Pacific Northwest-Pacific Southwest Intertie ProjectPoint-To- Point Transmission Service Rates for the 230/345-kV Transmission SystemRate Order No. WAPA-76

DEPARTMENT OF ENERGY

Western Area Power Administration

[Rate Order No. WAPA-76]

Pacific Northwest-Pacific Southwest Intertie Project--Point-To-

Point Transmission Service Rates for the 230/345-kV Transmission

System--Rate Order No. WAPA-76

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of rate order.

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

Deputy Secretary of the Department of Energy (DOE) of Rate Order No.

WAPA-76 and Rate Schedule INT-FT3 placing provisional rates for the

230/345-kV Pacific Northwest-Pacific Southwest Intertie Project (AC

Intertie) firm point-to-point transmission service into effect on an

interim basis. The provisional rates will remain in effect on an

interim basis until the Federal Energy Regulatory Commission (FERC)

confirms, approves, and places them into effect on a final basis or

until they are replaced by other rates. The provisional rates will

provide sufficient revenue to pay all annual costs, including interest

expense, and repayment of required investment within the allowable

period.

DATES: The provisional rates will be placed into effect on an interim

basis on January 1, 1999, and will be in effect until FERC confirms,

approves, and places the provisional rates in effect on a final basis

for a 5-year period ending December 31, 2003, or until superseded.

FOR FURTHER INFORMATION CONTACT: Mr. Maher A. Nasir, Rates Team Lead,

Desert Southwest Customer Service Region, Western Area Power

Administration, P.O. Box 6457, Phoenix, AZ 85005-6457, telephone (602)

352-2768.

SUPPLEMENTARY INFORMATION: The Deputy Secretary of Energy approved the

existing Rate Schedule INT-FT2 for AC Intertie firm transmission

service on January 31, 1996 (Rate Order No. WAPA-71, 61 FR 4650,

February 7, 1996); and FERC confirmed and approved the rate schedule on

July 24, 1996, under FERC Docket No. EF96-5191-000 (76 FERC para.

62,061). The existing Rate Schedule INT-FT2 became effective on

February 1, 1996, for the period ending September 30, 2002. Rate

Schedule INT-FT2 provides separate rates for firm transmission service

on the AC Intertie 230/345-kV transmission system and AC Intertie 500-

kV transmission system. This Rate Order (WAPA-76) seeks to put into

place Rate Schedule INT-FT3 that will supersede Rate Schedule INT-FT2

as it relates to 230/345-kV firm transmission service only. Under Rate

Schedule INT-FT3, the firm point-to-point transmission service rate on

the AC Intertie 230/345-kV transmission system on January 1, 1999, is

$12.00/kW/year or $1.00/kW/month and includes the cost for the

ancillary service of scheduling, system control and dispatch service.

The remaining ancillary services, which comply with FERC Order Nos. 888

and 888-A, will be provided through Western Area Power Administration's

(Western) Open Access Transmission Service Tariff, published on January

6, 1998 (63 FR 521). The provisional rate of $12.00/kW/year represents

an increase of approximately 82 percent over the existing rate for firm

transmission service on the AC Intertie 230/345-kV transmission system.

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

November 10, 1993 (58 FR 59716), the Secretary of Energy delegated: (1)

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

nonexclusive basis to the Administrator of Western; (2) the authority

to confirm, approve, and place such rates into effect on an interim

basis to the Deputy Secretary of Energy; and (3) the authority to

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

disapprove such rates to FERC.

Rate Order No. WAPA-76 was prepared pursuant to Delegation Order

No. 0204-108, existing DOE procedures for public participation in power

rate adjustments in 10 CFR Part 903, and procedures for approving Power

Marketing Administration rates by the FERC in 18 CFR Part 300. Rate

Order No. WAPA-76, confirming, approving, and placing the proposed AC

Intertie 230/345-kV transmission system firm point-to-point

transmission service rate into effect on an interim basis, is issued,

and the new Rate Schedule INT-FT3 will be submitted promptly to FERC

for confirmation and approval on a final basis.

[[Page 6345]]

Dated: January 28, 1999.

Ernest J. Moniz,

Acting Deputy Secretary.

Order Confirming, Approving, and Placing the Pacific Northwest-

Pacific Southwest Intertie Firm Transmission Service Rates Into

Effect on an Interim Basis

January 1, 1999.

These rates are developed pursuant to the Department of Energy

Organization Act (42 U.S.C. 7101 et seq.), through which the power

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

Reclamation under the Reclamation Act of 1902 (43 U.S.C. 371 et seq.),

as amended and supplemented by subsequent enactments, particularly

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

and other acts specifically applicable to the project involved, were

transferred to and vested in the Secretary of Energy (Secretary).

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

November 10, 1993 (58 FR 59716), the Secretary delegated: (1) the

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

exclusive basis to the Administrator of Western Area Power

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

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

Secretary of Energy; and (3) the authority to confirm, approve, and

place into effect on a final basis, to remand, or to disapprove such

rates to the Federal Energy Regulatory Commission (FERC). Existing DOE

procedures for public participation in power rate adjustments are found

at 10 CFR Part 903. Procedures for approving Power Marketing

Administration rates by FERC are found at 18 CFR Part 300.

Acronyms and Definitions

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

apply:

AC: Alternating Current.

AC Intertie: Pacific Northwest-Pacific Southwest Intertie Project.

Administrator: The Administrator of Western Area Power Administration

(Western).

BPA: Bonneville Power Administration.

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

the adequacy of the existing rate.

DC: Direct Current.

DOE: Department of Energy.

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

U.S.C. 7101 et seq.).

DOE Order RA 6120.2: An order dealing with power marketing

administration financial reporting and rate-making procedures.

DSW: Desert Southwest Customer Service Region.

FERC: Federal Energy Regulatory Commission.

FRN: Federal Register notice.

FY: Fiscal Year.

kV: Kilovolt.

kW: Kilowatt.

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

year).

kWh: Kilowatthour.

LCRBDF: Lower Colorado River Basin Development Fund established under

Section 403 of the Colorado River Basin Project Act of 1968 (82 Stat.

885).

MAP: Mead-Adelanto Project. A 500-kV transmission system joint

participation construction project with termination points in southern

Nevada and southern California.

MPP: Mead-Phoenix Project. A 500-kV transmission system joint

participation construction project with termination points in Phoenix,

Arizona and southern Nevada.

mills/kWh: Mills per kilowatthour.

Multi-Project Costs: These are costs for facilities being charged to

one project that benefit other projects.

MW: Megawatt.

O&M: Operations and Maintenance.

PRS: Power Repayment Study.

Proposed Rate: A rate revision that the Administrator of Western

recommends to the Deputy Secretary of Energy for approval.

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

placed into effect on an interim basis by the Deputy Secretary.

Ratesetting PRS: The PRS that demonstrates that potential revenue

levels will satisfy the cost.

Reclamation: Bureau of Reclamation.

Replacement: A unit of property constructed or acquired as a

substitute for an existing unit of property for the purpose of

maintaining the power features of a project.

Retirement Benefits: Civil Service Retirement Costs and Post

Retirement Health Benefits.

Secretary: Secretary of Energy.

Western: Western Area Power Administration.

Effective Date

The new rate will become effective on an interim basis on the first

day of the first full billing period beginning on or after January 1,

1999, and will be in effect pending FERC's approval of it or a

substitute rate on a final basis for the 5-year period ending December

31, 2003, or until superseded. Western is implementing a rate for firm

point-to-point transmission service on the AC Intertie 230/345-kV

transmission system only.

Public Notice and Comment

The Procedures for Public Participation in Power and Transmission

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

Western in the development of the firm point-to-point transmission

service rate. The provisional firm point-to-point transmission service

rate for the AC Intertie 230/345-kV transmission system represents a

rate increase of 82 percent over the existing rate. This rate is

classified as a major rate adjustment as defined at 10 CFR Part

903.2(e) and 903.2(f)(1). The distinction between a minor and a major

rate adjustment is used only to determine the public procedures for the

rate adjustment. The following summarizes the steps Western took to

ensure involvement of interested parties in the rate process:

1. The first informal public information meeting was held on April

28, 1997, at the Desert Southwest Customer Service Region (DSW) office

located in Phoenix, Arizona. Approximately 13 customers of the AC

Intertie were present. Western explained the need for the proposed rate

adjustment and answered questions from those attending.

2. Western held its second informal public information meeting on

June 25, 1997, at the DSW office. Approximately 11 customers of the AC

Intertie were present. Western staff provided and discussed responses

to data requested at the first informal public meeting.

3. Western held its third informal public information meeting on

July 24, 1997, at the DSW office. Approximately 20 customers of the AC

Intertie were present. Western staff provided and discussed responses

to data requested at the second informal public meeting.

4. Western provided responses to the questions and comments raised

at the third informal customer information meeting by letter dated

January 12, 1998.

5. On April 3, 1998, Western announced in Federal Register notice

(FRN) 63 FR 16497 the start of the public process for the approval of

the proposed AC Intertie 230/345-kV transmission system firm point-to-

point transmission service rate. The FRN identified the end of the

consultation and comment period as July 2, 1998.

6. On May 4, 1998, beginning at 10 a.m., a public information forum

was held at Western's DSW office. At the start of the forum, a handout

containing

[[Page 6346]]

information regarding the updated rate was provided. Western publicly

presented the Proposed Rate for the AC Intertie 230/345-kV transmission

system, provided a detailed explanation of the changes to the Proposed

Rate, and answered questions from the public. On May 20, 1998, a

letter, responding to questions not answered at the public information

forum, was mailed to the AC Intertie customers.

7. On June 1, 1998, beginning at 10 a.m., a public comment forum

was held at Western's DSW office. Western gave the public an

opportunity to comment for the record, verbally and in written form.

Eight representatives made oral comments.

8. Twenty-four comment letters were received during the

consultation and comment period. The consultation and comment period

ended July 2, 1998. All formally submitted comments have been

considered in the preparation of this rate order.

Project Description

The AC Intertie was authorized by section 8 of the Pacific

Northwest Power Marketing Act of August 31, 1964. Originally, the AC

Intertie was to be a combined Alternating Current (AC) and Direct

Current (DC) system which was to connect the Pacific Northwest with the

southwest regions of the United States. As authorized, the overall

project was to be a cooperative construction venture between Federal

and non-Federal entities. In May 1969, the Department of the Interior

indefinitely postponed construction because of several delays in

congressional funding, revising the DC line's estimated in-service date

to the point that some of the potential users withdrew their interest.

Consequently, the facilities constructed provide only AC transmission

service.

Western's portion of the AC Intertie consists of two parts, a

northern portion and a southern portion. The northern portion is

administered by Western's Sierra Nevada Customer Service Region and is

incorporated, for repayment, with the Central Valley Project. The

northern portion consists of a 94-mile (151 km), 500-kV line from Malin

Substation (Oregon) to Round Mountain to Cottonwood Substation

(California). By agreement, the Central Valley Project has transmission

rights for 400 MW of northern Intertie capacity.

The southern portion is administered by Western's DSW office and is

treated as a separate project for repayment and operational purposes.

It consists of a 238-mile (383 km) 345-kV line from Mead Substation

(Nevada) to Liberty Substation (Arizona), a 19-mile, (31 km) 230-kV

line from Liberty to Westwing Substation (Arizona), a 22-mile (35 km),

230-kV line from Westwing to Pinnacle Peak Substation (Arizona), and

two new segments which came on-line in April 1996: the 260-mile (419

km) Mead-Phoenix 500-kV AC Transmission Line between Marketplace

Substation (Nevada) and Perkins Substation (Arizona) and the 202-mile

(325 km) Mead-Adelanto 500-kV AC Transmission Line between Marketplace

Substation and the existing Adelanto Switching Substation in southern

California.

Existing and Provisional Rates

AC Intertie Project Firm Point-to-Point Transmission Service

The following table displays the existing rates and the Provisional

Rates for the AC Intertie 230/345-kV transmission system:

Existing Point-to-Point Transmission Service Rate

[AC intertie 230/345-kV transmission system rate schedule firm point-to-point transmission rate ($ per kW/year)]

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

Existing (effective 10/ Percent change

Effective period 01/96 to 09/30/02) Provisional from existing rate

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

01/01/99 to 12/31/03.................. $6.58/kW/Year............ $12.00/kW/Year........... 82.0

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Certification of Rate

Western's Administrator has certified that the AC Intertie 230/345-

kV transmission system firm point-to-point transmission service rate

placed into effect on an interim basis herein is the lowest possible

rate consistent with sound business principles. The Provisional Rate

has been developed in accordance with administrative policies and

applicable laws.

Discussion

AC Intertie Transmission Service

The existing AC Intertie transmission service rate schedule was

placed into effect on February 1, 1996, under Rate Order WAPA-71 (61 FR

4850) until September 30, 2002, and was approved on a final basis by

FERC on July 24, 1996. Under Rate Order WAPA-71, three types of

transmission service rates were approved and they are: (1) a rate for

firm transmission service on the AC Intertie 230/345-kV transmission

system; (2) a rate for firm transmission service on the AC Intertie

500-kV transmission system; and (3) a rate for non-firm transmission

service on both the 230/345-kV and the 500-kV transmission systems.

Western proposes, through Rate Order WAPA-76, to supersede only the

rate for firm transmission service on the AC Intertie 230/345-kV

transmission system placed in effect under Rate Order WAPA-71.

Basis for Rate Development

Two major issues have prompted the transmission rate adjustment.

First, the Provisional Rate accounts for recovery of abandoned project

costs with interest. These costs were incurred primarily between 1964

and 1969 during the planning and early construction phases of the

Celilo-Mead-Los Angeles 750-kV DC Transmission Line. In May 1969, the

Department of the Interior indefinitely postponed construction because

of several delays in congressional funding, revising the DC line's

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

withdrew their interest.

The second issue is that costs and revenues relating to the new AC

Intertie 500-kV transmission system are now being accounted for in the

Power Repayment Study (PRS). It is estimated that it will take

approximately 10 years for the AC Intertie 500-kV transmission system

to be subscribed to a level sufficient to meet its own revenue

repayment requirements. The Provisional Rate for firm transmission

service on the AC Intertie 230/345-kV transmission system takes into

account the phasing-in of the AC Intertie 500-kV transmission system

revenues starting with a revenue contribution of $1,500,000 in Fiscal

Year (FY) FY 1999, and increasing annually by $1,410,000 through FY

2008.

Power Repayment Study

As a result of phasing in the AC Intertie 500-kV transmission

system revenues, and in order to maintain a marketable rate of $12/kW/

year, annual deficits are incurred through FY 2005. These deficits

allow for the very

[[Page 6347]]

acceptable industry practice of marketing, over time, a major capitol

improvement such as the AC Intertie 500-kV transmission system. The

annual deficits incurred are all repaid by FY 2017.

Statement of Revenue and Related Expenses

The following table provides a summary of revenues and expenses for

the 5-year rate period:

AC Intertie Rate Period Revenues and Expenses

[$1,000]

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

Provisional Existing rate

rate PRS FY PRS FY 1999- Difference

1999-2003 2003

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Total Revenues.......................................... 91,067 43,435 47,632

Revenue Distribution:

O&M......................................................... 20,690 13,226 7,464

Abandoned Plant............................................. 1,837 0 1,837

Interest.................................................... 91,428 22,474 68,954

Other....................................................... 4,056 1,848 2,208

Investment Repayment........................................ 0 5,887 (5,887)

Capitalized Expenses........................................ (26,943) 0 (26,943)

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The following table provides a summary of the average annual

revenues and expenses for the 5-year rate period:

AC Intertie Comparison of Period Average Annual Revenues and Expenses for FY 1999-2003

[$1,000]

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

Provisional

rate average Existing rate Difference

annual average annual

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

Total Revenues.......................................... 18,213 8,687 9,526

Revenue Distribution:

O&M......................................................... 4,138 2,645 1,493

Abandoned Plant............................................. 367 0 367

Interest.................................................... 18,286 4,495 13,791

Other....................................................... 811 370 441

Investment Repayment........................................ 0 1,177 (1,177)

Capitalized Expenses........................................ (5,389) 0 (5,389)

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The following table provides a summary of revenues and expenses for

the 50-year study period:

AC Intertie Cost Evaluation Rate Period Revenues and Expenses

[$1,000]

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

Provisional Existing rate

rate PRS FY PRS FY 1999- Difference

1999-2049 2049

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Total Revenues.......................................... 1,369,275 441,987 927,288

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

Revenue Distribution:

O&M......................................................... 222,164 132,885 89,279

Abandoned Plant............................................. 9,921 0 9,921

Interest.................................................... 497,108 81,851 415,257

Other....................................................... 23,191 12,468 10,723

Investment Repayment........................................ 269,849 116,159 153,690

Capitalized Expenses........................................ 22,550 0 22,550

LCRBDF Transfer............................................. 324,492 98,543 225,949

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The following table provides a summary of the average annual

revenues and expenses for the 50-year study period:

AC Intertie Comparison of Cost Evaluation Rate Period Average Annual Revenues and Expenses for FY 1999-2049

[$1,000]

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

Provisional

rate average Existing rate Difference

annual average annual

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

Total Revenues.......................................... 27,386 8,840 18,546

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

Revenue Distribution:

[[Page 6348]]

O&M..................................................... 4,443 2,658 1,785

Abandoned Plant............................................. 198 0 198

Interest.................................................... 9,407 1,637 7,770

Other....................................................... 464 249 215

Investment Repayment........................................ 4,230 2,323 1,907

Capitalized Expenses........................................ 451 0 451

LCRBDF Transfer............................................. 8,192 1,971 6,221

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Comments

During the public consultation and comment period, Western received

24 written comments on the rate adjustment. In addition, eight customer

representatives orally commented during the June 1, 1998, public

comment forum. All comments received by the end of the public

consultation and comment period, July 2, 1998, were reviewed and

considered in the preparation of this rate order.

Written comments were received from the following sources:

Aguila Irrigation District (Arizona)

Arizona Power Authority (Arizona)

Arizona Public Service Company (Arizona)

BDJ Farms, LLC (Arizona)

Central Arizona Project (Arizona)

Charles A. Ditsch, Attorney at Law (Arizona)

City of Safford (Arizona)

Colorado River Commission of Nevada (Nevada)

Colorado River Energy Distributors Association (Arizona)

Electrical District No. 3 (Arizona)

Electrical District No. 5 (Arizona)

Electric Resource Strategies (Arizona)

Gladden Farms II (Arizona)

Harquahala Valley Power District (Arizona)

James N. Warkomski, P.E., R.L.S. (Arizona)

John DelMar, Electrical District No. 8 Member (Arizona)

McMullen Valley Water Conservation and Drainage District (Arizona)

Meyer, Hendricks, Bivens & Moyes, P.A. (Arizona)

Nevada Power Company (Nevada)

Robert S. Lynch, Attorney at Law (Arizona)

Salt River Project (Arizona)

Thatcher (Arizona)

Tonopah Irrigation District (Arizona)

The following is a summary of the comments received by the end of

the consultation and comment period and Western's responses to those

comments. The comments are paraphrased for brevity and responses are

presented below. Specific comments are used for clarification where

necessary.

Comment: Several commentors protested the inclusion of the

abandoned project costs relating to the Celilo-Mead-Los Angeles 750-kV

DC transmission line in the rate order stating that doing so would be

inequitable and inconsistent with the financial reporting policies,

procedures, and methodology established under DOE Order RA 6120.2. The

commentors also referenced a longstanding rate making principle that

customers should only be required to pay for facilities that are

``prudent'' investments and which are ``used and useful'' in providing

electric service.

Response: Western held the abandoned project costs from 1969 until

1993 in a deferred asset account. In 1993, these costs were booked in

Western's financial statements as an expense against Operation and

Maintenance. Western has withheld the inclusion of these costs from the

PRS in any of the previous rate orders while it determined the

appropriate course of action. Western's auditors issued findings in

1994 and 1995 that the proper treatment of abandoned project costs is

the full cost recovery through project rates of the costs plus any

accrued interest. In 1996, Western's Administrator committed to comply

with the auditor recommendation before a Congressional subcommittee

hearing.

Comment: Several commentors questioned Western's legal authority to

collect the abandoned project costs relating to the Celilo-Mead-Los

Angeles 750-kV DC transmission line.

Response: Fundamental principles of Reclamation Law require the

recovery of the Government's construction investment, with interest

(Reclamation Project Act of 1939, Section 9(c); 53 Stat. 1187, 1194).

Western is not aware of any authority exempting the abandoned project

costs from this requirement.

Comment: Several commentors questioned the difference in Western's

proposed treatment of the abandoned project costs relating to the

Celilo-Mead-Los Angeles 750-kV DC transmission line from the position

stated by the Bonneville Power Administration (BPA) with regard to

costs incurred under the Teton Dam Project. In 1976, the Teton Dam

Project failed, and a decision was subsequently made by the Bureau of

Reclamation (Reclamation) not to recommence construction. To date, the

costs associated with the Teton Dam Project have not been included in

BPA's customer rates for repayment.

Response: The debt incurred by Western relating to the Celilo-Mead-

Los Angeles 750-kV DC transmission line was funded through government

appropriations. The Reclamation Project Act of 1939 requires repayment

of appropriations. Through this rate order, these costs will be repaid

through the project rates. The costs associated with the Teton Dam

Project remain a part of BPA's appropriated debt balance. The debt

balance can be reduced through repayment or through Congressional

action to de-authorize the project and declare the costs as non-

reimbursable. To Western's knowledge, BPA is currently not pursuing

either of the two options available for reducing appropriated debt.

Western, however, recognizes the AC Intertie customers' intention of

seeking, through Congressional action, to declare the abandoned project

costs related to the Celilo-Mead-Los Angeles 750-kV DC transmission

line as non-reimbursable. In order to avoid the costly process

associated with reversing the costs should the customers' efforts be

successful, Western is willing to allow the deposit of customer monies

associated with these disputed abandoned project costs in an escrow

account, for a 2-year period, thereby allowing sufficient time for the

customers' efforts to be concluded.

[[Page 6349]]

Comment: A commentor questioned the amount of funds appropriated

for the Celilo-Mead-Los Angeles 750-kV DC transmission line.

Response: The specific amount of funds appropriated to Reclamation

for the construction of the Celilo-Mead-Los Angeles 750-kV DC

transmission line is not readily available. However, appropriations

funded construction activities from 1964 through 1969 were recorded as

capitalized costs in Reclamation's AC Intertie financial statements.

These capitalized costs, plus accrued interest, make up the abandoned

project costs.

Comment: A commentor protested the inclusion of costs associated

with the AC Intertie 500-kV transmission system into the proposed

rates.

Response: Western has maintained maximum flexibility for the AC

Intertie Project by maintaining independent transmission service rates

for the 230/345-kV transmission system and the 500-kV transmission

system. However, DSW is responsible for demonstrating repayment for

those AC Intertie facilities constructed with appropriated funds

allocated to DSW. The firm point-to-point transmission service rate

being proposed under this rate order will satisfy the repayment

criteria that Power Marketing Administrations are subject to while

maintaining the flexibility of a possible reduction to the 230/345-kV

transmission system rate in future years should revenues from the AC

Intertie 500-kV transmission system materialize as projected.

Comment: A commentor questioned the existence of any specific Act

authorizing Western to construct the AC Intertie 500-kV transmission

system.

Response: Construction of the Intertie was initially authorized by

the Pacific Northwest Preference Act of 1964 (P.L. 88-552; 78 Stat.

756). Subsequently, the Energy and Water Development Appropriation Act

of 1985, Public Law No. 98-360, 98 Stat. 403, 416, authorized Western's

participation in the construction of the AC Intertie 500-kV

transmission system.

Comment: A commentor stated that the construction and inclusion in

the proposed rate of the AC Intertie 500-kV Intertie transmission

system violates Western's goals with regards to limiting increases in

annual operating expenses in order to maintain competitive rates.

Response: Western's goal of limiting increases in annual operating

expenses, exclusive of debt service, in order to maintain competitive

rates in the markets served by Western was first published in September

1994 and was not in existence when construction began on the AC

Intertie 500-kV transmission system. Nevertheless, the overwhelming

majority of costs relating to the AC Intertie 500-kV transmission

system is for debt service and not annual operating expenses.

Furthermore, the proposed firm point-to-point transmission service rate

of $12/kW/year remains less than Western's Parker-Davis Project

transmission service rate of $12.99/kW/year and also less than the firm

point-to-point transmission rates offered by the other utilities that

operate in the same regional markets served by DSW.

Comment: A commentor stated that the construction and inclusion in

the proposed rate of the AC Intertie 500-kV transmission system

violates Western's operating rules with regards to subjecting new

facilities for construction to at least one of three criteria: (1)

increased revenues from the new facilities must exceed the annual cost

over the cost evaluation period; (2) customers must benefit

sufficiently to support the new facilities in spite of a possible rate

increase; or (3) the new facilities must be funded by others.

Response: Western's operating rules for construction of new

facilities were first published in September 1994 and were not in

existence when construction began on the AC Intertie 500-kV

transmission system. However, Western had conducted studies and surveys

prior to the construction of the AC Intertie 500-kV transmission system

that supported Western's participation in the Mead-Phoenix Project

(MPP) and Mead-Adelanto Project (MAP). Studies conducted in 1989

indicated that given Western's generation capability and load patterns,

Western's transmission system existing at the time of the studies did

not have the capacity to effectively market Federal power resources.

Western's decision to participate in the MPP and MAP was substantiated

by an independently-produced resources and transmission study conducted

in 1990. The MPP and MAP were joint participation construction projects

with 11 other entities. The entities are as follows: Arizona Public

Service Company; City of Anaheim; City of Azusa; City of Banning; City

of Burbank; City of Colton; City of Glendale; City of Pasadena; City of

Riverside; City of Vernon; Los Angeles Department of Water and Power;

Public Power Agency of Modesto, Santa Clara, and Redding; and Salt

River Project.

This vast number of participants only underscores the perceived

need by the participants at the time of construction. Furthermore,

Western conducted a number of surveys between November 1990, and

January 1996, all of which resulted in substantial interest by

prospective customers for transmission capacity. In February 1996,

Western began contract negotiations with prospective customers. During

negotiations, it became apparent that various external industry issues

were emerging and that these issues were having an impact on the

negotiations. The prospective customers decided to delay contracting

for long-term firm transmission capacity over the AC Intertie 500-kV

transmission system. FERC Order No. 888 became effective July 9, 1996.

FERC Order No. 888 is designed to promote competition through open

access and has brought many new players to the wholesale bulk power

business. As a result, utilities are striving to improve their short-

term competitive position, and prospective customers are staying away

from committing to long-term transmission contracts.

Comment: A commentor referenced 10 CFR. 903.21(g) in conjunction

with a statement concerning the AC Intertie 500-kV transmission

facilities, that ``Western is not legally permitted to construct

speculative transmission facilities on the backs of the preference

customers it has a statutory obligation to serve at the lowest possible

rates consistent with sound business principles.''

Response: The reference to 10 CFR 903.21(g) is erroneous because no

such section exists. Moreover, as explained previously, Western's

participation in the construction of the AC Intertie 500-kV

transmission system was specifically authorized by Public Law No. 98-

360. In response to the criticism that the construction of the AC

Intertie 500-kV transmission system was a speculative enterprise, it

should be noted once again that the MPP and MAP were joint

participation construction projects with 11 other entities. The

entities are as follows: Arizona Public Service Company; City of

Anaheim; City of Azusa; City of Banning; City of Burbank; City of

Colton; City of Glendale; City of Pasadena; City of Riverside; City of

Vernon; Los Angeles Department of Water and Power; Public Power Agency

of Modesto, Santa Clara, and Redding; and Salt River Project. Due to

changes in the electric industry as a whole, utilities are having to

defend stranded investments that the electric utility industry has

undertaken. At the present time, many of the participants are trying to

effectively market their entitlement of the MPP and MAP. Stranded

investments, due to industry restructuring in California alone, are

projected to be more than $4 billion. At the time Western and other

utilities made the decision to participate in the

[[Page 6350]]

MPP and MAP, the decision was sound. As late as February 1996,

utilities were requesting 649 MW of capacity on the AC Intertie 500-kV

transmission system.

Comment: Several commentors protested the inclusion of the unfunded

portion of the Civil Service Retirement Costs and Post-Retirement

Health and Life Insurance Benefits (Retirement Benefits) in the rate

order and in some cases stated that Western did not possess the legal

authority to either collect the funds, to divert the funds to the

Office of Personnel Management prior to their deposit in the

Reclamation Fund, or to withdraw the funds from the Reclamation Fund

for these same purposes.

Response: Under a legal opinion provided by the General Counsel of

the DOE by memorandum dated July 1, 1998, the Power Marketing

Administrations have the authority to collect through the rates the

full costs of the Retirements Benefits. Based on the FY 1998 data

expected to be booked to the AC Intertie, this amounts to $120,359 for

FY 1999, representing less than one percent of the AC Intertie revenue

requirements for FY 1999. At this time, Western's only intention is to

deposit the funds into the Reclamation Fund.

Comment: A commentor requested that the construction work planned

for replacing the 345-kV series capacitor banks at Mead and Liberty

Substations be reevaluated and that the projected cost be removed from

the rate order.

Response: Western agrees with the commentor's request to reevaluate

the necessity of replacing the series capacitor banks and has removed

the projected costs from the rate order.

Comment: A commentor requested an explanation as to why Multi-

Project Costs are no longer being booked in the PRS.

Response: Western had intended to separate the investment costs

that are the basis for the Multi-Project Cost calculation and allocate

them to their respective projects for repayment. Western has

reevaluated the benefit of such action and will continue to book the

Multi-Project Costs in the PRS consistent with previously established

procedures.

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 rulemaking of particular applicability involving

rates or services applicable to public property.

Small Business Regulatory Enforcement Fairness Act

Western has determined that this rule is exempt from Congressional

notification requirements under 5 U.S.C. 801 because the action is a

rulemaking of a particular applicability relating to rates or services

and involves matters of procedure.

Environmental Compliance

In compliance with the National Environmental Policy Act of 1969,

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

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

Western has determined that this action is categorically excluded from

the preparation of an environmental assessment or an environmental

impact statement.

Determination 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.

Availability of Information

Information regarding this rate adjustment, including project

repayment studies, comments, letters, memorandums, and other supporting

material made or kept by Western for the purpose of developing the

Provisional Rates, is available for public review in the Desert

Southwest Regional Office, Western Area Power Administration, Office of

the Power Marketing Manager, 615 South 43rd Avenue, Phoenix, Arizona.

Submission to the Federal Energy Regulatory Commission

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

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

FERC for confirmation and approval on a final basis.

Order

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

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

basis, effective January 1, 1999, Rate Schedule INT-FT3 for the Pacific

Northwest-Pacific Southwest Intertie Project 230/345-kV transmission

system of the Western Area Power Administration. The rate schedule

shall remain in effect on an interim basis, pending FERC confirmation

and approval of it or a substitute rate on a final basis through

December 31, 2003.

Dated: January 28, 1999.

Ernest J. Moniz,

Acting Deputy Secretary.

Schedule of Rate(s) for Long-Term and Short-Term 230/345-kV Firm

Point-to-Point Transmission Service

Rate Schedule INT-FT3 (Supersedes Schedule INT-FT2) for 230/345-

kV Firm Transmission.

Effective: The first day of the first full billing period beginning

on or after January 1, 1999, and will remain in effect through December

31, 2003, or until superseded, whichever occurs first.

Available: Within the marketing area served by the Pacific

Northwest-Pacific Southwest Intertie Project (AC Intertie) 230/345-kV

transmission system.

Applicable: To firm transmission service customers where capacity

and energy are supplied to the AC Intertie 230/345-kV transmission

system at points of interconnection with other systems and transmitted

and delivered, less losses, to points of delivery on the AC Intertie

230/345-kV transmission system pursuant to the applicable firm point-

to-point transmission service agreement and the rates referred to

below.

Character and Conditions of Service: Alternating current at 60

Hertz, three-phase, delivered and metered at the voltages and points of

delivery established by contract over the AC Intertie 230/345-kV

transmission lines.

Long-Term Rate on the AC Intertie 230/345-kV Transmission System:

For transmission service of longer than one year, the rate to be in

effect January 1, 1999, through December 31, 2003, is $12.00 per

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

as established by contract, payable monthly at the rate of $1.00 per

kilowatt per month.

Short-Term Rates on the AC Intertie 230/345-kV Transmission System:

For transmission service up to one year, the maximum rate to be in

effect from January 1, 1999, through December 31, 2003, is as follows:

Yearly: $12.00/kW

Monthly: $1.00/kW

Weekly: $.23/kW

Daily: $.03/kW

Hourly: $.00137/kWh

Discounts may be offered from time-to-time in accordance with

Western's open access transmission service tariff.

[[Page 6351]]

Billing: The rates listed above will be applied to the amount of

capacity reserved, payable whether utilized or not.

For Losses: Capacity and energy losses incurred in connection with

the transmission and delivery of capacity and energy under this rate

schedule shall be supplied by the customer in accordance with the

transmission service agreement.

[FR Doc. 99-3114 Filed 2-8-99; 8:45 am]

BILLING CODE 6450-01-P