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                                                       Calendar No. 630
                                                       
114th Congress     }                                      {     Report
                                 SENATE
 2d Session        }                                      {     114-352

======================================================================



 
            ARKANSAS VALLEY CONDUIT, COLORADO MODIFICATIONS

                                _______
                                

               September 15, 2016.--Ordered to be printed

                                _______
                                

  Ms. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2616]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 2616) to modify certain cost-sharing and 
revenue provisions relating to the Arkansas Valley Conduit, 
Colorado, having considered the same, reports favorably thereon 
without amendment and recommends that the bill do pass.

                                Purpose

    The purpose of S. 2616 is to modify certain cost-sharing 
and revenue provisions relating to the Arkansas Valley Conduit, 
Colorado.

                          Background and Need

    The Fryingpan-Arkansas Project was first authorized in 1962 
to furnish irrigation water, municipal and industrial water, 
and electric power, and to control floods in the Arkansas River 
Valley in Southeastern Colorado. The last component of this 
project, the Arkansas Valley Conduit, is a 130-mile pipeline 
which would deliver water from the Pueblo Reservoir to more 
than 40 communities in Colorado. Currently, revenue generated 
by existing Fryingpan-Arkansas project facilities is used for 
debt repayment associated with construction of related 
facilities. Congress enacted legislation as part of the Omnibus 
Public Lands Act of 2009 to require the water users to pay 35 
percent of the reimbursable cost of the conduit. In addition, 
the 2009 law credited the ``miscellaneous revenues'' that the 
Project receives for the use of its excess storage capacity and 
exchange contracts towards the water users' repayment 
obligation. The cost of constructing the conduit still remained 
subject to appropriation.
    The Arkansas Valley Conduit is needed to supply clean 
drinking water to communities that currently must use 
groundwater that contains high levels of radium and uranium. S. 
2616 is needed, first, to authorize the Secretary of the 
Interior to spend the miscellaneous revenues from the Project's 
excess storage capacity to construct the Arkansas Valley 
Conduit without further appropriation. In addition, it is 
needed to permit the Secretary to the use of the miscellaneous 
revenues to repay funds borrowed from the State of Colorado by 
the water users to help construct the conduit.

                          Legislative History

    S. 2616 was introduced by Senator Gardner on March 2, 2016. 
The Subcommittee on Water and Power held a hearing on S. 2616 
on May 17, 2016.
    The Committee on Energy and Natural Resources met in open 
business session on July 13, 2016, and ordered S. 2616 
favorably reported.

                        Committee Recommendation

    The Senate Committee on Energy and Natural Resources, in an 
open business session on July 13, 2016, by a majority voice 
vote of a quorum present, recommends that the Senate pass S. 
2616.

                      Section-by-Section Analysis


Section 1. Arkansas Valley Conduit, Colorado

    Section 1(a) amends Public Law 87-590 to modify the water 
users' repayment obligation such that it will be 35 percent of 
the funds appropriated for construction in order to conform to 
the amendment made by subsection (b), which permits the use of 
non-appropriated funds to construct the conduit.
    Subsection (b) directs that all revenue derived from 
contracts for the use of Fryingpan-Arkansas project excess 
capacity or exchange contracts using project facilities shall 
be available to the Secretary without further appropriation. 
The funds shall be used to pay for the construction of the 
Arkansas Valley Conduit; for the payment to the Southeastern 
Colorado Water Conservancy District to repay the principal and 
interest on loans obtained by the District toward construction 
of the Arkansas Valley Conduit; and be credited toward 
repayment of the funds appropriated for the Arkansas Valley 
Conduit, plus interest. The Secretary is further directed to 
enter into one or more agreements with the District that 
specify the distribution of funds.

                   Cost and Budgetary Considerations

    The following estimate of the costs of this measure has 
been provided by the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, September 6, 2016.
Hon. Lisa Murkowski,
Chairman, Committee on Energy and Natural Resources,
U.S. Senate, Washington, DC.
    Dear Madam Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2616, a bill to 
modify certain cost-sharing and revenue provisions relating to 
the Arkansas Valley Conduit, Colorado.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Aurora 
Swanson.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 2616--A bill to modify certain cost-sharing and revenue provisions 
        relating to the Arkansas Valley Conduit, Colorado

    Summary: S. 2616 aims to facilitate the construction of the 
Arkansas Valley Conduit (AVC), a component of the Fryingpan-
Arkansas Project designed to deliver potable water to six rural 
counties in Colorado. Based on information from the Bureau of 
Reclamation (BOR), the Southeastern Colorado Water Conservancy 
District, and Colorado state agencies, CBO estimates that 
enacting S. 2616 would increase direct spending by $60 million 
over the 2017-2026 period and by $108 million after 2026. 
Because the legislation would affect direct spending, pay-as-
you-go procedures apply. Enacting S. 2616 would not affect 
revenues. The new funding and financing activities authorized 
in S. 2616 could lead to a reduction in the need for 
appropriated funds to complete the AVC.
    CBO estimates that enacting the bill would not increase net 
direct spending or on-budget deficits by more than $5 billion 
in any of the four consecutive 10-year periods beginning in 
2027.
    S. 2616 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary effect of S. 2616 is shown in the following table. 
The costs of this legislation fall within budget function 300 
(natural resources and environment).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Fiscal year, in millions of dollars
                                                            --------------------------------------------------------------------------------------------
                                                              2017   2018   2019   2020   2021   2022   2023   2024   2025   2026  2017-22021  2017-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              INCREASES IN DIRECT SPENDING
 
Use of Borrowed Funds for AVC Construction:
    Estimated Budget Authority.............................      0      0      5      5      5      5      5      5      5      5        15          40
    Estimated Outlays......................................      0      0      5      5      5      5      5      5      5      5        15          40
Spending of Project Receipts:
    Estimated Budget Authority.............................      0      0      0      0      0      4      4      4      4      4         0          20
    Estimated Outlays......................................      0      0      0      0      0      4      4      4      4      4         0          20
    Total Changes:
        Estimated Budget Authority.........................      0      0      5      5      5      9      9      9      9      9        15          60
        Estimated Outlays..................................      0      0      5      5      5      9      9      9      9      9        15         60
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum to totals because of rounding; AVC = Arkansas Valley Conduit.

    Basis of estimate: For this estimate, CBO assumes that S. 
2616 will be enacted near the end of 2016. S. 2616 would 
authorize the BOR to effectively obtain and repay a 
construction loan for part or all of the AVC that would be 
arranged by the Southeastern Colorado Water Conservancy 
District (the district), the nonfederal sponsor for the AVC. 
The bill also would authorize the BOR to spend certain receipts 
from the sale of excess capacity for water storage at the 
Fryingpan-Arkansas Project to construct the AVC.
    Based on an analysis of information from the BOR about 
project costs and scheduling plans for constructing the AVC, 
and assuming the new funding and financing authorities provided 
in the bill are used, CBO estimates that planning and designing 
of the project would be completed in 2018 and that construction 
would be completed 20 years later, in 2038.
    In 2011, the BOR estimated that completing construction of 
the AVC would cost $400 million. In the last few years $21 
million was appropriated to begin design and construction work 
on the project. S. 2616 would not change the total cost of 
completing the AVC, however, it would change how those funds 
are provided by the Congress and it would reduce the portion of 
total project costs that would be reimbursed by the local water 
district.
    Under current law, any funds to complete the AVC will be 
provided in annual appropriation acts. S. 2616 aims to 
facilitate the construction of the AVC by authorizing a 
combination of funding sources, including permitting the BOR to 
spend roughly $68 million of receipts from the sale of excess 
water storage capacity over the 2022-2038 period and 
authorizing the BOR to obtain a loan (through the district) 
from the state of Colorado to finance about $100 million of the 
project costs over the next 20 years. Net federal costs to 
construct the AVC over the next several decades would increase 
under the bill because the Southeastern Colorado Water 
Conservancy District would be responsible for repaying a 
smaller portion of project costs. Furthermore interest costs of 
the construction loan provided by Colorado would probably be 
greater than if the U.S. Treasury had borrowed those amounts. 
Those costs, however, would not be incurred until repayment 
begins in 2039.

                            DIRECT SPENDING

    Nonfederal Financing of AVC Construction. S. 2616 would 
effectively authorize the BOR to borrow and repay funds from 
Colorado state agencies to construct the AVC.\1\ Under the 
bill, the nonfederal financing of construction costs would be 
arranged through the local water district. Based on information 
from the BOR, the district, and the state, CBO estimates that 
the district would obtain financing of $100 million for 
constructing the AVC and that the loan would be dispersed in 
roughly $5 million increments over the 20-year construction 
period.\2\ CBO estimates that implementing those provisions 
would increase direct spending by $40 million over the 2017-
2026 period and $60 million after 2026.
---------------------------------------------------------------------------
    \1\Allowing the district to borrow on behalf of the BOR and for the 
BOR to then use those amounts is considered federal borrowing, a form 
of mandatory budget authority. Receipt of the borrowed amounts would be 
considered a means of financing and thus would not be reflected in the 
budget. However, the budget would record the obligations incurred by 
using borrowed amounts at the time that such obligations occur. Outlays 
would be recorded to reflect the timing and pace of capital 
expenditures to construct the AVC.
    \2\S. 2616 would not limit the amount of financing that the 
district could obtain from Colorado. If future appropriations for the 
AVC are lower (or higher) than assumed, the loan could be higher (or 
lower) than $100 million and direct spending would be higher (or 
lower).
---------------------------------------------------------------------------
    Spending of Project Receipts. Starting in 2022, S. 2616 
would authorize the BOR to spend certain project receipts 
without further appropriation to construct the AVC. Under 
current law, those receipts result from excess capacity charges 
to water users for storage and conveyance services during 
periods when all available water storage capacity is not needed 
to meet the authorized purposes of the project. In the last few 
years, those receipts have totaled about $4 million each year.
    CBO estimates that implementing this provision would 
increase direct spending by $20 million over the 2017-2026 
period and by $48 million after 2026.
    Nonfederal Cost Share of the AVC. Under current law, the 
district will be responsible for repaying the federal 
government 35 percent of AVC construction costs (approximately 
$400 million). Under the bill this repayment obligation would 
remain at 35 percent, but it would not apply to the portion of 
the project funded through amounts borrowed from Colorado state 
agencies (about $100 million), or to the construction costs 
covered by spending charges for excess water storage capacity 
(about $68 million). Repayment of the nonfederal share of the 
AVC would not begin until construction is complete in 2038, 
thus no changes in the nonfederal cost share are reflected in 
this cost estimate that covers the 2017-2026 period.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year, in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                        2016   2017   2018   2019   2020   2021   2022   2023   2024   2025   2026  2016-2021  2016-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go lmpact.......................      0      0      0      5      5      5      9      9      9      9      9        15         60
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and Tribal Governments: 
S. 2616 contains no intergovernmental mandates as defined in 
UMRA. The bill would benefit the Southeastern Colorado Water 
Conservancy District by allowing the district to obtain 
nonfederal financing to construct a federal water project. Any 
costs incurred by the district under the agreement with the 
federal government to secure financing, including cost-sharing 
contributions, would result from complying with conditions of 
federal assistance.
    Estimated impact on the private sector: S. 2616 contains no 
private-sector mandates as defined in UMRA.
    Increase in long-term net direct spending and deficits: CBO 
estimates that enacting the bill would not increase net direct 
spending or on-budget deficits by more than $5 billion in any 
of the four consecutive 10-year periods beginning in 2027.
    Estimate prepared by: Federal Spending: Aurora Swanson; 
Impact on State, Local, and Tribal Governments: Jon Sperl; 
Impact on the Private Sector: Amy Petz.
    Estimate Approved by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 2616. The bill is not a regulatory measure in 
the sense of imposing Government-established standards or 
significant economic responsibilities on private individuals 
and businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of S. 2616, as ordered reported.

                   Congressionally Directed Spending

    S. 2616, as ordered reported, does not contain any 
congressionally directed spending items, limited tax benefits, 
or limited tariff benefits as defined in rule XLIV of the 
Standing Rules of the Senate.

                        Executive Communications

    The testimony received from the Bureau of Reclamation of 
the U.S. Department of the Interior at the May 17, 2016, 
Subcommittee on Water and Power hearing on S. 2616 follows:

 Statement of Estevan Lopez, Commissioner, Bureau of Reclamation, U.S. 
                       Department of the Interior

    Chairman Lee and members of the Subcommittee, I am Estevan 
Lopez, Commissioner of the Bureau of Reclamation, in the 
Department of the Interior. I appreciate the opportunity to 
testify on S. 2616. The Administration is still reviewing S. 
2616 and does not have a position at this time. The Department 
supports the goal of assisting non-federal sponsors with 
accessing nonfederal capital for the construction of projects. 
However, the bill raises some concerns discussed below.
    The Arkansas Valley Conduit (AVC) was originally authorized 
in 1962. However, the beneficiaries' inability to repay 
construction of the project, along with competing water 
infrastructure needs across the West have made it difficult to 
fund large-scale projects like the AVC at the federal or local 
level. Currently AVC area communities use groundwater to supply 
most of their drinking water, and that water has been 
determined to contain high levels of naturally occurring radium 
and uranium. Twelve water providers have concentrations of 
these elements in the water supplies that exceed federal Safe 
Drinking Water Act mandatory standards. As a result, the State 
has issued enforcement actions requiring these water providers 
to remove the contaminants or find a better quality water 
source. In addition, water providers in the lower Arkansas 
River Basin generally have difficulty meeting non-mandatory 
secondary drinking water standards for salts, sulfate and iron.
    Given these circumstances, it is extremely important for 
these communities to find an alternative water supply that 
would meet existing and future municipal and industrial potable 
water demands for citizens in the six southeastern Colorado 
counties of the Lower Arkansas River Basin: Pueblo, Crowley, 
Otero, Bent, Prowers, and Kiowa. AVC would serve approximately 
53,000 residents (estimated to increase to 74,000 by the year 
2070) with an estimated construction cost of $400 million (2011 
dollars). Feasibility level designs are being prepared with an 
anticipated completion date of September, 2016.
    Replacing contaminated groundwater supplies with local 
surface water from the Arkansas River is problematic because 
the river downstream of the City of Pueblo contains high levels 
of selenium, sulfates, uranium, and salts. The AVC, which is an 
authorized feature of Reclamation's Fryingpan-Arkansas Project 
(Fry-Ark Project), would address these problems by providing 
high quality surface water via a least-cost regional system.
    The existing Fry-Ark Project Act, as amended in 2009 by 
Public Law 111-11, authorizes appropriations for construction 
of the AVC; allows miscellaneous revenues to be used to 
construct AVC; and, upon completion, provides for miscellaneous 
revenues to be credited to the actual costs of AVC. P.L. 111-11 
also provides a cost sharing plan of 100% percent federal 
financing and 35 percent non-federal repayment, over a period 
of 50 years, starting after project completion. In August 2013 
a Final Environmental Impact Statement was completed and the 
Record of Decision was signed in February 2014. Through FY 
2016, approximately $21 million in federal appropriations has 
been provided for AVC.
    Representatives of the Southeastern Colorado Water 
Conservancy District (District) and the Department and Bureau 
of Reclamation (Reclamation) began discussions in the summer of 
2015 to develop an approach for funding AVC construction while 
reducing the need for federal appropriations. With an objective 
of accomplishing sufficient final engineering and design work 
to allow award of the first construction contract during fiscal 
year (FY) 2019, the goal is to obtain funding from multiple 
sources to permit completion of construction in a timely 
fashion.
    The District and the state of Colorado are contemplating a 
$100 million loan to finance part of the construction of this 
project. S. 2616 authorizes and directs Reclamation to provide, 
without appropriation, miscellaneous revenues to the District 
so they can, in turn, use those funds to the extent needed, 
repay a loan or loans from the Colorado Water Conservation 
Board (CWCB). Under current law, those miscellaneous revenues 
are controlled by Reclamation, and at the Secretary's 
discretion, can be used to offset various project costs, 
finance further construction of the Fryingpan-Arkansas Project 
(potentially including the AVC), or deposited to the 
Reclamation fund to reduce the Federal deficit.
    If S. 2616 were enacted:
           The District would remain obligated to repay 
        35 percent of the federal appropriations made for the 
        AVC, with such repayment to come from the crediting of 
        miscellaneous revenues to the AVC or from District 
        sources if those miscellaneous revenues are 
        insufficient.
           The miscellaneous revenues not needed to 
        repay a loan or loans to the District from the CWCB or 
        to meet the District's obligation to repay 35 percent 
        of federal appropriations would be available for 
        Reclamation to credit to the repayment of the remaining 
        65 percent of the AVC's construction costs paid for 
        with federal appropriations.
           The costs of the Ruedi Dam and Reservoir, 
        Fountain Valley Pipeline, and South Outlet Works at 
        Pueblo Dam and Reservoir, plus interest, will be repaid 
        before miscellaneous revenues could be used to pay for 
        AVC costs during construction.
    Under current law, all miscellaneous revenues generated by 
the Fry-Ark Project are currently devoted to repayment of the 
investment in the AVC.
    S. 2616 directs that miscellaneous revenues be provided to 
the District. The District envisions that these revenues would 
be used to repay the monies it would borrow from the CWCB for 
about $100 million in non-federal financing for the 
construction of the AVC. While we are still undertaking a 
detailed analysis of the full implications of such a 
reallocation of federal receipts, the reallocation of federal 
revenues to a non-federal entity for the benefit of that non-
federal entity should be given careful consideration, including 
budgetary effects.
    This concludes my written statement. I would be pleased to 
answer questions at the appropriate time.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the original bill, as reported, are shown as follows (existing 
law proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

Public Law 87-590, as amended

           *       *       *       *       *       *       *


    (c) No part of the single purpose municipal and industrial 
water supply works involved in the Fryingpan-Arkansas project 
shall be constructed by the Secretary in the absence of 
evidence satisfactory to him that it would be infeasible for 
the communities involved to construct the works themselves, 
singly or jointly. In the event it is determined that these 
works, or any of them, are to be constructed by the Secretary, 
a contract providing, among other things, for payment of the 
actual cost thereof, or in the case of [the Arkansas Valley 
Conduit, payment in an amount equal to 35 percent of the cost 
of the conduit that is comprised of revenue generated by 
payments pursuant to a repayment contract and revenue] the 
Arkansas Valley Conduit, for payment in an amount equal to 35 
percent of the funds appropriated for the conduit that is 
comprised of revenue generated by payments pursuant to a 
repayment contract and of revenue that may be derived from 
contracts for the use of Fryingpan-Arkansas project excess 
capacity or exchange contracts using Fryingpan-Arkansas project 
facilities, with interest as hereinafter provided, as rapidly 
as is consistent with the contracting parties' ability to pay, 
but in any event, within fifty years from the time the works 
are first available for the delivery of water, and for 
assumption by the contracting parties of the care, operation, 
maintenance, and replacement of the works shall be in a 
condition precedent to construction thereof.
    Sec. 2(a)--Contracts to repay the portion of cost of the 
Fryingpan-Arkansas project * *  *
    (b) Rates.--

           *       *       *       *       *       *       *

          (2) Ruedi dam and reservoir, fountain valley 
        pipeline, and south outlet works at pueblo dam and 
        reservoir.--
                  (A) In general.--Notwithstanding the 
                reclamation laws, [until the date on which the 
                payments for the Arkansas Valley Conduit under 
                paragraph (3) begin], any revenue that may be 
                derived from contracts for the use of 
                Fryingpan-Arkansas project excess capacity or 
                exchange contracts using Fryingpan-Arkansas 
                project facilities shall be credited towards 
                payment of the actual cost of Ruedi Dam and 
                Reservoir, the Fountain Valley Pipeline, and 
                the South Outlet Works at Pueblo Dam and 
                Reservoir [plus interest in an amount 
                determined in accordance with this section] 
                until those costs, plus interest, have been 
                fully repaid.
                  (B) Effect.--Nothing in the Federal 
                reclamation law (the Act of June 17, 1902 (32 
                Stat. 388, chapter 1093), and Acts supplemental 
                to and amendatory of that Act (43 U.S.C. 371 et 
                seq.)) prohibits the concurrent crediting of 
                revenue (with interest as provided under this 
                section) towards payment of the Arkansas Valley 
                Conduit as provided under this paragraph.
          (3) Arkansas valley conduit.--
                  [(A) Use of revenue.--Notwithstanding the 
                reclamation laws, any revenue derived from 
                contracts for the use of Fryingpan-Arkansas 
                project excess capacity or exchange contracts 
                using Fryingpan-Arkansas project facilities 
                shall be credited towards payment of the actual 
                cost of the Arkansas Valley Conduit plus 
                interest in an amount determined in accordance 
                with this section.]
                  (A) Use of revenue.--
                          (i) In general.--Notwithstanding the 
                        reclamation laws, all revenue derived 
                        from all contracts for the use of 
                        Fryingpan-Arkansas project excess 
                        capacity or exchange contracts using 
                        Fryingpan-Arkansas project facilities 
                        shall be available to, and used by, the 
                        Secretary, without appropriation--
                                  (I) subject to paragraph (2), 
                                for the payment of costs 
                                associated with the 
                                construction of the Arkansas 
                                Valley Conduit;
                                  (II) for the payment to the 
                                Southeastern Colorado Water 
                                Conservancy District, including 
                                any enterprise established by 
                                the District in accordance with 
                                Colorado State law 
                                (collectively referred to in 
                                this subparagraph as the 
                                `District') of amounts needed 
                                for the District to repay the 
                                principal and interest on loans 
                                obtained by the District from 
                                agencies of the State of 
                                Colorado for construction of 
                                the Arkansas Valley Conduit; 
                                and
                                  (III) to be credited towards 
                                repayment of the funds 
                                appropriated for the Arkansas 
                                Valley Conduit, plus interest.
                          (ii) Agreements.--The Secretary shall 
                        enter into 1 or more agreements with 
                        the District that specify the 
                        distribution, in amount and timing, of 
                        the revenue described in clause (i), as 
                        between the uses described in 
                        subclauses (I), (II), and (III) of that 
                        clause.
                  (B) Adjustment of rates.--Any rates charged 
                under this section for water for municipal, 
                domestic, or industrial use or for the use of 
                facilities for the storage or delivery of water 
                shall be adjusted to reflect the estimated 
                revenue derived from contracts for the use of 
                Fryingpan-Arkansas project excess capacity or 
                exchange contracts using Fryingpan-Arkansas 
                project facilities.

           *       *       *       *       *       *       *