Ratesetting Process
Irrigation Ratesetting Document
Ratesetting Policy Description
Legal and Policy Considerations
The policy responds to the concerns of the Office of the Inspector General. That office has reviewed the proposed policy (as well as various other ratesetting options) and has found that the Component with Individual Contractor Deficits Ratesetting Method will satisfy that office's recommendations contained in the CVP audit reports of January 1978 and September 1979 with respect to the repayment of CVP costs allocated to the irrigation function.
The formulation of the ratesetting policy is a Federal action qualified for a categorical exclusion from formal compliance with the National Environmental Policy Act of 1969, pursuant to 516 DM 6, Appendix 9.4.D(5).
The ratesetting policy anticipates that only a limited amount of power revenue assistance will be required to repay the irrigation function of the CVP by the end of the year 2030.
The Office of the Solicitor has reviewed the ratesetting policy and found it to be legally sufficient with respect to Reclamation Law, including Sections 105 and 106 of Public Law 99-546.
Policy Provisions
The provisions of the Component with Individual Contractor Deficits Ratesetting Method include the following:
The policy will recover the United States' investment, including any operation and maintenance deficits applicable to CVP contracts, within a definite 50-year repayment period terminating in year 2030, as required by Section 105 of Public Law 99-546. This block repayment method supersedes the previous "rolling repayment" method used for computing CVP water rates.
New 50-year repayment periods will be established for the capital cost of major rehabilitations and new facilities added to the CVP. All other construction and rehabilitation costs affecting existing facilities will fall within the initial 50-year repayment period ending in year 2030.
Individual Contractor accounting is maintained for repayment accountability, and O&M. deficit are accumulated for and will be repaid by each Contractor under the terms of each new or amended contract, as required by Section 106 of Public Law 99-546.
The policy honors the provisions of existing CVP water service contracts and requires the application of cost-of-service water rates for all new and renewed water service contracts and amended contracts described in section 203(a)(2) of the RRA. The policy also provides for the automatic adjustment of cost-of-service water rates on an annual basis. This is in accordance with Section 105 of Public Law 99-546.
The rate computation procedures are based on cost-of-service with capital costs amortized over a 50-year period. Water rates are based on the "pooled and averaged costs" approach in accordance with the "operationally and financially integrated project" concept initially established by Congress and reaffirmed each time the CVP was reauthorized to include a new unit.
There are no minimum rates (such as the $3.50 previously used in the CVP). Cost-of-service rates are used unless the contractor's ability to pay is limited by a documented payment capacity limitation (payment capacity limitations are discussed subsequently). The cost-of-service rates reflect credits for past capital payments and miscellaneous receipts.
The cost-of-service water rates apply to all types of water within the CVP, including Class 1Class 2 and the storage and/or conveyance of non-project water in CVP facilities. All CVP irrigation cost-of-service and full cost pricing determinations are made in accordance with the ratesetting policy.
The cost-of-service water rates are composed of a unique assembly of cost components frequently referred to as "cost pools."Each contractor pays a water service rate encompassing a proportionate share of the cost pools associated with the specific service required to provide that contractor with CVP water. A description of the various cost pools involved is presented subsequently.
All of the costs of those CVP facilities in-service are included in the irrigation water rates. The cost of facilities not being fully utilized (unused capacity) are only deferred if Congress has specifically authorized the deferral of these costs.
The ratesetting policy continues to recognize the ability to pay concept that has been used for a number of years in irrigation water contracting. Under this concept, the actual charge to the individual contractor will be the lesser of the cost-of-service, or 100 percent of the individual contractor's payment capacity. At a minimum, however, the water rate charged will cover the operation and maintenance costs applicable to the delivery of water to the contractor. The difference between the individual contractor's cost-of-service water rates and ability to pay will be assigned to the power function for repayment.
Where there is a question about the individual contractor's ability to pay, the contractor can prepare, or have prepared at his expense, an acceptable payment capacity analysis. The contractor will be responsible for the Bureau's costs in reviewing and approving the analysis.
All new or amended contracts will contain provisions for redetermination and adjust of contractor's ability to pay at 5-year intervals, pursuant to Section 105 of Public Law 99-546. As a minimum, the water rate will cover the annual O&M costs applicable to water delivery if payment capacity is employed as the ratesetting criteria.
Interest will be charged on all O&M deficits incurred on or after October 1, 1985, pursuant to Section 106 of Public Law 99-546. Transactions (either net repayment or deficits) prior to that date will not be considered in determining the interest bearing deficit amount although subsequent transactions will impact the interest bearing deficit and the applicable interest calculations.
The rate of interest to be applied to the O&M deficits will be determined annually by the Department of the Treasury in accordance with the criteria provided in Public Law 99-546. The rate will be applied using compound interest procedures to any contractor's deficit accruing or accumulating on or after October 1, 1985.
The costs of isolated or out-of-basin facilities are the direct repayment responsibility of the contractor (or group of contractors) who benefit from the services provided by the facilities. Accordingly, repayment for operation of isolated or out-of-basin facilities, such as those associated with the San Felipe Unit located west of the Gabilan Mountain Range near Monterey Bay, will not be shared by the other CVP contractors, but will be paid for by the out-of-basin contractors.