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BACKGROUND Elkhead Reservoir was constructed in the 1970s as a cooperative project between the Colorado Division of Wildlife (DOW) and the Yampa Participants; the consortium of power companies that own generating capacity at the Craig coal-fired power plant. In 2002, the City of Craig obtained DOW's interest in the reservoir. Over 10 years ago, the Recovery Program began work on a Management Plan for Endangered Fish Species in the Yampa River Basin (Yampa Plan). This plan is currently in final draft form (Attachment A). An environmental assessment has been prepared and public scoping meeting were held in August of this year. Final action on the Yampa Plan is expected before the end of the year. Among other recovery actions, the Yampa Plan identifies a need for up to 7,000 of of water to augment low flows in the Yampa, primarily below the town of Maybell, during late July through early October. The Yampa Plan includes an analysis of a number of structural and non-structural alternatives to supply the water, including enlargement of Elkhead and Stagecoach Reservoirs, use of Steamboat Lake storage water, and agricultural interruptible supply contracts. The Yampa Plan recommends 5,000 of to come from a dedicated augmentation pool from an Elkhead Enlargement with the balance of 2,000 of to come from a 20-year lease from the River District's pool in the enlargement. In 2002, the River District entered into negotiations with representatives of the Recovery Program regarding conceptual aspects of the enlargement, including cost-share. The Implementation Committee of the Recovery Program took action on December 9, 2002 to approve the conceptual understanding. A summary of their action and the understanding is contained in Attachment B. The Yampa Plan reflects this conceptual understanding. In order to estimate water use impacts and streamflow augmentation requirements, the Yampa Plan also includes estimates of future demands and depletions and their impacts on Yampa River flows. The Yampa Plan identifies over 100,000 of of existing depletions and about 50,000 of of future depletions in the Yampa Basin. The River District proposes to enlarge Elkhead Reservoir by an additional 7,000 af, to satisfy existing and future human demands for storage water. In 1999, the River District agreed to undertake the expansion of Elkhead Reservoir on its own behalf and on behalf of the Recovery Program. In 2001, the CWCB made a $500,000 non-reimbursable award to the River District for environmental permitting and preliminary engineering of the enlargement. INSTITUTIONAL The most difficult aspect of the enlargement is completing the number of institutional arrangements and agreements needed with a variety of private, local, state and federal entities. A total of eight Page -2-