WSP10931

• File Number: 8112.600
• Description: Arkansas White Red Basins Interagency Committee - AWRBIAC -- Reports
• Basin: Arkansas
• Water Division: 2
• Date: 3/13/1952
• Title: Cost Allocation - Third Progress Report of the Work Group on Benefits and Costs - AWRBIAC Committee
• Water Supply Pro - Doc Type: Report/Study

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The selection of the alternative single-pv.rpose project
corresponding to a function included in the multiple~purpose project
shculd satisfy the following criteria that the alternAtive ,,/QuId

(a) Provide an equivalent service, and

(b) Be the most eoonomical alternative source
of servioe as contemplated for the corres-
ponding function of the multiple-purpose
project. .

It is here recommended that the alternate cost, as a means
of allocating the joint costs of a multiple-purpose project, should
represent the most economical alternative project providing the same
functional service, whether public or private, whether on-site or
off-site.

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It is presumed that the single-purpose alternative project
cost, most e'conomically permitting the equiv!llent. service to the same
area as the corresponding function in the multiple-purpose project,
will have been estimated for the pr'3vious engineering ".nd econOl,d.c
analyses whi.ch led to project formulation. In cases where general
items of cost in the estimate readily demons~ra~e and sUQstantially
prove tic'l. t the cost of the equivalent si.ng] e-purpo se al terna ti ve
greatly ~xceeds the value of the benefit d1le to the corresponding
function of the multiple-purpose project, then a cletailed estimate
of the alternative cost may be abandoned or omitt.8d. ["urthermore,
if the alternative project is not economically foasiUle 01' justi-
fiable, the alternative cost may be omitted from the allocation
procedure.

General Application Procedure. The step-by-step procedures
of the Separable Costs-Hemaining BenefJ.ts method of cost allocation
are readily apparent as worked out in the illustrative examples in
the Green Book on pages 55 and 56 and in the attached tables of
Exhibits A and B. Once the benefits and alternative costs associatec1
wi th each function have been determined according to the .principles
of project formulation and according to the statements and recom-
mendations of the Benefits and Costs Work Group as set forth in this
report, the determination of the project cost allocable to each ~,nc-
tion which produces a bonefit then becomes morely a mechanical process
for both the general and special application procedures.

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Inasmuoh as the Separable Costs-Remaining Benefits method
includes consideration of benefits which are evaluated in terms of
average annual amounts, it is desirable that all investment costs
(first costs) be converted to equivalent average annual amounts
(fixed charges) ~lso. It is recommended that tho adopted method of
cost allocation generally be first applied to the allocation of the
sum of the equivalent annual investment charges and the average

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