BOARD00786

• Board Meeting Date: 1/22/2003
• Description: CF Section - New Loans - Town of Paonia - Purchase of Water Rights/Water Taps
• Board Meetings - Doc Type: Memo

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Town of Paonla - Water Rights Purchase
January 22-23. 2003

Agenda item 19f1

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. Feasibility StudY

The Town's engineer, WW. Wheeler and Associates, has completed a draft feasibility study in
accordance with CWCB guidelines. The study includes an assessment of alternatives available for
new water storage sources, as well as a 4-step Master Plan for improving its raw water supply
system. The components of the Master Plan are as follows.

1. Ark Land Company water tap purchase and retirement
1.a - Water Rights Work
1.b - Conservation Measures (in process)
2. Lone Cabin Reservoir - Inlet and Outlet Ditch Lining Improvements
or Similar Improvements to the Town's system
3. Stage 1 - Lone Cabin Res. Enlargement
($2.1 mil. - 327 ac-ft) - 163 ac-ft yield
4. Stage 2 - Lone Cabin Res. Enlargement
($5.4 mil. -1381 ac-ft.) - 690 ac-ft yield

The Town's existing firm yield supply is 203 million gallons (MG) (632 ac-ft) with a 1999-2000
treated outflow demand of 184 MG. (565 ac-ft). The firm yield "surplus" of 19 MG could serve an
additional 144 taps, without additional water conservation practices. The Town's predicament is
that it is facing a stand-by demand of 407 taps, including the Ark Land Property taps, resulting in a
potential tap shortfall of 263 taps. If the Town can gain control over the 317 taps, with a growth
rate of 1.0 to 1.5% per year (about 14 -20 taps per year) assumed to apply also to the 90 remaining
standby taps, the existing firm yield would be adequate to serve the Town's demands to the year
2007-2010. Until recently, the Town had a policy of no more than 25 taps per year sold outside of
the Town limits. (In December 2002, the Town did adopt an ordinance placing a moratorium on the
sale of any out-of-town taps, until the Council finds that there is adequate supply and storage to
serve more taps.) If the Town does not gain control over the 317 taps, the Town would potentially
need to be ready to address these as well as the remaining standby taps, and be ready to supply
54 MG (165 ac-ft.) to meet the short-term demand. Most likely, the Town would need to initiate a
major storage project to supply the 165 ac-ft. Lone Cabin (Stage 1) would provide 327 ac-feet of
storage (with 163 ac-ft. of yield) at a cost of $2.1 million.

Purchasing the Ark Land Property taps is a critical demand reduction strategy that helps the Town
align its projected available water supply with the projected water demands. It also gives the Town
some time to consider its next steps. Between now and 2007, the Town will be able to look at an
integrated approach, including water conservation, distribution system improvements, and ditch
lining to further reduce demand and increase supply, while providing for projected growth and
postponing the need for the Lone Cabin (Stage 1) construction project.

Ark Land Property and Water Taps

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The Ark Land Property, including 317 water taps, is currently owned by Mountain Coal Company
(MCC), which is owned by Arch Coal, Inc., the nation's second largest producer of domestic coal.
The Ark Land Company, a wholly-owned subsidiary of Arch Coal, Inc., is selling the property on
behalf of MCC. The property consists of three non-contiguous parcels south and east of Paonia.
The property is under contract to The Conservation Fund, on behalf of the Town, for a closing to
occur on or before July 31,2003, with a significant earnest money deposit which will become non-
refundable on February 10, 2003. The property would be acquired by The Conservation Fund and
then conveyed to the Town. Alternatively, The Conservation Fund may convey the water taps to
the Town and the land component to a suitable private buyer. An appraisal of land and the

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