantly. The

administrative complications that arise from creating more than one

class of firm power customer for withdrawal purposes are avoided by

treating all customers the same.

Customers also commented that Western should only create a resource

pool if there are set time periods, restrictions as to amount, and

defined customer demands; more consideration must be given to how

resource pool power will be priced and marketed; and subsequent

increments of the resource pool are inconsistent with Western's stated

goal of resource stability. Western concurs with the comment that a

resource pool should only be created if there are set time periods and

restrictions as to amount. However, it is difficult to define precisely

the demands of new customers prior to creation of the resource pool.

That can only be done after a call for applications is published in the

Federal Register, and applications are actually received. Western

cannot precisely define the needs of new customers at this time.

Instead, Western has promoted the widespread use of its hydropower

resources through establishment of a resource pool based upon a fair

share of estimated needs. If the pool size is too large, the

unallocated power or power not placed under contract is returned to the

customers who contributed power towards the initial resource pool on a

pro rata basis.

Western intends to charge new customers the same rate for power as

that charged to existing customers. Western will not purchase resources

for new but not yet identified customers, as the appropriate level of

Western's marketable resources should be determined through a project-

specific analysis of hydrology, project use load, losses and reserves.

Committing resources beyond this level would increase the risk of

purchasing firming resources.

Comment was received that the proposed Program does not recognize

that some customers get a high percentage of power from Western while

others do not. On the whole, little support was received for the

concept of extending resources on a graduated-scale basis. The issue

here is whether extensions should be offered on a pro rata basis to all

existing customers or if extensions should take place on some other

basis, such as the percentage of the total customer load that is served

by Western. Given the lack of significant public support for the

graduated scale concept and the associated administrative complexities,

Western has adopted a pro rata policy under which existing customers

will receive the same treatment in the application of the extension.

Comment was received that the wide variation in percentage of

customer load served from the Central Valley Project should be

addressed through the PMI. While Western will not depart from the

general policy of a pro rata extension of resources, Western's

Sacramento Area Office reserves the right to achieve more parity among

allocations to existing CVP customers. Allocations to existing

customers may be made out of the CVP resource pool to assure that each

customer has some minimum percentage of its needs met by Western. This

will be considered during the public process on the CVP power marketing

plan.

According to some commenters, the creation of subsequent increments

of the resource pools are inconsistent with Western's stated goal of

resource stability. To a limited extent, this comment is correct. The

final Program strikes a balance between the need for resource stability

and the need for flexibility to meet changing circumstances.

One customer commented that Western should use energy efficiency

improvements rather than withdrawals from existing customers to create

the initial resource pool, while another stated that savings

opportunities recognized in Western's use of IRP principles can be used

to develop resource pools, reducing the need to withdraw from existing

customers. To the extent that cost-effective energy efficiency

improvements can be captured, Western will take steps to make such

improvements a reality. Potential for such improvements could be

identified through the use of principles of integrated resource

planning. Flexibility has been retained in the Program to allocate

power available due to implementation of such efficiencies. If adopted

on a project-specific basis, Western could use efficiency improvements

to offset the need to form a resource pool through withdrawal of power

from existing customers.

[[Page 54163]]

Some of Western's projects have reserved power for future project

use loads, but have not marketed this resource as firm power on a

withdrawable basis. As an example, this marketing approach is used by

the SLCA/IP. If proposed and adopted on a project-specific basis,

Western could use project use power, marketed on a withdrawable basis,

to offset the need to form a resource pool through withdrawal of power

from existing customers.

5. Resource Pool Uses

a. Background

In the proposed Program, Western advanced a concept to allocate

power out of project-specific resource pools to new preference

customers within the marketing area, and to meet other purposes as

determined by Western. The specific terms and conditions associated

with allocations out of each resource pool would be determined during

future, project-specific public processes.

Western said it expected to make allocations to Native Americans

for use on the reservation, and would consider making allocations to

national parks, public mass transit agencies, in support of renewable

resources and fish and wildlife habitat.

b. Comments and Discussion

Comment was received that new customers don't need resources and

that they just want cheaper resources at the expense of those who made

wise long-term decisions many years ago. Western does not necessarily

agree that new customers don't need resources. Load growth could create

such a need, as could expiration of a purchase power contract or the

retirement of generation. One of Western's goals in the PMI is to

achieve widespread use of Western's resources. Reservation of a modest

percentage of resources to create a resource pool is consistent with a

policy of encouraging widespread use of Federal hydroelectric power.

One customer commented that the resource pool should be first used

to make adjustments in response to changes in operations/hydrology.

Western does not agree. In response to public comments in favor of

equity among all customers, Western has adopted in this final rule a

policy of treating new customers and existing customers alike. Making

the resource pool subject first to adjustments would discriminate

against new customers when allocations are made from the pool before

adjustments take place. Given the adoption of a separate resource

adjustment mechanism in these regulations, there is no need to make the

resource pool subject to resource adjustment.

It was suggested that all resources be marketed, and that resource

pools should have a maximum ceiling, but should only be allocated to

meet new loads that actually develop. Western agrees that all available

resources should be marketed. The intent underlying the PMI is to

market as much firm resource as would have been marketed in the absence

of the PMI. Allocations out of each resource pool will be completed

before the term of the extension contract begins. Power reserved in a

resource pool but not allocated and resources offered but not placed

under contract will be offered to existing customers that contributed

to the resource pool, in accordance with the final rule. The comment

which asks that resource pools have a maximum ceiling has been adopted

in the final rule.

Comment was received that under the current proposal an existing

customer will not be eligible to receive power out of a resource pool;

an existing customer receiving power from only one Federal project

would be precluded from applying for power from another project's

resource pool; and that this is a clear departure from Reclamation Law.

In the past, Western has allowed preference entities to receive power

from more than one project when marketing areas overlap. Given the

significant new customer load that exists in portions of Western's

service territory, Western is not willing to continue this policy on a

Western-wide basis. On this issue, Western will retain the flexibility

set forth in the proposed Program. An existing customer will not be

eligible to receive power from a resource pool unless Western provides

otherwise on a project-specific basis. Comments on the eligibility of

existing customers to receive resource pool power will be accepted as

part of the project-specific public process.

Comment was received favoring use of the Central Valley Project

resource pool to achieve a fairer distribution of power. Western

reserves the right to use the CVP resource pool in this manner, subject

to public input received during a project-specific public process.

Several comments advocated allocations of resource pool power to

customers with renewable resources in their mix and customers that have

documented efficiency improvements through IRP. Other comments suggest

that new customers represent emerging markets for Western, or that

allocations to the Federal government have national benefits. Since the

specific criteria associated with allocations to new customers will be

determined during future, project-specific public processes, these

comments are more appropriately raised and addressed at that time.

Customers commented that sales from the pool should be on the same

terms and conditions as with other contractors. Western also received

comment that a definition of ``fair share'' is needed. Western agrees

that sales from the pool should be on the same terms and conditions as

with other contractors. No definition of ``fair share'' will be adopted

as part of these regulations due to the difficulty of developing a

meaningful definition on a Western-wide basis. A specific determination

of ``fair share'' will be developed during the project-specific

allocation processes, which will take place during a time period closer

to the expiration date of existing contracts.

6. Resource Adjustment

a. Background

In the August 9 Federal Register notice, Western proposed to adjust

its long-term firm resources only in response to changes in hydrology

and river operations. Existing customers would receive at least 5

years' notice before adjustments are made.

b. Comments and Discussion

Comment was received that Western should change its marketable

resource in response to changes in operations after the extension term

begins only if such a change adversely impacts Western's ability to

meet its contractual obligations. Under the PMI resource adjustment

provision, section 905.34, however, Western retains the flexibility

needed to react to either changes that are adverse or beneficial to

Western's marketable resource. Western will not limit the exercise of

this adjustment provision to circumstances that adversely impact our

ability to meet contractual obligations.

A customer commented that any changes to marketable resources--not

just significant changes--should be subject to a public process, and

that adjustments in resources should be triggered only by changes in

river hydrology or mandated operating adjustments such as new

legislation and that if other factors affect determination of the

allocated resource, Western should conduct public proceedings. Western

agrees that any changes in our long-term marketable resource should be

subject to a public process. Western also agrees to limit the exercise

of this

[[Page 54164]]

resource adjustment provision to changes in hydrology and operations.

It was suggested that adjustments to contract rates of delivery be

limited to no more than 5 percent. Some customers also commented that

they support the 5 year window to make changes in resources based upon

changes in operations/hydrology. A 5 percent limitation on contract

rate of delivery adjustments would enhance the stability of Western's

hydropower commitment, but would not give Western the flexibility it

needs to react to changing circumstances such as generating agency

adjustments to operations.

Western has experienced adjustments in operations that have

impacted long-term firm power in excess of 5 percent in the past.

Western needs the ability to react to these situations, even though

they may be infrequent in nature.

Finally, comment was received concerning the withdrawal

opportunities not likely being large enough to manage future

environmental problems, encourage renewables, or meet the needs of new

customers. Comment was also received that the added flexibility that

Western has proposed on resource withdrawals is good. The more open-

ended approach in the final rule should satisfy the concern that the

withdrawal opportunities are not likely to be large enough to manage

future environmental problems. Other provisions of the Program, or

separate Western initiatives, will encourage renewables and meet the

needs of new customers.

7. Notice

a. Background

Western has proposed the creation of 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. At two intervals of 5 years after the effective

date of the extension to existing customers, Western proposed to create

a project-specific resource pool increment of up to an additional 1.5

percent of the marketable resource. No provision for the timing of any

advance notice was proposed.

b. Comments and Discussion

Comments were received that Western needs to better define the

conditions and the notice provisions for future withdrawals of power,

and that advance notice of incremental resource pool reductions should

range from 2 to 5 years. Western agrees that customers need to have

advance notice of the amount of future withdrawals of power. Five

years' notice appears to be too long given the relatively low ceiling

of 1 percent of the marketable resource available at the time, and the

5 year intervals between the initial resource pool and the two

subsequent pool increments. Instead, Western has added a notice

provision that gives customers at least a 2 year notice on withdrawals

to create subsequent resource pool increments. The conditions for

future withdrawals of power will be defined on a project-specific

basis.

Comment was received that Western needs to clarify how it will

notify customers about the availability of power due to penalty

imposition. Other comment suggested that such power should be marketed

in the same Area Office region first, and that Western needs to

reconcile the reinstatement of power proposal with the notice to be

given to those purchasing the penalty power. Western plans to provide

notice to all long-term firm power customers within the project's

marketing area. Of these customers, only those not currently being

penalized for non-compliance with the IRP/small customer plan provision

of these regulations may be offered an opportunity to place the penalty

power under contract. The comment regarding the need to reconcile the

reinstatement of power with the withdrawal notice timing is valid. The

regulations have been changed to avoid any conflict.

8. Native American Issues

a. Background

In the proposed Program, Western expressed an expectation that

resource pool power would be made available to Indians for use on the

reservation. No utility status was required as a prerequisite to

receipt of an allocation.

b. Comments and Discussion

Western has taken several steps toward assisting Native Americans

in meeting their needs for cost-based hydroelectric power. In the past,

the benefits of hydropower have been realized by Indians through

allocations to cooperatives that serve tribal load. In the future,

Western expects to make allocations directly to the tribes.

A number of comments were received on Native American utility

status, ranging from strong objections to eliminating the utility

responsibility requirement to strong support for eliminating it.

Interested parties commented that the definition of preference

customers should remain fixed, or otherwise the maximum will be taken

from existing customers in later resource pool increments. Western has

always considered tribes to be preference entities, but has not

historically allocated power to Native Americans in the absence of

utility status, eligible irrigation load or special legislation enacted

by Congress. Western's change in policy, through removal of the utility

status requirement, is in keeping with the spirit of DOE's Indian

policy, and recognizes the special and unique relationship between the

United States and tribal governments.

This limited and narrow policy change does not subvert the

preference clause set forth in section 9(c) of the Reclamation Project

Act of 1939. An overview of the range of preference customers Western

currently serves helps put this issue in perspective. Western has

marketed power historically both to preference utilities, such as

municipal utilities and cooperatives, and non-utilities, such as

irrigation districts, Federal installations, universities and prisons.

Utility status is required for cities to be eligible to receive Western

power under the preference clause. Salt Lake City et al. v. Western

Area Power Administration, et al. 926 F.2d 974 (10th Cir. 1991). This

precedent is not disturbed or overturned by these regulations. Western

has discretion to determine the eligibility of Indian tribes and other

entities entitled to preference in the allocation of Federal power.

This policy change is limited in scope, in accordance with the policy

underpinning described above, and is not a precedent for future erosion

of the preference clause.

Comments were received favoring a 3 percent resource pool going to

Native Americans if there is no disruption to the preference customer

currently serving those loads. Comment was also received that new

customers should be accommodated from new/expanded resources instead of

taking power from existing customers that already have rates higher

than the regional average; and expressing the view that it is not in

the public's best interest to extend preference beyond the requirement

of utility status.

No disruption to the preference customers currently serving tribal

loads need occur. Proposals for providing allocations directly to the

tribes will be developed on a project-by-project basis during the

allocation of power from project-specific resource pools. Many of the

more detailed comments Western has received on the issue of delivery of

power to Native Americans cannot be answered at this time. However,

some basic approaches have been set forth in this rule in section

905.35 and in

[[Page 54165]]

section IV of this supplementary information section. Western will

consider arrangements for the delivery of the benefits of cost-based

Federal power to non-utility Native American tribes, such as through

credits on power bills.

Customers commented that preference and cost-based pricing must be

observed and there should be no disruption to preference entities

currently serving Native Americans. Customers and stakeholders

commented that most Indian tribes already get 50 percent of their needs

through coops; the arrangements should not result in financial hardship

or additional responsibilities for the cooperative; the distribution

cooperative should be kept as part of the transaction--possibly through

the use of bill credits; the existing service territories of

cooperatives must be protected; rural electric cooperation has been

pledged to assure that delivery of power allocated to the tribes takes

place and that a monthly billing credit approach is evolving in the

Eastern Division of Pick-Sloan; and Western's allocations to tribal

members should be based on usage within the servicing cooperative's

territory. Western was also asked to put provisions in firm power

contracts with cooperatives requiring distribution of power to the

tribes at fair and reasonable costs.

Entities providing delivery services, such as rural electric

cooperatives, should be fairly compensated for services provided. No

additional responsibility will be required without appropriate

financial compensation. Preference and cost-based pricing will be

observed. Due to the decision to allocate power directly to tribes,

without regard to utility status, there should not be any threat to the

existing service territories of cooperatives because of these

regulations. Western understands that some tribes are considering

utility formation, but this action would not be required to receive a

firm power allocation from Western.

It is true that many Indian tribes currently served by rural

electric cooperatives already receive a portion of their needs from

Western through the cooperative's blended rate. The amount varies from

tribe to tribe. The magnitude of the benefit already received, among

other factors, could influence Western's development of proposed

criteria for future allocations of power from project-specific resource

pools.

There was a question as to how tribes being served by investor-

owned utilities will be handled. Western has not decided how tribes

being served by investor-owned utilities might be handled. While

Western's rural electric cooperative customers have been cooperative in

working with Western and the tribes on workable delivery arrangements,

investor-owned utilities serving reservation load have not been

similarly involved to this point. A potential exists for the investor-

owned utility community to resist comparable delivery arrangements

based upon retail wheeling concerns. This issue will be addressed

during Program implementation.

Diverse comments were received on the Pick-Sloan marketing area,

with some comments favoring expansion; other comments favoring

reduction; with most arguing for maintenance of the current Pick-Sloan

marketing area. Western does not believe that equity or the public

interest is served by adjusting the Pick-Sloan Missouri Basin Program-

Eastern Division marketing area in the Power Marketing Initiative.

Existing customers outside of the Missouri River Basin, principally in

Minnesota and Iowa, have developed contractual arrangements with

supplemental suppliers, have transmission arrangements with Western or

third parties, or in some cases constructed transmission facilities to

receive Federal power. Changing the marketing area to exclude these

customers would create unnecessary disruption in regional power supply

arrangements and lead to resource uncertainty that could hinder quality

integrated resource planning. For these same reasons, Western will not

require a larger withdrawal from customers located outside the Missouri

River basin.

A comment was received that the Blackfeet Nation should be included

in the marketing area for the Eastern Division of Pick-Sloan. The

marketing area of the Pick-Sloan Missouri Basin Program-Eastern

Division need not be expanded to include the reservation of the

Blackfeet Nation. As the reservation is east of the Continental Divide

in Montana, it is currently within the marketing area.

It was suggested that there is a potential for cooperation between

a tribe and a rural electric cooperative on integrated resource

planning. Western agrees that there is potential for cooperation

between a tribe and a rural electric cooperative on an integrated

resource plan. In addition to the benefits of joint planning and

avoiding duplication, the tribe and the cooperative could apply for IRP

cooperative status and receive an additional 6 months to submit an

initial IRP.

The intent of the Program is for the benefits of hydropower

allocations to go directly to individual tribal consumers. This is

consistent with treatment of other Western customers. Tribal councils

will be involved in the process of accomplishing this goal.

There were many comments concerning power allocations. Questions

received were: (1) Will the tribes be able to act with complete

independence in determining who receives the benefits? (2) What types

of loads are appropriate targets for Western power? (3) Who will hold

the allocation? (4) How will transmission compensation be handled? (5)

How will the closed/open reservation issue be addressed? (6) Who must

approve the agreement? (7) Who will be responsible for paying Western?

Comments stated that a tribe should be required to demonstrate the

existence of an agreement with a viable utility capable of delivering

power and that the allocation should be made to the tribe and the

utility that will transfer the resource; Western must be willing to

reduce allocations to cooperatives that would otherwise benefit from

allocations to tribes; the benefit of the allocation should be

reflected on the power bills of the tribes; and allocations for tribes

should be based on ``usage by tribal members within the preference

customer's service territory.'' Western sees no need to reduce

allocations to cooperatives that would otherwise benefit from

allocations to tribes. In the Eastern Division of Pick-Sloan, most of

the discussion with tribes and customers regarding delivery of power

has focused on the use of a bill crediting mechanism that could avoid

this issue of undue benefits.

Concerns have been raised over Western providing power to tribes

``for free.'' Western will not provide power to tribes free of charge.

Native Americans will pay the same rate for power as any other

customer.

Additional comments state that a resource pool of 25 percent is

needed to meet the needs of tribes in the Missouri Basin today and into

the future; the benefits of hydropower allocations must go directly to

individual tribal consumers; tribes should get all new Pick-Sloan power

resources due to changes in operations; the tribal councils should

determine how the benefits of hydroelectric power are distributed to

tribal members; Western should support a congressional super-preference

for the tribes; and Western should serve all Native American existing

load and meet all load growth with Federal power. Resale of Western's

allocations should be allowed pending a need for the power. In

response, Western maintains that the tribes should

[[Page 54166]]

receive their fair share of the marketable resources available. A power

reservation for Native Americans of 25 percent of the current

commitments from the Eastern Division of the Pick-Sloan Missouri Basin

Program is far greater than that needed to meet a fair share of the

power needs of the requesting tribes. A 25 percent resource pool would

equal 500 MW of firm power, a resource far in excess of the loads of

all potential new preference customers in the region. As documented in

the EIS, there are increased environmental impacts associated with

progressively larger resource pool sizes. Western believes that an

extension of less than 90 percent of the resource to existing customers

may lead to unnecessary power supply dislocations and potential

development of new, but largely unneeded, supply-side resources,

lessening the efficiency of the integrated system and defeating the

purpose of the Program. Western sees no reason to allocate power to an

entity in amounts greater than its loads, as this would deny a valuable

renewable resource to existing customers. It is contrary to Western's

policy and undermines Federal law to allow a customer to resell

hydropower to third parties. Neither equity nor environmental quality

is served by withdrawing power from existing customers to meet the load

growth of new customers. Western intends to allocate power to Native

Americans for use on the reservation out of project-specific resource

pools, but will determine the size of the allocation based upon the

need to meet an appropriate share of the load for eligible new

customers.

Comment was received that the resource pool be enlarged to 4.5

percent to assure the pool is not so small that it limits a tribe's

``fair share'' or that the expectations of existing customers are not

fixed too high. Over the last several months, Western has developed an

estimate of the loads that exist on reservations within the marketing

area of the Pick-Sloan Missouri Basin Program-Eastern Division.

Information on the hydropower benefits currently being received by

reservations has also been compiled. Based upon this information, and

information from customers relating to Native American loads, a 3

percent initial resource pool was proposed. Comment was received that

the proposed 3 percent initial reservation of Pick-Sloan Eastern

Division power was not enough to meet a fair share of the needs of

tribes, and should be increased to 4.5 percent. To assure that a fair

share of the load of Native Americans is met, Western has increased the

size of the initial resource pool to 4 percent.

Comments were received regarding the size of the resource pool. At

present, Western supplies about 26 percent on average of the total load

of firm power customers in the Eastern Division of Pick-Sloan. The size

of the initial pool is large enough to meet a considerably higher

percentage of tribal load than many existing customers enjoy.

Comments on the ``fair share'' concept were that Western has not

addressed the tribal arguments in support of a greater than ``fair

share'' allocation; Western's estimate that 45 MW of Pick-Sloan power

is enough to meet a fair share of the needs of the tribes is flawed

because it assumes a ``fair share'' would not exceed 70 percent and the

load analysis was based on 1990 census data when the delivery of power

would actually begin in the year 2000; and the term ``fair share''

should be discontinued because it is ambiguous and promotes

misunderstanding and mistrust. Western regrets that tribes oppose the

use of the term ``fair share'' due to its ambiguity. Western will not

define ``fair share'' in this final rule, as this determination can be

made better during the future project-specific allocation process for

new customers within the Eastern Division marketing area.

During the comment period, it was suggested that tribes should

receive all ``new'' power resources resulting from operational changes

or upgrades. In contrast, another comment asked Western to accommodate

new customer needs exclusively from new resources and not from a

resource pool. According to this commenter, if needy groups need

assistance, it should be in the form of subsidies borne by all

taxpayers and not through actions that will increase power costs for

rural America.

Equity is not served by dedicating future increases in resources,

whether due to operational changes favorable to power production or

upratings at existing powerplants, to one class of customers. The Power

Marketing Initiative provides tribes with significant new benefits. Nor

will Western limit new customer access to power to new power resources

only. The creation of a resource pool serves the policy of promoting

widespread use of hydropower. Limiting new customer allocations to

potential new power resources would create additional uncertainty for

new customers, as there is no assurance of the availability of such

resources during any defined time period.

To date, Western has received full cooperation from Eastern

Division cooperatives on the issue of delivery of hydropower benefits

to reservations. Even if unanticipated obstacles to the delivery of

hydropower benefits arise, Western retains the right to provide the

economic benefits of its resources to Native Americans directly. Given

this flexibility, Western sees no reason to include language that makes

delivery of power/power benefits to tribes a condition of firm power

sales contracts for cooperatives. Western, Native Americans and

Western's Eastern Division customers will continue to work together to

assure that the tribes receive the benefit of their allocation. Western

has responded positively to requests for assistance in negotiations.

One comment suggested that Western evaluate tribal irrigation

potential and integrate that irrigation into the Pick-Sloan similar to

the Standing Rock Sioux and the Three Affiliated Tribes under the Water

Resources Development Act of 1992. Another comment asked that more

tribes receive compensation like that received by the Fort Berthoud,

Standing Rock Sioux and Three Affiliated tribes. Special legislation

would be required to accomplish these suggestions. Western will

consider allocation of power to eligible irrigation districts in a

future, project-specific resource pool allocation process.

Western has no authority to adjudicate Indian water rights and

negotiate such rights with the states. This activity is outside the

scope of Western's mission, and should be addressed through direct

discussions with the responsible agencies.

Western will not adopt the comment that only short-term commitments

of firm power should be made pending resolution of Missouri River Basin

tribal issues. Significant resource uncertainty would continue for

existing customers in the Eastern Division if this comment were

adopted, as contracts currently in place expire in the year 2000.

Instead, Western will continue to work with tribes in the upper Midwest

in parallel with Program implementation.

Several comments were received advocating flexibility in the

allocation of Western power to Indian tribes. Instead of limiting

allocations to use on the reservation, these commenters asked that

tribal members living adjacent to the reservation and within the

servicing cooperative's service territory also be allowed to receive

the benefits of cost-based Eastern Division power. Another comment

asked how Western intended to address the closed/open reservation

issue. In order to retain the flexibility to address these situations,

this Federal Register notice states that Western

[[Page 54167]]

expects to make allocations to Native American tribes for use on the

reservation and potentially off the reservation under certain

circumstances as determined by Western. Western wants to reserve the

flexibility to tailor the allocation of power from project-specific

resource pools to meet regional circumstances.

Western was requested to advise whether the Mni Wiconi special

allocation of 6 MW is part of the proposed 3 percent resource pool. The

Mni Wiconi special allocation of 6 MW is statutory, and is not part of

the Eastern Division proposed 3 percent initial resource pool.

An objection was raised regarding the distribution of power within

the Department of Defense where the total military electrical load is

being reduced, with comment being received that a higher Federal

purpose would be served by reallocating the power to the tribes.

Western does not have the contractual right to withdraw power from the

Department of Defense to meet Native American needs. Under an existing

contract that is effective through the year 2000, Western has agreed to

allow the Department of Defense to shift its allocation among Air Force

bases under circumstances such as a base closure. Western cannot

allocate this power to tribes, as it is already contractually

committed.

One comment stated that the tribes lost over 160,000 acres of land

without just compensation when Oahe was constructed, and that the

tribes have never received the power benefits from Pick-Sloan despite

the loss of land. Just compensation for the taking of lands to

construct the Pick-Sloan Program is not an issue that is appropriately

addressed through an allocation of power by Western. When the taking of

lands took place, compensation was given to tribes. If the compensation

was inadequate, redress is available through the courts, through

special legislation, or through the agencies that took the property.

It was suggested that a special tribal nation allocation be

established from power revenues to provide just compensation. Western

has no authority to use power revenues deposited in the Treasury to

create a special tribal allocation to provide just compensation. Only

Congress can direct the use of revenues in such a manner.

Western declines to create a special class of power exclusively for

tribes. In the absence of direction from Congress to the contrary,

Western believes it is inequitable to create administratively a

special, preferential classification for Indians. Instead, Western

intends to meet the needs of tribes through allocations from project-

specific resource pools.

Nor will Western create a special IRP provision for Indians. Under

section 114 of the Energy Policy Act of 1992, Western does not have the

discretion to develop special provisions for tribes. However, Western

intends to provide integrated resource planning technical assistance to

Native American tribes upon tribal request. We are committed to

assisting the tribes to successfully develop and implement IRPs.

Comment was received that the tribe must recapture capital

ownership rights in RUS plant equipment based on the Consumer Price

Index, and that Indians should be provided technical and financial

assistance in developing a utility on a par with the rural electric

cooperatives and investor-owned utilities. No authority exists for

Western to adopt the comment that a tribe must recapture capital

ownership rights in RUS plant equipment based on the Consumer Price

Index. Nor does Western have any role with respect to disconnection of

service policies. Western will remain neutral on the issue of tribal

utility formation. Technical and financial assistance to a tribe or any

other group in support of utility formation will not be provided, as

this cost is the responsibility of the entity seeking utility status

and should not be a project cost borne by all project ratepayers.

Western was asked whether it is implementing retail wheeling.

Western is not imposing retail wheeling on its Eastern Division rural

electric cooperative customers under the Power Marketing Initiative.

The cooperatives have been supportive of the delivery of the benefits

of power allocations to tribes, and are supportive of a bill crediting

approach to accomplish Western's goals in a manner that avoids the need

for a separate transmission service arrangement.

Comment was received asking why Western was expanding its resource

allocations to tribes when the overall SLCA/IP resource was declining.

No decision has been made on the size of the resource pool for

potential new customers within the SLCA/IP marketing area. The size of

this project- specific pool will be determined at a later date. Western

is working with the Ute Mountain Utes to determine if project use power

might be made available for certain irrigation pumping loads before

existing firm power contracts expire in the year 2004.

Comments were received by customers and stakeholders that the

efforts of Western to work with the tribes on implementing the Program

is appreciated; that the United States should abandon the policy of

decimating Indian water rights through court adjudication and

negotiation with the states; the relationship between Western and

Indian tribes is expected to be one of government to government; and

Western must follow DOE's commitment to the trust responsibility

reflected in DOE's Indian Policy and ``redo'' the Program to reflect

tribes' unique relationships with the Federal government. Western

supports the Department of Energy's American Indian policy which

stresses the need for a government-to-government, trust-based

relationship. The key theme throughout the Department's policy is

consultation with tribal governments so that tribal rights and concerns

are considered prior to action being taken. Western has met with Indian

tribes and tribal representatives throughout the Program public

process, and is currently meeting with tribes located in the Missouri

River Basin on a monthly basis. To mitigate the economic conditions on

reservations within Western's marketing area, Western has responded

favorably to the comment that tribal utility status should not be

required before a power sales contract can be offered, and has also

adopted tribal comment by agreeing to enter into contracts with the

tribe directly. These policy decisions show how Western has been

responsive to the needs of tribal nations, and that the consultation

has been meaningful and substantive.

9. Resource Acquisition by Western

a. Background

In the proposed Program, Western committed to the use of IRP

principles in its resource acquisition and transmission planning

principles. This commitment has been pursued through a separate public

process, commencing with a Federal Register notice published on

December 6, 1994, 59 FR 62724.

b. Comments and Discussion

The following are comments received which were addressed in the

separate public process on the use of IRP principles by Western, or are

more appropriately addressed in the project-specific implementation of

the IRP principles: (1) Western should not develop non-hydro resources,

as this would have a negative impact on our IRP. (2) Western's resource

acquisitions should be limited to meeting contract rates of delivery.

(3) Western should identify current and future transmission development

in its IRP, as this information is critical to our IRP. (4)

[[Page 54168]]

How will Western acquire DSM? Western should not conserve its

hydroelectric power, but should market all of the available resource.

(5) Western should emphasize the purchase of energy efficiency and

renewable energy from Western customers over other resources. (6)

Western should purchase efficiency and renewables, because cost-based

rates discourage the installation of energy efficiency measures. (7) We

support IRP by Western. It would be appropriate for the Bureau of

Reclamation to use IRP principles in its pump replacements, generator

rewinds or other project enhancements and system improvements. (8) Any

reduction in Western's costs will enhance our competitive position. (9)

We do not support the concept of Western reducing customer demand

through Western's adoption of IRP principles. (10) We are unclear

whether Western could free up power resources by funding energy

efficiency and demand-side management projects. (11) We are unsure if

Western's commitment to IRP principles will apply to investments

Western is considering in the very short term. (12) We are concerned

about the timing of the adoption of IRP principles by Western--it

should apply to Navajo transmission and Glen Canyon replacement power

and to resources that have not yet been acquired as of January 1, 1995.

(13) Western should use IRP principles immediately, without waiting for

completion of the public process.

Several relevant comments will be addressed briefly here.

One customer commented that Western's use of IRP principles could

impact customer resource planning, and that Western should implement

its commitment before requiring its customers to complete their IRPs.

Additionally, Western should be sensitive to the timing of customer

IRPs and Western's use of IRP principles, especially if Western's

actions impact the amount or the price of the Federal resource. Western

agrees that its use of IRP principles could impact customer planning.

Every attempt was made to conclude the parallel public process quickly,

to provide customers with more certainty as they prepare their

individual integrated resource plans. The implementation of Western's

commitment to use principles of integrated resource planning is

described in a Federal Register notice published on June 9, 1995 (60 FR

30533).

A customer commented that it supports future contracts that allow

customers the flexibility to acquire firming resources, and urges

Western to enter into contracts to purchase customer-owned renewable

resources. Additionally, customers should be given the opportunity to

refuse Western purchase of firming energy, and should be given a

priority to purchase surpluses. Western concurs that customers be given

the opportunity to refuse Western purchase of firming energy. 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.

Another customer commented that adoption of IRP principles by

Western should not mean abandonment of lowest possible cost consistent

with sound business principles; and that Western's role is one of a

marketer of power from Federal generation, and not acquiring non-

Federal power through the use of power revenues. Adoption of IRP

principles does not mean abandonment of lowest possible costs

consistent with sound business principles. To the contrary, use of IRP

principles will be a tool that will assist Western in keeping costs

low.

10. Implementation

a. Background

Western proposed to offer extension contracts to existing Pick-

Sloan Missouri Basin Program-Eastern Division and Loveland Area Project

customers upon submittal of their IRPs to Western. Western also

proposed to extend to existing customers a pro rata percentage of

marketable resources available at the time current contracts expire.

b. Comments and Discussion

Comments were received stating that actual contract rate of

delivery values need to be in the contracts extending resources because

a percentage of a resource available at the end of the term of existing

contracts does not offer customers the certainty needed to prepare a

quality integrated resource plan; that it would be extremely beneficial

to know the marketable capacity and the resources to be committed as

soon as possible--when the Corps of Engineers operating procedures are

known, the marketable capacity should be determined; that contract rate

of delivery values must be specified in the contract; and that there

should be minimum resource values set forth in the post-2000 contracts.

While Western understands the concern that actual contract rate of

delivery values need to be in contracts extending resources, or that

some minimum resource values be established, there remains a need to

retain the flexibility to respond to changing circumstances in the

short term. The development and completion of the Missouri River Master

Operating Manual EIS is one of those changing circumstances. Western

will work with customers to determine the resources and marketable

capacity to be committed as soon as possible after the Corps operating

procedures are known. If no better information is available, for

initial IRP planning purposes, Western will provide existing customers

with estimated resource commitments (based upon application of the

percentages set forth in this final rule to the resources currently

under contract).

Customers commented that contracts should be offered upon

publication of the final rule, as the added certainty would promote

quality integrated resource planning; that customers are already

required to prepare and implement IRPs under the Energy Policy Act and

there is no need for a further incentive to encourage IRP; that

contracts should be offered upon issuance of the EIS Record of Decision

subject to the submission of the customer's initial IRP; that customers

will find it difficult to develop IRPs without knowing Western's exact

commitment; and that it may be necessary to delay the signing of

Eastern Division contracts if appropriate delivery arrangements to

Native Americans cannot be worked out. Western agrees with the comments

that individual customer contract offers for those projects initially

covered under the Power Marketing Initiative should be made before

individual customers are required by Western to submit an IRP. By

adopting this approach, the new penalty provisions under the extension

contracts will be effective and available if an IRP or small customer

plan is unsatisfactory. In 905.37 of this final rule, Western has

adopted the approach that Pick-Sloan Missouri Basin Program-Eastern

Division extension contracts may be offered 30 days after publication

of this Federal Register notice. This approach provides more certainty

to customers by advancing the date of the contract offer, but retains a

powerful incentive for quality and timely integrated resource planning

by making the penalties mandated by EPAct immediately applicable

pursuant to the terms of the extension contract. Contracts for

extensions of resources for the Loveland Area Projects will not be

offered until the analysis of potential resource adjustments in 1999

has been

[[Page 54169]]

completed and any adjustments are implemented. Existing power sales

contracts require that this analysis be completed by 1996.

It was also suggested that the Salt Lake City Area/Integrated

Projects marketing plan, Glen Canyon EIS and replacement power study

should be expedited, with contract extensions accomplished concurrent

with the Record of Decision on the SLCA/IP marketing plan EIS. Western

agrees that customer resource certainty is promoted by expediting the

Salt Lake City Area/Integrated Projects marketing plan, the Glen Canyon

EIS and the replacement power study. Western is making every effort to

complete the processes we are managing, and is working with the Bureau

of Reclamation to help complete the Glen Canyon EIS as well. Western

will evaluate application of the PMI to the SLCA/IP after its electric

power marketing EIS is completed and the associated marketing criteria

and contract changes are implemented.

11. Other Marketing Issues

a. Background

Historically, Western has marketed firm power at a level defined in

project- specific marketing criteria. During periods of drought,

Western has purchased firming power to meet the obligations defined in

the marketing criteria. When water conditions are good, surplus energy

(and occasionally surplus capacity) may be available for sale on a

short-term basis. Typically, these surpluses are sold to regional

utilities. These regional utilities may or may not be long-term firm

power customers; these sales are often made to both preference entities

and investor owned utilities.

Historically, Western's project-specific marketing approach has

been based upon public comment and policy decisions made during the

development of specific marketing criteria. Some resources are marketed

on a resource pattern basis, while others are based on the load pattern

of the customer.

Western proposed to extend a major percentage of the power

currently committed to existing customers beyond the expiration date of

existing contracts. Western is not proposing to acquire new resources

to meet customer load growth.

b. Comments and Discussion

A number of commenters supported the current definition of Pick-

Sloan Missouri Basin Program-Eastern Division marketable resources and

the marketing criteria. Any change should take place under a separate

public process after consultation with customers. Several commenters

suggested that existing preference entities should have a right of

first refusal to all non-firm power at the price of production and

transmission and that non-firm energy should be sold to customers that

demonstrate feasibility of purchase in their IRP, and when that

customer can firm the hydroelectric energy. They also suggested that

resources made available as a result of penalty impositions should be

marketed to customers of the same Area Office.

There were numerous comments on how to establish the marketable

capacity. Some suggested that a separate approach may help maximize the

capacity Western has available to market. Several of Western's

customers are power suppliers that have energy flexibility with their

own resources. If that flexibility can be utilized by Western to

minimize their risk in high or low water years, the Western capacity

could be based on something other than a lower decile water year such

as a higher percentage of average hydrology. This would be a departure

from the load pattern type resource. In bad water years, the deliveries

would be lower, and the deliveries would be higher in good water years.

This would minimize the purchase and sale of firming energy. Marketable

capacity might be based on average water conditions if the customers

could handle some of the swings.

Changes to Western's project-specific marketing policies are not

appropriate in a Western-wide initiative such as the Energy Planning

and Management Program. Adjustments in Western's current marketing

approach for a specific project can be appropriately addressed in a

separate project-specific proceeding at a later date. The extension

formula provides for a pro rata commitment to existing customers, based

upon the resource available at the end of the term of existing

contracts. Changes in marketing approaches are best addressed at that

time on a project-specific basis and not during the Western-wide

development of the PMI. Marketing issues that might be appropriate for

discussion at that time include policies for sale of non-firm energy,

departure from a load pattern resource and adjusting the firm power

risk level to a different percentage.

Several comments were received on the proposal to restrict

transfers of Pick-Sloan Missouri Basin Program--Eastern Division

allocations held by the State of South Dakota and the Department of

Defense. Under existing contracts, these two customers have enjoyed the

flexibility to transfer Western's hydropower and concentrate

allocations in specific locations with the goal of maximizing the

benefits of Federal hydropower. This contractual right exposes

supplemental power suppliers to load variations, undermining the

resource stability which promotes quality integrated resource planning.

By proposing some restrictions in the final rule on this flexibility in

the contracts extending resources, Western intends to create a more

stable resource commitment to customers that would benefit regional

planning, and make future firm power customer contracts more consistent

and equitable.

Contrary to the comments of the Air Force, the final rule does not

require that an entire allocation be lost upon base closure after 2000.

Movements of allocations are allowed when the contract rate of delivery

exceeds the load at a particular site; this would be the case when a

base closes.

The final rule does not impose unfair or unusual constraints on

government customers. If anything, the regulations treat Federal and

state government the same as other Eastern Division customers by

removing an advantage other customers do not enjoy. While this

provision may impact power costs for the Air Force and the state of

South Dakota, broader regional advantages are also realized from the

increase in power supply stability.

The seasonal proportional share concept does not violate least-cost

principles. This same approach has been used in allocations to new

customers in many historic project-specific marketing plans.

Several commenters recommended that Western maximize the stability

of the planning environment, and do everything possible to control

costs and identify the costs of other agencies that adversely impact

the cost of power. They also suggested that Western recognize the

potential structural changes in the electric utility industry by

beginning a meaningful dialogue on unbundling of services and must

avoid new subsidies or perpetuating old ones. A further suggestion was

that Western should further unbundle services to expand Western's

customer base and those receiving project benefits.

Western is committed to enhancing resource stability through

control of costs. Many positive steps have been taken to reduce

Western's expenses, and more are planned for the future. Western

intends to be responsive to customer needs and utility industry

changes. This responsiveness includes a willingness to enter into a

meaningful dialogue on unbundling of services. Most recently, a

dialogue on this subject has taken place among Western and

[[Page 54170]]

Central Valley Project customers. Western agrees with the comment that

new subsidies must be avoided and old subsidies must be eliminated.

Western will take advantage of consultation opportunities with

customers to maximize communication.

One commenter was concerned that in the responses to comments that

were part of the proposed rule, Western makes the statement that it has

no general legal obligation to acquire additional resources to meet the

load growth of its customers. They felt that this statement is

unnecessary and constrains the considerable authority given to Western

by the Tenth Circuit Court of Appeals.

Western does not intend the publication of the proposed Program or

this final rule to limit Western's legal authorities recognized by the

Tenth Circuit Court of Appeals in Salt Lake City et al v. Western Area

Power Administration, et al., 926 F.2nd 974 (10th Cir. 1991). However,

Western does not have the legal authority to acquire resources to meet

customer load growth.

Several commenters supported efficiency improvements to existing

project facilities, and asked that customers have a right of first

refusal to participate. Any increases in capacity/energy should be made

available to the financing customer, or as a substitute for other

firming resources. Western should commence a process along the lines of

NCPA's 1992 proposal to the House Interior Committee.

On the issue of customer financing of improvements to project

facilities, Western has decided to retain its flexibility to address

unique opportunities in a tailored manner as opposed to establishing a

Western-wide policy. In the past, Western has made increases in

capacity/energy available to the financing customer. Western continues

to believe this concept makes sense, and will likely apply it in the

future under most circumstances.

Commenters applauded Western's decision to continue to provide

transmission access for renewables and endorsed Western marketing a

variety of products out of the Central Valley Project. Western

appreciates this supportive feedback.

One commenter remarked that access to Western hydropower should be

based on customer adoption of a mix of conventional, renewable, and

demand-side resources. This commenter believes that contract renewals

should be a reward for DSM implementation. Western declines to allocate

power based on customer adoption of a mix of conventional, renewable

and demand-side resources. Nor will contract renewals be a reward for

DSM implementation. Resource extensions should be the foundation for

customer IRP, and not a carrot to induce the selection of some

preconceived resource ideal. Integrated resource planning should lead

to the selection of resources based on their individual merits as

determined through the IRP process. Western addressed at length the

issue of incentives in the responses to comments that were part of the

Federal Register notice of August 9, 1994. That discussion is still

valid and is incorporated as a response to these comments.

Allocations from project-specific resource pools will be completed

before contracts with existing customers expire. Power that is reserved

for new customers but not allocated and resources offered but not

placed under contract will be offered to existing customers that

contributed to the resource pool. Western expects that all firm power

will be marketed. Withdrawal mechanisms will exist for purposes

described in the final regulations.

D. Other Issues

1. Support of Renewables

a. Background

In the proposed rule, Western stated that consideration would be

given to the allocation of power from project-specific resource pools

to firm up renewable resources.

b. Comments and Discussion

Western received several comments that strongly support the concept

of making power available to preference entities to firm up renewable

resources. Those comments stated that firming renewables would expand

that marketplace for renewables and facilitate the further development

and commercialization of this technology; that the initial pools for

the Pick-Sloan Missouri Basin Program--Eastern Division and the

Loveland Area Projects be increased to 6 percent of the available

resource, with half of the increased pool being dedicated to help firm

up renewables; and that the increased experience and economies of scale

would make renewables more attractive and cost-effective and renewable

investments would help utilities diversify against future fuel price

and environmental risks. However, one commenter stated that funding

renewable or nontraditional power supply may be a worthy social

objective, but this is not Western's role and incentives to encourage

non-traditional resources should be developed at the community level

through the customer IRP process.

Western has a strong desire to support the development of

renewables. Western has in the past and plans in the future to assure

the continued progress of renewable resources as an important national

resource. The following examples demonstrate Western's commitment.

In the Eastern Division of the Pick-Sloan Missouri Basin Program,

the Mid-Continent Area Power Pool (MAPP) has in place a means to

accredit capacity for renewable resources based on historical

performance. Accreditation relieves the renewable resource owner from

the cost of purchasing power reserves due to the intermittent nature of

power production by this type of resource. If a Western customer is not

a MAPP member, Western may act as an agent for the customer to gain

MAPP accreditation of capacity for the renewable resource.

Recently, Western has committed to undertake a market assessment of

the potential for solar power in the southwestern United States as part

of the Solar Enterprise Zone (SEZ) initiative. Western has offered its

marketing, transmission and power system operations expertise to the

SEZ.

Western has been active in promoting renewable energy in

partnership with Native American Indians. Western, in coordination with

the Navajo Nation, the Department of Energy and Sandia National

Laboratory, has supplied forty photovoltaic units to the Navajo Tribal

Utility Authority for installation at remote homes on the Navajo

reservation. As extensions of distribution lines to these remote

locations would be prohibitively expensive, installation of

photovoltaic technology is a commercially viable alternative. Western

has contributed to an assessment of the wood fuel supply on the White

Mountain Apache tribe reservation to determine the quantity of this

fuel available for power cogeneration. To promote Indian health,

Western is contributing to the Navajo Rootfuel Promotion project, which

will evaluate the feasibility of growing and harvesting rootfuels to

replace coal as a fuel in Indian homes. Another example of a

partnership between Western and Native Americans is an assessment of

the feasibility of producing biogas fuel from solid wastes to meet the

needs of remote Navajo villages and cluster homes.

In addition to sponsoring many workshops and publishing numerous

publications on IRP, Western has created the Resource Planning Guide, a

technical assistance tool that will help customers to prepare

integrated resource

[[Page 54171]]

plans as required by section 114 of the Energy Policy Act of 1992. The

RPG is a personal computer-based piece of software that will allow

customers to evaluate renewable resources as a future resource.

Western's Sacramento Area Office has provided technical assistance

for a feasibility analysis of using wind-generated energy at Lawrence

Livermore National Laboratory. If the analysis is favorable, Western

will work with the laboratory to develop the use of wind energy.

Western has also made its transmission system available to wheel power

from wind generation to load.

Most recently, Western has taken steps to implement its commitment

to use principles of integrated resource planning for its resource

acquisition and transmission planning activities. Demand-side and

renewable resource options will be considered side-by-side with thermal

generation purchase opportunities. The implementation of the commitment

to use principles of integrated resource planning is described in a

Federal Register notice published on June 9, 1995 (60 FR 30533).

Although strongly supportive of renewable resources, Western believes

that the concept of setting aside a portion of Western's purchase power

appropriations exclusively to acquire renewables is best addressed

through project-specific implementation of IRP principles.

While Western wants the ability to support renewable resources

through allocations from project-specific resource pools, it is

premature to designate a portion of the pool exclusively for the

support of renewable resources. Western's resource pool reservations

are for use beginning in the year 2000 for the Eastern Division of

Pick-Sloan. Western does not want to commit a block of power today for

the benefit of renewable technologies, when the targeting of resource

pool power can take place more effectively nearer the date that

existing contracts expire and regional needs are better known. Devotion

of a block of power today to a single use, such as fostering

renewables, could work to the disadvantage of other pool uses, such as

allocation of power to American Indians. Western reserves the right to

allocate resource pool power in support of renewables, but will not now

exercise that right.

2. Project Use

a. Background

Project use power is that power reserved to meet project needs

pursuant to law, such as pumping irrigation water. Power in excess of

that needed for project use is available to Western for allocation.

Western made no proposal to change the definition of project use power

in the proposed Program.

b. Comments and Discussion

One comment stated that Western should maintain the current

definition of project use and that an allocation of Pick-Sloan power to

the Garrison Diversion Conservancy District is important to them under

present operations and absolutely essential for future requirements.

Given the Garrison Diversion Unit reformulation legislation passed by

Congress in 1986, the commenter thought consideration should be given

to a specific power allocation on reserve in their name for operation

of facilities authorized in the 1986 legislation. Any change in the

suballocation of costs should take into account the interests of the

irrigation districts. This commenter also stated that all long-term

contracts should have provisions for withdrawal to meet the pumping

power needs of the Garrison Diversion Unit, as farmers need reasonably

priced electricity for use on the farm.

Project use power is not allocated but is reserved pursuant to the

authorizing legislation for each project. Since Western does not

allocate project use power for water pumping, this type of power is not

a part of the PMI. Western's firm power contracts for the Eastern

Division presently contain withdrawal provisions to meet project use

load as it develops. Future contracts will contain similar withdrawal

language for project use.

Since these regulations do not address any changes in the

definition or scope of project use power for pumping purposes, the

suballocation of costs is similarly not a part of the PMI.

III. Summary of Changes From the Proposed Program

Western has made several revisions to the proposed Program in

response to public comments on the Federal Register notice of August 9,

1994. All references to Program ``procedures'' have been deleted, and

replaced with ``final rule'' or ``regulations'' to better reflect

section 114 of the EPAct and the fact that the final rule will be

published in the Code of Federal Regulations. The final rule clearly

separates the Program's provisions from the explanatory text which has

been shifted to the supplemental explanation section. To eliminate

confusion, the definition and use of the word ``purchaser'' was

eliminated and replaced with ``customer.''

In the IRP subpart (subpart B), Western broadened language relating

to member-based associations in recognition of our wide variety of

customers. Determination of the small customer threshold of 25

gigawatthours (GWh) was changed to a 5 year average, instead of the

proposed annual measurement. A customer's competitive situation was

added as a factor in the determination of the reasonableness of an IRP.

Provisions relating to irrigation districts were extended to other

customers that serve water pumps and comparable equipment as part of

their load. The section dealing with the use of IRP principles by

Western was deleted, in recognition of the completion of a separate

public process (60 FR 30533 (June 9, 1995)) on this subject. Finally,

clarifying changes were made in a variety of areas, including

penalties, IRP action plans and progress reports, public participation

and small customer plans.

With regard to the Power Marketing Initiative (PMI) provision

(subpart C), the term of contract has been extended from 18 to 20

years. For any project initially covered by the PMI, offers of

extension contracts will take place upon no sooner than the effective

date of the final rule. For the Pick-Sloan Missouri Basin Program--

Eastern Division and the Loveland Area Projects, the initial resource

pool was increased to 4 percent, while the two subsequent pool

increments were reduced to 1 percent each. Application of the

percentage extension for subsequent resource pool increments was

changed to the resource that is under contract at the time. The

proposal to exempt customers with contract rates of delivery of one MW

or less from contributions to the resource pool was deleted, as was the

proposed new customer exemption from withdrawals to form later resource

pool increments. Delivery of the benefits of cost-based Federal power

to Indian tribes is now directly allowed. Various clarifying changes

were also made in the PMI.

IV. Supplemental Explanation of the Rule

This section includes an explanation of certain IRP provisions, and

it also sets forth Western's policy regarding the future application of

the Power Marketing Initiative. Section 905.11(b)(3) addresses the

concept of cost-effectiveness. Cost-effectiveness is basic to a

resource evaluation and therefore must be pursued. Western recognizes

the criteria for determination of least-cost options in each IRP will

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vary among Western's customers because of differences in their size,

type, resource needs, geographic area and competitive situation. For

Western's smaller customers, Western may approve an IRP that is a

generalized analysis which describes the cost comparison processes

utilized and economic assumptions used. These may be limited to, for

example, the total resource cost test for demand-side resources and may

involve use of simplified methods and procedures to analyze important

variations in supply-side characteristics such as service lives,

construction periods, and price inflation influences. However, Western

would expect its larger customers to prepare a more in-depth evaluation

of demand and supply resource cost effectiveness, on a comparable

basis. This may include evaluation of demand-side resources under some

combination of the total resource cost, participant, rate impact

measure, utility, or 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.

Full public participation is the subject of section 905.11(b)(5).

Western will not require a customer to take any action inconsistent

with existing sunshine laws and other open meeting requirements. Given

the wide diversity of customers that Western serves and the variety of

resource planning circumstances that they face, Western will not

mandate that customers hold a specific number of public meetings.

Section 905.12 describes how customers may be allowed to form an

IRP cooperative. 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. Examples of such a ``decision block'' are

when all the entities covered by an IRP are contained within a power

supply chain or regional entities plan for joint supply-side, demand-

side, and/or renewable resources above and beyond the Western resource,

so long as individual member responsibilities and participation levels

are identified.

Examples of entities likely to receive Western's approval 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 be granted 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.

The criteria that will be used in evaluating IRPs are set forth in

section 905.11(b). Customers will make their own choices regarding

resource type, quantity, and timing in accordance with their IRP.

Western will not dictate resource choices.

Section 905.13(d) contains special irrigation district and water

planning provisions. Irrigation and water utility customers 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 integrated resource planning resource evaluation and selection

process.

Small customer plan requirements are set forth in section 905.14.

Western does not expect small customers to expend a significant amount

of time and money to acquire expertise and data to prepare these plans.

Western will be available to assist customers in developing an

appropriate strategy for preparing the plans.

Section 905.30 deals with the applicability of the Power Marketing

Initiative. It limits the initial application of the PMI to the Pick-

Sloan Missouri Basin Program--Eastern Division and the Loveland Area

Projects. Western's Program establishes an overall framework for the

marketing of power, while recognizing that future determinations must

be made on a project-specific basis. 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 customers

must be decided on a project-specific basis, with public input and

appropriate environmental documentation.

Application of the PMI to the Central Valley Project, Washoe

Project and Salt Lake City Area/Integrated Projects shall not take

place in the absence of a future, project-specific evaluation and

decision.

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 presently preparing an environmental impact statement (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. The provisions of the PMI will

be within the range of alternatives in the SAO marketing plan EIS for

purposes of impact assessment. As a result of further analysis in the

2004 power 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 percentage would be similar

to those of the Pick-Sloan Missouri Basin Program--Eastern Division and

the Loveland Area Projects. The additional resource pool increments

described in section 905.32 would also be applicable.

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

Projects (SLCA/IP) resources will 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 analyzes power marketing between now and the year

2004. If the PMI provision is implemented, Western estimates that an

initial extension level percentage would be similar to those of the

Pick-Sloan Missouri Basin Program--Eastern Division and the Loveland

Area Projects. The additional resource pool increments described in

section 905.32 would also be applicable.

The resource pool size for SAO and SLCA/IP resources will be

determined 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 will 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 will be

published after a separate public process and will take place no more

than 10 years before termination of these contracts.

Any adjustment shall only take place after an appropriate public

process. Withdrawals to serve project use and other purposes provided

for by contract shall continue to take place based on existing

contract/marketing criteria principles.

Section 905.32 addresses both resource extensions and resource pool

size. Western's policy on these subjects is as follows. For the

projects initially covered under this PMI, the project-specific

resource pools (including both the initial pool and future increments)

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could be as large as 6 percent over the term of the contracts. These

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