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<br />APPENDIX II <br /> <br />APPENDIX II <br /> <br />EVOLUTION OF PROPOSED <br />RATE-SETTING POLICY <br /> <br />CVP has never had a comprehensive water service rate-setting <br />policy approved by the Secretary of the Interior. In recent <br />years, several events have emphasized the need for an approved <br />policy and have shaped the development of the current proposals. <br />In 1977 and 1978, the Interior Department's Inspector General <br />(IG) reviewed CVP's financial condition and evaluated policies <br />establishing water rates. The resulting reports3 identified <br />problems in achieving repayment of all reimbursable costs. They <br />specifically identified several Bureau practices in irrigation <br />and M&I water marketing activities as contributing to these <br />problems: <br /> <br />--The repayment period was extended each time that a <br />new facility was placed in service (rolling <br />repayment). <br /> <br />--Most contracts were long term and had rates that <br />were fixed (long-term rates). <br /> <br />--Irrigators' water rates were based on estimates of <br />their payment capacity (ability to pay). <br /> <br />--Interest applied to M&I operating deficits did not <br />reflect the actual cost of financing such deficits <br />(interest on deficits). <br /> <br />In addition to the above issues, the IG raised an issue <br />regarding facilities that were being constructed exclusively for <br />specific customers. The issue was, who will be required to pay <br />for isolated or out-of-basin facilities such as Foresthill Divide <br />and San Felipe: the exclusive beneficiaries or all CVP <br />customers? <br /> <br />The Bureau implemented an interim water service rate-setting <br />policy in 1981. In response to public input, continued IG <br />criticism, and the 1982 Reclamation Reform Act, which established <br />some new irrigation repayment requirements, the Bureau reanalyzed <br />and revised this policy. <br /> <br />b <br />t <br />~ <br />i <br /> <br />, <br />t <br /> <br />o <br /> <br />3Department of the Interior, Office of Audit and Investigation, <br />Review of Central Valley Project, Bureau of Reclamation, January <br />1978, LW-LBR-6-771 Department of the Interior, Office of <br />Inspector General, Review of Municipal and Industrial water <br />Activities, Central Valley Project, Bureau of Reclamation, <br />September 1979, LW-LBR-1-78. <br /> <br />21 <br />