[Central Valley Project Contract Renewal Process August 2004]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. W-IN-BOR-0016-2004

Title: Central Valley Project Contract Renewal Process August 2004

Date:  August 12, 2004  

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Subject: Central Valley Project Contract Renewal Process August 2004 (No. W-IN-BOR-0016-2004) 



Use of Water
ï¿½ Irrigation ï¿½ water delivered to farmers
ï¿½ Municipal and industrial (M&I) ï¿½ water delivered to cities and industries
ï¿½ 85% of Central Valley Project (CVP) water goes for irrigation
ï¿½ M&I water needs are increasing
ï¿½ 200+ entities contract for 5 million+ acre-feet of water
Central Valley Project (CVP)
 Water Contracts
ï¿½ Long-term 40-year contracts (per statute)
ï¿½ Rate component for capital costs incurred
ï¿½ Rate component for annual operation and maintenance (O&M) costs
ï¿½ Fixed, non-adjustable rates
ï¿½ Increased O&M costs
ï¿½ Increased environmental mitigation costs
ï¿½ Results
ï¿½ O&M deficits
ï¿½ Minimal repayment of capital costs

ï¿½ Municipal and industrial (M&I) water users pay interest on their repayment obligations
ï¿½ Farmers pay no interest on their repayment obligations
ï¿½ Economic incentive for developing the West
ï¿½ Congress ensured that water supplies would be dependable and inexpensive

ï¿½ Ability to pay is measured in terms of the farm income available to meet the annual cost of water after the expenses for all crop production, overhead and family living needs are recognized.






ï¿½ Eliminated fixed rates

ï¿½ Mandated recovery of interest on deficits

ï¿½ Established a deadline of 2030 for repayment

Central Valley Project costs may not be recovered by 2030

Impediments
ï¿½ Understated Water Rates
ï¿½ Ballooning Aid to Irrigation
ï¿½ Unplanned Impact on Power Rates
ï¿½ Uncertain Precipitation and Water Availability
Understated Water Rates
ï¿½ Rates calculated based on contract entitlements

ï¿½ Actual water deliveries are usually less than contract entitlements


ï¿½ $4 million not collected in 2002

ï¿½ Increased pressure on future water rates

ï¿½ Could exceed $10 million a year

Ballooning Aid to Irrigation
Potential Increases in
Aid to Irrigation

Unplanned Impact on
Power Rates


Reclamationï¿½s Planned Response
ï¿½ Change water rate base in 2005
ï¿½ Use actual water deliveries for the last 5 years
Reclamation has not:
ï¿½ Formally changed rate-setting base
ï¿½ Alerted federal agency marketing CVP power about ballooning irrigation assistance needs
OIG Suggestions
ï¿½ Formally revise water rate-setting base 
ï¿½ Annually compute estimated total aid to irrigation requirements and provide to the power rate-setting agency

Scope and Methodology
ï¿½ The Office of Management and Budget asked whether Reclamation will recoup an appropriate share of the federal governmentï¿½s investment in the Central Valley Project
ï¿½ To accomplish our review, we examined	
ï¿½ Pertinent legislation, policies, procedures, contract, financial and budgetary documents
ï¿½ Various other Reclamation documents and reports
ï¿½ We also interviewed responsible Reclamation program officials
ï¿½ We conducted our review between January and April, 2004