Policy on Excess Federal Power

DEPARTMENT OF ENERGY

Bonneville Power Administration

Policy on Excess Federal Power

AGENCY: Bonneville Power Administration (Bonneville), Department of

Energy (DOE).

ACTION: Proposed policy and request for comment.

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SUMMARY: As part of the 1996 Energy and Water Development

Appropriations Act (Public Law 104-46 or P.L. 104-46), Congress passed

legislation that provides new marketing authority to Bonneville.

Section 508 (a) and (b) of

[[Page 14090]]

P.L. 104-46, provides the Administrator of Bonneville (the

Administrator) new authority to market a category of surplus federal

power called ``excess federal power'' without certain statutory

restrictions. The Administrator's policy implementing this new

marketing authority could potentially impact regional and out-of-region

customers and other utilities. In the interests of a fair and workable

policy, and to ensure the success of the new legislation, Bonneville

seeks public comment on its proposed implementation policy.

DATES: Comments must be received by May 28, 1996.

ADDRESSES: Comments should be addressed to David J. Armstrong--MPF,

Bonneville Power Administration, P.O. Box 3621, Portland, OR 97208-

3621, phone number 503-230-3658, fax number 503-230-7568.

SUPPLEMENTARY INFORMATION:

Background and Purpose

Section 508(a)(3) of P.L. 104-46 provides in general that the term

``excess federal power'' means such electric power that has become

surplus to the firm contractual obligations of the Administrator under

section 5(f) of the Pacific Northwest Electric Power Planning and

Conservation Act (16 U.S.C. 839c(f)) due to either: any reduction in

the quantity of electric power that the Administrator is contractually

required to supply under subsections (b) and (d) of section 5 of the

Pacific Northwest Electric Power Planning and Conservation Act (16

U.S.C. 839c), due to the election by customers of the Bonneville Power

Administration to purchase electric power from other suppliers, as

compared to the quantity of electric power that the Administrator was

contractually required to supply as of January 1, 1995; or those

operations of the Federal Columbia River Power System that are

primarily for the benefit of fish and wildlife affected by the

development, operation, or management of the system.

Section 508(b) provides in general that notwithstanding section 2,

subsections (a), (b), and (c) of section 3, and section 7 of P.L. 88-

552 (16 U.S.C. 837a, 837b, and 837f), and section 9(c) of the Pacific

Northwest Electric Power Planning and Conservation Act (16 U.S.C.

839f(c)), the Administrator may, as permitted by otherwise applicable

law, sell or otherwise dispose of excess federal power: outside the

Pacific Northwest on a firm basis for a contract term not to exceed 7

years, if the excess federal power is first offered for a reasonable

period of time and under the same essential rate, terms and conditions

to those Pacific Northwest public body, cooperative and investor-owned

utilities and those direct service industrial customers identified in

subsection (b) or (d)(1)(A) of section 5 of the Pacific Northwest

Electric Power Planning and Conservation Act (16 U.S.C. 839c); and in

any region without the prohibition on resale established by the second

sentence of section 5(a) of the Act entitled ``An Act to Authorize the

Completion, Maintenance, and Operation of the Bonneville Project for

Navigation, and for Other Purposes,'' approved August 20, 1937

(commonly known as the ``Bonneville Project Act of 1937'') (16 U.S.C.

832d(a)).

In the conference report accompanying this new legislation,1

Congress recognized that current Bonneville authorizing legislation

severely limits the agency's flexibility to market federal power

placing it at a marketing disadvantage and restricting potential

revenues. In order to increase Bonneville's revenues and its

competitiveness, Congress enacted this new legislation which removes

some of those marketing restrictions from sales of excess federal

power. Excess federal power is any power generated by routine power

operations, or fish and wildlife operations of either the Federal

Columbia River Power System or other electric power plants from which

Bonneville is contractually obligated to acquire electric power and

that is made surplus to the Administrator's firm requirements

contractual obligations in two instances: (1) By requirements customers

decisions to remove load from Bonneville; or (2) because of hydrosystem

operations primarily for the benefit of fish and wildlife affected by

the development, operation, or management of the system.

\ 1\ H.R. 1905, Conf. Rep. No. 293, 104th Cong., 1st Sess. 94

(1995).

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This excess federal power can be sold or otherwise disposed of

outside the region for up to 7 years without the Regional Preference

Act call back provisions upon 60-days notice for energy sales and 60-

months notice for capacity sales.2 This power also can be sold in

any region without the Bonneville Project Act restriction on the resale

of federal power by private entities not in the business of selling

power in the retail market.3 In addition, the existing requirement

that Bonneville provide notice to existing regional customers is made

more flexible for sales of excess federal power to reflect the current

competitive market and the type of transaction. In all cases, however,

Bonneville must first offer the excess federal power to regional

customers for a reasonable period of time and under the same essential

rate, terms and conditions as the proposed out-of-region sales.

\ 2\ The Act of August 31, 1964, Pub. L. No. 88-552, Sec. 3 (a),

(b), and (c), 78 Stat. 756 (1964).

\ 3\ The Bonneville Project Act of 1937, Pub. L. No. 75-329,

Sec. 5(a), 50 Stat. 731 (1937).

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It is Bonneville's preliminary view as a matter of policy that

Bonneville should make retail sales outside the Pacific Northwest

region to purchasers, other than preference customers and federal

agencies, only where such sales are consistent with the state law that

would apply if Bonneville were not a federal agency. Bonneville

specifically seeks comment on this policy.

Process

This notice announces Bonneville's initiation of a procedure to

establish policy on the implementation of the new marketing authority

in P.L. 104-46. Bonneville is interested in and will take public

comment on the attached proposed implementation policy. All comments

should be submitted before May 28, 1996 to be considered prior to

issuance of a final policy. Submit written comments to David J.

Armstrong--MPF, Bonneville Power Administration, P.O. Box 3621,

Portland, OR 97208-3621. Bonneville will conduct two public meetings,

one in the Pacific Northwest region and one outside the region.4

After close of the public comment period, Bonneville will evaluate all

comments and issue a final implementation policy.

\ 4\ Additional public meetings may be held, if necessary.

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General Approach

Bonneville intends the scope of this policy making to be limited to

the development of a policy necessary to implement the relevant

provisions of P.L. 104-46; including processes and specific

determinations required to be made of the amount of excess federal

power as defined by this law, and how notice will be provided to

Pacific Northwest customers of extraregional sales of excess federal

power.

Bonneville believes that this proposal is fully consistent with the

letter and intent of P.L. 104-46. In proposing interpretations of and

processes for implementing P.L. 104-46, Bonneville is proposing those

that result in the most efficient, simple, straight-forward, and

administratively least-burdensome implementation of the law.

Determination of Excess Federal Power

Section 508(a)(3) of P.L. 104-46 defines excess federal power as

federal

[[Page 14091]]

power made surplus to the Administrator's firm contractual obligations

under section 5(f) of the Northwest Power Act 5 in two instances.

First, excess federal power includes reductions in the quantity of

power the Administrator is contractually required to supply under

sections 5(b) and 5(d) of the Northwest Power Act (5(b) and 5(d)

obligations) because of elections by the Administrator's firm

requirements customers, that is, Pacific Northwest public agency,

federal agency, investor-owned utility, and direct service industry

customers, to purchase power from other suppliers, as compared to the

Administrator's 5(b) and 5(d) obligations as of January 1, 1995.

Second, excess federal power is that power made excess due to operation

of the federal hydrosystem, whether generated or purchased, primarily

for the benefit of fish and wildlife affected by that system.

\ 5\ Pacific Northwest Electric Power Planning and Conservation

Act, Pub. L. No. 96-501, Sec. 5(f), 94 Stat. 2697 (1980). Section

5(f) of the Northwest Power Act provides: The Administrator is

authorized to sell, or otherwise dispose of, electric power,

including power acquired pursuant to this and other Acts, that is

surplus to his obligations incurred pursuant to subsections (b),

(c), and (d) of this section in accordance with this and other Acts

applicable to the Administrator, including the Bonneville Project

Act of 1937 (16 U.S.C. 832 and following), the Federal Columbia

River Transmission System Act (16 U.S.C. 838 and following), and the

Act of August 31, 1964 (16 U.S.C. 837-837h).

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In order to implement this new marketing authority, Bonneville must

make three determinations: (1) the amount of reductions in the

Administrator's 5(b) and 5(d) obligations relative to those obligations

as of January 1, 1995, which can further be broken into two findings:

(a) The actual amount of the Administrator's 5(b) and 5(d) obligations

as of January 1, 1995, and (b) a yearly forecast of the Administrator's

current 5(b) and 5(d) obligations to serve Pacific Northwest firm

requirements power loads; (2) the amount of excess power that results

from operating the hydrosystem primarily for fish and wildlife; and (3)

a process for making annual determinations of excess federal power.

1. Reductions in the Administrator's Firm Contractual Obligations Under

5(b) and 5(d) of the Northwest Power Act

(a) 5(b) and 5(d) Obligations as of January 1, 1995: Bonneville's

contractual obligations under sections 5(b) and 5(d) of the Northwest

Power Act are comprised of and limited to the Administrator's sale of

firm requirements power for consumer loads of public body, cooperative,

federal agency customers, investor-owned utilities,6 and for

direct consumption by existing direct service industrial customers in

the Pacific Northwest.7 All other remaining firm contractual

obligations are not sales of power for the general requirements of

utility customers or direct service industrial customers and are not

governed by sections 5(b) and 5(d) of the Northwest Power Act.

Therefore these other sales are not included in this determination of

the Administrator's contractual obligations as of January 1, 1995.

\ 6\ All of the investor-owned utilities in the region have

signed long-term firm power sales contracts that obligate

Bonneville, upon compliance with certain notice requirements, to

deliver power in amounts requested by the investor-owned utilities

to meet a portion of their loads in the region. These utilities have

not elected to place loads on Bonneville under these agreements,

with the exception of a relatively small amount of electric power

loads placed on Bonneville under the New Resource Firm Power Rate

schedule(s). These obligations will be included in the determination

of excess federal power due to load reductions.

\ 7\ ``Pacific Northwest'' as defined in the Regional Preference

Act, 1(b), 78 Stat. 756, as amended by Pacific Northwest Electric

Power Planning and Conservation Act, 8(e), 94 Stat. 2729.

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The Administrator's 5(b) and 5(d) obligations as of January 1,

1995, are the amounts based on the sum of the following calculations:

Actual and Planned Computed Requirements Customers:

Obligations for the actual and planned computed requirements customers

8 are the annual average of the customers' monthly energy

requirements in average megawatts for calendar year 1994 submitted to

Bonneville for the Pacific Northwest Coordination Agreement for

operating years 1993-94 and 1994-95.

\ 8\ As of January 1,1995, Grant County PUD No. 2, Chelan County

PUD No. 1, Cowlitz County PUD, Douglas County PUD No. 1, Eugene

Water and Electric Board, Pend Oreille PUD No. 1, Seattle City

Light, Snohomish County PUD No. 1, Tacoma Public Utilities.

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Metered Requirements Customers: Obligations for the

metered requirements customers 9 are the calendar year 1994 annual

average firm energy sales in average megawatts to this customer class

as reported in Bonneville's Generation and Power Sales Report.

\ 9\ Small and Non-Generating Public Utilities, including

Federal Agencies.

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Direct Service Industrial Customers: Obligations for the

direct service industrial customers are the annual average of the

customers' monthly Operating Demands for calendar year 1994 submitted

to and approved by Bonneville for contract years 1993-94 and 1994-95.

Regional Investor-Owned Utilities: Obligations for the

investor-owned utilities are the calendar year 1994 annual average

sales under the New Resource Firm Power Rate in average megawatts to

this customer class as reported in Bonneville's Generation and Power

Sales Report.

Based on the above calculations, the Administrator's total 5(b) and

5(d) obligations as of January 1, 1995, were 8309 average megawatts.

Consistent with P.L. 104-46, this amount will be the baseline for all

annual calculations of excess federal power. This is a fixed

determination and will not change once the final implementation policy

is issued.

(b) Current Contractual Obligations: Each year Bonneville will

determine the Administrator's current 5(b) and 5(d) contractual

obligations based upon executed contracts. In order to accommodate

power deliveries of up to 7 years, Bonneville will produce a 10-year

annual average energy forecast of its current 5(b) and 5(d)

obligations.

(c) Reductions in Contractual Obligations: Reductions in the

Administrator's 5(b) and 5(d) obligations will be calculated in each

annual determination of excess federal power. On an average annual

energy (average megawatts) basis for each year of the 10-year forecast

period, the reductions in 5(b) and 5(d) obligations will be the

difference between the forecasted current obligation in that year and

the Administrator's contractual obligation as of January 1, 1995, or

8309 average megawatts. In order to determine the amount of excess

capacity available for marketing, Bonneville will calculate an average

annual load factor based on its remaining 5(b) and 5(d) obligations.

This load factor will be applied to the difference between the

forecasted current obligations and the obligations as of January 1,

1995, to determine the amount of capacity in average megawatts which

the Administrator may market as excess federal power.

2. Fish and Wildlife Operations: Bonneville has run two 50-year

continuous water year studies to determine the amount of excess

generation in average megawatts caused by hydrosystem operations

primarily for fish and wildlife. The first study removes all fish and

wildlife requirements. This study shows the firm energy production

capability of the federal system in each month. The second study

includes all fish and wildlife restrictions and also provides monthly

firm energy production. Each study was run with the rule curves and

resource operations which simulate the most efficient operation for

their specific conditions and limitations. The difference in monthly

energy production between the two studies was

[[Page 14092]]

averaged over the 50-year period for each month. The positive monthly

averages, representing the increased generation due to fish and

wildlife operations, were summed to determine the annual average energy

amount in average megawatts of excess federal power due to fish and

wildlife operations. A 100 percent load factor was assumed for

determining the capacity amount of excess federal power due to fish and

wildlife operations. BPA relied on two studies that were developed in

support of the implementation of the BPA fish spending limitation. The

results from those two studies established an amount of excess federal

power due to hydrosystem operations primarily for the benefit of fish

and wildlife of 129 average megawatts annually. Unless further changes

in the future are required in the scope and magnitude of hydrosystem

operations for the benefit of fish and wildlife, this amount of excess

federal power due to such operations will not be revisited in each

annual determination of excess federal power. If future changes impact

hydrosystem operations Bonneville may revise the amount of excess

federal power by reopening this policy.

3. Process: Each year Bonneville will determine the total amount of

excess federal power on its system. Each annual determination will be

based on a revised 10-year forecast of Bonneville's then-current

section 5(b) and 5(d) contractual obligations. The net of each year's

forecast and 8309 average megawatts will be the amount of excess

federal power due to forecasted reductions in those contractual

obligations. This amount will be added to the amount of excess federal

power due to fish and wildlife obligations in order to determine the

total amount of excess federal power that may be marketed in any year

of the forecast. This total amount of excess federal power will be

reduced by the amount of any current sales of excess federal power to

determine the total amount available to the Administrator for

marketing. The results of this determination will be included in an

annual notification to Bonneville's then existing Pacific Northwest

customers of Bonneville's intent to market excess federal power or

surplus power outside the region. Bonneville's date of issuance of the

notification may vary from year to year.

Sales of Excess Federal Power

1. Sales Outside the Region: In section 508(b) of P.L. 104-46,

excess federal power may be sold or otherwise disposed of outside the

Pacific Northwest region without the marketing restrictions contained

in sections 3(a), (b) and (c) of the Regional Preference Act and

section 9(c) of the Northwest Power Act.10 The Administrator is

authorized to sell excess federal power without the requirement that

energy or capacity deliveries to an out-of-region customer be subject

to termination of deliveries (recall) upon 60-days notice for energy

and 60-months notice for capacity if the Administrator determines it is

needed to meet the requirements of the Administrator's regional

customers.

\10\ The Pacific Northwest Electric Power Planning and

Conservation Act, Pub. L. No. 96-501, 9(c), 94 Stat. 2697 (1980).

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In addition, the notice required for out-of-region sales in section

2 of the Regional Preference Act is made inapplicable to sales of

excess federal power.11 The new law conditions the sale of excess

federal power outside the region upon the requirement that the

Administrator first offer the power to Pacific Northwest public body,

cooperative, and investor-owned utilities and direct service industrial

customers for a reasonable period of time and under the same essential

rate, terms, and conditions. This notice requirement provides the

Administrator with considerable flexibility in providing Bonneville's

existing regional customers with notice of sales to out-of-region

customers.12

\11\ Section 2 of the Regional Preference Act provides that at

least 30 days prior to the execution of any contract for the sale,

delivery, or exchange of surplus energy or surplus peaking capacity

for use outside the Pacific Northwest, the Secretary shall give the

then customers of the Bonneville Power Administration written notice

that negotiations for such a contract are pending, and thereafter,

at any customer's request, make available for its inspection current

drafts of the proposed contract.

\12\ In the conference report, Congress states that ``this

flexibility may include shorter notice periods and less detailed

information on in-program negotiations. Notice periods may be very

short for short-term sales (for example, notice to accommodate

hourly sales) and for transactions that must be negotiated quickly.

BPA may also provide seasonal notice with price ranges requesting

interested parties to contact BPA to purchase power.'' H.R. 1905,

Conf. Rep. No. 293, 104th Cong., 1st Sess. 94 (1995).

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P.L. 104-46 provides the Administrator with the authority to sell

excess federal power outside the region for a period of up to 7 years.

In all sales of excess federal power Bonneville will limit the actual

delivery of excess federal power to 7 years. Such contracts may contain

a provision for renewal and be renewed, subject to the availability of

excess federal power at the time the purchaser must provide a renewal

notice.

An annual notification of the availability of excess federal power

will be given to existing regional customers. This notification will

specify a range of rates, and basic terms and conditions for a sale of

excess federal power on which Bonneville will enter into bilateral

discussions with out-of-region customers.

For contracts having a term of one year or greater, regional

customers interested in purchasing excess federal power will have 30

days from the date of the annual notice to contact Bonneville. If a

subsequent agreement for the sale of excess federal power to an out-of-

region customer is negotiated under a rate or under terms and

conditions different from the range of rates, terms, and conditions

specified in the annual notice, Bonneville will provide interested

regional customers notice of the pending sale. Regional customers

interested in purchasing excess federal power under the same rate,

terms and conditions in the pending out-of-region sale will have 5 days

from the date of this subsequent notice to contact Bonneville. In order

to enter into such an agreement, regional customers must agree to the

identical terms and conditions in the agreement for pending out-of-

region sale, except those which clearly do not apply to the particular

utility (such as points of delivery).

For contracts having a duration of less than 1 year, the annual

notification of the availability of excess federal power will serve as

the only notification of the availability of excess federal power. Any

interested regional customers may contact Bonneville to purchase such

short-term excess federal power based on the general rate, terms and

conditions proposed by Bonneville in the annual notification after

bilateral negotiations with Bonneville. If a subsequent agreement for a

short term sale of excess federal power to an out-of-region customer is

negotiated under a rate or under terms and conditions different from

the range of rates, terms and conditions specified in the annual

notice, Bonneville will provide interested regional customers notice of

the pending sale. Regional customers interested in purchasing excess

federal power under the same rate, terms and conditions in the pending

out-of-region sale will have up to 5 days, depending on the effective

delivery date and the duration of the short-term sale, from the date of

this subsequent notice of contact Bonneville.

2. Sales in Any Region: Section 508(b)(2) authorizes the sale of

excess federal power in any region without the restriction on resale

established in the second sentence of section 5(a) of the Bonneville

Project Act which provides

[[Page 14093]]

that contracts for the sale of electric energy to any private person or

agency other than a privately owned public utility engaged in selling

electric energy to the general public, shall contain a provision

forbidding such private purchaser to resell any such electric energy so

purchased to any private utility or agency engaged in the sale of

electric energy to the general public, and requiring the immediate

canceling of such contract of sale in the event of violation of such

provision.

This provision requires that contracts for the sale of power by the

Administrator to private entities or agencies thereof, other than

investor-owned utilities, contain a provision that prohibits the resale

of that power to investor owned utilities or other private entities or

their agents engaged in the sale of electricity to the general public.

Consistent with the removal of this requirement in P.L. 104-46,

contracts for the sale of excess federal power will not contain any

provision prohibiting the resale of such power to investor-owned

utilities or other private entities or their agents.

Issued in Washington, D.C. on March 22, 1996.

Stephen Wright,

Assistant Administrator, Bonneville Power Administration.

[FR Doc. 96-7734 Filed 3-28-96; 8:45 am]

BILLING CODE 6450-01-P