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(I) "The State's Interest in the Central Valley Pro;ect," by Sidney T. Harding, Professor of Irrigation" University ,of California. river regulation, improvement of navigation, and flood control; second, for irrigation and domestic uses; and third, for power." The Act provides IIfor the generation and sale of electric energy as a means of financially aiding and assisting such undertakings and in order to permit the full utilization of the works constructed to accomplish the aforesaid purposes." This would indicate that the paramount public interest in this phase of the project's operation, and the first interest of prospective water users and flood or salinity control beneficiaries is that such by-product hydro-electric power as may be generated by the release of water for these purposes or from surplus waters after these first needs have been met, shall be disposed of in such a manner as to provide the largest possible financial assistance to these major undertakings. Since the major share of the costs of the project are re- imbursable, and must come from the sale of water and power, the business arrangements for obtaining such revenues are a matter of considerable importance. The market for the hydro-electric energy that will be produced at Shasta and Kennett Dams is approximately the area of Northern California which is now served by the Pacific Gas and Electric Company. That privately-owned utility now produces and distributes about 8,500,000,000 kilowatt hours of electric energy annually. The average amount of energy that will be generated at Shasta and Keswick Dams when all proposed generating units are ultimate- ly installed will be about 1,750,000,000 kilowatt hours annually, of which some 450,000,000 k. w. h., or about a fourth, eventually will be needed to operate the proposed pumping units on the Contra Costa and Delta-Mendota Canal. The amount of power ultimately to be marketed. therefore, will be about one-seventh of the power now being generated and sold in this area. One method of disposal would be the sale of the hydro-electric power, at or near the dams, to the existing privately owned utility. In this regard the Pacific Gas and Electric Company has offered to make its market available to the Bureau by coordinating its operations with the Central Valley Project and taking into its system the power output of the project at the Shasta and Keswick plants, and to pay for the power a price equal to the value the power would have if "firmed" by an independent steam plant. This proposal was made in conferences with the Bureau of Reclamation of which the final one of three was held in Washington in February, 1942. The testimony before Congressional Committees by the president of the company shows that in money, this offer would mean a gross revenue to the Bureau commencing January I, 1945, estimated at $5,567,000 a year, of which $5,147,000 was guaranteed. When full use can be made of all available electri- cal energy the revenue will average $5,807,000 a year. Revenue under this offer would be sufficient to meet all of the operating costs. including interest and amortization, of the Shasta and Keswick plants and the Keswick after- bay, and leave an average balance of over $3,500,000 a year to apply against other features of the project. This company has declared its willingness to make a long-term agreement or a short-term wartime agreement, whichever the Bureau might deem to be to the best economic advantage of the project, and to provide for release from time to time of such quantities of power as the Bureau might wish to use itself or sell to other buyers, including public agencies, as provided for in the recla- mation law. In addition, it has offered to provide power for the project's pump- storage and conveyance units, beyond those now authorized, such as the American, Kings, or Kern River reservoir sites. There is also the question as to construction of laterals to convey water from main canals to water purchas- ers, and a possible question as to construction of drainage facilities which ultimately will be a necessary part of the development. Until these and other similar problems have been decided there will be uncertainty as to the final cost of the project. Allocation of Costs to Various Classes of Benefits One of the major problems yet to be worked out is that of allocating the costs of the Central Valley Project or its several units to the various public and private groups of beneficiaries. Some of these are matters to be worked out between the U. S. Bureau of Reclamation and the prospective direct pur- chasers of water or electric power. The majority of them, however, are mat- ters of very vital public interest, which have been inherent in the project from the time of its inception. They are made more complex by the multiple pur- poses of the project, and the fact that its major purposes are to bring supple- mental water supplies and flood protection to areas already highly developed, with large private and some public investments in irrigation, drainage, and reclamation works. One authority states that Hit will bring supplemental water to about 12 to 15 per cent of the total area now irrigated in California, and an additional 6 to 8 per cent of new land. In power developed the ultimate capac- ity will be about one-third of the present Northern California supply. . . . Neither the project water or power can be cheap in cost nor can they be sold cheaply if the present repayment terms are to be met.//(l) Under these circumstances, the portion of total costs that are finally de- termined to be "non-reimbursable" or in such national interests as navigation improvement, flood control, salinity control, national security or recreational improvements, are an important element. Of the reimbursable costs, the divi- sion of these as between direct revenues from the sale of water and electric power, and revenues obtained by the assessment of semi-direct or indirect benefits to the beneficiaries of salinity control, of increased underground water supplies for pumping, and of increased irrigation supplies along the Sacra- mento River are a matter of great interest to the groups and -areas affected, and to the people generally. Whether and how these indirect benefits can be equitably allocated, assessed, or paid for is a question on which no answer has yet been obtained. According to legal opinion submitted to the Joint Legisla- tive Committee on Water Problems by the Legislative Counsel Bureau the law governing the operations of the U. S. Bureau of Reclamation does not contemplate the establishment of anything in the nature of an assessment or taxing district in which assessments will be levied and collected by the United States. Municipalities or districts which have the power under State law may voluntarily enter into a future contract with the Federal government for the purchase of water or other services, and collect the money to meet the terms of that contract by assessments on property within their boundaries, but no agency can be compelled to enter into such a contract. .. Distribution and Sale of Power Under the terms of the Congressional Act reauthorizing the project, the dams and reservoirs of the Central Valley Project "shall be used: first, for 980Z00 (12) (13)