- Reclamation
- California-Great Basin
- CVP
- CVP Financial Information
- Water Rate Calculations
- Irrigation Water Rates
Irrigation Water Rates
Irrigation Fixed Rates
Definition. Irrigation fixed rates are the water rates specified in original long-term (40 years) water service contracts between Reclamation and CVP irrigation water contractors. These rates are not adjustable if needed to reflect changing costs of the CVP over the 40-year duration of these contracts.
Typically, fixed rate contracts are insufficient to recover O&M and capital costs of the project. Newer contracts such as the interim renewal contracts require annually adjusted cost of service (COS) rates. Contracts with fixed rate provisions will eventually all be replaced by contracts having annually adjustable COS rates.
Process. Fixed rates are extracted from each long-term water service contract. Schedule 1 of the annual Irrigation Ratebook lists the contract rate applicable to each long-term contract, some of which are fixed rates, COS rates, or other adjustable rates.
Irrigation Cost of Service (COS) Rates
Definition. The Irrigation Cost of Service (COS) rate is the charge per acre/foot necessary to recover Reclamation's cost of delivering the water to each individual contractor.
COS rates are designed to recover each contractor's share of their allocated:
- Annual O&M costs
- Capital costs over the authorized repayment period
- Deficit costs over the repayment period
Application. COS rates currently apply to those contractors whose original long-term water service contracts have expired and who have subsequently renewed their contracts.
Rate Structure. Irrigation COS rates consist of three rate categories. These categories and their corresponding rate components are:
- O&M Rate (Water Marketing, Storage, Conveyance, Conveyance Pumping, Drainage, and Direct Pumping) NOTE: Three CVP water authorities have contracted with Reclamation to perform O&M for project facilities in their respective service areas. Contracts include provision for direct payment under transfer agreements by contractors to the authorities for such costs of the irrigation conveyance, conveyance pumping and drainage facilities. In those cases, the authorities have established their own specific O&M rates and such costs are accordingly excluded from Reclamation's O&M rates.
- Capital Rate (Storage, Conveyance, Conveyance Pumping, Drainage, Direct Pumping, and Other).
- O&M Deficit Rate. This component is applicable to those contractors that have an accumulated historical O&M deficit obligation.
Rates for each of these categories vary by contractor based upon the CVP Irrigation Ratesetting Policy, described as the Component with Individual Contractor Deficits Method. Under this policy, all irrigation costs are broken down into those components identified above, and contractors participate in sharing costs of each of those components, only to the extent that those components are used in delivering water to them. For example, many contractors do not benefit from conveyance, conveyance pumping, drainage and direct pumping cost components. Consequently, their COS O&M rate and the COS capital rate are different from those contractors who do benefit from use of those components. Other factors affecting contractors water rates include:
- Repayment status
- Water delivery projections
- Amounts of outstanding O&M deficits
The following chart summarizes the various costs, rates and rate components.
1 These components now directly funded by water authorities.
Irrigation COS Rates: O&M Rate
Definition. The COS O&M rate is the rate per acre/foot to each contractor necessary to recover Reclamation's cost to Reclamation of operating and maintaining CVP facilities for the forthcoming fiscal year. The O&M cost components
Components. O&M cost components are identified under the "Rate Structure" portion of the preceding section.
Method. Irrigation O&M rates are calculated for each water service component as follows:
where:
budgeted irrigation O&M costs = amount specified in the President's Budget for CVP O&M as allocated to the irrigation function.
projected water deliveries = 5-year most recent rolling historical average water deliveries as recorded for each contractor, subject to adjustment for drought or wet water conditions (not to exceed contract maximum entitlements) and South of Delta limitation.
Note: The direct pumping rate is calculated based on projected project use energy costs attributable to each direct pumping facility service area and corresponding contractor water deliveries for each direct pumping facility, rather than a uniform component rate for the other O&M components.
Process. The following describes the timeline and major tasks involved with calculating the irrigation COS O&M rate.
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Budgeted Costs. Total budgeted O&M costs are derived from the President's budget once it has been submitted to Congress. O&M costs include personnel compensation, supplies, materials, and contract costs. Costs are subsequently allocated to the various functions of the CVP including the irrigation water function. The O&M cost allocation identifies total costs of the irrigation function categorized into the components of the irrigation ratesetting policy. Reclamation conducts a comprehensive technical analysis of the proposed O&M budget. The analysis involves comparing the proposed budget with prior year budgets; comparing prior year budgets with actual prior year costs; and categorizing water marketing into sub elements. Reclamation also provides a copy of the current budget compared by line item with the respective corresponding budget for the preceding year to the CVPWA FAC for its information, analysis and any questions it may have on the projected O&M budget. NOTE: In collaboration with the FAC, deviations have been made from this budget in recent years due to changing conditions between the time the President's budget is approved and the time water rates are computed. |
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Projected Water Deliveries. For ratesetting purposes, Reclamation uses the average of the preceding 5 years actual water deliveries as adjusted for each contractor. Dividing these total 5-year averages for each rate component into the corresponding projected cost for each component to determine the rate per acre/foot for each component. PUE Schedules. Reclamation also prepares schedules for Project Use Energy (PUE) costs for those pumping units using PUE in performing their function. Ratebook Schedule. After analyzing (1) the proposed O&M budget; (2) PUE costs by facility; and (3) projected water deliveries by component for each contractor, Reclamation prepares:
The costs for each component are carried forward to Schedule A-2 of the Irrigation Ratebook. Schedule A-2 provides both the detail and summary O&M rates applicable to each contractor, as well as the total capital component rate and deficit rate, if any, for each contractor. |
Irrigation COS Rates: Capital Rate
Definition. The irrigation capital rate is the cost per acre/foot to each contractor necessary to recover each contractor's construction costs and other capitalized project costs. Irrigation capital costs are recovered without interest as provided for in CVP authorizing legislation, with the exception of full cost charges required by the Reclamation Reform Act of 1982.
Components. Cost components used in the irrigation capital rate include Storage, Conveyance, Conveyance Pumping, Drainage, Direct Pumping and Other.
Method. Irrigation capital rates are calculated as follows:
where:
current CVP irrigation plant-in-service = the subject year CVP plant in-service cost allocation to the irrigation function by ratesetting component.
historical and projected water deliveries = irrigation water deliveries by irrigation ratesetting component as historically recorded or projected for the authorized repayment period, based on contract entitlement, as adjusted for build up periods, CVP system constraints, hydrology, and other considerations.
authorized repayment period = 1981 - 2030 for in-basin contractors; 1987 - 2036 for out-of-basin contractors.
The uniform capital rates per acre/foot by component are then combined as applicable to each individual contractor. Each contractor's combined capital rate is multiplied by its total historical and projected water deliveries for the 50-year repayment period to determine the contractor's total capital obligation. That total obligation is reduced by capital repayment to date and ability to pay relief as applicable. The resultant net obligation is then divided by the contractor's projected water deliveries to determine its capital rate for that year.
Process. The following describes the timeline and major tasks involved with calculating the irrigation COS capital rate.
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Plant in service by component. Reclamation completes Ratebook Schedule A-2b (Capital Rates by Contractor for Current Rate Year, by multiplying each contractors total capital rate per acre-foot by their 50-year water deliveries, then deducts repayment to date and ability to pay relief to date, to determine their net capital obligation as of that time. That outstanding capital obligation is then divided by projected deliveries remaining in the repayment period to determine each contractors capital rate per acre-foot Ratebook Schedule. MP-3400 then completes Schedule A-2a: Schedule of CVP 20XX Irrigation O&M and Cost of Service Water Rates by Contractor. |
Irrigation COS Rates: O&M Deficit Rate
Definition. The O&M deficit rate is the charge per acre/foot to each contractor necessary to recover unpaid historical O&M costs, including interest on deficits incurred after FY85. O&M deficits have been interest bearing for irrigation contractors since FY86 pursuant to the Coordinated Operations Act (COA). The O&M deficit rate is used to amortize outstanding O&M deficits by contractor over the repayment period, as follows:
Method. The O&M deficit rate for non-interest-bearing deficits is calculated for each contractor as follows:
The O&M deficit rate for interest bearing deficits is calculated similarly, but includes the addition of interest to reflect the interest bearing nature of these deficits.
Process. The following describes the timeline and major tasks involved with calculating the irrigation COS deficit rate.
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Historical O&M deficit. Reclamation updates prior year Ratebook Schedule A-6 to reflect the most recent completed Net Results of Operations. A and A6B MP-3400 then determines each contractor's composite deficit interest rate after incorporating new years' deficit/repayment data. Interest rates applicable to the COA deficits are generated by the Department of the Treasury. Reclamation calculates updated deficit rates for interest-bearing and non-interest-bearing deficits as applicable, based on:
Ratebook schedule. Updated contractor deficit rates are carried to Ratebook Schedule A-2a (Schedule of CVP 20XX Irrigation O&M, and Cost of Service Rates by Contractor). Those COS rates include O&M, capital and deficit (if applicable) rates, and these total rates are carried forward to Schedule A-1 and listed as the COS rates applicable to each contractor. |
Irrigation Full Cost (FC) Rates
Definition. Full cost rates are the same as COS rates, except that full cost rates include interest on irrigation capital costs. Also, deficit notes are computed in a slightly different manner in full cost rates rather than in cost rates.
Application. Full cost rates apply to certain contractors according to provisions of the Reclamation Reform Act of 1982. Applicability is based upon:
- Nature of land ownership
- Acreage and number of owners of land irrigated by CVP water
- Water use
- Contract status
- Legal status under RRA
Two Full Cost Rates are computed for each applicable contractor based on specific provisions of the RRA:
- Full Cost 202(3)(A) which applies to contractors electing to come under the discretionary provisions of the RRA. Principal provision of elected status is that CVP water can be taken for land holdings up to 960 acres at the computed O&M rate (excess water to be priced at the 202(3)(A) full cost rates. Entitlement is waived for contract rate water
- Full Cost 205(a)(3) which applies to contractors who do not elect to come under discretionary provisions of RRA. The contract rate still applies, but water supply at rate is limited to 160 or 320 acres depending on entity ownership. Excess water is charged at the 205(a)(3) full cost rate.
Rate Structure. Full cost rates consist of the same cost categories and rate components as COS rates, with the exception that full cost rates include interest on capital.
Method. Calculations of full cost rates are similar to those of COS rates, although there are certain exceptions required to satisfy the RRA including computation of interest on irrigation capital costs.
Ratebook Schedule. Annual full cost rates are included in Ratebook Schedules A-3A and A-3B for the 202(3)(A) and 205(a)(3) rates respectively. These rates by contractor are also transposed to the summary rate schedule (A-1) applicable to each contractor.
Irrigation & M&I Adjustable Rates
Definition. Irrigation and M&I adjustable rates are specialized rates subject to periodic adjustment(s) based on specific provisions of individual long term water service contracts between Reclamation and CVP irrigation and M&I water contractors.
Application. The adjustments provided for under these contracts are specific to each contract and are not uniform to all such contracts. There are relatively few CVP water service contracts having periodically adjustable water rates. Contracts with adjustable rate provisions will eventually be replaced by contracts having annually adjustable cost of service (COS) rates.
Method. Adjustable rates water service contracts do not have uniform adjustment provisions concerning the specific adjustments to be made, or the timing of such adjustments. Accordingly, all adjustable rate contracts are administered on an individual basis for adjustment requirements. Based on the requirements of each such contract, rates are adjusted at prescribed intervals (usually 5-year intervals) and in accordance with methods prescribed in each contract. In general, all adjustable rates are determined using either individual cost recovery (customized) methods or a COS method.
Process. Adjustable irrigation and M&I water rates are calculated pursuant to terms of individual contracts having provisions for periodic adjustments. Contractors with these contracts are notified in advance of the applicable periodic rate adjustments.
