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<br />7. Pricinl! <br /> <br />a) The focus of this conservation/transfer agreement is the production of conserved water <br />through on-farm conservation measures. <br /> <br />Comment: The price of the conserved water is a reflection of the perspectives of the parties. <br />From lID's perspective, the price must be high enough to cover the cost of conserving the water <br />plus an incentive to encourage participation by farmers, and also district and environmental costs <br />and community benefits. From the Authority's perspective, the price paid to lID, plus what it will <br />need to pay to wheel the conserved water to San Diego County, must be competitive with what <br />the Authority pays MWD for water. <br /> <br />It is important to recognize that over the past 50 years lID and valley farmers have done a <br />great deal to conserve water; everything from lining canals and laterals to laser-leveling fields. <br />Also, a number of system and on-farm conservation measures were implemented through the <br />1988 IID-MWD conservation/transfer agreement. As a result, the remaining opportunities for <br />water conservation within the valley are generally more difficult and expensive than what has been <br />done in the past, and therefore reflect a higher price for producing the conserved water. The <br />transfer price reflects considerable due diligence by both lID and the Authority in confirming the <br />costs to produce water on-farm through measures such as pumpback systems. <br /> <br />b) The pricing arrangement is made up of a number of different components: the amount <br />MWD charges for water within its service area, the wheeling rate to move the conserved water <br />through the MWD system, and a price discount for the Authority which declines over the first 17 <br />years of the agreement. <br /> <br />- The starting point for understanding the pricing arrangement is the MWD full water rate <br />which equals the MWD price-for untreated full service water plus other applicable MWD rates <br />and charges. <br /> <br />- Subtract from the full MWD rate the estimated cost of wheeling the conserved water <br />through the MWD system. <br /> <br />- A discount is applied, which begins at 2S percent in year one of the agreement and declines <br />over 17 years to a flat discount of five percent for the remainder of the agreement. <br /> <br />- Finally, if the conserved water would displace flood control water, the Authority and lID <br />will share in the payment to MWD of a supplemental wheeling charge. <br /> <br />1495 <br /> <br />-4- <br />