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\ W. & P. Committee Contracts under State Water Plan January 7, 1959 Page #3 utilized as to minimize the cost of water deliveries. Power from power recovery plants along the aqueduct system should be so utilized as to offset the power required for the pumping which provides water for such power recovery plants. STATEMENT One of the major features related to the State Water Plan is the matter of contracts between the Department of Water Resources and the agencies and other entities which will use water and power. Policies with respect to these contracts have not been defined except that SB 1106 does state that the provisions of the Code governing the Central Valley Project shall apply to facilities required or constructed with funds made available under the Act. The bill also provides that the Department, subject to such terms and conditions as may be prescribed by the Legislature, shall enter into contracts for the sale, delivery or use of water or power. ARGUMENTS SUPPORTING COMMITTEE'S RECOMMENDATION There are certain deficiencies in the bill, SB 1106, as passed by the Legislature which,at least in part, may be remedied by proper provisions in contracts. Even should the bill be amended, it is still essential that proper contracts be drawn in order to insure integrity of the State water program from the standpoint of the State and the individual contractors. We believe it obvious that the State should not engage in the retail distribution of water but should serve only to provide necessaryfacilities for delivery to municipalities, water districts and other large distributors and to utilities both publicly and privately owned engaged in the generation or distribution of electric energy. There has been a belief in some quarters that monies coming from oil revenues - the State Water Fund - and other sources not involving direct payment of interest by the State, should be treated differently from bond proceeds. There is, of course, no logic in this since the State will have to borrow additional money for its other operations because' of this use. Furthermore, all projects should be treated alike and it would be unfair to require the payment of no interest or a different amount of interest on projects where water fund monies are used and recover full interest on projects built from bond proceeds.