/J lc~"!J~..rf'a ' __ Michael R. Finnegan / 

Regional Business Manager 

Bureau of Reclamation, Mid-Pacific Region 

Business Practices Guidelines 

For 

Central Valley Project Improvement Act 

Program Accounting and Cost Recovery 

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September 29,2003 

Purpose. The purpose of these Business Practices Guidelines (Guidelines) is to memorialize 

roles, responsibilities, and standard procedures associated with accounting and cost recovery for 

Central Valley Project Improvement Act Program (Program) activities in compliance with 

applicable laws, regulations, policies, and standards, and consistent with the fundamental 

interests of Program stakeholders including CVP water and power contractors (contractors), the 

U.S. Bureau of Reclamation (Reclamation), the U.S. Fish and Wildlife Service (FWS), and other 

participating Federal and State ofCalifomia (State) agencies. 

Scope. The Guidelines apply to all authorized Program activities funded by Reclamation with 

Restoration Fund or Water and ~elated Resources (WRR) appropriations. 

Expiration. The Guidelines supplement but do not replace related Department of the Interior 

and Reclamation-wide policies or directives and standards. The Guidelines 'supersede all 

previous Region administrative guidance on this subject. These Guidelines will remain in effect 

until formally revised 'or rescinded. 

References. 

1. Central Valley Project Improvement Act (P.L. 102-575, Title 34), dated October 30, 1992. 

2. Draft "Revised Interim Guidelines: Restoration Fund Payments and Charges," dated 

October 1993. 

3. Mid-Pacific Region Business Practices Guidelines for Determining Reimbursability of 

Program Activities, dated February 14,2002. 

4. OMB Circular A-II. 

5. The Sharing of Cost Agreement Mitigation, Projects, and Improvements (SCAMPI), dated 

July 6, 1994, as amended. 

6. CVP Irrigation Ratesetting Policy, 1988. 

7. Interim CVP Municipal and Industrial (M&I) Ratesetting Policy, December, 1993. 

8. Contributed Funds Act of 1923. 

Terms. Key terms used in the Guidelines are defined in the Glossary. 
Responsibilities. In summary: 

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1. The Regional Business Manager (MP-3000) is responsible for administering and 

maintaining these Guidelines. 

2. Business Resources Center (BRC) Budget Services (MP-3200) will (a) ensme that Regional 

call letters include instructions to program managers for documenting reimbursability and 

accounting treatment of proposed work activities and (b) provide advice and assistance to 

program managers in formulating Program budgets. 

3. BRC Ratesetting Services (MP-3400) will (a) detennine reimbursability of individual 

Program activities and (b) perfonn annual allocation of Program costs as appropriate~ 

4. BRC Accounting Services (MP-3600) will (a) detennine accounting treatment of each 

individual Program activity and (b) maintain accounting records for the Program .. 

5. CVPIA Program managers are responsible for consulting With appropriate staff to identify 

. ·the reimbursability and accounting treatment of proposed work activities. 

Background. 

• Restoration Fund Revenues. Section 3407( c) of the Central Valley Project Improvement Act 

(the Act) requires the Secretary to assess and collect annual mitigation and rC&oration payments, 

in addition to other specific charges, in order to recover a portion or all of the costs of fish, 

wildlife, and habitat restoration programs, and projects covered under the Act. Payments are 

indexed to the 1 992 price level and assessed on the basis of a 3-year rolling average. 

• Habitat Restoration, Improvement, and Acquisition Activities. Section 3407(a) stipUlates that 

not less than 67% of the funds deposited in the Restoration Fund are authorized to be 

appropriated to the Secretary to carry out the habitat restoration, improvement, and acquisition 

(from willing sellers) provisions of the Act. Costs associated with most of these activities are 

designated by the Act or other statutes or policies as reimbursable by project beneficiaries 

(contractors ). 

• Projects and Facilities. Section 3407(a) further stipulates that not more than 33% ofthe funds 

made available to the Restoration Fund under the Act are authorized to be appropriated to the 

Secretary to carry out !,he provisions of paragraphs 3406(b)(4)-(6), (10)-(18), and (20)-(22). The 

majority of these projects and programs involve cost sharing among the Federal Government, 

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State, and contractors according to percentages prescribed by th~ Act. Contractors' share is fully 

reimbursab Ie. 

.• Program funding. On an annual basis, Reclamation develops outyear budget requests to 

support the Program plan. In addition to Restoration Fund appropriations, Reclamation also uses 

WRR appropriations to support Program activities. Reclamation also receives funding from the 

State according to various cost-share requirements specified in the Act. Historically, decisions 

on whether to fund a particular activity either with Restoration Fund appropriations or WRR 

appropriations were based upon program timetables and availability of appropriations. Decisions 

on the use of Restoration Fund or WRR appropriations are not based upon cost-share percentages 

or reimbursability of the activity. 

• Accounting treatment. In accounting terms, costs associated with most habitat restoration, 

improvement, and acquisition activities,("67%" activities) are treated as annual expenses to be 

recovered in the year they are incurred. Exceptions include the land retirement program 

authorized under paragraph 3408(h), and construction costs for refuge water conveyance 

facilities authorized under paragraph 3407(d)(5). Costs associated with the "33%" activities are 

either capitalized or expensed in accordance with Federal accounting standards. Capital costs are 

recovered over the authorized repayment period of the project. 

• Cost recovery. By informal agreement with contractors, Reclamation deferred action to 

recover any Program costs for an unspecified period of time pending formulation of key fmancial 

and business practices. The most important of these are (a) whether Restor~tion Fund revenues 

are a payment against contractors' reimbursable obligations or simply a "taxi' or surcharge that, 

once expended, is subject to cost recovery procedures; and (b) interpretation of the offset 

provision of Section 3407(b). Pending resolution of these issues, Program costs accumulated in 

the accounting records and were neither allocated nor recovered as required by Reclamation law. 

• Interim Guidelines. Shortly after enactment of CVPIA, Reclamation initiated action to 

develop interim guidelines for the Restoration Fund pending completion of formal rules and 

regulations. The draft "Revised Interim Guidelines: Restoration Fund Payments and Charges" 

were presentedfor public review and comment during 1993, but were never finalized and 

formally implemented. 

• Rules and regulations. Reclamation initiated an extensive effort during the period 1997-1999 

to develop final rules and regulations for the Act in conformance with the Administrative 

Procedures Act (AP A). A significant number of these rules and regulations involves Restoration 

Fund management. Draft rules and regulations for Restoration Fund management were 

completed. However, by informal agreement with project stakeholders, Reclamation suspended 

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the rules and regulations process indefinitely. 

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• Garamendi process. The Garamendi process was a comprehensive effort to develop 

administrative solutions to 12 different Program issues. The process involved extensive public 

outreach and collaboration between Reclamation and individual stakeholder groups. Proposed 

solutions for each Program issue were presented to stakeholders in 1996. However, stakeholders 

were unable to achieve consensus on most issues and the process was eventually concluded. 

• Interim management. In the absence of rules and regulations, or comprehensive Region 

guidelines, Reclamation has basically implemented financial provisions of CVPIA issue-by-issue 

in consultation with the Department of the Interior, Office of the Commissioner, or Office of the 

Solicitor. Several of the resulting interpretations have been "codified" in the form of new or 

revised water service contracts. This approach has been sufficient enough to allow work to 

progress·on the Program. However, cost recovery and accounting. for the Program could not be 

completed without a clear determination on at least two major financial issues (payment vs. tax 

and the offset provision). 

• Internal analysis. During the period FY 2000-2001, the Business Resources Center initiated an 

internal analysis to address the issue of accumulated Program costs. The primary focus of the 

analysis was the offset provision, although there was considerable discussion of other business 

practices affecting Restoration Fund management including the payment issue. Based lipon the 

BRC analysis, the Regional Business Manager presented a series of briefings to Region 

management and recommended that Reclamation initiate a collaborative effort with contractor 

representatives to develop a consensus proposal to address the iss~e of accumulated Program 

costs and facilitate Program management in the future. The Regional Director concurred with 

the recommendation and 'tasked the Regional Business Manager with completing the action. 

• Program accounting. The tasking from the Regional Director was formalized in the enclosed 

Tasking Statement (enclosure 1). Participants included representatives of CVP water and power 

contractors, FWS and Reclamation program and finance organizations. Reclamation coordinated 

a series of six comprehensive workshops and meetings between November 2001 and December 

2002. The consensus framework for addressing Program accounting was approved by the 

Regional Director on January 17, 2003. The approved framework serves as the basis for these 

Guidelines. 

Guidelines. The following Guidelines will apply to Program accounting and cost recovery. The 

Guidelines will be applied prospectively and for purposes of reconciling accumulated balances. 

Guidelines 1-7 represent Reclamation's historical interpretation of the Act and related policies, 

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practices, and procedures. Guidelines 8-13 are based upon the c~msensus proposal developed in 

conjunction with project stakeholders. 

1. Restoration Fund collections. Reclamation must comply with collection requirements 

prescribed by statute as follows: 

a. CVPIA Section 3404(c)(3): Pre-renewal penalty ("Hammer clause'). 

b. CVPIA Section 3405(a)(I )(C): Ti~red water rates. 

c. CVPIA Section 3405(f): Water transfer rates. 

d. CVPIA Section 3406(c)(I): Friant surcharges. 

e. CVPIA Section 3407(c)(2): Additional charges imposed by the Secretary to equal 

$50 million for all revenues on a 3-year rolling average. 

f. CVPIA Section 3407(d)(2)(A): Payments necessary to collect up to $30 million on a 

3-year rolling average. Provides that payments not exceed $6.00 alf for irrigation and 

$12.00 alffor M&I (indexed to 1992 price levels). 

g. CVPIA Section 3407(d)(2)(A): M&I surcharge. 

h. CVPIA Section 3407(d)(1 )(A): Mitigation and restoration payments made by 

contractors, taking into account all funds collected under CVPIA shall; to the greatest 

degree practicable, be assessed in the same degree proportional over a 10-year period as 

water and power users' respective allocations for repayment of the project. 

i. Annual appropriations acts requiring Reclamation to collect the maximum provided by 

law. 

2. Use of Restoration Fund appropriations. Reclamation is authorized to ~bligate and expend 

Restoration Fund appropriations for any or all purposes of the Act subject to the 670/0133% split 

and other requirements. 

3. Use ofWRR appropriations. Reclamation is authorized to obligate and expend WRR 

appropriations for any or all authorized purposes. The specific authority for using WRR 

appropriations for Program activities is Section 3410, which authorizes appropriations as 

necessary to carry out provisions of the title. As with many Reclamation authorizations, 

Section 3410.is silent as to source of the appropriations. 

4. Use of the State of California cost-share funds. CVPIA requires the State to share in the 

cost of certain Projects and Facilities. The basic frameworkJor joint Federal/State cost sharing 

is memorialized in SCAMPI, dated July 6, 1994, as amended. 

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a. Trust Funds. All State funds received under the SCAMPI are deposited in a Trust Fund 

. account established and maintained by Reclamation pursumt to the Contributed Funds Act 

of 1923. 

b. Application of State funds. The SCAMPI authorizes either party (Federal or State) to 

fund all, none, or any percentage of the cost of an individual CVPIA activity, whether it is a 

cost-share activity or otherwise, so long as the total amount expended by each party equals 

that party's overall cost allocation under Section 3406 of the Act. This provides maximum 

flexibility to maintain work progress on Program activities. 

c. Accounts maintenance. In conformance with the SCAMPI, Reclamation conducts 

periodic "true-ups" to reflect the current status of State and Federal cost-share obligations. 

State payments have historically lagged behind actual work progress on CVPIA cost-share 

activities. For the most part, this is attributable to different appropriations cycles and the 

time involved with billing and collecting. Reclamation's practice has been to fund the 

State share on the assumption that the State will eventually remit the balance owed. This 

dynamic has no impact on contractors. There is no financial obligation by contractors 

beyond their statutory share(s). 

5. Determinations ofreimbursability. Reclamation is required by statute to recover the 

reimbursable costs of water resource projects. Reclamation has no authority to recover costs 

associated with non-project activities or nonreimbursable project activities. The process used 

by Reclamation for determining reimbursability of any particular activity is contained in 

"Mid-Pacific Region Business Practices Guidelines, Determinations ofRe~bursa,bility, 

February 14,2002."- Consistent with these procedures, the fund source-for any particular 

Program activity (Restoration Fund or WRR appropriations) is inunaterial for purposes of 

determining reimbursability. 

6. Accounting treatment. All Reclamation accounting must conform with Federal Accounting 

Standards Advisory Board (F ASAB) standards and generally accepted accounting principles 

(GAAP). In particular, FASAB standards, GAAP, and related Federal regulations require that 

all costs incurred by the United States be either capitalized or expensed according to specific 

accounting criteria. The accounting treatment is significant to contractors since reimbursable 

capital costs are recovered over the useful life ofthe asset and reimbursable expenses are 

recovered in the year they are incurred. 

7. Allocation. As required by the Act, Restoration Funds are appropriated over time on a 

67%/33% basis between (a) Habitat Restoration, Improvement, and Acquisition activities and 

(b) Projects and Facilities. For purposes of the annual cost allocation, the majority of all 

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Program activities are classified as fish and wildlife mitigation~ Costs for mitigation activities 

are normally reimbursable. However, the Act specifically identifies the costs or a portion.of 

the costs for certain Program activities as nonreimbursable. 

8. Nature of Restoration Fund Revenues. To the extent Restoration Fund revenues are 

expended to pay the costs of reimbursable Program activities (i.e., that portion of a Program 

activity determined to be reimbursable), the repayment obligation is considered. satisfied. and no 

further cost recovery will be initiated. Where Restoration Fund revenues are used to pay the 

costS of nonreimbursable Program activities, contractors will receive either an offset or credit 

(as defined in these Guidelines) toward the repayment of costs for reimbursable Program 

activities funded by WRR appropriations. Reconciliation of accounts is described in 

paragraph 12 below. 

9. Restoration Fund Offsets. There are two references to offsets in the Act: 

a. Section 3407(b). The offset language in Section 3407(b) will apply to cost-share 

Projects and Facilities authorized under paragraphs 3406(b)(4)-(6), (10)-(18), and 

(20)-(22)1 of the Act (the "33%" Projects and Facilities). Where Reclamation has used 

Restoration Funds to pay for the Federal share of cost-share Projects and Facilities, the 

amount expended will be applied on a dollar-for-dollar basis as an offset to Contractors' net 

WRR obligation for all '~33%" Projects and Facilities.2 Offset amounts are applied first to 

annual expenses then to capital costs. 

" 

b.o Section 3406(b) (last paragraph in Section). The offset langu~ge in Section 3406(b) 

means that the costs of implementing Section 3406(b) measures that are determined. to be 

enhancement actions will be applied on a dollar-for-dollar basis as an offset to reimbursable 

costs associated with implementation of subsection 3406(b). 3 

I Section 3406(b)(22) is not a cost-share project. However, since costs for this project are reimbursable, no offsets 

ever accrued. The project was tenninated in 2002 in accordance with the Act. 

2 Section 3407(b) specifically limits the application of offsets to cost-share obligations. Accordingly, surplus offsets 

may not be applied to net WRR obligations for Habitat Restoration, Improvement, and Acquisition ("67%" activities). 

3 As prescribed in the Act, application of this provision is subject to a fonnal detennination by the Secretary and the 

State of California that long-tenn natural fishery productivity in all CVP-controlled rivers and streams resulting 

from implementation of [Section 3406(b) actions] exceeds that which existed in the absence of CVP. 

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The tenn "offsetting collections" in Section 3407(a) does not 3:pply to any offset in contractor 

obligations. Offsetting collections is a budget term as defined by OMB Circular A-II. 

10. Restoration Fund Credits. Where Restoration Funds are used to pay the costs of 

nonreimbursable Habitat Restoration, Improvement, and Acquisition activities ("67%" 

activities), the amount paid will be credited on a dollar-for-dollar basis to Contractors' net 

WRR obligation for that same category of activities ("67%" activities). Any surplus credits 

may then be applied to reimbursable obligations associated with "33%" Projects and Facilities 

that may still remain after application of offsets as described in paragraph 9a above. This 

effectively applies credits first to Operations and Maintenan~e (O&M) then expense. 

11. Trust Fund Adjustment. To the maximum extent feasible, Trust Funds expenditures will 

be limited to cost-share Projects and Facilities. For reconciliation purposes, all Trust Fund 

expenditures will be credited toward the State share of CVPIA cost,.share facilities. 1bis 

includes any Trust Funds that-by exception-may have been used to pay for Habitat 

Restoration, Improvement, and Acquisitions activities. In those cases, Trust Fund expenditures 

will be treated as WRR obligations subject to the application of credits. 

12. Annual reconciliation of accounts. 

a General, Reclamation will reconcile all Program accounts annually at the end of each 

fiscal year. The reconciliation process as described in paragraph 12b below, effectively 

applies credits first to O&M then to capital. Any credit balances (available credits) and/or 

offset balances (available offsets) remaining at the cOIiclusion of the reConciliation process 

will be carried forward for application to future WRR obligations. There will be no refund 

on the basis of available credits or offsets. Offsets are accounting adjustments provided for 

under the Act. Credits are accounting adjustments consistent with historical cost recovery 

practices. Available offsets and credits do not represent an overpayment. An overpayment 

occurs only in those instances where collections exceed the amount required by statute, 

contract, or policy. 

b. Specific reconciliation procedures are as follows: 

Step I: Determine the credit balance on an activity-by-activity basis for all Habitat 

Restoration, Improvement, and Acquisition activities ("67%" activities). Where Restoration 

Funds were expended for reimbursable activities, that obligation is considered paid and there 

is no further cost recovery. Where Restoration Funds were expended for a nonreimbursable 

activity, the expenditure amount is applied as a credit against any reimbursable WRR 

repayment obligation. A negative difference reSUlting from this calculation is the remaining 

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. credit balance. A positive difference represents the remaining WRR repayment obligation. 

Step 2: Detennine the net credit balance for all Habitat Restoration, Improvement, and 

Acquisition activities. This is simply the sum total of positive and negative balances for 

each Habitat Restoration, Improvement, and Acquisition activities. A net negative 

difference represents credits available for application to either (a) the net remaining WRR 

obligation for Projects and Facilities as described in Step 5 below or (b) future WRR 

program obligations. A net positive difference represents the remaining WRR obligation to 

~e allocated and recovered through the annual water rate process. 

Step 3~ Detennine the offset balance activity by activity for each Project and Facility 

("33%" activities) as appropriate. Where Restoration ~unds were expended for a 

reimbursable Project or Facility, that obligation is considered paid and there is no further 

cost recovery for the Project or Facility. Where Restoration Funds were expended for the 

nonreimbursable portion of a Project or Facility, the expenditure amount is applied as an 

offset against any reimbursable WRR obligation for that specific Project or Facility. A 

negative difference resulting from this calculation is the remaining offset balance for that 

specific Project or Facility. A positive difference represents the remaining WRR 

repayment obligation for that specific Project or Facility. 

Step 4: Detennine the net offset balance for all Projects and Facilities. This involves 

(a) calculating the total of all positive and negative balances for each Project and Facility, 

then (b) applying net offsets to that total. A net negative difference represents the offset 

balance (available offsets) available for application to future WRR obii'gations for Projects 

and Facilities. Available offsets may not be applied "above the line" to Habitat 

Restoration, Improvement, and Acquisition activities. 

Step 5: Apply any net available credits from Step 2 to any positive balance (net WRR 

repayment obligation) for Projects and Facilities. A net negative difference resulting from 

this calculation represents the credit balance (available credits) available for application to 

future year WRR repayment obligations. Basically, a negative difference is factored into 

next yea(s Step 1. A total positive difference is the remaining WRR repayment obligation. 

Step 6: Any Habitat Restoration, Improvement, or Acquisition AND/OR Project and 

Facility recovered through the annual water rates will be identified as "CVPIA Program 

Costs" within the Water Marketing or Other components of the rates depending on whether 

the costs are annual expense or capital, respectively. 

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Step 7. For commercial power, any WRR obligations remaining after application of all 

available offsets and credits will be recovered through power rates established by Western 

Area Power Administration. 

13. Adjustments. Contractors are engaged with Reclamation and FWS in revalidating the 

specific program authority for certain Program activities undertaken during the period 

1992-2002. Reclamation will adjust CVPIA program balances retroactively, as appropriate, to 

reflect any changes resulting from this process. 

Supporting processes. Region budget and financial management processes include certain 

additional checks and balances to promote consistency in CVPIA program accounting. 

Specifically: 

1. Budget process. Regional call letters for out}'ear appropriations budgets and the annual 

operating budget will include specific instructions for budgeting Program activities. At a 

minimum, instructions will require that activity plans identify (a) the activity as a Program 

activity and (b) whether costs associated with the activity are subject to reimbursement. 

2. Program development process. Prior to presentation of annual Program work plans, USBR 

Special Projects Office (MP-120) -and FWS project managers will consult with MP-3400 and 

MP-3600 on selected programs and projects for a preliminary determiriation of whether costs 

associated with each individual work activity are (a) subject to reimbursement and 

(b) appropriately capitalized or expensed. 

3. Classification of costs. All funded activities, including Program activities, are classified for 

accounting purposes, usually as new cost authorities are established. The accounting 

classification has no impact on the reimbursability or nonreimbursability of the activity. 

Rather, the accounting classification determines the manner in which reimbursable costs are 

recovered. There are only two classification types: -. 

a. Construction: Costs associated with construction activities, including accrued interest, 

are capitalized and recovered over the authorized project repayment period. In general, 

activities are classified as construction where the activity results in a completed facility, or 

additions and replacements to facilities, to which Reclamation holds title. Examples include 

(1) investigations conducted after a project is authorized by Congress, (2) design effort, and 

(3) actual construction. Costs associated with these activities are normally carried in-the 

construction-in-progress account until the facility is completed and enters into service 

(plant-in-service). At that point, accumulated costs are capitalized and reimbursable costs 

included in the repayment balance. 

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b. O&M. Costs associated with O&M activities are treated as an annual expense 

("expensed") for the year in which they are incurred. Activities are classified as 

O&M where the activity is other than construction and is for day-to-day operation, 

maintenance, and/or management of Reclamation facilities and lands. Examples 

include minor repair and cleaning, routine replacements, inspections, and day-to-day 

manual or electronic operation of project facilities. In addition to O&M activities, 

costs associated with certain other activities may also be expensed. 'Examples include 

(1) investigation activities prior to proj~t authorization and (2) construction activities 

where ~e Federal Government does not hold title to the completed facility. 

Enclosure 

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Glossary 

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For purposes of the Guidelines; these terms have the following meanings: 

Activity. A separable or unique task, or group of related tasks, identifiable to a project or 

program. 

Activity (Program activity). An activity that is region-wide in scope but does not fall 

under the purview of Policy and Administration; an activity on a project that does not have 

project-specific funding (i.e., the water conservation on the Santa Maria Project); or an 

activity that, as a matter of policy, is included in a Bureau-wide program (Le., 

administration of the Reclamation Reform Act under the Reclamation Law Administration 

Program). 

Allocation. The assignment of costs among authorized project purposes to determine 

repayment responsibilities. The project purposes may be either reimbursable or 

nonreimbursable. 

Consistency. Consistency with applicable laws, regulations, policies, contracts, 

agreements, and past practices. 

Construction costs. In general, construction costs consist of all costs, inc1\lding labor, 

construction equipment, land and land rights, investigations, engineering, and related 

services that contribute to the original value of the physical works constructed. 

Cost share. Requirement imposed by law, policy~ regulation, contract or agreement that 

obligates benefitting parties-normally Federal and non-Federal parties-to split the costs ' 

of a project, program, or facility. 

Fish and wildlife enhancement. Developing or improving wildlife resources beyond a 

condition or leyel that would have occurred without the project. 

Fish and wildlife mitigation. Avoiding and/or lessening wildlife losses due to a project 

through the use of loss prevention measures and/or offsetting losses through the use of 

other structural and nonstructural measures. 

Non-reimbursable costs. Costs associated with (1) a non-project specific activity as 

detennined by law or policy or (2) a nonreimbursable project purpose (i.e., the Federal 

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portion of recreation, flood control, navigation, and fish and wildlife enhancement), or 

(3) a reimbursable project purpose but subsequently authorized by law or policy as 

nonreimbursable. 

O&M Costs. In general, O&M costs are costs incurred with activities that ensure the 

reliability and operationai readiness of dams, power plants, water dist;bation systems, 

recreational facilities, and related structures. 

Overpayment. Collection from a contractor in excess of the amount required by law, 

regulation, policy, or contract. 

Payment. Cash receipt from a contractor pursuant to an obligation to the U.S. Treasury . 

. Project. Federal water resoUrce project authorized by Reclamation law. 

Project-specific activity. An activity is generally considered a project .. specific activity if 

it is identified or aligned with, or attributed to the project, or a specific facility or feature 

of the project, either directly or indirectly by law, policy, or legal decision. The legal 

authority for the activity is normally addressed in the Budget Justifications. A projectspecific activity may be either reimbursable or nonreimbursable. By definition, all 

Program activities are project activities. 

Project operations. The full range of planning, operations, maintenance,an..d other 

activities required to successfully accomplish each authorized function of the project. 

Power contractor. An entity that has an agreement with Western Area Power 

Administration for long-term firm power. 

_. Reimbursable costs. Costs associated with those project purposes required by law to be 

repaid by project beneficiaries and therefore recovered through water and power rates (i.e., 

municipal and industrial water, power, and irrigation) or through repayment contracts with 

water users. 

Repayment contract. Water contracts authorized tinder Sections 9(c)(l) and 9(d) of the 

Reclamation Project Act of 1939, which require water users to repay a fixed obligation 

over a set period of time in a manner similar to a home mortgage. 

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Restoration Fund (The). Fund established in the U.S. Treasury under authority of 

P.L. 102-575 for deposit of funds collected from CVP water and power contractors to 

carry out provisions of the Act. 

Restoration Fund credit. Accounting adjustment to contractors' reimbursable WRR 

obligatior; for Habitat Restoration, Improvement, and Acquisition ("67%") activities. 

Contractors' reimbursable WRR obligation is credited (reduced) annually on a dollar-fordollar basis where Restoration Funds were used to pay for the Federal nonreimbursable or 

State cost share of Program activities. Credits are applied first to 67% activities, then to 

net Projects .and Facilities costs. In effect, credits are applied first to O&M th~ to capital. . 

Restoration Fund offset. Accounting adjustment to contractors' reimbursable WRR 

obligation for cost-share Projects and Facilities authorized Section 3406(b) by the Act 

("33%" activities). Contractors' reimbursable WRR obligation is offset (reduced) on a 

dollar-for-dollar basis where Restoration Funds were used to pay for the Federal 

nonreimbursable or State share of 3406(b) cost-share Projects and Facilities. 

Trust Fund. Account established by Reclamation for cash received for cost-share or 

other contributions from non-Federal entities. 

Water service contract. Water contracts authorized under Sections 9c(2) and 9(e) of the 

Reclamation Project Act of 1939, that sell water on an acre-foot basis. 

. Water service contractor. An entity that has a contract with the Bureau of Reclamation 

for the delivery of Project water under terms of a water service contract. 

Page 3 of3 

Tasking Statement 

Issue: CVPIA Program Accounting and Cost Recovery 

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Tasking. Develop alternatives for recovering accumulated and future costs of reimbursable 

CVPIA program activities and disposition of Restoration Fund revenues. 

Deliverable. The primary deliverable will be a written report for review and consideration by the 

Regional Di!ector. At a minimum, the report will include: 

1. Definition of the issue. 

2. Background information. 

3. Alternatives. Each alternative will be supp.orted by an analysis ofthe financial impacts, 

potential legislative or policy impacts, and other substantive issues. 

4. Recommendation of preferred alternative. 

5. Process and procedures for implementing the preferred alternative 

Approach. The Reclamation Regional Business Manager has overall responsibility for delivering 

the end product to the Regional Director for consideration and decision. In that regard, 

Reclamation will develop the report based upon close and continuing collaboration with CVP 

water and power contractors. Collaboration will primarily occur·through a team consisting of 

Reclamation staff and contractor representatives. ., 

Method. Interest-based problem solving. Specific interests will be developed by the team once 

it convenes. 

Process: Series oftechnical working meetings. 

Schedule: The report will be completed according to the following general schedule: 

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Action . Completion 

Date 

Initial Team Meeting Jan 15.2002 

- Review and fmalize tasking statement and plan of action for completion. 

Phase I: Program analysis Feb 20-21. 2002 

- Validate·scppe ofCVPIA program 

- Review individual CVPIA program elements including review of 

sub accounts and corresponding cost authorities. 

Phase II: Review and validate accumulated CVPIA program costs Mar- Jul 2002 

- Consider funding sources and cost-share requirements including balance 

of accounts for State share. 

Phase ill: Identify and evaluate options for recovering accumulated and Aug-Oct 2002 

future reimbursable CVPIA program costs 

- Consider disposition of revenues from all sources and identify 

variations--if any-in applying different types of revenues (e.g., Restoration 

. Fund payments vs. Friant surcharges) ' . 

- Review and apply offset provisions of CVPIA " 

- Consider impact of cost allocation processes 

Phase IV: Develop implementation plan for preferred altemative(s) Nov 2002 

Phase V: Develop and Present Report to the Regional Direttor for Dec 2002 

consideration and decision 

Enclosure 1 

Page 2 of2 
DRAFT 

September 26, 2003 

Supplement 1 to Business Practices Guidelines 

for CVPIA Program Accounting and Cost Recovery 

PART L Standard Operating Procedures: Annual Reconciliation of CVPIA 

Program Costs 

Step I: Detennine the credit balance on an activity by activity basis for all Habitat 

Restoration, Improvement and Acquisition activities (67% activities). Where Restoration 

Funds were expended for reiinbursable activities, that obligation is considered paid and 

there is no further cost recovery. For example: 

Activity Rest Funds Total Costs Total Credits 

AFRP Yes $ 1,000,000 s o $1,000,000 $ o 

Where Restoration Funds were expended for a non-reimbursable activity, the 

expenditure amount is applied as a credit against any reimbursable WRR repayment 

obligation. A negative difference resulting from this calculation is the remaining credit 

balance. A positive difference represents the remaining WRR repayment obligation. For 

example: 

Activity 

AFRP 

Level4RWS 

(b)(l) Other . 

Yes 

No 

Yes 

Rest-Funds 

$1,000,000 

$ 300,000 

$ 200,000 

$ o 

$ 200,000 

$ 400,000 

Total Costs 

$ 1,000,000 

$ 500,000 

$ 600,000 

Total Credits 

$ o 

($ 300,000) 

$ 400,000 

Step 2: Detennine the net credit balance for all Habitat Restoration, Improvement and 

Acquisition activities. This is simply the sum total of positive and negative balances for 

each Habitat Rest()ration, Improvement and Acquisition activities, A net negative 

difference represents credits avwlable for application to either (a) the net remaining WRR 

obligation for Projects and Facilities as described in Step 5 below; or (b) future WRR 

program obligations. For example: 

Activity Rest Funds Total Costs Total Credits 

1 
AFRP Yes $ 1,000,000 $ 0 $ 1,000,000 $ 0 

(b)(l) Other Yes $ 200,000 $ 200,000 $ 400,000 $ 200,000 

Level 4 RWS No $ 300,000 $ 200,000 $ 500,000 ($ 300,000) 

Total ($ 100,000) 

A net positive difference represents the remaining WRR obligation to be allocated and 

recovered through the annual water rate process. For example: 

Activity Reimb Rest Ftmds WRR Total Costs Total Credits 

(b)(I)AFRP Yes $1,000,000 $ 0 S 1,000,000 $ 0 

(b)(I) Other Yes $ 200,000 $ 200,000 $ 400,000 $ 200,000 

(b)(3) Level 4 No $ 300,000 $ 200,000 $ 500,000 ($ 300,000) 

(d)(5) RW Conv Yes $ 100,000 $ 400,000 $ 500,000 $ 300,000 

Total $ 200,000 

In the event (~d only in the event) of a positive difference, Reclamation will: 

a. Suballocate costs to M&I, irrigation and commercial power on an activity by 

activity basis. Suballocation perCentages will be based upon the specific factors 

applicable to each activity. For example: . 

WRRBalance 

Activity Credits To be recovered Irrigation M&f· Power 

(b)(I) AFRP -$ 0 $ 0 $ 0 $ 0 $ 0 

(b)( 1) <;)ther $ 0 $ 200,000 $ 100,000 $ 50,000 $ 50,000 

(b )(3) Level 4 $ 300,000 $ 0 $ -- 0 $ 0 $ 0 

(d)(5) RW Conv $ 0 $ 300,000 $ 150,000 $ 75,000 $ 75,000 

b. Develop net suballocation totals and net credits for all activities where applicable. 

Basically, this involves summing up all individual activity allocations. 

WRRBalance 

Activity Credits To be recovered Irrigation M&I Power 

(b)(I) AFRP $ 0 $ 0 $ 0 $ 0 $ 0 

(b)(I) Other $ 0 $ 200.,000 $ 100,000 $ 50,000 $ 50,000 

(b)(3) Level 4 $ 300,000 $ 0 $ 0 $ 0 $ 0 

(d)(5) RW Cony $ 0 $ 300,000 $ 150,000 $ 75,000 $ 75,000 

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Total $ 300,000 $ 500,000 $ 250,000 $ 125,000 $ 125,000 

d. Identify net costs subject to recovery. This involves applying net credits to the total 

of all costs subject to recovery for M&I, irrigation and commercial power. 

Activity Net Credits Costs STR 

(b)(I) AFRP $ 0 $ ° 

(b )( 1) Other $ ° $ 200,000 

(b)(3) Level 4 $ 300,000 $ 0 

(d)(S) RW Conv $ 0 $ 300,000 

Total $ 300,000 $ 500,000 $ 200,000 

e. Prorate the net costs subject to reimbursability back to M&I, irrigation and 

commercial power using weighted suballocation factors. For example: 

Net Costs STR Irrigation M&I 

$ 200,000 $ 120,000 $ 40,000 $ 40,000 

f. Include costs in the water and power rates for the appropriate year, same as any 

other cost. 

Step 3: Detennin~ the offset balance activity by activity for each Project and Facility 

(33% activities) as appropriate. The mechanics of calculating the offset balance for each 

Project or Facility are the same as Step I above: 

a. Where Restoration Funds were expended for a reimbursable Project or Facility, that 

obligation is considered paid and there is no further cost recovery. 

b. Where Restoration Funds were expended for the non-reimbursable portion of a 

Project or Facility, the expenditure amount is applied as an offset against any 

reimbursable WRR obligation for that specific Project or Facility. A negative difference 

resulting from this calculation is the remaining offset balance. A positive difference 

represents the remaining WRR repaYment obligation. 

Step 4: Determine the net offset balance for all Projects and Facilities. The mechanics of 

calculating the offset balance for each Project or Facility are the same as Step 2 above. 

Specifically, calculate the sum total of all positive and negative balances for each Project 

and Facility. A net negative difference represents the offset balance (available offsets) 

available for application exclusively to future WRR obligations for Projects and" 

Facilities. Available offsets may not be applied "above the line" to Habitat Restoration, 

Improvement and Acquisition activities. 

3 
Step 5: Apply any negative credit balance (net available credits) from Step 2 to any 

positive balance (net WRR repayment obligation) for Projects and Facilities. 

a. A negative difference resulting from this calculation is carried forward and is 

available for application to outyear WRR obligations. Basically, a negative difference is 

considered in next year's Step 1. 

b. A positive balance resulting from this calculation represents the remaining WRR 

repayment obligation for Projects and Facilities. In the event of a positive balance, 

Reclamation will follow the same procedures for allocating and recovering these costs as 

described in Step 2. There are only two differences: 

(1) Calculations are confined to Projects and Facilities and do not involve costs for 

Habitat Restoration, Improvement and Acquisition actiyities. 

(2) Consistent with prevailing accounting standards, Reclamation Law, 

Reclamation Policies and Directives and historic practices, interest will be calculated on 

M&I and commercial obligations using a weighted rate. The weighted interest tate is 

based upon the annual CVP interest rate (p.L. 99-546) and applied against the annual 

repayment obligations for Projects and Facilities. 

Step 6: Any Habitat Restoration, Improvement or Acquisition AND/OR any Project .and 

Facility recovered through the annual water rates will be identified as "CVPIA Program 

Costs" within the Water Marketing or Other components of the rates depending on 

whether the costs are annual expense or capital respectively. 

Step 7. For commercial power, any WRR obligations remaining after application of all 

available offsets and credits will be recovered through power rates established by 

Western. 

PART II: Statutory Basis for Key Interpretations of the Act 

Component Basis .. 

Nature of The detennination to credit Restoration Fund revenues as 

Restoration payments is supported by several separate provisions of the Act. 

Fund The primary citation is Section 3407(c): Mitigation and 

Payments - Restoration Payments by Water and Power Beneficiaries 

subsection 3407(c)(I) which states: 

" ... the Secretary shall assess and collect additional 

annual mitigation and restoration payments, in addition 

to charges provided for or collected under [various other 

provisions] of this title, consisting of charges to direct 

beneficiaries of the Central Valley Project under 

subsection (d) of this section in order to recover a 

portion or all costs of fish, wildlife, and habitat 

4 
restoration programs and projects under this title." 

[Italics added] 

Section 3407 ( c)( 1) contains several key terms that reinforce that 

Restoration Fund revenues should be applied toward 

reimbursable Program obligations. In particular: 

"mitigation and restoration payments". Mitigation is a 

reimbursable activity. From a practical standpoint, the term 

"restoration" is generally used interchangeably with the term 

"mitigation". There is no provision under Reclamation Law to 

require payment for costs associated with non-reimbursable 

activities. 

"in order to recover" clearly conveys that the purpose of 

Restoration Fund revenues (whether payments or charges) is 

to recover the costs of reimbursable Program activities. 

According to Reclamation Law and current policies and 

. accounting standards, Reclamation does not recover costs 

unless they are determi:iled to be reimbursable or otherwise 

"owed'! to the United States. 

"fish, wildlife, and habitat restoration". The term restoration 

refers back to mitigation. 

"under this title" means all provisions of the Act. 

Restoration Fund Guidelines are consistent with Section 3407(b), which states: 

Offsets 

"Any funds paid into the Restoration Fund by Central 

Valley Project water and power contractors and which 

are also used to pay for projects and facilities set forth in 

Section 3406(b), shall act as ail offset against any water 

and power contractor cost share obligations that are 

otherwise provided for in this title." 

Section 3407(b) contains several key terms that allow 

offsets to be interpreted in this manner: 

"Also used" means used by the Uruted States. 

"Projects and facilities" is interpreted to mean cost share 

projects and facilities as distinguished from "Habitat 

Restoration, Improvement and Acquisition activities". 

"Any cost share obligations" is interpreted to mean both 

5 
Restoration Fund and WRR portions of contractors' 

cumulative cost share obligation. 

Restoration Fund revenues applied to contractors' share of cost 

share facilities are already credited as a payment. The only 

remaining Restoration Funds still available for offset are those 

used by Reclamation to fund the federal share of the project or 

facility. 

The Guidelines are likewise consistent with Section 

3406(b )(23)(B) which states that: " ... the costs of 

implementing those measures which are determined to provide 

such enhancement shall become credits to offset reimbursable 

costs associated with implementation of this subsection." The 

proposal simply interprets this to mean that fish and wildlife 

enhancement activities are non-reimbursable. 

Restoration The Guidelines are consistent with Section 3407(c)(l) 

Fund Credits which characterizes Restoration Fund revenues as 

payments against reimbursable obligations. The 

Guidelines are also consistent with the offset provisions of 

the Act, which convey that contractors s~ould be made 

whole in cases where Restoration Fund revenues are used 

to fund non-reimbursable Program activities. 

Trust Fund The Trust Fund adjustment is provided for by the SCAMPI. The 

Adjustment adjustment is necessary in order to make the U~ted States whole. 

Reclamation has no authority to recover contributed funds from 

water and power contractors. 

6