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[Federal Register: August 20, 1996 (Volume 61, Number 162)] [Notices] [Page 43051-43055]

DEPARTMENT OF ENERGY Western Area Power Administration

Western Area Power Administration's Policy for the Purchase of Non-Hydropower Renewable Resources

AGENCY: Western Area Power Administration, DOE.

ACTION: Notice of non-hydropower renewable resources policy.

SUMMARY: This notice announces the Western Area Power Administration (Western) adoption of a policy to purchase a portion of its expected purchase power requirements on a project-by-project basis and in a competitive manner, from non-hydropower renewable resource producers. This concept includes a proposal to purchase 50 percent of those purchases from solar resources. Western's policy focuses on technical assistance and facilitation of renewables, as opposed to a mandatory purchase power set-aside for renewables.

FOR FURTHER INFORMATION: For additional information, please contact Mr. Michael S. Cowan, Chief Program Office, Western Area Power Administration, P.O. Box 3402, Golden, CO 80401-0098, (303) 275-1630.

SUPPLEMENTARY INFORMATION: On April 15, 1996, Western published a notice entitled Western Area Power Administration's Concept for Purchase of Non-hydropower Renewable Resources, and Solicitation of Interest (Concept) in the Federal Register (61 FR 16480). In response to requests, the original 30-day comment period was extended in 61 FR 24789 (May 16, 1996). The comment period closed May 31, 1996, 45 days after the publication of the Concept. Western received 150 comment letters concerning the Concept. A summary discussion of those comments and Western's responses are included in this notice along with Western's policy on non-hydropower renewable resource purchases.

The primary focus of the Concept was the purchase of non-hydropower renewable resources as part of Western's electric firming requirements. Western also requested comments on the criteria that Western would use to implement a new policy. These proposed criteria included: (1) The assumption that additional costs associated with non-hydropower renewable resource purchases would have little or no discernable rate impact to Western's firm power customers; (2) the cost of the non- hydropower renewable resources purchased by Western would be equal or less than an established cost cap; and (3) the contract term for the purchase of these renewable resources would vary project by project, but in no case would the term extend beyond the termination date of Western's long-term firm power sales contracts for a project.

Western specifically requested comments on the following points related to the proposed Concept: (1) Whether or not the respondents support the proposed Concept, (2) the magnitude of percentage of a potential purchase power requirement set-aside, (3) whether it is appropriate to have 50 percent reservation for solar resources within the set-aside, and if so, whether the reservation amount for solar should be increased or decreased, (4) the acceptable rate impact, (5) a recommended cost cap in mills per kWh for non-hydropower renewable resources, (6) a recommended contract term for purchases, (7) recommendations on alternative methods whereby Western would facilitate market opportunities for non-hydropower renewable resources, and (8) any other related issues.

Western also was interested in receiving comments concerning other terms, requirements, and criteria of the proposed Concept such as: dispatchability, point of delivery, dependability, resource diversity, and environmental impact. The proposed Concept also indicated that resource acquisitions would be made through the application of the Concept on a project-by-project, cost competitive basis and in a manner consistent with Western's formally adopted principles of integrated resource planning published in the Federal Register (60 FR 54151).

Western also solicited comments from the public interested in having Western facilitate the delivery of non-hydropower renewable resources on their behalf and at their cost; for alternative Concepts; and for information from renewable resource developers.

Comments were received from a variety of entities including power customers, developers, environmentalists, government agencies, investor-owned utilities, and Native American tribes.

Western has taken into consideration each comment in the development of its non-hydropower renewable resource policy.

Discussion of Comments

Western received 150 comment letters representing both individual commenters and groups of interested entities. The majority indicated that they or the entities they represent do not support the proposed Concept. Western reviewed each comment and responded to them in the text which follows.

Comments: The primary reason given for not supporting the proposed Concept was the increased cost and subsequent adverse rate impact. Several entities stated that ``any'' rate impact is significant and the cost of these types of renewables is too high and should not be blended into their costs. Although many Western firm power customers support the development of renewables, they strongly oppose the proposed Concept because of the increase in costs and lack of local choice for customers to support renewables that make sense in their particular community. The firm power customers strongly suggest that the proposed Concept be abandoned.

Other commenters stated that the impact to rates is acceptable, and an even higher rate impact should be used as a ceiling. Several of those commenters stated that Western may have overestimated the rate impacts and suggested alternative methodologies to calculate the rate impacts and make the program more attractive to developers. The various suggestions included: taking into account capacity values; aggregating Western's purchase power needs into one contract; focusing on one large resource where economies of scale would make it more cost competitive; extending the length of the commitment; purchase year-round as opposed to seasonal; and increasing the amount of the resource purchased.

Response: Western acknowledges that there are minimal rate impacts associated with the Proposed Concept. Western also recognizes its obligation to both the taxpayers and the power customers to keep rates as low as possible to maintain a market for the Federal hydropower resource and thereby assure project repayment to the Treasury. Western reviewed the comments concerning the suggested rate impacts and acknowledges that there are several ways to recalculate those impacts and different methodologies that could be used to determine a larger or smaller rate impact. However, Western has not ascertained a method of purchasing nonhydropower renewable resources that does not increase costs.

In response to the large negative response to the proposed Concept, Western will not mandate the purchase of a certain portion of its replacement and firming requirements from non-hydropower renewable resources. The proposed concept is impracticable given Western's policy in the Energy Planning and Management Program that allows customers to provide their own firming energy and the customers strong opposition to the proposed Concept. Consequently, proceeding with a non-hydropower renewables firming energy purchase over the objection of customers would likely result in customers exercising their option not to purchase higher priced firming energy from Western. Western will strongly support the use of these non-hydropower renewable resources by means other than the conceptual purchase power set-aside and, when available at competitive prices, will purchase replacement and firming requirements from these renewable resources.

Comments: Many commenters stated that the proposed Concept is in conflict with Western's primary mission and contradicts legislation, regulations, and policies that Western is presently required to observe. Numerous customers indicated that the Concept is not consistent with Western's primary mission as stated in section 9(c), Reclamation Act of 1939, 43 U.S.C. 485h<Copyright> and by section 5, Flood Control Act of 1944, 16 U.S.C. 825s which obligates Western to provide power ``* * * in such a manner as to encourage the most widespread use thereof at the lowest possible rates to consumers consistent with sound business principles''. In addition, commenters explained that the proposed Concept is inconsistent with section 1809 of the Grand Canyon Protection Act of 1992, which states that the Secretary of Energy will replace lost generation with ``economically and technically'' feasible methods. Some commenters indicated that the proposed Concept is not consistent with Western's policies established in the Energy Planning and Management Program (EPAMP) and the Integrated Resource Planning (IRP) section of EPAMP, and Western's IRP principles. Additionally, commenters indicated that the proposed Concept is incompatible with existing agency purchase power policies that allow customers to choose to make their own replacement energy purchases. A few commenters indicated that the proposed Concept is contrary to the provision in the Public Utilities Regulatory Policies Act that only requires utilities to purchase resources such as being proposed for acquisition by Western at the ``avoided cost''. These commenters' contention is that the 5.5 cents/KWH far exceeds the ``avoided cost''. A few commenters suggested that Western is violating the National Environmental Policy Act by considering implementation of the proposed Concept without an environmental impact statement.

Response: Western is an agency of the DOE and has responsibilities to support DOE's mission and to provide benefits to the public, but Western must also observe applicable legislation and fulfill its contractual obligations. Western believes it has the authority to implement the proposed Concept. Since Western has modified the method Western will use to support the non-hydropower renewable resources program, it will not address the specific legal issues raised by the commenters.

Comments: Numerous commenters objected to the Concept, citing that it did not recognize the new competitive utility environment in light of the Federal Energy Regulatory Commission's (FERC) recent Orders, 888 and 889. They stated that open access to the electric transmission system will create a highly competitive industry and that high priced resources would be an unnecessary obstacle to such competition. A few commenters indicated that the proposed Concept would be directly at odds with a competitive market place and that if the proposed Concept was implemented, the creation of an artificial market may ultimately hurt development of non-hydropower renewable resources.

Response: Western believes that competition by itself is not at odds with the development of non-hydropower renewable resources. Western recognizes the environmental and socioeconomic benefits that non-hydropower renewable resources provide and will promote the use of these types of resources. However, there are currently large amounts of surplus power available in the spot market, with pricing detrimental to the competitiveness of non-hydropower renewable resources. In response, Western has developed a policy to commit staff resources to continuously evaluate power pricing, identify market opportunities for renewables, and facilitate transactions between renewable resource developers and customers interested in purchasing renewable resources.

Comments: Many commenters believe the proposed Concept is not equitable because Western's firm power customers would be the only ones paying for the non-hydropower renewable resource program and the program would benefit many other stakeholders. Most of these commenters indicated that DOE should fund this ``subsidy'' program. Some commenters are very much against financing any type of subsidy and indicated that the proposed Concept, if implemented, should be funded by all taxpayers. Some commenters stated that they were already funding Federal policies detrimental to power, such as replacing the lost generating capacity at Glen Canyon Dam and questioned the fairness of the firm power customers being assigned the responsibility to pay above-market costs to accommodate a policy that would increase their costs to benefit the general public. However, one commenter stated that Western's firm power customers have received the most direct benefits from the Federal hydro projects, so they should fund the proposed Concept's non-hydropower renewable purchases.

Response: Western understands that all Americans will benefit from the research and development of the non-hydropower renewable resources. Western believes that non-hydropower renewable resources are very important and will benefit all Americans, including the commenters that do not support the proposed Concept. Western has decided not to adopt a policy that would include a mandatory set-aside of power purchases for non-hydropower renewables, but Western will provide technical support to customers willing to pursue non-hydropower renewable resource transactions.

Comments: Several commenters indicated that the choice of purchasing firming energy should be at the local level and they should have the right to choose any resource that meets their needs. Some of these commenters indicated that participation in the proposed Concept should be on a voluntary basis. One commenter suggested the purchase of the renewables should be incorporated into existing contracts and that Western should re-evaluate its IRP process to provide purchase alternatives for Western's customers.

Response: Western supports its existing policies of allowing the firm power customers to choose the resources that provide for their requirements. Western's policy incorporates the principles of voluntary participation and least-cost resource acquisition.

Comments: A few commenters believe that Western should have additional involvement with the public and hold meetings with stakeholders to discuss the proposed Concept. In addition, a few commenters stated that the purpose of the proposed Concept is unclear and questioned a perceived lack of a goal or reasoning behind the proposed Concept. One commenter stated it is illogical to use one renewable resource (hydropower) to subsidize another renewable resource (non-hydropower).

Response: Western published the proposed Concept in the Federal Register to solicit comments from the public and to determine the level of public interest in non-hydropower renewable resources. Western supports the idea of developing non-hydropower renewable resources if each local utility can make the appropriate decision, with customer involvement. Western also believes that there was an appropriate amount of public involvement, but as part of facilitating transactions under the policy, Western is willing to consider other actions the agency can perform to further the use of renewable resources.

Comments: Several commenters questioned the reasoning behind the 50% solar reservation of the purchases that would be provided under the proposed Concept. Commenters questioned the reasoning behind the promotion of any type of generation when there is already excess capacity available. In addition, a number of comments recommended that the set aside level be modified.

Response: The proposed Concept reflected Western's desire to ensure a diversified mix of non-hydropower renewable resources and Western's goal of supporting the DOE's commitment to commercializing a variety of renewable resource technologies. In the modified program, each customer will be free to choose the type and level of resource, since all costs are paid for by the individual utility.

Comments: Several commenters expressed their support for the proposed Concept, citing the environmental and societal benefits as a primary reason Western should implement the proposal. One commenter stated that Western should evaluate the impact of renewables using the NEPA process. One commenter cited three environmental benefits from implementing the proposed Concept; ``(1) mitigates the decision to add firming power to Western's output mix, (2) improves the conservation and economic efficiency of electrical use in the region, and (3) is a prudent step toward responsible domestic participation in addressing global environmental problems.'' This commenter also suggested Western should adopt an environmental impact policy featuring the purchase of non-hydropower renewable resources.

Response: Western recognizes the environmental and societal benefits from renewable resource use. However, Western also recognizes that firm power customers would be adversely impacted by implementing the proposed Concept. Therefore, Western has determined to evaluate opportunities on a case-by-case basis and to support voluntary efforts to develop non-hydropower renewable resources.

Comments: Several commenters suggested that Western work with the Nevada Corporation for Solar Technology and Renewable Resources (CSTRR) by implementing the proposed Concept or a modified version of the Concept. It was also suggested that Western could facilitate CSTRR power sales and distribution and provide a market for solar power generated from CSTRR. A few commenters encouraged Western to support CSTRR's effort irrespective of statistical data. One commenter pointed out that if Western supports CSTRR through this or a modified version of the Concept, then Nevada will have a better opportunity to develop a safe and reliable use for the Nevada Test Site as well as promoting the abundant solar resource in southern Nevada. Commenters suggested that Western should give priority to purchasing solar energy produced at the Nevada Solar Enterprise Zone. Another commenter suggests that Western team up with the Utility Photovoltaic Group and other partners to develop solar projects in the West.

Response: Western believes it can facilitate additional markets for entities such as CSTRR through partnering and coordinating operations with these and similar entities. The policy adopted will promote these developments to assure that CSTRR and other renewable developments have the maximum probability of success.

Comments: Several commenters expressed concern over the problems with the dispatchability of the non-hydropower renewable resources.

A commenter pointed out that due to the intermittent, non- dispatchable nature of renewable power generation, Western should allow projects the flexibility to sell power in the off peak seasons. Another commenter stated that the solar resource is significantly better for the integrated operation of the Western system than the spot market, non-firm fossil thermal resource presently used. Comment was received that stated transmission requirements on the part of the supplier of the renewable power is an important element. One comment suggests that any switch to power from alternative uses should be directed to residential end users. Comments also supported Western providing discounted or free transmission and ancillary services. One commenter suggested a modified Concept could provide for transmission services or discounted ancillary services.

Response: Western agrees there are unique dispatching problems with solar and wind generation. Western also believes that the dispatching problems can be mitigated when the solar and wind resources are mixed with traditional generation resources. Western will continuously seek operational strategies to integrate non-hydropower renewable resources.

Comments: A significant number of commenters stated that they support Western being a facilitator and providing staffing resources to assist those entities that are willing to purchase non-hydropower renewable resources at their own expense. Several commenters also support a ``green pricing'' alternative strategy for non-hydropower renewable resources.

One comment suggested that Western participate in identifying locations that would be suitable for solar generation and that preference for solar development at Bureau of Reclamation projects should be extended. In addition, that commenter suggested Western assist its customers in surveying the environmental preferences of their retail users. Several commenters suggest developing a ``green power'' marketing program and for Western to facilitate market opportunities for non-hydropower renewable resources.

Response: Commenters that agreed and disagreed with the proposed Concept suggest or imply that Western should facilitate non-hydropower renewable resource transactions and consider developing ``green power'' programs. Western agrees with these comments and as part of the policy will facilitate such services to assure renewable resources are fully evaluated.

Comments: One commenter requested clarification as to whether an ethanol facility would qualify as a non-hydropower renewable resource and another commenter as to whether small wind generators would be considered solar power.

Response: For purposes of this proposed Concept the ethanol facility would not have been considered a non-hydropower renewable resource and the small wind generators would have been considered wind generation, not solar generation.

Policy: Western will not mandate that each project must purchase a portion of its firming power requirements from non-hydropower renewable resources. Western will continue to consider the purchase of non- hydropower renewable resources where they are competitive with other supplies, consistent with Western's IRP principles.

Western shall establish a program to facilitate the voluntary use of renewable resources by Western's wholesale customers. Western shall provide technical expertise, marketing information, and act as a facilitator with Western's customers and renewable energy developers. The goal of the program is to identify customers that desire renewable resources in their generation mix, and provide the technical and marketing assistance required for them to fully evaluate the option.

Determination Under Execution Order 12866

DOE has determined this policy does not meet the criteria of Executive Order 12866 and is not a significant regulatory action. 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.

Review Under the Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601 et seq, requires federal agencies to perform a regulatory flexibility analysis if a proposed regulation is likely to have a significant economic impact on a substantial number of small entities. In the notice proposing the Concept, Western's Administrator certified that, if promulgated, it would not have significant adverse economic impact on a substantial number of small entities. Western did not receive any comments that addressed the certification.

Review Under the National Environmental Policy Act

As per Department of Energy 10 CFR 1021 National Environmental Policy Act (NEPA) Implementing Procedures and Guidelines; Final Rule and Notice section 1021.102, Applicability, this action is not a major federal action affecting the quality of the environment of the United States, and therefore no NEPA documentation is required.

Review Under Executive Order 12612

Executive Order 12612 requires review of regulations or rules for any substantial direct efforts on States, on the relationship between National Government and the States, or on the distribution of power and responsibilities among various levels of Government. Western has assessed this policy in light of the criteria in sections 2 through 5 of Executive Order 12612. Western has determined that its policy is consistent with those criteria, and that the policy will not impose significant costs or burdens on States or affect the States' ability to discharge traditional State functions.

Review Under Executive Order 12988

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, ``Civil Justice Reform,'' 61 FR 4729 (February 7, 1966), imposes on Executive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation, and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by Section 3(a), section 3(b) of Executive Order 12988 specifically requires the Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies preemptive effect, if any; (2) clearly specifies any effect on existing Federal Law or regulations, (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. The Administrator has completed the required review and determined that, to the extent permitted by law, today's action meets the relevant standards of Executive Order 12988.

Issued in Golden, Colorado
August 2, 1996.
J.M. Shafer, Administrator.

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