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APPENDIX II APPENDIX II The IG was concerned that the isolated customers might be unwilling to pay rates adequate to cover the cost of these facilities. He further recommended that Interior advise all affected customers of the amount involved and how it will be repaid. The latest proposal for M&I repayment did not set a uniform policy for facilities built solely to serve certain customers. we analyzed proposals for Foresthill and San Felipe to determine their impact. Foresthill Divide The Foresthill facility was placed in service in 1982. The capital costs of Foresthill, $5 million for irrigation and $49 million for M&I water, were included in the proposed rate-setting policies. The facility serves one customer. The customer's existing water service rates, which were established before the facility was completed, are $2.50 per acre-foot for irrigation and $85 for M&I water. If this customer were charged for the entire cost of Foresthill, its rates per acre-foot would need to be about $450 for irrigation and about $1,625 for M&I water service. In determining the customer's rates under the proposed component options, the region used one method for irrigation and another for M&I. Under the irrigation proposal, the cost of Foresthill was pooled with all other CVP facilities, resulting in a rate of $4.25 per acre-foot. Under the M&I proposal, the customer's existing rate of $85 was used to determine its share of capital costs to be repaid (about $3 million). The majority of Foresthill's costs ($46 million of the $49 million) were pooled with all other CVP facilities to be repaid by all other M&I customers. This hybrid rate-setting method was not explained in the October 1984 M&I proposal. San Felipe The current rate-setting proposals do not analyze the charges necessary to repay San Felipe, which will be placed in service in 1987. However, according to the Regional Cost and Analysis Branch Chief, the Bureau intends to charge San Felipe's customers for its full capital costs, estimated at $105 million for irrigation and $214 million for M&I water. This intention was discussed in the irrigation proposal that was submitted to the Commissioner in May 1985. When San Felipe begins delivering water, its two customers will pay $16.50 per acre-foot for irrigation water and $61 for M&I water. The M&I rate includes $43 for San Felipe repayment and $18 for repayment of overall CVP costs. These rates were set by contracts executed in the late 1970's. The irrigation rate cannot be adjusted for capital cost increases until 1996. The 32