— IN PEPLY

R.EFP.a TO: 44.1)

832.

‘United States Department ofthe Interior

WATER AND POWER RESOURCES SERVICE

WASHINGTON, D.C. 20240

24 JUN 1980

Memorandum

To: Assistant Secretary — Land and Water Resources

From: Commissioner (‘~-~;‘) R. K.eitl. g~irc~:c,’h

Subject: •Irrigation Contracting Policies

Code Action Surname

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— I— 149(2

On January 10, 1979, you approved certain irrigation contracting policies set•

forth in my memorandum of December 29, 1978 (copy enclosed). Since that time,

several events have prompted me to reassess these policies.

My policies, as expressed in my December 29, 1978, memorandum, were designed to

implement a uniform approach to irrigation contracting practices throughout the

Service. However, deviations from a few of the most important policies have

occurred in contract negotiations with the Westlands Water District and the

formulation of a comprehensive ratesetting policy for the Central Valley

Project (CV?). These areas of concern include (1) establishment of water rates

no lower than the irrigators’ ability to pay and (2) additional water deliveries

to long—term contractors only through interim water service contracts.

The ratesetting procedures for the Westlands negotiations and those being

contemplated for the entire CV? are premised on establishing an irrigation water

rate equal to the full cost of service (excluding interest) or the payment

capacity of the contractor, whichever is less. I feel that it is vital to

maintain a degree of consistency among Service projects. Therefore, the

ratesetting precedent set for this major project, the CVI’, should be extended

to other projects.

Historically, irrigators have not had sufficient payment capacity to repay

the full capital costs associated with irrigation water supply, conveyance,

and drainage works. Assistance from surplus power and municipal and industrial

(M&I) revenues has been required to repay those capital costs beyond the

irrigators’ ability to pay. In such situations, the irrigators must pay all

operation and maintenance costs and 100 percent of the residual payment

capacity is utilized to repay a portion of the allocable capital costs. Therefore, a policy of setting water rates and annual payment obligations based

on the lesser of full cost of service or payment capacity is the reality for

many existing projects and probably will be the reality for the majority of

future irrigation projects.
2

The proposed water service contract with Westlands allows provision of water,

beyond the maximum specified in the contract, at the rates specified for firm

water service. In other words, it does not contemplate that temporary or

interim water service contracts need be executed to furnish water in excess

of 1,150,000 acre—feet. I believe that as long as we have the firm rate—

setting policy specified above and adjustable rates, there is no particular

need to provide additional water service through a short—term contract rather

than under a long—term, permanent contract.

Your concurrence with these policies will also influence the Service’s policy

on ratesetting and repayment of the M&I functions of projects. We expect to

have a comprehensive analysis and policy established for 14&-I contracting in

the next few months.

I request your concurrence with the following contracting policies which

represent a revision of those presented in my December 29, 1978, memorandum.

First, irrigation water rates will be established and adjusted to recover

the full cost of service (based on the authorized repayment period) or the

contractor’s payment capacity, whichever is less. Second, service of surplus

water, beyond the maximum specified in a long—term water service contract,

may be made available pursuant to terms and conditions of said long—term

contract instead of under an additional temporary contract.

Enclosure

Concur

:

(SGD) DAN~L P. BEARD 1 2 AUG 1980

Assistant Secretary — Land and Water Resources Date~

and Returned

bc: Secretarj’5 Reading Files—-LW? ~j

Assistant Secretary — LW

Regional Director, P~1,~M?, UC, LC, U14, LII, SW

W.0. Code 180, 100

(w/o enclosure)

Ilote to bc’s: Please place this in section II of the loose—leaf policy book

sent to you on February 26, 1980.

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