BOARD00065 ‎(2)‎

• Board Meeting Date: 11/13/2006
• Description: CF Section - Construction Fund and Severance Tax Trust Fund Perpetual Base Account New Loans - Headgate 396 Lateral Corp., LLC - 396 Lateral Pipeline Project
• Board Meetings - Doc Type: Memo

Headgate 396 Lateral Corporation
November 6, 2006
Page 2 of 4

Agenda Item 10f

design, and field engineering services for this Project. Qualifying agriculture producers that install
"more efficient irrigation systems", which reduce salt loadings are eligible for funding. .

Feasibility Study

Max Schmidt, of Water Solutions of Colorado, has completed the feasibility study in accordance
with CWCB guidelines. The study include? discussions of alternatives looked at by the Company.
A cost estimate was prepared by NRCS in 2004 based on unit prices generated in 2003. In
September of 2006, Thor Construction provided a bid for the Project. The bid price was used to
establish the loan amount requested. The bid price is significantly higher than that which was
approved by NRCS. Since the NRCS grant is paid based on 75% of the NRCS estimated unit
rates, the percent of grant coverage of the project is now projected to cover approximately 60% of
total project costs.

The HeadQate 396 Lateral Corporation

The Corporation is a non-profit corporation registered in the State of Colorado in September 2005
and is in good standing with the State. There are eleven Corporation members. The Corporation
is relatively new; however, the Lateral has been in existence since the Grand Valley Irrigation
Canal construction. Prior to incorporation, an informal version of the Corporation managed the
Lateral by distributing costs or in-kind services for maintenance and repair needs. The
Corporation's Funding Agreement establishes that member assessments will be shared equally.
The Corporation will own, operate and maintain the new pipe system and will have the
responsibility to receive, convey and deliver irrigation water to the members of the Corporation.
The Corporation will repair, improve and/or reconstruct the Lateral when necessary. The
Corporation does not own any of the water conveyed in the Lateral.

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Water RiQhts

The members of the Corporation own shares in the Grand Valley Irrigation Company. The water
shares are conveyed through Headgate ML-396 and to the members land via the Lateral. The
source of the irrigation water is the Colorado River. GVIC has a diversion structure on the north
bank of the river near Highway 6 in Palisade. The Lateral is currently an open ditch and carries
the 4.3 cfs and an estimated average of 1,900 acre-feet per year to irrigate crops.

Proiect Description

Three alternatives were analyzed in the feasibility study:

1) No action alternative
2) Individual members construct pipeline to meet their own needs
3) Participate in the NRCS Colorado River Basin Salinity Control Program

The Corporation chose to participate in the Salinity Control Program primarily due to the available
NRCS funding assistance. The selected alternative includes 7,000 feet of new PVC pipe to
replace open ditch, flow measurement devises, metered delivery points to each member, valves,
drains and vents to improve delivery of the water to the diversion structure.

The loan request is based on the total design and construction cost estimate for the Project,
however engineering design and construction oversight may be provided by NRCS as in-kind ...
services. Design is complete and construction is expected to begin October 2006 and be .
completed by December 2006.