129 



B. The Allocation of P^n ^(>ct Tn^t^ 



Allocation of project costs among the varying project purposes Is a practice 

 that has developed historically. Generally, allocations of costs of prolects 

 constructed pursuant to the Reclamation laws are made by the Secretary of the 

 Interior. 43 U.S.C. § 485h(a)-(b), and allocations of costs of Corps prolects 

 are made by the Secretary of the Army.i' In other cases, as noted earlier 

 Section 7 of the Bonneville Project Act provided that BPA's rate schedules 'be 

 based upon an allocation of costs made by the Federal Power Commission 

 16 U.S.C. § 832f. 



An Inter-Agency Committee on Water Resources was formed to determine the 

 appropriate allocation of project costs. By the "Interagency Agreement on 

 Cost Allocation of March 12. 1954," among the Departments of the Interior and 

 Army and the Federal Power Commission (now the FERC) , the "Separable 

 Costs-Remaining Benefits" (SCRB) method was adopted for most cost allocations 

 of multi-purpose project costs (the agreement does allow for the use of two 

 related, alternative methods In certain circumstances). That document, the 

 Pronnsed Practices for Economic AnalvsU o f River Basin Prolects (the "Green 

 Book"), prepared by the Inter-Agency Committee on Hater Resources (May 1958), 

 and the Corps of Engineers' manual EM 1160-2-101, Cost Allocations for 

 Multiple P urpose Projects, are now the primary guides to allocations prepared 

 by the Corps. The aim of the SCRB method Is to allocate costs among project 

 purposes so that each purpose shares equitably In the savings resulting from 

 combining the purposes In a multi-purpose project. 



The cost allocation procedures used by Reclamation for Its projects differ 

 somewhat from those of the Corps. Reclamation allocations are prepared and 

 approved by Reclamation, after consultation with the Corps and BPA; FERC Is 

 not Involved In approving Reclamation allocations. Reclamation uses the 

 "Alternative Justifiable Expenditure Method." one of the three methods 

 considered acceptable for allocating costs according to the Interagency 

 Agreement on Cost Allocation of March 12, 1954. The method differs from the 

 SCRB method only In that It Identifies specific costs of various functions 

 rather than their separable costs (In effect classifying a larger share of 

 costs as joint). 



The object of the various methodologies Is to allocate costs to each project 

 purpose by assigning the cost of the various features of the project to these 

 purposes. The methodologies distinguish between specific and joint features 

 of projects. Where a feature serves one purpose the assignment Is simple. 

 For example, navigation locks are only used for navigation. Thus the locks 

 are considered specific features, and their costs are allocated to the purpose 

 of navigation. Since navigation does not generate revenue sufficient to repay 

 the cost of navigation features, all costs are assigned to the taxpayer. In 

 contrast, a specific feature serving a power purpose only, such as a 

 powerhouse, produces substantial revenue and Is repaid by the ratepayers. 

 Other features, like the dam structure, spillway, and reservoir, benefit all 

 users and are joint features repaid by all project purposes. 



Thus, for BPA, the total repayment cost for a project is the sum of the power 

 specific costs, the power share of joint costs, and any other costs assigned 

 to power, such as Irrigation assistance. 



C. Congress Did Not Pres cribe a Fixed Schedule of Renavment of Costs 

 Allocated to Power . 



Once costs have been allocated to power, the BPA ratesetting directives 

 discussed above prescribe cost recovery. No fixed schedule of repayment Is 

 stated; rather, BPA Is directed to establish Its rates to recover amortization 

 of the capital Investment allocated to power "over a reasonable period of 

 years." S££. e.g. . 16 U.S.C. § 838g. The details of the repayment policy 

 have been established through administrative Interpretation of the basic 

 statutory requirements. The traditional repayment approach was described by 

 Congress in connection with construction of the Grand Coulee Third Powerhouse: 



