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i~•~~••%4 L’ ‘JIi’L’~L1 cdiLLCS J C~)a1 1ThCflt 01 thC Intcrioi5’,

IIUREAU OF 1U~CLAMAT1ON 3~j< WASI JINCTON, 1).C. 2O2~10

DEC29 1973

Memorandum

‘To: Regional Director, PN, 1’fl’, UC, LC, SW, UM, LM

From: Commissioner ~

Subject: Irrigation Contracting Policie

I am hereby directing that the following policies and procedures

be used in negotiating and proposing new, amendatory, or temporary

irrigation water service and repayment contracts. In many cases

these are a restatement of long—standing Reclamation policies that

have, for one reason or another, not been uniformly implemented

throughout the regions. Other policies are new and represent a tighter

reading of the requirements of Reclamation law. However, it should

be understood that the “ability to pay” concept remains the basic

determinant of repayment and water service rates as it has in the

past.

Because of the diverse methods now being emplo)ed by various

regions in contracting for various services, it is expected that

some minor revisions in standard contract language will be

required to meet some of these require~ents. I anticipate that

there will be very few cases where exceptions to these policy.

guidelines will be necessary. Any such cases should be brought

to my attention only after a good faith effort to comply with

the guidelines has been made. In no instances will exception

be made to the policy requirement that beneficiaries repay all

operation, maintenance, and replacement costs and that water

service contracts contain a 5—year rate adjustment clause.

A. All Contracts

All contracts shal]. refer specifically to and expressly incorporate

by reference the Act(s) of Congress which authorize the construction

of facilities and delivery of water provided for in the contract

and all other. relevant provisions of Reclamation law.

~. Irrigation Water Service Contracts

1. All new long—tei-m water service contracts negotiated

pursuant to section 9(e) of the Reclamation Projcct Act of 1939

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or other water service contracting authority shall contain provisions

requiring full payment of actual operation, maintenance, and replace—

bent (OU&R) costs in advance of water delivcry for said year. Tue

advance payment of O~1&R costs will be adjusted to actual costs in

the subsequent annual ON&R billing. In addition, all ncw irrigation

water service contracts shall contain provision for periodic review

and adjustment of the rate for repayment of capital costs assigned

-to irrigation. Such rate will be inclu.ded in all new contracts at

the date of execution. The first adjustment of such rate will be at

the first delivery of water, if more than 5 years after execution of

the contract. Otherwise, adjust~aent will be 5 years after execution

of the contract, and every 5 years thereafter, but synchronized witl-m

the regular 5—year review schedule of a given project, if applicable.

All contracts containing provisions for water service shall include

the rate adjustment clause described above. The original rate, and

any subsequent adjustments, shall be no lower than the water users’

ability to pay at the time the rate is set or adjusted. Payment

capacity studies shall be confined to an area no larger than the

service area of a unit (i.e., San Luis Unit, Bonneville Unit) within

larger integrated projects or the project service area of smaller

projects (i.e., Narrows, Dallas Creek). Where lands in a unit vary

significantly by service areas (i.e., Garrison Diversion Unit),

— separate payment capacity studies will be done for each area.

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2. The contingency allowance presently used in som;~eX regions

for lowering payment capacity as an induceraent to contract for

water services has been determined to be unjustified. Under no

circumstances will contingency reductions be made in computing

payment capacity. Bureau procedures will be revised accordingly.

3. Water service contracts shall not authorize water deliveries

in excess of the a~nounts specified by the feasibility report or

authorizing act governing the project in question, and may authorize

smaller water deliveries where that would promote conservation and

more efficient use of water, and be consistent with applicable

congressional directives. Either specific numbers or express reference

to the amounts in the feasibility report or authorizing act shall be

stated in the contract. Unless specifically provided in a long—term

water service contract presently in force, contractors shall not

receive a water supply in excess of that specified in the contract

except under interim contract arrangements specified in item D of

this memorandum. flowever, contracts shall reserve the right of the

Federal Government to reduce water deliveries in dry and critical

years.
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4. In no case sh;~ll water rates in long—term contracts be

adjusted to compensate water districts for fund~; contributed under

the Contributed Funds Act to accelerate projcct construction.

Bureau instructions will be, revised to clearly prohibit such rate

adjustments (including at ~tinents in ability to pay or water rate)

to reflect the added expc~Th to the district or water user to repay

a loan, bond issue, or ot~Thr means of financing a contribution to

project construction.

5. Executed water service contracts are required prior to

delivery of water from existing projects including those under

construction. Executed contracts for water service from projects

not under construction are required prior to start of construction.

C. irrigation P~epayment Contracts

1. Repayment contracts negotiated under section 9(d) of the

Reclamation Project Act of 1939 or other repayment authority shall

contain maps (attached to and expressly made a part of the contract

by the text) which clearly define and designate the scope of the

proposed works the United States is obligated to construct. The

contract shall also specifically state the estimated cost (which

will serve as a firm ceiling beyond which no obligation exists) and,

• in the case of distribution system repayment contracts, the nu~&oer

of acres to be served (which will also serve as a firm ceiling).

Once executed, the ten-is in the repayment contract must be adhered

to. Any changes in costs, system design, or increase in acreage to

be served requires an anendatory contract, which shall be signed and

executed prior to further construction. If such changes affect the

cost ceiling, this office and the office of the Assistant Secretary —

Land and Water Resources shall be informed immediately following

Bureau kno~ledge of this fact by means of a written statement

specifying proposed design changes, changes in cost estimates,

reason for changes in the original contract, and other pertinent

information. Without exception, decisions on anienc~atory contracts

will be made only after thorough review and approval by this office,

the office of the Assistant Secretary — Lanci and Water Resource~,

and the Solicitor.

2. Where a project is authorized to provide supplemental

water service, contract terms shall provide for commencement of

repayment at the end of the first growing season in which project

water is used. A short development period will be allowed, if

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necessary, on all lands not heretofore irrigated, including

blocks of land not heretofore irrigated on projects authorized

to provide both supplemental water and water to lands not heretofore

irrigated. Dcvclopi~ent periods will be approved by the Secretary.

3. Executed repayment contracts with irrigation districts

are required prior to commencement of construction of irrigation

features oZ a Reclamation project.

4. Unless otherwise specified by law, contracts for repayment

of distribution system facilities for the sole use of a parLicular

water district must expressly recover all Federal costs (without

interest) associated with the construction of such facilities.

Contracts which do not provide for full repayment of such facilities

will not be approved by this office unless the authorizing act

specifically providcs for allocation of a portion of the costs

for repayment by other project users (i.e., power, municipal, and

industrial).

5. Repayment contracts shall not obligate the United States to

construct facilities that are not specified either in the authorizing

statute or by reference in the authorizing statute to a specific

feasibility report or as otherwise clearly authorized by the Congress.

Repayment contracts shall not obligate the Federal Covernment to ziake

expenditures beyond that authorized specifically by Congress in the

authorizing statute. ~‘Inany case, where the estimate of total

Federal obligations exceeds the authorized cost ceiling as indexed

for inflation, contracts will not be approved until adequate authority

has been provided by the Congress.<

6, Operating agreements, letters of intent to repay, or other

pledges shall not be used as substitutes for firm repayment contract

terms.

D. Interim Water Service Contracts

1. Regardless of payment capacity of the contractor, interir~

contrac.t rates shall be sufficient to recover the actual costs of

operation, maintenance, and replacement (including pumping power),

and the project’s (or unit’s or division’s) average share of capital

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costs allocated to irrigation. The practice of using “postage

stamp” rates (rates based on the canal or other facility from which

water service deliveries will be made) shall be discontinued.

2. Where payment capacity studies indicate that the contractor

has the ability to pay a water rate greater than that provided in

a long—term contract between the contractor and the United States,

and whei-e no rate adjustment clause exists in the long—term contract.,

interim contracts shall be sufficient to recover——in addition to the

cost o~ interim water service——that portion of the current cost

(including capital) of deliveries of all water to the contractor not

being recovered under the long—term contract. As an alternative,

water may be delivered under an interim contract at a rate that

co

4~ers only the cost of interim water services provided that the

contractor amends its existing long—term contract with the United States

to include the rate adjustment specified in paragraph 1 above.

3. Interim water service contracts with water districts

having existing long—term water service or repayment contracts

shall not substitute for those contracts in authorizing delivery of

water. Necessary changes in long—ter~.~ contracts shall be in the form

of amendatory long—term contracts.

4. Any interim contracts providing for water service in excess

of 2,000 acre—feet shall be reviewed by the Washington office of the

Bureau of Reclanation. Interim contracts providing for amounts greater

than 10,000 acre—feet shall be reviewed by the WashinZton office of

the Bureau of Reclamation, the office of the Solicitor, and the

office of the Assistant Secretary — Land and Water Resources.

Interim contracts extending beyond 1 year will be reviewed by the

office of the Assistant Secretary — Land and Water Resources. Each

region shall prepare a report for the Secretary, annually, which

identifies all interim contracis executed during the calendar year

and which summarizes the terms of each contract; e.g., water rate,

water quantity, length of contract and purpose of contract. The

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Washington office of the Burcau of P~cclai~iation will consolidate

that report and submit it to the Secretary on or before December 31

of each year.

I Concur:

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Date

S

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Assistant Secretary —

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