Annual Accounting
The following flowchart depicts the timeline for completing major tasks associated with the annual accounting phase of the ratesetting process. For detailed information, click on the task or scroll down the page.
Definition. Annual accounting is the process of determining each contractor's net financial position for the fiscal year just ended. This process accounts for each contractor's recorded water revenues against costs and applicable interest allocated to the contractor based upon their respective water deliveries. The outcome of the annual accounting process is the contractor's final Net Results of Operations for the year just ended. The Net Results of Operations is subsequently documented in the M&I and Irrigation Ratebooks, Volume 1. In any given year, the Net Results of Operations may result in either a deficit or a surplus for the year. Such results are combined annually with previously accumulated deficit and/or surplus balances to establish updated accumulated balances as of the fiscal year just ended.
Purpose. The annual accountings provide financial information necessary to determine contractors' repayment status which is then used in calculating water rates for the forthcoming water year.
Background. Annual contractor accountings are performed under both CVP ratesetting policies. These accountings track project repayment status by individual water contractor to include outstanding deficits. Prior to the Coordinated Operations Act of 1986 (COA), deficits were pooled on a CVP-wide basis. However, Section 106 of the COA established several new requirements pertaining to CVP O&M deficit accounting. Specifically, Section 106 requires Reclamation to:
1. Include provisions in each new or amended CVP water service contracts to ensure repayment of O&M deficits "outstanding and hereinafter arising" incurred by a CVP contractor. To determine such deficit amounts by individual contractor, Reclamation conducted an individual accounting of all O&M and capital costs for the period 1949 - 1985 to determine annual and accumulated surpluses or deficits at the end of each fiscal year for each M&I and irrigation water service contractor. These annual accountings are also performed for years after fiscal year 1985.
SPECIAL NOTE: While these accountings establish deficit and/or surplus repayment positions to date, such deficits are not legally binding on fixed rate and adjustable rate contractors until they amend or renew their contracts. The Net Results of Operation are attributed to individual fixed rate and adjustable rate contractors only in the sense that they are the current revenue source for the water.
2. Charge interest on all O&M deficits arising on or after October 1, 1985, using specified interest rates. The main impact of this provision was on irrigation, as until this time, no interest was charged on annual irrigation O&M deficits. M&I has always been treated as an interest bearing function consistent with authorizing legislation and Reclamation policy.
For purposes of the annual accounting process:
- An annual M&I deficit is defined as "the excess of allocated annual O&M and applicable interest expense on water deliveries under a contract over revenues earned from the sale of water under that contract". The accumulated M&I deficit is the deficit balance accumulated from inception of the contract through the most recent accounting period.
- An annual M&I O&M surplus is defined as "the excess of revenues earned from the sale of water under a contract over annual O&M and interest expense allocated to water deliveries under that contract." Annual surpluses are either used to repay accumulated deficits or applied to capital repayment.
These definitions are the same for irrigation except that interest is not included as an annual expense.
For both M&I and irrigation, the capital obligation is the total capital costs allocated to a contract based on 50 years of historical and projected water deliveries. To the extent capital repayment has been accomplished, the current capital obligation reflects such repayment, and capital rates are computed on only the unpaid capital obligation to date.
The total of all individual annual accountings for the period 1949 -1985 is an overall deficit balance for the CVP since virtually all contracts during that period were nonadjustable fixed rate contracts that did not generate sufficient revenue to cover annual allocated O&M and interest (as applicable) costs. This initial deficit represented the cumulative difference over time between fixed rate revenues and the actual cost of delivering the water. This includes Reclamation costs as well as certain costs incurred by the Western Area Power Administration (WAPA) and the U.S. Army Corps of Engineers.
Process. The annual accounting process begins after fiscal year end on September 30 annually and is planned for completion the following February. However, the completion date may extend beyond February depending upon various circumstances, including audit findings, changes in policy or retroactive or current year adjustments required as a result of contractor input. The process is as follows:
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| Water Delivery and Revenue Schedules. The first step in the annual accounting process is to verify annual water delivery and revenue reports for each contractor. These water delivery and revenue reports are Reclamation's official record of all water delivered to the contractor during the previous fiscal year. The water delivery and revenue reports are generated from the Region's automated Water Operations and Record Keeping System (WORKS) Reclamation provides each contractor with their respective water delivery and revenue report for the fiscal year just ended and requests that they confirm the accuracy of the reported delivery and revenue data. Once verified and discrepancies have been resolved, Reclamation prepares water delivery and revenue schedules that are used to account for each contractor's revenues and to allocate costs on the recorded water deliveries. |
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FFS/WORKS Reconciliation. Reclamation reconciles the completed water revenue schedules monthly and at year-end with revenues recorded in the Federal Financial System (FFS) and reported annually in the CVP Financial Statement. The CVP Financial Statement provides key financial information used in the reconciliation process including:
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Net Results of Operations. Reclamation's next step is to categorize annual O&M costs recorded in the CVP financial statement by individual ratesetting component. Costs for each ratesetting component are then spread to each contractor based upon their recorded water deliveries for the year. Costs allocated to each contractor are then summarized by component on ratesetting Schedule B-1, where the total costs are netted against contractor revenues to determine each contractor's Net Results of Operations (surplus or deficit) for the year. For all permanent contractors, revenues are based upon the applicable contract rate(s) and are not broken down by element of the rate, such as O&M, capital and deficit. It is noted that the interest portion of full cost revenues is not creditable to repayment and are excluded in accounting for contractor's annual net position. NOTE: For M&I, "annual expenses" includes annual interest on capital and annual interest on the accumulated O&M deficit, as well as interest on deficit, if any, incurred during the current accounting year. If this first step results in an annual O&M surplus (surplus revenues): Under the "overpayment provision" of interim renewal contracts, eligible contractors may request a refund of surplus revenues, provided that they are sufficient to cover the year's annual costs plus the portion of capital and deficit (if any) due on that year's water deliveries. If there are still remaining revenues, then Reclamation advises eligible contractors of such refunds and of options available for handling the refunds. Any remaining surplus, or any surplus for contracts other than interim renewal contracts, is applied in a specific order against particular obligations. Under the CVP Irrigation Ratesetting Policy, the order is:
Under the Interim CVP M&I Ratesetting Policy, the order is:
If this first step results in an annual O&M deficit, the deficit amount is added to any previously accumulated contractor O&M deficit. No revenue is available to apply against the contractor's outstanding capital obligation. This process is the same for both irrigation and M&I contractors. Once all net position calculations are completed, Reclamation provides the Central Valley Project Water Association (CVPWA) Financial Affairs Committee (FAC) with the draft Net Results of Operations for their review of these accountings. All questions and issues raised by the FAC concerning the accountings are fully responded to by Reclamation. Water delivery information, water revenues, and allocated costs by contractor are subject to modification or adjustment based upon input received from the FAC. After making appropriate adjustments, Reclamation prepares and reports the final Net Results of Operations to the contractors |
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Voluntary Payment Period. Under the Region's Irrigation Voluntary Payment Policy and M&I Voluntary Payment Policy, qualified contractors may make voluntary payments on the current year deficit reported in their final Net Results of Operations for the year. This option is available only to contractors meeting all requirements of the voluntary payment policies as follows:
Ratebook Schedules. Voluntary payments made for the current deficit are then incorporated into the final Net Results of Operations, Ratebook Schedule B-1: Schedule of CVP Net Position for Irrigation and M&I. |
