Department of Energy 

Western Area Power Administration 

Sierra Nevada Customer Service Region 

114 Parkshore Drive 

Folsom, California 95630-4710 

Ms. Traci Michel 

Program Manager - Central Valley Project Cost Allocation Study 

Mid-Pacific Region 

Bureau o f Reclamation 

2800 Cottage Way 

Sacramento. CA 95825 

— . 

Dear Ms. Michel: 

Representatives from Western attended Reclamation's October 21, 20! L public meeting where 

an update on the status of the Central Valley Project (C VP) Cost Allocation Study was provided. 

The presentation was informative and provided significant insight into the assumptions, data, and 

methods that Reclamation plans to use for its cost allocation update for the CVP. 

From an overall perspective, Western believes that the cost allocation study process would 

benefit from either the use of a teciinical advisory group or. as an alternative, more frequent and 

timely meetings with interested stakeholders. In either case, as important decisions related to the 

conduct o f the study are made, Reclamation cannot only communicate these decisions but, as 

appropriate, receive feedback before significant resources and effort are committed to a proposed 

path of action. We believe that continuous input throughout the study process would have the 

effect of actually saving time and effort and thus lead not only to better results but better 

agreement among Reclamation and interested stakeholders. 

Western appreciates the many complexities associated with this study effort and offers these 

comments only in the context of maximizing our assistance to you. Our specific comments are 

as follows: 

1. Single Purpose Flood Control Alternative. From Reclamaiioifs modeling presentation, 

Western understands that the single purpose alternative (SPA) costs for nood control at 

Shasta Dam and Reservoir did not explicitly incorporale existing environmental regulatory 

compliance requirements associated with Reclamation's statutory obligations to meet its 

downstream and in-stream commitnients. The.se obligations are based on existing 

biological opinions developed under the Endangered Species .Act, as well as other 

regulatory operating requirements, as stipulated by the California State Water Resources 

Control Board under the CVP's existing water rights permits. While the SPA for flood 

control should not recognize operational criteria For other project purposes, it should, 

however, be fon-nulated to meet the same environmental compliance limitations as the 

multipurpose project. Western believes that this oversight could result in under sizing the 

single purpose flood control alternative and corresponding underestimation of its_cost. 

Since Western understands that this approach was used to fonrfn^^pfje r SPAs, Western 

SCANNED 

Project 

17 

Date Input & (rati 
2 

recommends that Reclamation also revisit and re-size the other SPAs for the purposes of 

this cost allocation study. 

2. Indexed Costs. Another potential issue vvith the SP.A estimation process relates to the use 

of indexed costs. Western understands that historical construction costs for three cost 

categories which represent 70 percent of those historical costs were indexed to current 

dollars by application of Reclamation's construction cost indices for those categories. The 

remaining 30 percent of historical costs were not indexed by category but were simply 

"factored" to increase at the same rate as the costs of the three cost categories. While we 

generally support the use of expedited procedures to simplifS' the analysis, we are 

concerned that this procedure may result in inaccuracies given the length of time that has 

elapsed since the historical costs were first incurred. We also believe that Reclamation 

may want to consider re-pricing, as opposed to indexing, the altematives to ensure more 

accurate cost comparisons. 

3. Trime-Horizon for Benefits. Western agrees with Reclamation's initial decision to compare 

future benefits against SPA costs when attempting to determine a maximum justifiable 

expenditure limit for each authorized project purpose. 

4. Scope of SPA Costs. Reclamation's presentation focused on comparing single purpose 

construction costs to benefits when deteirnining the maximum justifiable expenditure. 

When performing a cost allocation, SPA costs should ordinarily include not only 

construction costs but also interest during construction and annual operation, maintenance, 

and replacement costs. Western assumes that all three cost components will be computed 

and reflected in the SPA cost line when cost distribution factors are ultimately developed 

for the CVP cost allocation study. 

5. Recreation Benefits. Reclamation announced its intention to compute recreation benefits at 

Folsom Dam and Reservoir, in addition, Western understands from Reclamation's 

presentation that recreation would be added as an authorized project purpose to other CVP 

reservoirs. 

6. Auburn-Folsom South Unit. Western concurs with Reclamation's decision to not include 

Auburri-Folsom South Unit costs for the purposes of this allocation study by declaring 

these costs to be "in abeyance." 

7. Deferred Use Costs. Western assumes that for purposes of the cost allocation. Reclamation 

will continue to maintain the status quo for deferred use costs (exists within the first three 

reaches of the Tehama-Colusa Canal and the first two reaches of the Folsom South Canal) 

and not sub-allocate them. 

8. Status of the Cost Allocation. Under the existing cost allocation, the preference power 

purpose is responsible for repaying its share of the allocated costs, plus any capital 

investm.ent costs originally allocated to the irrigation purpose which exceed an "irrigator's 

ability to repay." Western's current power repayment schedule anticipates that the "inbasin" set of base CVP facilities (excludes Aubum-Folsom South Unit, San Felipe 
3 

Division, and New Melones Unit, but includes initial set of facilities through the San Luis 

Unit) will be repaid by the end of fiscal year 2014, and the associated "irrigator's inability 

to repay'" component plus the New Melones Unit investment costs will be ftilly repaid by 

the end of fiscal year 2030. Western's preference power customers arc accordingly 

sensitive to the specter of a future cost allocation update potentially increasing and/or 

extending the preference power communities' repayment obligations. Western thus 

encourages Reclamation to consider designating this cost allocation update as a final 

allocation and not another interim one. 

Western appreciates the opportunity to provide comments to Reclamation on the cost allocation. 

If we can be of any service, please do not hesitate to contact us. Should you have any questions, 

please contact Ms. Regina Rieger (916-353-4629) or Howard Hirahara (916-353-4019) at your 

convenience. 

Sincerely, 

Sonja A. /Anderson 

Power Marketing Manager 
UNITED STATES DEPAFTTMENT OF ENERGY 

vVSTE;R N AREA POWER AOMINiSTRATION 

SACRAMENTO AREA OFFICE 

114 PARKSHOR E DRIVE 

FOLSOM , CA 95630 

OFFICIAL BUSINESS i^F.NAL-TY FOR PRIVATE USE, $300 

'9> 

4 V'

$ 0

r «v

MAILED FROM 2IPCOD

' I 0 2 -iA • 0004395S25 

Ms. Traci Michel Mid-Pacific Region, MP-7-30 Bureau of Reclamation 2800 Cottage Way 

Sacramento, CA 95825