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Task E— Economics (Alternative Permanent Ag Transfer Method Grant Program) <br />HDR's Final Engineering and Economic Feasibility Study of the rotational fallowing concept <br />identified a three-tiered marketing approach corresponding to the reliability of water to be <br />dedicated to the program. <br />1. Lessees in the dry year market would receive a consistent, highly reliable supply <br />over a 40-year period, priced at a premium due to its reliability. <br />2. Participants in the average year market would be assured a consistent supply <br />over this same time period, but with somewhat less reliability than the dry year <br />lessees, and a corresponding fower price. <br />3. Those in the wet year market would primarily receive supplies in wetter years, <br />resulting in an unpredictable supply from year to year; but with value to lessees <br />having storage capabilities. <br />The potential prices to be paid by the lessees for water in each of the three tiers, equivalent <br />to the price paid to the participants, is based on examination of raw water acquisition costs <br />recently paid by a range of potential "customers", including municipalities, energy producers, <br />and environmental uses. These costs could include water rights purchases and/or <br />infrastructure needed to deliver the supply to the needed system. Based on the "avoided cost" <br />approach, these costs form the basis of the water's value in each of the three markets. <br />This approach was developed with the intention of maximizing revenue from water leases <br />and equitably distributing the proceeds across the participating ditch companies, each offering <br />different levels of participation, different water yields, and different exchange capabilities. <br />Though based on engineering and economic best practices, the proposed concept is relatively <br />new and has not yet been fully considered by the potential irrigator participants, or by potentia{ <br />lessees. Further, many of the assumptions made during concept development are <br />characterized by a high degree of uncertainty. <br />The following subtasks will further develop the Program's concept and refine the <br />assumptions driving the results. In addition, the development of a Finance Plan is proposed for <br />taking the next step in the creation of the Super Ditch Company to implement the program. <br />Subtask E-1 — Refinement of Rotational Fallowing Concept and Assumptions <br />This subtask will review the rotational fallowing concept as currently developed through <br />interviews with potential lessors, including irrigators and ditch companies, and interviews with <br />potential lessees. These interviews will be discussed with the Lower District, their legal <br />counsels, and relevant agency representatives, including the CWCB. Based on these <br />discussions and their review, the concept will be refined to the satisfaction of the Lower District <br />and Steering Committee. <br />Potential refinements include the elimination or consolidation of one or more market tiers, <br />alternative assumptions regarding the nature of irrigator participation and participation acreage, <br />and/or variables yet to be determined. <br />Deliverable: Refined conceptual framework and assumptions, which may include a range of <br />assumptions that would establish the outer boundaries of a successful water leasing program. <br />January 22, 2009 4 <br />