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CONSERVATION AND DEVELOPMENT OF

WATER RESOURCES

I. FEDERAL AGENCIES AND OFFICIALS

COMPTROLLER GENERAL OF THE UNITED STATES

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Matter for consideration by the Congress

1. At the present time the Federal water resource program is based on a large number of laws that are administered by several agencies. These laws do not provide uniform policies or criteria that are fundamental in carrying out the programs.

2. He believes that the water resource program can be more effectively administered if the Congress provides policies and criteria to be applied for allocation of costs of multiple-purpose projects, the results of which serve as the basis for establishing rates for commercial power. In addition to establishing policies and criteria for cost allocations, he believes that the new legislation should also provide for (1) period for repayment of construction costs, (2) rates of interest, and (3) subsidies to nonpower purposes.

3. Audits of the important Federal water resource development programs that include power generating and marketing operations disclose that even though projects have been in operation for a number of years, firm-cost allocations have been made for very few multiplepurpose projects.

4. To resolve the matter of reaching firm-cost allocations, we believe that the Congress could take one of the following alternative courses of action :

(a) Establish policies and criteria for making the cost allocations, and designating specifically the agency to make the allocation where one agency constructs the project and another agency markets a product of the project. (In this case the Congress may want a firm-cost allocation report submitted to it for review, and such report also to include the views of the interested agency not having the responsibility for the cost allocation.) The Congress may want to define the role of the Federal Power Commission in these allocations.

(6) Establish policies and criteria for making the cost allocations and designating the Federal Power Commission to make the firm-cost allocation, wherever power is a purpose in the project. (In the Columbia River Basin, the Federal Power Commission has been specifically designated by the Congress to make the allocations on the Bonneville Dam, McNary Dam and lower Snake River projects. The Commission also was designated to make the allocation of the Fort Peck project.)

(c) Establish policies and criteria for making the cost allocations and requiring the constructing agency, the power marketing agency, and the Federal Power Commission jointly submit appropriate reports on allocations of costs to the Congress, or its designated committees, to approve an allocation.

5. Under either alternative, the Congress should require that the cost allocations or the report on proposed cost allocation, be made and submitted about the time the project is substantially completed and placed in operation,

Policies and criteria used for cost allocations and related matters have not been uniform between the agencies having water resource development responsibilities. Notwithstanding the efforts in recent years of the Inter-Agency Committee on Water Resources and its predecessor, Federal Inter-Agency River Basin Committee), the Presidential Advisory Committee on Water Resources Policy and the Bureau of the Budget to formulate mutually acceptable principles and procedures.

6. The Congress should provide the basic framework of policies and criteria. Among the factors in which the congressional intent may be expressed are:

(a) Benefits and costs to be considered in the benefit-cost analysis for the evaluation of projects and in the allocation formula. Under this factor the Congress may want to consider the degree to which secondary benefits and indirect costs are to be included in determining the total benefits and total costs.

(6) Costs to be included for purposes of allocation and to be repaid by beneficiaries (that is, whether interest on the Federal investment, costs of other Federal agencies applicable to the project, and similar costs not paid directly by the constructing agency are to be classified and recorded as costs of the projects).

(c) Number of years to be used as the basis for realization of project benefits and repayment of reimbursable project costs.

(d) Rate of interest and method of computation.

(e) Costs applicable to other purposes to be repaid by power revenues.

(f) The purposes to which costs are to be allocated and the criteria for allocation.

7. Some flexibility is needed in applying fixed policies and criteria to the peculiar conditions that may surround particular projects. However, we believe that this flexibility can be provided through permitting deviations by the proposing agency from the congressional established policies and criteria, but with full explanation on these deviations and the specific reasons in the project plan and other reports submitted to the Congress for authorization or initial appropriation of funds for construction of the project.

FEDERAL POWER COMMISSION

The Federal Power Commission advised that

1. Uniform standards and criteria should be followed when considering all aspects of a project from the preauthorization stage through payout.

2. It agrees generally with the 1950 report of the Subcommittee on Costs and Benefits of the Federal Inter-Agency River Basin Committee.

3. In project justification, reliance should be placed mainly on tangible primary benefits. However, care should be taken not to overlook or minimize intangible effects such as possible loss of a scenic or historical site, or conservation of fuel resources.

4. Power benefits are estimated, under normal conditions, as the cost of equivalent power from an alternative source most likely to develop in the absence of the proposed project.

5. The economic analysis of a proposed Federal project should be made on the basis of including as a part of the cost, the taxes that would be foregone as a result of construction of the Federal project instead of the most likely alternative source of power; generally a privately financed steam-electric plant.

6. Congress should assign to some agency of Government the allocation responsibility with respect to Corps of Engineers projects for which the Department of the Interior has marketing responsibility. Authority to determine the portion of the investment in such multiple-purpose projects allocable to electric power should rest with the agency responsible for approval of electric-power rates.

7. Congress should either give the Federal Power Commission authority to regulate rates for the sale of power from all Federal projects, or else it should relieve the Commission of all responsibility with respect to such rates. (In the latter event, Congress could keep informed by directing the Commission to investigate the work of the agencies concerned and to report thereon directly to Congress.)

8. The level of rates for power produced at Federal projects should at least be suflicient to cover amortization of investment allocable to power in not more than 50 years, with interest, and sums for replacement, operation, and maintenance, and for the payment of State and local taxes or equivalent payment in lieu of such taxes when required by law.

9. Non-Federal interests should be offered the opportunity of developing the power phases of Federal projects, with the management of the dams to remain in the Federal Government.

10. The requirement of section 5 of the 1944 Flood Control Act that the disposition of power shall be in such manner as to encourage the most widespread use thereof at the lowest possible rates to consumers, consistent with sound business principles” include use by preference customers, but is not confined to that use.

11. The Federal Power Act should be amended to provide authority for payments by Federal hydroelectric developments for headwater benefits from non-Federal resource developments.

BUREAU OF THE BUDGET

The Bureau of the Budget advised as follows:

1. Uniform policies governing evaluation of water resources projects should be set forth in basic legislation. A considerable degree of administrative flexibility should be left to apply the standards to specific problems and conditions. Detailed standards and criteria should be developed by the executive branch within the general policies established by the Congress, which must evaluate and pass upon every major proposed water-resource project.

2. General principles regarding determination of benefits should be established by legislation. All benefits to whomsoever they may

accrue should be taken into account. Primary benefits should generally be restricted to measurable and identifiable items directly resulting from a project. Secondary benefits are usually not susceptible

a of exact measurement but should be presented as precisely as possible. Intangible benefits should be presented as part of the justification. All costs and detriments resulting from construction of a project should be taken into account.

3. Identifiable benefits should exceed the costs of a project as a general principle. However, too much emphasis is now placed on the benefit-cost ratio as a basis of justification to the exclusion of equally important social values. Policies and procedures should insure that all factors are fully disclosed for project evaluation and exercise of congressional judgment.

4. The benefit-cost ratio, which presents only one set of facts regarding a project, should be calculated on primary benefits and direct costs for an evaluation period of not more than 50 years. Secondary benefits and intangible values should be separately but fully appraised in the project report.

5. Judgment of the Congress regarding overall needs for waterresources development, national and regional economic effects of the project, and the relative urgency of other Federal program objectives, determines whether a project should be authorized.

6. Complete reports to Congress should be made before projects are authorized. The reports should show whether the benefits from each added purpose or segment equal the added costs, and whether the proposed project is more economical than other means, public or private, for accomplishing the purposes. Costs of a Federal project should include full normal taxes that it would bear if privately constructed. Federal projects and private project alternates should be compared on the basis of the same interest rate, namely the average rate of longterm Treasury obligations.

7. Costs should be allocated by all agencies on uniform standards, with some flexibility for peculiar circumstances. As a general principle, each purpose should bear its own share of the costs and it should share equitably in the savings from multiple-purpose development.

8. Each major water-resources project should be separately authorized by Congress. Smaller projects should be administratively authorized

9. The statutory basis for Federal responsibility should be reexamined. There should be a clearer statutory basis for promoting full cooperation of State, local, and private interests. There should be a uniform policy for Federal responsibility, recognizing that in some instances State or local groups can best meet the needs. Where national interest is paramount the responsibility should rest with the Federal Government, with appropriate sharing by identifiable beneficiaries. Where benefits are primarily local and beneficiaries are readily identifiable, non-Federal interests should bear substantial portions of the construction costs. Users of power and municipal water should pay the full costs allocated to these purposes. Uniform standards should be developed within each of the several fields of water-resources activities, such as flood control and land reclamation. For recreation, and fish and wildlife, there should be a uniform basis for recognition of the national interest, and for provision for local contribution where facilities are of less than national interest.

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