(3) From total cost of project deduct all separable costs to determine joint (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. Exhibit B to Mr. Nelson's Memorandum COST ALLOCATION STUDY GENERAL The objective of this cost allocation study is to determine an equitable distribution of the total cost of the Bull Shoals multiplepurpose project between flood control and power. As previously stated, the total first cost of this multiple-purpose project is estimated to be $75,860,000. The separable cost of each purpose is the difference between the cost of the multiple-purpose project and the cost of the project with the purpose omitted; that is, for the Bull Shoals project the separable first costs for flood control and power are $15,599,700 ($75,860,000 minus $60,260,300) and $35,951,300 ($75,860,000 minus $39,908,700), respectively. The joint cost is the difference between the cost of the multiple-purpose project as a whole and a total of the separable costs for all project purposes. The joint cost for the Bull Shoals project is $25,309,000 ($75,860,000 minus $15,599,700 minus $35,951,300). Any method of allocation should require that costs of separable facilities or features of the project should be allocated to the purposes served and that the joint costs should be allocated between the purposes served in such a way that each purpose will share equitably in the savings or economies It is believed that an equitable allocaresulting from the joint use. tion to the purposes considered would be within the limits of the separable costs as a minimum and the benefits that would result from the applicable purpose as a maximum. METHOD OF COST ALLOCATION Many methods of cost allocation have been considered and used during the last few years. However, in May 1950 the Subcommittee on Benefits and Costs of the Federal Interagency River Basin Committee in its report, Proposed Practices for Economic Analysis of River Basin Projects, recommended that the separable-costs-remaining benefits method be used in all future reports of Federal river basin development projects, recognizing that variations of the method would be necessary in some cases to meet special or legislative requirements. THE SEPARABLE COSTS Remaining-benefits method of cost allocation has been generally accepted as a reasonable way to distribute project costs in an equitable manner. There is no known legislation or history relating to the Bull Shoals project that would preclude the use of this method. Therefore, for this cost allocation report the studies have been confined to this method. The separable-costs-remaining-benefits method consists of (1) determining the separable cost of including each function in the multiple-purpose project and (2) determining an equitable distribution of joint costs incurred for several purposes in common. As stated previously, the separable cost for each project purpose is the difference between the cost of the multiple-purpose project and the cost of the project with the purpose omitted. Joint costs as used in this method, as previously stated, are defined as the difference between the cost of the multiple-purpose project as a whole and the total of the separable costs for all project purposes. From the estimated benefits limited by alternate costs for each purpose, separable costs are deducted to give remaining benefits. The joint costs are distributed in proportion to the remaining benefits for each purpose. The sum of separable costs and assigned joint cost for each purpose constitutes the total allocation to that purpose. A summary of the costs, charges, and benefits pertinent to this study is presented in table No. 9. The summary of the cost-allocation studies which resulted from the separable-costs-remaining-benefits method is presented in table No. 10. TABLE NO. 10.—Bull Shoals project cost allocation studies; allocation by separable costs-remaining benefits method |