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<br />~ <br /> <br />,) <br /> <br />002303 <br /> <br />. <br /> <br />. <br /> <br />The broad discretion of the Secretary under CRSP is limited only by Section 3 <br />of the Act which requires the Secretary to comply with the applicable provi- <br />sions of the various compacts in the storage and release of water from the <br />reservoirs in the Colorado River Basin. <br /> <br />The marketing of industrial water service from the storage projects is under <br />the authority of Section 9(c) of the Reclamation Project Act of 1939. Under <br />this provision, the Secretary must, as a minimum, recover annual operation <br />and maintenance costs and may collect such other fixed charges as he deems <br />proper. These fixed charges have been interpreted to allow the Secretary <br />to fix rates for municipal and industrial uses of water at amounts higher <br />than might have been determined necessary to return the construction costs <br />presently, or in the past, charged to such purposes, so long as there is <br />a reasonable basis for the exercise of his discretion and he does not act <br />in an arbitrary or capricious manner, or otherwise in violation of the law. <br />Charging an industrial water user what amounts to the cost to the taxpayers <br />of debt maintenance and service based on 10-year Treasury interest rates <br />most certainly qualifies as a reasonable basis for a water rate. <br /> <br />By establishing rates using a debt servicing methodology, we more nearly <br />approach the actual costs of financing the Federal investment in CRSP storage <br />facilities. This method, unlike all others we have explored, minimizes the <br />subsidy from the general taxpayer to industrial beneficiaries of the CRSP. <br />A table illustrating the process of debt servicing and specific application <br />to the CRSP investment is attached. We have applied the notion of debt <br />service to the actual yearly additions to plant in service for consumptive <br />uses on the CRSP starting in 1963. <br /> <br />Next, we have subtracted any payments made back to the,Government through <br />water service contracting, and indexed the resulting interest-bearing balance <br />by 10-year Treasury borrowing rates for the years 1963-1981. These interest <br />rates are published in the 1981 Economic Report of the President, Table B-65, <br />page 308. <br /> <br />Finally, in 1981, the total indexed investment for the storage reservoirs <br />amounting to $392,874,530 is amortized over 40 years, the maximum allow- <br />able term for water service contracts, at 13.5 percent interest (the most <br />recently published 10-year rate). The annual equivalent psyment, an ordinary <br />annuity computation (end-of-year payment), is spread over 1,300,000 acre-feet, <br />the adjusted incremental yield of the storage units to arrive at a $41 per <br />acre-foot charge for industrial service. If a due annuity (first of year <br />payment) computation is used to compute the rate, the rate is about $36 per <br />acre-foot. Five-year rate reviews and adjustments are required Bureau-wide and <br />are a feature of this policy. The required 5-year rate reviews and adjustments <br />on industrial water service contracts are consistent with the concept of debt <br />service pricing and are based on the costs of servicing the debt and the actual <br />operation and maintenance costs. <br />