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<br />MWSI Project <br />Interruptible Supply Framework Report - DRAFT <br /> <br />August 21, 1995 <br /> <br />4.3.2 Transaction Procedures and Resources <br /> <br />In an ideal sening, the legal process one would go through to set up an <br />interruptible supply contract would be simple, to minimize transaction costs. and yet <br />involve enough detail to ensure that the appropriate level of "homework" is done up <br />front. Three levels of complexity have been identified as potential legal transaction <br />mechanisms, These are described below in order of decreasing complexity, <br /> <br />Water Court: This is the highest cost option and requires the most involvement. <br /> <br />Temporary Substitute Supply Agreements: It may be feasible to set up some <br />types of contracts using the course of temporary substitute supply agreements, This <br />option would require lower transaction costs than going to water court, Using this <br />mechanism for ISC may result in more scrutiny than usual, however, since the option <br />may only take place during periods of drought. The maximum overall length of time <br />for temporary substitute supply agreements needs to be explored, along with other <br />details, in order to detennine whether or not this mechanism would be suitable for ISC <br />arrangements ' <br /> <br />Do Nothing: In some cases, the geographical arrangement between the two <br />parties is such that the seller need only 'not divert' and the buyer directly receives the <br />benefit. In this case, no legal action is required for the non-use of a water right which <br />greatly simplifies the transaction. <br /> <br />Technical, economic, and legal resources are required to set up an ISC <br />arrangement. These transaction costs could be significant and the agricultural <br />community has access to fewer resources for investigating these aspects from their <br />perspective, This discrepancy can provide a disincentive for irrigators to enter ISC <br />negotiations, One way to overcome this would be to set up some type of impartial, <br />third-party financial aid source to assist irrigators in acquiring these services, <br />Although the private sector has supplied this type of support in the past, through water <br />brokers, there are trust issues, In addition, the cost of services from the private sector <br />can significantly increase transaction costs, <br /> <br />5. DISCUSSION OF TYPES OF ARRANGEMENTS <br /> <br />The issues described in Section 4 are very site-specific and depend on specific <br />arrangements set up in the contract. Therefore, it is difficult to talk about hypothetical <br />examples and to simplify the analysis in a generic sense. There are a few differences <br />in buying from a direct-flow dominated system and a storage dominated system, <br />however. Direct flow rights are much more variable than systems dominated by <br />storage rights, With storage rights, there can be much more certainty as to quantity <br />and users have more flexibility regarding timing of use, Storage based systems which <br />are shared between potential buyers and sellers have the added benefit of not having to <br /> <br />Hydrosphere Resource Consultants <br /> <br />17 <br />