**CENTRAL ARIZONA PROJECT**

**Project Description and History**

The Central Arizona Project (CAP) was authorized by passage of the
Colorado River Basin Project Act (Act of September 30, 1968, Public Law
90-537, 82 Stat. 885) for the purposes of furnishing irrigation water
and municipal water supplies to the water-deficient areas of Arizona and
western New Mexico through direct diversion or exchange of water,
conservation and development of fish and wildlife resources, enhancement
of recreation opportunities, and for other purposes.

The Secretary of Interior was directed to construct, operate and
maintain the CAP, consisting of the following principal works: (1) a
system of main conduits and canals, including a main canal and pumping
plants for diverting and carrying water; (2) water storage facilities
and power-pumping plants; (3) aqueducts and pumping plants; (4) related
canals, regulating facilities, hydroelectric powerplants, and electrical
transmission facilities required for the operation of said principal
works; (5) related water distribution and drainage works; and (6)
appurtenant works.

The Colorado River Basin Project Act also authorized Federal
participation with non-Federal interests for construction, operation and
maintenance of thermal generating powerplants (i.e., Navajo Generating
Station) whereby the United States acquired the rights to plant
capacity, including the delivery of power and energy over appurtenant
transmission facilities (i.e., Navajo Southern and Western Transmission
Systems) to mutually agreed upon delivery points, as the Secretary of
Interior determines is required to provide pumping power for the CAP.

When not required for the CAP, the power and energy may be disposed of
by the Secretary of Interior for other purposes at such prices the
Secretary determines, including its marketing in conjunction with the
sale of power and energy from Federal powerplants in the Colorado River
system so as to produce the greatest practicable amount of power and
energy that can be sold at firm power and energy rates.

On August 4, 1977, the Department of Energy Organization Act (Public Law
95-91, 91 Stat. 565; 42 U.S.C. Sections 7101 was signed into law,
establishing the Department of Energy (DOE). Section 302(a)(3) of the
Act created the Western Area Power Administration within DOE. Section
302(a)(1)(E) transferred the power marketing functions of the Bureau of
Reclamation , including the construction, operation, and maintenance of
transmission lines and attendant facilities to the DOE.

**Revenue Requirement**

The annual revenue requirement for the CAP 115-kV and 230-kV
transmission lines and attendant facilities (115/230-kV transmission
system) is equal to the estimated annual costs less applicable annual
revenue credits.

The estimated annual costs consist of an amortization component and
operation and maintenance component. The amortization component is the
repayment of investments in transmission facilities (i.e., capitalized
construction costs). The operation and maintenance component is the
estimated direct and indirect costs associated with operating and
maintaining the transmission facilities.

The annual revenue credits are reductions to the estimated annual costs
to adjust for the transmission capacity associated with pumping power
for the CAP and other sources of revenue.

The annual revenue requirement represents the amount of firm
transmission service sales on the CAP 115/230-kV transmission system
needed to recover the costs for facilities associated with providing
transmission service and the non-facilities costs allocated to
transmission service. The following table displays the elements that
make up the annual revenue requirements for Fiscal Years (FY) 2005 -
2009.

**CENTRAL ARIZONA PROJECT**

**ANNUAL REVENUE REQUIREMENTS**

  ---------------------------- ------------- ------------- ------------- ------------- -------------
                               **FY 2005**   **FY 2006**   **FY 2007**   **FY 2008**   **FY 2009**

                                                                                       

  Amortization Costs                                                                   

  Principal and Interest       \$6,572,075   \$6,516,441   \$6,640,808   \$6,789,330   \$6,720,858

  Total Amortization Costs     \$6,572,075   \$6,516,441   \$6,640,808   \$6,789,330   \$6,720,858

                                                                                       

  Estimated Operation &                                                                
  Maintenance Costs                                                                    

  Western O&M                  \$1,741,566   \$1,858,871   \$2,396,277   \$2,329,075   \$2,004,308

  Reclamation O&M              \$10,500      \$10,500      \$10,500      \$10,500      \$10,500

  Other Expenses:                                                                      

  Unfunded Civil Service       \$36,832      \$35,081      \$33,331      \$31,580      \$29,830
  Retirement System                                                                    

  Capitalized Movable          \$1,246       \$1,246       \$1,246       \$1,246       \$1,246
  Equipment Interest                                                                   

  Warehouse Stores Interest    \$870         \$870         \$870         \$870         \$870

  Total Operation &            \$1,791,014   \$1,906,568   \$2,442,224   \$2,373,271   \$2,046,754
  Maintenance Costs                                                                    

                                                                                       

  **Total Annual Costs**       \$8,363,089   \$8,423,009   \$8,903,032   \$9,162,601   \$8,767,612

                                                                                       

  Revenue Credits                                                                      

  UNS Electric (formerly CUC)  \$282,878     \$282,878     \$282,878     \$282,878     \$282,878

  Central Arizona Water        \$4,344,311   \$4,578,229   \$4,892,622   \$5,062,630   \$4,803,928
  Conservation District                                                                

  **Total Revenue Credits**    \$4,627,189   \$4,861,107   \$5,175,500   \$5,345,508   \$5,086,806

                                                                                       

  **Annual Revenue             \$3,735,900   \$3,561,902   \$3,727,532   \$3,817,093   \$3,680,806
  Requirement**                                                                        

                                                                                       
  ---------------------------- ------------- ------------- ------------- ------------- -------------

**Amortization Costs**

> The original project investment in the CAP 115/230-kV transmission
> system is \$128,051,985; which is amortized over a 50-year period with
> a 3.342 percent interest rate. The unpaid balance of the original
> project investment is \$112,429,643 and scheduled to be repaid by FY
> 2043. No capital investments (i.e., additions or replacements) are
> projected for FY 2005-2009.

**Operation and Maintenance Costs**

> The estimated costs for operating and maintaining the CAP 115/230-kv
> transmission system (including administrative and general expenses)
> are based upon Western's and Reclamation's budget documents.
>
> The other expenses are estimated cost allocations to the CAP
> 115/230-kV transmission system relating to the unfunded Civil Service
> Retirement System liability, interest on the undepreciated balance of
> Capitalized Movable Equipment and interest on the balance of Warehouse
> Stores inventory.

**Revenue Credits**

> The revenue credits represent cost adjustments for the transmission
> service that UNS Electric (UNS) and Central Arizona Water Conservation
> District (CAWCD) receive on the CAP 115/230-kV transmission system.
>
> The UNS revenue credit is determined by multiplying its capacity
> reservation by the contracted rate of \$2.20 /kW-Yr. This firm
> transmission service contract was entered into prior to Western
> developing formula rates for transmission service on the CAP
> 115/230-kV transmission system and will terminate on May 31, 2008.
>
> The CAWCD revenue credit is a calculated amount based on its
> percentage use of the CAP 115/230-kV transmission system for pumping
> power. This percentage use is multiplied by the total annual costs
> less the UNS revenue credit to determine the CAWCD revenue credit.