PROJ02004

• Contract/PO #: FS0074FX
• Contractor Name: Highland Ditch Company
• Contract Type: Grant
• Water District: 0
• Loan Projects - Doc Type: Feasibility Study

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Qptional Fundinq Sources

The Colorado Water Conservation Board (CWCB) funded a "dual system study" that was
conducted by Colorado State University and completed in September 2003. The results
of the study indicate many reasons why secondary supply is desirable to the State of
Colorado and communities who implement dual systems. Since this study was
completed, the project investigators have presented several potential secondary supply
projects to the CWCB. Although a secondary supply project has not been submitted for
loan approval to date, every indication is that the CWCB and staff are quite supportive
and ready to loan funds for design and construction, According to the CWCB, these
loans would not qualify for the low interest agricultural rate of approximately 2.5% (2004
rate) with a 30-year term. Rather, Highland Ditch would more likely qualify for the
municipal loan rates which are based on the median income of the citizens in the project
area: 3.5% for low income, 4% for middle income, and 4.25% for high income (2004
rates) all with a 30-year term. CWCB would determine the loan rate during the loan
application process.

A recent meeting with Bruce Johnson with CWCB (August 9,2004) provided additional
information regarding funding secondary supply projects similar to this. Following are
some key points from that meeting:

· The CWCB norm is to lend money to the mutual irrigation company. Loan
security generally comes via a pledge of revenues, the project itself, and the
canal structures such as the diversion structure.

· If the mutual irrigation company forms a new subsidiary entity to manage the
secondary supply system, the CWCB wouldn't have a concern as long as the
loan is made to the mutual irrigation company.

· If the loan application were to come from a new entity directly, then the CWCB
will likely be concerned with: 1) the lack of a financial record from a new entity
and 2) the source of loan collateral. It is possible that water shares, either owned
by the parent company and/or a new entity may be used as a source of
collateral. In the case of a secondary supply project, the CWCB is not likely to
take the project itself as collateral.

· Service contracts with the town, city, or the development (improvement district)
for the provision of secondary supply would be important to CWCB,

· The CWCB would likely be concerned if loan repayment were heavily based on
continued urban growth in the area. Projects under consideration are anticipated
to be phased in such a way as to build infrastructure delivery elements that are
correlated with the immediate needs of the development. The costs associated
with future growth and development could be limited to the over sizing of key
components such as intakes, wet wells, and pump buildings. Even the pumps
themselves could be delayed until future phases warranted the expense.

· All loan applications are due the 1 st of the month prior to the CWCB board
meetings.

Aqua Engineering, Inc.
November 8, 2004

Canal Modernization Feasibility Study
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