The Central Valley Project-Rate Order No. WAPA-128

AGENCY:

Western Area Power Administration, DOE.

ACTION:

Notice of Proposed Change of Reactive Power and Voltage Control Revenue Requirement Component.

SUMMARY:

The Western Area Power Administration (Western) is proposing to revise the transmission revenue requirement (TRR) for existing formula rates associated with Reactive Power and Voltage Control from the Central Valley Project (CVP) and other non-Federal Generation Sources Service (VAR Support). The TRRs for transmission service from the CVP transmission system, the Pacific Alternating Current Intertie (PACI), and the California-Oregon Transmission Project (COTP) are assigned a portion of the VAR Support costs under Rate Schedules CV-T1, CV-NWT3, PACI-T1, and COTP-T1 which extend through September 30, 2009. The proposed revision to the TRRs will remove the VAR Support costs from the TRRs. This formula rate will provide sufficient revenue to repay all annual costs, including interest expense, and repay required investment within the allowable period. Western will prepare a rate brochure that provides detailed information on the impact of this rate adjustment to all interested parties. This proposal is scheduled to go into effect on September 1, 2006, and will remain in effect through September 30, 2009. Publication of this Federal Register notice begins the formal process for the proposed revisions to the applicable revenue requirements.

DATES:

The consultation and comment period begins today and will end April 3, 2006. Western will accept written comments any time during the consultation and comment period.

ADDRESSES:

Send written comments to Mr. Sean Sanderson, Rates Manager, Sierra Nevada Customer Service Region, Western Area Power Administration, 114 Parkshore Drive, Folsom, CA 95630-4710, e-mail ssander@wapa.gov. Western will post information about the rate process on its Web site at http://www.wapa.gov/sn/customers/rates/#currentrates/ . Western will post official comments received via letter and facsimile to its Web site after the close of the comment period. Western must receive the written comments by the end of the consultation and comment period to ensure they are considered in Western's decision process.

FOR FURTHER INFORMATION CONTACT:

Mr. Sean Sanderson, Rates Manager, Sierra Nevada Customer Service Region, Western Area Power Administration, 114 Parkshore Drive, Folsom, CA 95630-4710, telephone (916) 353-4466, e-mail ssander@wapa.gov.

SUPPLEMENTARY INFORMATION:

The current formula rates for transmission service on the CVP (CV-T1 and CV-NWT3), the PACI (PACI-T1), and the COTP (COTP-T1) transmission systems are based on a TRR that includes CVP and other non-Federal generator costs for providing VAR Support. The proposed revision to the TRR will remove the VAR Support costs from the TRRs. Western proposes to collect the revenue requirement for CVP VAR Support costs in the PRR under power rate schedule CV-F11. The removal of VAR Support costs will result in a more equitable treatment of all transmission customers.

The Deputy Secretary of Energy approved Rate Schedules CV-T1, CV-NWT3, PACI-T1, and COTP-T1 for transmission service and CV-F11 for Base Resource and First Preference Power on November 18, 2004 (Rate Order No. WAPA-115, 69 FR 70510, December 6, 2004), and the Federal Energy Regulatory Commission (Commission) confirmed and approved the rate schedules on October 11, 2005, under FERC Docket No. EF0-5011-000 (113 FERC 61,026). Rate Schedules CV-T1, CV-NWT3, PACI-T1, COTP-T1, and CV-F11 began January 1, 2005, and end on September 30, 2009.

The December 1, 2004, update of the approved rates resulted in annual CVP VAR Support costs of $336,070. Western currently estimates its annual costs associated with CVP and other non-Federal generator VAR Support to be $1,486,558. This cost was pro rata assigned to the respective transmission systems on a capacity basis and is one of the costs contained in Component 1 of the CVP, PACI, and COTP formula rates.

As part of the implementing of Western's Open Access Transmission Tariff, Western separated its merchant function from Western's reliability function. It has come to Western's attention, that by including the CVP and other non-Federal generation sources' reactive power and voltage control costs in Western's TRR, Western, in certain circumstances, may be treating its merchant in a manner that is not comparable with other transmission customers. Under Western's current rates, all transmission customers would pay Western for VAR Support. As a result, a transmission customer who also has a generator that is directly connected to Western's system and who has an obligation to provide reactive power within the bandwidth (commonly referred to as the deadband) would also pay Western for VAR Support. Western believes that both Federal generators and non-Federal generators should be treated comparably when they provide VAR Support.

To treat both Federal and non-Federal generators comparably, Western could either: (1) Roll all the VAR Support costs from both types of generators into Western's TRR or (2) Western could exclude all VAR Support from both types of generators from Western's TRR. Western's proposal is the latter.

Based on Western's understanding of the Commission's comparability requirements, Western has agreed to compensate the Calpine Construction Finance Company (CCFC), a non-Federal generator connected to the CVP transmission system, for reactive power costs subject to the outcome of this rate proceeding. Western will compensate CCFC from December 2005 until new rates are in effect regardless of the outcome of this rate proceeding. At a minimum, such payments increase Western's annual costs for reactive power from approximately $341,000 to almost $1.2 million. While CCFC is the only entity that has currently sought to charge Western for reactive power, Western intends to treat every generator directly connected to Western's transmission system in a comparable fashion. Western cannot determine the cost associated with all such facilities. The obligation to provide such payments could create an open, indefinite, and undefined future liability for Western. Such costs could likely exceed $1.2 million. On the other hand, if Western excludes both the Federal and non-Federal generator costs for VAR Support in the TRR, it would ultimately fall to the customers who purchase power from the generator to pay for such costs. Customers who receive power from Western through Rate Schedule CV-F11 currently pay VAR Support costs in the PRR including the VAR Support associated with network service. Also included are VAR Support costs associated with the Rate Schedules PACI-T1 and COTP-T1 if not recovered from contracted sales. By excluding the VAR Support component from the TRR, Western can accurately determine the costs associated with transmission service. Furthermore, while Western's statutory customers, such as preference power customers, would be obligated to pay Western for all of the costs associated with reactive power from the United States generators in its power rates, the overall cost to Western's statutory customers would be lower and more predictable since they are paying for only the costs associated with the Federal generators.

As a result, Western seeks comments from all interested parties on Western's rate proposal. In addition, Western seeks particular comments on the following: (1) Whether Western should not make any changes to its rates (no action) and if Western takes no action, whether Western's current rates result in non-comparable treatment; (2) whether Western should remove the VAR Support component from Western's TRR and apply to the PRR for the CVP; Schedule of Rates for Base Resource and First Preference Power (CV-F11); and (3) whether including the costs associated with VAR Support in its TRR would be consistent with Western's statutory obligation to provide power at the lowest rates possible consistent with sound business principles. While Western seeks particular comments on the above, Western invites all interested parties to submit other comments related to the proposal. As part of Western's final decision, Western will evaluate all comments received before the end of the consultation and comment period.

Under the 2004 Power Marketing Plan, Base Resource and First Preference power is primarily CVP hydrogeneration available subject to water conditions and operating constraints. The Base Resource and First Preference power formula rates recover a PRR through percentages of costs to First Preference and Base Resource Customers.

Component 1 of the PRR for Base Resource and First Preference Power, as approved in the rate schedule (CV-F11), includes operations and maintenance (O&M), purchased power for project use and First Preference Customer loads, interest expense, annual expenses (including any other statutorily required costs or charges), investment repayment for the CVP, and the Washoe Project annual PRR that remains after project use loads are met. Revenues from project use, transmission, ancillary services, and other services are applied to the total PRR, and the remainder is collected from Base Resource and First Preference Customers.

The proposed rate formula change for CV-F11 for the Base Resource and First Preference PRR is listed in Table 1.

Legal Authority

The proposed revision to the revenue requirements described above constitutes a minor rate adjustment. Western has determined that it is not necessary to hold a public information or comment forum for this proposed minor rate adjustment as defined by 10 CFR part 903. After review of public comments, and possible amendments or adjustments, Western will recommend the Deputy Secretary of Energy approve the proposed rates on an interim basis.

Western is establishing TRRs and a PRR for the formula rates for CV-T1, CV-NWT3, PACI-T1, and COTP-T1 transmission service and CV-F11 for Base Resource and First Preference Power under the Department of Energy Organization Act (42 U.S.C. 7152); the Reclamation Act of 1902 (ch. 1093, 32 Stat. 388), as amended and supplemented by subsequent laws, particularly section 9(c) of the Reclamation Project Act of 1939 (43 U.S.C. 485h(c)); and other acts that specifically apply to the project involved.

By Delegation Order No. 00-037.00, effective December 6, 2001, the Secretary of Energy delegated: (1) The authority to develop power and transmission rates to Western's Administrator; (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 Commission. Existing Department of Energy (DOE) procedures for public participation in power rate adjustments (10 CFR part 903) were published on September 18, 1985.

Availability of Information

All brochures, studies, comments, letters, memorandums, or other documents that Western initiates or uses to develop the proposed rates are available for inspection and copying at the Sierra Nevada Regional Office, located at 114 Parkshore Drive, Folsom, California. Many of these documents and supporting information are also available on the Web site under the “Current Rates” section located at ­ http://www.wapa.gov/sn/customers/rates/#currentrates/ .

Regulatory Procedure Requirements

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. 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.

Environmental Compliance

In compliance with the National Environmental Policy Act of 1969 (NEPA) (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 this action is categorically excluded from preparing 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.

Small Business Regulatory Enforcement Fairness Act

Western has determined this rule is exempt from congressional notification requirements under 5 U.S.C. 801 because the action is a rulemaking of particular applicability relating to rates or services and involves matters of procedure.