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Duke Ditch Company Agenda Item 13b March 16-17, 2016 Board Meeting(Updated March 18, 2016) Page 2 of 6 Background The Ditch provides irrigation water to a 380-acre service area in Delta County. Its diversion is located west of the Town of Hotchkiss, on Leroux Creek. The Ditch extends southeast approximately 2.7 miles. Irrigated acreage of approximately 290 acres within the service area is primarily used for sheep grazing and hay production. The Willow Heights neighborhood is also served by the Ditch to supply outdoor irrigation water for gardens and lawns. Due to its location on a hillside, the Ditch is prone to wash out. It is also subject to significant seepage and evaporative losses and has regular maintenance and aquatic vegetation growth issues. Geologically, the Ditch is located within the Colorado River Basin - Lower Gunnison Basin Unit. This area is known to contribute significant salinity and selenium within the basin. Therefore, piping the Ditch will not only reduce maintenance costs, it will also reduce salt loading in the Colorado River System by 395 tons/year. As such, the Company qualifies for funding from the Salinity Control Program. The Salinity Control Program is a Bureau program, active since the 1980s in the Gunnison Basin, with the goal of controlling and reducing salt loading to the Colorado River. Beginning in 1995, the Bureau introduced a basin-wide program to award Salinity Control Program grants to owners of irrigation delivery systems through a competitive process offered approximately every three years. In order to apply for funding from the Bureau, the Company utilized a $5,000 grant from the CWCB through its Gunnison Basin Salinity Control Technical Assistance Program (authorized via CWCB Projects Bill HB14-1333). This program assists qualifying owners of irrigation infrastructure in the Gunnison Basin in the application process of the Salinity Control Program by reimbursing owners a portion of the engineering costs required to complete the application to the Bureau. Loan Feasibility Study Beth Karberg, Colorado Department of Agriculture prepared the Loan Feasibility Study, titled "Feasibility of Piping the Duke Ditch," dated January 2016. Engineering and technical support was provided by Shana Harness, NRCS Soil Conservationist, and Robert Gallegos, NRCS Agricultural Engineer. The feasibility study was prepared in accordance with the CWCB guidelines and includes an analysis of alternatives, preliminary engineering design, and construction cost estimates. Borrower - Duke Ditch Company The Company, established in 1920, is a non-profit corporation registered in the State of Colorado. It is in good standing with the Colorado Secretary of State. There are 11 shareholders and 80 shares of stock. The Company's Board of Directors has the power to set annual assessments to be paid by the shareholders and the power to foreclose a lien against any shares for which assessments are not paid. Shareholder approval is required to take on debt and pledge collateral. Company revenues come from shareholder assessments. Water Rights The source of water for the Ditch is direct flow water out of Leroux Creek and Barrow Gulch. TABLE 1: WATER RIGHTS Appropriation Water Court Name Amount Date Adjudication Date Case No. Duke Ditch (Leroux Creek) 2.5 cfs 8/31/1892 2/20/1904 CA0346 Duke Ditch (Barrow Gulch) 2.5 cfs 8/31/1892 2/20/1904 CA0346 Duke Ditch (Leroux Creek) 5.0 cfs 8/31/1892 12/31/1989 89CW0151 The average annual diversions are 2,424 acre-feet.