Officers 

lIarvey A. Bnilcy, President December 8, 20 II 

Joan Malicl', I" Vice President 

BililIal'l'ison, 2".1 Vice President Ms. Traci Michel Sandy Willard DCIIII, 3"'Vice President 

Vacant, Treasurer Project Manager - Central Valley Project Cost Allocation Study 

Lawrence Bnulllnn, Executivc Director Bureau of Reclamation, MP-73 0 

Board of Directors 2800 Cottage Way 

Sacramento, CA 95825 

Northern ZOJle 

Mikc Alves 

Kanml'lw & Glide Water District Subject: CVP Water Association Financial Affairs Committee (FAC) Comments on 

Lancc Boyd the Central Valley Project (CVP) Cost Allocation Study (CAS) 

Pril/cetOi/-Codora-Glellll 

Irrigation District 

Dnvid Coxcy Deal' Ms. Michel: 

Bella Vista Water District 

Snndy Delln 

tehama-Colllsa Canal Awhorify Representatives from the FAC attended Reclamation's October 21,2011, public 

Cel/tral ZOJle meeting where an update on the status of the CVP-CAS was provided. The FAC found 

Alexander R. Coatc the presentation provided much needed insight into the assumptions, data, and methods 

Hast Bay Mlil/icipal Utility District that Reclamation plans on using for its update of the CVP cost allocation. 

JelTY Bl'Own 

Col/fra Costa WaleI' Dislrict 

Tcd Costa However, based on the input received, the FAC is velY concerned that Reclamation is 

San Jllall Water District headed down a path whereby stakeholders will not have an 0PPOIlunity to provide Joan MahclSOlita Clam Valley Water District timely and meaningful input into the cost allocation study process. The fact is that it 

Western Zone has been over one year between public meetings. And while Reclamation did a 

Dennis Falnschi commendable job explaining what they have been doing for the past year at the 

Panache WaleI' District October 21, 20 II public meeting, a I to 2 hour meeting and allowance for comments 

WiliiallllIlll'I'ison 

Del Puerto Water District after Reclamation has completed their work fails to meet the FAC's expectations for 

Mnrtill Mcintyre public involvement on this crucial and long overdue study. 

Sail Lllis Water District 

Frances Mizullo 

Sail Luis & Delta-Mendola WA We recognize the complexities associated with the CVP, that there is no perfect way to 

SOil/item ZOJle do this study and that there will be a lot ofjudgment(s) made throughout this process. 

lIarvey A. Bniley And, as a result, there will be many questions about the assumptions made. The FAC 

Orange Cove Irrigation Distl'icl would prefer to see these questions addressed before significant resources and effOil is 

Dn"id Nixon 

Arvin-Edison Water Storage District committed to a proposed path of action. 

Ronald D. Jacobsmn 

Friant Water AUI/lOl'it)' Consequently, the FAC agrees with Western Area Powers Administration's comment Kenneth E. Paul 

S'hajler-Wasco Irrigation Distriel in their November 10, 20 II whereby the cost allocation study process could benefit 

from the use of a stakeholder technical advisOlY team, or, as a less desirable 

1521 "I" Sh'cct alternative, more frequent and timely meetings. Like Westel'll, we also believe that 

Sacramento, CA 95814 continuous input throughout would have the effect of actually saving time and effort, 

Tele: 916·448·1638 and eventually providing greater validity and agreement to the approach used among 

Fax: 916·446·1063 Reclamation and interested stakeholders. In addition, the contractors are a 

Email: knowledgeable and committed resource base. 

Larry: Ibauman:t;)cvpwnter.ol'g 
The FAC offers the following specific comments: 

I. The FAC understands, from Reclamation's modeling presentation, that Reclamation is applying 

the SCRUB methodology for each project purpose on a stand-alone basis. We recognize that 

there may well be valid alternative views and valuable input as to how the SCRUB analysis 

should be conducted. However, here again, we are concerned that these views and input will not 

be received in a useful time frame if the analysis is presented to stakeholders after much of the 

work is already completed. 

2. The FAC has concerns with the single purpose alternative estimation use of indexed costs. We 

understand that Reclamation indexed historical construction costs for three cost categories 

(representing 70% of those historical costs) and "factored" the remaining 30% of historical costs 

to increase at the same rate as the costs ofthe three cost categories. And while we generally 

support the use of expedited procedures to simplify the analysis, we believe that this procedure 

will result in inaccuracies given the length of time that has elapsed since the historical costs were 

first incurred. Therefore, the FAC believes that Reclamation should consider re-pricing, as 

opposed to indexing the alternatives to ensure more accurate and true cost comparisons. 

3. The FAC agrees with Reclamation's initial decision to compare future benefits against single 

purpose alternative costs when attempting to determine a maximum justifiable expenditure limit 

for each authorized project purpose. 

4. The FAC recommends that Reclamation include not only constl'Uction costs, but also interest 

during construction (IDC) and annual operation, maintenance, and replacement (OM&R) costs 

when determining the maximum justifiable expenditure. 

5. The FAC agrees with Reclamation's announcement of its intention to compute recreation 

benefits at Folsom Dam and Reservoir. In addition, we understand from Reclamation's 

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

reservoirs and we concur with that decision. 

6. The FAC believes that the CYP Facilities List should exclude facilities that will not be 

affected by the outcome of the CVP-CAS, i.e. individual distribution systems that are 

repaid by either separate 9( d) repayment contracts or specific provisions in their water 

service contracts. 

7. The FAC concurs with Reclamation's decision to not include Auburn Folsom South Unit costs 

for the purposes of this allocation study by categorizing these costs as being "in abeyance". 

8. The FAC assumes that for purposes of the cost allocation, Reclamation will continue to maintain 

the status quo for deferred use costs (which exist within the first three reaches of the TehamaColusa Canal and the first two reaches ofthe Folsom South Canal) and not sub-allocate them. 

However, should Reclamation deem this to be the final CVP cost allocation, then a decision 

needs to be made on what to do with these deferred use costs. Under that scenario, we 

recommend that these costs be deemed non-reimbursable. 

9. The FAC, as stated previously in their March 18,2010 and Febl'Uaty 23, 2011 letters, continues 

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

2 
and not another interim one. And, due to the potential consequences of that decision, the FAC's 

expectation is that Reclamation will make that vital decision in the near future. 

10. Lastly, the FAC, as stated in their February 23, 20 II letter, requests that Reclamation officially 

document that the results of this CYP-CAS will be applied prospectively and not retroactively, 

and make the documented decision available to the FAC as soon as possible. 

The CYPW A FAC looks forward to participating with Reclamation throughout this important process. If 

you have any questions regarding these comments, please contact me at 559-303-4150 or 

mhagman@lindmoreid.com. 

Sincerely, 

~~ Michael Hagman, 

CYP Water Association 

Chait~ Financial Affairs Committee 

cc: 

Ms. Katherine Thompson 

Assistant Regional Director for Business Services 

Bureau of Reclamation 

2800 Cottage Way, MP-II 0 

Sacramento, CA 95825 

Mr. Dave Gore 

Assistant Regional Director of Technical Services 

Bureau of Reclamation 

2800 Cottage Way, MP-115 

Sacramento, CA 95825 

3 
United States Departlnent of the Interior 

BUREAU OF RECLAMATION 

Mid-Pacific Regional Office 

2800 Cottage Way 

Sacramento, CA 95825 1898 

IN REPLY REFI.R TOMP-700 MAY 02 2D12 FIN-6.20 

Mr. Michael Hagman 

Chainnan 

CVP Water Association Financial Affairs Committee 

1521 I Street 

Sacramento, CA 95814 

Subject: Central Valley Project (CVP) Cost Allocation Study 

Dear Mr. Hagman: 

Thank you for your continued interest in the CVP Cost Allocation Study. Your participation in 

the public meeting held on October 21, 2011, as well as your feedback on the process is much 

appreciated. 

In your enclosed letter dated December 8,2011, the CVP Water Association Financial Affairs 

Committee (F AC) expressed concern over a number of items which are further addressed below. 

Generally, the Bureau of Reclamation understands the FAC's interest in being more actively 

involved in the Cost Allocation Study. Since the Cost Allocation Study is still in the early 

stages, Reclamation is currently reviewing options for providing improved, and more frequent, 

opportunities for stakeholder involvement. 

Responses to specific comments follow: 

1. "The F AC understands, from Reclamation's modeling presentation, that Reclamation is 

applying the SCRB methodology for each project purpose on a stand-alone basis. We 

recognize that there may well be valid alternative views and valuable input as to how the 

SCRB analysis should be conducted. However, here again, we are concerned that these 

views and input will not be received in a useful time frame if the analysis is presented to 

stakeholders after much of the work is already completed." 

Response: A considerable amount of time over the past year has been focused on project 

management, work plan development, data collection and organization, as well as 

consideration of comments and feedback generated from stakeholders. At the public meeting 

held on October 21, 2011, Reclamation presented infonnation on analytical approaches in 

response to stakeholder feedback, and provided insight to the type of infonnation and 

assumptions that will need to be considered as the Cost Allocation Study progresses. 
2 

Additionally, Reclamation provided updates on the status of the effort at the regularly 

scheduled F AC meetings. As we move forward, we have scheduled more frequent meetings 

in 2012 and plan to increase usage of the project website, www.usbr.gov/mp/cvp/cvpcas/index.html, in order to better engage stakeholders on a regular basis. 

2. liThe FAC has concerns with the single purpose alternative estimation use of indexed costs. 

We understand that Reclamation indexed historical construction costs for three cost 

categories (representing 70% of those historical costs) and 'factored' the remaining 30% of 

historical costs to increase at the same rate as the costs of the three cost categories. And 

while we generally support the use of expedited procedures to simplify the analysis, we 

believe that this procedure will result in inaccuracies given the length of time that has elapsed 

since the historical costs were first incurred. Therefore, the F AC believes that Reclamation 

should consider re-pricing as opposed to indexing the alternatives to ensure more accurate 

and true cost comparisons. II 

Response: Based on public input from the Cost Allocation Study public meeting held on 

October 21,2011, Reclamation evaluated the use ofre-pricing for the development of 

single-purpose alternative (SPA) cost estimates and presented a re-pricing methodology at 

the March 16,2012, public meeting for feedback. We look forward to input on the proposed 

re-pricing methodology prior to adopting the methodology for additional analysis and use. 

3. liThe F AC agrees with Reclamation's initial decision to compare future benefits against 

single purpose alternative costs when attempting to determine a maximum justifiable 

expenditure limit for each authorized project purpose. II 

Response: As mentioned at the October 21,2011, public meeting, Reclamation will compare 

50 years of future benefits against SPA costs. In the event the value of 50 years of future 

benefits is less than the SPA cost, historic benefits will also be calculated, dating back to 

1980 when the most recent CVP facility, New Melones, was placed in service. 

4. liThe F AC recommends that Reclamation include not only construction costs, but also 

interest during construction (IDC) and annual operation, maintenance, and replacement 

(OM&R) costs when detennining the maximum justifiable expenditure. II 

Response: As part of the typical separable costs remaining benefits (SCRB) analysis, all 

facility construction costs, including IDC and OM&R costs, are included for the purpose of 

estimating the justifiable expenditure for each facility project purpose. 

5. liThe F AC agrees with Reclamation's announcement of its intention to compute recreation 

benefits at Folsom Dam and Reservoir. In addition, we understand from Reclamation's 

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

reservoirs and we concur with that decision. II 
3 

Response: Because the CVP is an integrated system and the SCRB analysis is a benefitsbased analysis, Reclamation supports the consideration of evaluating all purposes for all CVP 

facilities based on current and anticipated operations. We are currently seeking additional 

legal and policy guidance from the Office of the Regional Solicitor, Pacific Southwest 

Region, on this approach prior to spending time and resources on data collection and 

analysis. An update on this item will be provided at the next public meeting and via the 

project website. 

6. "The F AC believes that the CVP Facilities List should exclude facilities that will not be 

affected by the outcome of the CVP-CAS, i.e. individual distribution systems that are repaid 

by either separate 9( d) repayment contracts or specific provisions in their water service 

contracts. " 

Response: Reclamation will continue to refine the CVP Facilities List and remove any 

single-purpose facilities not subject to the allocation update. 

7. "The F AC concurs with Reclamation's decision to not include Auburn-Folsom South Unit 

costs for the purposes of this allocation study by categorizing these costs as being 'in 

abeyance'. " 

Response: Comment noted. 

8. "The F AC assumes that for purposes of the cost allocation, Reclamation will continue to 

maintain the status quo for deferred use costs (which exist within the first three reaches of the 

Tehama-Colusa Canal and the first two reaches of the Folsom South Canal) and not suballocate them. However, should Reclamation deem this to be the final CVP cost allocation, 

then a decision needs to be made on what to do with these deferred use costs. Under that 

scenario, we recommend that these costs be deemed non-reimbursable." 

Response: Legislation authorizing excess capacity in both canals provides that if the 

expanded service for which the deferred capacity was included did not occur, the deferred 

costs are to be repaid from CVP revenue. Declaring these costs non-reimbursable would 

require Congressional legislation. 

9. "The FAC, as stated previously in their March 18,2010 and February 23, 2011 letters, 

continues to encourage Reclamation to consider designating this cost allocation update as a 

final allocation and not another interim one. And due to the potential consequences of that 

decision, the F AC's expectation is that Reclamation will make that vital decision in the near 

future." 

Response: Reclamation is diligently working to evaluate the implications associated with 

deeming the Cost Allocation Study as a final or interim study. A decision will be shared with 

you as soon as possible. 
4 

10. "Lastly, the F AC, as stated in their February 23, 2011 letter, requests that Reclamation 

officially document that the results of this CVP-CAS will be applied prospectively and not 

retroactively, and make the documented decision available to the F AC as soon as possible." 

Response: The Cost Allocation Study, whether final or interim, will reallocate total CVP 

construction costs to date and recalculate project cost repayment obligations based on the 

new allocation. A credit will be applied to the updated water and power repayment 

obligations based on payments made to date. The reallocation will continue to apply to 

unpaid capital costs as well as future operation and maintenance costs. 

Thank you again for your feedback to Reclamation on this important project. If you have any 

additional questions or comments, please feel free to contact Ms. Traci Michel, Project.Manager, 

916-978-5009 or tmichel@usbr.gov. We look forward to your continued involvement as we 

move forward with the effort. 

Sincerely, 

,;~, Katherine A. Thompson ;J~r- Assistant Regional Director, 

Business Services 

Enclosure