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Robert: r»fni;|t(S>fYf«r|tf tUfl 

Larry : IhaomaniaevDwater.org 

March 21 , 2008 

Mr. Mike Finnegan 

Acting, Mid-Pacific Regional Director 

Bureau of Reclamation 

2800 Cottage Way 

Saaamento, CA 95825 

Subject: Follow-up on March 21, 2006 Letter Requesting the Development of 

an Administrative Action to Ameliorate Current CVP Cost Allocation 

Flaws 

Dear Mr. Finnegan: 

In January 2005, certain Central Valley Project (CVP) water and power 

contractors (Contractors) met with then Regional Director Rodgers to express 

concern that Reclamation had not completed a new CVP cost allocation study 

in compliance with Public Law 99-546 (COA), In response to the COA 

requirements, Reclamation had previously issued its May 2001 Central Valley 

Project Cost Allocation Study (Report). Reclamation has acknowledged that 

the Report did not constitute a new cost allocation study and has chosen to 

continue using the cost allocation formulae derived from an update 

implemented in 1975. 

The Contractors contend that the Report does not meet the requirements of 

the COA and continue to believe that the cost allocation structure currently in 

use results in the inappropriate allocations of costs to the various CVP 

purposes. 

The CVP Water Association and the Northern California Power Agency have a 

long history of working effectively with Reclamation to collaboratively resolve 

complex, and occasionally contentious, issues affecting CVP Contractors, it 

was in this spirit that we wrote to Mr. Rodgera on March 21, 2008, to initiate a 

process to address some of our long-standing concerns about Reclamation's 

current CVP cost allocation structure. In that letter, we did not request the 

initiation of a new cost allocat|on,_lnstead, ws-requested- the development of— 

an administrative action to ameliorate the current cost allocation flaws through 

two targeted steps: 

1. Return to the 1970 Separable Cost Remaining Benefit (SORB) cost 

allocation factors. A short-form allocation was compieted in 1975 to 

update the 1970 cost allocation study, but the benefits and alternative 
2 

costs for several of the project purposes were not updated in that short-fomi update. 

The principles of analyzing and treating all project purposes on a comparable basis, 

which is inherent in a SCRB allocation, were compromised in the 1975 short-form 

update. The 1975 update also incorporated unrealistic assumptions pertaining to both 

inflation factors and power costs. Finally, documentation available to validate the 

conclusions of the 1975 update is incomplete and inadequate. 

2. Incorporate cost allocation adjustments required by the COA to reflect changes In 

CVP operations necessary to meet the State's water quality standards. The COA 

establishes cnteria for allocating costs associated with meeting State water quality 

objectives among all CVP project purposes. The Contractors' understanding of this 

legislation is that this language is indusiva of both the resource cost, water, and the 

financial costs associated with the resultant re-operation of the CVP. In the absence of 

a new SCRB, the Contractors believe that the most appropriate way to implement the 

COA requirement is to adjust the water supply sub-allocation to reflect the changes in 

operations necessary to meet the State water quality objectives. 

These two steps are discussed further in the enclosed March 21, 2006 letter providing the 

Central Valley Project Cost Allocation Administrative Proposal. 

To date, neither the CVP Water Assodation nor the Northern Califomia Power Agency has 

received a response to our March 21, 2006 request. We believe a Redamatlon response is 

long past due and hope to receive a response implementing our recommended adjustments 

shortly. 

We look forward to working with you and your staff to resolve these issues. 

Robert F. Stackhouse, Executive Director 

Central Valley Project Water Association 

Attachment: March 21 , 2006 Letter to Kir k Rodgers with the enclosed Central Valley Project Cost 

Allocation Administrative Proposal.