Comments and Responses to 

Proposed Changes for the 

Finalization of the M&I Ratesetting 

Policy, Central Valley Project

Currently Reclamation is in the process of finalizing the M&I Policy. A 

Workshop was held on June 23, 2014 that addressed changes that were being 

proposed to the M&I Policy from the current interim document. From the 

date of the workshop, contractors were provided 30 days to review and 

provide comments on the draft M&I Ratesetting Policy. Reclamation has 

received several comments. Provided are the comments and Reclamation’s 

responses to them.

1. Comment: District understands from discussions occurring during the 

June 23, 2014 workshop that the revised M&I Ratesetting Policy 

attempts to be “in line with the Irrigation Ratesetting Policy (1988) as 

much as possible”. It is further understood that no changes to the 

Irrigation Ratesetting Policy will occur as a carry-over from this 

revision and finalization process to the M&I Ratesetting Policy.

Response: That is correct. A background section will be added to the 

Policy that makes reference to this (discussed below).

2. Comment: On page 7, in the conveyance paragraph the 

computational mechanics appear to have been omitted. The District 

requests that this be corrected in the final version and that it be kept 

“in line with the Irrigation Ratesetting Policy.

Response: Under the section “Attributes of the M&I Ratesetting 

Policy”, subsection B identifies the mechanics for the development of 

the construction water rates. Under the “Description of Water Rate 

Components”, this section should identify any clarifying points that 

need to be addressed further. As such, we will include a clarifying 

point to identify who is assigned conveyance rates with the following 

statement: “All contractors receiving conveyance services are 

assigned the same Project-wide construction rates”.

3. Comment: District has identified grammatical errors. 

Response: Those noted by district have been corrected.

4. Comment: The Draft M&I Ratesetting Policy interchangeably uses 

the words or phrases: investment, plant-in-service investment, plant 

investment; construction costs, capital, and M&I plant cost. Keeping 

in line with the migration away from reference to “capital” to the 
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phrases “construction cost” Reclamation could update this policy 

accordingly. Adding a definition for “Construction Cost” to the 

glossary would add clarity to this term.

Response: A definition is being included for Construction Cost to 

read “In this document, plant-in-service and construction cost are used 

interchangeably to refer to construction cost that have been placed into 

service for recovery purposes”.

Any other term has been adjusted within the document to use either 

plant-in-service or construction cost.

5. Comment: The initial reference to “O&M” is at the top of page 4, “as 

well as allocable operation and maintenance expenses.” This should 

be revised to “as well as allocable operating and maintenance (O&M) 

expenses” and further references to operating cost, operating expenses 

or operating and maintenance costs or expenses should be revisited to 

simply O&M”.

Response: The term initially identified will be operation and 

maintenance and included as part of the statement “as well as allocable 

operation and maintenance (O&M) costs”... Any other reference as 

you mentioned above will be updated to use the abbreviated form 

O&M.

6. Comment: A “Background” Section noting and explaining the 

transition from the existing long-term “Interim” policy to the proposed 

“Final” one. Certain key things should be noted such as the following: 

(1) Reclamation has had an approved interim CVP M&I water 

ratesetting policy in place since 1995; (2) on March 3, 2005 

Reclamation and M&I contractors reached settlement on a lawsuit 

regarding certain provisions of that interim policy; and (3) 

Reclamation is proposing very few changes in their draft final policy 

(suggest listing those changes here).

Response: Suggested Background section is attached and proposed to 

be included in the document.

7. Comment: Definition - Historical Water Deliveries. Is Section 215 

water, when taken, included in a contractors’ record for water 

deliveries (for ratesetting purposes) in that year under their long-term 

contract?

Response: The Section 215 Draft Business Practice Guideline has 

identified that Section 215 water is included in a contractors’ record 

for water deliveries if the contractor is a Friant Division Contractor 

and the contractor choses to take this water as Class 2 water. Any 

other section 215 water will not be included in a contractor’s record 

for water deliveries.
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8. Comment: Definition - Long-term Contractor. There is concern 

about removal of “on a regular basis” from the definition. This leads 

right into concern regarding the potential for and, real possibility, of a 

number of M&I contractors not taking any of their project supply 

between now and the end of the repayment period. As you know, 

should this happen, the construction costs originally assigned to them 

will gradually shift to the remaining contractors (without advanced 

notification) over time.

Response: Reclamation would like to leave the definition as is. 

Regarding assignment of cost, Central Valley Project Improvement 

Act (PL 102-575), Section 3405(d) (4) identifies that “the Secretary is 

to charge contractors only for water actually delivered”. This premise 

has been part of the framework to allocate and pro-rate costs too. To 

reduce cost shifting, the estimated deliveries and the actual deliveries 

need to reflect what most likely would occur in the future.

9. Comment: Water Contractor Representatives recommend that any 

changes to the Interim Policy be applied prospectively only.

Response: Concur. This is to be addressed in the introduction section 

of the Policy.

10. Comment: The order of applying water rate revenue should be the 

same as the application of revenue for irrigation contractors and the 

Policy should list the order of repayment in the same format as the 

irrigation document.

Response: Concur. The M&I Policy will read as follow:

The M&I Ratesetting Policy applies all annual water revenues by 

individual Contractor in the following priority: 

 O&M Expenses

 Interest Expenses

 Deficit Repayment

 Construction Repayment