WSP01070

• File Number: 8220.114.J
• Description: Dolores Participating Project
• State: CO
• Basin: San Juan/Dolores
• Water Division: 7
• Date: 1/1/1982
• Title: Discussion Paper - Allocation of Joint Costs to Add-On Power Plants
• Water Supply Pro - Doc Type: Report/Study

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Discussion Paper

Allocation of Joint Costs to Add-on Powerplants

Statement of the Problem

Reclamation law and associated policy require an allocation of costs

to components or purposes of projects to test financial feasibility and

to establish and measure compliance with project financial requirements.

To accomplish the above objective, a systematic and impartial process of

allocation is required to determine and assign those costs that are clearly

identifiable with a particular purpose which they serve, and to equiably

apportion the remaining costs which jointly serve two. or more purposes.

The separable cost remaining benefit (SCRB) is usually the preferred method

of cost allocation; however, circumstances may arise which justify using

another method.

Within the last year, two of our projects which are under construction

in the Upper Colorado Region were reanalyzed with small add-on hydropower

plants as a purpose. It immediately became apparent that the normal

application of the SCRB method of cost allocation would not provide

reasonable allocation results for the small add-on power functions of the

above projects. Costs allocated to power were far in excess of the

investment per kw associated with alternatives for the proposed hydro-

power. The reason the method fails is that it over-capitalizes the annual

power benefit at the authorized project interest rate. This follows

inherently from the normal application of SCRB allocation procedures to

an abnormal set of project economic circumstances.

The abnormality in the above projects situations is the disparity in

interest rates between the authorized rate of 3-1/4 percent (which is