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<br />OJJ373 <br /> <br />OOOCo T- ~ <br /> <br />appropriate share of annual operation and maintenance costs" and "such fixed charges as the <br />S~ deems proper." Although interest is not specifically mentioned in section 9(cX2), a <br />legal d~on has been made that it is one of the items which properly can be included <br />within the classification of "fixed charges." Where M&I is not an authorized PUIpO&e. the.Act of <br />February 25, 1920 (Sale of Water for Miscellaneous Purposes), provides the Secretary with <br />authority, under certain conditions, to supply water for miscellaneous purposes, such 88 for MctI <br />usage. <br /> <br />The Secretary's authority was supplemented by passage of the Water Supply Act of 1958 (Act of <br />July 3, 1958, 72 Stat. 297). This Act provides that the Federal Government should participate <br />and cooperate with the States and local inteJests in developing domestic, municipal, and industrial <br />water supplies in connection with the constructiOn, mainteiiance~ and operation of Federal. . . <br />navigation, flood control, irrigation, or muJtiple-pmpose projects. The .iuterest-J:8Ie ~lislu:d in <br />section 301 (b) of the Act is. used in 9(c )(2) contracts to determine current aDd fittme ln1ecest. . <br />chargesattn"butable to M&I capital investment, unlessa.different rate is sPecifIed by the.Co~~ <br />for the project in the authorizing legislation. For:fisca1 year 1~8~ the'inbeot rate under 1be 1951"' <br />Act is 8.874 percent. UDder these laws, and courUmd Solicitor's Oftice opiniODS, it also is clear ' <br />that the Secretary has authority to set M&I ~ &hove.those -reqUired:to cover capital8nd <br />operatioo'and maintenance (O&M) costs. . - <br /> <br />In many instances, the final price agreed to between Reclamation and the prospective pun:haser <br />will be a negotiated price. However, at a minimum, the .price should leave the Federal ,. <br />Government no worse off financially than iftbe 1iansfer bad not 0CClJI'red.. Water use m.M&! <br />purposes should fetch a higher price than that for irrigation. purposes. The rate adopted should <br />reflect a portion of the cost incurred by the Federal Government in approp.iating project . <br />. construction fimds as well as interest payable fiom the project sponsors on their outstanding . <br />repayment obligation. While this policy does not seek to recover past subsidies to that block of <br />transferred water during..the time that it served the ~gation purpose, it does ei1courage the <br />Federal Government to negotiate rates above the irrigation rate. <br /> <br />Consis1ent with the above, the preferred base (floor) negotiation rate will be an M&I rate <br />established in existing Reclamation water service contracts found within the local area, provided <br />that the rate reasOnably reflects the existing market price. In the event that such contracts have <br />not been.executed, then a local market MetI rate will be used, assuming that one. can be . <br />determined. The use of either a contract or local market rate serves as a gOod indicator of the <br />price buyers and sellers are willing to pay to participate in wateI' conversion activities. However, <br />ifneitber of these rates are availablet then the current-cost method, or other cost-based m~ <br />should be utilized to establish the baseline M&I rate for contract negotiation purposes. . <br />Regardless of the rate established, the contract would contain a provision providing for a review <br />oftbe rate at S-year intervals. Where.applicable, all three rates (contract rate, cost-based ~ <br />market rate) shoUld be detennined for use in justifying the established negotiated contract M&I <br />rate. <br /> <br />2 <br />