Final Draft ALP Marketing Supply and Demand Study

Animas -La Plata Water Marketing Supply and Demand Study Section 2
Energy Charge: 12.19 mills /kilowatt-hour of use.
There are certain cost reductions associated with the time of day pumping occurs and with the season or
month within which pumping occurs.
In order to provide some indication for what Variable OM &R Costs might be, actual pumping data for the
first fill of Lake Nighthorse, which is part of Capital Construction costs, were reviewed. As can be seen in
Appendix B, pumping costs have ranged from $12.00 per AF to $29.00 per AF. The differences depend
on the number and size of the pumps used, season of pumping and time of day pumping occurred.
Variable OM &R Costs were estimated in the March 2009 OM &R budget. At startup, it was estimated
that approximately 5,000 AF would be pumped annually at a cost of about $90,000, or about $18.00
per AF. Variable OM &R Costs are only incurred if Project water has to be pumped to and delivered from
Lake Nighthorse. There are no Variable OM &R Costs if Project water can be delivered without pumping.
Furthermore, in some years a Project Sponsor may have no need to pump any water to Lake Nighthorse
and, therefore, will have no Variable OM &R Costs. Finally, no Project Sponsor will incur any Variable
OM &R Costs so long as sufficient funds are available in the Variable OM &R Fund established by the Ute
Tribes for the benefit of Association members for the payment of Variable OM &R costs.
Variable OM &R Fund
The Variable OM &R Cost Fund will be established in the very near future to compensate those A -LP
Project participants, such as the La Plata Conservancy District of New Mexico, which can only receive
delivery of their A -LP Project water directly from Lake Nighthorse. This is in contrast to those entities,
such as the San Juan Water Commission, which may take delivery of most of their A -LP Project water
allocation by direct flow from the Animas River.
To create the Variable OM &R Fund, each of the Ute Tribes will deposit $1.5 million into the Fund from its
Tribal Resource Fund authorized by Congress in the 2000 Amendments, which is to be "utilized to
enhance, restore, and utilize the Tribes natural resources in partnership with adjacent non - Indian
communities or entities in the area." The Variable OM &R Fund will be created in the name of the
Association and become property of the Association, however, only the income from the $3.0 million
dollar fund can be used to pay the Variable OM &R Costs of the Association members. (Note: Durango's
agreement with the Association and the CWR &PDA does NOT allow it to access the Variable OM &R Cost
Fund). Any annual income earned that is not used to pay annual Variable OM &R Costs can be used in
succeeding years until the Lake achieves its annual fill pursuant to the SWCD's Project water rights.
Funds not used to pay any Variable OM &R Costs, become part of the corpus, or principal, of the Variable
OM &R Fund at a future date to be determined by the Association. In the event the Fund is insufficient to
pay all the Variable OM &R Costs, it is assumed the available funds will be distributed proportionately
among the Association's members using their A -LP Project water with Variable OM &R costs. If the
available funds do not cover the Variable OM &R costs associated with a member's water demand, then
additional costs become the responsibility of the member using A -LP Project water that year.
The Variable OM &R fund was established on the premise that Project participants will have little, if any,
immediate pumping needs the first few years which will allow the fund time to accumulate interest
income to pay future Variable OM &R Costs. The $3.0 million dollar fund is anticipated to be adequate to
cover the pumping of approximately 5,000 AF annually, which is estimated to cost about $90,000. This
fund will be managed according to Exhibit A of the IGA. A modest rate of return on the $3.0 million
investment of 3 -4 percent can generate this amount of interest income annually. However, the Variable
OM &R Fund will be grossly inadequate to cover the estimated annual pumping costs of $1,454,000
when the Project is fully operational, as described in the FSEIS and illustrated in Table 2.6. Therefore, if
some Association members have significant pumping needs in the first few years, they may require their
own independent Variable OM &R funding source until sufficient interest has been earned on the
Variable OM &R Fund. Table 2.6 also illustrates that it is highly likely that Association Members will
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FINAL ALP Repo rt_1_13_11_LL.Doex