is included in the approved estimate of cost for Millwood in the amount of $170,000.

With respect to the Graysonia, Nashville & Ashdown Railroad, this facility extends some 27 miles between Nashville and Ashdown. The part affected by the reservoir is located between Schaal and Ashdown across the Saline and Little River Valleys. At Schaal, a spur 4.7 miles long runs southeasterly to the Ideal Cement Co. plant at Okay. Unless the main line of the railroad and the cement plant spur are altered to provide for continued operation with the reservoir in place, and unless the cement plant is continued in operation, it would be necessary to purchase or to otherwise idemhify the railroad for the losses which would be sustained.

It is understood that 90 percent of the production of the cement plant is marketed via the railroad and that this traffic is by far the longest part of the railroad's freight business. Total traffic for the railroad in 1950 was 291,000 tons. of which 256,000 originated on the line.

Under the component "levees," the 1953 estimate for the reservoir provides for relocation of the Graysonia, Nashville & Ashdown Railroad in the amount of $7,766,900. Indirect costs included in this estimate are $784,200, so that direct costs are $6,982,700. Of this total amount, the main-line alteration is estimated to cost $5,560,000 and the spur alteration $2,206,900.

(The information referred to on p. 1416 follows:)

The engineering committee of the Mississippi Valley Flood Control Association, after a thorough review of the recent Atchafalaya River study prepared by the Army engineers, concurred in the conclusion that if left alone the Atchafalaya would capture the Mississippi River, thereby causing serious consequences in the immediate area to the detriment of the lower valley. This committee therefore recommended immediate construction of the necessary control structures.

COST ALLOCATIONS

DEPARTMENT OF THE ARMY,
OFFICE OF THE CHIEF OF ENGINEERS,
Washington, March 30, 1954.

Hon. STYLES BRIDGES,

Chairman, Committee on Appropriations,

United States Senate, Washington, D. C.

DEAR SENATOR BRIDGES: I am forwarding herewith for your information copies of a statement pertaining to the allocation of costs of Federal multiple-purpose projects.

This statement is the basis for a recent agreement among the Departments of the Army and Interior, and the Federal Power Commission on principles and procedures to be followed by all three agencies in the matter of cost allocation. Sincerely yours,

E. C. ITSCHNER,
Brigadier General, USA,
Assistant Chief of Engineers for Civil Works.

COST ALLOCATION

AGREEMENT AMONG DEPARTMENT OF THE INTERIOR, DEPARTMENT OF THE ARMY AND FEDERAL POWER COMMISSION

Costs of a multiple-purpose project shall be allocated among the purposes served in such manner that each purpose will share equitably in the savings resulting from combining the purposes in a multiple-purpose development.

Acceptable methods. (See attachment for brief descriptions.)

(1) Separable costs-remaining benefits method.-This method is considered preferable for general application.

(2) Alternative justifiable expenditure method. This method differs from (1) only in employing specific costs of the various functions rather than their separable costs. It is acceptable where the necessary basic data to determine sep

rable costs are not available and the time and expense required to obtain the ata are not warranted.

(3) Use of facilities method. This method is acceptable where the use of failities is clearly determinable on a comparable basis and where use of this ethod would be consistent with the basis of project formulation and authorizaion.

Linimum allocation

Each purpose shall be allocated, in every case, at least its separable cost (the ost traceable to its inclusion in a multiple-purpose project). Limitations of asic data may occasionally require the use of specific cost (the cost of features dentified solely with a single purpose) and other available data as constituting he best available basis for approximating separable costs.

Legislative history

The legislative history of authorized projects shall be considered in the allocation of cost. The authorizing act, committee reports, project justification documents, and similar sources disclose the nature of the proposal submitted to the Congress and of congressional action thereupon.

Consideration of economic costs

In applying any one of the above allocation methods, taxes in an amount equal to those which would be foregone as a result of Federal development of the power rather than the most likely alternative development shall be included as an economic cost when distributing costs among the project purposes for analysis of economic justification, but shall be subtracted from the costs thus distributed to power in order to obtain the allocation of project costs to power.

Value of power

The value of power produced means the estimated market value which would be obtainable if it were to be sold on an open competitive basis, without restriction as to use or resale. The value of power shall be determined as the lower of two figures:

(1) The estimated actual cost of equivalent power from the most likely alternative source that would be expected to develop in the absence of the project, to meet the same power needs, with appropriate adjustment for transmission costs and losses and other technical factors.

(2) Estimated value of power to users. (Applicable where costs of alternative power would be prohibitive either for part or all of the power produced.) The value of power, determined as indicated above, shall be used for computations of economic benefits in project justification and for the allocation of project costs. It will not be used to establish the level of power revenues, which are based on the amortization of project costs (Federal power investment) over a reasonable period of years.

Project feasibility

Criteria of project feasibility shall be such that, insofar as can be determined in advance:

(1) Projects will be considered economically feasible when the value of power (as defined above) will at least equal the project costs allocated to power, plus the amount of taxes which would be foregone as a result of Federal development of the power rather than the most likely alternative development.

(2) Projects will be financially feasible, i. e., they will have potential net revenues from power sales sufficient to reimburse the Federal Government for the Federal investment in power.

BRIEF DESCRIPTION OF METHODS OF COST ALLOCATION

The separable costs-remaining benefits method has the following steps: (1) The benefits of each purpose are estimated.

(2) The alternate costs of single-purpose projects to obtain the same benefits are estimated.

(3) The separable cost of each purpose is estimated.

(4) The separable cost of each purpose in the multiple-purpose project is deducted from the lesser of each purpose's benefits or alternate cost. The lesser figure is used since alternate cost is used in this method only if it represents a justifiable expenditure; that is, if it does not exceed the benefits.

(5) From total cost of project deduct all separable costs to determine residna. costs.

(6) Residual costs, designated as joint costs in this method, are distributed in direct proportion to the remainders found in step 4.

(7) To determine the cost allocated to each purpose, add the separable and distributed costs for each purpose and, in the case of power, subtract from that sum the amount of taxes foregone which was used in computing power costs under steps 2 and 3 above.

The alternative justifiable expenditure method has the following steps: (1) The benefits of each purpose are estimated.

(2) The alternate costs of single-purpose projects to obtain the same benefits are estimated.

(3) The specific cost of each purpose is determined.

(4) The specific cost of each purpose in the multiple-purpose project is de ducted from the lesser of that purpose's benefits or alternate cost. The lesser figure is used since alternate cost is used in this method only if it represets a justifiable expenditure; that is, if it does not exceed the benefits.

(5) From total cost of project deduct all specific costs to determine joint costs (6) Joint costs of the multiple-purpose project are distributed among purposes in direct proportion to the remainders found in step 4.

(7) Allocation of project cost is determined in the same manner as under the separable costs-remaining benefits method.

The use of facilities method has the following steps:

(1) The use which is made by each purpose of joint project facilities is este mated on some basis which is comparable for the purposes concerned, using suct measures of use as those of flow, reservoir capacity, energy consumption, and others as may be applicable.

(2) The separable cost of each purpose is estimated. portance specific rather than separable costs may be used.)

(In cases of minor in

(3) From total cost of project deduct all separable costs to determine join: (residual) costs.

(4) Joint costs of the multiple-purpose project are distributed among purposes in proportion to the comparable measures of use of the joint facilities estimated in (1).

(5) To determine the cost allocated to each purpose, add the separable and distributed costs for each purpose and, in the case of power, subtract from that sum the amount of taxes foregone which was used in computing power cost under (2) above.

(See page 1396)

Navigation projects-Obligations for operation and maintenance, 10-year period ending fiscal year 1954

1 Tentative allocations to be revised May 1, 1954.

2 Emergency work only.

3 Work scheduled after January 1954.

Excludes $2,247,300 balance as of Jan. 1, 1954, being allocated in March.

(Whereupon, at 1 p. m., Saturday, March 13, 1954, the subcommittee recessed subject to the call of the Chair.)