The Carter administration resumed its war with Congress over water projects yesterday by publishing an audit showing that California's Central Valley Project, one of the nation's largest, [WORD ILLEGIBLE] not paying [WORD ILLEGIBLE] way.

Federal reclamation projects, which have turned millions of acres of Western deserts to farmland, are required by law to recoup their costs through fees charged for irrigation water and hydroelectric power.

But the Central Valley Project, which irrigates 30 percent of California's farmland and provides power to 16 cities, faces a deficit of $9.7 billion over the next 40 years, according to the Interior Department audit.

The deficit comes from charging too little for water and power, Interior Department officials said yesterday. That assertion was a signal the administration is renewing its attack on massive federal subsidies for water projects. President Carter wants to cut back on water subsidies and raise the price of water to encourage conservation.

The Central Valley Project, a massive network of 16 dams, related canals and powerplants, has been under construction since the 1940s. It includes the proposed Auburn Dam, one of the most controversial projects that Carter tried to cancel last spring.

The audit says the dam would add $900 million to the Central Valley Project deficit. Carter also opposes it because the dam would be built on an earthquake fault.

The entire Central Valley Project has lost $231 million over the last five years and is experiencing a daily operating deficit of $79,000, the audit said.

A proposed 200 percent power rate increase was blocked in federal court in 1975, by Sacramento and other beneficiaries so rates have remained unchanged since 1950. However, even if the increase goes into effect in May, as expected, the project will not raise enough money to meet its multibillion-dollar deficit, the audit said.

A problem is that irrigation rates have been set at very low fixed fees with 40-year contracts that are not renegotiable until 1995 at the earliest. Thus, the government apparently is locked into fees that are in some cases 10 times below what water projects are charging for water in the same area.

Rep. George Miller (D-Calif.) a outspoken critic of reclamation [WORD ILLEGIBLE] , said, "the general taxpayer is going to have ot foot the bill - a problem that Congress has been covering up for years" in pushing for "pork barrel" water projects.

The audit, he said, "is a tribute to the guts of President Carter and Interior Secretary Cecil Andrus. Central Valley is supposed to be the Cadillac of reclamation projects, but it is completely bankrupt." Carter, he said, should do his best to renegotiate water and power contracts, forcing farmers and cities "to pay a hell of a [WORD ILLEGIBLE] ."

Although it may be hampered by contracts and congressional opposition, the administration seems determined to try. The Central Valley Project is "in serious financial trouble now and for the foreseeable future unless basic operating policies, contracts and possibly laws are changed," Andrus said.

The report recommends pricing irrigation "on a more business-like basis," increasing power rates as much as 325 percent, and taking new bookkeeping methods to calculate realistic repayment schedules.

In the past, the audit states, the Bureau of Reclamation "grossly overstated revenues available to repay investments" and "used unrealistically low interest costs, resulting in understatement" of electricity is share of the project.

The report also attacks the Central Valley Project's "unfavorable power brokerage arrangements" under which the project contracted to provide more electricity than it could generate. Thus, it has had to purchase private power at high costs and sell it to cities at a low cost.

Between January 1972 and March 1973, the Central Valley Project spent $106 million on purchasing electricity which it resold for $33 million, an arrangement that will contribute substantially to the deficit.