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<br />APPENDIX II <br /> <br />APPENDIX II <br /> <br />regional officials, the proposed policy would set rates on the <br />basis of the cost of service and assumes that the irrigators will <br />be able to meet these costs. However, public comments on the <br />April proposal raised concern that CVP irrigation water would be <br />priced without any consideration of the irrigators' ability to <br />pay. Regional officials told us that, if at renegotiation time <br />an irrigator should assert inability to meet the rate set under <br />. the new policy, the Region would have to assess that irrigator's <br />payment capacity. The Regional Director indicated to us, <br />however, that he does not expect ability to pay to become a major <br />issue. <br /> <br />The Regional Economist told us that although the region has <br />estimated payment capacity as part of feasibility studies in the <br />1950's and land classification studies in the 1970's and <br />1980's, it has never studied each CVP irrigator's ability to <br />pay. The IG found that the various assumptions and estimates <br />that must be made make payment capacity studies somewhat <br />subjective. The regional economist told us that stricter <br />standards for determining ability to pay were needed to avert <br />inconsistent results. The region has not addressed this <br />potential problem and does not expect to perform any ability-to- <br />pay studies in the near future. <br /> <br />Full-cost water pricing <br /> <br />The Reclamation Reform Act of 1982 increased the acreage <br />that a farmer could irrigate with interest-free water. Farmers <br />that want to take advantage of the increased acreage provision <br />must agree to start paying their full share of OM&R expenses. <br />Farmers that want to irrigate lands beyond the limitations must <br />agree to pay the full cost for that irrigation water. The act <br />defines full cost as the repayment of all costs allocated to <br />irrigation, including any OM&R deficits funded, with interest <br />from the date of enactment. <br /> <br />The proposed irrigation rate-setting policy sent to the <br />Commissioner cites the need to implement full-cost pricing <br />provisions of the Reclamation Reform Act as one of the primary <br />reasons the proposal should be approved as soon as possible. <br />However, no analysis of full-cost pricing under the various <br />rate-setting options was included. It appears that the Secretary <br />could choose one rate option for general water ser<lice and <br />another to satisfy full-cost pricing for water sold under the <br />Reclamation Reform Act. Meanwhile, to conform to the provisions <br />of the Reclamation Reform Act, the region is using the component <br />method plus interest as an interim full-cost water rate. <br /> <br />, <br /> <br />Interest on deficits <br /> <br />The IG, in the 1979 audit report concerning M&I water <br />activities, criticized the Bureau for using below-market interest <br />rates to finance M&I annual operating deficits. ~he IG <br /> <br />30 <br />