Western Area Power Administration's Policy for the Purchase of Non-Hydropower Renewable Resources

DEPARTMENT OF ENERGY

Western Area Power Administration

Western Area Power Administration's Policy for the Purchase of

Non-Hydropower Renewable Resources

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of non-hydropower renewable resources policy.

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SUMMARY: This notice announces the Western Area Power Administration

(Western) adoption of a policy to purchase a portion of its expected

purchase power requirements on a project-by-project basis and in a

competitive manner, from non-hydropower renewable resource producers.

This concept includes a proposal to purchase 50 percent of those

purchases from solar resources. Western's policy focuses on technical

assistance and facilitation of renewables, as opposed to a mandatory

purchase power set-aside for renewables.

FOR FURTHER INFORMATION: For additional information, please contact Mr.

Michael S. Cowan, Chief Program Office, Western Area Power

Administration, P.O. Box 3402, Golden, CO 80401-0098, (303) 275-1630.

SUPPLEMENTARY INFORMATION: On April 15, 1996, Western published a

notice entitled Western Area Power Administration's Concept for

Purchase of Non-hydropower Renewable Resources, and Solicitation of

Interest (Concept) in the Federal Register (61 FR 16480). In response

to requests, the original 30-day comment period was extended in 61 FR

24789 (May 16, 1996). The comment period closed May 31, 1996, 45 days

after the publication of the Concept. Western received 150 comment

letters concerning the Concept. A summary discussion of those comments

and Western's responses are included in this notice along with

Western's policy on non-hydropower renewable resource purchases.

The primary focus of the Concept was the purchase of non-hydropower

renewable resources as part of Western's electric firming requirements.

Western also requested comments on the criteria that Western would use

to implement a new policy. These proposed criteria included: (1) The

assumption that additional costs associated with non-hydropower

renewable resource purchases would have little or no discernable rate

impact to Western's firm power customers; (2) the cost of the non-

hydropower renewable resources purchased by Western would be equal or

less than an established cost cap; and (3) the contract term for the

purchase of these renewable resources would vary project by project,

but in no case would the term extend beyond the termination date of

Western's long-term firm power sales contracts for a project.

Western specifically requested comments on the following points

related to the proposed Concept: (1) Whether or not the respondents

support the proposed Concept, (2) the magnitude of percentage of a

potential purchase power requirement set-aside, (3) whether it is

appropriate to have 50 percent reservation for solar resources within

the set-aside, and if so, whether the reservation amount for solar

should be increased or decreased, (4) the acceptable rate impact, (5) a

recommended cost cap in mills per kWh for non-hydropower renewable

resources, (6) a recommended contract term for purchases, (7)

recommendations on alternative methods whereby Western would facilitate

market opportunities for non-

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hydropower renewable resources, and (8) any other related issues.

Western also was interested in receiving comments concerning other

terms, requirements, and criteria of the proposed Concept such as:

dispatchability, point of delivery, dependability, resource diversity,

and environmental impact. The proposed Concept also indicated that

resource acquisitions would be made through the application of the

Concept on a project-by-project, cost competitive basis and in a manner

consistent with Western's formally adopted principles of integrated

resource planning published in the Federal Register (60 FR 54151).

Western also solicited comments from the public interested in

having Western facilitate the delivery of non-hydropower renewable

resources on their behalf and at their cost; for alternative Concepts;

and for information from renewable resource developers.

Comments were received from a variety of entities including power

customers, developers, environmentalists, government agencies,

investor-owned utilities, and Native American tribes.

Western has taken into consideration each comment in the

development of its non-hydropower renewable resource policy.

Discussion of Comments

Western received 150 comment letters representing both individual

commenters and groups of interested entities. The majority indicated

that they or the entities they represent do not support the proposed

Concept. Western reviewed each comment and responded to them in the

text which follows.

Comments: The primary reason given for not supporting the proposed

Concept was the increased cost and subsequent adverse rate impact.

Several entities stated that ``any'' rate impact is significant and the

cost of these types of renewables is too high and should not be blended

into their costs. Although many Western firm power customers support

the development of renewables, they strongly oppose the proposed

Concept because of the increase in costs and lack of local choice for

customers to support renewables that make sense in their particular

community. The firm power customers strongly suggest that the proposed

Concept be abandoned.

Other commenters stated that the impact to rates is acceptable, and

an even higher rate impact should be used as a ceiling. Several of

those commenters stated that Western may have overestimated the rate

impacts and suggested alternative methodologies to calculate the rate

impacts and make the program more attractive to developers. The various

suggestions included: taking into account capacity values; aggregating

Western's purchase power needs into one contract; focusing on one large

resource where economies of scale would make it more cost competitive;

extending the length of the commitment; purchase year-round as opposed

to seasonal; and increasing the amount of the resource purchased.

Response: Western acknowledges that there are minimal rate impacts

associated with the Proposed Concept. Western also recognizes its

obligation to both the taxpayers and the power customers to keep rates

as low as possible to maintain a market for the Federal hydropower

resource and thereby assure project repayment to the Treasury. Western

reviewed the comments concerning the suggested rate impacts and

acknowledges that there are several ways to recalculate those impacts

and different methodologies that could be used to determine a larger or

smaller rate impact. However, Western has not ascertained a method of

purchasing nonhydropower renewable resources that does not increase

costs.

In response to the large negative response to the proposed Concept,

Western will not mandate the purchase of a certain portion of its

replacement and firming requirements from non-hydropower renewable

resources. The proposed concept is impracticable given Western's policy

in the Energy Planning and Management Program that allows customers to

provide their own firming energy and the customers strong opposition to

the proposed Concept. Consequently, proceeding with a non-hydropower

renewables firming energy purchase over the objection of customers

would likely result in customers exercising their option not to

purchase higher priced firming energy from Western. Western will

strongly support the use of these non-hydropower renewable resources by

means other than the conceptual purchase power set-aside and, when

available at competitive prices, will purchase replacement and firming

requirements from these renewable resources.

Comments: Many commenters stated that the proposed Concept is in

conflict with Western's primary mission and contradicts legislation,

regulations, and policies that Western is presently required to

observe. Numerous customers indicated that the Concept is not

consistent with Western's primary mission as stated in section 9(c),

Reclamation Act of 1939, 43 U.S.C. 485h and by section 5,

Flood Control Act of 1944, 16 U.S.C. 825s which obligates Western to

provide power ``* * * in such a manner as to encourage the most

widespread use thereof at the lowest possible rates to consumers

consistent with sound business principles''. In addition, commenters

explained that the proposed Concept is inconsistent with section 1809

of the Grand Canyon Protection Act of 1992, which states that the

Secretary of Energy will replace lost generation with ``economically

and technically'' feasible methods. Some commenters indicated that the

proposed Concept is not consistent with Western's policies established

in the Energy Planning and Management Program (EPAMP) and the

Integrated Resource Planning (IRP) section of EPAMP, and Western's IRP

principles. Additionally, commenters indicated that the proposed

Concept is incompatible with existing agency purchase power policies

that allow customers to choose to make their own replacement energy

purchases. A few commenters indicated that the proposed Concept is

contrary to the provision in the Public Utilities Regulatory Policies

Act that only requires utilities to purchase resources such as being

proposed for acquisition by Western at the ``avoided cost''. These

commenters' contention is that the 5.5 cents/KWH far exceeds the

``avoided cost''. A few commenters suggested that Western is violating

the National Environmental Policy Act by considering implementation of

the proposed Concept without an environmental impact statement.

Response: Western is an agency of the DOE and has responsibilities

to support DOE's mission and to provide benefits to the public, but

Western must also observe applicable legislation and fulfill its

contractual obligations. Western believes it has the authority to

implement the proposed Concept. Since Western has modified the method

Western will use to support the non-hydropower renewable resources

program, it will not address the specific legal issues raised by the

commenters.

Comments: Numerous commenters objected to the Concept, citing that

it did not recognize the new competitive utility environment in light

of the Federal Energy Regulatory Commission's (FERC) recent Orders, 888

and 889. They stated that open access to the electric transmission

system will create a highly competitive industry and that high priced

resources would be an unnecessary obstacle to such competition. A few

commenters indicated that the proposed Concept would be directly at

odds with a

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competitive market place and that if the proposed Concept was

implemented, the creation of an artificial market may ultimately hurt

development of non-hydropower renewable resources.

Response: Western believes that competition by itself is not at

odds with the development of non-hydropower renewable resources.

Western recognizes the environmental and socioeconomic benefits that

non-hydropower renewable resources provide and will promote the use of

these types of resources. However, there are currently large amounts of

surplus power available in the spot market, with pricing detrimental to

the competitiveness of non-hydropower renewable resources. In response,

Western has developed a policy to commit staff resources to

continuously evaluate power pricing, identify market opportunities for

renewables, and facilitate transactions between renewable resource

developers and customers interested in purchasing renewable resources.

Comments: Many commenters believe the proposed Concept is not

equitable because Western's firm power customers would be the only ones

paying for the non-hydropower renewable resource program and the

program would benefit many other stakeholders. Most of these commenters

indicated that DOE should fund this ``subsidy'' program. Some

commenters are very much against financing any type of subsidy and

indicated that the proposed Concept, if implemented, should be funded

by all taxpayers. Some commenters stated that they were already funding

Federal policies detrimental to power, such as replacing the lost

generating capacity at Glen Canyon Dam and questioned the fairness of

the firm power customers being assigned the responsibility to pay

above-market costs to accommodate a policy that would increase their

costs to benefit the general public. However, one commenter stated that

Western's firm power customers have received the most direct benefits

from the Federal hydro projects, so they should fund the proposed

Concept's non-hydropower renewable purchases.

Response: Western understands that all Americans will benefit from

the research and development of the non-hydropower renewable resources.

Western believes that non-hydropower renewable resources are very

important and will benefit all Americans, including the commenters that

do not support the proposed Concept. Western has decided not to adopt a

policy that would include a mandatory set-aside of power purchases for

non-hydropower renewables, but Western will provide technical support

to customers willing to pursue non-hydropower renewable resource

transactions.

Comments: Several commenters indicated that the choice of

purchasing firming energy should be at the local level and they should

have the right to choose any resource that meets their needs. Some of

these commenters indicated that participation in the proposed Concept

should be on a voluntary basis. One commenter suggested the purchase of

the renewables should be incorporated into existing contracts and that

Western should re-evaluate its IRP process to provide purchase

alternatives for Western's customers.

Response: Western supports its existing policies of allowing the

firm power customers to choose the resources that provide for their

requirements. Western's policy incorporates the principles of voluntary

participation and least-cost resource acquisition.

Comments: A few commenters believe that Western should have

additional involvement with the public and hold meetings with

stakeholders to discuss the proposed Concept. In addition, a few

commenters stated that the purpose of the proposed Concept is unclear

and questioned a perceived lack of a goal or reasoning behind the

proposed Concept. One commenter stated it is illogical to use one

renewable resource (hydropower) to subsidize another renewable resource

(non-hydropower).

Response: Western published the proposed Concept in the Federal

Register to solicit comments from the public and to determine the level

of public interest in non-hydropower renewable resources. Western

supports the idea of developing non-hydropower renewable resources if

each local utility can make the appropriate decision, with customer

involvement. Western also believes that there was an appropriate amount

of public involvement, but as part of facilitating transactions under

the policy, Western is willing to consider other actions the agency can

perform to further the use of renewable resources.

Comments: Several commenters questioned the reasoning behind the

50% solar reservation of the purchases that would be provided under the

proposed Concept. Commenters questioned the reasoning behind the

promotion of any type of generation when there is already excess

capacity available. In addition, a number of comments recommended that

the set aside level be modified.

Response: The proposed Concept reflected Western's desire to ensure

a diversified mix of non-hydropower renewable resources and Western's

goal of supporting the DOE's commitment to commercializing a variety of

renewable resource technologies. In the modified program, each customer

will be free to choose the type and level of resource, since all costs

are paid for by the individual utility.

Comments: Several commenters expressed their support for the

proposed Concept, citing the environmental and societal benefits as a

primary reason Western should implement the proposal. One commenter

stated that Western should evaluate the impact of renewables using the

NEPA process. One commenter cited three environmental benefits from

implementing the proposed Concept; ``(1) mitigates the decision to add

firming power to Western's output mix, (2) improves the conservation

and economic efficiency of electrical use in the region, and (3) is a

prudent step toward responsible domestic participation in addressing

global environmental problems.'' This commenter also suggested Western

should adopt an environmental impact policy featuring the purchase of

non-hydropower renewable resources.

Response: Western recognizes the environmental and societal

benefits from renewable resource use. However, Western also recognizes

that firm power customers would be adversely impacted by implementing

the proposed Concept. Therefore, Western has determined to evaluate

opportunities on a case-by-case basis and to support voluntary efforts

to develop non-hydropower renewable resources.

Comments: Several commenters suggested that Western work with the

Nevada Corporation for Solar Technology and Renewable Resources (CSTRR)

by implementing the proposed Concept or a modified version of the

Concept. It was also suggested that Western could facilitate CSTRR

power sales and distribution and provide a market for solar power

generated from CSTRR. A few commenters encouraged Western to support

CSTRR's effort irrespective of statistical data. One commenter pointed

out that if Western supports CSTRR through this or a modified version

of the Concept, then Nevada will have a better opportunity to develop a

safe and reliable use for the Nevada Test Site as well as promoting the

abundant solar resource in southern Nevada. Commenters suggested that

Western should give priority to purchasing solar energy produced at the

Nevada Solar Enterprise Zone. Another

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commenter suggests that Western team up with the Utility Photovoltaic

Group and other partners to develop solar projects in the West.

Response: Western believes it can facilitate additional markets for

entities such as CSTRR through partnering and coordinating operations

with these and similar entities. The policy adopted will promote these

developments to assure that CSTRR and other renewable developments have

the maximum probability of success.

Comments: Several commenters expressed concern over the problems

with the dispatchability of the non-hydropower renewable resources.

A commenter pointed out that due to the intermittent, non-

dispatchable nature of renewable power generation, Western should allow

projects the flexibility to sell power in the off peak seasons. Another

commenter stated that the solar resource is significantly better for

the integrated operation of the Western system than the spot market,

non-firm fossil thermal resource presently used. Comment was received

that stated transmission requirements on the part of the supplier of

the renewable power is an important element. One comment suggests that

any switch to power from alternative uses should be directed to

residential end users. Comments also supported Western providing

discounted or free transmission and ancillary services. One commenter

suggested a modified Concept could provide for transmission services or

discounted ancillary services.

Response: Western agrees there are unique dispatching problems with

solar and wind generation. Western also believes that the dispatching

problems can be mitigated when the solar and wind resources are mixed

with traditional generation resources. Western will continuously seek

operational strategies to integrate non-hydropower renewable resources.

Comments: A significant number of commenters stated that they

support Western being a facilitator and providing staffing resources to

assist those entities that are willing to purchase non-hydropower

renewable resources at their own expense. Several commenters also

support a ``green pricing'' alternative strategy for non-hydropower

renewable resources.

One comment suggested that Western participate in identifying

locations that would be suitable for solar generation and that

preference for solar development at Bureau of Reclamation projects

should be extended. In addition, that commenter suggested Western

assist its customers in surveying the environmental preferences of

their retail users. Several commenters suggest developing a ``green

power'' marketing program and for Western to facilitate market

opportunities for non-hydropower renewable resources.

Response: Commenters that agreed and disagreed with the proposed

Concept suggest or imply that Western should facilitate non-hydropower

renewable resource transactions and consider developing ``green power''

programs. Western agrees with these comments and as part of the policy

will facilitate such services to assure renewable resources are fully

evaluated.

Comments: One commenter requested clarification as to whether an

ethanol facility would qualify as a non-hydropower renewable resource

and another commenter as to whether small wind generators would be

considered solar power.

Response: For purposes of this proposed Concept the ethanol

facility would not have been considered a non-hydropower renewable

resource and the small wind generators would have been considered wind

generation, not solar generation.

Policy: Western will not mandate that each project must purchase a

portion of its firming power requirements from non-hydropower renewable

resources. Western will continue to consider the purchase of non-

hydropower renewable resources where they are competitive with other

supplies, consistent with Western's IRP principles.

Western shall establish a program to facilitate the voluntary use

of renewable resources by Western's wholesale customers. Western shall

provide technical expertise, marketing information, and act as a

facilitator with Western's customers and renewable energy developers.

The goal of the program is to identify customers that desire renewable

resources in their generation mix, and provide the technical and

marketing assistance required for them to fully evaluate the option.

Determination Under Execution Order 12866

DOE has determined this policy does not meet the criteria of

Executive Order 12866 and is not a significant regulatory action.

Western has an exemption from centralized regulatory review under

Executive Order 12866; accordingly, no clearance of this notice by the

Office of Management and Budget is required.

Review Under the Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601 et seq, requires

federal agencies to perform a regulatory flexibility analysis if a

proposed regulation is likely to have a significant economic impact on

a substantial number of small entities. In the notice proposing the

Concept, Western's Administrator certified that, if promulgated, it

would not have significant adverse economic impact on a substantial

number of small entities. Western did not receive any comments that

addressed the certification.

Review Under the National Environmental Policy Act

As per Department of Energy 10 CFR 1021 National Environmental

Policy Act (NEPA) Implementing Procedures and Guidelines; Final Rule

and Notice section 1021.102, Applicability, this action is not a major

federal action affecting the quality of the environment of the United

States, and therefore no NEPA documentation is required.

Review Under Executive Order 12612

Executive Order 12612 requires review of regulations or rules for

any substantial direct efforts on States, on the relationship between

National Government and the States, or on the distribution of power and

responsibilities among various levels of Government. Western has

assessed this policy in light of the criteria in sections 2 through 5

of Executive Order 12612. Western has determined that its policy is

consistent with those criteria, and that the policy will not impose

significant costs or burdens on States or affect the States' ability to

discharge traditional State functions.

Review Under Executive Order 12988

With respect to the review of existing regulations and the

promulgation of new regulations, section 3(a) of Executive Order 12988,

``Civil Justice Reform,'' 61 FR 4729 (February 7, 1966), imposes on

Executive agencies the general duty to adhere to the following

requirements: (1) Eliminate drafting errors and ambiguity; (2) write

regulations to minimize litigation, and (3) provide a clear legal

standard for affected conduct rather than a general standard and

promote simplification and burden reduction. With regard to the review

required by Section 3(a), section 3(b) of Executive Order 12988

specifically requires the Executive agencies make every reasonable

effort to ensure that the regulation: (1) clearly specifies preemptive

effect, if any; (2) clearly specifies any effect on existing

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Federal Law or regulations, (3) provides a clear legal standard for

affected conduct while promoting simplification and burden reduction;

(4) specifies the retroactive effect, if any; (5) adequately defines

key terms; and (6) addresses other important issues affecting clarity

and general draftsmanship under any guidelines issued by the Attorney

General. Section 3(c) of Executive Order 12988 requires Executive

agencies to review regulations in light of applicable standards in

section 3(a) and section 3(b) to determine whether they are met or it

is unreasonable to meet one or more of them. The Administrator has

completed the required review and determined that, to the extent

permitted by law, today's action meets the relevant standards of

Executive Order 12988.

Issued in Golden, Colorado, August 2, 1996.

J.M. Shafer,

Administrator.

[FR Doc. 96-21151 Filed 8-19-96; 8:45 am]

BILLING CODE 6450-01-P