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<br />MWSI Project <br />Interruptible Supply Framework Report - DRAFT <br /> <br />August 21, 1995 <br /> <br />4. FACTORS TO CONSIDER <br /> <br />4.1 Conditions for Successful Arrangements <br /> <br />Five factors impacting the success of interruptible supply agreements are <br />discussed below. <br /> <br />4.1.1 Economic Benefits <br /> <br />From the buyer's viewpoint, interruptible supply agreements can be seen as an <br />economical way to secure additional water supplies during dry-year shortfalls, The <br />outright purchase and maintenance of water rights can be expensive, From the <br />viewpoint of the agriculmral community, ISC arrangements can be viewed, in some <br />cases, as a way to economically survive a drought. <br /> <br />One of the fITst cost-related issues which must be determined up front is how the <br />transferred water would be transported to the new use. In some cases, the <br />infrastrucmre may already be in place, minimizing the imponance of this issue. This <br />issue may be moot if, for example, both parties involved share a common storage <br />reservoir (e.g" Standley Reservoir), If, however, new facilities would need to be built <br />and maintained, the cost of such facilities could make the arrangement cost prohibitive, <br />It may be very difficult to justify the construction and maintenance of new facilities, <br />An additional aspect of the economic viability of ISC arrangements is that of <br />transaction costs. Resources required in order to put the contract in place can be <br />costly, If the alternative to meeting municipal needs via interruptible supply contracts <br />is the direct purchase of the agricultural water rights, however, conveyance costs and. <br />transaction costs may be approximately the same for both alternatives. In this case, <br />conveyance and transaction costs do not impact the economic analysis comparing the <br />two alternatives, <br /> <br />4.1.2 Reliable Source of Supply <br /> <br />A critical aspect of ISC contracts is the degree of cenainty that a cenain amount <br />of water will be available for transfer when the option is exercised, If reasonable level <br />of cenainty does not exist, the contract will be useless, <br /> <br />4.1.3 Both Parties See Benefits <br /> <br />As with any voluntary agreement, each party involved must see some type of <br />benefit to having an interruptible supply arrangement in place, All of the previous <br />examples have been initiated by the proposed buyer (or an organization representing <br />the buyer's needs), The buyer in most cases has some goal, either dealing with I) a <br />short term shonage (as in the case of MWD/Dudley Ridge and MWD/Santa Clara <br />which were precipitated by a recent drought), 2) an immediate mandate of some sort <br /> <br />Hydrosphere Resource Consultants <br /> <br />13 <br />