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Show required to repay the amount of the irrigation in- vestment required from power revenues. The Fed- eral Power Commission staff has estimated that the firm energy rate could be reduced at the end of the power amortization period to about 3 mills per kilo- watt-hour, or 2.5 mills below that which would be paid if part of the irrigation investment were repaid from power revenues. This analysis assumes that the use of the interest component of power revenues of Bureau of Recla- mation projects would be applicable to the Depart- ment of trie Army projects which would provide the bulk of the power in the Missouri Basin Project. The proposed 5.5 mill firm energy rate cor- responds closely to estimates of costs of production at the proposed basin power projects made by the Federal Power Commission. It would appear, therefore, that the payout schedule proposed is physically feasible, assuming the correctness of the estimates here used. However, it is possible that a 5.5-mill rate may not promote regional growth in the manner hoped for. It may be neces- sary to set special inducement rates for selected in- dustrial consumers of energy to achieve some of the objectives of the Federal power program in the area. Assuming that approximately 30 percent of the firm energy produced were sold at 3 mills per kilo- watt-hour, a rate of approximately 6.6 mills would be needed for the remaining 70 percent of the firm energy produced. This still compares favorably with the alternative sources of power in the region. The Federal Power Commission estimates that fed- erally financed steam-electric plants in the basin could produce energy at a cost of about 7.5 mills per kilowatt-hour, and privately financed plants, at about 8.5 Tnills. This assumes a 60 percent load factor. Calculation of power rates and the relation of irrigation projects to them in the Missouri Basin must be studied in the light of some uncertainties. There is uncertainty, for instance, as to the actual amount of land which eventually will be irrigated in the basin. Recent detailed surveys in the Mis- souri-Souris area, for instance, suggest that the acreage on the large project may be less than that proposed in the original plan. The size of the total irrigation investment therefore is not definite. An important variable at the end of 1950 also was the general price and wage level. Costs could not be estimated accurately for a program extend- ing over as many years as that of the Missouri. Generally analyzed, however, it is certain that power rates will be affected unfavorably over the long run if nearly 1.5 billion dollars of irrigation investment must be repaid from power revenues. This is true even if the interest component on the power investment is used for irrigation repayment. If power revenues are not used to assist in ir- rigation repayment, and it is considered desirable for a large-scale irrigation program to go forward in the basin, other Federal aid will be needed. In keeping with the policy established by the original Reclamation Act, interest-free money is available for irrigation construction. This will not be suffi- cient, however, for the future program in the basin. Conclusions Repayment procedures for the Missouri Basin raise questions as to the desirability of (1) using power revenues to provide Federal aid to irriga- tion through the forgoing of interest on the power investment; (2) direct application of power reve- nues to help repay irrigation costs; and (3) the es- tablishment of long repayment periods, in excess of general practices for assumption of economic life of power projects. The use of the interest component of power revenues has an indirect relation, in most cases in the basin, to irrigation development. It envisages the use therefor of the revenue from Department of the Army as well as Reclamation projects. If further large-scale irrigation in the Missouri River Basin is accepted as a desirable objective and the water users are unable to pay the entire cost, then some modification of the prevailing procedure for assigning the cost burden to irrigation is nec- essary in cases where the local beneficiaries are unable to pay the cost in its entirety. If a sound appraisal of the benefits and costs oi irrigation, including intangible as well as tangible benefits, results in a conclusion that an irrigation undertaking is justifiable from the national view- point, then it would appear that, if the irrigators repay in accordance with their ability at current price levels, and reasonable reimbursement is col- lected for secondary beneficiaries, the remainder of the cost may be assumed by the Federal Govern- ment as representing national benefits. In this case no further reimbursement need be considered. As recommended by this Commission, the cost of irrigation features should be made part of a mul- tiple-purpose account for the basin. For the Mis- souri Basin, as elsewhere, basic principles for re- imbursement should make water development proj- 252 |
