[Federal Register Volume 75, Number 120 (Wednesday, June 23, 2010)]
[Notices]
[Pages 35786-35792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15227]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Southwestern Power Administration
White River Minimum Flows--Addendum to Final Determination of
Federal and Non-Federal Hydropower Impacts
AGENCY: Southwestern Power Administration, DOE.
ACTION: Notice of addendum to final determination.
-----------------------------------------------------------------------
SUMMARY: Southwestern Power Administration (Southwestern) has finalized
an addendum to its January 2009 Final Determination Report concerning
the Federal and non-Federal
[[Page 35787]]
hydropower impacts of the White River Minimum Flows project. The
addendum documents changes to Southwestern's final determination. The
changes were made to account for the impacts that the increase in
average pool elevation has on the operation of the Federal Bull Shoals
and Norfork projects and to include impacts to non-Federal hydropower
resulting from the loss of renewable energy under the state renewable
energy standard in Missouri.
Southwestern published a draft addendum to its final determination
by Federal Register Notice (74 FR 27135) on June 8, 2009. Written
comments were invited through July 8, 2009. The Federal Register notice
stated that comments would be accepted only on the proposed changes in
the draft addendum. Public comments received were considered in
revising the June 2009 draft addendum and developing Southwestern's
finalized addendum.
Based on an October 28, 2009, date of implementation for the White
River Minimum Flows project as established by Section 314 of Public Law
111-85 and values for the specified parameters as of that date,
Southwestern's modified final determination results in a present value
of $26,563,700 for the estimated future lifetime replacement costs of
the electrical energy and capacity at Federal Energy Regulatory
Commission (FERC) Project No. 2221. Southwestern's modified final
determination results in a present value of $52,576,600 for the
estimated future lifetime replacement costs of the electrical energy
and capacity for Federal hydropower at the Bull Shoals and Norfork
projects.
FOR FURTHER INFORMATION CONTACT: Mr. George Robbins, Director, Division
of Resources and Rates, Southwestern Power Administration, U.S.
Department of Energy, One West Third Street, Tulsa, Oklahoma 74103,
(918) 595-6680, [email protected].
If you desire a copy of the addendum, submit your request to Mr.
George Robbins, Director, Division of Resources and Rates,
Southwestern, at the above-mentioned address for Southwestern's office
or by electronic mail.
SUPPLEMENTARY INFORMATION: Originally established by Secretarial Order
No. 1865 dated August 31, 1943, as an agency of the U.S. Department of
the Interior, Southwestern is now an agency within the U.S. Department
of Energy. Southwestern markets power from 24 multi-purpose reservoir
projects with hydroelectric power facilities constructed and operated
by the U.S. Army Corps of Engineers (Corps). These projects are located
in the states of Arkansas, Missouri, Oklahoma, and Texas.
Southwestern's marketing area includes these states, as well as Kansas
and Louisiana.
Section 132 of Public Law 109-103 authorized and directed the
Secretary of the Army to implement alternatives BS-3 and NF-7, as
described in the Corps' White River Minimum Flows Reallocation Study
Report, Arkansas and Missouri, dated July 2004. The law provides that
the Administrator of Southwestern, in consultation with the project
licensee and the relevant state public utility commissions, shall
determine any impacts on electric energy and capacity generated at FERC
Project No. 2221 caused by the storage reallocation at Bull Shoals
Lake. Further, the licensee of Project No. 2221 is to be fully
compensated by the Corps for those impacts on the basis of the present
value of the estimated future lifetime replacement costs of the
electrical energy and capacity at the time of implementation of the
White River Minimum Flows project.
The law also provides that losses to the Federal hydropower purpose
at the Bull Shoals and Norfork Projects shall be offset by a reduction
in the costs allocated to the Federal hydropower purpose. Further, such
reduction in costs shall be determined by the Administrator of
Southwestern on the basis of the present value of the estimated future
lifetime replacement cost of the electrical energy and capacity at the
time of implementation of the White River Minimum Flows project.
Section 314 of Public Law 111-85, enacted October 28, 2009, amended
the authorizing language for the minimum flows project and provided
that the licensee of FERC Project No. 2221 will be compensated by
Southwestern rather than the Corps based on the present value of the
impacts to the non-Federal project as determined by Southwestern at the
time of project implementation. Section 314 also provided that the time
of project implementation is the date of the legislation's enactment,
October 28, 2009. The final calculation will be based on the value of
the specified parameters in effect at that time.
Southwestern developed a procedure for calculating projected energy
and capacity losses for FERC Project No. 2221 and the Bull Shoals and
Norfork projects in accordance with Section 132 of Public Law 109-103.
Input from affected parties and from the public was invited and
utilized in the development of the determination.
Southwestern's draft determination was published on February 5,
2008 (73 FR 6717). Written comments were invited through March 6, 2008.
All public comments received were considered, and Southwestern's draft
determination was revised as necessary to incorporate the public
comments. Because there were significant changes to Southwestern's
draft determination, Southwestern published a proposed determination
for additional public review and comment prior to its final
determination.
Southwestern's proposed determination was published on July 3, 2008
(73 FR 38198). Written comments were invited through August 4, 2008.
After receiving several requests for additional time to provide public
comments, Southwestern reopened the public comment period through
September 18, 2008 (73 FR 46901, August 12, 2008). All public comments
received were considered in revising the proposed determination and
developing Southwestern's final determination.
Southwestern's final determination was published on January 23,
2009 (74 FR 4183). Southwestern's final determination is fully
documented in its Final Determination Report dated January 2009, which
was prepared in consultation with the non-Federal licensee and the
relevant public utility commissions. The report documents the procedure
to be used to calculate the present value of the future lifetime
replacement cost of the electrical energy and capacity lost due to the
White River Minimum Flows project at the non-Federal FERC Project No.
2221 and the Federal Bull Shoals and Norfork projects.
Southwestern published a draft addendum to its final determination
on June 8, 2009 (74 FR 27135). The June 2009 draft addendum proposed
several changes to Southwestern's final determination. Written comments
were invited through July 8, 2009. The Federal Register notice stated
that comments would be accepted only on the proposed changes in the
draft addendum. Public comments received were considered in revising
the June 2009 draft addendum and developing Southwestern's finalized
addendum. Changes to Southwestern's final determination are discussed
here and documented in the addendum.
During an extensive internal review of its calculations in the
final determination, Southwestern discovered an inadvertent omission of
a portion of the energy benefits associated with the higher pools at
the Federal Bull Shoals and Norfork projects. A detailed review of the
energy loss calculations revealed that a portion of the energy benefits
at the Federal projects which were believed to be included in the
calculations had been inadvertently omitted. While the gains from the
[[Page 35788]]
increase in head (the vertical distance between the lake, or pool
elevation, and the river, or tailwater elevation) that resulted from
the higher pool elevations were included in the computation of benefits
received from the generation of minimum flows releases at Bull Shoals,
including an additional gain from a lower tailwater, the head gains
were omitted for the remainder of the generation. Southwestern's
addendum corrects the computation of energy loss and associated
replacement costs for both Federal projects to include those gains.
The portion of the energy benefits due to higher head from the
raised pools that were omitted amounted to an additional 11,669
megawatt-hours (MWh) at Bull Shoals and 1,459 MWh at Norfork. Inclusion
of those benefits reduces the net energy losses at Bull Shoals and
Norfork, respectively. The net annual energy loss at Bull Shoals will
be 12,186 MWh, and the net annual energy loss at Norfork will be 12,065
MWh. As discussed in Southwestern's Final Determination Report, all of
the lost energy at Bull Shoals is considered off-peak energy, and the
lost energy at Norfork is considered one-half on-peak energy and one-
half off-peak energy. There are no changes in the capacity loss at
Norfork or in the capacity or energy loss at the non-Federal project.
As part of its review of the impacts that the average pool
elevation increase has on the normal operation of the Federal projects,
Southwestern concluded that it should quantify dissolved oxygen (DO)
impacts due to the average increase in pool elevation. Southwestern's
final determination recognized that generation at both Bull Shoals and
Norfork is impacted annually due to low DO conditions. Southwestern
also noted that the higher pool elevations at both projects will cause
the hypolimnion to be higher relative to the penstock elevations at
both projects, causing water with lower DO levels to flow through the
turbines during generation. Southwestern noted but did not quantify the
value of the potential DO impact in its final determination.
Southwestern has developed a procedure for quantifying the
estimated impacts and costs of lower DO levels on Federal hydropower.
The procedure estimates the costs of mitigating the DO impacts
resulting from the increased pool elevations at the Federal projects. A
number of alternative solutions have been proposed for improving DO
levels downstream of the Federal projects. Southwestern considered the
initial capital cost and annual operation and maintenance expenses
associated with these systems in determining the total impacts of the
White River Minimum Flows project on hydropower production. The
procedure is based on historical DO level data and is detailed in
Southwestern's addendum. Based on the procedure and on values of the
specified parameters corresponding to the time of implementation
specified in Section 314 of Public Law 111-85, the present value of the
lifetime impact of lower DO levels on Federal hydropower is $8,934,300.
It should be noted that the $8,934,300 amount only addresses the
incremental impact of the increased pool elevation on DO levels and is
not representative of an amount to satisfy all DO issues at the Federal
projects.
Southwestern's final determination provided for the inclusion of
the impacts of the minimum flows project with regard to a renewable
portfolio standard, stating ``If a state or Federal mandatory renewable
portfolio standard that qualifies any of the three projects studied is
implemented before the final payment or offset is completed, the
impacts to both Federal and non-Federal hydropower should be quantified
and included in the compensation calculation.'' Absent any established
rules, it was not initially apparent to Southwestern that FERC Project
No. 2221 qualified under Proposition C, a state renewable energy
standard passed in Missouri in November 2008. The Missouri Public
Service Commission (MoPSC) confirmed that FERC Project No. 2221
qualifies under Proposition C, a state renewable energy standard passed
in Missouri in November 2008. As a result, Southwestern worked with the
non-Federal licensee and the MoPSC to develop a procedure for
quantifying an appropriate credit for the loss of renewable energy at
FERC Project No. 2221 resulting from the minimum flows project. Based
on the procedure defined in the addendum, the present value of the
lifetime impact for the loss of renewable energy at FERC Project No.
2221 resulting from the minimum flows project is $470,700.
Southwestern proposed a revised discount rate selection for
calculation of the present value of the losses for both the Federal and
non-Federal projects in its June 2009 draft addendum. Subsequently,
Section 314 of Public Law 111-85 amended the authorizing language for
the project, specifying that ``At the end of each fiscal year
subsequent to implementation, any remaining balance to be paid to the
licensee of Project No. 2221 shall accrue interest at the 30-year U.S.
Treasury bond rate in effect at the time of implementation of the White
River Minimum Flows project.'' Consistent with Section 314 of Public
Law 111-85, Southwestern utilized the 30-year U.S. Treasury bond rate
in its calculation as shown in its final determination rather than the
discount rate selection proposed in the June 2009 draft addendum.
Therefore, no change is required to the final determination related to
the discount rate. The discount rate change proposed in the June 2009
Draft Addendum was not adopted, and the discussion in Southwestern's
June 2009 draft addendum on the discount rate is removed from the
addendum.
Based on an October 28, 2009, date of implementation for the White
River Minimum Flows project as established by Section 314 of Public Law
111-85 and values for the specified parameters as of that date,
Southwestern's modified final determination results in a present value
of $26,563,700 for the estimated future lifetime replacement costs of
the electrical energy and capacity at FERC Project No. 2221.
Southwestern's modified final determination results in a present value
of $52,576,600 for the estimated future lifetime replacement costs of
the electrical energy and capacity for Federal hydropower at the Bull
Shoals and Norfork projects.
Dated: June 17, 2010.
Jon C. Worthington,
Administrator.
Comments on Southwestern's June 2009 Draft Addendum
Southwestern received comments from four entities and one
individual during the public comment period. The comments, by category,
and Southwestern's responses thereto, are set forth below:
A. Federal Energy Losses
1. Comment. The commenter stated they ``believe that the most
accurate and technically sound engineering methods must be used to
determine capacity and energy losses from water storage reallocation
impacts,'' and they ``were pleased to see that Southwestern is
continuing to question procedures and when an inaccuracy was
discovered, Southwestern corrected the issue.''
Response: Concur.
B. Low Dissolved Oxygen (DO) Impact Quantification
1. Comment. The commenter stated they ``agree with Southwestern
that the increase in average pool elevation at Bull Shoals will cause
water containing lower DO levels to flow through the turbines during
generation.''
Response: Concur.
2. Comment. ``It appears from the addendum that Southwestern has
used
[[Page 35789]]
and evaluated the most current and accurate DO cost data available to
them. When the White River Minimum Flow Project is implemented,
negative impacts will occur from the low DO and those negative impacts
should be offset with credit provided to hydropower.''
Response: Concur.
3. Comment. The commenter stated they ``believe that the procedure
developed by Southwestern appears to be reasonable and sound and should
be used in the determination for credits to hydropower.''
Response: Concur.
C. Interest Rate Used for Present Value Determination
1. Comment. The commenter disagreed with the discount rate
selection proposed in Southwestern's June 2009 draft addendum, stating
``While increasing the discount rate from 4.5% to 6.1% certainly
accomplishes the goal of lessening the economic cost of the project,
the selection of Empire's embedded long-term debt costs is arbitrary
and capricious, unduly places the economic impact of the project on
Empire and its customers, and is quite frankly flawed in many ways.''
Response: Southwestern reviewed the validity of using the discount
rate selection in its June 2009 Draft Addendum for both the Federal and
non-Federal projects based on the non-Federal licensee's comment
referencing its ``cost of cash'' prior to the Final Determination.
Consistent with Section 314 of Public Law 111-85 amending the White
River Minimum Flows legislation, Southwestern utilized the 30-year U.S.
Treasury bond rate as in its Final Determination. The discount rate
change proposed in the June 2009 Draft Addendum was not adopted.
2. Comment. ``First, the debt interest rate information SWPA
gathered from Empire's FERC Form No. 1 is correct. However, the debt
Empire reports relates to financing projects, events and circumstances
related to the past and does not contemplate impacts on Empire due to
the White River Minimum Flows Project. Any rates derived from debt
placed in the past are irrelevant.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See previous response.
3. Comment. ``Second, SWPA inappropriately puts themselves in the
position of making management decisions for Empire. SWPA states `If the
discount rate drops below the cost of long term debt for either the
Federal or non-Federal projects it is reasonable to assume that any
offset or compensation would wisely be used to pay off those debts
rather than invest the funds in lower interest bearing accounts.' In
this instance, SWPA makes a broadly incorrect assumption that Empire
could pay off a pro rata portion of each of the 12 different long-term
securitized debt issuances that are outstanding. SWPA furthers this
mistake by not including any costs for debt prepayment or early
redemption fees that would be due bond holders or whether the issues
even allow for an early redemption without bond holder approval.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
4. Comment. ``Third, the Addendum provided by SWPA utilized
Empire's long-term debt as of December 31, 2008 to determine a discount
rate which is inconsistent with the remainder of the damage
calculation. The weighted-average maturity of Empire's debt is just
under fifteen years while the impact utilized in the initial study was
based on fifty years.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
5. Comment. The commenter ``recommends the current rate (4.25% as
stated by SWPA at the time of the Addendum issuance) be used as the
discount rate. While SWPA contends `The recent changes in the
investment sector have resulted in the current rate being artificially
lowered' (emphasis added), this is the real and currently effective
rate and no one can accurately predict the future rate or even the
future of the investment sector.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. The 30-year U.S. Treasury bond rate on the
date of implementation specified in Public Law 111-85 was 4.50%. See
response to comment 1.
6. Comment. ``* * * we believe SWPA's application of Empire's cost
of debt is arbitrary and capricious.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
7. Comment. ``The SWPA makes an error in using an estimate of
Empire's opportunity cost as a basis for determining the non-Federal
discount rate used to calculate the present value of the increase in
fuel expense that Empire would incur from the loss of energy from the
White River Minimum Flows project.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
8. Comment. ``First, the issue is not the use to which Empire might
or might not make of the upfront compensation for the loss. The issue
is the cost of the upfront payment to the Federal government. To put
this in clear language: If the Federal government were to take this
lump sum payment and invest it to produce the payments due Empire over
the fifty-year period, what rate of interest could it earn at zero risk
to make those payments? The clear and unequivocal answer is the risk-
free treasury rate, which in August 2008 was 4.5% and is currently
4.23%, not Empire's cost of long-term debt.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
9. Comment. ``Second, even if it is incorrectly assumed that the
relevant issue is Empire's opportunity cost, the rate used by the SWPA
is an average rate from 12 different long-term securitized debt
issuances that are outstanding at this time. The SWPA has no knowledge
of when these debt issuances are due or of any early redemption fees
that Empire would have to pay the bond holders. The SWPA should not be
using a measure of opportunity cost for Empire, and in particular
should not use a measure associated with instruments with which it
lacks familiarity. While a lack of familiarity with private bond
markets by a public agency that does not deal with these markets on a
day-to-day basis is understandable, had the SWPA consulted with the
MoPSC in a timely manner on this matter, because it does deal with
these markets, the MoPSC could have provided expertise and information
on private bond markets and perhaps this error could have been
avoided.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
10. Comment. ``Third, the risk at issue here is that of the Federal
government, not Empire's risk, however if Empire's risk were at issue,
its investment risk would not be relevant to operational issues related
to its hydroelectric facility. Instead, the only plausible risk would
be related to the expected loss of energy from the Ozark Beach
facility, and not the investment risk associated with the debt that
Empire is currently holding. Therefore, the MoPSC does not agree with
the SWPA in using a different discount rates for Federal
[[Page 35790]]
versus non-Federal projects, as both types of projects have similar, if
not identical, operational risks.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
11. Comment. ``Fourth, using embedded cost of long-term debt to
lower the lump-sum payment to a non-Federal project and raise the
amount paid to Federal project based on different investment risk
profiles makes little sense. It assumes that because owners of the non-
Federal project have a higher investment risk they can earn a higher
rate of return on their lump sum payment. If Empire's investment risk
were at issue, a higher risk should demand a higher rather than lower
up-front payment. The opposite result of the SWPA's findings (higher
risk means lower up-front payment) demonstrates the flaw in using the
opportunity cost of the recipients in calculating the lump sum
payment.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
12. Comment. ``Fifth, by the SWPA finding the current treasury rate
to be ``artificially lowered,'' this means that the SWPA has better
knowledge of financial risk than the markets. To state it another way,
if the SWPA were to make the investment of the lump-sum payment and pay
Empire from that investment, can it in fact make the full payment(s)
required? If not, then the SWPA is literally `gambling' against what
the markets say can be achieved with Empire's, i.e., ratepayers',
money. This is not in Empire's ratepayers' interest, and is therefore
contrary to the public interest.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
13. Comment. ``Sixth, the SWPA's concern with the changes in the
investment sector resulting in a low Treasury bill rate, as reflected
in the SWPA's mistaken use of Empire's supposed cost of capital for a
discount rate, is inconsistent with the SWPA's lack of concern about
the recent impact of the downturned economy on wholesale electricity
prices, as reflected in the SWPA's adoption of the revised Platts'
price forecast.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
14. Comment. ``SWPA proposes to use a discount rate for the non-
Federal Ozark Beach hydroelectric project in Missouri that is at least
160 basis points higher than the discount rate being used for the two
Federal projects. This action unfairly discriminates against Empire and
ultimately Empire's customers who have been receiving the benefits of
this low-cost electricity for more than half a century. Just this one
change proposed by SWPA would, in effect, `cheat' Missouri electric
consumers out of more than $7 million dollars in compensation for the
taking of their hydroelectric capacity.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
15. Comment. ``SWPA should not treat the non-Federal Ozark Beach
Hydroelectric Project any differently than the two other Federal
projects. The correct discount rate to use and update is the Treasury
30-year bond rate as the discount rate in its calculation of the
present value of the energy loss over the fifty-year period.''
Response: The discount rate change proposed in the June 2009 Draft
Addendum was not adopted. See response to comment 1.
D. Replacement Cost of Energy
1. Comment. The commenter ``concurs that the March 2009 Platts high
fuel data is lower than the November 2008 Platts high fuel data. We
agree with SWPA's prior comment that prices should be updated at the
time of implementation.''
Response: Concur.
2. Comment. ``SWPA should continue to use the Platts' price
forecast, but should update that forecast prior to the final
calculations.''
Response: Concur.
E. Missouri Renewable Energy Standard
1. Comment. ``* * * one parameter that has changed is Missouri
voters' approval on November 4, 2008, via Initiative Petition Vote, of
a Renewable Energy Standard (RES).'' ``Energy from Empire's Ozark Beach
hydroelectric facility would qualify as renewable energy under the
draft MPSC rule for Missouri's RES.''
Response: FERC Project No. 2221 did not initially appear to qualify
under the new standard. The Missouri Public Service Commission (MoPSC)
confirmed that FERC Project No. 2221 does qualify under the new
standard. Southwestern's Final Determination provides that an
appropriate credit for a state or Federal renewal standard be
quantified and included in the compensation calculation. Subsequently,
Southwestern worked with the non-Federal licensee and the MoPSC to
quantify an appropriate credit for the loss of renewable energy at FERC
Project No. 2221 resulting from the minimum flows project. The credit
is included in the Addendum.
2. Comment. ``SWPA failed to take into account a recent initiative
petition voted into law in Missouri requiring investor-owned utilities
to meet certain renewable energy standards. Since the new statutes
state that ``hydropower (not including pumped storage) that does not
require a new diversion or impoundment of water and that has a
nameplate rating of ten megawatts or less'' 393.1025(5) RSMo Cum. Sup.
2008, meet the definition of renewable energy resources and Empire's
Ozark Beach hydroelectric facility consists of 4 identical units, each
with nameplate ratings of 4 MWh, energy from the Ozark Beach
hydroelectric facility should qualify as renewable energy under these
standards, with the first compliance year being calendar year 2011.''
Response: Southwestern included a credit for the loss of renewable
energy at FERC Project No. 2221. See previous response.
3. Comment. ``Since the output from Ozark Beach will be reduced,
Empire most likely will need to use 1.25 Renewable Energy Credits
(RECs) from its out-of-state wind generation for each MWh of in-state
lost Ozark Beach generation. In-state generation receives an additional
25% of renewable credit compared to out-of-state generation.''
Response: Concur. Southwestern included an additional 25 percent
credit for the loss of energy from a renewable energy source within the
state of Missouri as provided for in Proposition C.
4. Comment. ``Empire's other renewable energy resources are wind
units in Kansas. Therefore, Empire will need an additional 1.25
Renewable Energy Credits (RECs) from other renewable energy sources to
replace each MWh of lost energy from the Ozark Beach hydroelectric
facility caused by the storage reallocation at Bull Shoals Lake. The
addition of 25% is due to the fact that in-state sources of renewable
energy get 1.25 times the credit as out-of-state renewable energy. The
SWPA should add the cost of RECs to the energy prices it is using to
value the Ozark Beach hydroelectric facility lost energy. This would be
calculated at the estimated cost of the REC times 1.25 to compensate
for the loss from a within state source of renewable energy.''
Response: Concur. See previous response.
5. Comment. ``Although a market for the value of a REC to comply
with the Missouri RES is not readily transparent,
[[Page 35791]]
a one-cent per kWh ($10 per MWH) cost appears to be a reasonable
estimate. SWPA should update their analysis to reflect the Missouri RES
that is now law.''
Response: Southwestern worked with the non-Federal licensee, the
MoPSC, and two of its Federal hydropower customers in Missouri in
estimating the value of the renewable energy credits lost due to the
minimum flows project. That process is described in Southwestern's
Addendum.
6. Comment. ``A reasonable and conservative estimate of the cost of
a REC that would be added to the market price of energy is
approximately $10 per MWh factored up to $12.50 per MWh for the loss of
an in-state renewable energy source. This estimate is conservative
since the U.S. Environmental Protection Agency's (``EPA's'') Green
Power Partnership Web site lists three Missouri programs with pricing
from $15 per MWh to $50 per MWh and a national average of $19.47 per
MWh.''
Response: Southwestern updated the REC price to reflect the
implementation date specified in Public Law 111-85. See previous
response.
7. Comment. ``SWPA should include a $12.50 per MWH adder escalating
at 2.1% per year to Platt's energy prices to account for the lost RECs,
and should increase this to $38.50 per MWh if the Federal government
removes production tax credits for renewable energy production.''
Response: See responses to Comments 5 and 6.
F. Federal Carbon Legislation
1. Comment. The commenter ``continues to assert that an amount
should be included for carbon tax risks. On June 26, 2009, the United
States House of Representatives passed that Waxman-Markey Bill, HR
2454, now referred to as the American Clean Energy and Security Act of
2009, which places limits on carbon dioxide (CO2). Although
the Senate has not yet passed a similar bill, it is more and more
likely that Empire's customers will see increased CO2 costs
due to the White River Minimum Flows Project.''
Response: Southwestern's Final Determination provides that an
appropriate credit for a cap-and-trade system should be quantified and
included if legislation is enacted into law before the final
calculations and payment to the non-Federal licensee. However, no such
legislation has been enacted.
2. Comment. ``Because Federal carbon legislation has not passed
both the U.S. House and U.S. Senate, it is not yet a Federal mandate.
However, the House has passed HR 2454 (Waxman-Markey Bill) that
includes carbon caps restricting carbon output to be the following
percentages of 2005 output by the following years: 97% by 2012; 83% by
2020, 58% by 2030; and 17% by 2050.''
Response: See previous response.
3. Comment. ``* * * the Congressional Budget Office predicts a
carbon price to be $16/ton by 2012 and that escalates to a price of
$26/ton by 2019 or an escalation rate of approximately 7.1% per year.
With Empire's average production of carbon equal to 1 ton of carbon per
MWh, this will increase the price of lost energy an additional $16 per
MWh starting in 2012 and escalate at a 7.1% annual rate until the end
of the fifty-year period. If the Senate passes this legislation in
similar form, then SWPA needs to add these costs to the lost energy
from the Ozark Beach hydroelectric facility.''
Response: See response to Comment 1.
4. Comment. ``SWPA should update its calculations for carbon
legislation if such legislation is passed by both House and Senate and
signed into law prior to the final calculations.''
Response: See response to Comment 1.
5. Comment. ``SWPA should update its calculations for carbon
legislation and use Waxman-Markey as the basis for those calculations.
To my great dismay, either Congress is going to pass cap-and-trade
legislation or EPA is poised to enforce even more onerous regulations
under the Clean Air Act. It no longer appears to be a question of `if'
but `when' and your analysis contains no recognition of what the
President and Congress are doing. Accordingly, you should include a $16
per MWh adder starting in 2012 with an escalation rate of 7.1%
compounded for each subsequent year based on the present Waxman-Markey
Bill.''
Response: See response to Comment 1.
G. Federal Income Tax Considerations
1. Comment. The commenter stated, ``This issue has been neglected
by all parties up until this time.'' ``* * * a lump sum receipt of an
amount to compensate the Company for the loss of future revenues will
be taxable income to the Company in the year received.'' ``Therefore,
regardless of the SWPA's final determination, the result needs to be
grossed up for income taxes in order for Empire to be `fully
compensated' as required by Section 132 of the Energy and Water
Development Appropriations Act, 2006.''
Response: Do not concur. Throughout three years of public review
and consultation with the non-Federal licensee and the state public
service commission prior to publication of the Final Determination,
neither the non-Federal licensee nor the state public service
commission provided any comments or methodology addressing income tax
implications, and it was not considered in Southwestern's Final
Determination. Further, neither the original White River Minimum Flows
legislation, nor more recent Congressional action in Public Law 111-85
provide that Southwestern address income tax considerations or provide
additional compensation to the non-Federal licensee so as to in effect
treat the non-Federal licensee as if it were tax exempt for the
purposes of the legislation. Under Public Law 109-103, compensation to
the non-Federal licensee is to be made ``on the basis of the present
value of the estimated future lifetime replacement costs of the
electrical energy and capacity at the time of implementation of the
White River Minimum Flows project.'' Southwestern does not consider the
exclusion of income taxes as an error in the compensation calculations.
Southwestern calculated the compensation to the non-Federal licensee as
directed in the authorizing legislation. Absent specific Congressional
direction to treat the compensation to the non-Federal licensee as non-
taxable or address income taxes in some manner, Southwestern will not
include a provision to gross-up the compensation to the non-Federal
licensee.
2. Comment. ``The compensation received by Empire should be the
funds necessary to recompense Empire for the increased fuel cost it is
expecting to experience as a result of the White River Minimum Flows
project. These funds should be provided from the lump sum payment
Empire receives from the SWPA and the earnings Empire realizes by
investing those funds at a risk free rate equal to the discount rate
used in the analysis of the project. However, since the lump sum
payment from the SWPA, barring some preferred tax treatment, will be
fully taxable in the year received, Empire will lose over 38% of the
lump sum payment due to income taxes. In addition, annual earnings on
the remaining amount of the lump-sum are also likely to be taxable in
the year received. As a result, the remaining amount of the lump sum
that is available for investment at a risk free rate equal to the
discount rate will not provide sufficient compensation for the
[[Page 35792]]
increase in fuel cost that is expected to occur. Therefore, the lump-
sum payment from the SWPA should be factored-up to offset the effect of
income taxes to ensure that Empire is adequately compensated for the
increased fuel cost that Empire expects to experience as a result of
the White River Minimum Flows project.''
Response: Do not concur. See previous response.
3. Comment. ``SWPA should increase the lump-sum payment it
determines is appropriate, based on the other variables, by factoring-
up the amount for income taxes. This calculation will offset the loss
of funds, as a result of income taxes, and ensure that Empire receives
adequate compensation for the increased fuel cost that it expects to
incur as a result of the White River Minimum Flows project.
Response: Do not concur. See response to Comment 1.
4. Comment. ``SWPA should increase the lump-sum payment it
determines is appropriate, based on the other variables, by multiplying
the amount by a tax factor. As of today, I have not been able to
determine what this factor should be. My point is that there should
definitely be a calculation to off-set the loss of funds available for
investment, as a result of the income taxes in the year Empire receives
the lump-sum payment, and ensure that Empire receives adequate
compensation for the increased fuel cost that it expects to incur as a
result of the White River Minimum Flows project.''
Response: Do not concur. See response to Comment 1.
H. Lack of Consultation by Southwestern
1. Comment. The non-Federal licensee commented, ``Section 132 of
the Energy and Water Development Appropriations Act, 2006 states `The
Administrator of the Southwestern Power Administration, in consultation
with the project licensee and the relevant state public utility
commissions, shall determine any impacts on electric energy and
capacity generated at Federal Energy Regulatory Commission Project No.
2221 caused by the storage reallocation of Bull Shoals Lake, based on
data and recommendations provided by the relevant state public utility
commissions.' To Empire's knowledge, despite the fact Empire feels
there was constructive dialogue during the development of the initial
January 22, 2009 Final Determination, no consultation occurred between
the Final Determination and the Draft Addendum to the Final
Determination. Empire stands ready to discuss any of our comments with
SWPA before the Addendum to the Final Determination is finalized.''
Response: Southwestern consulted with the non-Federal licensee and
the MoPSC in a September 28, 2009, meeting to discuss their comments
and concerns with Southwestern's June 2009 Draft Addendum. Southwestern
subsequently consulted with the non-Federal licensee and the MoPSC in
developing a source for REC prices to be utilized in the final
compensation calculations.
[FR Doc. 2010-15227 Filed 6-22-10; 8:45 am]
BILLING CODE 6450-01-P