AC Intertie Project; Rate Order

DEPARTMENT OF ENERGY

Western Area Power Administration

AC Intertie Project; Rate Order

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of Rate Order.

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SUMMARY: Notice is given of the confirmation and approval by the Deputy

Secretary of the Department of Energy (DOE) of Rate Order No. WAPA-71

and Rate Schedules INT-FT2 and INT-NFT2 placing firm and nonfirm

transmission rates into effect on an interim basis. The interim rate,

called the provisional rate, will remain in effect on an interim basis

until the Federal Energy Regulatory Commission (FERC) confirms,

approves, and places it into effect on a final basis or until it is

replaced by another rate.

The power repayment studies indicate that the proposed rates for

firm and nonfirm transmission service are necessary because of

adjustments in operation and maintenance expenses and an anticipated

decrease in current marketable capacity on the new 500-kV transmission

system.

Three major changes are affecting the rates for the AC Intertie:

(1) The establishment of separate firm transmission rates for the

existing 230/345-kV lines and the new 500-kV lines as a result of

customer comments and concerns expressed in formal and informal

meetings with Western; (2) changing the methodology of calculating

interest offsets to be consistent with the other power marketing

administrations; and (3) adjustments Western made to budgeted

investments for the AC Intertie Project.

DATES: Rate Schedules INT-FT2 and INT-NFT2 will be placed into effect

on an interim basis on the first day of the first full billing period

beginning on or after February 1, 1996, and will be in effect until

FERC confirms, approves, and places the rate schedules in effect on a

final basis through September 30, 2000, or until the rate schedule is

superseded.

FOR FURTHER INFORMATION CONTACT:

Mr. J. Tyler Carlson, Regional Manager, Desert Southwest Customer

Service Region, Western Area Power Administration, P. O. Box 6457,

Phoenix, AZ 85005-6457, (602) 352-2453

Mr. Terry D. Waggoner, Western Area Power Administration, P.O. Box

3402, Golden, CO 80401-0098, (303) 275-1611

Mr. Joel K. Bladow, Power Marketing Liaison Office, Room 8G-027,

Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585-

0001, (202) 586-5581

SUPPLEMENTARY INFORMATION: By Amendment No. 3 to Delegation Order No.

0204-108, published November 10, 1993 (58 FR 59716), the Secretary of

Energy delegated: (1) The authority to develop long-term power and

transmission rates on a nonexclusive basis to the Administrator of

Western; (2) the authority to confirm, approve, and place such rates

into effect on an interim basis to the Deputy Secretary; and (3) the

authority to confirm, approve, and place into effect on a final basis,

to remand, or to disapprove such rates to FERC. Existing DOE procedures

for public participation in power rate adjustments (10 CFR Part 903)

became effective on September 18, 1985 (50 FR 37835). These power rates

are established pursuant to section 302(a) of the Department of Energy

(DOE) Organization Act, 42 U.S.C. 7152(a), through which the power

marketing functions of the Secretary of the Interior and the Bureau of

Reclamation (Reclamation) under the Reclamation Act of 1902, 43 U.S.C.

371 et seq., as amended and supplemented by subsequent enactments,

particularly

[[Page 4651]]

section 9(c) of the Reclamation Project Act of 1939, 43 U.S.C. 485h(c),

and other acts specifically applicable to the project system involved,

were transferred to and vested in the Secretary.

Rate Order No. WAPA-71 confirming, approving, and placing the

proposed AC Intertie rate adjustments into effect on an interim basis,

is issued, and the new Rate Schedules INT-FT2 and INT-NFT2 will be

submitted promptly to FERC for confirmation and approval on a final

basis.

Issued in Washington, DC. January 30, 1996.

Charles B. Curtis,

Deputy Secretary.

In the matter of: Western Area Power Administration Rate

Adjustment for Pacific Northwest-Pacific Southwest Intertie Project,

Rate Order No. WAPA-71.

Order Confirming, Approving, and Placing the Pacific Northwest-Pacific

Southwest Intertie Firm and Nonfirm Transmission Service Rates Into

Effect on an Interim Basis

February 1, 1996.

These power rates are established pursuant to section 302(a) of the

Department of Energy (DOE) Organization Act, 42 U.S.C. 7152(a) through

which the power marketing functions of the Secretary of the Interior

and the Bureau of Reclamation (Reclamation) under the Reclamation Act

of 1902, 43 U.S.C. 371 et seq., as amended and supplemented by

subsequent enactments, particularly section 9(c) of the Reclamation

Project Act of 1939, 43 U.S.C. 485h(c), and other acts specifically

applicable to the project involved, were transferred to and vested in

the Secretary of Energy (Secretary).

By Amendment No. 3 to Delegation Order No. 0204-108, published on

November 10, 1993 (58 FR 59176), the Secretary delegated: (1) The

authority to develop long-term power and transmission rates on a

nonexclusive basis to the Administrator of the Western Area Power

Administration (Western); (2) the authority to confirm, approve, and

place such rates into effect on an interim basis to the Deputy

Secretary; and (3) the authority to confirm, approve, and place into

effect on a final basis, to remand, or to disapprove such rates to the

Federal Energy Regulatory Commission (FERC). Existing DOE procedures

for public participation in power rate adjustments (10 CFR Part 903)

became effective on September 18, 1985 (50 FR 37835).

Acronyms and Definitions

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

apply:

AC Intertie: Pacific Northwest-Pacific Southwest Intertie Project

Additions: A unit of property constructed or acquired which enhances or

improves a project system.

CIAR: Compound Interest Amortization Repayment

CEP: Cost Evaluation Period, which is the first 5 future years in the

PRS, normally consistent with the budget period.

CROD: Contract rate of delivery

Current PRS: The PRS used in this rate order, which was used to test

the adequacy of the existing rate.

Customer Brochure: A document prepared for public distribution

explaining the background of the rate proposal contained in this rate

order.

DC: Direct Current

DOE: Department of Energy

DOE Act: Department of Energy Organization Act, August 4, 1977 (42

U.S.C. 7101 et seq.)

DOE Order RA 6120.2: An order dealing with power marketing

administration financial reporting.

EIS: Environmental Impact Statement

Engineering Ten Year: A planning document prepared

Construction and Replacement Plan: By Western for transmission system

construction for a 10-year period. Also referred to as the

``Engineering 10-Year Plan.''

FERC: Federal Energy Regulatory Commission

FY: Fiscal Year

IDC: Interest During Construction

kW: Kilowatt

$/kW/year: Annual charge for capacity usage--(Sec. per kilowatt per

year)

kWh: Kilowatthour

mills/kWh: Mills per kilowatthour

Multiproject Costs: These are costs for facilities being charged to one

project that benefit other projects

MW: Megawatt

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

seq.)

O&M: Operations and maintenance

pinch-point: The future FY with the largest annual revenue requirement

PMA: Power marketing administration

PRS: Power repayment study

Proposed rate: A rate revision that the Administrator of Western

recommends to the Deputy Secretary of Energy for approval

Provisional rate: A rate which has been confirmed, approved, and placed

into effect on an interim basis by the Deputy Secretary

Ratesetting PRS: The PRS that utilizes, in whole or part, proposed or

assumed rates. It is designed to demonstrate that potential revenue

levels will satisfy the cost recovery criteria over the remainder of

the power system's repayment period

Reclamation: Bureau of Reclamation, U.S. Department of the Interior

Replacement: A unit of property constructed or acquired as a substitute

for an existing unit of property for the purpose of maintaining the

power features of a project

Replacement study: The cyclical analysis of replacement service lives

Secretary: Secretary of Energy

Treasury: Secretary of the Department of the Treasury

Western: Western Area Power Administration, DOE

WSPP: Western Systems Power Pool

Effective Date

The AC Intertie rates for firm and nonfirm transmission service

will become effective on an interim basis beginning on February 1,

1996, and will be in effect until FERC confirms, approves, and places

the rate schedules into effect on a final basis through September 30,

2000, or until superseded. Western is implementing a rate for the AC

Intertie 230/345-kV transmission lines that is separate from the rate

for the 500-kV transmission lines for firm transmission service, but a

combined rate for nonfirm transmission service.

Public Notice and Comment

The Procedures for Public Participation in Power and Transmission

Rate Adjustments and Extensions, 10 CFR Part 903, have been followed by

Western in the development of the firm transmission service and nonfirm

transmission service rates. The provisional firm transmission rate for

the existing 230/345-kV transmission system in FY 1996 represents a

rate increase of 85 percent over the existing step 1 rate, and for the

period FY 1997 through FY 2000, it represents a 48 percent increase

over the existing step 1 rate. The provisional nonfirm transmission

service rate for the existing system represents an increase of 100

percent from the current nonfirm transmission service rate. The

provisional firm transmission rate for the 500-kV transmission system

is $17.98/kW/year for FYs 1996 through 1998 and $17.23/kW/year for FYs

1999 through 2000. This rate is classified as a major rate adjustment

as defined at 10 CFR Secs. 903.2(e) and 903.2(f)(1). The distinction

between a minor and a major rate adjustment is used only to

[[Page 4652]]

determine the public procedures for the rate adjustment. The following

summarizes the steps Western took to ensure involvement of interested

parties in the rate process:

1. The first informal public information meeting was held on

February 22, 1995. Western explained the need for the proposed rate

adjustments and answered questions from those attending.

2. A Federal Register notice was published on May 17, 1995 (60 FR

26433), which extended the existing rates for firm and nonfirm

transmission service that became effective August 1, 1993, until

October 1, 1996.

3. The second informal public information meeting was held on July

6, 1995. Western representatives again explained the need for the

proposed rate adjustment, provided copies of studies, and answered

questions from those attending.

4. A Federal Register notice was published on July 31, 1995 (60 FR

38955), officially announcing the proposed rate adjustment for firm

transmission service and nonfirm transmission service rates, initiating

the public consultation and comment period, announcing the August 24,

1995, public information forum and the September 18, 1995, public

comment forum, and presenting procedures for public participation.

5. A letter was mailed to all AC Intertie customers and other

interested parties on August 7, 1995, providing a copy of the AC

Intertie Proposed Rate Adjustment Brochure and announcing the public

information forum and public comment forum.

6. At the public information forum held on August 24, 1995, Western

explained the need for the rate increase in greater detail and answered

questions.

7. A letter was mailed to all AC Intertie customers and other

interested parties on September 13, 1995, providing a copy of the issue

papers concerning the abandoned plant audit adjustment.

8. The comment forum was held on September 18, 1995, to give the

public an opportunity to comment for the record. Four persons

representing customers and customer groups made oral comments.

9. A letter was mailed to all AC Intertie customers and interested

parties on October 14, 1995, providing a copy of the answers to the

questions that were raised during the comment period. The letter also

announced an informal meeting on October 25, 1995, to answer any

questions on the CIAR methodology.

10. A question and answer informal meeting was held on October 25,

1995, to discuss the compound interest amortization methodology.

Questions and comments were also raised at this meeting. These comments

have also been incorporated and taken into consideration in the final

rate settings studies.

11. A Federal Register notice published on November 22, 1995 (60 FR

57867), extended the comment period until November 27, 1995.

12. Ten letters were received during the 119-day consultation and

comment period ending November 27, 1995. All formally submitted

comments have been considered in the preparation of this rate order.

Project History

The AC Intertie was authorized as part of a much larger alternating

current (AC) and direct current (DC) combined transmission system

(Pacific Intertie Project) by section 8 of the Act of August 31, 1964,

16 U.S.C. 837g. The basic purpose of the Pacific Intertie Project was

to provide, through power transmission system interconnections, maximum

utilization of the total power resources to meet the nation's growing

demands. This purpose was to be accomplished through: (1) The exchange

of summer-winter surplus peaking capacity between the Northwest and

Southwest to reduce capital expenditures for new generating capacity;

(2) the sale of Northwest secondary energy to the Southwest; (3) the

sale of Southwest energy to the Northwest to ``firm'' peaking

hydroelectric sources during critical water years; (4) conservation of

significant amounts of fuel through the use of surplus hydroelectric

energy; and (5) increased efficiency in the operation of hydroelectric

and thermal resources. As authorized, the Pacific Intertie Project was

to be a cooperative construction venture by Federal and non-Federal

entities that incorporated the capability for both AC and DC

transmission components and that provided an intertie among certain

Federal and non-Federal power systems.

The Lower Colorado Region (LCR), Bureau of Reclamation, U.S.

Department of the Interior, (Reclamation) was assigned construction

jurisdiction for: (1) the Celilo-Mead 750-kV DC transmission line from

the Oregon-Nevada border to Mead Substation; (2) Mead Substation; and,

(3) all facilities south of Mead Substation. Several delays in

congressional construction funding for the DC line revised its

estimated in-service date to the point that some of the potential users

withdrew their interest. This, and the subsequent lack of congressional

funding, resulted in the May 1969 indefinite postponement of the DC

line construction. Consequently, the facilities constructed provide

only AC transmission service.

Pursuant to section 302 of the DOE Organization Act, 42 U.S.C.

7152(a), dated August 4, 1977, these Reclamation constructed facilities

were transferred to Western. Only those AC Intertie facilities which

are administered by Western's Desert Southwest Customer Service Region

and which provide AC transmission service are the subject of this rate

adjustment. To simplify identification, these facilities have been

classified as the AC Intertie and are sometimes referred to as the

existing system.

On February 1, 1996, Western will add to the AC Intertie the new

Mead-Phoenix and Mead-Adelanto 500-kV transmission lines. The

additional sales of capacity are expected to be 668 MW. A separate

marketing plan is being developed for the sales of the additional

capacity.

Power Repayment Studies

PRSs are prepared each fiscal year to determine if power revenues

will be sufficient to pay, within the prescribed time periods, all

costs assigned to the power function. Repayment criteria are based on

law, policies, and authorizing legislation. DOE Order RA 6120.2,

section 12.b, states:

In addition to the recovery of the above costs (operations and

maintenance and interest expenses) on a year-by-year basis, the

expected revenues are at least sufficient to recover (1) each dollar

of power investment at Federal hydroelectric generating plants

within 50 years after they become revenue producing, except as

otherwise provided by law; plus (2) each annual increment of Federal

transmission investment within the average service life of such

transmission facilities or within a maximum of 50 years, whichever

is less; plus (3) the cost of each replacement of a unit of property

of a Federal power system within its expected service life up to a

maximum of 50 years; plus, (4) each dollar of assisted irrigation

investment within the period established for the irrigation water

users to repay their share of construction costs; plus (5) other

costs such as payments to basin funds, participating projects, or

States.

Existing and Provisional Rates

The following table compares the existing transmission service

rates and the proposed transmission service rates.

[[Page 4653]]

Comparison of the Existing and Provisional Rates

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Existing rates

Existing rate 230/ step two 230/345/ Proposed rate 230/ Proposed rate 500-

Type of service 345-kV system 500-kV system 10/1/ 345-kV system 2/1/ kV system 2/1/1996

extended through 1996 through 7/31/ 1996 through 9/30/ through 9/30/2000

10/1/1996 1998 2000

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Firm transmission service....... $4.46/kW/year..... $8.01/kW/year..... 1996 \1\--$8.26/kW/ 1996-1998--$17.98/

year, 1997-2000-- kW/year, 1999-

$6.58/kW/year. 2000--$17.23/kW/

year

Nonfirm transmission rate (mills/ 1.00 mills/kWh.... 1.52 mills/kWh.... 2.00 mills/kWh.... 2.00 mills/kWh

kWh).

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\1\ Rate based upon 8 months.

Certification of Rates

Western's Administrator has certified that the AC Intertie firm and

nonfirm transmission service rates placed in effect on an interim basis

herein are the lowest possible, consistent with sound business

principles. The rates have been developed in accordance with

administrative policies and applicable laws.

Discussion

The power repayment study for the 230/345-kV transmission system

indicates that the proposed rate adjustments for firm and nonfirm

transmission service are necessary due to adjustments in operation and

maintenance expenses of the existing system, and due to capacity in the

new 500-kV transmission system being sold separately. The existing

rates were designed to recover all annual costs and investment

repayment of both the existing 230/345-kV transmission lines and the

new 500-kV transmission lines. Three major changes are affecting the

rates for the AC Intertie.

The first change is the establishment of separate firm transmission

rates for the existing 230/345-kV transmission lines and the new 500-kV

transmission lines. This change responds to customer comments and

concerns during formal and informal meetings Western held with its

customers. Separate PRSs has been prepared for the 500-kV portion and

the 230/345-kV portion of the AC Intertie.

The second change is the determination of interest offsets. An

interest offset is a credit that is made toward interest expenses.

Western is changing its methodology of calculating interest offsets to

be consistent with the other power marketing administrations. The old

method calculates interest offsets on only the principal that was

repaid in the current year. The new method calculates interest offsets

on both the principal and interest for the current year.

The third change is adjustments Western made to data budgeted for

investments to the AC Intertie Project. Western's staff determined the

total O&M costs on the combined system for the AC Intertie Project and

developed a percentage breakdown based upon O&M costs, to determine a

method for allocating Other Revenues/Costs.

Existing System

Based upon FY 1994 data, the PRS for the AC Intertie showed that

the existing Step II of the firm transmission service rate of $8.01/kW/

year and the nonfirm transmission service rate of 1.52 mills/kWh would

provide more than sufficient revenues to pay the project costs within

the prescribed time periods. The ratesetting PRS indicates that a

transmission service rate for February 1, 1996, through September 30,

1996, of $8.26/kW/year and a transmission service rate of $6.58 for

October 1, 1996, through September 30, 2000, for firm transmission

service is adequate to meet revenue requirements. The rate for FY 1996

is higher because the revenue will be collected over an 8 month period

rather than over a 12 month period. The nonfirm rate was determined by

developing a combined rate for both systems. The provisional nonfirm

transmission rate of 2.00 mills/kWh for nonfirm transmission service is

required to meet revenue requirements for FY 1996 through the end of

the study.

New System

Based upon FY 1994 data, the PRS for the new Mead-Phoenix and Mead-

Adelanto 500-kV transmission system showed that a rate of $17.98/kW/

year for February 1, 1996, through September 30, 1998, and a

transmission service rate of $17.23/kW/year for October 1, 1998,

through September 30, 2000, would satisfy the repayment criteria. The

nonfirm rate was determined by developing a combined rate for both

systems. The proposed rate for nonfirm transmission service of 2.00

mills/kWh will meet revenue requirements for FY 1996 through the end of

the study.

The provisional rates filed with FERC have been updated from the

rate originally proposed in the customer brochure and Federal Register

notice dated July 31, 1995.

The changes to the PRS are as follows:

1. Revised budget data for the 230/345-kV existing system.

2. Revised power repayment studies that include the new interest

offset methodology.

3. Revised budget data for the 500-kV system.

4. Increase in other revenue sales based upon proposed transmission

rate.

Firm Transmission Revenue Requirements

A comparison of the transmission revenue requirements estimated for

the step II of the existing rate for 1996 to the proposed revenue

requirements for the existing 230/345-kV AC Intertie system and to the

proposed revenue requirements for the new 500-kV system based upon the

pinch-point methodology is as follows:

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

Step II of the existing Proposed revenue Proposed revenue

system transmission requirements for the requirements for the

revenue requirements 230/345-kV system new 500-kV system

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

$24,883,655............ $8,709,909 $12,352,554

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The rate adjustment is necessary to satisfy the cost-recovery

criteria set forth in DOE Order RA 6120.2.

Replacement and Addition Activities

The decrease from the existing Step II 230/345-kV transmission

system rate is largely due to a decrease in replacements and additions

and a decrease in the O&M costs for the existing system. The AC

Intertie initial investment will not be fully paid until FY 2028. The

capitalized costs for future replacements and additions in the cost

evaluation period includes IDC. The IDC calculation for each

replacement is determined by the interest rate in the year construction

begins. The annual interest expense for replacements and additions is

also based on the interest rate in the year construction begins. The

[[Page 4654]]

total replacement cost for the cost evaluation period through the end

of the study is $42,891,147.

The 500-kV transmission system has been pulled out of the existing

230/345-kV transmission power repayment study. A 500-kV transmission

system power repayment study has been developed to determine the

transmission rate for the new system. The new transmission system will

provide better service to the customers and additional transmission

paths that are presently not available. The total cost of the 500-kV

Mead-Phoenix and Mead-Adelanto transmission line for the cost

evaluation period through the end of the study is $134,103,799 and is

to be repaid by 2046.

Abandoned Plant

Western's auditors have identified approximately $14.5 million in

equipment and interest charges that are contained in the financial

statements as abandoned plant that Western has not included in the rate

base. Western's financial statements show that these charges have

accumulated since 1964 for the construction of the Direct Current (DC)

portion of the Intertie Project.

The construction of the DC line was discontinued in 1969 by the

Assistant Secretary of the Department of the Interior. At the time of

the decision, the total expenditure amounted to approximately $10.5

million. Since that time the amount has increased to approximately

$14.5 million. This amount includes $2,399,747 of IDC and approximately

$952,574 of tangible assets and studies. The remaining $11.1 million

represents the remaining charges for which no tangible assets/studies

exist. These costs are not in the PRS, because they were expended on a

feature that was never placed in service.

Statement of Revenue and Related Expenses

The following table provides a summary of revenue and expense data

for the 5-year proposed rate approval period for the existing 230/345-

kV system.

AC Intertie Project--5-Year Rate Study Summary Period Revenues and Expenses

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

Existing rate step

II 230/345/500-kV Proposed rates 230/

Revenue and expenses system 10/1/96 245-kV system 2/1/96 Difference

through 9/30/2000 through 9/30/2000

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Revenues:

Firm Transmission......................... 105,009,620 35,545,000 70,464,620

Other Revenues............................ 19,503,775 8,906,743 10,597,032

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Total Revenues........................ 124,513,395 43,451,743 81,061,652

=================================================================

Revenue Distribution:

Operations & Maintenance.................. 17,486,459 12,643,540 4,842,919

Other Deductions.......................... 1,077,007 1,640,012 (563,005)

Interest on Deferred...................... 0 490,316 (490,316)

Annual Cost:

Interest.................................. 93,042,899 23,102,897 69,940,002

Investment Repayment...................... 12,814,649 1,984,977 10,829,672

Capitalized Expenses...................... 92,381 3,590,002 (3,497,621)

Study-Year Adjustments.................... 0 0 0

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Total................................. 124,513,395 43,451,744 81,061,651

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The following table provides a summary of revenue and expense data

for the 5-year proposed rate approval period for the new 500-kV system.

AC Intertie Project.--5-Year Rate Study Summary Period Revenues and Expenses

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

Existing rate

step II 230/345/ Proposed rates

Revenue and expenses 500-kV system 10/ 500-kV system 2/ Difference

1/96 through 9/ 1/96 through 9/

30/2000 30/2000

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

Revenues:

Firm Transmission..................................... 105,009,620 59,051,200 45,958,420

Other Revenues........................................ 19,503,775 1,807,372 17,696,403

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

Total Revenues.................................... 124,513,395 60,858,572 63,654,823

=====================================================

Revenue Distribution:

Operations & Maintenance.............................. 17,486,459 3,569,559 13,916,900

Other Deductions...................................... 1,077,007 487,620 589,387

Interest on Deferred.................................. 0 0 0

Annual Cost:

Interest.............................................. 93,042,899 52,707,044 40,335,855

Investment Repayment.................................. 12,814,649 4,094,349 8,720,300

Capitalized Expenses.................................. 92,381 0 92,381

Study-Year Adjustments................................ 0 0 0

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

Total............................................. 124,513,395 60,858,572 63,654,823

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[[Page 4655]]

The table provides a summary of revenue and expense data for the 5-

year proposed rate approval period for the combined system.

AC Intertie Project.--5-Year Rate Study Summary Period Revenues and Expenses

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

Existing rate Proposed

step II 230/345/ combined rate

Revenue and expenses 500-kV system 10/ study 2/1/96 Difference

1/96 through 9/ through 9/30/

30/2000 2000

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

Revenues:

Firm Transmission..................................... 105,009,620 90,195,000 14,814,620

Other Revenues........................................ 19,503,775 10,714,115 8,789,660

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

Total Revenues.................................... 124,513,395 100,909,115 23,604,280

=====================================================

Revenue Distribution:

Operations & Maintenance.............................. 17,486,459 16,213,099 1,273,360

Other Deductions...................................... 1,077,007 2,127,632 (1,050,625)

Interest on Deferred.................................. 0 286,491 (286,491)

Annual Cost:

Interest.............................................. 93,042,899 71,141,078 21,901,821

Investment Repayment.................................. 12,814,649 7,458,773 5,355,876

Capitalized Expenses.................................. 92,381 3,682,042 (3,589,661)

Study-Year Adjustments................................ 0 0 0

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

Total............................................. 124,513,395 100,909,115 23,604,280

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

Basis for Rate Development

The provisional rates were designed to meet cost recovery criteria.

The power repayment studies indicate that the proposed rates for firm

and nonfirm transmission service are necessary because of the

redistribution of costs from the current rate setting study. The

current rate setting study anticipated 1,718 MW of capacity available

for sale. The existing rates were designed to recover all annual costs

and investment repayment of both the existing 230/345-kV transmission

lines and the new 500-kV transmission lines. Three major changes are

affecting the rates for the AC Intertie.

The first change is the establishment of separate firm transmission

rates for the existing 230/345-kV transmission lines and the new 500-kV

transmission lines. This change is due to customer comments and

concerns during the informal and formal meetings Western held with its

customers. Separate PRSs have been prepared for the 500-kV portion and

the 230/345-kV portion of the AC Intertie.

The second change is the determination of interest offsets. An

interest offset is a credit that is made toward interest expenses.

Western is changing its methodology of calculating interest offsets to

be consistent with the other power marketing administrations. The old

method calculates interest offsets on only the principal that was

repaid in the current year. The new method calculates interest offsets

on both the principal and interest for the current year.

The third change is adjustments Western made to data budgeted for

investments to the AC Intertie Project. Western's staff determined the

total O&M costs on the combined system for the AC Intertie Project and

developed a percentage breakdown based upon O&M costs, to determine a

method for allocating Other Revenues/Costs.

Existing 230/345-kV Transmission System

Operations and Maintenance expenses have decreased for the 230/345-

kV system, since the O&M expenses for the 500-kV transmission system

are in a separate power repayment study as well as the additional

facilities. The 230/345-kV system is projecting 1,050 MW of capacity

for sale.

500-kV Transmission System

There is also a anticipated decrease in current marketable capacity

on the new 500-kV system. This is now projected to be 668 MW which is

156 MW decrease from the current rate setting study. Once the 500-kV

transmission lines are energized and go into service, these 500-kV

transmission lines will become an integral part of the AC Intertie.

Nonfirm Transmission Service

Western decided to maintain one nonfirm transmission service rate

for the AC Intertie Project. This maintains consistency with other

Western projects and allows for the ability to market nonfirm

transmission service through the WSPP Agreement and Joint Transmission

Agreement which Western is a participant. The single nonfirm

transmission rate has been derived by calculating a firm rate from a

combined transmission line power repayment study. Once the yearly kW

rate is determined, it is divided by 8760 hours in a year and

multiplied by a 60 percent load factor. This number is then converted

to mills/kWh.

Comments

During the 119 day comment period, Western received 10 written

comments. In addition, five persons commented during the September 18,

1995, public comment forum. All comments were reviewed and considered

in the preparation of this rate order.

Written comments were received from the following sources:

Irrigation & Electrical Districts Association of Arizona (Arizona)

K. R. Saline & Associates (Arizona)

Arizona Power Authority (Arizona)

Central Arizona Water Conservation District (Arizona)

Salt River Project (Arizona)

Representatives of the following organizations made oral comments:

Irrigation and Electrical Districts Association of Arizona (Arizona)

K. R. Saline & Associates (Arizona)

Arizona Power Authority (Arizona)

Central Arizona Water Conservation District (Arizona)

Salt River Project (Arizona)

Most of the comments received at the public meetings and in

correspondence

[[Page 4656]]

were related to the issue on abandoned plant, the separation of the new

500-kV transmission system from the existing system, and the change in

the ratesetting methodology from the pinch-point methodology to the

CIAR method. All comments were considered in developing the provisional

rates.

Comment: The customers support the idea of moving away from the

pinch-point methodology to the compound interest amortization repayment

method as was done in the Parker-Davis Project.

Response: Western developed power repayment studies based upon the

CIAR method and the pinch-point method. After review of these studies

with the customers through working groups, the customers request is to

remain with the traditional pinch-point methodology. This rate

submittal in based upon the pinch-point methodology.

Comment: The rate brochure includes approximately $13,558,108 in

replacements associated with Mead Substation Stage 05. Would Western

please provide a breakdown of the proposed work including the rationale

to allocate all of these proposed expenditures to the 230/345-kV

transmission system project versus the 500-kV transmission system

project?

Response: The Intertie Project Proposed Rate Adjustment Brochure

refers to replacements at Mead Substation (see page 15) which are part

of a multifaceted construction project, Mead Stage 05. The portion of

the work related to Intertie expenses is described below (excerpt from

the Congressional Budget document Facility Data Sheet):

Activity 2: The work to be performed is as follows:

At Mead: This portion of the project consists of replacing 18 power

circuit breakers at Mead Substation, provide new wiring and associated

control cabinets, and new line relaying to protect the lines. Four of

the 18 breakers to be replaced are a result of the planned addition of

a 500-kV AC transmission line from Liberty Substation to Mead

Substation to McCullough Substation, where it will tie into a 500-kV

line into the Los Angeles area. The associated costs will be recovered

from the Mead-Phoenix 500-kV Project. Add an additional fault recorder

to assist in determining causes of system failures. Provide two vehicle

crossing in the switchyard to improve access to equipment necessary for

maintenance of the breakers. Replace the bolted bus connections with

compression fittings to reduce thermal hot spots. Replace a portion of

the station service power distribution system to provide 120VAC

convenience power at the breakers. At Liberty Substation: Replace the

line relaying and control cabinet.

The objective is to replace the breakers at Mead that are

associated with the Intertie facilities. These circuit breakers will be

under rated due to increased fault current. The fault current has

increased due to the interconnected power system growth in the area.

The southern Division of the Pacific Northwest-Pacific Southwest

Intertie Transmission System (Intertie) is part of the Pacific

Northwest-Pacific Southwest Intertie authorized August 31, 1964, by

Public Law 88-552. The Intertie consists of a 345-kV AC transmission

line from Mead Substation, near Hoover Dam and Boulder City, Nevada, to

Liberty Substation near Phoenix, Arizona, and a 230-kV line from

Liberty Substation to Pinnacle Substation north of Phoenix. The

Intertie facilities are interconnected with additional AC Intertie

transmission facilities which are owned and operated by various Federal

and non-Federal entities.

In the first paragraph of the description, in the bold and

underlined portion, it states that: ``Four of the 18 breakers to be

replaced are a result of the planned addition of a 500-kV AC

transmission line from Liberty Substation to Mead Substation to

McCullough Substation, where it will tie into a 500-kV line into the

Los Angeles area. The associated costs will be recovered from the Mead-

Phoenix 500-kV Project.'' This statement should clarify that the

portion of the Intertie expense that is the result of the 500-kV

Project has been accounted for and properly funded. The accounting

process for the proper expending has been done by accounting

adjustments through the use of Journal Vouchers in our financial

management system.

Comment: When Western decided to split the Intertie into two

separate projects (230/345-kV and 500-kV) how has Western allocated the

interconnection facilities between Mead Substation and Market Place

Substation? The tie between the two substations was not required for

the operation of the existing 345-kV project and therefore should be

allocated to the 500-kV project. At a minimum Western needs to identify

the offsetting benefits to the existing Intertie customers of these

additions.

Response: The tie between Mead Substation and Marketplace

Substation is 13 miles of 500-kV transmission line. The cost to build,

operate and maintain these facilities is being allocated to the 500-kV

transmission system.

Comment: It is our understanding that there is approximately 67 MW

(Phoenix to Mead) of excess capacity available of the existing Intertie

(345-kV line). Since Western has indicated they believe that they will

be successful in marketing 668 MW on the 500-kV project. It seems

appropriate that 67 MW of those sales would in reality be contract over

the 345-kV line. Would Western provide its rational for not including

marketing the additional 67 MW on the 345-kV line before projecting

sales on the more expensive 500-kV line.

Response: The referenced 67 MW of transmission system capacity was

the estimated amount of capacity that was not under firm contractual

arrangements for the existing system. This was stated at the August 18,

1995, public information forum. The existing system for the AC Intertie

has a total marketable transmission system capability of 1,050,000

kilowatts.

Western currently has 987,643 kW of the 230/345-kV transmission

system capacity under firm contracts.

Comment: Included in Western's FY 1995 10-Year Plan is

approximately $5,016,000 to replace the 345-kV Series Capacitor Control

and Bypass System. Has the installation of the 500-kV transmission line

caused or contributed to the need to replace the series capacitor

controls? Given the fact that the 500-kV transmission line may have

excess capacity for some time, is there potential to delay this

expenditure until additional transfer capability is needed? What is the

rate impact of the proposed replacement of the capacitor controls?

Response: The series capacitor banks at Mead and Liberty

substations were installed in July 1977. The PCB capacitor units were

replaced in 1992 with new non-PCB units. The pneumatic control system

is deteriorating and preliminary review indicates it should be replaced

with an electronic and optical control system.

The installation of the 500-kV line did not cause or contribute to

the deteriorating of the pneumatic control system. The series

capacitors were not included in the cost base of the power repayment

study because the projected in-service date went beyond the cost

evaluation period for power repayment consideration. Although the costs

were not included, a separate study has been run to determine the

effect on the rate. The existing system rate would increase about $.23/

kW-year.

Comment: Would Western provide its rational for allocating Other

Revenues/Costs on miles of transmission?

Response: Western's staff used the following rationale to

distribute projected Other Deductions and Other Revenues for the AC

Intertie Project to the two systems as follows:

[[Page 4657]]

In the early studies, Western determined the total miles of the AC

Intertie Project and developed a percentage breakdown by transmission

miles. The existing system (230/345-kV transmission lines) consists of

271 miles of transmission lines or 37 percent of the combined system.

The new system (500-kV transmission lines) consists of 458 miles of

transmission lines or 63 percent of the combined system.

Based upon customer request and comment, Western changed its

methodology and based the other deductions and other revenues upon the

total O&M in the combined power repayment study. Western's staff

determined the total O&M costs on the combined system for the AC

Intertie Project and developed a percentage breakdown based upon O&M

costs, to determine a method for allocating Other Revenues/Costs to

each of the separate systems. The allocation of other costs and other

revenues obtained through the Multiproject Cost calculations, has been

applied by the above methodology.

Comment: Would Western provide its rational for a single nonfirm

rate? What has been the historical nonfirm uses of the existing 345-kV

system? Would Western please provide its projection of nonfirm energy

sales on each of the proposed projects (345-kV and 500-kV)?

Response: Due to customer request to develop a single firm

transmission service rate for the 230/345-kV and 500-kV transmission

lines, Western decided to maintain one nonfirm transmission service

rate for the AC Intertie Project. This maintains consistency with other

Western projects and allows for the ability to market nonfirm

transmission service through the WSPP Agreement and Joint Transmission

Agreement of which Western is a participant. The single nonfirm

transmission rate has been derived by calculating a firm rate from a

combined transmission line power repayment study. Once the yearly kW

rate is determined, it is divided by 8760 hours in a year and

multiplied by a 60 percent load factor. This number is then converted

to mills/kWh.

Typically, Western's non-firm sales on the existing AC Intertie are

made through our membership in the WSPP or under our fuel replacement

program. For example, in FY 1995, WSPP sales totaled approximately 195

GWh and revenues of approximately $2.3 million; fuel replacement sales

totaled approximately 67 GWh and revenues of approximately $670,000.

Projections for non-firm energy sales on the AC Intertie system

should remain at the same levels. These sales could be split between

the existing and 500-kV AC Intertie systems in the future.

Western determines future year projections for nonfirm transmission

sales revenues for the AC Intertie Project by calculating a 3-year

average of total nonfirm sales as reflected in the results of

operations. Western does not keep a separate log of nonfirm sales by

transmission line voltages; therefore information pertaining to

separate projections of nonfirm sales on the 230/345-kV and 500-kV

transmission lines is unavailable.

Comment: Western's white paper addresses the options to resolve the

$11.1 million in abandoned plant that Western has indicated as a cost

responsibility of the AC Intertie project. We support Western's option

number 4, and hereby request Western seek authority through the budget

cycle to declare the abandoned plant as nonreimbursable.

Response: With customer support, Western will seek authority

through the Department to declare the $11.1 million of abandoned plant

as nonreimbursable.

Comment: Consider the acceptability of directly assigning non-firm

transmission revenues, which are based on the historical level of non-

firm transmission, to the existing 345/230-kV system. Also, all ``Other

Revenues and Expenses'' would be allocated based on an O&M factor

versus the presently proposed ``Line Miles'' method.

Response: Western has been directly assigning all nonfirm

transmission revenues, which are based on the historical level of

nonfirm transmission, to the existing 230/345-kV system. We are

estimating future nonfirm transmission revenues for the 500-kV system

to be $300,000 per year. Distribution of Other ``Revenue and Expenses''

which is due to Multiproject Cost and Revenues, are based upon O&M

factors.

Comment: (1) Investigate what is included in the $2.3 million

revenue number stated in Western's October 13th letter. (2) What is the

appropriate level of GWH for the Intertie and what would be the

corresponding level of revenues?

Response: The $2.3 million of WSPP sales mentioned in the October

13, 1995, letter includes total WSPP nonfirm transactions including

energy sales made under WSPP during FY 1995. The transmission portion

associated with the AC Intertie is approximately $70,000. The GWH

associated with these particular WSPP nonfirm transmission transactions

for FY 1995 was approximately 26 GWH.

Comment: Continue the use of the 1,050,000 KW as the Marketable

Capacity for the Existing 230/345 System. This issue centers on whether

or not Western needs to reserve 50 MW of capacity on the existing

system considering the ability to use both the 230/345-kV lines and

500-kV lines for ``operation flexibility.''

Response: The 1,050,000 kW is the estimated transmission capacity

which is projected to be marketed, for the purposes of determining the

existing 230/345-kV AC Intertie rate adjustment. This estimate is based

on projected demand for transmission capacity in the region and on

transmission service requests received by Western. Transmission

capacity in excess of 1,050,000 kW exists on the 230/345-kV AC Intertie

system, but is primarily available from Mead Substation to the Phoenix

area and is in limited demand. If transmission capacity in excess of

1,050,000 kW is marketed in the future, future rate adjustments will

reflect the addition.

Comment: The information distributed by Western at the August 24,

1995, public information forum contains a page of ``AC Intertie Project

Investments'' which are to be assigned to the existing and new systems.

All of the investments, except the ``Mead-Phoenix 500-kV transmission

line'' and the ``Mead-Adelanto 500-kV transmission line'' have been

assigned to the existing 230/345 system. Yet, we know that at least a

component of the ``Mead-Substation Stage 05'' investment should be

allocated to the 500-kV system, specifically, the costs associated with

four (4) of the 18 breakers. What are the costs associated with these

four breakers and should any portion of the other investments be

assigned to the 500-kV system.

Response: The costs associated with the four breakers which are

attributed to the 500-kV system are cost for breaker hardware,

installation, sectionalizing breaker, portion of design, portion of

switch gear, portion of control boards, and portion of site

preparation. The total cost attributed to the 500-kV system is

$1,945,071.

Breakdown of theses costs are as follows:

Mead 05 Breaker Hardware.................................... $589,200

Mead 05 Breaker Installation................................ 494,030

Mead 05 Sectionalizing Breaker.............................. 103,345

Mead 05 Portion of Design................................... 98,868

Mead 05 Portion of Switchgear............................... 55,000

Mead 05 Portion of CNTRL Boards............................. 79,448

Portion of Mead:

CNTRL Bldg., Site Prep.................................... 525,181

-----------

Total Itemized Cost:.................................... 1,945,071

[[Page 4658]]

Western believes that all other investments have been properly

allocated to the 230/345-kV system and the 500-kV system. We are in the

process of closing out work for the 500-kV system and would be willing

to provide detailed information on the allocation of equipment. If an

adjustment is necessary, Western will work with customers during the

next rate adjustment process.

Comments: Repayment of the Capitalized Deficits in FY 96. In

accordance with a customer's request, run a new PRS in which the

capitalized deficit is repaid in FY 1996, and then a separate PRS for

years 1997 forward.

Response: Based upon the request, Western ran a new study forcing

the deficits to be paid by 1996, the results, using the Compound

Interest Amortization method are: Rates: FY 1995--$4.46, FY 1996--

$10.36, FY 1997--$7.21.

Comment: Customer request Western to determine separate nonfirm

transmission rates for the existing 230/345-kV transmission system and

the new 500-kV transmission line.

Response: The calculated nonfirm transmission service rate for the

230/345-kV transmission lines is 1.40 mills/kWh. The calculated nonfirm

transmission service rate for the 500-kV transmission lines is 3.28

mills/kWh.

Comment: We have heard that the Area Manager of the Boulder City

Area Office may have written off the abandoned plant dollars in 1983.

Does any document exist writing off the abandoned plant?

Response: Western has not been able to locate the document and is

not sure that such a document exists. Area Managers do not have the

authority to write off a dollar amount of such magnitude. Western will

continue to search for the document and check for the legality of the

document.

Environmental Evaluation

In compliance with the National Environmental Policy Act of 1969,

42 U.S.C. 4321 et seq.; Council on Environmental Quality Regulations

(40 CFR Parts 1500-1508); and DOE NEPA Regulations (10 CFR Part 1021),

Western has determined that this action is categorically excluded from

the preparation of the environmental assessment or an environmental

impact statement.

Executive Order 12866

DOE has determined that this is not a significant regulatory action

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

51735. Western has an exemption from centralized regulatory review

under Executive Order 12866; accordingly, no clearance of this notice

by OMB is required.

Availability of Information

Information regarding this rate adjustment, including PRSs,

comments, letters, memorandums, and other supporting material made or

kept by Western for the purpose of developing the power rates, is

available for public review at the Desert Southwest Customer Service

Region, Western Area Power Administration, Office of the Assistant

Regional Manager for Power Marketing, 615 South 43rd Avenue, Phoenix,

Arizona 85009-5313; and Power Marketing Liaison Office, Room 8G-027,

Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585-

0001.

Submission to Federal Energy Regulatory Commission

The rates herein confirmed, approved, and placed in effect on an

interim basis, together with supporting documents, will be submitted to

FERC for confirmation and approval on a final basis.

Order

In view of the foregoing and pursuant to the authority delegated to

me by the Secretary of Energy, I confirm and approve on an interim

basis, effective February 1, 1996, the Rate Schedules INT-FT2 and INT-

NFT2. The rate schedules shall remain in effect on an interim basis,

pending FERC confirmation and approval of them or substitute rates on a

final basis, through September 30, 2000.

Issued in Washington, D.C., January 30, 1996.

Charles B. Curtis

Supersedes Rate Schedule INT-FT1

United States Department of Energy Western Area Power Administration

Pacific Northwest-Pacific Southwest Intertie Project

Schedule of Rates for Firm Transmission Service

Effective

The first day of the first full billing period beginning on or

after February 1, 1996, and will remain in effect through September 30,

2000, or until superseded, whichever occurs first.

Available

In the marketing area served by the Pacific Northwest-Pacific

Southwest Intertie Project.

Applicable

To firm transmission service customers where capacity and energy

are supplied to the Pacific Northwest-Pacific Southwest Intertie

Project (AC Intertie) system at points of interconnection with other

systems and transmitted and delivered, on a bi-directional basis, less

losses, to points of delivery on the AC Intertie system specified in

the service contract.

Character and Conditions of Service

Alternating current at 60 Hertz, three-phase, delivered and metered

at the voltages and points of delivery established by contract over the

230/345-kV transmission lines.

Rates 230/345-kv System

Firm Transmission Service Charge: February 1, 1996, through

September 30, 1996: $8.26 per kilowatt per year for each kilowatt

delivered at the point of delivery, as established by contract: payable

monthly at the rate of $0.688 per kilowatt.

October 1, 1996, through September 30, 2000: $6.58 per kilowatt per

year for each kilowatt delivered at the point of delivery, as

established by contract, payable monthly at the rate of $0.548 per

kilowatt.

Rates 500-kv System

Alternating current at 60 Hertz, three-phase, delivered and metered

at the voltages and points of delivery established by contract over the

500-kV transmission lines.

Firm Transmission Service Charge: February 1, 1996, through

September 30, 1998: $17.98 per kilowatt per year for each kilowatt

delivered at the point of delivery, as established by contract, payable

monthly at the rate of $1.50 per kilowatt.

October 1, 1998, through September 30, 2000: $17.23 per kilowatt

per year for each kilowatt delivered at the point of delivery, as

established by contract, payable monthly at the rate of $1.44 per

kilowatt

Adjustments

For Reactive Power

None. There shall be no entitlement to transfer of reactive

kilovolt-amperes at points of delivery, except when such transfers may

be mutually agreed upon by contractor and contracting officer or their

authorized representatives.

For Losses

Capacity and energy losses incurred in connection with the

transmission and delivery of capacity and energy under this rate

schedule shall be supplied by

[[Page 4659]]

the customer in accordance with the service contract.

Rate Schedule INT-NFT2;Supersedes Rate Schedule INT-NFT1

United States Department of Energy Western Area Power Administration

Pacific Northwest-Pacific Southwest Intertie Project

Schedule of Rates for Nonfirm Transmission Service

Effective

The first day of the first full billing period beginning on or

after February 1, 1996, and will remain in effect through September 30,

2000, or until superseded, whichever occurs first.

Available

In the marketing area served by the Pacific Northwest-Pacific

Southwest Intertie Project.

Applicable

To nonfirm transmission service customers where capacity and energy

are supplied to the Pacific Northwest-Pacific Southwest Intertie

Project (AC Intertie) system at points of interconnection with other

systems and transmitted and delivered, on a bi-directional basis, less

losses, to points of delivery on the AC Intertie system established by

contract.

Character and Conditions of Service

Alternating current at 60 Hertz, three-phase, delivered and metered

at the voltages and points of delivery established by contract.

Rate

Nonfirm Transmission Service Charge: 2.00 mills per kilowatthour of

the scheduled delivered kilowatthours at the point of delivery,

established by contract, payable monthly.

Adjustments

For Reactive Power

None. There shall be no entitlement to transfer of reactive

kilovolt-amperes at points of delivery, except when such transfers may

be mutually agreed upon by contractor and contracting officer or their

authorized representatives.

For Losses

Capacity and energy losses incurred in connection with the

transmission and delivery of capacity and energy under this rate

schedule shall be supplied by the customer in accordance with the

service contract.

[FR Doc. 96-2523 Filed 2-6-96; 8:45 am]

BILLING CODE 6450-01-P