[Query Concerning Repayment of O&M Costs Under California Central Valley Project]

A question was asked concerning the repayment of operation and maintenance (O&M) expenses and capital costs under water service contracts with water districts served by the Bureau of Reclamation's Central Valley Project. GAO was asked whether there is legal authority for not paying the full amount of O&M charges in view of the repayment requirements of the Reclamation Project Act. In addition, GAO was asked if, absent specific authorization, the Bureau has legal authority to allow an extended capital repayment period. Finally, GAO was asked whether there is a provision of reclamation law or policy under which the unpaid O&M costs may be recovered, either through a supplementary contract or by adding the costs onto the end of the repayment period. GAO found that rates specified in water service contracts, which now are insufficient to cover all O&M charges, may not be increased prior to the end of the term, unless otherwise contractually authorized. The deferral of capital repayment because of the practice of assigning an increased share or all of the water charges to O&M is proper provided that, as a result of the term, any one contract does not exceed 40 years. Capital repayment must be completed during the useful life of the project. Finally, GAO found that it is proper to recover previously unpaid O&M costs by adding them to current O&M charges upon renewal of a water service contract, or as authorized by the terms of the contract.