PROPOSED INTERIM RATESETTING POLICY 

MUNICIPAL AND INDUSTRIAL WATER 

CENTRAL VALLEY PROJECT 

CALIFORNIA 

Public Review Document 

December 1993 

Department or the Interior 

Bureau of Reclamation 

Mid-Pacific Region 

Sacramento, California 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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INTRODUCTION 

This document provides a brief description of the Central Valley Project (Project) and the details of the proposed new 

municipal and industrial (M&I) ratesetting policy (hereafter referred to as the Proposed Policy) for the Project. 

Throughout this document, a number of key terms are used which have specific meanings in reference to the 

Proposed Policy. Definitions of these key terms are provided in the GLOSSARY section of this document. 

Accompanying this Public Review Document is a booklet entitled "1993 M&I Rates for the Central Valley Project." 

This booklet (hereafter referred to as the 1993 M&I Rate Book) includes the following two sections: 

• The "A" Section includes the 13 major schedules used in developing the 1993 M&I water service rates. 

These interrelated schedules provide details on the computations of rates for the O&M, capital, deficit, and 

interest elements of the water rates. 

• The "B" Section includes the primary schedules detailing the fiscal year 1991 M&I accounting of operations 

by individual M&I contractor. 

Public meetings will be conducted in appropriate locations in the Project service area and oral and written comments 

on the Proposed Policy will be obtained. The Proposed Policy will be revised as appropriate, in response to the 

comments received. The Proposed Policy will then be submitted to the Department of the Interior (Department) for 

final approval along with a summary of the comments received, the Bureau of Reclamation’s (Reclamation) 

responses and/or descriptions of the changes made to the Proposed Policy, and appropriate environmental 

documentation required by the National Environmental Policy Act (NEPA ). The approved policy will be implemented 

as the new Project M&I Ratesetting Policy. 

An M&I water ratesetting policy is needed for the Project in order to assure that costs allocated to the M&I water 

function are repaid by the end of the Project repayment period. The Proposed Policy will meet this repayment 

requirement. With minor variations, the Proposed Policy has been used on an interim basis in setting the Project’s 

M&I water rates for the past several years. 

DESCRIPTION OF THE CENTRAL VALLEY PROJECT 

The Project was authorized by the Act of August 26, 1937, and has since been reauthorized several times to include 

new features and operating measures. The Project was designed for coordinated operation of its surface reservoirs 

and canals with existing rivers, streams and ground water supplies. Project operations are coordinated to maximize 

water yield and delivery and efficiency of operations. The Project catches and stores the mountain runoff and, 

through a complex web of storage and diversion dams, pumping plants, canals and distribution facilities, delivers 

water throughout its authorized service area. 

The Project provides multiple benefits associated with water resources management activities. Although initially 

developed for irrigation and flood control, the Project now supplies M&I water throughout the Basin, generates 

hydroelectric power, provides water for fish and wildlife and water quality enhancement, offers recreational 

opportunities, and provides other benefits and services as well. The Western Area Power Administration of the 

Department of Energy operates the power transmission features, while the power generation features and all other 

Project functions are the responsibility of Reclamation. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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Passage of the Central Valley Project Improvement Act (CVPIA) in October 1992 increased the emphasis on 

operating the Project in a more environmentally sensitive manner requiring improved water conservation and 

expanded use of voluntary water transfers, and use of a balanced approach to meeting the competing demands for 

Project water by fish and wildlife, agricultural, M&I, and power components of the Project. 

The Project’s plant in service costs were $3.01 billion as of September 30, 1991, $2.91 billion applicable to 

Reclamation’s facilities and $100 million applicable to Western Area Power Administration power facilities. 

Reclamation’s plant in service costs include $485 million for facilities constructed by the Corps of Engineers which 

have been integrated into the Project for operational and repayment purposes. The Project’s September 30, 1991, 

plant in service costs by type of facility are summarized in Table 1 below. 

Table 1. Project Facilities in Service at September 30, 1991 

($ in millions)

Dams and Reservoirs $ 927 

Power Generation and Transmission 299 

Pumping/Generating Plants 73 

Pumping Plants 182 

Conveyance System 926 

Distribution System 321 

Drainage System 42 

Fish and Wildlife Facilities 17 

Recreation Facilities 14 

Permanent Operating Facilities 42 

Interest During Construction 42 

Buildings and Equipment 29 

Investigation and Development Costs 63 

Other 33 

TOTAL $3,010 

 

Table 2 summarizes the capital investment allocated to the Project M&I water supply function as of September 30, 

1991. Estimated fiscal year 1993 0&M costs allocated to the M&I water supply function are also shown in this table. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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Table 2. Costs allocated to the M&I Water Supply Function at September 30, 1991

Capital Investment: 

 In-Basin Facilities: 

 Storage $ 86,328,137 

 Conveyance 89,116,171 

 Conveyance Pumping 8,942,628 

 Direct Pumping 11,789,422 

 Subtotal (1) 196,176,358 

 Out-of-Basin Facilities (2) 230,915,495 

 Deferred Interest Capitalized (3) 26,244,984 

 Total - As of September 30, 1991 453,336,837 

Estimated M&I O&M Costs, Excluding Interest, for Year Ended September 30, 1993: 

 Water Marketing 610,929 

 Storage Facilities 1,218,453 

 Conveyance Facilities 1,141,337 

 Conveyance Pumping 576,441 

 Direct Pumping 432,117 

 Total - Estimated for Fiscal Year 1993 $3,979,277 

(1) Project water storage and delivery system facilities located in the Central Valley Basin of California. 

(2) Project water delivery system located in the San Felipe Division service area, which is outside the Central 

Valley Basin. 

(3) Interest attributable to 1949 C 1987; capitalized and deferred for repayment during 1988-2030; see page 

12. 

The capital investment cost allocation is updated each year to reflect additions to and retirements from the plant 

investment account. Annual updates may also reflect changes in forecasts of future Project water and power 

deliveries. 

The repayment requirements for the M&I water supply function are set forth in Federal reclamation law. As shown in 

Table 3, the unpaid M&I repayment obligation was about $513 million as of September 30, 1991. 

Table 3. Capital Costs to be Repaid by M&I Water Users as of September 30, 1991 

Total In-Basin Out-of-Basin 

Capital Investment $427,091,853 $196,176,358 $230,915,495 

Deferred Interest 26,244,984 26,244,984 -- 

 Subtotal (Table 2) 453,336,837 222,421,342 230,915,495 

Accumulated Deficit 75,428,001 54,748,238 20,679,763 

Total Repayment Obligation 528,764,838 277,169,580 251,595,258 

Capital Repayment <15,584,798> <14,691,086> <893,712> 

Unpaid Balance as of September 30, 1991 $513,180,040 $262,478,494 $250,701,546 

Costs allocated to the M&I function are to be fully repaid by the end of the authorized repayment period. The capital 

costs of the existing in-basin and out-of-basin facilities are to be repaid by the end of their repayment periods of 2030 

and 2036, respectively, as explained on page 6. Capital investment costs are repaid with interest. Annual O&M costs, 

including interest on unpaid capital and deficits, which are not repaid within the year incurred, become deficits and 

must also be repaid with interest. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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The Proposed Policy will repay the unpaid balance amounts shown in Table 3 within the authorized repayment 

periods. Upon approval, the Proposed Policy will be used to determine the individual contractor’s M&I water rates 

required to repay these unpaid balances. While existing contract provisions will continue to be honored during each 

contract’s term, the M&I water rates will be implemented as soon as possible throughout the Project. 

ATTRIBUTES OF THE PROPOSED M&I RATESETTING POLICY 

Both the irrigation and M&I functions of the Project are integral water delivery operations governed by common 

requirements, criteria, and principles. The integrated operations and common characteristics dictate consistency and 

uniformity in the ratesetting policies for these two functions wherever possible. Accordingly, the basic principles, 

criteria, and methodologies established by the irrigation ratesetting policy provided the broad framework upon which 

the Proposed Policy was based. 

Two fundamental concepts underlie the Proposed Policy: Individual Contractor Accounting, and Cost of Service 

water rates. 

• Individual Contractor Accounting refers to (1) determination of annual water rates, (2) the annual accounting 

for O&M, and (3) interest expenses and the accumulation of deficit and/or surplus balances by individual 

contractor. Under this concept, each contractor has repayment responsibility for the costs applicable to its 

M&I water deliveries and, if a deficit occurs, the individual contractor has continuing repayment responsibility 

for that deficit. This concept was codified by Public Law 99-546, which requires annual accountings of net 

income or deficit for each individual Project water contractor, as follows: 

 "The Secretary of the Interior shall include in each new or amended contract for the delivery of water 

from the Central Valley project provisions ensuring that any annual deficit (outstanding or hereafter arising) 

incurred by a Central Valley project water contractor in the payment of operation and maintenance cost of the 

Central Valley project is repaid by such contractor under terms of such new or amended contract . . 

(underlining added) 

• Cost of Service refers to the determination of annual water rates based on the Government’s cost of 

providing M&I water to the individual contractor’s designated delivery point. This includes recovery, within the 

authorized repayment period, of: (1) annual O&M costs, (2) interest costs, (3) M&I investment costs, and (4) 

any individual contractor deficit balances. 

In accordance with the provisions of Public Law 99-546, the repayment period for the main Project water system 

facilities, referred to as the in-basin facilities, began in 1981 and ends in 2030. The repayment period commenced the 

year after the last major water storage facility, the New Melones Dam and Reservoir, was placed in service. 

A separate repayment period of 1987-2036 has been established for the costs of the San Felipe Division facilities, 

also referred to as the out-of-basin facilities. The repayment period for the out-of-basin facilities commenced the year 

after these facilities were substantially completed. For repayment purposes, the Proposed Policy isolates the costs of 

the San Felipe Division out-of-basin facilities. The San Felipe Division contractors have sole repayment responsibility 

for the out-of-basin costs. 

Under the Proposed Policy, annual M&I water rates are based on operating cost and capital cost pools, or 

components, and interest and deficit recovery rates, where applicable. The O&M cost components include the annual 

labor, supervision, materials, and other types of O&M expenses associated with each of the five operating cost 

components -- water marketing, storage, conveyance, conveyance pumping, and direct pumping. The capital cost 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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components -- storage, conveyance, conveyance pumping, and direct pumping -- are associated with recovery of the 

costs of structures and facilities within the applicable in-basin and out-of-basin repayment periods. 

A preliminary step in the determination of annual O&M and capital cost component rates is to accumulate the total 

pooled cost and the acre-feet of water deliveries applicable to each component. Once the costs and acre-feet 

applicable to each component have been determined, the basic methodology for computing annual water rates is to 

divide each component’s pooled cost by its corresponding acre-feet of water deliveries. 

• For the O&M cast components, the annually determined rates are computed by dividing the pooled annual 

costs by the corresponding projected annual water deliveries for each component, respectively. Operating 

cost components are assigned to contractors on the basis of the services used to deliver their water supply. 

All water deliveries require water marketing services. While most contractors require storage services, 

several Project contractors operate and maintain the storage and conveyance facilities that provide their 

water service at their own expense. In those cases, the pooled O&M cost components are excluded from 

their water rates. 

• The in-basin capital cost components are determined by accumulating all M&I plant costs by component, as 

of the most recently completed fiscal year, and then dividing each component’s costs by its total historical 

and projected acre-feet for the authorized repayment period of 1981-2030. The resultant component capital 

rates are then combined as applicable by individual contractor. The combined capital rate is then multiplied 

by the total quantity of water to be delivered to the contractor during the 1981-2030 repayment period, with 

the result being the capital cost allocation to the contractor. This allocation, less any repayment realized as of 

the end of the same fiscal year, is then divided by the present worth of remaining deliveries to be made 

during the repayment period, with the result being the individual capital rate for the then-current water year. 

The present worth of remaining deliveries concept is provided in the GLOSSARY on page 36. 

• The out-of-basin capital cost component is determined in the same manner as that described above for the 

in-basin capital cost components, only using the capital costs, repayment period, water deliveries, and 

interest rate applicable to the out-of-basin facilities. 

• The interest recovery rate is comprised of two elements: interest on unpaid plant investment, and interest on 

deficit balances, by individual contractor. All interest costs are computed annually on a compound basis. This 

component is described in detail starting on page 11. 

• Individual contractor deficit recovery rates are computed by dividing the contractor’s accumulated deficit 

balance as of the end of the most recently completed fiscal year by the present worth of that contractor’s 

projected deliveries over the remaining repayment period. The present worth of each contractor’s projected 

deliveries is computed using each contractor’s composite deficit interest rate. 

Deficits or surpluses, as well as the updating of accumulated deficit or surplus balances, are determined each fiscal 

year. All M&I O&M costs are compiled and grouped into the components indicated above. Costs in each component 

are allocated to those contractors utilizing that component, based on each contractor’s respective share of the total 

annual water deliveries for that component. Interest charges on O&M deficits and on unpaid capital investment are 

then added to the O&M costs, resulting in the total costs assigned to the individual contractor for the year. Total 

costs applicable to each contractor are then compared with the corresponding revenues applicable to each 

contractor. The result is either a net surplus or deficit for that fiscal year. A hypothetical example of this process is 

shown below: 
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Revenues - Contractor A $500,000 

O&M Expenses - Contractor A 

 Water Marketing $28,000 

 Storage 43,000 

 Conveyance 89,000 

 Conveyance Pumping 37,000 

 Direct Pumping 16,000 

 Total O&M 213,000 

Interest Expenses - Contractor A 120,000 

 Total Current Year Expenses 333,000 

 Net Surplus (Deficit) - Contractor A $167,000 

Contractor revenues are applied first towards current year expenses -- O&M and interest expenses. Revenues in 

excess of current year expenses are then applied first to repaying allocated capital costs, and second to unpaid prior 

year O&M costs (i.e., deficits). 

The total of the assigned O&M (including interest), capital, and deficit (if applicable) rate components constitutes the 

contractor’s annual water rate. The applicable components and the makeup of each contractors 1993 water rate 

computed in accordance with the Proposed Policy is shown on Schedules A-2 and A-3 of the 1993 M&I Rate Book. 

Description of Water Rate Components 

A general description of each of the M&I water rate components, computational mechanics, and other specifics is 

provided below. 

Water Marketing

The water marketing cost component includes the costs incurred for monitoring, administering and negotiating water 

service contracts, maintaining water delivery and payment records, accounting for the annual financial results for 

Project water operations, developing annual water rates, and related types of activities. 

Dividing the total water marketing costs by the total projected water deliveries for the corresponding water year 

results in the average cost per acre-foot for this component. 

Storage

The storage O&M cost and capital investment components represent the costs of project facilities associated with the 

collection and storage of Project water. These facilities consist primarily of the Project’s dams and reservoirs, such as 

Shasta, Folsom and New Melones. 

All contractors receiving storage services are assigned a Project-wide capital rate, except for the Foresthill Public 

Utility District (which has a fixed repayment obligation) and the San Felipe Division users whose storage capital rate 

includes an adjustment for the costs of the San Luis Pumping-Generating Plant. Because the San Luis PumpingGenerating Plant serves as a pumping-only facility for the San Felipe Division, the costs of the San Luis PumpingGenerating Plant are assigned to the San Felipe Division as direct pumping costs, rather than as storage costs. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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Storage O&M costs include the project use energy costs associated with pumping water at the San Luis Pumping-Generating 

Plant, the Columbia-Mowry System, and the Folsom Pumping Plant. Similar to the treatment of storage capital costs, all storage 

contractors receive the same storage O&M rate, except for the San Felipe Division. The San Felipe rates include an adjustment 

for the costs of the San Luis Pumping-Generating Plant as described above. 

Conveyance

The conveyance O&M and capital cost components include the costs associated with Project facilities designed and 

used for transporting water throughout the Project. Canals such as the Delta-Mendota, San Luis, and Friant-Kern 

Canals, are the primary type of facility included in this cost component. 

All contractors receiving in-basin conveyance services, including those in the San Felipe Division, are assigned the 

same conveyance operating and capital rate components. The San Felipe Division contractors have an additional 

capital rate for the conveyance facilities which are located out-of-basin and used exclusively by the San Felipe 

contractors. The San Felipe Division contractors perform the O&M on the out-of-basin conveyance facilities. 

Conveyance Pumping

The conveyance pumping O&M and capital cost components include the costs of the three main Project pumping 

facilities used to move M&I water through the Project; the Tracy Pumping Plant, the O’Neill Pumping-Generating 

Plant, and the Dos Amigos Pumping Plant. Separate O&M and capital rates are computed for each of the three 

pumping plants and those rates are assigned to contractors whose water is pumped through these pumping plants. 

In addition to labor, supervision, and other typical O&M cost elements, conveyance pumping O&M expenses include 

project use energy costs. Project use energy costs are charged on the energy used to pump water at each of the 

pumping plants. The amount of energy required to pump an acre-foot of water varies at each of the three facilities 

because of the different lift requirement at each facility. The greater the lift requirement, the more energy required to 

pump each acre-foot of water and the more pumping O&M expenses associated with that acre-foot of water. 

Total conveyance pumping costs are assigned to pumping plants based on each plant’s prorata share of project use 

energy used. The per acre-foot rates calculated for each of the pumping facilities used by a contractor are totaled to 

determine each contractor’s conveyance pumping O&M rate. 

Separate conveyance pumping capital rates are calculated for each of the three pumping plants based on the 

recorded capital costs as of the end of the most recently completed fiscal year. A rate per acre-foot is calculated for 

each facility based on its total historic and projected deliveries during the 50-year repayment period. The rates for 

each of the main pumping facilities used by a contractor are totaled to determine the contractor’s capital rate for 

conveyance pumping. 

A portion of the Tracy Pumping Plant’s capital costs and O&M expenses are assigned to the Friant-Kern Canal and 

Madera Canal contractors on the basis of the historical and projected deliveries to the Exchange contractors located 

in the Delta-Mendota Pool service area. 

Direct Pumping

The direct pumping O&M and capital cost components are based on the costs associated with relift pumping plants 

which pump water exclusively for specific contractors. These facilities were constructed by Reclamation and are now 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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operated and maintained by the local water districts whose water they pump. These facilities and the operating 

entities follow: 

Pumping Plant Operator 

Wintu Pumping Plant Bella Vista Water District 

Contra Costa Canal Pumping Plants Contra Costa Water District 

Ygnacio Pumping Plant Contra Costa Water District 

Clayton Pumping Plant Contra Costa Water District 

San Luis Relift Pumping Plants San Luis Water District 

Westlands Relift Pumping Plants Westlands Water District 

Pleasant Valley Pumping Plant Westlands Water District 

Pacheco Pumping Plant Santa Clara Valley Water District 

Coyote Pumping Plant Santa Clara Valley Water District 

The direct pumping capital costs as of the end of the most recently completed fiscal year are allocated to the 

contractors using the facilities. A per acre-foot rate is calculated for each plant based on the total of the historical and 

projected deliveries over the 50-year repayment period. 

Because each pumping plant is operated by a local water district at its expense, the only project O&M costs to be 

recovered are the project use energy costs. Project use energy costs are charged directly to the user of the direct 

pumping facility. 

Interest

M&I is an interest-bearing function, and interest is computed annually on both the individual contractor's unpaid 

capital cost allocation and their accumulated deficit balances. 

Annual interest on general (non-specific) plant investment is calculated using a composite interest rate for the 

Project. The interest rate applicable to the unpaid plant investment balance during the 1949-1973 period is 2.5 

percent. The facilities placed in service after 1973 had higher authorized interest rates. A composite interest rate is 

developed each year which weighs each of the authorized interest rates by the expenditures to date for the in-service 

facilities. Since 1973, the composite interest rate for the in-basin facilities has gradually increased to a rate of 2.832 

percent in 1991. The composite interest rate is updated annually to reflect any additions to the Project plant in 

service accounts and their authorized interest rates. Interest on the unpaid balance of the specific costs allocated to 

individual contractors is calculated using the authorized interest rate for the specific facilities. 

Interest on individual contractor deficit balances is based on different interest rate criteria. The deficit balance for an 

individual contractor refers to the accumulation of annual O&M and maintenance costs, including interest expenses, 

which exceeded the annual water service payments made by the contractor. As explained below, interest on each 

contractor's cumulative deficit has been based on separate interest rate criteria applicable to three periods: 1949-

1976, 1977-1985, and 1986-present. The specific rates applicable to each year’s deficit are displayed on Exhibit 2 

under the "Interest Rate" column. A brief discussion of the interest rates for each of the three periods follows: 

• The Project unpaid plant investment interest rate is applied to all operating deficits incurred during the 1949-

1976 period. The rates used during this period were comprised of a specific rate of 2.5 percent for the period 

1949-1973, which gradually increased to a composite rate of 2.654 percent in 1976. Use of the unpaid plant 

investment interest rates is consistent with Reclamation’s practices and instructions during that period. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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• In 1977, new instructions were received which prescribed applying annual Project power repayment interest 

rates to future M&I deficits. Given this second interest rate criteria, a composite deficit interest rate was 

computed to reflect the weighing of the annual deficits and applicable interest rates. 

• In 1986, the 1977 instructions were superseded by the enactment of Public Law 99-546. Section 106 of that 

law provides for the application of an annually updated Federal interest rate to all annual deficits incurred by 

Project water contractors. Annually, each contractor’s composite deficit interest rate is updated for new O&M 

deficits incurred at the applicable Section 106 deficit interest rate. The composite deficit interest rates 

applicable to each contractor’s O&M deficit as of September 30, 1991, are shown on Schedule 12A, page 1 

of 3, of the 1993 M&I Rate Book. 

Deficits

Annually, deficits or surpluses by individual contractor are determined by comparing each contractor’s total allocated 

costs with their respective revenues. A detailed description of how the deficits or surpluses are determined, as well as 

an explanation of how deficit recovery rates are calculated, was provided on page 8. 

Deferred Interest Method 

A potential inequity in the allocation of interest was identified during the early development of the Proposed Policy. 

This inequity stems from a disproportionate allocation of interest costs. An example of how this disproportionate 

interest allocation occurs follows. 

• If, in the first year of M&I water deliveries, only one contractor was taking water from a system ultimately 

designed for 50 contractors, all the plant costs of the M&I function and the repayment interest for that year 

would be allocated to the one user. The contractor would not be ultimately responsible for repaying all the 

capital costs, as the capital costs would be reallocated each year based upon the then-current contractors 

receiving water services. However, there is no retroactive adjustment of allocated interest expense. 

Accordingly, the contractor is forever burdened with the repayment obligation for the entire interest amount 

computed for the initial year. These interest costs together with assigned O&M costs result in increased 

deficits, as well as increased interest charges on those deficits. 

The need for a method to equitably allocate historic interest costs during completion of the many features of the 

Project led to the development of the Deferred Interest Method. The Deferred Interest Method established the period 

1949-1987 as the period during which inequitable plant allocations and interest computations occurred. As such, M&I 

plant costs, annual plant interest, O&M deficits, and deficit interest applicable to that period were recomputed under 

the Deferred Interest Method. 

As shown on Exhibit 2, interest for the early project years, 1949 through 1987, under the Deferred Interest Method is 

$26 million less than the amount of interest originally computed and allocated to contractors. The Deferred Interest 

Method ensures recovery of the $26 million by amortizing these charges as an additional capital cost component to 

be repaid over the remaining Project repayment period. By doing this, it permits the reallocation of capital costs and 

the resultant computation of a substantially lower amount of interest as of 1987, while still providing or full recovery of 

the interest amount. This is accomplished by capitalizing the $26 million of deferred interest at the applicable interest 

composite interest rate (Exhibit 2), and including a deferred interest component in M&I rates to recover such amount. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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Both the Deferred Interest Method and the original interest computation method yield essentially the same financial 

result to the U.S. Government. The difference between the two methods lies in the procedures for computing interest 

costs by contractor and in the timing and method for recovering such interest costs. The Deferred Interest Method 

erases the inequity in computing contractor annual interest for years prior to 1988, resulting in $26 million less 

interest computed through this period, and provides for recovery of the $26 million, with interest, through the 

capitalized Deferred Interest Method. 

The Deferred Interest Method is the procedure utilized in the Proposed Policy. 

Minimum M&I Water Rate 

The M&I ratesetting policy will continue to honor the water rate provisions of existing long-term M&I water contracts 

even though some of these rates are less than the cost of service rates computed under the Proposed Policy. 

However, the Proposed Policy does not preclude contractors from voluntarily paying the computed O&M or cost of 

service rates. 

Contractors with long-term contracts having water service rates in excess of computed cost of service rates will be 

required to continue paying these rates until the contract expires or is renewed. Upon renewal, the contract will 

provide for annual adjustments of the water rate to the higher of the annually computed cost of service rate or the 

minimum M&I water rate as described below. 

The minimum Project M&I water rate shall be the higher of: (1) a rate of $15 per acre-foot, or (2) a rate equal to the 

O&M costs applicable to delivering Project M&I water to the contractor’s designated point of delivery. 

An example of the computation of a contractor’s minimum water rate follows: 

Water Marketing: 

 Budgeted O&M Costs - 1993 $610,929 

 Projected Water Deliveries - 1993 387,694 

 Cost Per Acre-foot $1.58 

Storage O&M: 

 Budgeted O&M Costs - 1993 $1,218,453 

 Projected Water Deliveries - 1993 369,139 

 Cost Per Acre-foot 3.30 

Conveyance O&M: 

 Budgeted O&M Costs - 1993 $1,141,337 

 Projected Water Deliveries - 1993 217,038 

 Cost Per Acre-foot 5.26 

Total O&M Cost Per Acre-foot 10.14** 

** As the computed O&M rate is less than the $15 minimum rate, the rate applicable to the contractor in this situation would be the $15 rate. 

All water revenues, including minimum M&I water rate amounts, will be accounted for by individual contractor and will 

be available to meet current and future repayment obligations applicable to the individual contractor. 

Once the M&I function of the Project achieves an overall positive repayment status, the use of a minimum rate 

procedure will be suspended. In place of the minimum rate procedure, the minimum Project M&I rate will become the 

O&M rate, so long as the Project maintains a positive repayment status. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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Once the Project is in a positive repayment status, a mechanism will be established for crediting contractors for 

payments they have made in excess of their allocated share of capital and operating costs. Such a mechanism may 

include reductions to water service bills, and other such credits as may be determined appropriate at that time. 

Recovery of M&I Investment 

The Proposed Policy recognizes the legal requirement of honoring the Project’s existing long-term, fixed-rate water 

service contracts. However, honoring these contracts provides very little opportunity to adjust the M&I rates or 

increase the amount of M&I revenues. In the absence of authority to unilaterally increase the contract rates, M&I 

revenues do not begin to increase appreciably until 2005, when the first major group of fixed-rate contracts are 

subject to renewal. During the 1992 through 2004 period, the inability to generate sufficient revenues to keep pace 

with steadily rising O&M and interest costs will, in all probability, result in a continuing downward slide in the M&I 

financial position. 

A graph (Figure 1) depicting the estimated revenues and interest expenses flows for the period 1990-2030 is 

provided on page 20. This Figure does not consider the impacts of potential early contract renewals under the 

provisions of Public Law 102-575. The Figure represents estimated revenues and interest expenses with contract 

renewals accomplished in accordance with existing contract provisions. 

• Annual revenues rise gradually from $6 million in 1990 to approximately $22 million in 2005. This relatively 

gradual rise in revenues is attributable to a combination of factors, including a limited number of renewed 

contracts at cost of service rates, periodic adjustments of rates for contracts with rate adjustment clauses, 

gradual increases in annual water sales, and annually increasing water rates. While revenues gradually 

increase between 1990 and 2005, annual O&M deficits continue to increase during this period. 

• Annual revenues during the period 2006-2013 rise dramatically reflecting a major block of contract renewals 

during this period. 

• Increases in annual revenues after 2013 are due primarily to some increase in water sales and increased 

O&M costs which are assumed to escalate at an annual rate of five percent in the revenue analysis. 

• As contracts are renewed with cost of service rates, annual deficits quickly disappear and substantial annual 

surpluses occur. As interest charges decrease on outstanding O&M deficits and unpaid capital balances, 

greater net revenues become available for repayment. A sharp increase in revenues occurs during 2022 and 

2024 due to the renewal of a block of contracts having a significant amount of M&I water deliveries. 

As shown in Figure 1 (not available). 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

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EXHIBIT 1 

CENTRAL VALLEY PROJECT 

PRESENT VALUE OF REVENUE STREAMS THROUGH 2030 UNDER THE PROPOSED POLICY, 09/15/93

All Contractors 

Excluding Out-Of-Basin 

Out-Of-Basin 

Contractors Only 

All Contractors 

Including Out-of-Basin 

Year Water Revenue 

Present Value 

@ 7.375% Water Revenue 

Present Value 

@ 7.375% Water Revenue 

Present Value 

@ 7.375% 

1993 6,528,005 6,079,632 3,935,360 3,665,062 10,463,365 9,744,694 

1994 9,421,428 8,171,662 4,025,660 3,491,650 13,447,088 11,663,312 

1995 10,283,541 8,306,789 4,115,960 3,324,770 14,399,501 11,631,559 

1996 12,104,143 9,105,868 4,206,260 3,164,342 16,310,403 12,270,210 

1997 12,434,950 8,712,206 4,296,560 3,010,267 16,731,510 11,722,473 

1998 12,817,251 8,363,264 4,429,000 2,889,925 17,246,251 11,253,190 

1999 13,638,691 8,288,014 4,519,300 2,746,306 18,157,991 11,034,320 

2000 14,083,814 7,970,671 4,609,600 2,608,782 18,693,414 10,579,453 

2001 15,740,622 8,296,469 4,699,900 2,477,194 20,440,522 10,773,663 

2002 16,239,276 7,971,405 4,790,200 2,351,375 21,029,476 10,322,780 

2003 16,823,670 7,691,053 4,902,000 2,240,982 21,725,670 9,932,035 

2004 18,165,231 7,733,976 4,970,800 2,116,353 23,136,031 9,850,329 

2005 18,824,864 7,464,325 5,039,600 1,998,273 23,864,464 9,462,598 

2006 28,403,022 10,488,662 5,108,400 1,886,429 33,511,422 12,375,090 

2007 29,076,304 9,999,805 24,889,706 8,559,967 53,966,010 18,559,773 

2008 29,825,979 9,553,090 26,447,618 8,471,021 56,273,597 18,024,111 

2009 33,726,294 10,060,385 26,894,563 8,022,514 60,620,857 18,082,899 

2010 34,094,591 9,471,708 27,341,547 7,595,667 61,436,138 17,067,375 

2011 41,978,048 10,860,802 27,788,637 7,189,636 69,766,685 18,050,437 

2012 42,405,057 10,217,723 28,235,928 6,803,596 70,640,985 17,021,319 

2013 56,262,129 12,625,525 28,991,357 6,505,817 85,253,486 19,131,342 

2014 56,877,143 11,886,880 29,326,612 6,129,034 86,203,755 18,015,914 

2015 57,481,865 11,188,137 29,665,012 5,773,929 87,146,877 16,962,066 

2016 59,515,138 10,788,255 30,007,074 5,439,355 89,522,212 16,227,610 

2017 60,196,101 10,162,228 30,353,394 5,124,221 90,549,495 15,286,449 

2018 60,873,041 9,570,671 30,704,669 4,827,495 91,577,710 14,398,166 

2019 61,463,416 8,999,760 30,840,362 4,515,790 92,303,778 13,515,549 

2020 62,095,144 8,467,763 30,986,345 4,225,532 93,081,489 12,693,295 

2021 64,417,266 8,181,071 31,143,940 3,955,318 95,561,206 12,136,389 

2022 64,982,916 7,686,062 31,328,189 3,705,442 96,311,105 11,391,504 

2023 68,531,569 7,549,048 31,513,831 3,471,384 100,045,400 11,020,433 

2024 69,026,506 7,081,320 31,689,593 3,250,985 100,716,099 10,332,305 

2025 69,509,210 6,641,062 31,885,905 3,046,449 101,395,115 9,687,511 

2026 72,263,687 6,430,017 32,106,425 2,856,827 104,370,112 9,286,844 

2027 72,760,469 6,029,542 32,355,874 2,681,279 105,116,343 8,710,820 

2028 74,034,381 5,713,722 32,637,711 2,518,868 106,672,092 8,232,589 

2029 74,648,695 5,365,432 32,930,929 2,366,936 107,579,624 7,732,367 

2030 74,671,042 4,998,406 32,960,099 2,206,316 107,631,141 7,204,722 

Total 1,596,224,499 324,172,408 786,673,920 157,215,087 2,382,898,419 481,387,495 

Source: (1) SC5:PRJNO8.SE2 (All Contractors Excluding Out-of-Basin) 

(2) SCS:PRJ-O8.SE2 (Out-of-Basin Contractors Only). 

(3) SC5:PRJALL.SE2 (All Contractors). 

(4) Central Valley Project Public Law 99-546 repayment interest rate for fiscal year 1993. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

13

EXHIBIT 2 

CENTRAL VALLEY PROJECT 

DETERMINATION OF DEFERRED INTEREST UNDER THE PROPOSED 

POLICY AND CALCULATION OF THE DEFERRED INTEREST COMPOSITE RATE, 09/15/93 

Capital Interest Deficit Interest Total Interest 

Year Original Method 

Deferred 

Interest 

Method Difference 

Original 

Method 

Deferred 

Interest 

Method Difference 

Original 

Method 

Deferred 

Interest 

Method Difference 

Annual 

Deficit 

Interest Rate

Calculation 

of Deferred 

Interest and 

Composite 

Rate 

1949 152,108 127,232 -24,876 -- -- -- 152,108 127,232 -24,876 .025000 622 

1950 630,981 600,174 -30,807 2,004 1,382 -622 632,985 601,556 -31,429 .025000 786 

1951 182,446 145,801 -36,645 4,511 3,103 -1,408 186,957 148,904 -38,053 .025000 951 

1952 193,717 195,416 1,699 7,356 4,997 -2,359 201,073 200,413 -660 .025000 17 

1953 204,960 212,680 7,720 9,482 7,107 -2,375 -214,442 219,787 5,345 .025000 -134 

1954 175,192 226,225 51,033 12,291 10,054 -2,237 187,483 236,279 48,796 .025000 -1,220 

1955 253,179 250,937 -2,242 11,289 11,511 222 264,468 262,448 -2,020 .025000 51 

1956 236,997 258,883 21,886 14,789 15,046 257 251,786 273,929 22,143 .025000 -554 

1957 434,044 271,131 -162,913 14,729 17,247 2,518 448,773 288,378 -160,395 .025000 4,010 

1958 483,366 289,609 -193,757 19,031 19,571 540 502,397 309,180 -193,217 .025000 4,830 

1959 484,172 318,553 -165,619 28,573 24,578 -3,995 512,745 343,131 -169,614 .025000 4,240 

1960 483,099 342,129 -140,970 33,936 28,252 -5,684 517,035 370,381 -146,654 .025000 3,666 

1961 479,373 370,836 -108,537 46,062 36,720 -9,342 525,435 407,556 -117,879 .025000 2,947 

1962 517,487 376,638 -140,849 56,014 43,724 -12,290 573,501 420,362 -153,139 .025000 3,828 

1963 577,799 365,631 -212,168 66,687 50,573 -16,114 644,486 416,204 -228,282 .025000 5,707 

1964 925,151 353,155 -571,996 77,766 56,064 -21,702 1,002,917 409,219 -593,698 .025000 14,842 

1965 1,023,125 434,789 -588,336 92,942 56,527 -36,415 1,116,067 491,316 -624,751 .025000 15,619 

1966 1,094,554 457,974 -636,580 106,319 54,517 -51,802 1,200,873 512,491 -688,382 .025000 17,210 

1967 1,114,455 457,081 -657,374 126,599 59,061 -67,538 1,241,054 516,142 -724,912 .025000 18,123 

1968 1,114,741 535,184 -579,557 151,494 66,536 -84,958 1,266,235 601,720 -664,515 .025000 16,613 

1969 1,287,124 596,502 -690,622 168,417 71,347 -97,070 1,455,541 667,849 -787,692 .025000 19,692 

1970 1,314,233 795,378 -518,855 194,904 81,765 -113,139 1,509,137 877,143 -631,994 .025000 15,800 

1971 997,141 847,243 -149,898 222,769 94,553 -128,216 1,219,910 941,796 -278,114 .025000 6,953 

1972 1,209,213 939,278 -269,935 240,648 106,481 -134,167 1,449,861 1,045,759 -404,102 .025000 10,103 

1973 1,251,237 1,176,569 -74,668 264,217 121,800 -142,417 1,515,454 1,298,369 -217,085 .025000 5,427 

1974 1,662,147 1,242,104 -420,043 274,728 128,137 -146,591 1,936,875 1,370,241 -566,634 .027150 15,384 

1975 2,239,779 1,367,426 -872,353 300,920 143,388 -157,532 2,540,699 1,510,814 -1,029,885 .026580 27,374 

1976 2,832,457 2,383,287 -449,170 426,944 202,526 -224,418 3,259,401 2,585,813 -673,588 .026540 17,877 

1977 2,184,138 1,941,922 -242,216 451,903 243,911 -207,992 2,636,041 2,185,833 -450,208 .070000 31,515 

1987 2,157,885 1,891,881 -266,004 581,944 341,728 -240,216 2,739,829 2,233,609 -506,220 .070000 35,435 

1979 1,904,184 1,947,059 42,875 701,626 435,927 -265,699 2,605,810 2,382,986 -222,824 .075000 16,712 

1980 2,086,992 1,973,725 -113,267 823,558 532,985 -290,573 2,910,550 2,506,710 -403,840 .080000 32,307 

1981 2,376,838 2,218,777 -158,061 970,327 644,214 -326,113 3,347,165 2,862,991 -484,174 .085000 41,155 

1982 2,486,590 2,203,071 -283,519 1,144,573 774,544 -370,029 3,631,163 2,977,615 -653,548 .090000 58,819 

1983 4,022,366 2,288,449 -1,733,917 1,457,670 967,501 -490,169 5,480,036 3,255,950 -2,224,086 .095000 211,288 

1984 4,032,613 2,442,699 -1,589,914 1,914,398 1,219,079 -695,319 5,947,011 3,661,778 -2,285,233 .107500 245,663 

1985 4,684,927 2,466,061 -2,218,866 2,479,696 1,508,021 -971,675 7,164,623 3,974,082 -3,190,541 .113750 362,924 

1986 4,646,581 2,442,537 -2,204,044 3,176,777 1,857,429 -1,319,348 7,823,358 4,299,966 -3,523,392 .107500 378,765 

1987 4,578,680 2,971,306 -1,607,374 3,787,823 2,169,565 -1,618,258 8,366,503 5,140,871 -3,225,632 .076250 245,954 

Total 58,716,072 40,725,333 -17,990,739 20,465,716 12,211,471 -8,254,245 79,181,788 52,936,804 -26,244,984 -- 1,891,301 

Source Capital InterestOriginal Method = FN:OCAP-INT.020 

Deferred Interest Method = FN:3CAPINT.038 

Deferred Interest Composite Rate .072063 

O&M InterestOriginal Method = FN:OOEF-INT.020 

Deferred Interest Method = FN:3DEFINT.038 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

14

EXHIBIT 3 

CENTRAL VALLEY PROJECT 

SCHEDULE OF 1993 CONTRACT WATER RATE AND PROJECTED RATE AT 

CONTRACT RENEWAL PER ACRE-FOOT BY CONTRACTOR 

M&I WATER RATE PER A/F 

Facility Contractor Year of Renewal Current1 @ Renewal 

Black Butte D&R 

 County of Colusa2 1993 10.80 15.003

 Elk Creek CSD 2008 9.00 15.003

 Louisiana-Pacific Corp 2011 9.00 15.003 

Clear Creek Unit 

 Clear Creek CSD 1995 18.50 21.15

Contra Costa WD 

 CCWD - Contra Costa Canal 1993 4.30 4

 CCWD - Contra Loma D&R 1993 7.10 4 

 CCWD - New Facilities 1993 7.40 4

 CCWD - General Facilities 2011 10.00 49.33 

Cow Creek Unit 

 Bella Vista WD 1995 17.50 38.17 

Cross Valley Canal 

 County of Fresno5 1996 27.21 30.80 

 County of Tulare5 1996 32.02 40.44 

Delta Mendota Canal 

 City of Tracy5 2014 26.98 50.98 

 0restimba WD 19896 28.01 28.01 

 Panoche WD - DMC5 2009 30.11 54.21 

 Plain View WD 1993 28.48 28.48 

 San Luis WD - DMC5 2009 11.57 27.04 

 Sunflower WD 19896 28.01 28.01 

Folsom D&R 

 City of Roseville 2011 9.00 16.05 

 City of Sacramento 7 9.00 45.76 

 El Dorado ID - FD&R5 2006 9.00 15.003

 San Juan Suburban WD 1993 9.37 15.003

Folsom South Canal 

 East Bay MUD 2013 17.36 95.73 

 Sacramento MUD w/ Delta Charge 2013 17.59 95.27 

 Sacramento MUD w/o Delta Charge 2013 8.59 73.38 

Friant Dam 

 County of Madera 1995 10.00 19.21 

 Fresno County WW#18 1996 20.00 15.003

Friant Kern Canal 

 Arvin-Edison WSD 1995 10.00 64.01 

 City of Fresno 2006 10.00 134.24 

 City of Lindsay 1985 27.70 27.70 

 City of Orange Cove 1996 10.00 55.65 

 Lindsay-Strathmore ID 1990 28.40 28.40 

 Shafter-Wasco ID 1995 10.00 34.98 

 Terra Bella ID 1991 28.73 28.73 

New Melones Unit 

 Stockton-East WD 1983 13.21 15.003

Sacramento River 

 City of Redding - SR 1996 9.00 15.003
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

15

EXHIBIT 3 

CENTRAL VALLEY PROJECT 

SCHEDULE OF 1993 CONTRACT WATER RATE AND PROJECTED RATE AT 

CONTRACT RENEWAL PER ACRE-FOOT BY CONTRACTOR 

M&I WATER RATE PER A/F 

Facility Contractor Year of Renewal Current1 @ Renewal 

 City of West Sacramento5 2020 10.33 18.54 

 Diamond Lands Corp 2004 9.00 15.003

 Lake California P.O.A. 2004 9.00 15.003

 Riverview Golf & CC 2004 9.00 15.003

San Felipe Unit 

 San Benito County WD 2028 42.86 112.88 

 Santa Clara Valley WD 2028 37.95 111.30 

San Luis Canal - Fresno 

 City of Avenal 2009 17.50 147.70 

 City of Coalinga 2009 18.50 177.12 

 City of Huron 2009 18.50 147.09 

 State of CA5 2009 28.14 47.76 

 Westlands WD 1985 39.55 39.55 

San Luis Canal - Tracy 

 Broadview WD 1992 29.35 29.35 

 Pacheco WD - SLC 1987 51.45 51.45 

 Panoche WD - SLC5 2009 32.28 54.21 

 San Luis WD - SLC5 2009 61.75 84.43 

Shasta D&R 

 Shasta CWA 2005 9.00 25.44 

 Wonderland-Mt Gate CSD 2004 9.00 15.003

Sly Park D&R 

 El Dorado ID - SP 1995 17.50 15.003

Spring Creek Conduit 

 Shasta Cty #25 2005 9.00 15.04 

 Shasta CSD 2004 9.00 15.003

Sugar Pine Reservoir 

 Foresthill PUD 2022 85.00 85.008

Toyon Pipeline 

 City of Redding - TP 1990 9.00 15.003

 Shasta Dam Area PUD9 1993 10.05 15.003

 U.S. Forest Service10 2008 20.00 18.71 

San Felipe Out-Of-Basin Facilities 

 San Benito County WD 2008 43.00 243.67 

 Santa Clara Valley WD 2008 43.00 212.94 

1 May be either contract or cost of service rate. 

2 County of Colusa formerly Stony Ford WD. 

3 Represents the minimum rate since their calculated cost of service rate is less than $15.00. 

4 This represents the districts fixed repayment contract rates and they are expected to be paid off by 2010. 

5 In accordance with their contracts these contractors are currently in the midst of a 5-year rate adjustment. 

6 Based on 40 years after contract was signed per Fresno field office. 

7 This is a perpetual contract having a fixed, non-adjustable rate of $9.00 per A/F. For purposes of this projection, it was assumed that this 

contract would be renewed in 2023. 

8 Their contract rate has been determined adequate for repayment of all of the districts obligations under this contract. 

9 Their permanent contract has expired and a new one is being negotiated. They are currently operating under a tefl~orary contract. For 

purposes of this report, this rate represents what they would be paying under a renewed contract. 

10 Rates adjusted annually in accordance with letter of agreement dated June 1, 1989. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

16

GLOSSARY 

Annual O&M. Annual O&M costs, annual interest expense related to the outstanding M&I capital investment and, 

where applicable, annual interest on the operating coat deficit. 

Historical and Projected Water Deliveries. All paid water delivered and expected to be delivered by the plant in 

service facilities within the Project’s repayment period. The time frame extends from the beginning of the first 

year in which water was delivered through the end of the repayment period. 

In-Basin Facilities. The main project water storage and delivery system facilities located in the Central Valley Basin of 

California. 

Isolated Facilities. Project constructed water storage and delivery facilities which are not operationally integrated with 

the main Project water system. For example, Project water developed by Sugar Pine Dam and Reservoir is all 

delivered to the local service area; none of that water is exported from the local area for delivery to other Project 

water users. 

Long-Term Contractor. A contractor who's receiving water on a regular basis under a water service or repayment 

contract having a term of greater than 10 years. 

Net Repayment. Accumulation of annual water service payments in excess of the amount required to cover the 

annual O&M and interest costs. The revenue available to reduce a contractor’s deficit and capital investment 

balances. 

Deficit. The accumulation of annual O&M and interest costs in excess of the total revenues received from the sale of 

water under existing water service contracts. The Project’s M&I water supply account has a deficit balance, and 

the deficit has been increasing every year. The deficit has increased because revenues have not covered all the 

operating costs. 

Out-of-Basin Facilities. The Project water system facilities located outside the Central Valley Basin of California, i.e., 

those Project facilities located in the San Felipe Division service. 

Paid Water. All project water supplies scheduled for delivery to long-term water contractors for revenue producing 

purposes. Project water delivered for non-revenue producing purposes, such as water rights and mitigation, is 

excluded from paid water. 

Present Worth. A financial term referring to the time value of money. The present worth concept recognizes that the 

interest earning capability of money makes $1 in the future worth less than $1 today. As an example, if $1 was 

deposited today at a 10 percent interest rate, it would be worth $1.10 in 1 year. Thus, $1 in 1 year would be worth 

something less than $1 today. 

Present Worth of Future Deliveries. The same concept as indicated in the preceding Present Worth definition, only as 

applied to a stream of water deliveries rather than monetary payments. Similar to the concept that money earns 

interest, M&I costs must be repaid with interest; and hence, as $1 is worth more today than in the future, an acrefoot of water today is worth more than an acre-foot sold at the same price in the future. Because of this, the time 

value of future deliveries must be considered in determining capital and O&M deficit water rates required to repay 

these costs within the repayment period. The present value of future deliveries is computed by discounting such 

deliveries by the applicable interest rate over the remaining repayment period. 
Proposed Interim Ratesetting Policy, Municipal and Industrial Water December 1993 

17

Projected Water Deliveries. All paid water expected to be delivered during the remainder of the repayment period. 

Proposed Policy. For ease of reference, an abbreviated title for the full name of the M&I Component With Individual 

Contractor Deficit Ratesetting Method. The Proposed Policy is explained in this document. 

Repayment Period. The time allowed for the recovery of the capital invested in a project. A 50-year repayment period 

has been established for the Project. For in-basin Project facilities, the repayment period runs from the beginning 

of fiscal year 1981 to the end of fiscal year 2030. The repayment period for the San Felipe Division out-of-basin 

facilities extends from the beginning of fiscal year 1987 to the end of fiscal year 2036. 

Water Rate or Rate(s). As discussed throughout this document, general use of these terms refers to the cost of M&I 

water expressed on a cost per acre-foot basis. When other meanings are intended in the use of the words "rate" 

or "rates", such as in referring to an interest rate or rates, such clarifying words are provided in the text as 

appropriate.