A general algorithm is presented for determining values for unit cost coeff
icients that reflect water use priorities for network flow programming mode
ls of water resource systems. The overarching principle for setting unit pe
nalties for priority-based operations is that senior unit penalties must ex
ceed the combined junior unit penalties for any feasible competing space-ti
me path through the system for any unit of water potentially available at t
he senior location. The algorithm accommodates both storage and flow relate
d water uses over multiple periods and accounts for the effects of return f
low on flow allocation, which can introduce a complexity that inhibits the
use of intuitive or trial-and-error methods for determining cost coefficien
t values. The approach is formulated initially as a linear program that can
be used as a preprocessor to the network flow modeling and is applied to a
water-rights model of the Truckee-Carson system. The formulation is genera
lized for a location connectivity matrix and vector of use priorities.