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Union Well Augmentation Group Agenda Item 21 b May 18-19, 2016 Board Meeting(Updated May 20, 2016) Page 2 of 5 Background The Augmentation Group is located in Weld County and was formed to provide augmentation water for well owners of the Ditch Company who wish to utilize their wells. All shareholders of the Augmentation Group are shareholders of the Ditch Company, but there are shareholders of the Ditch Company who are not shareholders of the Augmentation Group. The Augmentation Group's service area is the land irrigated under the Union Ditch, generally east of LaSalle between the Lower Latham canal system to the north, and the Western Mutual (Hewes-Cook) canal system to the south. The Augmentation Group provides the replacement water necessary to allow its shareholders to use their wells to provide supplemental irrigation water for a variety of agricultural crops, typically in the early irrigation season prior to Union Ditch water being run. Wells under the plan provide supplemental irrigation water to approximately 2,200 acres of irrigated land. Should the Augmentation Group no longer serve agricultural purposes, the interest rate is subject to modification. However, the leasing of augmentation credits will not cause a change in interest rates when those revenues are used to subsidize the agricultural shareholder's assessments. The augmentation plan was filed in District Court for Water Division No. 1 in December 2003 (water court case No. 03CW404) under a joint application by the Augmentation Group and the Ditch Company. The decree was signed in February 2012 and included a change of water rights for the Ditch Company's 5.75 shares of the Reservoir Company, a change of water rights for the Augmentation Group's 1.0 share of the Ditch Company, a conditional junior recharge water right for the Augmentation Group's Miller Recharge Pond, and the plan for augmentation. The Augmentation Group has a long term lease agreement for the Ditch Company's 5.75 shares of the Reservoir Company for use in the augmentation plan. The decree provides a method to allow the addition of other water to be used in the plan by notifying the original objectors in the case. The Augmentation Group has a lease with the City of Longmont to provide up to 100 AF of water per year at an initial cost of $258/AF. Since 2014 that rate has varied between $641 and $1,112 per AF. In response to the rising lease rate, the Augmentation Group secured a lease for 80 AF from Aurora at a cost of $300/AF in 2015. Similar to the Longmont lease, Aurora can modify this rate starting in 2020. The Augmentation Group still leases a small portion of water from Longmont, but this is paid directly by one augmentation plan member. The Augmentation Group annually sets a replacement quota per share. Over the past 5 years the Augmentation Group has set an average quota of 4.0 AF of replacement water per share. Each share in the Augmentation Group covers one well. Loan Feasibility Study Donna Coble, Secretary for the Union Well Augmentation Group, along with its water accountant Soley Belt of BELA Designs LLC, prepared the Loan Feasibility Study, titled "Feasibility Study for the Purchase of Union Reservoir Company Shares for Augmentation Use," dated September 2015. The feasibility study was prepared in accordance with the CWCB guidelines and included an alternative analysis and a cost estimate. Additionally, the Company provided a water rights analysis and appraisal prepared by TZA Water Engineers, dated April 25, 2016. Borrower - Union Well Augmentation Group The Augmentation Group is a for-profit corporation that was incorporated in September 2004 and is in good standing with the Colorado Secretary of State. Its office is located in Greeley. The Augmentation Group has issued 29 shares of stock to 17 shareholders. Revenues are primarily generated through shareholder assessments which are divided into an administrative assessment and an augmentation assessment.