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<br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br /> <br />When formation of the water bank was announced, little information was available <br />about what quantities of water might be offered for sale at various prices. A purchase <br />price of $125 per acre-foot of consumptive use was selected on the basis of estimates that <br />farmers of a variety of field crops could earn slightly more by fallowing their land and <br />selling water at that price than they would earn on net by farming the land. It appears <br />that the Committee could have voted to change the price later, but they did not do so. <br />During the first few weeks of the bank's operation, there was speculation that the <br />purchase price would likely rise as the season progressed. This resulted in considerable <br />reluctance among growers to sign contracts committing themselves to sale of their water. <br />Rather than responding to this reluctance by immediately raising the offer price, a price <br />escalation clause was added to the purchase contracts. This modification largely <br />transferred the risk of price uncertainty from potential water sellers to purchasers and <br />ultimately to the SWP. The price escalation clause guaranteed sellers that they would <br />not receive a lower price than the price negotiated in their contracts and that if the <br />average price paid to similarly-situated sellers in contracts executed by a particular. date <br />was higher by more than 10 percent, the seller would receive the higher price. Once that <br />clause was introduced, sales to the water bank proceeded rapidly. Within approximately <br />six weeks DWR personnel had negotiated over 300 purchase contracts for more than <br />800,000 acre-feet of water.''' The purchases proceeded in advance of firm <br />commitments from buyers, with the quantity purchased based on early estimates of <br />critical needs.lIo Those estimates were obtained from eighteen suppliers who had <br />expressed an interest in participating in the bank before it was known how much bank <br />water would cost.1I1 <br />The price to buyers from the water bank was to be set at a single "melded rate" <br />reflecting all costs incurred to acquire water. The price was set at $175 per acre-foot at <br /> <br />'""ultimately 351 oontraClS provided approximately 820,000 acre-feet to the 1991 Bank. <br /> <br />lI"DWR, 1992. The 1991 Drought Water Bank. Sacramento: State of California, Depanment of Water <br />Resources. <br /> <br />1I1Howilt et ai, 1992, SUDra <br /> <br />2-29 <br />