Western Area Power Administration’s (Western) Desert Southwest Region (DSWR) is proposing revised rates (proposed rates) for the long-term sale of ancillary services for the Parker-Davis Project (PDP), Boulder Canyon Project (BCP), Pacific Northwest-Pacific Southwest Intertie Project (Intertie), the Colorado River Storage Project (CRSP) and the Central Arizona Project (CAP) and network integration transmission service (network service) for the PDP and Intertie. This action is necessary because existing rates expire on March 31, 2006. The proposed rates will be applied under Western’s Open Access Transmission Tariff (OATT) and certain pre-OATT firm transmission contracts.

DSWR will offer network service to eligible transmission customers, subject to provisions in its OATT. The customer must obtain ancillary services for network service pursuant to Western's OATT except that the scheduling, system control, and dispatch (Scheduling) ancillary service costs are included in the network service charge. Network service will be provided from the P-DP, CAP, Intertie and the DSWR power system (whole system) within the Western Area Lower Colorado (WALC) Balancing Authority and Transmission Operation (BATO). The CAP network service is offered under Rate Order No. WAPA-124. The network service charge for P-DP, CAP, and Intertie Projects will apply to transactions within the respective Project.

Rate Order No. WAPA-84, which was set to expire on March 31, 2004, was extended to accommodate the DSWR Multi-System Transmission Rate (MSTR) process. A MSTR has not been approved. However, the whole system network service charge is structured to allow multi-system network service on the DSWR System if and when a MSTR is approved.

DSWR will price the six ancillary services defined by FERC. The six ancillary services are: 1) Scheduling, System Control, and Dispatch (Scheduling) Service; 2) Reactive Supply and Voltage Control (Voltage Support) Service; 3) Regulation and Frequency Response (Regulation) Service; 4) Energy Imbalance Service; 5) Spinning Reserve Service; and 6) Supplemental Reserve Service.

The network and ancillary services rate schedules define formula rates. Each year after Rate Order No. WAPA-127 becomes effective, Western will recalculate the rates based on the most current data. The recalculated ancillary service rates will be effective on October 1, of each year, as will the revenue requirement for each Project.

Definitions of some of the terms used in this brochure can be found in Appendix A. A timeline of activities related to the Rate Order No. WAPA-127 Public Process is contained in Appendix B. A description of the Projects under the WALC BATO is in Appendix C and the Marketing Map for the DSWR is in Appendix D.

CRSP completed a public rate process for ancillary Services rates effective October 1, 2002. A summary of these rates and their applicable rate schedules is provided in Appendix E. Those ancillary services which refer to Rocky Mountain Region (RMR) or the Western Area Colorado Missouri (WACM) Control Area have been determined in a separate public rate process by RMR. Those services that refer to DSWR or the WALC BATO are included in this rate process.

Under Rate Order No. WAPA-84, the ancillary service rates were recalculated each year. The historical ancillary Service rates for DSWR can be found in Appendix F. The current rates for the ancillary services as well as the transmission and generation rates for each of the Projects in DSWR are on the DSW Web site and shown in Appendix G, Consolidated Rate Schedules for PDP, BCP, Intertie and CAP.

In PDP, revenues and expenses that make up the revenue requirement recovered through the sales of ancillary, transmission, and generation services are divided between generation and transmission in a work book called the Cost Apportionment Study (CAS). Appendix H contains a summary of the CAS. Revenue requirements for each of the Projects in DSWR are determined in Power Repayment Studies (PRS). Summaries of the PRS for PDP, BCP and Intertie are in Appendices I, J, and K, respectively.

The formula rates defined in Rate Order No. WAPA-127 use transmission sales reservations or the Contract Rate of Delivery (CROD) as one of the determinants. A list of the transmission reservations by customer for the Intertie, PDP, and CAP are in Appendix L.

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II. Proposed Transmission Rates for DSWR Projects

Background

DSWR will offer network service to all eligible transmission customers under the proposed rates. The proposed rates will be applicable to existing and future transmission service. These rates include the cost of Scheduling ancillary service. The firm and non-firm transmission services and the CAP network service are offered under separate rate orders. Network service on the whole DSWR system is defined in this rate process to apply to the DSWR Multi-Project Transmission Rate (MSTR) if and when a MSTR is approved.

The methodology used for rate development, billing purposes, and the implementation process are described below with additional information at Appendix M.

Proposed Charge For Network Service

The charge for network service is the product of the transmission customer's load-ratio share time’s one-twelfth of the annual transmission revenue requirement (ATRR). The customer's load-ratio share is equal to the network transmission customer's hourly load coincident with the monthly transmission system peak (12CP) divided by the monthly transmission system load at the hour of the system peak. The hour of monthly system peak is determined as the hour that the sum of the network service customers’ metered load is the greatest.

Annual Transmission Revenue Requirement

The annual Power Repayment Study (PRS) will be used to derive the annual transmission revenue requirement to be recovered from network service for the PDP and the Intertie. The ATRR for the CAP are derived with a methodology described in the latest rate adjustment process the CAP, which is available on DSWR’s website at http://www.wapa.gov/dsw/pwrmkt/CAPTRP/CAPTRP.htm. The annual transmission costs include operation and maintenance expense, purchase power and wheeling expense, administrative and general expense, and principal and interest payments. The projected ATRR allocated to transmission for Fiscal Year (FY) 2006 for the P-DP is $32,826,345, for the Intertie Project is $29,808,939, and for CAP is $3,681,344. The ATRR for whole system service is equal to the sum of the ATRRs of the three projects or $66,316,628.

Charge For Network Service on Separate Projects

Network service will be provided separately from the CAP, the P-DP and the Intertie Projects. The charge for network service is the transmission customer's load-ratio share multiplied by one-twelfth of the applicable Project ATRR. The customer's load-ratio share is equal to that customer’s 12CP divided by the system peak for the service Project.

Charge For Network Service on the Whole System

The charge for whole system network service is the transmission customer's load-ratio share times one-twelfth of the annual transmission revenue requirement of the combined DSWR Projects, where the load ratio share is equal to that customer’s 12CP divided by the system peak of the DSWR system. The whole system network service does not include the CRSP Project.

Proposed Load for Transmission Service

The system load may vary from month to month both on a Project basis and a whole system basis. This variability arises from two sources: 1) changes in contract reservations and 2) differences in meter readings of the network service customers. Changes in contract reservations may happen because a new customer signs a contract, an existing customer terminates a contract or an existing customer modifies the reservation quantities. Customers are given the option to change the quantities in their exhibits once a year providing Western determines there is adequate available transmission.

System Load for Separate Projects

The system load at the peak hour is the sum of the firm point-to-point reservations contracted on a given system plus the sum of the network service customer’s meters on that system during the hour of the month that the network service load is greatest. The PDP system reservations include the Firm Electric Service (FES) CROD, the pre-OATT Firm Transmission Service reservations, the CRSP [s1] FES delivered to points of delivery on the PDP and the firm point-to-point reservations under Western’s OATT. The Intertie system reservations include the pre-OATT Firm Transmission Service reservations and the firm point-to-point reservations under Western’s OATT. The CAP system reservations include the pre-OATT Firm Transmission Service reservations (which includes Central Arizona Water Conservation District transmission reservations), and the firm point-to-point reservations under Western’s OATT.

System Load for the Whole System

The System Load at the peak hour is the sum of the firm point-to-point transmission reservations for PDP, Intertie and CAP plus the sum of the network service customers’ meters at the hour of the month that the meter sum is greatest. Table 1 shows the estimated load for the point–to-point reservations for each Project and for the whole system load as of July, 2005.

Table 1	Transmission Reservations
PDP	FES	256 MW
	FTS	1325 MW
	OATT	1017 MW
	CRSP	75 MW
Intertie	FTS	777 MW
	OATT	946 MW
CAP	FTS	519 MW
	OATT	310 MW
Whole System		5225. MW

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III. Proposed Rates for Ancillary Services

Background

Ancillary services are necessary to provide basic transmission service, and to correct the effects associated with undertaking a transmission transaction within a BATO. To this end, DSWR will provide ancillary services, subject to provisions in its OATT. The proposed rates for these services are designed to recover all the costs incurred for the service(s).

The proposed rates for these ancillary services are designed to recover the costs incurred for providing each of the ancillary services. The annual generation costs included in the development of the revenue requirement consists of operation and maintenance expenses, administrative and general expenses, and interest and principal capital payments. The annual PRS is the primary tool utilized to derive the revenue requirement to be recovered from the ancillary services. Additional tools include meter and Supervisory Control and Data Acquisition (SCADA) data, and power flow studies.

Currently, DSWR is offering the following ancillary services: Scheduling , System Control, and Dispatch Service, Voltage Support; Energy Imbalance Service; Spinning Reserve Service, and Supplemental Reserve Service. The current rates will expire March 31, 2006.

Description of Proposed Rate Methodologies

The Scheduling , System Control, and Dispatch Service and the Voltage Support are defined by FERC as services that a transmission provider/control area operator must provide and the transmission customer must purchase from the BATO.

The other four FERC-defined ancillary services, Regulation Service; Energy Imbalance Service; Spinning Reserve Service and Supplemental Reserve Service, must be offered by a transmission provider that operates a BATO. The transmission customer has the following options in regard to these services: 1) take the services from the transmission provider/control area operator, 2) self-supply the services for their transaction, or 3) purchase the services from a third-party acceptable to Western.

Because of the April 1, 1998, consolidation of all the CRSP generation units into the WALC BATO, two of the ancillary services: (1) Voltage Support Service and, (2) Regulation Service, will include certain CRSP generation costs as well as DSWR project generation costs.

The following paragraphs give short descriptions of the six ancillary services and the rate design for each of the proposed rates. Calculations and additional descriptive information can be found in Appendices N through T.

Scheduling, System Control, and Dispatch Service

Scheduling, System Control and Dispatch ancillary service is required to schedule the movement of power through, out of, within, or into a BATO. This ancillary service is required to be offered to the transmission customer from the transmission provider/control area. This ancillary service can be provided only by the BATO operator in which the transmission facilities used are located. That is, the transmission customer must purchase this service from the transmission provider or the BATO operator.

Scheduling costs are calculated as an annual cost of all personnel, capital costs (such as the control center building), and other related costs involved in providing the service for DSWR customers. These costs are recovered through a rate applied on a per tag basis. The rate is determined in two major steps. First, the yearly costs associated with capital improvements are determined and divided by the number of tags issued during the previous year. Second, the average labor cost per tag is determined and added to the capital cost per tag.

This proposed rate methodology differs from the previous methodology in two ways: 1) the proposed rates are based on tags rather than schedules and 2) the proposed methodology does not differentiate between new and existing service or whether or not the tag involves an intra-bus transfer. Table 2 shows a comparison between the existing and proposed rates using data that is current as of July 2005. Appendix O shows the backup data and calculations used to derive the proposed rates.

Table 2: Scheduling, System Control & Dispatch Ancillary Service
Existing		Proposed
Description	Rates	Description	Rates
DSW-SD1 --	per Schedule per Day	DSW-SD2	per Tag
Existing No SCADA programming or Intra-bus Transfer	$54.99	All applicable transactions	$18.55
Existing No SCADA programming requires Intra-bus Transfer	$73.05
New Schedule w/SCADA no Inter-bus Transfer	$51.10
New Schedule w/SCADA and Intra-bus Transfer	$75.26

Reactive Supply and Voltage Control Service

In order to maintain transmission voltages on the transmission provider's transmission facilities within acceptable limits, generation facilities controlled by the BATO operator are operated to produce or absorb reactive power. Thus, Voltage Support Service must be provided for each transaction on the transmission provider's transmission facilities. The amount of Voltage Support Service that must be supplied with respect to the transmission customer's transaction is determined by the reactive power support necessary to maintain transmission voltages within limits that are generally accepted in the region and consistently adhered to by the transmission provider. This ancillary service is required to be offered to the transmission customer from the transmission provider in order to maintain transmission voltages on the transmission provider's transmission facilities within acceptable limits.

The proposed rate for Voltage Support service is calculated by determining the revenue requirement for the service and dividing by the capacity reservations requiring the service. The revenue requirement for the service is obtained by multiplying the generation revenue requirement by one minus the power factor of the plants supplying the service and totaling the values for the BATO. The capacity requiring the service includes the capacity reservations in DSWR less the Independent Power Producers (IPP) plus the capacity from the CRSP units. The IPP capacity reservations for transmission service from the IPP plants are not included because their control area service agreements include a provision that require them to supply Voltage Support to the BATO for this service.

The proposed rate methodology differs from the current methodology in several ways. The current methodology: 1)applied a formula (1-PF²) to determine the percentage of generation revenue requirement applied to the reactive service for PDP and BCP, but depended on the CRSP to supply the calculation for their revenue requirement and 2) considered all transmission reservations in BATO and expressed monthly rate to 2 decimal places. Under the proposed rate Methodology DSWR will apply a formula (1-PF) to determine the percent of total generation that reactive service represents for all 3 projects (PDP, BCP, and CRSP). For PDP, the PF is based PDP operational flow restrictions rather than on name plate of the units. In addition, the transmission capacity excludes the IPPs because their control area service agreements require that they supply Voltage Support Service to the BATO.

Table 3 shows a comparison between the existing and proposed rates for the Voltage Support Service using current determinants for the Proposed Methodology.

Table 3: Reactive Supply and Voltage Support
Existing		Proposed
Description	Rates	Description	Rates
DSW-RS1	$/kW-mo	DSW-RS2	$/kW-mo
All applicable transactions	$0.05	All applicable transactions	$0.043

Appendix Q shows the backup data and calculations used to derive the Voltage Support Service rate. Revenue from this service will be allocated to each project based on an estimate of which customers use the service.

Regulation and Frequency Response Service

Regulation Service is necessary to provide for the continuous balancing of resources, generation and interchange, with load and for maintaining scheduled interconnection frequency at sixty cycles per second (60 Hz). To accomplish this, Regulation provides for the raising or lowering of on-line generation units that are equipped with automatic-generation control (AGC) and that can change output quickly (MW/second) to track moment-to-moment fluctuations in load. The transmission provider must offer this service when the transmission service is used to serve load within its BATO. The transmission customer must either purchase this service from the transmission provider or make alternative comparable arrangements satisfactory to Western to provide its Regulation Service obligation. The specific service agreement between Western and the transmission customer must reflect these alternative arrangements, if applicable.

Regulation Service is not available from DSWR resources on a long-term basis. However, if necessary, DSWR will purchase regulation on the open market on a pass through cost basis plus a charge that covers the cost of procuring and supplying the service. Regulation will be supplied from DSWR resources only on a short-term basis and only if such resources are available.

To calculate a rate for Regulation Service supplied by DSWR resources, the proposed rate methodology takes the revenue requirement for the service divided by the BATO load requiring the service. The revenue requirement for the service is the product of the generation capacity that is set aside for the regulation times the capacity rate of supplying Projects plus any regulation purchases the transmission provider must make. This total is multiplied by a use factor, which takes into consideration the customer load in the WALC BATO. The denominator in the equation (the load in the BATO requiring the service) is the sum of the CRSP load in the WALC BATO, and the DSWR load.

The proposed rate methodology is similar to the current rate in that DSWR does not have long term Regulation Service to sell. The proposed rate methodology differs from the current rate, in that, the proposed revenue requirement is determined by the portion of generation used for the Regulation Service. The rate was based on the capacity rate of the project supplying the service

Table 4 shows a comparison between the existing and proposed rates using data that is current as of July 2005 for the proposed rate. Appendix S shows the backup data and calculations used to derive this rate.

Table 4: Regulation & Frequency Response Service
Existing		Proposed
Description

TABLE OF CONTENTS

System Load for Separate Projects

System Load for the Whole System