Ratesetting Process
Irrigation Ratesetting Document
Component with Individual Contractor Deficits Ratesetting Method
Description of Ratesetting Method
The Component with Individual Contractor Deficits Ratesetting Method provides for a block repayment procedure with 50 years to repay all of the costs included in that block of costs. This method abandons the historic procedure of extending the repayment period of the entire CVP each time a new facility is added to the CVP (this was known as the rolling repayment or rolling 50 procedure).
While it is expected that construction will continue for some time on the CVP, the initial construction period for repayment purposes is calculated from the date the most recently completed major CVP facility (the New Melones Dam and Reservoir) was included as a part of the CVP. Therefore, the plant-in-service costs at the end of fiscal year 1980 must be repaid within 50 years, or by the end of fiscal year 2030. This period conforms with the time frame specified by Public Law 99-546. New repayment periods will be established for the capital costs of major rehabilitations and new facilities or units added to the CVP. However, all other construction costs affecting existing facilities will fall within this initial 50-year repayment period.
The Component with Individual Contractor Deficits Ratesetting Method includes individual contractor repayment or deficit balances in the determination of contractor water rates. The terms "deficit" or "operation and maintenance deficit" refer to the accumulation of annual operation and maintenance costs in excess of the annual water service payments made under a contract with a particular entity. In the aggregate, the irrigation account of the CVP has a positive balance, although that balance has been eroded during years in which annual operation and maintenance deficits have occurred. The terms "repayment" or "net repayment" refer to the accumulation of the annual water service payments in excess of that applied towards operation and maintenance expenses. The revenues in excess of operation and maintenance expenses is accumulated and applied to reduce the balance of outstanding construction costs.
Under the Component with Individual Contractor Deficits Ratesetting Method, the individual contractor irrigation water rates depend upon the extent and type of services provided by the Bureau of Reclamation (Bureau). The water rate applicable to each contractor consists of a number of cost compenents (or cost pools) which correspond to the water services provided by the Bureau. Each contractor's water rate consists of a composite of pooled CVP-wide rates, pooled service area rates, and individual rates to recover costs specific to certain contractors.
The cost pooling approach has been used in determining CVP irrigation water rates since the 1940's in accordance with the language of the legislation authorizing the CVP and perpetuated by subsequent legislation which provides for the continuation of the operational and financial integration of the CVP.
There are seven potential cost components that are totaled to determine a contractor's irrigation water rate under the Component with Individual Contractor Deficits Ratesetting Method. These cost components are: water marketing, storage, conveyance, conveyance pumping, San Luis Drain, direct pumping and adjustment for historic individual contractor repayment or deficit balances. The storage, conveyance, conveyance pumping, San Luis Drain and direct pumping components include rates to recover both operation and maintenance (including replacements) expenses and capital costs.
Description of each of the seven potential costs components that are totaled to determine a contractor's irrigation water rate under the Component with Individual Contractor Deficits Ratesetting Method follow:
Paid water includes all CVP supplies to be delivered to the long-term contractors. It excludes water rights, mitigation and other such water deliveries. Long-term contractors are the CVP contractors who already have long-term water service contracts and others who are expected to continue to receive CVP water on a regular basis pursuant to annual or long-term contracts.
Storage capital costs are pooled CVP-wide and allocated to all contractors benefitting from CVP storage by calculating a per acre-foot rate using the historic and projected long-term contract deliveries applicable to the 50-year repayment period commencing in 1980.
The storage component also includes the costs of the Folsom Pumping Plant, the San Luis Pumping-Generator facility and the Columbia Mowry System. These pumping facilities are included in storage as they are utilized to provide services which were eliminated by construction of the applicable storage facilities or because their operations more closely reflect a storage operation than a pumping operation.
Conveyance capital costs are pooled CVP-wide and allocated to all contractors benefitting from CVP conveyance service by calculating a per acre-foot rate using the historic and projected long-term contract deliveries applicable to the 50-year repayment period commencing in 1980.
The conveyance pumping operation and maintenance expenses include a pro rata share of the annual administrative and general expense and are allocated to those contractors receiving conveyance pumping services by using a CVP-wide pooled rate per kWh with the difference in allocated costs per acre-foot caused by the varying lift requirements of the pumping plants. The greater the lift requirement, the more energy required to pump each acre-foot of water and the more pumping operation and maintenance expenses allocated to the applicable individual contractor. Separate rates are calculated for each of the pumping plants involved, and the rates for each of the pumping facilities used by a Contractor are totaled to determine that Contractor's total conveyance pumping operation and maintenance rate.
Conveyance pumping capital costs for each of the four conveyance pumping facilities are allocated to all Contractors benefitting from CVP conveyance pumping by calculating a per acre-foot rate for each facility using the historic and projected long-term contract deliveries through each facility during the 50-year repayment period commencing in 1980. The rates for each of the pumping plants used by an individual contractor are totaled to determine each Contractor's applicable conveyance pumping capital rate.
A portion of the Tracy Pumping Plant's capital costs and operation and maintenance expenses are assigned to the Friant-Kern/Madera Canal Contractors on the basis of the historic and projected deliveries to the Delta Mendota exchange contractors applicable to the 50-year repayment period. These costs and expenses are then allocated among the Friant-Kerr Madera Canal contractors on the basis of their historic and projected Class 1 water deliveries during the 50-year repayment period.
year involved.
San Luis Drain capital costs are allocated to the three contractors currently entitled to San Luis drainage service on the ratio of each contractor's historic and projected long-term San Luis Canal deliveries applicable to the 50-year repayment period to the total of all such deliveries.
All of the facilities included in the direct pumping component are operated and maintained at no cost to the Bureau with the exception of the cost of the project use energy provided. The project use energy costs are isolated and charged diretly to the individual contractors receiving benefit of the pumping services.
The CVP capital costs applicable to the direct pumping facilities is also charged directly to the individual contractor receiving benefit of the pumping service. Per acre-foot rates are determined for these costs by distributing the capital costs to the historic and projected long-term contract deliveries applicable to the 50-year repayment period.
Prior to the enactment of Public Law 99-546, interest was not charged on operation and maintenance deficits. Accumulated annual payments were netted against accumulated annual operation and maintenance charges in order to establish each Contractors net repayment or deficit financial position through September 30, 1985. If the contractor's total payments exceeded the allocated operation and maintenance expenses through September 30, 1985, the net difference was considered repayment and was applied as a credit in determining the Contractor's water service rate. This credit is still applied in subsequent years to the extent that any deficits incurred after September 30, 1985 have been repaid. If the Contractor's allocated share of the operation and maintenance expenses exceeded the payments through September 30, 1985, the Contractor had an operation and maintenance deficit which increased the Contractor's repayment obligation and computed water rate.
Passage of Public Law 99-546 required the calculation of interest on all operation and maintenance deficits accruing on or after October 1, 1985. This necessitated the development and maintenance of individual contractor ledgers showing the operation and maintenance deficit or repayment balance accrued as of September 30, 1985, and the annual interest bearing operation and maintenance deficits (including interest) incurred thereafter. An annual accounting of financial operations will be made by contractor showing the result of that years activities. The annual accounting of operation and maintenance deficits by Contractor will include interest accruing on a compound basis at rates determined in accordance with the interest rate criteria contained in Public Law 99-546. Annual interest calculations are simplified by using a composite interest rate method which reflects the weighted average of the various annual Contractor deficits and applicable interest rates.
The Region, has decided to accept, and encourage, voluntary payments from individual contractors to avoid operation and maintenance deficits and has developed implementing procedures for accepting, handling and applying voluntary payments. These procedures allow the contractors to avoid incurring interest on operation and maintenance deficits so long as voluntary payments are made in accordance with the Region's established voluntary payment procedures.
The Component with Individual Contractor Deficits Ratesetting Method applies all annual water revenues by individual Contractor in the following priority:
- Current operation and maintenance expenses
- Interest expenses
- Interest-bearing operation and maintenance deficits
- Non-interest bearing operation and maintenance deficits
- Capital repayment