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<br />MWSI Projecl <br />Interruptible Supply Framework Report - DRAFT <br /> <br />August 21, 1995 <br /> <br />deal with additional conveyance issues, The timing of deliveries and quantity available <br />for transfer from storage dominated systems is also a function of reservoir operations, <br />Contracts can be set up for a fIXed amount of water, where the reservoir would need to <br />be operated so that the fixed amount were available if the option were exercised, An <br />alternative would be to contract for an amount available over a fIXed amount. This <br />type of agreement would require reservoir operations to be specified, <br /> <br />6. ECONOMIC CONSIDERA TrONS <br /> <br />A number of studies have looked at the economic impacts of interruptible <br />supplies, Michelsen and Young (1993) and Clark and Abt (1993) have used examples <br />in Northern Colorado as an example to illustrate the economic benefits of such <br />arrangements. These analyses were done from the perspective of the municipality. <br />Using 1988 numbers, Michelsen and Young estimated present value benefits of ISC <br />arrangements verses the direct purchase of the water right. The results indicate that <br />ISC arrangements are economically viable over a large range of conditions, <br /> <br />Data used for computing base case conditions included: <br /> <br />Contract Life 20 years <br />Probability of Exercising the Option 1:20 <br />Cost Incurred During Year Option is Exercised $90/year4; <br />Water Right Purchase Cost $600/AF; <br />Appreciation of Water Right Purchase Cost 2% I year; <br />Share Assessment Costs $ 12/AF/year; <br />Discount Rate5 4% I year. <br /> <br />For either alternative (ISC or direct purchase), the water needs to be conveyed to the <br />municipality. In many cases, the cost of additional conveyance facilities would be the <br />same for either alternative, In their analysis, Michelsen and Young assumed that costs <br />for conveyance and transaction costs6 were the same between the two alternatives and <br />could therefore be neglected, <br /> <br />4 Value for a 1:20 year drought water supply. using average crop prices <br /> <br />5 Reflecting lax-free muniCipal bond rales <br /> <br />6 Note that in me analysis done by Clark and Abt. the transaction costs for the direct purchase alternative were <br />significanlly higher lhan transaction costs incurred for an ISC arrangement. This would make ISC contracts even <br />more attractive llIan illustrated by Michelsen and Young. <br /> <br />Hydrosphere Resource Consultants <br /> <br />18 <br />