Boulder Canyon Project-Base Charge and Its Components

DEPARTMENT OF ENERGY

Western Area Power Administration

Boulder Canyon Project-Base Charge and Its Components

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of Base Charge and its components.

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

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

Secretary of the Department of Energy (DOE) placing the provisional

Base Charge and its components (Base Charge) for the Boulder Canyon

Project (BCP) firm power into effect for the fourth rate year under the

current rate methodology pursuant to Rate Schedule BCP-F5 as approved

by the Federal Energy Regulatory Commission (FERC) on April 19, 1996

(Rate Order No. WAPA-70). In accordance with Section 13.13 of the BCP

Implementation Agreement, the rate methodology and calculated rates for

the first rate year and each fifth fiscal year (FY) shall become

effective provisionally upon approval by the Deputy Secretary of

Energy, subject to final approval by the FERC. The rates for all other

FYs (second FY, third FY, and fourth FY) shall become effective on a

final basis upon approval by the Deputy Secretary of Energy. The

provisional FY 1999 Base Charge represents the charges for the fourth

FY since FERC approval of the current rate methodology. The provisional

Base Charge will provide sufficient revenue to pay all annual costs,

including interest expense, and repayment of required investment within

the allowable period.

DATES: The provisional Base Charge will be placed into effect on

October 1, 1998, and will be in effect through September 30, 1999.

FOR FURTHER INFORMATION CONTACT: Mr. Anthony H. Montoya, Power

Marketing Manager, Western Area Power Administration, Desert Southwest

Customer Service Region, 615 South 43rd Avenue, Phoenix, AZ 85009-5313,

(602) 352-2789, or Mr. Timothy J. Meeks, Power Marketing Liaison

Office, Room 8G-027, 1000 Independence Avenue SW., Washington, DC

20585, (202) 586-5581.

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved the

existing Base Charge for firm power service on September 19, 1997. The

existing Base Charge was calculated in accordance with the methodology

approved under Rate Order WAPA-70. The Procedures for Public

Participation in Power and Transmission Rate Adjustments and

Extensions, 10 CFR Part 903, have been followed by the Western Area

Power Administration (Western) in determining the Base Charge. The FY

1999 provisional Base Charge for BCP firm power is based on an Annual

Revenue Requirement of $48,842,126. The provisional Base Charge

consists of an energy revenue requirement of $25,208,831, a forecasted

energy rate of 4.86 mills/kWh, a capacity revenue requirement of

$23,633,296, and a forecasted capacity rate of $1.01 per kilowattmonth

(kWmonth).

The following summarizes the steps taken by Western to ensure

involvement of all interested parties in the determination of the Base

Charge:

1. On March 30, 1998, a letter was mailed from Western's Desert

Southwest Customer Service Region to all BCP customers and other

interested parties announcing the informal customer meeting and the

public information and public comment forums.

2. A Federal Register notice (FRN) was published on April 21, 1998

(63 FR 19722), announcing the proposed Base Charge adjustment process,

initiating the public consultation and comment period, announcing the

public information and public comment forums, and presenting procedures

for public participation.

3. Discussion of the proposed Base Charge was initiated at an

informal BCP contractor meeting held on May 6, 1998, in Phoenix,

Arizona. At this informal meeting, representatives from Western and the

Bureau of Reclamation (Reclamation) explained the basis for estimates

used in the calculation of the Base Charge. A question and answer

session was convened for those persons attending.

4. At the public information forum held on May 14, 1998, in

Phoenix, Arizona, Western and Reclamation representatives explained the

proposed Base Charge for Rate Year 1999 in greater detail. A question

and answer session was convened for those persons attending.

5. A public comment forum was held on June 11, 1998, in Phoenix,

Arizona, to give the public an opportunity to comment for the record.

Three persons representing customers and customer groups made oral

comments.

6. Twelve comment letters were received during the 90-day

consultation and comment period. The consultation and comment period

ended July 20, 1998. Although all formally submitted comments were not

specifically pertinent to the Base Charge adjustment, they have been

considered in the preparation of this FRN. Most of the comments

received during the public meetings, or in the written correspondence,

dealt with agency processes, specific cost components, and the power

repayment study (PRS) comparisons. All comments were considered in

developing the Base Charge for FY 1999. Written comments were received

from the following sources:

Metropolitan Water District of Southern California (California)

Utility Resource Services (Arizona)

Arizona Power Authority (Arizona)

Ryley, Carlock & Applewhite (Arizona)

Harquahala Valley Power District (Arizona)

[[Page 53046]]

Roosevelt Irrigation District (Arizona)

Electrical District Number Five (Arizona)

Irrigation & Electrical Districts Association of Arizona (Arizona)

Maricopa-Stanfield Irrigation & Drainage District (Arizona)

Electrical District Number Four (Arizona)

Electrical District Number Eight (Arizona)

McMullen Valley Water Conservation & Drainage District (Arizona)

The comments and responses, paraphrased for brevity, are presented

below.

Agency Processes

Comment: A commentor stated that Reclamation needs to change its

budgeting process from escalating estimates for future years to using

actual data. It was suggested that Reclamation begin budgeting on a

zero-based budget concept. Zero-based budgeting requires justification

for every position and every process.

Response: Reclamation will continue to improve its justification

process for all facets of the budget. Estimates are based on the latest

actual data available at the time of budget formulation. This data is

analyzed and modified based on anticipated changes in workload,

personnel and various requirements necessary for the budget period.

Comment: A commentor suggested that Reclamation reevaluate its

organizational structure and develop an organization that is effective

for Reclamation and its customers.

Response: Reclamation agrees that an organization must be effective

for the future. Reclamation continues to evaluate its organization and

make changes as appropriate, recognizing that its core mission remains

fairly stable. Reclamation's goal is to satisfy water and water related

demands while optimizing power generation.

Comment: A few commentors expressed concern that all participants

on the Engineering and Operating Committee and 10-Year Operating Plan

Committee need to renew their commitment to allow these committees to

function as planned, and all participants need to provide the necessary

resources.

Response: Western and Reclamation agree that all participants

should renew their commitment in order for the processes to be

successful.

Comment: A commentor has expressed concern over the high number

(143) of Bureau Full Time Equivalents (FTE) charged to administrative

and general expense (support services) in FY 1997.

Response: Hoover Dam has responsibilities, well beyond power

generation, which include flood control, irrigation, security, visitors

and maintaining the structure. Most of the 143 FTEs work to carry out

these functions. The 1997 ``Hydroelectric Generation Benchmarking

Program'' Report shows that Hoover's support costs are well below

average. This indicates a positive result, in that other like-size

hydro powerplants are much higher in their support service costs.

Reclamation recognizes that improvements can be made and will continue

to work towards that end.

Specific Cost Components

Comment: Several commentors stated concern that there is no

existing legal authority by which Western can collect and transfer

funds for the post-retirement benefit costs from the Colorado River Dam

Fund to the Office of Personnel Management. Based on these concerns,

many of the contractors are requesting Western to exclude the post-

retirement benefit costs in this rate process.

Response: In a memorandum dated July 1, 1998, the Department of

Energy's General Counsel concluded that Western has the authority to

collect in rates an amount that would offset the United States

Government's full costs of post-retirement benefits. Accordingly, in

this rate process, Western is collecting its post-retirement benefit

costs and these funds will be deposited into the Colorado River Dam

Fund.

Comment: A commentor expressed concern that the proposed rates only

reflect Western's post-retirement benefit costs and not Reclamation's

portion. Also, the commentor stated that these costs should have been

presented and disclosed in the 10-year planning process prior to being

implemented in the rate process.

Response: Western first disclosed the issue of the unfunded portion

of the post-retirement benefit costs, and the plan for implementation

of these costs at a March 5, 1998, Engineering and Operating Committee

meeting. On May 6, 1998, and May 14, 1998, Western identified its

portion of these costs and again disclosed that the costs would be

included in the current rate process. Although Reclamation has not

allocated its post-retirement benefit costs, upon doing so, Western

will include the costs in the power rates.

Comment: A commentor expressed concern for the cost picture of the

BCP resource and stated that the BCP costs cannot remain static and

still remain competitive. The commentor requested Reclamation and

Western open a dialogue with their customers regarding what the

competitive future looks like in the southwest, and where this resource

fits in.

Response: Western and Reclamation believe that appropriate forums

are already in place which allow for dialogue with the customers to

discuss the future costs of the BCP resource and the competitive

market. Western, Reclamation, and all BCP contractors are represented

on a 10-Year Operating Plan Committee, and an Engineering and Operating

Committee where this type of dialogue is held. Western and Reclamation

encourage the BCP contractors to share the meeting minutes of these two

committees with their customers, and also encourage the need for more

open dialogue among the BCP contractors, their customers and

consultants.

Comment: A commentor requested justification of Visitor Center

costs. The commentor stated that he does not understand how temporary

employees are included in the budget or how fringe benefits are

calculated. Also, the commentor requested an explanation and

justification for spending almost $500,000 a year on janitorial

services.

Response: Classification and staffing requirements change in regard

to workload needs. In planning for future years' workload, temporary

employees may be budgeted for, rather than allocating a permanent full-

time employee. The Hoover Public Services uses a variety of staffing

classifications in order to best accommodate increased workload in an

efficient manner.

Benefits are accrued based on work appointment status

(classification) and length of work schedule. Permanent full time

employees receive full benefits. Temporary employees receive benefits

when they have worked longer than 1 year and benefits for part-time

employees are prorated based on hours actually worked.

Janitorial Services

The Visitor Center, Parking Garage and Tour Route include 425,049

square feet of area. Janitorial services for this area were performed

by in-house staff for the first 6 months of operation. At that time, a

review determined these services could best be performed by a private

contract.

A contract was awarded for $417,957 in May 1996 to the lowest

qualified bidder. Modifications have since been made to the contract to

cover cleaning of the Exhibit Level, Theater Area, an additional area

in the Parking Garage, and Department of Labor wage increases.

[[Page 53047]]

Comment: A commentor expressed concern that the Visitor's Center is

not producing all the revenues projected by Reclamation.

Response: In a September 1996 report to the Senate Appropriations

Committee, Reclamation outlined its commitments: ``* * * to, within the

best of its ability and legal authorities, establish and maintain user

fees sufficient to fund all of the visitor program's operation,

maintenance, and replacement (OM&R) costs, as well as a portion of the

annual debt service.'' The goal was to ``establish a visitor program

that will produce $9 million in revenues annually.'' This revenue level

would cover the visitor program's estimated $4 million annual OM&R

cost, and provide $5 million for debt service repayment, thus reducing

the ratepayer's burden by approximately 50 percent.

The management of the Public Services Office is continually

reviewing operational costs. Revenue enhancing opportunities are also

being explored, evaluated, and implemented where advantageous. These

activities are necessary to ensure efficient operation and a quality of

service that meets customers' expectations. They are also necessary in

order to meet Reclamation's goal of repaying approximately 50 percent

of the debt service.

Expenditures for FY 1996 were $3,988,000; revenues were $4,913,000.

The amount available for debt service was $925,000. In FY 1997,

expenditures were $4,367,000; revenues were $6,736,000. The amount

available for debt service was $2,369,000. Based on FY 1998 actual

expenditures and revenues to date, the amount available for debt

service is $3,719,000 through June.

Power Repayment Study

Comment: A commentor stated that the appropriate comparison of the

PRS for the public process would have been to compare the current

proposed May 1998 PRS to the final February 1998 BCP 10-Year Operating

Plan PRS.

Response: The PRS comparison presented at the informal and public

process rate meetings comparing the previous ratebase PRS with the

current ratebase PRS is the most appropriate comparison between the

PRSs. Western and Reclamation have previously stated that the PRS

included in the annual final 10-year plan has no purpose other than to

give the customers a point-in-time look at the costs, and the impact to

the power rates and revenue requirements at that particular time

period. There are other factors such as year end actuals, crosswalk

adjustments, and updated budget numbers which impact a rate year that

are not included in the annual Final 10-Year Operating Plan PRS.

Therefore, utilizing the 10-Year Operating Plan PRS during the rate

process will provide an inaccurate characterization of the real impact

on the proposed Base Charge.

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

November 10, 1993 (58 FR 59716), the Secretary of Energy (Secretary)

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 charges and rates are established pursuant to section 302(a)

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

marketing functions of the Secretary of the Interior and 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 system involved, were

transferred to and vested in the Secretary.

Dated: September 18, 1998.

Elizabeth A. Moler,

Deputy Secretary.

[FR Doc. 98-26466 Filed 10-1-98; 8:45 am]

BILLING CODE 6450-01-P