Cost Components and Rate Process
When the projects were begun, they were designed, constructed, operated, and maintained by the Bureau of Reclamation. The Bureau also owned the transmission system and marketed the power from the projects. When the Western Area Power Administration (Western) was formed under the Department of Energy Organization Act in 1977, the design, construction, operation, and maintenance functions remained with the Bureau, and the transmission system and marketing responsibilities were moved to Western. Construction and capital projects are funded through the federal Treasury at the interest rate determined by Congress or at the time construction starts. These projects go through a budgeting process associated with the federal budget, and money is appropriated for these projects from the federal budget. Therefore, the appropriated funds have Congressional oversight. As revenues are collected for the sale of federal power, there is a priority assigned to payment of obligations. The priority of repayment of the projects is that O&M expenses for Western and the Bureau are paid first and then repayment of the highest interest loans is made to the federal Treasury. Repayment to the federal Treasury is on a project-by-project basis, and the principal is essentially paid in a “balloon payment” at the end of 50 years. The components associated with the power features are paid first, including the appropriate interest, and then the power revenues are used to pay the irrigation projects at no interest.
Each year Western compiles a “power repayment study” which estimates expenses of both the Bureau of Reclamation and Western as well as principal and interest payments, and models anticipated revenues from firm sales, surplus sales, and other revenues such as wheeling. Basically, anticipated revenues are compared against the estimated expenses and repayments due, and if there are insufficient funds, rates are adjusted to make up any shortfalls. The power repayment study is based on the “ultimate development” of all the projects anticipated in the Colorado River Storage Project including participating projects. This means that CRSP power repayment study includes costs of some projects which may never be constructed, although they are scheduled in the PRS so as to not impact the current rate.
After Western has completed the power repayment study and if a rate adjustment is necessary, then a public process is begun. This process basically includes a notice in the Federal Register that a rate adjustment is necessary, public information and comment meetings are held, an environmental assessment is prepared, and then the proposed rate is filed with the Federal Energy Regulatory Commission (FERC) for review. The rate can be put into effect on an interim basis while FERC reviews the rate, and if FERC concurs, the rate becomes final. FERC may also choose to remand the rate.
In July, 2000, CREDA was pleased to learn that through the work program review process, Western announced it could defer a rate increase one year, until 2001. However, in October, 2000, due to low hydrology, high purchased power costs and the impacts of the Glen Canyon low flow experiment, Western announced it was in a severe cash flow situation and would have to implement a rate "adder" to build up the Basin Fund. This "adder" as proposed was a 67% increase! CREDA worked closely with the agencies to address the Basin Fund cash flow issues. Result was no rate adder; however, a long-term rate adjustment process began during the fall of 2001 and an 18% rate increase was implemented in October, 2002. Of significance is that federal budgets have increased 75% over the past 5 years! CREDA’s efforts through this process resulted in a rate 3-4 mills lower than it could have been. In March, 2003, Western again announced a severe cash flow problem. CREDA worked with Western and recommended a course of action whereby Western would reduce the amount of its contractual energy deliveries for the long-term, thus reducing the amount of firming power it would need to purchase. Western adopted CREDA’s suggestion in December, 2003, and another rate increase was avoided. However, in May, 2004, CREDA learned that once again, the Colorado River Basin Fund was experiencing a draw-down due to the amount of purchased power required due to the ongoing (5 year) drought situation. CREDA again worked with Western to craft a solution which resulted in a lower than anticipated rate increase (23%, effective October 1, 2005). Rates again increased in 2009, but were less than proposed due to WAPA's implementing CREDA's proposed “two-step” process.
Through a multi-year process in January 2011, an agreement among the states of Utah, Colorado, Wyoming, New Mexico and Reclamation, Western and CREDA became effective. The agreement addresses accounting treatment of apportionment revenues and mitigated the need for a 2011 rate increase. The term is through 2025.
Also of significant concern to CREDA was treatment of increased security costs at federal facilities following the events of September 11, 2001. The CREDA Board has passed a resolution advocating such federal facilities are a national concern, and that power users are not the only beneficiaries. Increased costs for security should be non-reimbursable, appropriated funds. The FY ’03 of FY ‘04 Omnibus Appropriations bills contain report language supporting this position. In September, 2006, CREDA testified in support of legislation amending the Safety of Dams Act to provide a cost share “cap” on the amount of reimbursable expenses that would be charged to water and power customers. The legislation was signed by President Bush in May 2008.
