Proposed Pricing of Irrigation Water From California's Central Valley New Melones Reservoir

In response to a congressional request, GAO reviewed the proposed water service contracts of the Department of the Interior's Bureau of Reclamation with the New Melones Reservoir irrigators, focusing on: how the Bureau contracts for the sale of project water, how water rates for Central Valley Project (CVP) irrigators are calculated, and the impact on project repayment of integrating New Melones irrigation construction costs into the CVP cost base.

GAO found that the Bureau uses water service contracts for projects such as the CVP that are designed to be constructed in increments over long periods of time and operationally integrated when completed. One objective of the CVP water marketing policy is to set water service rates at levels sufficient to recover irrigation construction costs within 50 years of project completion. Construction, operation, maintenance, and irrigation water supply costs of all CVP units are added, then categorized into four project services, to determine repayment rates on a cost-of-service basis. GAO found that the New Melones rates are low because it uses only two project services, storage and water marketing. If New Melones were not part of the CVP, GAO estimates that it would have to pay $18.00 per acre-foot in order to repay project costs over the next 50 years, compared with the CVP rate of $3.50 per acre-foot. GAO found that, due to the financial integration of New Melones, CVP rates will increase approximately 40 cents an acre-foot per year; however, the rate increases cannot be passed along to existing water users until their contracts expire, are amended, or reach their adjustment date. Since the rates cannot be increased immediately, it will take approximately 82 years to recover the New Melones irrigation construction costs.