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Ratesetting Process

Glossary

Ability to pay. Provision of Reclamation Law that permits irrigation contractors to apply for relief from their capital repayment obligation and Restoration Fund charges based upon an economic analysis of their ability to meet that obligation. The analysis determines the portion of the increased net farm income attributable to the off farm water supply (supplies) after allowances have been made for returns to farm investment and to family labor and management.

Accumulated O&M deficit. The accumulation of annual O&M and interest expense in excess of all revenues received from the sale of water under existing water service contracts.

Adjustable rate (COS). Rate established in an original long term water service contract which is adjusted every five years using cost of service calculations.

Adjustable rate (non-COS). Rate established in an original long term water service contract which is adjusted every five years using a specific rate based upon calculation criteria established in the contract.

Annual accounting. The process of matching revenues from sale of water under existing water service contracts to all annual expenses.

Annual expense. For purposes of water ratesetting, annual expenses include annual O&M and interest expense and annualized share of deficit and capital.

Annual O&M deficit. Annual O&M and interest expense in excess of all revenues received from sale of water under existing water service contracts.

Annual O&M surplus. Any residual revenues from sale of water under existing water service contracts in excess of current year O&M and interest expenses.

Authorized Repayment Period. The time allowed for the recovery of the capital invested in a project. A 50-year repayment period has been established for the Project. For in-basin Project facilities, the repayment period runs from the beginning of fiscal year 1981 to the end of fiscal year 2030. The repayment period for the San Felipe Division out-of-basin facilities extends from the beginning of fiscal year 1987 to the end of fiscal year 2036.

Capital. All construction costs for Reclamation facilities which have been transferred to plant-in-service (operational and/or revenue producing) and are now ready for repayment.

Cost recovery. For purposes of ratesetting, the process generating revenue from water sales sufficient to repay the capital investment and the annual cost of operating and maintaining the project.

Cost of Service (COS) Rates. The term "cost of service rates" means the annual rate for Irrigation and M&I water established pursuant to the then applicable water ratesetting policies which will recover all costs assigned to the Irrigation and M&I water supply functions, respectively, within the established repayment period. This includes recovery from each contractor, within the authorized repayment period, of: (1) annual O&M costs, (2) interest costs, (3) capital investment costs, and (4) O&M deficit balances.

COS Capital Rate. One of the three principal rate categories of a cost of service rate. The other components are annual O&M rates, deficit rates, and interest (M&I only). The rate used to recover the federal investment in the CVP. These are mostly construction costs but may also include certain other costs when specifically prescribed by legislation. For example: Section 3406( ) of the CVPIA required that costs associated with the Programmatic Environmental Impact Statement (PEIS) be capitalized.

COS Deficit Rate. The accumulation of annual O&M and interest costs in excess of the total revenues received from the sale of water under existing water service contracts.

COS Operations and Maintenance (O&M) Rate. The rate used to collect the annual costs incurred by the Region in operating and maintaining CVP facilities.

COS Rate Components:

Interest Expense.

Fixed Rates (also referred to as Contract Rates). Rate established in the original long-term water service contract. Basically at flat rate.

Full Cost Rates.

In-basin facilities. The main project storage and delivery system facilities located in the Central Valley Basin of California.

Long-Term Contractor. A contractor who is receiving water on a regular basis under a water service or repayment contract having a term of greater than 10 years.

Municipal and Industrial (M&I).

Net Results of Operation. Process of determining a contractor's surplus/deficit annually by comparing the contractor's current year revenues with current year allocated operation, maintenance and interest (M&I only) expenses. Annual deficits are combined with any prior outstanding deficit balance (if any) to determine the contractor's updated deficit balance.

Operation and Maintenance (O&M). Annual O&M costs, annual interest expense related to the outstanding M&I capital investment and, where applicable, annual interest on the O&M deficit.

O&M Deficit. The accumulation of annual O&M and interest costs in excess of the total revenues received from the sale of water under existing water service contracts.

O&M expense. Costs incurred by Reclamation in operating and maintaining the project or project facilities for the current year. For M&I, O&M expense includes current year interest expense (interest on capital and interest on the prior year outstanding accumulated deficit balance).

O&M revenue. Funds derived in the current fiscal year from the O&M rate component of COS water rates.

Out-of-basin facilities. The CVP water system facilities located outside the Central Valley Basin of California, i.e., those facilities located in the San Felipe Division service area.

Present worth. A financial term referring to the time value of money. The present worth concept recognizes that the interest earning capability of money makes a particular dollar amount worth less in the future than it is in the present.

Project Use Energy (PUE).

Ratesetting. Ratesetting refers specifically to Sections 9c(2) and 9e of the Reclamation Project Act of 1939 which authorize the Secretary of the Interior to enter into water service contracts to furnish water for irrigation and municipal and industrial (M&I) purposes. The Act requires that rates established under these provisions produce revenue at least sufficient to cover annual operations and maintenance (O&M) costs and the appropriate share of fixed costs of the project. Fixed costs historically include construction costs.

Reclamation Fund. A special fund established by Congress under the Reclamation Act of 1902 earmarked specifically for financing certain Reclamation activities. Primary sources of receipts to Reclamation Fund are through collections of both operating and non-operating revenue from Reclamation Projects.

Repayment. The accumulation of annual water service contract payments in excess of the amount required to cover a contractors annual O&M and interest costs.

Repayment period. The time allowed for the recovery of the capital invested in a project. a 50-year repayment period has been established for the CVP. For In-Basin facilities (those located in the Central Valley Basin of California), the repayment period extends from FY 1981 through FY 2030. The repayment period for the Out-of-Basin facilities (those located outside the Central Valley Basin of California, i.e., the San Felipe Division) extends from FY 1987 through FY 2036.

Repayment contract. Contracts authorized under Sections 9c(1) and 9(d ) of the Reclamation Project Act of 1939 for irrigation and M&I respectively. Under repayment contracts, capital costs are recovered in fixed payments. Repayment contracts do not involve water sales.

Results of Operation. The principal outcome of the annual accounting process. The contractor net results of operations provides the repayment status of that year's annual O&M as well as the accumulated O&M deficit and outstanding capital obligation.

Revenue. For purposes of ratesetting, funds derived from the sale of project water.

Revenue crediting. Process of applying any surplus revenues remaining after all annual expenses are covered in a specific order to specific categories of expenses. Revenue crediting is part of the annual accounting process.

Revenue Stream. A financial term referring to the anticipated amount of money to be collected over a period of time (for example - by the end of the Repayment Period).

Settlement Contractors. Sacramento River water service contractors who--in the settlement of a lawsuit--were declared to be not subject to the early renewal requirements of the CVPIA.

Special Rates.

Take and pay contractor. Contractors whose contract requires them to pay for the full amount of contracted water regardless of whether the water is taken (used) or not. Take and pay is typical of long term water service contracts.

Take or pay contractor. Contractors whose contract allows them to pay only for water that they take (up to contract amount). This is a water conservation provision incorporated into all interim renewal contracts.

Voluntary Payment Policy. Region policy that allows irrigation and M&I contractors to pay current year deficits or historic accumulated deficits. For irrigation contractors, payment is by year and applicable interest rate. For M&I contractors, payment is by accumulated balance and composite interest rate. In order to qualify for voluntary payments, irrigation contractors must have paid at least the O&M rate for water; M&I contractors must have paid at least the O.M.&I rate for water.

Water Service Contract. Contracts under Sections 9c(2) and 9e of the Reclamation Project Act of 1939 (the Act) which authorize the Secretary of the Interior to furnish water for irrigation and municipal and industrial (M&I) purposes. The Act requires that rates established under these provisions produce revenue at least sufficient to cover annual operations and maintenance (O&M) costs and the appropriate share of fixed [capital] costs of the project".