# Power Allocation Issues

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A99-16019

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** June 25, 1999
- **Citation:** 64 FR 34433

## Text

DEPARTMENT OF ENERGY

Western Area Power Administration

Power Allocation Issues

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of inquiry.

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SUMMARY: The Western Area Power Administration (Western) has completed
its inquiry regarding the impact of electric utility industry
restructuring on Western's power allocation policies. This Federal
Register (FR) notice contains Western's responses to comments on the
issues raised by the inquiry. Contemporaneously, Western is publishing
the final 2004 Power Marketing Plan for the Sierra Nevada Customer
Service Region (SNR) and the final Salt Lake City Area Integrated
Projects (SLCA/IP) Marketing Criteria.

FOR FURTHER INFORMATION CONTACT:

Robert C. Fullerton, Project Manager, Corporate Services Office,
Western Area Power Administration, 1627 Cole Boulevard, PO Box 3402,
Golden, CO 80401-0098, telephone (303) 275-2700, email:
[email protected].
Joel K. Bladow, Regional Manager, Rocky Mountain Region, Western Area
Power Administration, PO Box 3700, Loveland, CO 80539-3003, telephone
(970) 490-7201, email: [email protected].
J. Tyler Carlson, Regional Manager, Desert Southwest Region, Western
Area Power Administration, PO Box 6457, Phoenix, AZ 85005-6457,
telephone (602) 352-2453, email: [email protected].
David Sabo, Customer Service Center Manager, Colorado River Storage
Project, Western Area Power Administration, PO Box 11606, Salt Lake
City, UT 84147-0606, telephone (801) 524-6372, email: [email protected].
Jerry W. Toenyes, Regional Manager, Sierra Nevada Region, Western Area
Power Administration, 114 Parkshore Drive, Folsom, CA 95630-4710,
telephone (916) 353-4418, email: [email protected].
Gerald C. Wegner, Regional Manager, Upper Great Plains Region, Western
Area Power Administration, PO Box 35800, Billings, MT 59107-5800,
telephone (406) 247-7405, email: [email protected].

SUPPLEMENTARY INFORMATION:

Authorities

This public process is being conducted pursuant to the Department
of Energy (DOE) Organization Act (42 U.S.C. 7101, et seq.); 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

[[Page 34434]]

other acts specifically applicable to the projects involved.

Background

Western is a Federal power marketing administration (PMA), charged
with the responsibility of marketing electricity generated by power
plants operated by the Bureau of Reclamation (Reclamation), the Corps
of Engineers, and the International Boundary and Water Commission.
Created in 1977, Western markets on a wholesale basis and transmits
Federal hydroelectric power throughout 1.3 million square miles to more
than 600 customers, including rural electric cooperatives, municipal
utilities, public utility districts, Federal and State agencies,
irrigation districts, and Native American tribes. Western's power
customers, in turn, provide service to millions of consumers in 15
western States.
Western markets power on a project-specific basis. A marketing plan
for each project is developed through a public process, with
opportunity for comment on a marketing proposal before publication of
the final marketing plan in the Federal Register. Reclamation law
governs how Western markets electricity, including the requirement that
Western offer power first to certain nonprofit entities such as rural
electric cooperatives and municipalities.
On December 1, 1998, Western published in the Federal Register a
Notice of Inquiry to explore the impact of electric utility industry
restructuring on Western's power allocation policies (63 FR 66166). A
forum was held in Denver on January 6, 1999, to receive public comment
on this matter, and written comments were accepted from the public
until the end of the 45-day consultation and comment period. In this
Federal Register notice, Western is addressing comments received during
the electric utility industry restructuring inquiry.
Western received a number of comments on the size of project-
specific resource pools in response to our Notice of Inquiry. Because
of these comments and expressions of interest in an allocation of
Federal power from several Indian tribes, Western decided to open an
additional 30-day comment period focused solely on the issue of the
size of project-specific resource pools. Informational meetings on
Western's resource pool size proposals and the requirements for
receiving an allocation of power were held in Phoenix, Arizona,
Albuquerque, New Mexico and Folsom, California. Resource pool size
comments are being addressed in the 2004 marketing plans for the
Central Valley, Washoe, and Salt Lake City Area Integrated Projects.
As some comments and responses use certain project names
interchangeably, some definition is needed in order to avoid confusion.
Western's 2004 Power Marketing Plan for the Sierra Nevada Customer
Service Region governs marketing from the Central Valley Project (CVP)
and the Washoe Project. Western's Salt Lake City Area Integrated
Projects Marketing Criteria cover power marketing from the Colorado
River Storage Project (CRSP), the Collbran Project, and the Rio Grande
Project.

Summary of Western's Response to the Notice of Inquiry

In response to changes in the utility industry, Western's power
allocation policies have been altered in a responsible and proactive
manner. More flexibility has been added to Western's power sales
contracts, and Western has made significant changes to our marketing
policies that emphasize customer choice and diminish Western's future
need for appropriations to purchase power. Western's contracts will
accommodate, rather than impede, environmentally beneficial changes in
operations at large Federal dams in the west. Widespread benefit will
be achieved through power allocations to Native American tribes without
the need for formation of tribal utilities. Contractual provisions will
continue to prohibit inappropriate resale of Western's power and assure
that consumers receive the benefits of cost-based Federal
hydroelectricity. Although no additional changes to Western's power
marketing policies will be adopted at this time, Western likely will
evaluate the impact of electric utility industry restructuring on a
periodic basis to assure that our policies continue to be responsive to
public needs.

Legal Analysis

Regulatory Flexibility Analysis

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601, et seq.)
requires Federal agencies to perform a regulatory flexibility analysis
if a final rule is likely to have a significant economic impact on a
substantial number of small entities and there is a legal requirement
to issue a general notice of proposed rulemaking. Western has
determined that this action does not require a regulatory flexibility
analysis since it is a policy inquiry rather than a rulemaking, and the
subject of the inquiry involves policies applicable to public property.

Environmental Compliance

DOE National Environmental Policy Act (NEPA) regulations
categorically exclude marketing plans from NEPA documentation unless
they involve new generation, new transmission, or a change in
operations. Therefore, Western will not conduct further evaluation
under NEPA as part of this power allocation issues notice of inquiry.
Considerable environmental evaluation has already occurred under the
Energy Planning and Management Program (EPAMP) and during project-
specific marketing plan development.

Review Under Paperwork Reduction Act

As no collection of information will take place as a result of this
Federal Register notice, no review under the Paperwork Reduction Act of
1980 (44 U.S.C. 3501, et seq.) is necessary.

Review Under Executive Order 12866

Western has an exemption from centralized regulatory review under
Executive Order 12866; accordingly, no clearance of this notice by the
Office of Management and Budget is required.

Small Business Regulatory Enforcement Fairness Act

Western has determined that this Federal Register notice is exempt
from congressional notification requirements under 5 U.S.C. 801 because
it is a policy inquiry rather than a rulemaking, and the subject of the
inquiry involves procedures and policies applicable to public property.

Federalism Assessment

This Federal Register notice will not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Orders 12612 and 13083, it is determined that
this notice does not have sufficient federalism implications to warrant
the preparation of a Federalism Assessment.

Response to Comments on Notice of Inquiry

Western has received extensive public comment on the impact of
electric utility industry restructuring on Western's power allocation
policies. These comments relate to six questions that were posed during
the public process, which address the impact of State retail
competition statutes on how we sell electricity. Public comments, and
Western's responses to those comments, are set forth below and

[[Page 34435]]

organized under each of the six questions.

Question

1. Should Western's power allocations system, including the term of
firm power contract renewals, be modified to take into account changes
in electricity markets that have occurred, and are expected to occur in
the future, due to the enactment of California Assembly Bill 1890 and
other State retail competition statutes? If so, please explain what
modifications would be desirable. If not, please explain why the
present system should be preserved.

A. Goals of Restructuring

Comment: The intended goal of electric utility restructuring is to
promote competition, so as to lower power costs to the consumer. That
goal is already being met by Western's existing power allocation
system. Loss of the resource will increase costs to and punish the
retail consumer, a result that is contrary to the intended results of
retail competition.
Response: Lower power cost to consumers is the ultimate goal of
utility restructuring. Western's power allocations promote yardstick
competition in the electricity industry and result in lower power costs
to the consumers served by Western's customers.

B. Federalism

Comments: Western should give a great deal of deference to
federalism. Many of the suggested changes in Western's Notice of
Inquiry would insert Western into State policy determinations. To date,
the United States Congress has been extremely careful in respecting
State jurisdiction in matters as extensive and complex as those within
the power industry. Western should not tread where Congress has chosen
not to go.
We appreciate your efforts to assure that the Federal power
program's policies are contemporaneous with the needs of customers and
the changes in the industry. However, we do not believe that the six
issues posed in this inquiry will strengthen the program or increase
the value of the Federal power resources. We believe these issues
should be addressed at the State level.
Response: Issues of retail service, retail rates and consumer
choice in power supply have been addressed at the State and local
levels in the past. As Congress has not identified what Federal purpose
would be served by modification of this historic responsibility,
Western believes these issues are better addressed at the State level.
The Clinton Administration's electric utility restructuring bill
encourages States to take the lead on these issues.
Comment: Why should the Federal policy on power allocations be
changed due to State legislative action? State interests should not
supersede Federal interests.
Response: As a matter of policy and practicality, Western views the
establishment of Federal policy through mirroring of State legislative
or regulatory action as problematic.
Comment: Western should not interfere with the federalism that has
served our nation well in accommodating the different needs of each
region.
Response: Accommodating regional needs is important to Western. As
a PMA, our mission is very much regional in nature. Western markets
power on a project-specific basis, which allows the crafting of
marketing plans that are responsive to regional needs.
Comment: We understand that the Clinton Administration supports
State implementation of electric utility restructuring, and we are
concerned that Western not impose requirements beyond those required by
California law.
Response: Western has no desire to impose requirements beyond those
required by California law.

C. Policy Diversity

Comments: Retail access has not been uniformly implemented among
the States in Western's service territory. Retail access and utility
restructuring are being addressed to varying degrees on varying
timetables. Restructuring is an evolutionary process and substantial
discretion is left to each State to determine how best to serve their
interests.
Because of the wide variety of approaches being considered or
implemented by the various States in which Western currently has
responsibility for marketing Federal resources, it will be impossible
for Western to have a uniform or equitable approach in each
jurisdiction, even setting aside the issue of Federal/State
relationships.
The States should mold their restructuring plans around Western
rather than Western trying to mold their allocation system around each
State.
Response: Western agrees that adopting a policy that mirrors
evolving State action would be difficult.
Comment: No modification should take place in Western's power
allocations to satisfy the needs created by California's electric
deregulation.
Response: Western does not intend to force California standards on
customers elsewhere in our service territory.
Comment: Western should not set national standards for all of its
projects. The regional nature of Western's projects should be
recognized.
Response: Western will continue to market power on a project-
specific basis, in a manner that is sensitive to regional needs.

D. Yardstick Competition or Distortion of Markets?

Comments: Western's current allocation system should be changed
because competitive wholesale and retail electricity markets make the
inherent market distortions caused by PMA power even greater. It is
patently unfair for the Federal Government to subsidize a few select
players in a competitive market, to be picking winners and losers among
electricity suppliers.
Western's power allocation system should be modified to take into
account industry changes. Under the current scheme, the Federal
Government is essentially stacking the deck against private, taxpaying
utilities and other power generators in favor of subsidized customers
who provide low cost power to a select few. Because the wholesale
market today is already competitive, such a stacking of the deck is
incongruous with the nation's goals as set forth in the Energy Policy
Act of 1992.
Response: Marketing of Federal hydropower to nonprofit public
bodies first is in accordance with law. Although many changes have
taken place in the utility industry in recent years, the policy of not
allowing profit to be made on Federal power resources constructed with
taxpayer dollars remains relevant today.
All successful competitors in the electricity marketplace have
certain competitive advantages, including investor-owned utilities.
Some investor-owned utilities (IOUs) have such attributes as size,
access to capital, economies of scale, greater customer density, use of
investment tax credits, access to tax-exempt bonds for purposes such as
financing pollution control equipment, and favorable tax treatment of
depreciation. Some jurisdictions allow recovery of stranded costs on
favorable terms for IOUs.
Comments: One of the original intents of the Federal power program
was and still is to provide a yardstick to measure competition and
provide a counterbalance to private sector interests. At this time of
restructuring and volatile wholesale prices,

[[Page 34436]]

abandoning that yardstick will leave consumer-owned electric utilities
and their consumers no means of assessing the conditions of the
marketplace.
Equity and a level playing field for all types of utilities clearly
points to a prompt renewal of CVP and CRSP contracts under the 2004
marketing plans at high percentage levels.
Western's allocation policies have helped promote ``yardstick''
competition among utility suppliers. Existing allocation policies have
in large part supported the continued ability of our small municipal
utility systems to provide competitively priced power to all our
consumers, not just a few of the larger consumers as we believe will be
the inevitable result if industry restructuring is mandated at the
Federal or State level.
A recommitment to the original purposes of the Federal power
program will better serve the country and Western's customers. The need
for a yardstick to measure competition is more important than ever.
There has yet to be a demonstration that industry restructuring will
benefit all consumers. Developments in industry restructuring to date
have only benefited a narrow class of customers-large industrial and
commercial loads. Small communities and rural areas--Western's customer
base--may be distinctly disadvantaged by some of the industry changes
that have been proposed.
Response: Western's power allocation policies preserve stability
and competitive balance in the utility business. As small communities
and rural areas are served by a significant portion of our customer
base, Western is cautious about changing its policies to the possible
detriment of consumers in less populated areas.

E. Policy Basis

Comments: Western would be grossly premature in making changes to
address nonexistent or moving targets in restructuring. In addition,
the form of the present California market is undergoing rapid and
unpredictable changes. To modify the present 2004 marketing plan would
be a futile exercise.
Modifying Western's power allocation system based on possible
developments in State legislatures is conjectural and represents a bad
model for policy development. There is no reason to change Western's
power allocation system because of development in the States. State
actions do not compromise Western's role in the electric utility
industry, and in fact may make Western's role more important.
Western should not take into account changes it expects to occur
because of State statutes allowing retail competition. Some States will
not adopt statutes and the statutes that are adopted will not be the
same. Speculation on what the future may hold is not a sound business
practice.
Any initiative which results in Western reducing power allocations
on the speculative assumption that industry restructuring will be
mandated in our State or that it will be good for all consumers in our
State simply exacerbates the seriousness of the resource stability
issue that small municipal utilities are vitally concerned about.
Response: The scope and pace of changes in the utility industry
cannot be predicted with certainty. Adopting significant additional
policy changes today, when the policy debate is fluid and the outcome
is far from certain, is imprudent.
Comment: Changing Western's power allocation policies as suggested
by the question will impede competition and not promote it. The current
merger mania is being fueled by the debate on industry restructuring.
Investor-owned utilities realize that maximizing profits in
restructured markets is dependent on their ability to increase market
share. Any action by Western that detrimentally impacts the ability of
small municipal and rural-based systems to survive and continue to
offer first-rate service at a competitive price will lead to increased
concentration of electric supply in the hands of a few, larger
companies. This does not foster competition, it discourages it.
Confirmation of existing policies and extension of resources will
promote and preserve competition in electric supply markets.
Response: Yardstick competition has added value to the electricity
marketplace. Competition is not served if Western adopts policies that
undermine the diversity of the industry by accelerating the
consolidation of power supply.
Comment: Notwithstanding our belief that Federal law would need to
be changed, we do not believe the policy changes suggested by these
questions are prudent on their face. In general, these policies would
add both instability to and disrupt what is already much uncertainty
related to the future of power supply resources in a time of
deregulation.
Response: Adding instability and disruption to power supply
resources is not sound policy.
Comment: Policy decisions on Western's power should not be made in
a vacuum. Western's policies should be examined in light of other
Federal actions which affect the electric utility industry.
Response: Many public power entities do not purchase power from
Western, so changes in Western's allocation policies have a limited
impact nationally.
Comment: The customers who purchase power from the Southeastern
Power Administration are concerned that DOE would modify the policies
governing the Federal power program to accommodate nascent changes in
retail utility markets in a handful of States. We are unaware of any
evidence that the Federal power program has impeded implementation of
retail competition.
Response: Western believes that the sale of cost-based hydropower
to not-for-profit utilities aids competition in the industry. Far from
undermining competition, diversity of participation stimulates and
strengthens the marketplace.
Comment: The world has changed since the adoption of the Energy
Planning and Management Program in 1995. Modest changes to the rules
would meet the need to address retail wheeling.
Response: Western believes that the changes to its past marketing
and allocation policies, as set forth in the 2004 marketing plans for
the CVP, Washoe, and SLCA/IP, are responsive to changes in the utility
industry.
Comments: Western's Notice of Inquiry has the appearance of
searching for a rationale or justification for changing policy.
We were disappointed to receive the inquiry from Western, as it
seems to be just another attack on public power cloaked in the shroud
of industry restructuring. The questions overlook the fact that public
power and the historical distribution of Western power have fostered
more competition than will likely occur from restructuring.
Response: Western agrees that public power and the marketing of
power by Western have promoted competition in the past, to the benefit
of consumers.
Comments: Western should change its allocation policies, as the
original purpose for preference allocations has changed, and the West
has been electrified. Restructuring demands changes to the existing
allocation scheme.
The PMAs and Tennessee Valley Authority were originally established
during the Great Depression to speed the delivery of electricity to
farms and rural areas and to service municipal utilities. Only 11
percent of rural citizens were receiving the benefits of electric
service at that time. Virtually no

[[Page 34437]]

competition existed among utilities. At that time, IOUs were unable to
finance rural electrification because of the lack of available capital
at affordable rates.
Cost-based PMA power was reserved first for preference entities,
with subsidies seen as tools for promoting economic development.
Economic circumstances in many of these areas have improved
dramatically and the original reasons for creating such subsidized
sales of power no longer exist. Rural America is no longer without
electricity, nor is rural America any poorer than urban America.
Congress established the current allocation system based on the
diversity in electric markets, the cost of owning, operating and
maintaining electric facilities, and the need for the region to access
affordable electric energy. The basis for that decision is as valid
today as when the lights first came on. Electric utility restructuring
will provide little benefit to remote, sparsely populated, and
economically depressed rural areas. The lack of economic activity,
which initially served as a vital deterrent to conventional electric
utility development, is more pervasive today than it was when rural
areas were first evaluated as potential markets for electric energy.
Response: Although electrification of rural America has been
largely accomplished, it is not universal. For example, Western has
received comments during this public process that thousands of
residents on the Navajo Reservation in northern Arizona do not have
electrical service.
As is the case with every utility in the United States, consumers
in Western's service territory vary in their prosperity. Many of
Western's customers serve areas that are economically depressed.
Allocations of Western power are important to economic development in
those regions.
Comment: Western and the other PMAs are in need of an overhaul.
America's needs are different today than they were at the time historic
Reclamation laws were enacted. While the burdens of Federal preference
allocations continue to be shared by all, the benefits appear to flow
only to a few. At a time when both government and industry are trying
to do more with less, it is difficult to find the public interest in a
program where the electricity bills of one select group of citizens are
subsidized to the exclusion of others. At a time when energy
conservation has never been more important, it is difficult to find the
public interest in a scheme where the United States sells electricity
at below market rates, thereby encouraging inefficient use, waste and
unnecessary adverse impacts to our country's natural resources. And at
a time in which the Congress has mandated wholesale competition of
electricity and functional unbundling of generation and transmission,
it is difficult to find the public interest in a program that depends
on vertical integration to support its continuation.
Response: As a regional PMA, the economic benefit of the power sold
by Western is enjoyed by entities in the region. This is not a unique
situation. The economic benefit of other Federal programs is often also
regional in scope, whether the investment is in military bases, mass
transit, national parks, or locks and dams that promote commerce on the
Nation's rivers.
Western is doing more with less. Our staffing levels have been cut
25 percent over the last several years in order to assure that our
power rates remain stable and our goods and services remain marketable.
Moreover, Western's rates are not subsidized. Western markets cost-
based hydroelectric resources, which are relatively inflation resistant
as compared to non-hydro generation due to the absence of fuel costs.
In addition, Western has no responsibility to meet load growth with
relatively expensive additional power. Western's hydropower resources
are reasonably priced due to these factors, and not because of
subsidies.
Western is proud of its record, and the record of its customers, in
conservation and renewable resources. According to the annual reports
from customers pursuant to Western's Integrated Resource Planning (IRP)
regulations, Western's customers avoided in 1998 the equivalent of over
555 megawatts (MW) of supply side resource acquisition due to
investment in demand-side management. Also in 1998, over 1140 MW of
renewable resources were acquired by customers.
The Federal power program does not depend on continuation of
vertical integration. For those customers that embrace separation of
functions, Western will market its power to the function responsible
for service to retail consumers. Yardstick competition will continue to
play an important role in enhancing competition in the marketplace,
with the goal of lowering rates to all consumers.
Comment: We are concerned that any significant changes to Western's
2004 marketing plan may increase uncertainty at a critical time and
lead to increasing government bureaucracy. Changes to Western's
existing power allocation system would likely decrease allocations to
existing customers and cause power rates to consumers served by
Western's customers to rise. Higher electric rates are contrary to the
goals of retail competition.
Response: Western is committed to carrying out its mission in a
businesslike and cost conscious manner. Creation of a government
bureaucracy which adds no value to our programs is inappropriate and
puts upward pressure on Western's rates.

F. Western's Role

Comments: Western has already demonstrated and continues to work to
adapt both its organization and the renewals it is making on contracts
for Federal power, recognizing changes in the industry while at the
same time preserving and respecting its Federally mandated mission.
Western's marketing policies are keeping pace with industry
restructuring. The extensive public process utilized by Western to
develop marketing policy has served its purpose very well.
We feel that the present 2004 CVP marketing plan is the logical
evolution of several predecessor marketing plans. With each stage of
the evolution, the Western system has gained the flexibility which was
sorely needed.
Western's marketing plans already have provisions to adapt Western
to the new marketplace. For example, the CVP 2004 marketing plan offers
unbundled services and allows customers to choose what they need. The
marketing plan is optimized for who Western is and the role they play
in the marketplace.
Western is already responding to industry changes as a wholesale
power supplier. By separating its transmission function from its power
marketing function, posting its surplus transmission on an open access
same time information system site, and participating on the California
Independent System Operator (ISO) governing board, Western has
demonstrated its forward looking approach.
Electricity restructuring is an evolutionary process that will take
many years to complete, and the eventual outcome is uncertain. Western
has taken into account industry restructuring changes in its proposed
marketing plans, which would sell a significantly different resource
from what is marketed today.
Western's power allocation system should be retained in order to
preserve consistency between the past and the future.
Response: Continuation of past policies without taking into account
changes in the utility industry is

[[Page 34438]]

unwise. Western agrees there is risk in predicting the future actions
of Congress, State legislatures, and regulators. However, there is also
risk in not adjusting business practices until there is absolute
certainty.
Western has taken significant steps to respond to industry changes.
Even though Western is not under the jurisdiction of FERC for this
purpose, functional separation of its merchant and reliability
functions has proceeded. Western is actively involved in the formation
of independent system operators, and has taken on the roles of security
coordination in the Rocky Mountain subregion of the Western Systems
Coordinating Council and schedule coordination in northern California.
Open access transmission rates and rates for ancillary services have
been developed. Western has also pursued efficiencies in its operations
and cut its staffing level and associated costs in order to assure that
our rates are stable and our power remains marketable. Western is
committed to being businesslike and responding to the changes in the
utility industry in a responsible and proactive manner.
In recent years, Western has added more flexibility to its power
marketing policies and power sales contracts than has existed in the
past. Contracts recently signed for the Pick-Sloan Missouri Basin
Program-Eastern Division and the Loveland Area Projects contain
withdrawal opportunities at 5 and 10 years to meet the needs of
potential new customers and other purposes as determined by Western.
Western also reserved the contractual ability to adjust power
commitments in response to changes in operations and hydrology. In
addition, Western has the full flexibility to adjust its power rates
under the terms of the contracts. Resource pools of up to 6 percent of
the marketable resource were set aside to meet the needs of new
customers, including Indian tribes. These changes demonstrate Western's
commitment to adjusting its marketing policies as changes take place in
the utility industry.
Western has also made significant additional changes in the way
power is marketed in its most recent marketing plans. Under the 2004
Power Marketing Plan for the SNR, Western will no longer market a
resource that anticipates significant purchasing of power to meet
contractual commitments. Instead, Western plans to market the
hydroelectric resource as a base resource, which can be enhanced by
custom products (such as firming power and ancillary services) at the
election of the customer. Similarly, the marketing plan for the SLCA/IP
will allow the customer to choose whether Western should purchase
firming power. These changes promote customer choice and will
significantly impact Western's future need for purchase power
appropriations.
Comments: Western appears to be pursuing a course of promoting
retail wheeling indirectly even though its sister Federal agency, the
Federal Energy Regulatory Commission, has been prohibited by Congress
from pursuing this course directly in section 212(h) of the Federal
Power Act.
The questions posed by Western appear to be predicated on
assumptions that it has a broad regulatory and legislative authority
and that the impacts of its decisions will be limited. Neither
predicate is accurate. Western's authority is not one of a regulator,
but of a marketer with limited authority.
Do not lose sight of Western's limited statutory role. Investor-
owned utilities and marketers would undoubtedly oppose a shift in
mission from a wholesale supplier to a retail utility.
Industry changes do not justify a more ``activist'' role for the
PMAs. A more active role runs counter to the belief that exists in the
Pacific Northwest, where the four governors engaged in a comprehensive
regional review of the future role of the Bonneville Power
Administration (BPA). The regional review rejected the notion of a more
activist BPA, and made several recommendations to limit the role of
BPA, including a preclusion of direct retail sales beyond existing
direct service customers.
Expanding Western's role to include direct retail sales, rate
regulatory review of consumer-owned utilities and load profile analysis
is unnecessary and inconsistent with the desired reduction in the role
of the PMAs in a competitive marketplace.
Affirmative answers to the six questions would launch Western into
activities that vastly exceed its statutory authority. In the past,
Congress has been clear when it directs an expansion of Western's role
beyond that of a wholesale supplier (such as the IRP) requirement for
Western customers. Congress has not directed Western to take on the
role suggested in the Notice of Inquiry. While BPA has statutory
responsibilities that are greater than Western's, BPA cannot undertake
many of the activities contemplated by the Notice. Moreover, the Public
Power Council would oppose BPA attempting to engage in such activities.
We believe Western's function is for the benefit of the region it
serves. Restructuring along the lines of this Notice of Inquiry could
lead Western to operate outside its boundaries to the detriment of
existing customers and perhaps even create a situation where Federal
agency competes with Federal agency. Western's current responsibilities
for supplying power take into account a number of State and regional
issues dealing with power, but also extend beyond power delivery to
other resource issues such as water management and impacts on the
environment.
Response: Western is persuaded by these comments, and will not
change its general role in the manner suggested by the Allocation
Issues Inquiry. Although Western has broad statutory authority, there
is no compelling policy rationale for Western to become more activist
in its role. The goal of the Clinton Administration, which is to have a
smaller government that works better and costs less, would be undercut
if Western adopts the wide ranging new responsibilities suggested by
the Inquiry.
Comment: Western should not build resources.
Response: Western has no plans to construct new power resources.
Comments: Federal power is marketed in accordance with Reclamation
law. Consequently, the allocation and rate-setting policies of Western
are not identical to the practices of other electric utilities. Federal
Reclamation projects were developed not as a means for the generation
of electricity, but as a means of generating revenues to repay Federal
investment in these projects, including irrigation assistance.
Multipurpose Federal project operation is unique as compared to
other resources that have more flexibility in a competitive power
market to meet individual loads.
Response: Western has less flexibility than other participants in
the competitive marketplace due to the multipurpose nature of the
resources we market. Western agrees that our role is to market power in
such a manner as to repay Federal investment.
Comment: As an agency of the Federal Government, Western is not
subject to deregulation rules promulgated by the FERC. Nor is Western
subject to the jurisdiction of State legislatures or public utility
commissions.
Response: Although the Clinton Administration's restructuring bill
would make Western's transmission rates subject to FERC review as a
matter of law, Western is not a public utility and therefore is not
presently subject to FERC jurisdiction under section 205 and section
206 of the Federal Power Act. However, as a transmitting utility,

[[Page 34439]]

Western is subject to sections 211-213 of the Federal Power Act.
Western is not subject to the jurisdiction of State legislatures or
public utility commissions.

G. Customer Support, Leadership and Reliance

Comment: The Natural Resources Defense Council (NRDC) applauds the
good stewardship example that has been set by northern California
customers of the Central Valley Project. In our judgment, that record
justifies both renewal of these customers' contracts and your
insistence that other customers meet the same high standard in return
for contract extensions.
In an increasingly competitive and environmentally constrained
industry, access to inexpensive power supplies should be limited to
distribution companies that make convincing commitments to use
electricity efficiently and to expand inventories of relatively benign
production. This is precisely what we have seen from the Sacramento
Municipal Utility District (SMUD), City of Redding Electric Department,
Silicon Valley Power, City of Palo Alto Department of Utilities, and
the Northern California Power Agency. These institutions have made
three overriding commitments: (1) Through 2001 at least, they will
devote at least 3 percent of retail electric revenues to long-term
investments in energy efficiency, renewable energy, and low-income
energy services; (2) after 2001, they will at least match California
investor-owned utilities' investments in these categories as a fraction
of retail sales; and (3) they will annually underwrite and publish
independent experts' reviews of all such investments. Those commitments
place these northern California institutions in the forefront of public
power nationally and amply justify a contract extension.
Response: Western appreciates the support of the SNR 2004 marketing
plan by NRDC.
Comment: Central Valley Project customers have paid for substantial
environmental restoration on the CVP. Moreover, the consumer-owned
municipal utilities served by the CVP have paid more than $20 million
to repair and upgrade the Federally owned power generating facilities
(including the funding of the Shasta temperature control device, the
Shasta rewind project, and CVP maintenance) to ensure their continued
reliability and value without the need for Federal appropriations. The
availability of this resource has been vital to the implementation of
many cutting edge environmental improvements that currently benefit the
citizens of California.
Response: Western agrees that CVP customers have paid for
substantial environmental restoration and improvement in northern
California. The 2004 marketing plan provides stability in the
collection of mitigation funds for the benefit of environmental
resources in California's Central Valley.
Comments: The CVP allocation is essential to SMUD's ability to
continue providing reliable, affordable electricity to its consumers.
It also makes possible SMUD's leadership role in energy efficiency and
renewable resource programs. The assurance of CVP allocations has also
been critical to the implementation of many cutting edge environmental
improvements that benefit citizens of my congressional district.
Along with other Northern California Power Agency (NCPA) customers,
we have made significant commitments to renewable resources that would
not have been feasible without the CVP contracts. Loss of these
contracts would make further commitments unlikely as well as jeopardize
the stability of existing commitments.
Response: Western's power customers in northern California are
leaders in the development of energy efficiency and renewable
resources. Western agrees that renewable resource commitments might be
adversely impacted if CVP contracts with existing customers did not
continue.
Comments: Current CRSP power customers have contributed
substantially to environmental protection programs and providing
revenues for the Glen Canyon Monitoring and Research Center (GCMRC).
Approximately 8-10 percent of CRSP rates fund environmental programs,
such as the Upper Basin Recovery Implementation Plan and the GCMRC.
This significant contribution, as well as customer commitments to
integrated resource plans, demonstrates the commitment of CRSP firm
power customers to environmental mitigation.
We could support the extension of SLCA/IP resources to existing
customers if they were to support such ideas as renewable and energy
efficiency investments, embracing green marketing to interested retail
customers, supporting codification of funding commitments for
mitigating the environmental impacts associated with the operation of
Federal hydroelectric facilities, and agreeing to provisions that
ensure that contract extension language will not impede dam
reoperation.
Response: Western agrees that a significant portion of CRSP power
revenues are used for environmental mitigation, monitoring, and
research, all of which benefit the environment. Over $160 million in
environmental costs, including purchased power required by experimental
flows, have been funded by CRSP power customers through 1998. Now that
operations at Glen Canyon Dam have been permanently changed to benefit
downstream natural resources, the cost to replace the lost electrical
power caused by this change is estimated to be in excess of $44 million
annually, and could approach double that amount. In addition to the
cost associated with lost electric power, there is a long-term
monitoring and research program funded by power revenues which is
anticipated to cost about $7,600,000 annually.
Capital funding of Upper Colorado River Basin endangered fish
recovery is expected to cost about $17 million. Research funding for
these same fish species is expected to cost $6 million per year. These
costs are funded by CRSP power contractors. Moreover, additional
purchase power expenses resulting from operational changes at Flaming
Gorge Dam to benefit these fish are expected to total about $15 million
over the next 5 years.
Purchasers of CRSP power have also had a positive record in energy
efficiency and renewables. In 1998, CRSP customers realized over
138,000 megawatthours (MWh) in energy savings due to demand-side
management investment. In excess of 692,000 MWh were generated from
renewable resources in 1998 due to the investments of CRSP customers.
In addition, contract language has been developed to assure that
dam reoperation will not be impeded by the extension of SLCA/IP
resources. Firm power contracts will flexibly accommodate changes in
operations, pursuant to the principles set forth in the EPAMP, 10 CFR
part 905.
CRSP customers have supported environmental goals in the upper
Colorado River Basin through significant direct funding and have paid,
through higher power rates, for the loss of revenues attributable to
environmentally beneficial changes in dam operations. In addition,
their support of energy efficiency and renewable resources has been
significant.
Comment: Existing customers have done IRP, now the Federal
government should recognize the quid pro quo.
Response: Western agrees that existing customers have achieved
environmental and economic benefits through preparation and
implementation of integrated resource

[[Page 34440]]

plans as well as historic conservation and renewable energy activities.
Comment: Federal power allocations are the cornerstone of many
consumer-owned electric systems. Many entities have acquired their
entire complement of resources assuming the long-term availability of
the core hydropower resource. Customers have planned their resource
portfolios around their Western allocations. Some customers have made
significant investments in transmission to deliver Western's power.
Response: Western agrees that economic dislocation would occur if
resource commitments to existing customers were substantially
withdrawn. Western and its customers have constructed high-voltage
transmission to deliver power to existing customers, which could not be
used for delivery of Federal power if allocation patterns were
significantly changed.
Comment: Each resource from which Western allocates power should be
analyzed separately with due consideration given to original
participants. The history of purchases and the past level of commitment
by existing customers need to be recognized.
Response: Through its project-specific marketing plans, Western
analyzes how power should best be sold to meet regional needs. The past
level of commitment is being recognized through the extension of a
major portion of the resource to existing customers.
Comment: Western's historical power users have an equitable, if not
a legal, interest in the hydroelectric systems providing the capacity
and energy that Western markets. Just as the Bureau of Reclamation's
water customers earn an equitable interest in the water rights held by
Reclamation by paying for the irrigation systems, Western's historical
customers have developed an equitable right to rely on the supply of
power for which they have paid. Before the DOE attempts to reallocate
the benefits of the Federal power system according to any of the new
policies discussed in the Notice of Inquiry, it ought to reallocate
system costs to reflect the contribution of current power users.
Response: Western's existing customers have no right to purchase
power from Western in the absence of a contract. While equity is a
consideration in the marketing of power by Western, customers have no
equitable or legal right to purchase power beyond the term of existing
power sales arrangements. There is no need to reallocate system costs,
as the new policies suggested in the Notice of Inquiry are not being
generally adopted by Western.
Comment: CRSP hydropower is a clean, renewable resource in which we
invested when coal-fired generation was less expensive, but CRSP
participation was needed.
Response: Western recognizes that many customers committed to the
Federal power program at a time when other alternatives were less
expensive. This historic support is appreciated.
Comments: Western's preference customers meet or exceed the goals
of California's deregulation law and Federal proposals, which address
reliability issues, independent system operator formation, market power
issues, environmental mitigation, and open access. Peer review by NRDC
of our public goods and environmental investments has demonstrated the
progressive nature of public power in northern California.
Consumer-owned utilities have provided competition and impetus for
open transmission access, and continue to be leaders in renewable and
efficiency accomplishments in the utility industry. It would be
inappropriate to threaten these worthy achievements by making adverse
changes to their Western power supply, and thus upset the competitive
balance that now exists between municipal utilities and other energy
providers.
Our power authority continues to be a leader in environmentally
friendly power generation, with a nationally recognized wind power
project, a photovoltaic demonstration project and one of the nation's
cleanest coal-fired power plants.
Response: Western agrees that many of its customers have been
leaders in the deregulation of the electric power industry and have
demonstrated their concern for the environment through action despite
the increasingly competitive nature of the electricity marketplace.
Comments: The CVP has been a model to emulate in the utilization of
the public's natural resources for the public good. The partnership
between the United States and local entities has been mutually
beneficial and should be continued. Continued access to the CVP power
resources is essential to achieving the goals of electric industry
restructuring--low electric rates for consumers.
Our water district and customers have worked in partnership with
Western to promote economic and environmental interests. Any changes to
the proposed 2004 marketing plan will only increase government costs
and bureaucracy.
Response: Partnerships with customers have been invaluable to the
success of the Federal power program.

H. Small Customer/Rural Impact

Comments: Under the State restructuring statutes adopted to date,
there has been no indication that small customers have benefitted other
than by legislatively mandated rate reductions required in the
legislation itself, rather than as a consequence of restructuring
itself. To the contrary, indications are that retail residential and
small business customers are not being pursued by energy marketers.
Experience with deregulation in other industries has shown that
smaller communities and rural areas generally do not share in the
benefits of deregulation and are often harmed through the loss of
service providers. This has clearly been the case with the airlines,
trucking, railroad, and long-haul bus services. Telecommunications is
another area where urban consumers have enjoyed the benefits of new
technology before rural areas. Because of their population densities, a
restructured electric industry may present smaller communities and
rural areas with the same types of defection by service providers and/
or absence of competitive benefits.
Every indication to date is that State restructuring has not
achieved the anticipated benefits. It has instead led to mergers of
large utilities, the sale of generating assets based on a belief that
only large utilities can successfully compete in the marketplace, and a
lack of interest by new energy suppliers in serving retail residential
and small business markets.
Response: Part of Western's mission is to provide the economic
benefits of cost-based Federal hydropower to rural America. Western
declines to change its policies in a manner that has significant
adverse impacts on public power customers.

I. FERC Licenses

Comment: FERC recently renewed the hydroelectric licenses in the
Feather River Canyon held by investor-owned utilities without any
competitive process. As a matter of fairness and equity, we would hope
the customer-owned systems are treated in the same fashion. Renewals of
the CVP contracts as proposed will help maintain the balance between
investor and customer owned utilities in the region.
Response: The renewal of a FERC license appears to be comparable to
the situation facing Western's existing customers at the end of their
contracts for the purchase of power from Western.

[[Page 34441]]

The extension of FERC licenses lacks the flexibilities contained in
Western's 2004 marketing plans, such as the reservation of power for
new customers.
Comment: We think it very important to note that the investor-owned
utilities were granted virtually perpetual FERC licenses in 1986
through the poorly named ``Ratepayer Protection Act.'' The theory was
that the savings were being passed on to the ratepayers. In 1998,
Pacific Gas & Electric Company (PG&E) announced plans to sell off these
plants for close to $2 billion. PG&E is asking to be allowed to keep
massive benefits that were supposed to be passed on to ratepayers. At
the same time, CVP and CRSP customers are being challenged on our use
of Western power, when we are passing on the benefits to our member-
owners in a nonprofit fashion.
Response: Hydropower is a very capital-intensive resource that has
no fuel costs, so it tends to be an economical and desirable resource
in a utility's resource mix. FERC-licensed hydropower is a low cost
resource, but its value is not always apparent as it is blended with
other power resources of the licensee rather than being marketed on a
stand-alone basis.

J. Term of Contract

Comment: A 20-year contract term is appropriate. Twenty year
contracts have already been offered from the Pick-Sloan Missouri Basin
Program-Eastern Division and the Loveland Area Projects. Regional
equity calls for contract renewal for the remaining Federal hydropower
projects. Twenty years is shorter than the 30-year contract term for
the Boulder Canyon Project.
Response: In addition to the precedent cited in public comments,
contracts for the sale of Central Valley Project power have variable
terms, with the longest contract approaching 40 years in length.
Precedent exists within Western that supports 20-year contract
terms. Regional equity is served by offering 20-year resource
extensions to existing customers of the CVP and SLCA/IP.
Comment: The Southeastern Power Administration recently entered
into 20-year power contracts. FERC licenses for hydropower generation
have historically been granted for 30-50 years, a much longer time
period than what Western is proposing here. We note that the Bonneville
Power Administration has recently proposed a 20-year term for its post
2001 contracts.
Response: Precedent exists outside of Western for 20-year or longer
power commitments, both for the Southeastern Power Administration and
FERC licensees. The term of contract for Bonneville Power
Administration power varies depending on the type of service a customer
selects.
Comment: Contract terms under EPAMP, and as described in the
December 1 Federal Register notice, are sufficiently flexible to
justify a 20-year contract term. Western has already shown the
flexibility necessary to accommodate changes in the industry while
preserving its traditional mission. A 20-year contract term, with some
flexibility for Western and its customers, would provide an adequate
and stable environment for power marketing.
Response: Western's power sales contracts under the proposed 2004
marketing plans offer more flexibility to Western and its customers
than in the past.
Comments: Twenty-year contracts represent a meaningful planning
horizon and support the customer preparation of substantive integrated
resource plans. Shortening the contract term would undermine our
members' ability to do necessary resource planning, including further
development of renewable resources. Western's Environmental Impact
Statement (EIS) on EPAMP demonstrated that longer term contracts have a
positive impact on the environment.
The proposed 20-year contract term for contract renewals is
appropriate. Our town has planned its resource portfolio around the CVP
allocation, and shortening the contract term would undermine our
ability to perform quality planning, including further development of
renewable resources. Certainty of the CVP resource has become even more
crucial as we make the transition into the restructured industry.
Response: The EPAMP EIS predicted environmental benefits from
longer term contracts, as customer investments in renewable resources
and energy efficiency are more likely to occur when a stable foundation
of Western hydropower exists. Integrated resource planning is enhanced
when contracts provide a meaningful planning horizon. Many customers
have planned their resource mix around Western's allocations.
Comment: Not one of the hosts of compromises and consensuses made
during the development of the industry's restructuring in California
included a change in Western's allocation process, nor did they include
the possibility of Western's contracts being short term. With the
expectation of long-term contracts, as promised in the EPAMP process,
many public power utilities participated in and supported the
restructuring effort.
Response: Western has no reason to doubt this statement.
Comment: Western may want to consider shorter terms for future
contracts, or off ramps at set periods of time, where the option exists
for portions of the contract to be open for renegotiation.
Response: Shorter term contracts would increase the amount of
Western, customer, and public time and resources spent on marketing
plan development. Given the recent history of lengthy public processes
in the development of Western's marketing plans, the better policy
direction is to decrease the time spent on marketing plans.
Western has built flexibility into its contracts already by
allowing for resource adjustments in response to changes in power
operations, hydrology, and project use development, which is typically
water pumping load. Power can be withdrawn to meet the needs of
potential new customers for most of Western's projects. Rates can be
adjusted without limitation. Given this flexibility, Western sees no
need to enter into contracts with a shorter term.
Comment: The contract term should be shortened to reflect the new
marketplace. New entrants to the electricity market and the increased
ability and desire of customers to choose their own supplier--or be
their own supplier--means Western should be prepared to keep its
options open and allow its customers to do the same. Long-term supply
contracts prevent Western from responding to changing conditions.
Offering contracts with varying terms may offer the best deal for
Western and its customers.
Response: Western's customers have the flexibility to terminate
purchases from Western when a rate adjustment takes place. This
preserves customer flexibility. Western has withdrawn power from
existing customers to meet the needs of new customers, and has reserved
the right to withdraw additional power for new customers and other
purposes even after its power sales contracts become effective. In
addition, Western's power sales contracts already expire on different
dates, depending on the project from which Western is marketing power.
CVP and SLCA/IP contracts expire in the year 2004, while Parker-Davis
Project contracts expire in 2008, Boulder Canyon Project contracts
expire in 2017, Pick-Sloan Missouri Basin Program-Eastern Division
contracts expire in the year 2020 and Loveland Area Projects contracts
expire in the year 2024.

[[Page 34442]]

Comments: The current allocation system should be changed. The
development of competitive wholesale and retail electricity markets as
a result of electric restructuring increases the inherent market
distortions caused by low-cost hydroelectric power provided by the
PMAs. We believe that no PMA firm power contract should be longer than
5 years.
Since today's electricity market is in flux and is being
restructured, it makes no sense for the Federal Government, or even any
business, to sign 20-year contracts. The uncertain size and nature of
future electric loads have led the private sector to accept contracts
lasting no more than 5 years. Even if its contracts have withdrawal
opportunities and rate flexibility, Western should not tie up its
resources for any period longer than that done by the private sector.
Protecting the status quo is unresponsive to the new electricity
industry and the Federal taxpayer.
Response: Western notes that at least one power marketer has
identified a competitive advantage in longer term contracts, and has
run advertising promising peace of mind with a decade of locked-in,
long-term energy prices. As is the case in the competitive marketplace,
our customers can choose to enter into long-term arrangements (albeit
without any guarantee of price from Western) or acquire power from
others under either long-term or short-term arrangements. Far from
protecting the status quo, Western is building flexibility into its
contracts and marketing policies.
Comments: Lengthy Western contracts would ignore the very
inequities posed by taxpayer subsidies to select electricity users.
Those subsidies to Western, which are substantial according to the
General Accounting Office and the Congressional Budget Office, distort
the market, discourage efficiency, and waste taxpayer dollars. To
extend power sales contracts for 20 years would compromise the ability
of Congress and the administration to reform Western's operations and/
or to spin Western assets off to non-Federal interests.
We urge you to consider changes in the electric utility industry as
marketing plans are developed. Congress is actively considering
legislation that would restructure the industry. Competition in this
industry is vibrant and expanding. To date, 18 States have approved
plans for retail competition, and every State is considering these
issues. In this environment, Western and the other PMAs should not
enter into long-term contracts that would deprive both Congress and the
States of the flexibility to shape the emerging competitive electricity
market.
Response: Western's rates are not subsidized. Current interest
rates are charged on new investment, and recovery of costs that are not
used in the production of power (such as salinity control and
irrigation assistance) is required in Western's rates. Western's rates
are reasonable because hydroelectric generation has no fuel costs. As
the generation marketed by Western has been in service for many years,
much of the original investment has been repaid. Moreover, Western does
not have the responsibility to meet load growth through acquisition of
more expensive additional resources.
Congress certainly has the ability to consider changes to Western's
business practices or privatization. However, Western needs to carry
out its mission and market power in accordance with existing law.
Waiting for Congress to enact legislation deregulating the electric
utility industry, let alone dealing with the future of the PMAs, is
imprudent. There is no way to accurately predict whether and when any
changes might take place.
Comment: Operation, maintenance, and repayment of Reclamation
projects are critical items. Recognizing that power revenues are a
significant source of revenue, it is imperative that the power
contracts have a term of sufficient length to assure orderly repayment
and support appropriate operation and maintenance decisions. An
adequate time period is required to implement decisions and recover the
costs associated with major maintenance work that incurs significant
cost. Otherwise the work is vulnerable without commitments for funding
and assurance to the power contractor that they will recover their
investment during the contract period.
Response: Western agrees that shorter term contracts jeopardize
customer financing of project operation and maintenance. Without
customer financing, requests for appropriations will likely increase.
Comment: The Energy Planning and Management Program established 20
years as a floor.
Response: EPAMP established 20-year power sales contracts as a
precedent, not a floor.
Comment: Twenty years is too long for tribes to be condemned to
wait.
Response: Tribes are not being asked to wait. They can start
receiving the benefits of cost-based hydroelectric power in 2000 from
the Pick-Sloan Missouri Basin Program-Eastern Division and in 2004 from
the Loveland Area Projects, the Salt Lake City Area Integrated
Projects, and the Central Valley and Washoe Projects. Additional
resource pool increments will be available for allocation to new
customers 5 and 10 years into the 20-year contract terms for the Pick-
Sloan Missouri Basin Program-Eastern Division and the Loveland Area
Projects, and 10 years into the 20-year contract term for the Central
Valley and Washoe Projects.
Comment: Adjusting the length of power contracts in an effort to
affect retail markets may have unintended consequences. Shorter power
contract terms, which increase the frequency by which customers can
compare Western's cost-based products with market alternatives, may
result in marketing volatility that threatens its ability to meet
Treasury obligations if near or above-market Western rates encourage
customer flight.
Response: Western agrees that marketing volatility and risk of
nonrepayment to the Treasury increases with shorter term contracts.
Comment: Long-term resource and rate stability is important not
only to our customers, but also to our ability to meet the
environmentally important integrated resource planning requirements of
Western.
Response: The EPAMP EIS found that long-term contracts are
beneficial to the environment. Short-term contracts cause customers to
focus on the uncertainty surrounding the Western resource, rather than
looking to implementation of cost-effective energy efficiency and
demand-side management to meet future needs. Short-term contracts could
be a disincentive to the implementation of environmentally beneficial
project improvements in support of the Clinton Administration's climate
control action plan. Twenty-year contracts balance the environmental
benefits associated with long-term resource certainty against the need
for flexibility to respond to changing circumstances over time.

K. Legal Issues

Comment: Until such time as Congress enacts Federal retail
competition legislation, Western should not change its existing
policies. The Clinton Administration has not proposed to change
Western's existing mission in its electric utility industry
restructuring bill.
Response: Western's core mission remains unchanged in the absence
of legislation from Congress.
Comment: Western's Energy Planning and Management Program has
already received congressional scrutiny. Some members of Congress
opposed the contract extension portion of Western's

[[Page 34443]]

program and unsuccessfully attempted to have it legislatively curtailed
or erased. Therefore, there is no barrier to the extension of resource
commitments to existing customers in accordance with EPAMP.
Response: The Energy Policy Act of 1992 contains no congressional
barrier to the extension of resource commitments to existing customers.
Comment: Western's allocation policies are far too important to be
substantially altered--as this Federal Register notice strongly
suggests--without congressional action. Indeed, much of the policy
might not be able to be changed without congressional action.
Response: No policy changes will be made that are not allowed by
existing law.
Comment: Western has no authority to compete at the retail level.
Response: Western has broad legal authority to sell Federal power
pursuant to statutory and case law. No Federal law prohibits Western
from selling directly to nonutilities.
Comment: As the Second Circuit Court of Appeals has held, Congress
believed that all interests can best be served by giving the local
entities the right to decide on the ultimate retail distribution of the
preference power sold to them. This belief was founded in the so-called
``yardstick competition'' principle, which assumes that if municipal
entities are supplied with cheap hydropower, their lower competitive
rates will force the private utilities to reduce their rates, with
resulting benefits for all. It is not for FERC or the courts to second
guess that basic determination.
Response: The cited Second Circuit case interprets the Niagara
Project Power Act, which gives preference to public bodies and
nonprofit cooperatives within economic transmission distance of certain
hydroelectric facilities in the State of New York. In that litigation,
the court limited the statutory definition of ``public body'' to
publicly-owned entities capable of selling and distributing power
directly to consumers.
Western's marketing authority is broader than that defined by the
Niagara Project Power Act. Reclamation law allows Western to market to
municipal utilities, rural electric cooperatives, public corporations
and agencies, nonprofit organizations, Federal agencies, State
agencies, and Native American tribes.
Comment: The legal problems associated with a change from the
existing power allocation system are numerous. If changes are
attempted, legal challenges lasting for years will be triggered. As the
EPAMP and 2004 marketing plan processes have already been ongoing for
years, there is a need to adopt a lawful marketing plan and allocations
expeditiously.
Response: Western's marketing plans will be lawful.
Comment: Under the Trinity River Division Act of 1955, Congress
intended to provide the Trinity Public Utilities District a perpetual
right to certain Western energy. The draft 2004 CVP marketing plan
contains provisions toward that end, and should be approved.
Response: The Trinity River Division Act of 1955 provides certain
rights to preference customers in California's Trinity County. The 2004
marketing plan for the Central Valley and Washoe Projects will carry
out the requirements of this law.
Comment: Congress has not been receptive to fundamental changes to
the PMAs. For example, Congress recently reaffirmed its ban on studying
the sale of the power marketing administrations.
Response: While some members of Congress have proposed the sale of
the PMAs or significant changes to their missions, many others support
the continuation of the PMAs and their existing programs.
Comment: The enactment of California AB 1890 did not, and was
specifically not meant to, disrupt the long-term contractual
relationship that California entities have for hydropower. The CVP
marketing plan was developed at the same time as the California public
utility commission restructuring plans which were incorporated into AB
1890. In fact, provisions of AB 1890 specifically provide for the
delivery of preference power purchased from the Federal PMAs. Retail
competition is just the most recent in a long line of changes to the
increasingly competitive electric industry. The present power
allocation system has been very effective in keeping pace with those
changes.
Response: As a Federal entity, Western is not bound by the
provisions of AB 1890. Western agrees that AB 1890 did not intend to
impact Western's preexisting power sales contracts for the Central
Valley Project.
Comment: California municipal utilities already fully comply with
the requirements of AB 1890 and have even voluntarily agreed to
independent verification of their programs. Western should not
superimpose additional conditions on California public power utilities
that were not intended when AB 1890 was enacted.
Response: Western agrees that many public power utilities are
voluntarily complying with AB 1890. Adding conditions not intended by
the California State Legislature would not be consistent with the
policy of the Clinton Administration.

L. Existing Contracts

Comment: Western should honor existing obligations and contracts.
Western should assure that the distribution of costs and benefits
remains equitable and does not inadvertently harm existing contract
holders. For example, distribution of costs based upon some criteria
contained in existing contracts but not applicable to new participants
may require amendments to those contracts, to avoid an inequitable
distribution of costs.
Response: Western has every intention of honoring existing
obligations and contracts. Western also intends to assure that the
equitable distribution of costs and benefits will continue.
Comment: A basic element of the State of California's restructuring
legislation, AB 1890, was that existing contractual relationships, such
as CVP power contracts, would not be impacted.
Response: Western agrees that AB 1890 did not intend to impact
Western's preexisting power sales contracts for the Central Valley
Project.

M. Need To Complete Process Quickly

Comments: The 2004 marketing plans should be approved in a timely
manner. Western has already invested considerable time and effort in
lengthy public processes and environmental evaluations for the Energy
Planning and Management Program and the project-specific marketing
efforts for the Salt Lake City Area Integrated Projects, the Central
Valley Project, and the Washoe Project. There is no compelling reason
to undertake another lengthy process prior to approval of the plans.
Our tribal utility would greatly benefit from an extension of
Western's resources as quickly as possible.
Western needs to approve the marketing plans quickly, as it takes
time to negotiate contracts and acquire replacement resources. The
contractual process for Pick-Sloan Missouri Basin Program-Eastern
Division power started in 1995, and is still incomplete.
CVP customers are eager to sign power contracts, as they need to
know the status of future resources to make choices on issues such as
stranded costs, adoption of customer choice, and planning for
replacement power.

[[Page 34444]]

Marketing plans should not be held up while the restructuring
evolution takes place across the several States served by CRSP and CVP
power. Five years' notice is necessary to allow resource plan
adjustments if significant changes are planned.
Swift approval of the 2004 marketing plans and renewal of the
contracts will ensure that the ``win-win'' relationship between Western
and its customers will continue. Western's customers need sufficient
advance notice of power allocations to allow for electric resource
planning.
We support the approval of the 2004 marketing plan as a document
reflecting significant compromise and feel that DOE should recognize
the long public process conducted in its development.
Reopening the public process seems not only duplicative but places
in question the credibility of such processes and perhaps even Western
itself. It is essential that public processes be respected rather than
manipulated. Any further review would be redundant and waste the
taxpayer's money.
We are extremely disappointed that Western must regress to this
unnecessary process, as we believe Western adequately addressed
restructuring in preparing its 2004 power marketing plan. The CVP 2004
marketing plan is significantly different from the current plan and is
fully adaptable to the newly restructured utility industry.
If Western would spend as much time developing new resources or
resource improvement as it does on public processes, maybe they would
have something to market without withdrawing from existing, long-served
preference customers.
Response: Western agrees that the time has come to finish pending
marketing plans for the Central Valley, Washoe, and Salt Lake City Area
Integrated Projects.
Comments: The delay in approval of Western's 2004 marketing plan is
resulting in negative impacts to the relationship that Reclamation and
Western have worked to achieve and maintain with the public power
industry. Western and Reclamation entered into funding arrangements
with the long-term firm power customers in order to reduce the level of
appropriations needed from Congress. Delay of marketing plan approval
may cause customers to withdraw from funding long-term projects. Power
customers would also be unwilling to fund long-term capital improvement
projects if they cannot be assured that they will receive the benefits
of the improvements. This would negatively impact repayment and the
overall power marketing function.
The contract uncertainty created by lack of approval of the CVP
marketing plan is manifesting itself in customer reluctance to fund
improvements with payback periods beyond the current contract term. The
result is lost economic opportunities and lost opportunities to reduce
greenhouse gas emissions.
Response: Western does not want to jeopardize customer funding of
long-term projects beneficial to the operation of power generation.

N. Ability To Compete

Comments: Hidden in this question is the thought that Western
should dabble in retail markets and participate in a bidding war.
Western is not a big enough player to be effective in the retail
market. Since Western has little, if any, energy to sell in the open
market to other than preference entities, there should be no change in
Western's power allocation approach.
The majority of CRSP wholesale customers are small, rural and often
Indian communities with marginal economic situations that will add
nothing to enhance regional competition.
Response: Western's ability to impact the marketplace is limited
due to our relatively narrow mission and the size of our resources as
compared to the size of the electricity marketplace. Western has no
intent to enter the retail marketplace in a substantial manner.

O. Repayment

Comments: CRSP power customers are repaying their debt ahead of
schedule under long-term contracts that were negotiated at a time when
CRSP power was higher than other sources. A shorter contract term
increases the risk that the Federal investment will not be repaid on
time.
Power revenues repay Federal debt for CRSP hydropower facilities,
pay for the CRSP power program's annual operation, interest and
replacement costs, and assist in the repayment of 95 percent of the
project's irrigation costs.
CVP power sales have repaid over 70 percent of the Federal debt
allocated to power so far, and will completely repay the power debt in
the upcoming contract term, allowing Western to commence repayment of
Federal debt allocated to irrigation which may otherwise not be repaid.
Clearly the public interest is best served by renewing this
partnership, not disturbing it.
Long-term contracts offer stability and value to both Western and
its customers. Preference customers have repaid Federal debt ahead of
schedule, furnished irrigation assistance, adopted and promoted
environmental programs, and provided up-front funding of O&M expense.
Response: Western agrees that debt for both the Central Valley
Project and the Salt Lake City Area Integrated Projects is being repaid
ahead of schedule. Shorter term contracts increase Western's exposure
to the volatility of the marketplace and may increase the risk of
nonrepayment to the Treasury.
Comments: Given current uncertainties in the electricity
marketplace, and the tremendous financial exposure to the taxpayers
that unrepaid investment represents, it is responsible and beneficial
for the United States to secure the repayment of investment with a
long-term extension of Western's firm electric service contracts. The
existing power allocation system works well, and has proven to provide
a reliable revenue stream that assures repayment of multipurpose water
projects, including irrigation aid. Do not jeopardize the repayment
guarantee under existing contracts.
Western should not pursue a role that would create economic risk
for the Federal Government (such as becoming a competitive generating
agency) or would position the Federal Government to compete at retail
against publicly and privately-owned utilities and other market
participants.
The Federal Government also benefits from long-term, 20-year
contracts by assuring revenues for project repayment with well-
established customers without exposure to the volatility of the
evolving marketplace.
Response: Western agrees that long-term contracts mitigate the
market volatility that would otherwise exist.
There is no repayment guarantee under existing power sales
contracts, as customers have the right to opt out whenever a rate
adjustment occurs. However, few customers have exercised this
contractual right, due in part to Western's control of costs and
commitment to rate stability. Although power revenues associated with
hydroelectric resources vary depending on water availability, power
sales contract certainty has contributed to relatively steady repayment
to the Treasury.
Western believes there are advantages to marketing power to well-
established customers with a positive record for payment of bills in a
timely manner. Some new participants in the deregulated industry have
defaulted on

[[Page 34445]]

their obligations. In addition, Western believes that retail customers
are more likely to switch power suppliers than wholesale customers,
which would cause fluctuations in the revenue stream that is used to
repay the multipurpose projects from which Western markets power.

P. Tribal Issues

Comment: Tribes are eligible preference customers. Most tribes are
interested in receiving an allocation of power from Western. A useable
allocation of Western power makes the difference in accomplishing
economic development.
Response: Western agrees that tribes are eligible preference
entities.
Comment: Western has a trust responsibility to the Indian tribes
within its service territory. This is a different and greater
responsibility than Western has to its current customers. In destroying
traditional tribal economies, the Federal Government accepted a
responsibility to assist and allow tribes to create new economies that
are equal to the standards of living of other Americans.
Response: Western supports the DOE's Indian policy, which stresses
the need for a government-to-government, trust-based relationship. The
key theme throughout the Department's policy is consultation with
tribal governments so that tribal rights and concerns are considered
prior to action being taken. Western has met with Indian tribes and
tribal representatives throughout the Energy Planning and Management
Program's public process. Western also has met informally on a number
of occasions with tribes since completion of EPAMP, both in the
Missouri River Basin and in New Mexico and Arizona. In February of
1999, Western held informational meetings in Phoenix, Arizona,
Albuquerque, New Mexico, and Folsom, California, to engage in dialogue
with Native Americans on Western's power marketing programs. A 30-day
comment period also took place in February to receive additional public
input on the size of project-specific resource pools necessary to meet
the fair share needs of new customers, including Native Americans. An
informal meeting in Albuquerque in May of 1999 allowed additional
consultation between Western and the Council of Energy Resource Tribes.
Western believes that its consultation with tribes has been meaningful
and substantive, and will continue at a high level in the future.
Comment: Western must help tribes to become ready, willing, and
able. Western should help tribes to negotiate to obtain electric
utility status.
Response: Western plans to allocate power to tribes and assist the
tribes in obtaining delivery of the benefits of their allocations. As
tribes need not form utilities to receive an allocation of power,
Western is neutral on whether tribes should form utilities to meet
electricity needs on the reservation. Technical and financial
assistance to a tribe in support of utility formation may be available
from the DOE or some other agency of the United States Government.
Comments: Access to electric service is a major issue for tribes
and the people living within reservation boundaries. Some reservation
residents have no electric service, while others have service that is
high priced and of lower reliability than service off the reservation.
Western's power allocation system should be modified to take into
account all regulatory changes, including those which allow Indian
tribes and others open access to transmission and, therefore, greater
access to Western's power and the power of others.
Response: Open transmission access at the wholesale level should
make it easier for Western's allocations of power to be delivered to
customers. Western is committed to working with the tribes and
interested third parties to assure that Native Americans receive the
benefit of allocations from Western.
Comment: Tribes are in the process of establishing vehicles for
making utility choices. These vehicles will sometimes be utilities, and
should be given full recognition by Western in its policy making and
power allocations. Even if tribes do not form utilities, Western should
allocate power directly to Indian tribal governmental loads such as
government buildings, tribally owned economic activities, and public
tribal housing and schools.
Response: Western intends to allocate power to eligible tribes
whether they form utilities or not.
Comment: We believe that the historic marketing plans of Western
are too lengthy, expensive and, therefore, too preclusive for small
entities such as tribes.
Response: Under the Administrative Procedure Act, Western seeks
public involvement and input on its marketing plans. Western agrees
that its recent public processes have been lengthy. However, we believe
it important that our processes allow for the involvement of small
entities such as Native American tribes.
Comments: We believe the current power allocation program would
greatly assist our five tribes in attaining an allocation of CRSP power
and having certainty of that power as a resource in the future once an
allocation is attained.
The current program with the specific language provided in the
final EPAMP regulations, which provides for preference to small Indian
communities, is more than adequate to assure our Indian communities can
attain some of this power efficiently. Our tribes believe the contract
extension policy is a sound business practice because once we receive
an allocation, we should be able to plan on receiving it for many years
to come. This would allow small Indian communities to receive a
tremendous economic benefit.
Response: Western agrees that a potentially large economic benefit
can be derived from an allocation of Federal hydropower, especially
over the term of a 20-year firm-power contract. However, other costs
associated with the delivery of Western's power could have a
considerable impact on the size of any benefit, such as the cost of
transmission service, supplemental power supply, and ancillary
services.
Comment: The present power allocation system should be modified
substantially to recognize the needs of the Indian tribes and its
agencies the same as that accorded the States, municipalities,
irrigation or power districts, and Federal entities.
Response: The 2004 marketing plans provide the same or better
treatment for tribes as compared to other customers.
Comment: The history of energy development and use in general and
Federal hydroelectric development in specific is a history of injustice
and abuse of power on the part of the Federal Government. Many of the
Federal dams were built from Indian lands and the resultant economic
and social benefits from those projects were denied to Indian tribes.
In many cases, tribes were inadequately compensated for the loss of
whole communities, valuable farmland and cultural/religious/spiritual
resources.
Response: Just compensation for the taking of lands to construct
Federal dams is not an issue that is appropriately addressed through an
allocation of power by Western.
Comment: The tribes request that Western, in performance of its
trust responsibility, provide tribes with technical assistance to
ensure the tribes receive the maximum economic benefits of low-cost
Federally generated hydropower through management agreements with
distribution utilities.
Response: To the extent that a tribe does not form a utility,
Western intends to assist the tribes in obtaining the

[[Page 34446]]

economic benefit of allocations through bill crediting or some other
appropriate mechanism involving the distribution utility. Western is
committed to providing an appropriate level of technical assistance to
tribes.
Comment: Policy and practice have discouraged tribes from
developing the institutional, management, and technical capabilities as
well as the physical infrastructure and financing to access the power.
Response: Western's allocation of power to tribes, without a
requirement for utility status, should enable the tribes to access the
benefits of Federal hydropower more easily. Historic assistance to the
Navajo Nation by Western has resulted in tribal access to photovoltaic
power in northern Arizona.
Comment: It could be argued that the Indian tribes' unused water,
such as the Navajo Agricultural Products Industry which is 20 years
behind schedule, is being utilized to generate Federal power over and
over while it travels down river. While other entities have enjoyed the
benefits derived from Federal power, Indian tribes and their agencies
have yet to see equal benefits.
Response: Rights to the water that passes through turbines at
Federal hydroelectric facilities are vested in different entities and/
or are reserved for certain in-stream purposes. Possession of water
rights does not mean a right to hydroelectric power generated by that
water also exists.
Comment: A tribal utility could provide tribal government with the
opportunity and means to use tribal borrowing and bonding status to
improve utility infrastructure, improving the quality of life on very
poor reservations. If done in conjunction with systemwide planning,
tribal infrastructure development could very well reduce physical
constraints in the transmission systems that would benefit everyone.
Response: Many of Western's customers have found utility formation
to be beneficial.
Comment: We request that Western abide by the preference customer
status provided to the tribes as described in the Energy Policy Act of
1992. The tribes would request the ``right of first refusal'' be
provided to tribes and would remain in effect until the tribes receive
their fair share of unobligated Western power.
Response: Western is unaware of any provision in the Energy Policy
Act of 1992 that confers preference status on tribes. Western's
treatment of tribes as preference entities is due to our interpretation
of Reclamation law, taking into account DOE's Indian policy and the
government-to-government relationship that exists between the
Department of Energy/Western and tribes. Western believes that it can
successfully meet the fair share needs of Native Americans without
adopting a ``right of first refusal'' policy.
Comments: Issues of transmission and distribution must be addressed
to allow tribes to access power. It has been Western's past history to
build transmission to serve its customers. The new regulatory structure
provides the opportunity to wheel power over existing systems. Tribes
know they must negotiate with current service providers for access to
distribution facilities and services. These negotiations can create
win-win situations that are acceptable and even favorable to both
parties. The degree by which Western's policies reward cooperation over
conflict should be the standard by which its policies are judged.
Our greatest issue is communication and understanding. Tribes could
be assisted to know how best to access the parties and individuals
within the industry to make power allocations and utility operations
workable.
Response: Western believes that cooperation, communication, and
understanding are far preferable to conflict in achieving policy goals.

Q. Water Supply

Comments: Any changes in Western's allocations that are based on
electricity industry restructuring should impact only distribution
utilities and not water supply agencies.
Nothing in the California restructuring plan warrants fundamental
departure from the 2004 marketing plan, especially with regard to
service for end-use irrigation pumping loads.
Program purposes and the statutory intent underlying Pick-Sloan and
the Flood Control Act have not changed and commitments must continue to
be honored, particularly in view of the fact that actual irrigation
development was substantially less than what was promised.
Western should continue to provide low-cost power to irrigation,
and should not enter retail markets.
Response: Western intends to abide by Reclamation law requirements,
including the requirement that hydroelectric power be reserved first
for project-use loads. As there is no convincing rationale to do
otherwise, policies regarding reductions in commitments of power to
existing customers will be uniform. To the extent irrigators receive
allocations of power from Western that are not project use in nature,
they will not be exempt from equitable contribution by existing
customers to project-specific resource pools.

R. Need for Power

Comments: Long-term reliability is critical to farmers who raise
crops. The benefits derived from our power contract with Western have a
direct impact on the local economy and produce far-reaching benefits,
such as groundwater improvement, efficient water exchanges, and a
vibrant local agricultural economy.
The State of New Mexico is sparsely populated and relatively poor.
Western's CRSP power means a lot to us. There are a substantial number
of customers who have contributed to the repayment of Federally-owned
generation facilities for over 30 years. If those customers had built
generation plants in the '60s rather than purchased the output of
Federal facilities built for the primary purpose of irrigation, flood
control and recreation, these generation facilities would now be paid
for and competitively priced.
Resource uncertainty is especially critical in rural areas which
have limited access to resource opportunities. To deny utilities with
low customer density access to Federal power would be devastating to
rural consumers and small businesses who are already paying much higher
rates for distribution and transmission services than urban customers.
Share the benefits of cost-based hydropower with the taxpayers by
extending contracts with the Air Force.
Significant reductions in or the loss of the CRSP resource would
necessitate acquiring alternative power supply at dates later than
prudent from a long-term planning standpoint. The cost of replacement
power would be passed on directly to the retail consumer.
Western's allocation of CRSP power to our electrical district is
integral to the long-term groundwater management plan in Arizona,
including the goal of reducing groundwater pumping within the State as
documented in our integrated resource plan. CRSP power is also key in
maintaining the viability of the Central Arizona Project for future
generations. The long-term bonding and financing of our canal system is
also based on the continued economics of preference power.
Continued access to the CVP resource is necessary to ensure
affordable future improvements. It would be inappropriate to threaten
these worthy achievements by making adverse changes to customers' CVP
power supply, and upset the competitive balance that now exists between

[[Page 34447]]

municipal utilities and other energy providers.
Western's power allocation is very important to our rural electric
cooperative in Wyoming, as we have a consumer density of 2.2 consumers
per mile of line. Our neighboring investor-owned utility has a density
of 26 consumers per mile of line. For each cooperative customer, more
than 11 times the facilities are required. Because of the rural nature
of the area we serve, we are already at a price disadvantage in a
competitive marketplace.
Most entities, including the investor owned utilities, continue to
serve their customer base reliably, efficiently, and at lower rates
than previously existed. As California emerges from the imposition of
transition costs after 2002, rates will further decline and customers
will likely be less inclined to switch providers. Western's customers
must have an assurance of long term, 20-year contracts to remain in
this competitive mix.
Regarding the effect on the University of California, Davis of AB
1890 and the deregulation of the electric power market in California,
no clear conclusions can be drawn. The UC Davis campus has joined with
the other University of California campuses, and the California State
University system, to contract for purchase on the open market for our
power requirements not met by Western. This is a short 4-year contract
with an independent power marketer. While this contract is expected to
save the campus money compared to the cost of power purchased directly
through the California Power Exchange, it is more expensive than
Western's hydropower, and the term of the contract is short. Adoption
of the proposed 2004 marketing plan will benefit us by protecting our
cornerstone of Western power, while at the same time, for our remaining
power needs, allowing the pursuit of future benefits that may come
available through deregulation of the California electric power market.
Both the Black and Hispanic Chambers of Commerce for the City of
Sacramento urge the expeditious approval of the CVP 2004 marketing
plan. Access to low cost, clean, renewable public power is an essential
prerequisite for continued economic development and growth of
communities in northern California.
With regard to the Ames Research Center, National Aeronautics and
Space Administration, our allocation needs to be maintained in order to
minimize the cost of operating two national wind tunnel complexes.
There is an urgent need for our wind tunnel data, as it enables
aircraft manufacturers to design transports that can fly with greater
energy efficiency. Estimates of fuel savings as a result of our
research are in the hundreds of millions of dollars per year. In
addition, our research enables American aircraft manufacturers to
maintain a trade surplus of $15 billion per year.
Response: These representative comments from existing customers
demonstrate the widespread need for Western's power.
Comment: Extending Western contracts would further the discrepancy
between the preference clause's intent of advancing ``municipal
purposes'' and the distribution of Western power to some of the
nation's wealthiest communities. As you know, Western does no means
testing for the distribution of its low cost and subsidized
electricity, nor does it provide any preference to public schools or
other public purposes. Power marketing administrations, if they are to
continue to exist, need to focus on end users and offer true public
benefits only to those in need.
Response: As is the case with any utility, some customers
purchasing electricity are more affluent than others. The same is true
for the customers served by a PMA. However, the great majority of
Western's customers are in genuine need of Western's resources, as
evidenced by the comments previously set forth. Western already
allocates power to universities and a variety of State and Federal
loads. Western's intent to sell power from project-specific resource
pools to Native American tribes is clear evidence of our intent to
assure that the benefits of Western's cost-based hydroelectric
resources are available to economically disadvantaged entities.
Comment: Today, preference power is being used in ways that
Congress did not originally intend. For example, power generated from
facilities owned by the American public is being allocated to provide
below market electric service to wealthy communities such as Vail,
Colorado, and Palm Springs, California. Other customers, such as the
Salt River Project, have formed a for-profit marketing entity whose
mission is to compete against private, taxpaying, and often highly
regulated energy companies.
Response: Western does not market power to Palm Springs. The ski
resort of Vail is served by Holy Cross Energy, which also has within
its service territory many rural consumers and small communities that
do not enjoy economic benefits from ski resorts. Both the Department of
Energy and the Department of the Interior have formally issued opinions
finding no violation of law or contract in the efforts by the Salt
River Project to compete in the rapidly changing utility industry, as
the Salt River Project is not reselling Federal power.
Comment: Rather than going to customers based upon their geographic
location, allocations from the Federal power facilities should be based
on means testing. Only those who truly cannot afford to pay market
rates should be the beneficiaries of continued preference allocations.
This class of citizens obviously includes more than just rural western
or southern America. Federal preference power should be targeted only
to State and Federal buildings and facilities where the taxpayer is
paying the energy bill. We cannot legitimately continue to act as a
Nation to provide wealthy ranchers and owners of posh ski resorts with
preference power to the exclusion of poor families located in Toledo,
Hartford, or St. Paul.
Response: Congress has by statute authorized Western to sell firm
power in its 15-State service territory. The other Federal PMAs also
market power in the territory adjacent to their power and transmission
resources. Well over half of the country is within the marketing areas
of the PMAs.
According to the latest estimates of the United States Census
Bureau on national income and poverty, the poverty rate in the western
States is 14.6 percent. Both the Northeast States (12.6 percent poverty
level) and the Midwest States (10.4 percent poverty level) enjoy higher
prosperity. Also of interest is the Census Bureau's conclusion, based
on 1997 data, that 12.6 percent of residences inside metropolitan areas
are in poverty, while 15.9 percent of residences outside of
metropolitan areas are below the poverty line. This information
suggests that the greater need for cost-based Federal power exists in
the western United States and in rural areas.
Even if Western had the legal flexibility to sell power to needy
entities throughout the Nation, the cost of delivering the power would
erode any cost savings. Acquiring rights over intervening transmission
systems would be a significant expense. Losses in energy due to
resistance in the transmission line conductors would also diminish the
economic benefit.
Western already markets its power to many State and Federal
facilities that meet existing allocation criteria. Allocating more
power to these entities could give them disproportionate

[[Page 34448]]

benefits and cause power resource dislocations for existing customers.

S. Supplemental Suppliers

Comment: The impacts of any change in policy would fall primarily
on supplemental suppliers. Western should move cautiously when the
impact of its decisions may be to undermine or damage contractual
relationships between its preference customers and their supplemental
power suppliers.
Response: Western agrees that the impacts of its policies on
supplemental suppliers must be taken into account before decisions are
made.

T. Dam Operations

Comments: There are a number of aquatic environmental issues
associated with the operation of the Federal hydroelectric facilities
that produce SLCA/IP power. The Aspinall unit on the Gunnison River and
the Flaming Gorge unit on the Green River dramatically affect
downstream flow conditions and habitat for fish species. We believe the
Endangered Species Act requires Western to evaluate the effects of
contract extension on conservation and recovery of listed species. If
Western believes that, either as a policy or legal matter, the
extension of SLCA/IP contracts could limit the Bureau of Reclamation's
discretion in operating facilities like Aspinall and Flaming Gorge,
Western must prepare a site-specific assessment of the environmental
impacts of contract extension.
We are aware that Western contends that DOE regulations
categorically exclude marketing plans from NEPA documentation unless
they involve new generation, new transmission, or a change in
operations. However, we believe the regulations are illegal if their
effect is to excuse Western from assessing the impact of contract
extensions that circumscribe the ability of the Bureau to reoperate a
project.
We have concerns, legal and otherwise, regarding the relationship
between contract extensions and programs to recover endangered fish and
otherwise protect the aquatic environment.
Response: Under EPAMP, the extension of resources to existing
customers is based on the marketable resource determined to be
available at the time future resource extensions begin. If the Bureau
of Reclamation reoperates power generation facilities such as Flaming
Gorge and Aspinall before September 30, 2004, that change in operations
will be reflected in the power commitments to existing customers. In
addition, Western's contracts allow for changes in our contractual
commitments attributable to changes in operations after 2004. Given
this flexibility, there is no need for site-specific assessments of the
impacts of contract extensions. The extension of firm power commitments
does not limit the ability of the Bureau of Reclamation to reoperate
power generation facilities.

U. Integrated Resource Planning

Comments: If retail competition expands, key resource acquisition
decisions will shift away from today's utilities and toward private
generation markets and retail customers. In this environment, the role
of EPAMP's IRP requirement is unclear. We have heard from a number of
Western's customers that they are not interested in pursuing IRP given
the competitive changes in the industry. We are concerned that EPAMP no
longer represents responsible environmental stewardship in a changing
utility industry.
We oppose contract extensions for SLCA/IP power until EPAMP
regulations are made consistent with the evolving industry structure.
The State of South Dakota encourages Western to amend EPAMP's IRP
regulations to allow the most flexible requirements possible.
IRP no longer makes sense in a retail environment.
Response: Western's integrated resource planning regulations are
outside the scope of this notice of inquiry, which deals only with
power allocation issues. Western intends to start a public process to
consider revision of our IRP criteria later in 1999.

V. Preference

Comment: Preference should be examined carefully in a full NEPA
review considering both the economic and environmental impacts on
preference and nonpreference customers. Western should mitigate for any
serious effects and proper mitigation may include eliminating or
drastically altering preference.
Response: Preference in the sale of Western's power is mandated by
law. As Western does not have the authority to eliminate or drastically
alter preference, a full NEPA review of the issue would not be
fruitful.
Comment: As electric restructuring moves forward and the paradigms
governing electric distribution and financial risk are changed, we must
consider how the existing Federal system is managed. Equally important
is how we distribute the benefits of the Federal system. In the
upcoming year the Congress will be reviewing some of the fundamental
issues that are raised in allocating Federal power. What were the
characteristics of the group originally intended to be benefitted by
defining them as preference customers? Why did one group of Americans
receive the benefits while others did not? Do the criteria remain the
same today? Are we still benefitting fundamentally the same people?
Since the Federal allocation system was designed to benefit a
particular group, do we need to respond to changes in the larger
electric utility industry to make sure the same beneficiaries are
reached? Do the changes in the electric utility industry that have
occurred since the Federal system was originally established eliminate
the need for the historic distribution/allocation scheme? And finally,
if there is going to be a change, how can we best protect the
legitimate needs of existing PMA customers?
Response: Western lacks the legislative authority to make
fundamental changes to preference in the sale of our hydroelectric
resources. However, allocations are not limited strictly to municipal
utilities and rural electric cooperatives. Western has allocated power
and/or transmission rights to such diverse public loads as wildlife
refuges, universities, and a mass transit system. Native American
tribes are also treated as preference entities without the need for
utility status. These allocations to nontraditional customers were made
while still meeting the needs of existing customers, and contribute to
the widespread use of Western's resources.

W. Rates

Comment: Western's ratesetting must be cost-based. Western lacks
authority to introduce new rate components or to reinterpret 60 years
of statutory construction. Western also lacks authority to charge rates
based on a newly conceived formulation intended to effectuate a
redistribution of its electricity among electric consumers.
Response: While ratesetting is outside the scope of the power
allocation issues inquiry, Western agrees that our firm power rates
must be cost-based.
Comments: The real implication of this first question is that
Western should sell its resources in a short-term fashion to the
highest bidder.
We support legislation that mandates a bidding system in which
preference power is allocated to the highest bidder, or one in which
the high bid sets the contract price for such power. Under such a
scheme, the preference customer would be given a right of first refusal
to purchase the power at high bid, thus preserving traditional
preference. This approach has the advantage of

[[Page 34449]]

eliminating the inequities now incumbent in Federal power allocations,
prevents further under recovery of PMA costs, and maximizes revenue to
the Treasury.
Western should adopt a tiered, marginal cost rate structure to
reflect appropriate market rates and eliminate the subsidy inherent in
the existing system. Offering low rates encourages Western's customers
to use electricity wastefully and forces other consumers to develop
excessively expensive supply resources to meet electricity needs.
We congratulate Western on recognizing the need to consider the
impact of electric utility industry restructuring on the way Western
allocates power. A level playing field among all electric suppliers is
mandatory in an open access retail electric marketplace. All
competitors should have the opportunity to bid for low-cost power
allocations. A bid system would lessen the anti-competitive impact of
PMA power.
Response: Pursuant to law, Western sets its firm-power rates to
recover costs. FERC's review of Western's rates is based upon whether
the rates are the lowest possible consistent with sound business
principles.
Western has no leeway to adopt a generic bid-based method for
marketing firm power, even if a preference customer has the ability to
buy the power by matching the high bid. If Congress mandates the sale
of power at market-based rates, Western has the flexibility to comply
pursuant to the rate adjustment provisions in its firm-power contracts.
PMA power is not anti-competitive in its impact. Western markets
cost-based hydroelectric resources, which are relatively inflation
resistant as compared to non-hydro generation due to the absence of
fuel costs. In addition, Western has no responsibility to meet load
growth with relatively expensive additional power. Western's hydropower
resources are reasonably priced due to these factors, and promote
yardstick competition.
Western's customers do not waste electricity. Pursuant to Western's
integrated resource planning regulations, customers have established an
impressive record of investment in energy efficiency, demand-side
management, and renewable resources.
Comment: Even under existing statutes, Western should re-prioritize
its allocation of preference power to better reflect competitive market
principles. Specifically, Western should adopt a system under which
Federal electricity is auctioned to bidders in the same way as is
Federal coal, oil, and natural gas. Revenues so garnered could be used
for worthy purposes in Western's service territory.
Response: Bidding for Western's firm power to generate revenues in
excess of those needed for project repayment is not allowed under
Federal law.
Comment: Western has a cost problem due to the increasingly
competitive regional power market and the social costs (e.g.,
environmental costs and irrigation assistance) that have been mandated
for inclusion in CRSP rates. Western has a finite window within which
it can contract into the future to protect its congressionally mandated
repayment mission. Western is ill-equipped because of its role as a
Government sales agent and its congressionally mandated
responsibilities to compete in future markets.
Response: Western will continue to make every effort to assure that
CRSP power remains marketable.
Comment: Is it fair for neighbors to pay different rates for their
electricity because of their race?
Response: Western's wholesale rates are the same for all long-term
firm customers. Many different factors influence retail rate levels,
including the cost of other power, transmission cost, and distribution
expense.
Comment: Western should move to unbundle its firm power rate to
accelerate Western's movement into an open access environment.
Response: Western has developed rates to implement its open access
tariff.

X. Delivery Changes

Comment: Western currently requires concurrence from all affected
parties before the State of South Dakota is allowed to redistribute
power from one State load to another. This policy places veto power in
the hands of supplemental power and transmission suppliers with the
effect that the State's use of Western power and other power available
under open transmission access principles is constrained. The present
policy should be replaced. Western should be willing to move
allocations upon proof of a legitimate load and adequate billing
mechanisms. IRP stabilization arguments that benefit supplemental
suppliers should be rejected in the face of the State's interest in
wholesale open access consistent with FERC's actions.
Response: Western's requirement of concurrence by the transmission
provider and supplemental power supplier is a contractual and policy
issue that does not conflict with FERC Order No. 888, which preserves
existing contracts. Western has experienced instances where allocations
were made, but the allottee was unable to take delivery because
existing power supply contracts did not allow additional power
suppliers. Requiring concurrence avoids this situation, and recognizes
that transmission arrangements also need to be amended when power
deliveries change. It also avoids conflict with mandated franchise
service territories, as South Dakota has not yet mandated open access
for end users. Concurrence has been a policy requirement for over two
decades, and has yet to have been unreasonably withheld. IRP
stabilization arguments, based on the premise that load stability
promotes better resource planning, are secondary to the contractual
considerations.

Question

2. To the extent a utility with an allocation of preference power
loses load due to retail competition, should it receive the same
allocation as it received previously or should its allocation be
reduced proportionately?

A. Disincentive to Retail Wheeling

Comment: Adoption of this policy would discourage retail wheeling,
as the risk would be a disincentive for a utility to open up its load
to competition.
Response: Utilities might see the potential loss of an allocation
as a disincentive to adopting retail wheeling.

B. Administrative Issues

Comments: A real time, load based allocation process is complex
from both a policy and an administrative basis. There is no guarantee
that the change would lead to an improved outcome.
Administration of this policy would be time-consuming and costly.
As retail customers make choices and come and go, Western would be
required to address daily, weekly, or even monthly load fluctuations
for the many preference customers who currently receive hydroelectric
resources from Western.
What if a retail customer has a business downturn and their power
usage is reduced by half? How would Western reallocate the power from
this reduced usage? Would Western reallocate the power if the retail
customer's business returns to normal at some later date? It seems that
Western is opening up a can of worms that could have unintended
consequences.
Western cannot possibly know whether the lost load is due to a
temporary problem on the part of the wholesale customer, a problem
resulting from demographic trends or economic cycles, or whether it is
a permanent loss

[[Page 34450]]

due to restructuring of the utility industry. At the very least,
Western should not attempt a reallocation from existing users to new
customers without developing a record of the factors underlying such a
move and offering existing contractors the opportunity to review and
comment on the record.
Response: Western believes that the administrative complexities of
adopting such a policy are significant. The policy benefits of
monitoring load losses and gains, if any, are minor as compared to the
cost and administrative burden associated with a change in policy as
suggested by this issue.

C. Increase in Allocation

Comments: The utility should receive the same allocation. As a
preference utility does not receive an increase in its allocation if
its electric load increases, why should there be a loss of allocation
if load declines? If Western does not strive to achieve a sound and
balanced basis for adjustment of allocations, it appears that the
purpose of the suggested change in policy is to find ways to reduce
allocations to preference customers using State restructuring
legislation as an excuse.
Western is a sales agent, not a utility. Western did not increase
our allocation when our load outgrew the original commitment of Federal
power, so we were forced to acquire supplemental power elsewhere.
If energy is freed up as a result of a preference power entity
allowing retail access in its traditional service territory, then this
power can be made available on a temporary basis to other preference
entities as withdrawable power. Since the entity offering retail access
will remain as the default energy provider, and would be required to
serve customers returning to its system, a permanent reduction of an
allocation may not be prudent.
Response: Western has a finite resource to market. Unless power is
withdrawn from a customer pursuant to the terms of a firm power
contract, Western does not have additional electricity to market on a
firm basis. Western agrees that there are many administrative
complexities associated with reducing, restoring, and reallocating
power in the manner suggested by this issue.

D. Local Decision Making

Comment: The local utility is best positioned to distribute
Western's power among the remaining customers.
Response: Public power utilities are well positioned to distribute
power among consumers. Western's firm-power contracts address this
responsibility. The most recent provision o

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-16019. Public record. Not legal advice.