Mr. FASCELL. Then your answer is, it might be. It is conceivable under the language? Mr. KUGEL. Whatever the cost of one-eighth of this project is Mr. FASCELL. If you had one user, the Secretary might allocate the total cost to him. Mr. SELDEN. Who suggested this language? Mr. KUGEL. This is almost word for word the language that was in the Anzalduas Mr. SELDEN. Who suggested it in the Anzalduas legislation? Colonel HEWITT. I don't know either, Mr. Chairman. Mr. FASCELL. He probably has been transferred, Mr. Chairman. Mr. BURLESON. The Appropriations Committee is still around. Mr. SELDEN. Are there any further questions on this particular section? Mr. KILGORE. Did I understand, Mr. Hughes, that at the time that Falcon was authorized the Bureau of the Budget's position with respect to repayment was the same as it is on this? Mr. HUGHES. Yes. Mr. KILGORE. At that time the Congress saw fit to authorize it without repayment? Mr. HUGHES. That is correct. Mr. KILGORE. In evaluating the repayment question here, I am sure that the Bureau of the Budget is cognizant of the fact that while the storage capacity for the U.S. waters in the Amistad project is 1,600,000 acre-feet, the extra water which it is expected will be recovered on an annual basis is only 86,000 acre-feet. Mr. HUGHES. I accept that. Mr. KILGORE. Five percent of the storage capacity. Does that create some sort of a different situation with respect to this project as it would in the ordinary project, in that there is, insofar as the water user is concerned, a gain of approximately only 5 percent of the storage capacity which it is proposed he pay for? Mr. HUGHES. I presume in the development of the cost figures this would have some impact on the portion of the cost that would be allocated to irrigation as distinguished from other purposes. This would be reflected in the share of the burden to be borne by the users. Mr. KILGORE. It would certainly be somewhat of a distinguishable situation to the ordinary project, I would assume. Mr. HUGHES. The ordinary projects would vary widely, I am sure, in the percentage of their total cost that was allocated to irrigation. I think in a normal situation the percentage would probably be higher than this. Mr. KUGEL. I don't know what the allocation of irrigation is or if they have made any cost allocation. Mr. HUGHES 5 percent? Mr. KILGORE. What I was saying was, the storage capacity is 1,600,000 acre-feet, but the studies indicate that the actual amount of water that may be expected to be recovered annually by the building of this structure over and above that which is now saved is only 86,000 acre-feet. So that the gain to the water diverter is roughly in ratio of 5 percent of the total capacity of the storage. Mr. HUGHES. I think this is distinguishable from most other projects. Mr. KILGORE. What we are talking about is the repayment for the conservation cost, which I assume is for 1.6 million acre-feet, but on a gain of only 86,000 acre-feet of water. Mr. SELDEN. Colonel Hewitt, in your cost-benefit ratio estimates that you gave to us yesterday, did those estimates contemplate repayment of water supply and irrigation cost? Colonel HEWITT. That was left for the committee or the Congress to decide. Mr. SELDEN. I mean, in computing your figures? Did you compile those figures with or without repayment included? Colonel HEWITT. We did it several different ways. Following the language of H.R. 8080, we considered the cost of the flood control features of the project would be about 42 million and the B/C ratio on that would be 1.21 to 1. Then adding the conservation cost to that amount to some 12 million with a B/C ratio of 4.28 to 1. The power features added to that 2,289,000 were a ratio of 3.58 to 1. There would be an overall benefit-cost ratio of 1.97 to 1. Mr. SELDEN. Then it was included in it? Colonel HEWITT. It was included on that basis. Mr. SELDEN. To get your 1.97-to-1 figure, did you include the repayment of water supply and irrigation cost? Colonel HEWITT. We included, by this method of figuring-we figured that the payout, including recreation and wildlife benefits, which I have not given you and has a cost ratio of about 25 to 1, bringing the final B/C ratio up to 2.37 to 1 would be paid out in 40 years and the cost of power revenues would amortize the cost of the power features, also the conservation features of the project. Mr. SELDEN. Do you have a comment, Mr. Hughes? Mr. HUGHES. I wanted to suggest, Mr. Chairman, I think the calculation of the cost-benefit ratio is somewhat different than this question of who shall bear the cost. I think that is an accurate statement. In other words, they made an overall calculation weighing the cost of the projects as against the benefits that can be expected to accrue, disregarding the question for the moment whether the Federal Government or the irrigation users paid this cost. Mr. SELDEN. I think that answers my question. You may proceed. Mr. HUGHES. The third suggestion we have made relates to section 4 of the bill. We commented that the bill limits the costs allocated to power and water conservation to the so-called incremental costs of including these purposes in the project. We believe that it would be proper to have these purposes share also in the overall joint costs of the project and, accordingly, we suggested the deletion of some language to accomplish this. A fourth suggestion relates to the use of surplus power revenues. We suggested that the words "for irrigation" should be added to the language of section 4 of the bill, to make it clear that surplus power revenues would not be used for domestic, municipal, and industrial water supply. The rationale there is that while there is a precedent for the use of these for irrigation purposes, not so with respect to the other purposes. Section 5 of the bill deals with the question of the interest to be charged for water conservation and power. We have suggested there some standard language which would base the interest paid on the average market yield on long-term obligations to the Government in order that the Government would at least receive the cost that it pays to borrow money. Mr. SELDEN. Those are all of the suggestions? Mr. HUGHES. Yes. Mr. SELDEN. In section 4 you suggest that cost allocations be made under already established procedures. Could you give us an illustration as to how the cost of the present dam under this procedure would be distributed or allocated? Mr. KUGEL. I might try to throw a little light on it. I really don't know, using accepted cost allocation procedures, what the allocations would be here, but generally we recommend, and among water resource agencies there is pretty general agreement, that the so-called separable cost-remaining-benefit method of allocating costs is preferable. The method that has been used here is, I gather, an incremental cost method and this is what the bill would require; namely, you assume first that you have to have a flood-control dam and then calculate what additional costs would be required to provide for water supply and irrigation and for power. Under the separable cost remaining benefit method, you would assume you were going to build a dam for three purposes, so that all the purposes would share in the joint costs of the structure. The cost allocation would come out depending on the benefits and the separable cost for each purpose probably much more equally than they do in this case. I think in the report here on page 68 at the top of the page, paragraph 8, on the primary benefits, it is indicated that conservation benefits amount to about a million eight annually; flood-control benefits apparently about a million four annually. Just on the basis of this alone it would appear that a much higher share of the cost of the project would be allocated to conservation. than under this incremental method. Whether the IBWC has made any tentative allocation on the basis of the separable cost-remainingbenefit method, I don't know. Have you used this method of cost allocation? Colonel HEWITT. We have prepared an allocation on the basis of A-47, yes. Mr. KUGEL. What does it come out on the basis of A-47? Colonel HEWITT. That would amount to about $23.7 million for conservation; flood control, $23.3 million; power, $6.5 million; fish and wildlife, $2.4 million. Mr. KUGEL. Compared to what under your other method? Colonel HEWITT. As compared to flood control, $42.2 million; conservation, $12,150,000; power, $2.3 million; recreation, $620,000. Mr. KUGEL. I think that probably gives you the comparison between the two methods pretty dramatically. Mr. FASCELL. The last method is the incremental. Mr. SELDEN. The incremental method is the method being used under this bill. Is that correct? Mr. HUGHES. Yes. Mr. SELDEN. And you suggest the other method be used? Mr. KUGEL. I don't think we suggested that particular method be incorporated in the bill but this rather generally accepted method would be used. Mr. SELDEN. What method was used in computing the costs on the Falcon Dam? Mr. KUGEL. I don't think they have done that. Mr. SELDEN. This would have to be on a tentative basis. Mr. KUGEL. Yes. Colonel HEWITT. There was no allocation of costs made on the Falcon Dam. Mr. SELDEN. There was not? Colonel HEWITT. There was not. On the same method that we presented for Falcon and carrying it through to Amistad, we would say that our costs over the life of the project without recreation, fish and wildlife, would be about $109,500,000 as compared to the benefits which would be about $110,050,000. If you include fish and wildlife, the cost would be about $110,500,000, and the benefits would be $154,850,000. Those were the justifications given for Falcon under which the Congress decided that no assessment would be made for the water users. Mr. SELDEN. Using the same criteria that you are using on the Amistad Dam and arriving at a cost-benefit ratio of 1.96 to 1, what would be the cost-benefit ratio on the Falcon Dam? Colonel HEWITT. I don't know that I could answer that question, I don't believe we have that figure. If you would like to have it supplied for the record, we will do so. Mr. SELDEN. I would like to have a comparison. Colonel HEWITT. On the incremental basis. Mr. SELDEN. Yes, sir. (The information requested is as follows:) INTERNATIONAL BOUNDARY AND WATER COMMISSION, UNITED STATES AND MEXICO, Hon. ARMISTEAD I. SELDEN, Jr., El Paso, Tex., February 26, 1960. Chairman, Subcommittee on Inter-American Affairs, House of Representatives, Washington, D.C. DEAR MR. SELDEN: I submit herewith, exhibits A and B, data in response to your question during the recent hearings on the Amistad Dam and Reservoir project, namely: "Using the same criteria used for Amistad Dam and arriving at the benefitcost ratio of 1.96:1, what would be the benefit-cost ratio for Falcon Dam?" Following the criteria used for the Amistad project, the total of the annual benefits of the Falcon project accruing to the United States from flood control, power, and conservation, were compared with the total costs to this country for Falcon Dam, power facilities, and related works, including land acquisition and relocation costs. The data were compiled: (a) Insofar as possible on the basis of the original preliminary 1947 estimates contained in the "Hearings before the Subcommittee on Appropriations, House of Representatives, 79th Congress, 2d Session, on the Department of State Appropriation Bill for 1947"; and (b) on the basis of the current estimates as of 1960. The results are as follows: 51563-60-10 Falcon project: (a) On basis of original preliminary 1947 estimates. (b) On basis of current 1960 estimates____ U.S. benefitcost ratio 7.7:1 10.2:1 I shall be pleased to furnish any additional data or information you may desire. Sincerely, L. H. HEWITT, Commissioner. EXHIBIT A Question: Using same criteria used for Amistad Dam and arriving at benefitcost ratio of 1.96:1 what would be the benefit-cost ratio for Falcon Dam? FALCON PROJECT, U.S. COSTS AND BENEFITS Annual costs: Basis A-Original preliminary estimates, 1947 Amortization of capital costs ($23,800,00012)-50 years at 3 percent.. Operation and maintenance_ Depreciation reserve, depreciable items__. Total annual costs- Annual benefits: Power___ Flood control___ Conservation (increased yield of 333,000 acre-feet, at $22 per acre-foot____. Total annual benefits_ Benefit-cost ratio: 8,363,500÷÷1,086,738_ 1 Cost of $23,800,000 reflects results of a preliminary estimate which was made prior to completion of surveys and design studies and prior to joint estimate and division of cost with Mexico in 1949, reference minute 192, International Boundary and Water Commission. 2 Reference p. 396 of "Hearings Before the Subcommittee of the Committee on Appropriations," House of Representatives, 79th Cong., 2d sess., on the Department of State appropriation bill for 1947. For the purpose 3 Conservation net benefits were not set forth in the original estimates. of this table, the net benefits were estimated from operation studies made based upon (a) the maximum total irrigated area of 508,000 acres in the United States below Falcon site before the dam, and assumption of 600,000 acres after Falcon, reference p. 392 of same 1947 hearings, and (b) net value of $22 per acre-foot according to determination by U.S. Department of Agriculture in 1956. |