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					                   PROJECT ADD WATER
        REPORT OF THE STAKEHOLDER WORKING GROUP
                AND HAMMER-IT-OUT GROUP



                SUMMARY OF EMERGING CONSENSUS
                     AND REMAINING ISSUES


                  Prepared by the HIOG December 15, 2009
                    Revised by the SWG January 5, 2009




            This report was prepared by the following CAP staff:

                         Tom McCann, Team Leader
                      Carol Munoz, Team Administrator
               Cliff Neal, HIOG Member representing CAGRD
                     Terri Sue C. Rossi, Project Manager



   While there is much more to be done, CAP, and specifically the Support Team
for Project ADD Water, would like to thank the many people who have given their
 time and resources to the task of bringing all of us—closer than we’ve ever been
    before—to making this critical decision about the future of water in Arizona.

            Our deepest and most heart felt appreciation to all of you
                          …where ever you may be.




                                        1
                   Roster for Stakeholder Working Group
ID     Last Name      First Name                Organization                   Role
  1   Allen          William       Bill Allen Technical Consulting      Participant
  2   Anderson       Rob           Fennemore Craig                      HIOG Alternate
  3   Avery          Chris         Tucson Water                         HIOG Member
  4   Bailey         Matt          Snell & Wilmer                       Participant
  5   Bain           Robin         City of Peoria                       HIOG Alternate
  6   Baron          Jason         AMWUA                                Participant
  7   Barrett        Robert        CAP                                  Participant
  8   Basefsky       Mitch         CAP                                  Participant
  9   Bennon         Brian         Gila River Indian Community          HIOG Member
 10   Betcher        Brian         Maricopa Standfield Irrigation and   HIOG Member
                                   Drainage District
11    Bodenchuk      John          ADWR                                 Participant
12    Bradford       Shawn         Bradford Consultants LLC             Participant
13    Bray           Tim           CAP Board                            HIOG Alternate
14    Brennemann     Sheila        CAP                                  Support Team
15    Burman         Brenda        The Nature Conservancy               Participant
16    Burns          Gayle         CAP Board                            Participant
17    Buschatzke     Tom           City of Phoenix                      HIOG Member
18    Bushner        Greg          Vidler Water Company                 Participant
19    Callahan       Jim           City of Phoenix                      Participant
20    Carpenter      Guy           HDR                                  Participant
21    Cauthen        Cliff         Hohokam                              HIOG Member
22    Chavez         Kathy         Pima County Regional Wastewater      Participant
                                   Reclamation
23    Cohen          Ted           CAP                                  Support Team
24    Commandeur     Leo           Global Water Resources               Participant
25    Cooke          Ted           CAP                                  Participant
26    Cronin         Michael       El Dorado Holdings                   Participant
27    Culp           Peter         Squire, Sanders and Dempsey          HIOG Member
28    Danos          Val           Arizona Municipal Water Users        Participant
                                   Association
29 Day               Henry         APS                                  HIOG Member
30 Dent              Patrick       CAP                                  Participant
31 DeWeaver          Norm          Inter Tribal Council of Arizona,     HIOG Alternate
                                   Inc.Tribal Council of Arizona
32 Doba              Ron           Northern Arizona Municipal Water     HIOG Alternate
                                   Users Association
33    Dozier         Larry         CAP                                  Participant
34    Draper         Brian         City of Mesa                         Participant
35    Dulaney        Alan          City of Peoria                       HIOG Member
36    Erwin          Carol         Bureau of Reclamation                Participant


                                           2
ID     Last Name      First Name                Organization                      Role
 37   Esmeier        Marsha        CAP                                     Support Team
 38   Ferris         Kathleen      Private Attorney for AMWUA              HIOG Member
 39   Fleck          Jonn          ABQ Journal                             Participant
 40   Fortnam        Philip        CAP                                     Support Team
 41   Fuerst         Dee           CAP                                     Participant
 42   Gallogly       Maggie        Fennemore Craig                         HIOG Member
 43   Gibbon         Jocelyn       Squire, Sanders and Dempsey             HIOG Alternate
 44   Given          Gary          CAP                                     Participant
 45   Green          Larry         CAP                                     Support Team
 46   Harbour        Tom           CAP                                     Participant
 47   Hartdegen      Jim           Maricopa Standfield Irrigation and      HIOG Alternate
                                   Drainage District
48    Haws           Mitchell      Bureau of Reclamation                   Participant
49    Hendricks      Paul          CAP Board                               HIOG Member
50    Henley         Tim           AWBA                                    Participant
51    Hill           Brad          City of Flagstaff                       HIOG Member
52    Hunter-Patel   Shilpa        Fennemore Craig                         Participant
53    Iwanski        Dave          City of Goodyear                        Participant
54    Jones          Ray           Aricor Water Solutions                  HIOG Member
55    Jones          Thomas        Paragon Partners                        Participant
56    Kacerek        Tim           CAP                                     Participant
57    Kimball        Heidi         Sunbelt Holdings, Inc.                  Participant
58    Kupel          Douglas       City of Phoenix                         HIOG Alternate
59    Kyyitan        Lucius        Gila River Indian Community             Participant
60    Labar          James         Salt River Project                      HIOG Alternate
61    Lacy           London        City of Surprise                        HIOG Alternate
62    Lenderking     Jake          Arizona American Water Co.              HIOG Member
63    Leonard        Shane         Roosevelt Water Conservation            Participant
                                   District
64    Little         Tom           APS                                     HIOG Alternate
65    Lotts          Robert        APS                                     Participant
66    Mardam         Tony          HDR                                     Participant
67    Marlow         Jessica       Town of Cave Creek                      Participant
68    Marra          Ralph         City of Tucson                          HIOG Alternate
69    Marsh          Floyd         Lockwood, Andrews & Newman              Participant
70    McCann         Tom           CAP                                     HIOG Member
71    McCullough     Jamie         City of El Mirage                       Participant
72    McGrew         Debra         McBride Engineering Solutions, Inc      Participant
73    McMullen       Patrick       Inter Tribal Council of Arizona, Inc.   HIOG Member
74    Meaders        Ann           Town of Marana                          HIOG Alternate
75    Miller         Beth          City of Scottsdale                      Participant
76    Miller         Scott         ADWR                                    Participant
77    Mitchell       Kim           AWBA                                    Participant


                                           3
ID     Last Name     First Name                 Organization                 Role
 78   Moore         Colette       City of Mesa                        Participant
 79   Munderloh     John          Town of Prescott Valley             Participant
 80   Munoz         Carol         CAP                                 Support Team
 81   Nally         Karen         Karen Nally                         Participant
 82   Neal          Cliff         CAP                                 HIOG Member
 83   Nunez         Christine     City of Surprise                    HIOG Member
 84   O'Brien       Dorothy       Town of Marana                      HIOG Member
 85   Olsen         Leslie        CAP                                 Support Team
 86   Olson         Steve         Arizona Municipal Water Users       HIOG Member
                                  Association
 87   Oyler         Marilyn       Partners in Participation           Support Team
 88   Patterson     Greg          WUAA                                Participant
 89   Pena          Jennifer      City of Litchfield Park             Participant
 90   Pratt         Sue           Coconino Cty Community              Participant
                                  Development
 91   Qualls        Teri          Town of Buckeye                     Participant
 92   Rall          Kathy         Town of Gilbert                     HIOG Member
 93   Riggs         Wahlean       Gila River Indian Community         Participant
 94   Ross          Brad          Resolution Copper Company           HIOG Member
 95   Rossi         Terri Sue     CAP                                 HIOG Member
 96   Rot           Stephen       City of Glendale                    HIOG Member
 97   Rozelle       Marty         Rozelle Group                       Support Team
 98   Rule          Dennis        CAP                                 Participant
 99   Saletta       Philip        Town of Oro Valley                  HIOG Member
100   Shahan        Dale          Las Quintas Serenas Water Company   Participant
101   Siegel        Richard       Salt River Project                  HIOG Member
102   Snow          Riley         Ballard Spahr LLP                   Participant
103   Stefanovic    Cynthia       Arizona State Land Department       Participant
104   Stinnett      Robin         City of Avondale                    Participant
105   Sweeney       Sheryl        Ryley Carlock & Applewhite          HIOG Member
106   Teller        Dennis        City of El Mirage                   Participant
107   Tenney        Warren        Metro Water                         Participant
108   Ticknor       Suzanne       CAP                                 HIOG Alternate
109   Townsend      Brian         Arizona legislation                 Participant
110   Toy           Doug          City of Chandler                    HIOG Member
111   Van Quathem   Michele       Ryley Carlock & Applewhite          Participant
112   Walden        Richard       FICO                                Participant
113   Wallace       Greg          Montogmery & Associates             Participant
114   Ward          Chris         Avra Water Co-op, Inc.              HIOG Alternate
115   Wheeler       Bill          Private Individual                  Participant
116   Whitler       Ron           Town of Buckeye                     HIOG Member
117   Whitmer       Thomas        Arizona Water                       Participant
118   Zeblisky      Philip        Pivotal Group Inc.                  Participant


                                         4
                                       Table of Contents

Executive Summary .............................................................................................. 9

I.       Background .............................................................................................. 11

II.      Stakeholder Participation Process ........................................................... 13

         Step 1 – Problem Statement and Information Needs. .............................. 13

         Step 2 – Determine, Define and Prioritize Criteria.................................... 14

         Step 3 – Generate Program Alternatives. ................................................ 14

         Step 4 – Evaluate Alternatives Against Criteria. ....................................... 15

         Step 5 – Present Results of Evaluation. ................................................... 16

III.     Framework for an ADD Water Program ................................................... 17

IV.      Narrowing the Alternatives ....................................................................... 18

V.       Issues Falling Outside the Clarifying Questions ....................................... 20

         A.     ADD Water as Non-Project Water .................................................... 20

         B.    ADD Water Use of CAP Canal Capacity ........................................... 22

         C.    ADD Water and CAGRD ................................................................... 24

         D. ADD Water and Users Outside CAP’s Three-County Service Area ... 26

VI.      Areas Requiring Further Discussion ......................................................... 28

         A.    ADD Water and CAGRD ................................................................... 29

               Next Plan of Operation. ..................................................................... 29

               Conversion from Replenishment to Direct Delivery. .......................... 30

         B.    ADD Water Administration ................................................................ 31

VII.     Next Steps................................................................................................ 32




                                                         5
                          Listing of Attachments
                                                                       Page of
     Name of Attachment                Brief Description
                                                                       Report
A   HIOG Summary of          Summary of the emerging consensus           35
    Emerging Consensus       points found in the policy paper
                             prepared by the HIOG.
B   Evaluation Criteria      The peach criteria relates to designing     53
                             a mechanism to pay for new water
                             supplies. The lavender criteria relates
                             to sharing water and providing access
                             to new supplies by all participants in
                             the three-county area.
C Policy Paper #15 ADD       Policy paper prepared for the HIOG          57
  Water and CAGRD            on ADD Water and CAGRD
D Policy Paper #18           Policy paper prepared for the HIOG          63
  Administration of ADD      on Administration of ADD Water
  Water
E Administration of ADD      Policy paper prepared by the Arizona        69
  Water                      Municipal Water Users on
                             Administration of ADD Water.
F   Administration of ADD    Proposal prepared by the Arizona            75
    Water: Strawman          Municipal Water Users, City of
    Proposal Draft           Tucson, potential water supply sellers,
    December 29, 2009        Resolution Copper, APS and SRP on
                             Administration of ADD Water.




     Listing of Links in Order of Appearance in Report

   Name of Document                                                    Page of
                                       Brief Description
         Linked                                                        Report
Policy Paper #15 ADD         Policy paper prepared by HIOG on how
Water and CAGRD              the ADD Water Program specifically           9
                             works with CAGRD.
ADD Water website            Home page of Project ADD Water
                                                                         10
                             website.
Project Wheel                Background information on Project
                                                                         12
                             Wheel
Stakeholder Participation    Stakeholder Participation Plan used to
Plan                         manage the ADD Water stakeholder            13
                             participation process.
Step 1 Stakeholder           Results of stakeholder responses to         14


                                       6
  Name of Document                                                    Page of
                                      Brief Description
        Linked                                                        Report
Results                   four questions asked at the Step 1
                          workshop.
Summary of Responses by Summary of the stakeholder responses
Interest, Concern         made at the Step1 workshop prepared           14
Expectation               by the Project Team
Step 1 Data Requests      Listing of all data requests made in
                                                                        14
                          Step 1 and applicable responses.
Step 2 Criteria           Two sets of criteria identified, defined
                          and weighted by stakeholders at the
                          Step 2 workshop series one related to         14
                          sharing water supplies and another
                          related to paying for the water supplies.
Ten Alternatives          Eight alternatives for the ADD Water
                          Program prepared by eight diverse
                          Stakeholder Teams, one alternative
                          prepared by Fennemore Craig and one           15
                          alternative prepared by the Arizona
                          Municipal Water Users Association
                          generated in Step 3.
Arizona Water Institute   Report prepared by the Arizona Water
Case Study Report         Institute describing 13 case studies of
                                                                        17
                          other regional water entities acquiring
                          water supplies.
Stakeholder Team          Same as the description under Ten
                                                                        17
Alternatives              Alternatives above.
Summary of Stakeholder    Summary of the ten alternatives
Team Alternatives         prepared in Step 3, prepared by Terri
                                                                        17
                          Sue Rossi, Kathy Ferris and Sheryl
                          Sweeney
Summary of Stakeholder    Results of the Stakeholder Working
Team Agreements and       Group meeting held September 10 and
                                                                        18
Areas of Further          11 of 2009.
Discussion
HIOG Policy Papers        Nearly 20 policy papers prepared by the
                          HIOG during its eight week intensive          19
                          period.
Policy Paper #14          Policy prepared by the HIOG on ADD
                                                                       20,22
                          Water Use of CAP Canal Capacity
Policy Paper #13          Policy prepared by the HIOG on Just
                                                                        26
                          Water
Policy Paper #15          Policy prepared by the HIOG on ADD
                                                                        29
                          Water and CAGRD
ADD Water Policy Briefing Policy prepared by the Arizona
                                                                        29
Paper #15 Revised         Municipal Water Users Association and


                                      7
   Name of Document                                               Page of
                                     Brief Description
         Linked                                                   Report
November 20, 2009         the City of Tucson regarding ADD
AMWUA and City of         Water Policy Briefing Paper #15
Tucson Comments
December 31, 2009
Policy Paper #18         Policy prepared by the HIOG on the
                                                                    31
                         Administration of ADD Water
Administration of ADD    Policy prepared by the Arizona
Water                    Municipal Water Users Association on       31
                         the Administration of ADD Water
Administration of ADD    Proposal prepared by the Arizona
Water: Strawman Proposal Municipal Water Users, City of Tucson,
Draft December 29, 2009  potential water supply sellers,            31
                         Resolution Copper, APS and SRP on
                         Administration of ADD Water.




                                    8
                                       Executive Summary

          In September of 2009, the Stakeholder Working Group of Project ADD

Water identified common agreements and areas of further discussion found in

ten alternatives prepared by ADD Water stakeholders. The goal of the

September meeting was to reach an agreement level of 60% which was largely

met.

          At that meeting, the Stakeholder Working Group also created a Hammer-

It-Out Group 1 , referred to as the HIOG, to resolve the more difficult issues in

order to reach an agreement level of 85%. This goal was also met. There were

really only two components on which the HIOG could not develop an emerging

consensus: (1) how the ADD Water Program will work with CAGRD on three

specific issues 2 and (2) administration of the ADD Water Program.

          On January 5, 2010, the Stakeholder Working Group met to respond to

the existing points of emerging consensus developed by the HIOG and to

address those areas still requiring further discussion. The goal of that

Stakeholder Working Group meeting was to increase the level of agreement

above the 90% level, which was also met, before going to the Board on January

21, 2010.

          This report is primarily a compilation of the work conducted by the

Hammer-It-Out Group between October 2 and November 20, 2009. This report

also includes additional work conducted by the Stakeholder Working Group at its

1
  The roster for the HIOG is found on page 2 of this report. The list includes members, alternates and observers. Over 60
stakeholders attended and/or tracked the HIOG process.
2
  There were 14 points of emerging consensus the HIOG did reach related to the CAGRD. See Policy Paper #15 CAGRD
and ADD Water where additional information is provided.



                                                           9
January 5, 2010 meeting. The alternative presented here is an emerging

consensus of roughly 75 diverse stakeholders.

      This report will be used during a Board study session to be held on

January 21, 2010. To this end, and for stakeholders who have not participated in

the Hammer-It-Out Group or the Stakeholder Working Group, this report also

includes some background information. For even more information about Project

ADD Water, please see our website at http://www.projectaddwater.com/.

      The detail of the HIOG’s and Stakeholder Working Group’s

recommendation is presented in the Summary of Emerging Consensus located in

Appendix A.




                                      10
                    PROJECT ADD WATER
         REPORT TO THE STAKEHOLDER WORKING GROUP
              FROM THE HAMMER-IT-OUT GROUP

                 SUMMARY OF EMERGING CONSENSUS
                      AND REMAINING ISSUES


                         Prepared December 15, 2009


I. Background

      Long term water demands in CAP’s three-county service area will

eventually exceed the water supplies that are currently available. When that day

will come is a matter of debate and will depend on many variables, including

population growth, demands and use of reclaimed water. But whether current

supplies will last twenty more years or fifty, it makes sense now to develop a

comprehensive strategy for the acquisition and delivery of water to meet future

demands. That is the goal of “Project ADD Water”. ADD water stands for the

Acquisition, Development and Delivery of Water.


      Project ADD Water, a stakeholder participation process, was created in

response to the Strategic Plan adopted by the CAP Board of Directors in 2006.

The Strategic Plan directed CAP staff to establish a collaborative process to

address the issue of developing new water supplies for central Arizona—one that

encourages fair competition and eliminates perceptions of unfair advantage. The

Plan presumed that the most efficient and cost effective way to develop new

water supplies would be for CAP to be the single point of acquisition.




                                        11
CAP’s role in transporting additional water into central Arizona has been a

frequent topic of discussion over the years. In 2002, it was at the heart of Project

Wheel, another stakeholder participation process.


            In Project Wheel, stakeholders were asked to consider a continuum along

which CAP’s role ranged from a “delivery agent” for water acquired by others to a

“water provider” that developed its own supply for delivery to water users in its

three-county service area. Project Wheel 3 ultimately adopted a hybrid approach

that called for “interim set asides” to transport water supplies already acquired by

a few water providers and recommended further exploration of the water provider

model, including a public process to address how to allocate any new water

supply acquired by CAP.


            With the exception of CAP and SRP water, water providers have

historically worked independently, or in small groups of providers with similar

interests, to acquire and develop their own water supplies (e.g. groundwater

ranches, Indian leases, Cliff Dam replacement water, gate water and additional

active conservation space behind Roosevelt Dam). But after Project Wheel,

AMWUA cities, Tucson and others met with CAP Board members to discuss a

broad framework and public process for developing a wholesale water supply

program. That emerging view was reflected in the 2006 CAP Strategic Plan.


            In keeping with the CAP Strategic Plan, Project ADD Water focused on

the following question:


3
    For more information, please see the reports from Project Wheel.



                                                            12
         Assuming CAP is to be the primary entity that acquires, develops
         and delivers new water supplies for its three county service area,
         how should the water be shared and paid for?



II. Stakeholder Participation Process

         In August of 2007, CAP began planning a stakeholder participation

process for Project ADD Water. An internal team was created and in January of

2008, the internal team presented its proposed stakeholder participation plan to

the CAP Board. At that meeting, several CAP customers requested a more

prominent role in the stakeholder participation process than just being

participants. As a result of this request, the CAP Board expanded the internal

team to create a Project Team that included the original internal team, three

Board members and nine outside stakeholders.

         The purpose of the Project Team was to refine and implement the

stakeholder participation plan prepared by the internal team and to accurately

report the results of the stakeholder meetings to constituents, stakeholders and

the CAP Board. The Stakeholder Participation Plan adopted for Project ADD

Water included five steps 4 .



Step 1 – Problem Statement and Information Needs. The purpose of this step

was first to verify the problem statement and the focus questions for the

Stakeholder Participation Plan. Step 1 included one meeting held on May 21,

2008. The stakeholders responded to four questions:


4
  The decision making model used for Project ADD Water followed the public participation model recommended by the
International Association of Public Participation.



                                                        13
•   Why did you come to this meeting?
•   What do you want to get out of this process?
•   Why do you need more water?
•   What are you most worried about?


Based on the responses to these questions, the Project Team then prepared a

Summary of Responses by Interest, Concern and Expectation. The second

purpose was for stakeholders to request any information they might need to

complete the work in the remaining steps. Stakeholders made nearly 90 data

requests.



Step 2 – Determine, Define and Prioritize Criteria. The purpose of this step

was first to determine appropriate criteria, second to define those criteria and

finally to prioritize them. Four meetings were held to accomplish this task:

September 26, October 1 and 17, and November 3, 2008. The stakeholders

identified and defined two sets of criteria that reflect stakeholder values. The first

set includes eight criteria and addresses sharing a new water supply. The

second set also includes eight criteria and addresses paying for a new water

supply. The stakeholders also evaluated the relative importance of the criteria

within each set. The criteria, related definitions and importance are also located

in Attachment B.



Step 3 – Generate Program Alternatives. The purpose of this step was to

develop alternatives for stakeholders to consider. CAP created a Stakeholder

Working Group and invited all interested parties to participate. The Stakeholder




                                          14
Working Group met seven times in 2009, on March 26, April 25, May 20, June 12

and 15, and September 10 and 11. Eight diverse Stakeholder Teams were

created to develop team alternatives. Those Stakeholder Teams met on self-

established schedules between April and June. Most Teams met for roughly 25

hours. The Stakeholder Teams developed eight alternatives. There were two

additional alternatives created by stakeholders outside the Teams for a total of

ten alternatives.



Step 4 – Evaluate Alternatives Against Criteria. The purpose of this step was

to evaluate alternatives against the criteria developed in Step 2. In September of

2009, the Stakeholder Working Group identified areas of agreement and areas of

further discussion based on the ten alternatives prepared in Step 3. The

Stakeholder Working Group created a smaller group called the Hammer-It-Out

Group or HIOG to work on the areas requiring further discussion. The HIOG met

every Friday from October 2 through November 20, 2009. The work of the HIOG

is discussed in more detail in section IV (Narrowing the Alternatives) below. On

January 5, 2010, the Stakeholder Working Group evaluated the HIOG’s

emerging consensus against the criteria developed in Step 2 and considered the

areas left unresolved by the HIOG. The Stakeholder Working Group agreed to

adopt the HIOG’s recommendation regarding the interim set aside for the

CAGRD, described on page 14 of 16 (clarifying question 26, point 16) of the

Summary of Emerging Consensus located in Appendix A. The Stakeholder

Working Group also raised several other points to consider:




                                        15
  • Lots of good progress has occurred and momentum must be maintained
  • Board should authorize CAP to continue with the ADD Water Program
  • Celebrate success of the emerging consensus
  • Administration of the ADD Water Program can be developed during the
    contracting process
  • Negotiate a wheeling agreement with the Bureau of Reclamation
  • Additional planning is required to move forward and may require specialized
    stakeholder groups to work concurrently on administration, contract language
    and planning functions
  • More work is needed on how to finance water supply acquisition costs
  • More discussion is needed on delivering ADD water outside the three-county
    service area
  • CAWCD should fund and undertake the data collection and planning process
    required to prepare for project implementation
  • Resolve the connection between the ADD Water Program and the CAGRD
    Plan of Operation
  • Adopt proposal for converting replenishment to direct delivery (specifically
    issue #3 in Policy Paper #15)
  • Adopt proposal to prevent ADD water from driving growth to the CAGRD
    (specifically issue #2 in Policy Paper #15)
  • Make conforming changes to the Just Water proposal to resolve
    inconsistencies in what happens when demands for ADD and Just Water
    exceed supply available
  • Review summary of emerging consensus 3, under clarifying questions 17
    and 18, regarding using net present value to establish acquisition costs for
    the ADD water supply


Step 5 – Present Results of Evaluation. The purpose of this step is to

recommend an ADD Water Program to the CAP Board for possible action. A

final Stakeholder Working Group meeting is expected to be held in mid-February

to finalize a recommendation to the Board. At this meeting, stakeholders will

have another opportunity to address existing points of emerging consensus and

consider additional improvements to the summary of emerging consensus.



                                        16
Consistent with this schedule, the CAP Board will consider the stakeholder’s

recommendation as early as March 2010.




III. Framework for an ADD Water Program

In June of 2008, in response to multiple data requests from Step 1, CAP

contracted with the Arizona Water Institute to conduct case studies of 13 regional

water organizations to learn how those entities acquire, share and pay for new

water supplies. These case studies served as a starting point for ideas about

how the same could be done in central Arizona. The results of this study also

informed the Project Team in deciding what key questions needed to be

answered in order to develop a program for central Arizona.

      Based on this research and discussions, the Project Team identified

approximately two dozen clarifying questions that needed to be answered in

order to form a complete alternative. The Project Team organized these

questions into nine "components" of a complete alternative, then populated the

framework with responses for the 13 case studies. The Project Team referred to

these potential answers as "elements".

      Stakeholder Teams then populated the framework, creating ten

Stakeholder Team alternatives to consider. In June of 2009, the eight

Stakeholder Teams and two other entities, presented their alternatives to the

entire Stakeholder Working Group. At the end of August, the Summary of

Stakeholder Team Alternatives was prepared to help the Stakeholder Working

Group identify commonalities and areas requiring further discussion.



                                         17
IV. Narrowing the Alternatives

      In September of 2009, the Stakeholder Working Group met for two days to

review the Summary of Stakeholder Team Alternatives and to find those common

agreements that could be readily reached. The Stakeholder Working Group also

identified those areas where common understanding could not be easily reached

and further discussion was required. The results of these meetings are found in

the Summary of Stakeholder Agreements and Areas of Further Discussion.

      The Stakeholder Working Group was divided into five small groups. Three

of the five groups analyzed the capital cost water supply component and two of

the groups analyzed the capital cost infrastructure component. The results of

those small group discussions were presented to the Stakeholder Working

Group, but no attempt was made at that time to harmonize the results. The five

small groups analyzed the remaining components reflected in the Summary of

Stakeholder Team Alternatives and developed recommendations for agreements

and areas of further discussion for each. Each group then presented its

recommendation to the entire Stakeholder Working Group for further

consideration. The goal was to reach a 60% agreement level during the

Stakeholder Working Group meeting. Governance was not addressed as it was

assumed to be an area requiring further discussion.

      The Stakeholder Working Group found many areas of common

understanding including the following:

      •   Participation eligibility for water users inside CAP's three county area
      •   Classes of water
      •   Participants determining their own need
      •   Conditions for use of the ADD water supply


                                         18
      •   Priorities during shortages
      •   Use of unscheduled ADD water
      •   Ownership of water rights and infrastructure related to the ADD Water
          Project
      •   Paying fixed OM&R costs


The Stakeholder Working Group also found many areas where further discussion

was required including:

      •   Capital costs for supply acquisition
      •   Capital costs for infrastructure
      •   Exemptions to using ADD water outside the three county service area
      •   Acquiring supplies for those outside the three county service area
      •   Sharing supplies when demands for ADD water exceed supplies
          available


      The Stakeholder Working Group also created the "Hammer-It-Out Group"

or HIOG to deal with the areas requiring further discussion. The goal of the

HIOG was to reach an 85% agreement level. During the eight weeks the HIOG

met, it produced nearly 20 policy papers that included over 75 points of emerging

consensus. In November of 2009, the HIOG completed its work. The HIOG

came to a summary of emerging consensus on most issues assigned to it. The

Summary of Emerging Consensus as revised by the Stakeholder Working Group

is located in Appendix A. At the January Stakeholder Working Group meeting,

stakeholders continued to add points of emerging consensus bringing the overall

level of agreement to over 90%.




                                       19
V. Issues Falling Outside the Clarifying Questions

         As the Stakeholder Working Group contemplated the framework questions

and began developing alternatives, other questions and issues arose that did not

fit precisely into the framework created by the Project Team:

•    Will ADD Water supplies be considered Project Water or Non-Project Water?
     If Non-Project Water, will a wheeling agreement with the Bureau of
     Reclamation be required?
•    How will ADD Water customers and CAP water users share the CAP canal
     capacity?
•    How will the CAGRD operate in the context of ADD water?
•    Will the ADD Water program be limited to CAP's three county service area?


         These questions were discussed at various times throughout the ADD

Water process—particularly during the HIOG meetings—and stakeholders were

able to develop an emerging consensus in a number of areas. A discussion of

each follows.


A.       ADD Water as Non-Project Water 5


         “Project Water” is defined in the CAP Repayment Stipulation. It includes

whatever remains of Arizona’s 2.8 million acre-feet (MAF) Colorado River

entitlement after satisfaction of all higher priority Arizona uses and all equal

priority on-river uses. It also includes certain Agua Fria River water developed at

New Waddell Dam, as well as certain higher priority Colorado River rights

secured in connection with Indian water rights settlements—namely, former

Yuma-Mesa Irrigation District water obtained in the Ak-Chin Indian Community

5
 This issue was addressed in Policy Paper #14 ADD Water Use of CAP Canal Capacity where additional information is
provided.




                                                        20
settlement and former Wellton-Mohawk Irrigation and Drainage District water

acquired in the Salt River Pima Maricopa Indian Community settlement.


       If CAP were simply to purchase and fallow lands irrigated with higher

priority Colorado River water, thereby reducing their annual consumptive use,

that water would automatically become available for delivery as Project Water

under the CAP Repayment Stipulation and master repayment contract. As such,

it would be available for delivery to CAP contractors, including Indian contractors

and M&I subcontractors. If not used by those contractors, it would become

available for delivery as Excess CAP Water. Under the CAP Repayment

Stipulation and the Arizona Water Settlements Act, long-term CAP contracts are

limited to 1.415 MAF, so no new long-term CAP contracts could be issued for the

additional Colorado River water acquired in this manner.


       For CAP to acquire Colorado River water and convey it to a specific ADD

Water contractor, the water will have to be treated as Non-Project Water. As

such, it would maintain its original priority on the river and would not be eligible to

use CAP project power. Transportation of Non-Project Water through the CAP

will require a wheeling agreement approved by the Bureau of Reclamation. CAP

anticipates negotiating a single wheeling agreement with Reclamation that will

cover CAP’s transportation of all ADD Water supplies.




                                          21
B.       ADD Water Use of CAP Canal Capacity 6


         The CAP was designed to transport approximately 3000 cubic feet per

second (cfs) through the Phoenix metropolitan area. 7 (Beginning at the Salt-Gila

Pumping Plant east of Mesa, the capacity of the CAP gradually reduces, as less

water is conveyed beyond that point.) Assuming a reasonable maintenance

schedule, this 3000 cfs design capacity will allow CAP to deliver about 1.8 MAF

annually. Clearly, then, there is sufficient capacity in the CAP to deliver all long-

term CAP contract entitlements (limited by law to 1.415 MAF) as well as 300,000

AF or more of ADD Water.


         However, stakeholders felt strongly that all Project Water deliveries,

including Excess CAP water, should have priority to use CAP canal capacity over

all Non-Project Water deliveries, including ADD Water. Specifically, stakeholders

expressed the view that all Project Water available to CAP in any year must be

made available to CAP long-term contractors and Excess CAP Water contractors

before any Non-Project Water is delivered to ADD Water contractors, at least up

to the 1.8 MAF current nominal capacity of the CAP. Stakeholders recognized

that if ADD Water contractors paid to expand the current capacity, then those

contractors would have priority to use the expanded capacity ahead of Project

Water deliveries.



6
 This issue was addressed in Policy Paper #14 ADD Water Use of CAP Canal Capacity where additional information is
provided.
7
  Approximately 2500 cfs is needed to deliver the 1.415 MAF of long-term CAP entitlements. The Colorado River Basin
Project Act of 1968 authorized an additional 500 cfs of CAP capacity, provided Arizona interests agreed to pay the
incremental cost of the additional capacity. Under its master repayment contract and the CAP cost allocation process,
CAWCD is repaying 100% of the cost of the additional 500 cfs capacity in the Hayden-Rhodes aqueduct.



                                                          22
       As noted above, Project Water includes all Colorado River water available

to CAP under its master repayment contract. In recent years, CAP has often

been able to divert 1.6 MAF or more from the Colorado River because on-river

contractors have not been using their full entitlements. If the Secretary of the

Interior were to declare a surplus on the Colorado River—allowing Arizona to use

more than 2.8 MAF in that year—even more water would be available to CAP for

delivery as Project Water. In that event, there may not be sufficient CAP

capacity to deliver both Project Water and ADD Water, which would reduce the

volume of ADD Water that CAP could deliver in that year.

       To address the situation in which ADD Water supplies cannot be delivered

due to an abundance of Project Water, long-term, short-term and interruptible

ADD Water contractors will be allowed to enter into a special type of Excess CAP

Water contract—an “ADD Replacement Contract”—that will be applicable only in

a year in which the availability of surplus Colorado River water prevents CAP

from delivering some or all of the contractor's ADD Water entitlement (i.e. when

the ADD Water has been displaced in the CAP system by surplus Colorado River

water).


       In a surplus year, CAP would offer the contractor holding an ADD

Replacement Contract an amount of Excess CAP Water up to the amount of the

contractor's ADD Water that could not be delivered because it was displaced by

surplus Colorado River water. ADD Water contractors would pay the regular

ADD Water delivery rate for all water delivered under ADD Replacement

Contracts. ADD Replacement Contracts must comply with the CAP Repayment


                                        23
Stipulation and would not give rise to a right in any subsequent year to receive

Excess CAP Water. ADD Replacement Contracts would have a lower priority to

Excess CAP Water than the non-Indian agricultural settlement pool established

in connection with the Arizona Water Rights Settlement. ADD Replacement

Contracts must not affect the ability of CAP M&I subcontractors to receive more

than 11% of their maximum entitlement in any month if such increased delivery is

compatible with the overall delivery of Project Water to other CAP long-term

contractors.


      Stakeholders also indicated that Excess CAP Water should not be used to

satisfy ADD Water contract demands, particularly those intended to meet

assured water supply requirements. Thus, CAP will acquire new water supplies

for all ADD Water contracts. CAP will also divert and deliver all water available

from the Colorado River up to the full capacity of the CAP system, including

improvements to that system. CAP will begin improvements to expand canal

capacity at the start of the ADD Water program.


      Specific conditions for taking delivery of ADD Water will be incorporated

into ADD Water contracts or statutes as appropriate. It is anticipated that ADD

Water contracts will have some type of monthly delivery limitation—e.g., no more

than 11% of the annual entitlement in any given month.


C.    ADD Water and CAGRD


      In 1993, the Arizona State Legislature gave CAWCD the authority to

provide replenishment services for Member Lands and Member Service Areas


                                        24
within its three-County service area. This replenishment authority is referred to

as the Central Arizona Groundwater Replenishment District (CAGRD). Under

this authority, CAWCD is required to secure renewable water supplies to

replenish excess groundwater used by its members.


      CAWCD is required to prepare a Plan of Operation for the CAGRD at least

every ten years. Among other things, this Plan must provide a projection of

CAGRD replenishment obligations for current members as well as those

subdivisions and service areas that are projected to enroll as members of the

CAGRD during the 10-year plan period. The current Plan of Operation projects

CAGRD’s annual replenishment obligation will be 227,000 acre-feet by 2035,

reflecting projected membership through 2015. The next CAGRD Plan of

Operation must be completed by January 1, 2015, and will likely project a

CAGRD replenishment obligation that significantly exceeds 227,000 acre-feet.


      Stakeholders agreed that CAGRD should be eligible to obtain a water

service contract for any class of ADD Water for the purposes of meeting its

replenishment obligations. Further, CAGRD should be treated the same as any

other ADD Water contractor with respect to how it obtains, uses and pays for an

ADD Water contract.


      While, in general, CAGRD is to be treated the same as any other ADD

Water contractor, stakeholders identified two instances that require “special

treatment.” These instances relate to the transfer of ADD Water contracts and

are described as follows:



                                        25
            •    If an ADD Water contractor decides to opt-out of its contract and
                 CAGRD is required to replenish excess groundwater delivered within
                 the assigning contractor's service (or development) area, then CAGRD
                 holds a priority to the assigned water that is second only to an entity
                 assuming responsibility to deliver the water within the assigning
                 contractor's service (or development) area;
            •    If CAGRD decides to opt-out of a portion of its ADD Water contract,
                 then a water provider serving member lands or a member service area
                 will hold the first priority for receiving the assigned contract if the
                 assigned water will be substituted for excess groundwater pumping
                 and will reduce the CAGRD's replenishment obligation.


D.          ADD Water and Users Outside CAP’s Three-County Service Area 8


            ADD Water was conceived as a program to provide additional water

supplies for CAP’s three-county service area. But representatives from areas

outside the CAP service area participated throughout the ADD Water process

and asked whether there was a way in which other parts of the State might also

benefit from the program.


            Because the focus of ADD Water is on how water supplies will be shared

and paid for by users within the CAP service area, the specific elements of the

ADD Water program do not apply to other areas. But it was agreed that Arizona

municipal, industrial, agricultural and Indian water users located outside CAP's

service area would be able to participate with CAP in acquiring new water

supplies, rather than having to compete for supplies independently. CAP would

acquire water supplies for ADD Water contractors as well as water users outside

its service area. The program applicable to users outside the CAP service area



8
    This issue was addressed in Policy Paper #13 Just Water where additional information detail is provided.




                                                             26
is referred to herein as “Just Water.” The initial target volume for the Just Water

pool is 50,000 acre-feet.


       To participate in Just Water, an entity would enter into a standard

agreement to acquire a water supply in cooperation with CAP.        CAP customers

and ADD water customers would have input on the terms of that standard

agreement. The Just Water contractor must also comply with all financial

requirements either described in the contract or otherwise due at the time the

contract is signed. They would be responsible for financing and paying the cost

of the water supply acquisition and would develop their own program for water

users within their service areas to share and pay for the new water supplies

developed in cooperation with CAP. Just Water supplies may be used for legal

purposes under applicable state and federal laws. CAP will not be the delivery

agent for Just Water contractors, and the CAP system will not be used to deliver

water outside the three-county area.


       The question was raised as to whether Just Water contractors might have

access to unused ADD Water supplies, but CAP explained that it does not

control water that might remain on the Colorado River after CAP has met the

demands of its three-county service area and cannot direct such water to any

specific user. If there is unused ADD Water in any year that results in CAP

leaving water on the Colorado River, that water would then be under the control

of the Secretary of the Interior. It would be available for use by other entities in

Arizona under either a Priority 5 (i.e. unused Arizona apportionment) or Priority 6

(i.e. surplus) contract with the Secretary.


                                          27
VI. Areas Requiring Further Discussion

        As the HIOG worked through the many issues identified by the

Stakeholder Working Group, there were a number of details that the HIOG either

did not have time to address or felt it did not need to be resolved at that time.

The issues include:


        • Definition of profit
        • Conditions for interrupting interruptible supplies
        • Financial effects of specific water supply sources not being linked to
          specific contracts
        • How to hedge energy rates against disproportionate increases in energy
          costs
        • Annual rate stabilization mechanisms
        • Relationship between the CAGRD Plan of Operation, ADD water plans of
          operation and the Assured Water Supply program

        Two issues were discussed at great length during the HIOG, but in both

cases, the HIOG made a decision to defer these decisions until it was clear that

demands for ADD water would exceed the supplies available. These issues

were:

        • Phasing of ADD water
        • Sharing supplies when requests for ADD water exceed available supply

All of these issues are noted in the applicable policy papers.


        There were two policy papers where the HIOG did not realize an emerging

consensus. The first paper focused on how ADD water works with the CAGRD.

The second paper focused on the administration of the ADD water program.




                                         28
A.          ADD Water and CAGRD 9 .


            In Policy Paper #15 (see Attachment C), there were three issues raised in

the HIOG that required further discussion:

                      •    CAGRD’s interim set aside 10
                      •    Driving Growth to CAGRD
                      •    Conversion from replenishment to direct delivery

            The HIOG appeared to be in agreement on the first and last of these

items, the second item did not appear to hold widespread agreement. At its

January meeting, the Stakeholder Working Group adopted the point of emerging

consensus for the CAGRD’s interim set aside. While the Stakeholder Working

Group considered the other points, neither was adopted. These remaining

issues, described below, may still be considered for emerging consensus at the

Stakeholder Working Group meeting expected to be held in February.


            Prevent ADD Water from Driving Growth to CAGRD. Under a proposal

discussed by the HIOG, all post-ADD Water enrollment in the CAGRD would be

required to pay to CAGRD the costs of CAGRD acquiring an ADD Water contract

to cover the member’s projected annual replenishment obligation at build-out.

Alternatively, the prospective member could acquire its own ADD Water contract

and transfer it to the CAGRD in lieu of cash payment. The payment or contract

transfer for a member may occur incrementally, but would need to ensure that

CAGRD would have access to ADD Water prior to incurring a replenishment

obligation.

9
    This issue was addressed in Policy Paper #15 CAGRD and ADD Water where additional information is provided.
10
    The Arizona Municipal Water Users Association prepared a policy paper to address Policy Paper #15.



                                                           29
       While there was not direct disagreement about this requirement, several

stakeholders expressed the position that to agree to this provision, and to ADD

Water in general, those stakeholders relying on the CAGRD would need

assurances that a next Plan of Operation will be approved and will allow

continued membership enrollment in the CAGRD.


       Conversion from Replenishment to Direct Delivery. Under this

proposal, for member lands and member service areas that paid the up-front

costs associated with ADD Water, CAGRD would agree to allow for the transfer

of a corresponding portion of its ADD Water contract amount to a water provider

that commits to reduce the volume of excess groundwater delivered to the

member, subject to ADWR’s agreement that excess groundwater will be

considered reduced.

       If the member land or member service did not pay ADD Water costs up-

front, then CAGRD would agree to allow for the transfer of only that portion of its

ADD Water contract associated with water acquisition revenues collected on

behalf of that member for the area the water provider was committing to serve,

again subject to ADWR’s agreement that excess groundwater deliveries will be

considered reduced. If the water provider needs additional ADD water or if the

ADD water transferred to the water provider is based on an interruptible contract,

then the water provider would need to work directly with CAP to convert the

interruptible contract to a long-term ADD Water contract or to opt-in to a new

contract. Again, while no formal agreement was reached by the HIOG on this

proposal, discussions were promising.


                                        30
B.          ADD Water Administration

            The only issue that failed to gain significant traction during the HIOG was

the administration of ADD Water. This was partly because of limited time, but

mostly because there is true disagreement between stakeholders on this point.

The Support Team prepared a policy paper 11 that addressed related issues that

surfaced during the HIOG meetings. The Arizona Municipal Water Users

Association prepared a second paper 12 that addressed the issue generally.

Subsequent to the HIOG, the Arizona Municipal Water Users Association and

other stakeholders 13 prepared a proposal for the Stakeholder Working Group to

consider at it January meeting. These three policy papers are found in Appendix

D, E and F respectively.


            The primary point of disagreement focuses around the roles the CAP

Board, the CAP staff, future contractors and other stakeholders in administering

the ADD Water Program; in particular definition of the responsibilities and

authorities that rest with each party. While the Stakeholder Working Group made

significant progress on this issues at its January meeting, the issues was still

unresolved and is not expected to be discussed at the Board study session in

January.


            At the January Stakeholder Working Group meeting, stakeholders

expressed a desire to move forward with the ADD Water program and to resolve

11
     This issue was addressed in Policy Paper #18 ADD Water Administration where additional information is provided.
12
   This issue was addressed in a paper prepared by AMWUA called Administration of ADD Water where additional
information is provided.
13
   Other stakeholders include City of Tucson, potential water supply sellers, Resolution Copper, APS and SRP. The
proposal, called Administration of ADD Water: Strawman Proposal Draft is located in Appendix F.



                                                            31
the issue of administration within the context of planning, contractual and

legislative functions.


VII.   Next Steps

       The revised Summary of Emerging Consensus will be taken to the CAP

Board for a study session on January 21, 2010. At the study session, CAP staff

will solicit feedback from the Board on the emerging consensus of the

stakeholders and ask if there is any additional information the Board needs

before it can make a decision. In mid-February, a final Stakeholder Working

Group meeting is expected to be held to finalize the stakeholder’s

recommendation to the CAP Board. As early as March, based on the

recommendation provided by stakeholders, CAP staff expects to ask its Board to

consider moving forward with an ADD Water Program. If the Board decides not

to move forward, then CAP will discontinue any additional work and wait until and

if the issue is ripe for resolution. If the Board decides to move forward, then CAP

will begin implementation. Assuming a positive decision, CAP will no longer be

considering if it will create a new water supply for Arizona, but rather how this will

be done.




                                         32
ATTACHMENTS




    33
 
                          ATTACHMENT A

          HIOG Summary of Emerging Consensus

Summary of the emerging consensus points found in the policy paper prepared

                               by the HIOG.




                                    35
 
                                                           Summary of Emerging Consensus

                                                   GOVERNANCE MANAGEMENT STRUCTURE
 Q1 - What is the role of participants in overseeing and managing the ADD
                                                                                                           Q2 - What is the governance structure?
                               Water Program?
1. Potential ADD water contractors should have the option to be involved in           • This issue was not fully considered by the Stakeholder Working Group or the
    developing operational plans and budgets for ADD water through a                     Hammer-It-Out Group and will require additional work by stakeholders in the
    formalized process. [Policy Paper #4, summary of emerging consensus 6.]              future.
• This issue was not fully considered by the Stakeholder Working Group or the
  Hammer-It-Out Group and will require additional work by stakeholders in the
  future.




                                                               PARTICIPATION ELIGIBILITY

          Q3 - Who is eligible to obtain a contract to use the supply?                           Q4 - What are different classes of ADD water contracts?
1. Any municipal, industrial agricultural and Indian user within CAWCD's              1. There would be four classes of ADD water contracts: [Policy Paper #3,
   "service area" is eligible to obtain a water service contract for ADD water            summary of emerging consensus 1.]
   ("ADD water contract"). Municipal and industrial water user includes the               -   long-term service
   CAGRD. "Service area" means the three-county (Maricopa, Pinal and                      -   short-term water service
   Pima) that comprise CAWCD. [Policy Paper #1, summary of emerging consensus             -   interruptible water service
    1.]
                                                                                          -   spot-market water service
2. AWBA would not be eligible to enter into a long-term water contract for ADD
   water. [Policy Paper #1, summary of emerging consensus 5.]                             Long-term contracts would be for permanent service and are intended to
3. "Remarketers" inside or outside the three county service area are not                  meet assured water supply requirements.
   eligible to participate in ADD water (i.e. cannot obtain a long-term ADD               Short-term contracts would be for water delivered on a set schedule for a
   water contract). A re-marketer is an entity whose primary business purpose             set period of time.
   is to purchase or store water for future resale. This restriction does not             Interruptible water contracts would be for ADD water that would be available
   include water stored by an ADD water contractor to meet its future needs.              on a flexible delivery schedule for uses that do not require a set delivery
   This restriction is not meant to preclude private financing alternatives.              schedule (i.e. recharge). These contracts may be for permanent service or
   Private financing alternatives are addressed under clarifying questions                for a defined term.
   related to paying capital costs. [Policy Paper #1, summary of emerging consensus       Spot-market contracts would be annual contracts for unscheduled ADD
    6.]                                                                                   water. The availability of this type of water would be determined on an
                                                                                          annual basis based on delivery schedules under other ADD water contracts.
4. The limited exceptions under which ADD water may be used outside the                   Spot-market water could not be counted for assured water supply purposes.
   CAP service area are described under the clarifying question related to
   what conditions are placed on the use of the supply. [Policy Paper #11,
    summary of emerging consensus last sentence of background paragraph.]



Page 1 of 16                                                                Revised 1.11.10
                                                                     Summary of Emerging Consensus

                                                                          PARTICIPATION ELIGIBLITY
           Q5 - How can entities opt-in to the supply option?                                                    Q6 - How can entities opt-out of the supply option 1 ?
1. To secure an ADD water contract (i.e. to opt-in to the ADD Water                          1. An ADD water contractor may not independently assign its ADD water contract to
   Program), an eligible party, or water user, must sign an ADD water                           another entity. [Policy Paper #5, summary of emerging consensus 1.]
   contract and comply with all financial requirements either described
                                                                                             2. An ADD water contractor may assign all or part of its ADD water contract according
   in the contract or otherwise due at the time the contract is signed.
                                                                                                to procedures prepared by CAP. This procedure will help ensure [Policy Paper #5,
   The contract will include, at a minimum, the volume of water under
                                                                                                summary of emerging consensus 2.]:
   contract, when the water will be available and the applicable costs.
     [Combined Policy Paper #1, summary of emerging consensus 2 and Policy
     Paper #4, summary of emerging consensus 1.]
                                                                                                  - No adverse impacts on existing CAP customers
                                                                                                  - No adverse impacts on ADD water customers
                                                                                                  - No adverse impacts on CAP operations including operation of the CAGRD
                                                                                             3. Adverse impacts would be defined as part of the procedure developed by CAP.
                                                                                                  [Policy Paper #5, summary of emerging consensus 2.]

                                                                                             4. Priorities (in order) for assuming ADD water contracts held by those other than
                                                                                                CAGRD [Policy Paper #5, summary of emerging consensus 3.]:
                                                                                                - An entity assuming responsibility to deliver water within the assigning contractor's
                                                                                                  service area or development area 2
                                                                                                - CAGRD, if it must replenish excess groundwater delivered within the assigning
                                                                                                  contractor's service area
                                                                                                - Any other ADD water contractor
                                                                                                - Any non-ADD water contractor that wants to enter into a new ADD water contract
                                                                                             5. Priorities (in order) for assuming ADD water contracts held by CAGRD [Policy Paper
                                                                                                                                       3
                                                                                                #5, summary of emerging consensus 4.]:
                                                                                                - Water providers serving CAGRD member lands and member service areas, if the
                                                                                                   assigned water will be substituted for excess ground water pumping and will
                                                                                                   reduce CAGRD's replenishment obligations
                                                                                                - Any other ADD water contractor
                                                                                                - Any non-ADD water contractor that wants to enter into a new ADD water contract
                                                                                             6. Other guidance for assigning ADD water contracts will be developed when CAP
                                                                                                prepares procedure for assignment of ADD water contracts. [Policy Paper #5, summary
                                                                                                  of emerging consensus 5.]




1
  The last paragraph of Policy Paper #3, summary of consensus 1 contained the initial discussion for opting out. Policy Paper #5 represents a later discussion of the HIOG.
2
  "Development area" means an area not necessarily served by the water provider at the time an ADD water contract is secured by the entity developing the area.
3
  This point is further addressed on page 13 of 16 under clarifying question 26, summary of emerging consensus 9.
Page 2 of 16                                                                             Revised 1.11.10
                                                                       Summary of Emerging Consensus


                                                                           PARTICIPATION ELIGIBILITY


    Q7 - How to accommodate future participants in terms of sharing water?                                         Q8 - How to financially accommodate future participants?


1. Future ADD water contractors can join at any time subject to water                                   1. Future ADD water contractors should be required to mitigate any adverse
   availability. Costs are determined at the time of contracting. [Policy Paper #4,                        financial effects on existing participants. How future ADD water contractors
       summary of emerging consensus 3.]                                                                   will mitigate financial effects on existing participants will be addressed under
2. The initial target size of the ADD Water Program for long-term and short-                               clarifying questions related to capital costs. [Policy Paper #4, summary of
                                                                                                             emerging consensus 4.]
   term contracts would be 300,000 acre-feet 4 . Before any ADD water
   contracts are offered, CAP would identify available water supplies and
   determine the cost of acquisition and development. Once the cost of
   acquiring the ADD Water Program supply is known, CAP would open the
   ADD Water Program to potential contractors. [Policy Paper #16, summary of
       emerging consensus 1.]

3. If ADD water is available, a future eligible party 5 can secure a volume of
   ADD water by signing an ADD water contract or an existing contractor can
   increase its contract amount by amending its contract and, in either case,
   by complying with all financial requirements either described in the contract
   or otherwise due at the time the contract is signed. [Policy Paper #16, summary
       of emerging consensus 2.]




4
    This initial target volume does not include the volume for interruptible contracts that would use CAP canal capacity between long-term CAP contracts and long-term and short-term ADD Water contracts.
5
    See Policy Paper #1, emerging consensus item #1 for definition of eligible party.

Page 3 of 16                                                                              Revised 1.11.10
                                                            Summary of Emerging Consensus


                                                                    NEED DETERMINATION


          Q9 - How does "need" play a role in sharing the supply?                                              Q10 - Who determines the need?

1. If the volume of ADD water available exceeds the collective needs of                 1. ADD water contractors determine their own needs. [Policy Paper #16, summary
   participants, then need does not play a role in sharing the supply. [Policy             of emerging consensus 3.]
    Paper #16, summary of emerging consensus 4.]

2. Until requests for ADD water exceed the volume of ADD water available, no
   final decision will be made about how to share the supply unless and until it
   is clear that there is an issue. In such an event, CAP would consult with
   potential ADD water contractors to develop an equitable method of
   apportioning the available supply. [Policy Paper #16, summary of emerging
    consensus 5.]

3. Until requests for Just water and ADD water exceed the volume of water
   available, no final decision will be made about how to share the supply
   unless and until it is clear that there is an issue. [Policy Paper #16, summary of
    emerging consensus 6.]




Page 4 of 16                                                                 Revised 1.11.10
                                                                     Summary of Emerging Consensus


                                                                             PRIORITIES/CONDITIONS


                                                              Q11 - What conditions are placed on the use of the supply?

1. The ADD water supply can be used for any legal purposes under applicable state and federal law, including underground storage and recovery. The supply
   may be used within the service area and, subject to certain conditions, in areas located outside the service area. [Policy Paper #1, summary of emerging consensus
     3.]
2. Supplies that do not use the CAP canal system for delivery may be used for ADD water on a case by case basis.                                   [Policy Paper #2, summary of emerging consensus
     7.]
3. In general, long-term storage credits generated through the storage of ADD water may not be sold at a profit unless such profit is returned to the ADD Water
   Program. Profit needs to be defined. [Policy Paper #1, summary of emerging consensus 7.]
4. As envisioned by the CAWCD 2006 Strategic Plan, the ADD Water Program was intended to determine how any new water supplies acquired by CAWCD
   would be shared within the CAP three-county service area ("CAP service area"). The primary mechanism to make ADD water available is the CAP system
   operated by the CAWCD. The federal government constructed the CAP system and the reimbursable costs of construction are being repaid by water users in
   the CAP service area and through a property tax assessed by CAWCD against lands within the CAP service area. Additionally, CAWCD's governing body is
   composed of directors elected by residents of the CAP service area. For all of these reasons, an emerging consensus within the HIOG is that, with limited
   exceptions, ADD water may be used only within the CAP service area. The limited exceptions under which ADD water may be used outside the CAP service
   area will be defined by contract or statute and must meet the following conditions: [Policy Paper #11, summary of emerging background paragraph.]

      A. If the ADD water contractor is a municipal provider 6 : [Policy Paper #11, summary of emerging consensus 1.]
         a. 100% of the municipal provider's service area 7 was located within the CAP service area as of January 1, 2009;
         b. The area the municipal provider proposes to serve with ADD water that is outside the CAP service area is contiguous to the CAP service area and the
              municipal provider's service area located within the CAP service area and does not exceed 10% of the municipal provider's service area that is within
              the CAP service area; and
         c. The municipal provider will take delivery of the ADD water within the CAP service area.

      B. If the ADD water contractor is not a municipal provider: [Policy Paper #11, summary of emerging consensus 2.]
         a. And the ADD water contractor is an electrical energy service provider that will use the ADD water for electrical generation:
              i. As of January 1, 2009, , one or more partners of the electrical energy service provider, served Arizona customers within the CAP service area;
              ii. The electrical energy that will be generated from the use of ADD water will be used in whole or in part within the CAP service area; and
              iii. The ADD water contractor will take delivery of the ADD water within Arizona from the CAP canal or other ADD water infrastructure.
         b. And the ADD water contractor is a mining company that will use the ADD water for mineral extraction and metallurgical processing:
              i. The ore body is located wholly or partially within the CAP service area;
              ii. The use of ADD water will be in lieu of groundwater that could otherwise be pumped by the mining company within the CAP service area; and
              iii. The ADD water contractor will take delivery of the ADD water within the CAP service area.

6
 Municipal provider means a city, town or private water company.
7
 The municipal provider's service area is the area of land actually being served water by the municipal provider and any additions to that area containing an operating distribution system owned by the
municipal provider.
Page 5 of 16                                                                             Revised 1.11.10
                                                       Summary of Emerging Consensus

                                                              PRIORITIES/CONDITIONS


                                                 Q11 - What conditions are placed on the use of the supply?

    C. Any other proposed use of ADD water outside the CAP service area will be considered on a case-by-case basis and must be consistent with the following
       principles: [Policy Paper #11, summary of emerging consensus 3.]
       a. The proposed use of the ADD water will significantly contribute to the economy of the CAP service area or the operation of the CAP Project; and
       b. The ADD water contractor will take delivery of the ADD water within the CAP service area.

    D. ADD water used outside of the CAP service area will be subject to the same financial requirements, rates and charges as ADD water used inside the CAP
       service area plus an additional fee to the extent the CAP projects works are used. Revenues from the additional fee will be used for CAP Project
       purposes as determined by the Board. [Policy Paper #11, summary of emerging consensus 4.]

4. During an outage event, ADD water contractors, to the degree operationally possible, will be treated the same as CAP customers. After consultation with ADD
   water contractors, CAP could temporarily discontinue or reduce the quantity of water to be furnished to ADD water contractors for the purposes of
   investigation, inspection, maintenance, repair, or replacement of any facilities (CAP or ADD water related) or any part thereof necessary for the furnishing of
   water. So far as feasible, CAP should coordinate any such discontinuance or reduction with ADD water contracts and give due notice in advance of such
   temporary discontinuance or reduction, except in case of emergency, in which case no notice need be given. Neither CAP, its officers, agents and employees,
   shall be liable for damages when, for any reason whatsoever, any such temporary discontinuance or reduction in delivery of water occurs. If any such
   discontinuance or temporary reduction results in deliveries to the ADD water contractor of less water than what has been paid for in advance, the contractor
   shall be entitled to be reimbursed for the appropriate proportion of such advance payments prior to the date of the contractor's next payment of water service
   charges or the contractor may be given credit toward the next payment of water charges if the contractor should so desire. Short-term contracts would have
   the same priority as long-term term contracts during shortage as the term of the contract does not relate to the service reliability required by the water user.
   For example, a power plant requires high reliability but not necessarily an indefinite contract. Short-term contracts would be combined with long-term contracts
   and treated the same during a shortage. [Policy Paper #12, summary of emerging consensus 1 and 2.]




Page 6 of 16                                                           Revised 1.11.10
                                                                   Summary of Emerging Consensus


                                                                           PRIORITIES/CONDITIONS
                                                                   Q12 - What are the priorities during shortages 8 ?
1. A fundamental concept underlying the ADD Water Project is that a portfolio of supplies will be pooled into a single supply that we would call ADD water.
   These supplies will have varying degrees of reliability and vulnerability. These supplies will also hold differing terms of duration. The diversity of the portfolio
   will provide the first line of defense for shortage protection. ADD water is also expected to use supplies from the Colorado River that hold higher priority than
   CAP (i.e. CAP would have to be completely dry for Colorado River rights used by ADD water to be affected). Assuming a diverse portfolio is insufficient to
   thwart a temporary reduction in available water, CAP would implement the following shortage delivery strategy [Policy Paper #12, summary of emerging consensus
   3.]:
   - CAP would not sell any water under spot-market ADD water contracts.
   - CAP would discontinue service to all interruptible ADD water contracts.
   - All other ADD water contracts would share the same priority and would be subject to the following:
     - ADD water contractors would submit schedules that incorporate voluntary reductions.
     - If requests still cannot be met, CAP would consult with all ADD water contractors to determine best way to fulfill all delivery requests to greatest extent
         possible.
   - If supplies acquired need firming, CAP would develop a program that could involve acquiring additional water supplies or storing unscheduled ADD water to
       either offset shortages or to firm long-term ADD water supplies.




8
 Policy Paper #3, summary of consensus 2 contained the initial discussion for managing priorities during a shortage. Policy Paper #12, summary of emerging consensus 3, represents a later discussion
of the HIOG.
Page 7 of 16                                                                           Revised 1.11.10
                                                    Summary of Emerging Consensus


                                                            OWNERSHIP INTEREST

        Q13 - Who owns the water right?                      Q14 - What does end user hold?                        Q15 - Who owns the infrastructure?

1. CAWCD will own, for the benefit of ADD water     1. Entities that want to use ADD water would hold       1. Title to the main CAP facilities remains with the
   contractors, the water rights, water leases,        a contract with CAWCD that entitles it to               United States. [Policy Paper #2, summary of
   contracts and any other mechanisms used to          delivery of a specified amount of water for a            emerging consensus 1.]
   create the ADD water supply. [Policy Paper #2,      specified period of time, but not to a specified     2. As necessary, a wheeling agreement will be
   summary of emerging consensus 2.]                   source of supply. [Policy Paper #2, summary of          negotiated with the United States to use the
                                                        emerging consensus 3.]
                                                                                                               CAP system to delivery water. [Policy Paper #2,
                                                    2. ADD Water contracts would not be linked to a             summary of emerging consensus 6.]
                                                       specific water supply, canal capacity or power       3. Ancillary facilities constructed to develop ADD
                                                       source operationally, but rather entitle the            water supplies and transport those supplies to
                                                       contractor to delivery of a specified volume of         the CAP canal, or to an ADD water delivery
                                                       water from the ADD Water supply. How this               point, would be owned by CAWCD. [Policy Paper
                                                       operational policy affects contractors financially       #2, summary of emerging consensus 4.]
                                                       will be discussed on clarifying questions related
                                                       to cost. [Policy Paper #4, summary of emerging       4. Ancillary facilities for the delivery of ADD water
                                                        consensus 5.]                                          beyond the ADD water delivery point are the
                                                                                                               responsibility of the end user and would be
                                                                                                               owned by the end user. [Policy Paper #2, summary
                                                                                                                of emerging consensus 5.]

                                                                                                            5. An ADD water delivery point can be any existing
                                                                                                               or new turn-out along the CAP. Any new turn-
                                                                                                               outs constructed for this purpose must be
                                                                                                               consistent with CAP's standards for
                                                                                                               construction. For supplies that do not use the
                                                                                                               CAP canal system for delivery, CAP would
                                                                                                               define the delivery point on a case by case
                                                                                                               basis. [Policy Paper #2, summary of emerging
                                                                                                                consensus 8.]




Page 8 of 16                                                            Revised 1.11.10
                                                                   Summary of Emerging Consensus


                                                                    USE OF UNSCHEDULED SUPPLY


                                                                        Q16 - How are unused supplies shared?


1. Unused ADD water would be made available through annual spot-market contracts. The availability of this type of water would be determined on an annual
   basis based on the difference between ADD water contract amounts and delivery schedules. [Policy Paper #9, summary of emerging consensus 1.]
2. If an ADD water contractor does not use its entire scheduled amount, the contractor should not be able to market the unused supply to others. [Policy Paper #3,
    summary of emerging consensus 3 and Policy Paper #9, summary of emerging consensus 2.]

3. ADD water contractors, including the CAGRD, would have the first right of refusal to unused ADD water supplies. [Policy Paper #3, summary of emerging consensus
    4 and Policy Paper #9, summary of emerging consensus 3.]

4. Revenues from the sale of unused ADD water should be used to offset costs of the ADD Water Program 9 . [Policy Paper #9, summary of emerging consensus 4.]
5. Groundwater supplies not used to meet scheduled ADD water deliveries in any year may be left in place for future use. [Policy Paper #3, summary of emerging
    consensus 6 and Policy Paper #9, summary of emerging consensus 5.]

6. Surface water supplies not used to meet scheduled ADD water deliveries in any year may be stored underground for future use. [Policy Paper #3, summary of
    emerging consensus 7 and Policy Paper #9, summary of emerging consensus 6.]

7. ADD water contractors that are fully using their ADD water contract amounts would have first priority to access unused ADD water supplies. If demand by
   ADD water contractors exceeds the available unused supply, ADD water contractors will be offered unused ADD water in proportion to their ADD water
   contract amount. If unused ADD water exceeds the demand of ADD water contractors, CAP may offer the remaining unused supplies to any eligible entity 10 or
   may, if appropriate or desirable, store remaining unused supplies underground to ensure the reliability of future ADD water deliveries to ADD water
   contractors. [Policy Paper #9, summary of emerging consensus 7.]




9
  Policy Paper #3, summary of emerging consensus 5 contained part of the initial discussion on sharing unscheduled supplies. Policy Paper #9, summary of emerging consensus 4, represents a later
discussion of the HIOG.
10
   See Policy Paper #1, emerging consensus item #1 for definition of eligible entity.
Page 9 of 16                                                                          Revised 1.11.10
                                                                    Summary of Emerging Consensus

                                                                          CAPITAL COSTS – SUPPLY

             Q17 - How is up-front capital funding generated?                                     Q18 - How are capital costs associated with acquiring the supply repaid?

1. The initial target size of the ADD Water Program for long-term and short-term contracts would be 300,000 acre-feet 11 . Before any ADD water contracts are
   offered, CAP would identify available water supplies and determine the cost of acquisition and development. Once the cost of acquiring the ADD Water
   Program supply is known, CAP would open the ADD Water Program to potential contractors. [Policy Paper #10, summary of emerging consensus 1.]
2. Costs associated with acquiring ADD water supplies must be kept separate. [Policy Paper #10, summary of emerging consensus 2.]
3. The costs of acquisition and development of the water supplies that CAP has identified and made available for contract would be shared proportionately and
   on a net present value basis among all ADD water contractors who contract for those supplies. Where costs exceed the projected net present value, future
   contractors will assume the additional costs. Where costs are lower, existing contractors will receive a refund 12 . [Policy Paper #10, summary of emerging consensus
     3.]
4. At least part of the costs associated with acquiring supplies should be paid up-front. [Policy Paper #10, summary of emerging consensus 4.]
5. CAP needs to have funds available to acquire new water supplies. [Policy Paper #10, summary of emerging consensus 5.]
6. ADD water contractors may pay less than 100% of the capital costs of acquiring their supply at the time of contracting, with the balance being paid over time.
     [Policy Paper #10, summary of emerging consensus 6.]
7. In addition to up-front capital payments, CAP would create a funding mechanism to allow ADD water contractors to pay for water supplies over time. CAP
   could use a combination of financial options including bonding authority, public-private partnerships and perhaps property taxes specifically authorized for this
   purpose to support the funding mechanism. The specific method of repayment will depend on the financing mechanism used to fund the acquisition. [Policy
     Paper #10, summary of emerging consensus 7.]
8. Funding mechanisms used may not adversely impact costs to CAP contractors and subcontractors. [Policy Paper #10, summary of emerging consensus 9.]
9. Funding mechanisms used may not significantly increase cost uncertainties for ADD water contractors. [Policy Paper #10, summary of emerging consensus 10.]
10. Non-payment of amounts due under the ADD water contract would be grounds for default. If the default is not cured timely, the contract would be terminated
    and the ADD water entitlement transferred to another entity consistent with the opting out procedures described in clarifying question #6 on page 2 of 16. CAP
    will need to develop a specific enforcement mechanism when transfer is not feasible. [Policy Paper #10, summary of emerging consensus 11.]
11. CAWCD will not lend or otherwise use funds from its current reserve accounts to finance the acquisition of ADD water supplies. [Policy Paper #10, summary of
     emerging consensus 12.]
12. Water users signing ADD water contracts need lead time to obtain funding to comply with all financial requirements. CAP needs lead time to make the water
    supply available for delivery. [Policy Paper #4, summary of emerging consensus 2.]
13. No financial relief would be considered for the entity wishing to opt out of a contract until the contract is assigned to others and the new contractors have met
    all financial requirements. [Policy Paper #5, summary of emerging consensus 6.]
14. Some costs paid by the assigning contractor will be reimbursable. The costs paid should take into account when and how much the assignor paid for its ADD
    water contract and the benefit it received while the contract was held. How the assigning ADD water contractor is reimbursed would be determined as part of
    the procedure developed by CAP. [Policy Paper #5, summary of emerging consensus 7.]




11
  This initial target volume does not include the volume for interruptible contracts that would use CAP canal capacity between long-term CAP contracts and long-term and short-term ADD Water contracts.
12
  Policy Paper #6, summary of emerging consensus 5 contained the initial discussion on paying capital costs specifically related to holding costs. Policy Paper #10, summary of emerging consensus 3,
represents a later discussion of the HIOG.
Page 10 of 16                                                                            Revised 1.11.10
                                                                    Summary of Emerging Consensus
                                                                CAPITAL COSTS – INFRASTRUCTURE

                                                                                   Q20 - How are capital costs associated with                            Q21 - How is peaking handled in
     Q19 - How is up-front capital funding generated?
                                                                                             infrastructure repaid?                                               terms of costs?

1. Common infrastructure for the ADD Water Program means improvement to the CAP canal system that will increase                                         1. Rate adjustments for peaking may
   the existing capacity above 1.8 million acre-feet. [Policy Paper #17, summary of emerging consensus 1.]                                                 be considered as part of ADD
2. Costs of ADD water infrastructure should be shared proportionately among all ADD water contractors without early                                        water rate setting. [Policy Paper #8,
   contracts subsidizing later contractors and vice versa. [Policy Paper #17, summary of emerging consensus 2.]                                              summary of emerging consensus 1.]
3. After determining costs of common infrastructure needed to implement ADD water bring that cost back to present
   value. [Policy Paper #17, summary of emerging consensus 3.]
4. At least part of the costs associated with common infrastructure should be paid at the time of contracting with the
   balance being paid over time. [Policy Paper #17, summary of emerging consensus 4.]
5. ADD water contractors can obtain their own financing to pay any up-front costs due at the time of contracting. [Policy
      Paper #17, summary of emerging consensus 5.]
6. CAP needs to have funds available to improve common infrastructure. [Policy Paper #17, summary of emerging consensus
      6.]
7. No capital costs for infrastructure would be paid at the time of contracting. Instead, common infrastructure capital
    costs would be converted to net present value and allocated across a specified volume expected to pay for the
    common infrastructure to arrive at a dollar per acre-foot common infrastructure charge. This charge would then be
    applied to the ADD water contract volume and paid based on a schedule specified in the contract. CAP would then
    make improvements on a schedule that considers when improvements are necessary and when funds have been
    collected to pay for the improvements 13 . [Policy Paper #17, summary of emerging consensus 7.]
8. In the 2008 Hayden-Rhodes Aqueduct Capacity Study, CAP concluded that existing canal capacity could be
    increased from 1.8 million acre-feet to 2.1 million acre-feet at a cost of $94 million. To increase the canal capacity
    another 100,000 acre-feet would increase the cost by $150 million for a total of $243 million. At a minimum, the canal
    capacity should be increased from 1.8 million acre-feet to 2.1 million acre-feet at a cost of $94 million. Additional
    expansion above this level should be considered in the event requests for ADD water exceed the target volume of
    300,000 acre-feet. [Policy Paper #17, summary of emerging consensus 8.]
9. No financial relief would be considered for the entity wishing to opt out of a contract until the contract is assigned to
    others and the new contractors have met all financial requirements. [Policy Paper #5, summary of emerging consensus 6.]
10. Some costs paid by the assigning contractor will be reimbursable. The costs paid should take into account when and
    how much the assignor paid for its ADD water contract and the benefit it received while the contract was held. How
    the assigning ADD water contractor is reimbursed would be determined as part of the procedure developed by CAP.
      [Policy Paper #5, summary of emerging consensus 7.]




13
  Policy Paper #6, summary of emerging consensus 5 contained the initial discussion on paying capital costs specifically related to holding costs. Policy Paper #17, summary of emerging consensus 7,
represents a later discussion of the HIOG.
Page 11 of 16                                                                            Revised 1.11.10
                                                         Summary of Emerging Consensus


                                              OPERATION MAINTENANCE AND REPAIR (OM&R)


Q22 - How are fixed costs associated with OM&R                                                                      Q24 - How are costs associated with
                                                                Q23 - How are variable costs paid?
                     paid?                                                                                                  replacement paid?

1. ADD water contractors will pay two fixed              1. Energy costs for existing CAP customers and       1. Costs associated with replacing infrastructure
   postage stamp OM&R rates [Policy Paper #6,               ADD water contractors will be kept completely        should be incorporated into a "Big R"
   summary of emerging consensus 1.]:                       separate. ADD water contractors will pay a           component of fixed OM&R. [Policy Paper #7,
   - ADD water contractors will pay an ADD water            pumping energy rate designed to cover the             summary of emerging consensus 1.]
      fixed OM&R rate designed to cover OM&R                energy costs for ADD water. [Policy Paper #6,     2. Establish and maintain an ADD water reserve
      costs tied to clearly separable and identifiable      summary of emerging consensus 2.]                    fund (similar to existing CAP reserves) by
      ADD water assets.                                  2. Power supplies used to deliver ADD water             including an additional rate component for
                                                            would be pooled and ADD water contractors            environmental, replacement and other costs.
   - ADD water contractors will also pay their              would pay a single postage stamp rate for             [Policy Paper #7, summary of emerging consensus 2.]
      share of the existing CAP fixed OM&R rate.
                                                            energy, but the rate could be "hedged" or
      Any fixed OM&R costs that are not based on
                                                            protected against disproportionate increases in
      clearly separable and identifiable ADD water
                                                            the cost of those power supplies in relation to
      assets will be incorporated into the existing
                                                            overall operation and maintenance costs. How
      CAP fixed OM&R rate and paid by both
                                                            the rate would be “hedged” against
      existing CAP customers and ADD water
                                                            disproportionate increases in energy costs will
      contractors.
                                                            be further discussed by the HIOG. [Policy Paper
2. ADD water contractors would be required to pay           #6, summary of emerging consensus 6.]
   fixed OM&R costs for water scheduled for
   delivery whether taken or not. The contractor
   would be relieved of this obligation only to the
   extent that CAP, or the contractor, is able to find
   another customer for any unused water. [Policy
    Paper #6, summary of emerging consensus 3.]
3. The annual reconciliation for ADD water
   contractors would involve no additional billing or
   refunds. CAP would incorporate an acceptable
   annual rate stabilization mechanism. This would
   not change in any way the annual
   reconciliations performed under existing
   contracts. [Policy Paper #6, summary of emerging
    consensus 4.]




Page 12 of 16                                                             Revised 1.11.10
                                                                    Summary of Emerging Consensus


                                                                          ASSURED WATER SUPPLY
                                      Q25 - How does participation in the ADD Water Program qualify for an assured water supply?

• This issue was not fully considered by the Stakeholder Working Group or the Hammer-It-Out Group and will require additional work by stakeholders in the
     future.




                                                                          ASSURED WATER SUPPLY

                                                                    Q26 - How does ADD water work with CAGRD 14 ?

1. CAGRD is eligible to obtain a water service contract for ADD water that entitles it to delivery of a specified amount of water for a specified period of time, but
   not a specified source of supply. [Policy Paper #15, summary of emerging consensus 1.]
2. CAGRD is eligible for any class of ADD water contract including: long-term or short-term service, interruptible or spot market. [Policy Paper #15, summary of
      emerging consensus 2.]

3. CAGRD can use ADD water under its contract for legal purposes under applicable state and federal law, including underground storage and recovery and
   replenishment. [Policy Paper #15, summary of emerging consensus 3.]
4. To opt-in to the ADD Water program, CAGRD must sign an ADD water contract and comply with all financial requirements either described in the contract or
   otherwise due at the time the contact is signed. [Policy Paper #15, summary of emerging consensus 4.]
5. CAGRD members can take advantage of the same financial mechanisms 15 used by direct ADD water contractors. How those costs will be paid by members
   of the CAGRD will depend on how the CAGRD finances its ADD water contract. [Policy Paper #10, summary of emerging consensus 8.]
6. CAGRD must use its ADD water inside the CAP's three county service area. [Policy Paper #15, summary of emerging consensus 5.]
7. If the CAGRD does not use its entire contract amount, it should not be able to market the unused supply to others. [Policy Paper #15, summary of emerging
      consensus 6.]

8. CAGRD may not independently assign any part of its ADD water contract to another entity. [Policy Paper #15, summary of emerging consensus 7.]
9. If CAGRD decides to opt-out of a portion of its ADD water contract, then a water provider serving member lands or a member service area will hold the first
   priority for receiving the assigned contract if the assigned water will be substituted for excess groundwater pumping and will reduce the CAGRD's
   replenishment obligation 16 . [Policy Paper #15, summary of emerging consensus 8.]


14
   The summary of emerging consensus in Policy Paper #15 is intended to take into account all other policy papers. There is at least one exception to this, summary of emerging consensus 8 in Policy
Paper #10. This point of emerging consensus is included here as item 5. Discussions regarding the relationship between ADD Water and the CAGRD were not fully completed by the Stakeholder
Working Group or the Hammer-It-Out Group and will require additional work by stakeholders in the future.
15
   See summary of emerging consensus 7 under clarifying questions 17 and 18 above for more detail on the financial mechanisms.
Page 13 of 16                                                                            Revised 1.11.10
                                                                  Summary of Emerging Consensus
                                                                         ASSURED WATER SUPPLY

                                                                  Q26 - How does ADD water work with CAGRD 14 ?

10. If an ADD water contractor decides to opt-out of its contract and CAGRD is required to replenish excess groundwater delivered within the assigning
    contractor's service (or development) area, then CAGRD holds a priority to the assigned water that is second only to an entity assuming responsibility to
    deliver the water within the assigning contractor's service (or development) area. [Policy Paper #15, summary of emerging consensus 9.]
11. CAGRD is not restricted to obtaining ADD water contracts only. CAGRD may secure water supplies independently (e.g. contracts for effluent) 17 . [Policy Paper
      #15, summary of emerging consensus 10.]

12. Like other ADD water contractors, CAGRD would have the first right of refusal to unused ADD water supplies. [Policy Paper #15, summary of emerging consensus 11.]
13. During a shortage, CAP would not deliver water to the CAGRD for any spot-market or interruptible ADD water contracts. [Policy Paper #15, summary of emerging
      consensus 12.]

14. CAGRD will pay two fixed postage stamp OM&R rates [Policy Paper #15, summary of emerging consensus 13.]:
    - ADD water contractors will pay an ADD water fixed OM&R rate designed to cover OM&R costs tied to clearly separable and identifiable ADD water assets.
      Any fixed OM&R costs that are not based on clearly separable and identifiable ADD water assets will be incorporated into the existing CAP fixed OM&R
      rate and paid by both existing CAP customers and ADD water contractors.
    - ADD water contractors will also pay their share of the existing CAP fixed OM&R rate.
15. CAGRD would be required to pay fixed OM&R costs for water scheduled for delivery whether taken or not. CAGRD would be relieved of this obligation only to
    the extent that CAP, or the CAGRD, is able to find another customer for any unused water. [Policy Paper #15, summary of emerging consensus 14.]
16. As a result of Project Wheel, the CAP Board approved an interim set-aside of CAP aqueduct capacity for CAGRD totaling 105,000 AF/year. This volume was
    based on CAGRD’s projected annual replenishment obligation for members enrolled through 2015, the majority of which are already enrolled (therefore
    limiting the amount of “up-front funding” that can be generated from those members). Under this proposal, CAGRD would maintain its right to use up to an
    average of 105,000 AF per year of CAP aqueduct capacity for the transportation of Interruptible ADD Water. Transportation of this Interruptible ADD Water
    must be accomplished without harm to CAP contractors and subcontractors and may be transported through the additional capacity developed under the ADD
    Water program only if that capacity is not needed to meet Long-Term and Short-Term ADD Water contract demands. In other words, CAGRD’s Interim Set-
    Aside capacity will be replaced with a commitment for use of the space “in between” CAP deliveries and ADD Water Long and Short-Term contract deliveries.
    Thus, the availability of capacity under CAGRD’s set-aside is subject to reduction from year-to-year (possibly to zero) due to (1) surplus declarations on the
    Colorado River, or (2) canal outages required for repair or maintenance. Rights granted under this set-aside do not limit CAGRD’s ability to contract for Long
    and Short-Term ADD Water service under the same terms as other ADD Water contractors.

• This issue was not fully considered by the Stakeholder Working Group or the Hammer-It-Out Group and will require additional work by stakeholders in the
     future. See Policy Paper #15 for more details.




16
   Policy paper #5, summary of emerging consensus 4, contained the initial discussion on priorities for assuming CAGRD ADD water contracts. Policy Paper #15, summary of emerging consensus 8,
represents a later discussion of the HIOG.
17
   Policy paper #1, summary of emerging consensus 4 contained the initial discussion on CAGRD securing other water rights. Policy Paper #15, summary of emerging consensus 10, represents a later
discussion of the HIOG.
Page 14 of 16                                                                          Revised 1.11.10
                                                                         Summary of Emerging Consensus


                                            ADDITIONAL ISSUES OUTSIDE THE FRAMEWORK STRUCTURE

                                                                                                            NQ2 - Acquisition of water for entities outside the CAP service area (Just
                       NQ1 - ADD Water use of CAP canal capacity
                                                                                                                                              Water)

1.     Conditions for taking delivery of ADD water will be incorporated into                               1. The initial target volume for the Just Water pool is 50,000 acre-feet. [Policy
       contracts or statutes as appropriate. [Policy Paper #14, summary of emerging                             Paper #13, summary of emerging consensus 1.]
       consensus 1.]
                                                                                                           2. Eligible entities 19 within the CAP service area may obtain new water
2. ADD Water contractors may be subject to monthly delivery limitations (e.g.                                 supplies by participating in the ADD Water program. Municipal, industrial,
   11% of annual entitlement). [Policy Paper #14, summary of emerging consensus 2.]                           agricultural and Indian water users within Arizona and outside CAP's
                                                                                                              service area would be able to participate with CAP in acquiring a new water
3. Deliveries of CAP Project Water, including CAP Excess Water, shall have
                                                                                                              supply instead of having to compete for supplies independently. Those
   priority to use of CAP system capacity over deliveries of ADD Water, which
                                                                                                              outside would need to [Policy Paper #13, summary of emerging consensus 2.]:
   is non-Project Water. CAWCD will acquire new water supplies for all ADD
   Water. CAWCD will divert and deliver all water available from the Colorado                                        a. Sign a standard agreement to acquire a water supply in cooperation
   River up to the full capacity of the CAP system, including improvements to                                           with CAWCD (CAP customers and ADD water customers would
   that system. CAWCD will begin improvements to expand canal capacity at                                               have input on the terms of the standard agreement)
   the start of the ADD Water Program. Deliveries of ADD Water will have
                                                                                                                     b. Comply with all financial requirements either described in the
   priority to use the increased canal capacity paid for by ADD Water
                                                                                                                        contract or otherwise due at the time the contract is signed
   contractors. [Policy Paper #14, summary of emerging consensus 3.]
                                                                                                                     c.    Finance and pay their own costs
4. Any long-term, short-term or interruptible ADD Water contractor may also
   enter into a special CAP Excess Water (ADD Replacement) contract that                                             d. Develop their own program for water users within their service
   will be applicable only in a year in which the availability of surplus 18                                            areas to share and pay for the new water supplies developed in
   Colorado River water prevents CAP from delivering some or all of the                                                 cooperation with CAWCD
   contractor's ADD Water entitlement—i.e., when the ADD Water has been
   displaced in the system by surplus Colorado River water. In a surplus year,                             3. CAWCD would not be the delivery agent and the CAP system would not be
   CAWCD would offer the contractor holding an ADD Replacement Contract                                       used to deliver water outside the three-county area. [Policy Paper #13,
                                                                                                                summary of emerging consensus 3.]
   an amount of CAP Excess water up to the contractor's ADD Water contract
   amount that could not be delivered because it was displaced by surplus                                  4. Just Water supplies held by those outside the three-county area may be
   Colorado River water, after first providing for [Policy Paper #14, summary of                              used for legal purposes under applicable state and federal laws. [Policy Paper
   emerging consensus 4.] :                                                                                     #13, summary of emerging consensus 4.]

             a. Rights to CAP water, including CAP Excess Water, as required by                            5. ADD water contractors that are fully using their ADD water contract
                the Arizona Water Settlements Act and the Revised Stipulation.                                amounts would have first priority to access unused ADD water supplies. If
                                                                                                              demand by ADD water contractors exceeds the available unused supply,
             b. The ability of CAP M&I subcontractors under their CAP                                         ADD water contractors will be offered unused ADD water in proportion to

18
     A surplus year occurs when the Secretary of the Interior declares a surplus and Arizona is entitled to more than 2.8 million acre feet of Colorado River Water.
19
     See Policy Paper #1, emerging consensus item #1 for definition of eligible entity.

Page 15 of 16                                                                                 Revised 1.11.10
                                                          Summary of Emerging Consensus

                                  ADDITIONAL ISSUES OUTSIDE THE FRAMEWORK STRUCTURE

                                                                                    NQ2 - Acquisition of water for entities outside the CAP service area (Just
                NQ1 - ADD Water use of CAP canal capacity
                                                                                                                      Water)

            subcontracts receive greater than 11% of their maximum                    their ADD water contract amount. If unused ADD water exceeds the
            entitlement in any month if such increased delivery is compatible         demand of ADD water contractors, CAP may offer the remaining unused
            with the overall delivery of Project water to other subcontractors.       supplies to any eligible entity or may, if appropriate or desirable, store or
                                                                                      allow others to store remaining unused supplies underground to ensure the
       c.   As specified by the Revised Stipulation, ADD Replacement
                                                                                      reliability of future ADD water deliveries to ADD water contractors.
            contracts would not give rise to a right in any subsequent year to
            receive CAP Excess Water.                                                 If, after applying the guidelines above, there is still unused ADD Water in
                                                                                      any year that results in CAP leaving water on the Colorado River, that water
5. ADD water contractors would pay the regular ADD water delivery rate for all        would be available for use by other entities in Arizona under either a Priority
   water delivered under the CAP excess water (ADD Replacement) contract.             5 (unused Arizona apportionment) or Priority 6 (surplus) contract with the
   [Policy Paper #14, summary of emerging consensus 5.]                               Secretary of the Interior. CAP does not have control over any water that
                                                                                      might remain on the Colorado River after CAP has met the demands of its
                                                                                      three-county service area and cannot direct such water to any specific user
                                                                                      [Policy Paper #13, summary of emerging consensus 5.].




Page 16 of 16                                                             Revised 1.11.10
                        ATTACHMENT B

                      Evaluation Criteria

   Peach criteria: design a mechanism to pay for new water supplies

Lavender criteria: share water and provide access to new supplies by all

                  participants in the three-county area




                                   53
 
                                                                                   INTEREST: To design a mechanism to pay for new water supplies

                                                                               Acceptable                                                                                    % of
             Bad                               Poor                          (can live with)                        Good                           Excellent               Decision *                             Arena
                                                                                                                                                                                                     Financial sustainability of program

                                   Funding to operate on limited     Most funding available, flexible      Fully funded by multiple                                                     To what extent does the program have sufficient
Unreliable, inadequate funding                                                                                                              Funding surplus up-front         18%        financial tools and sources of revenue, for both
                                               basis                  and authority to supplement                   sources
                                                                                                                                                                                          CAP and participants, to ensure its long-term
                                                                                                                                                                                                         sustainability?
                                                                                                                                                                                                          Equitable cost allocation
Cost allocations decided by an
                                                                     Negotiated allocation of costs     Some negotiated allocations,       Cost allocations are fully                   To what extent are the full costs of the ADD Water
 outside agency are arbitrary,
                                   CAP decides cost allocation          by users with sufficient        but most are fully understood,   understood, justified by facts,                   Program (water acquisition, infrastructure,
not based on cost of service or                                                                                                                                              18%
                                     with minimal user input         understanding and justification    agreed to by participants and     agreed to and reflect cost of                    delivery) allocated to ADD Water customers
   agreed to; with non-ADD
                                                                       based on cost of service           reflecting cost of service                service                               equitably based on the cost of providing that
  revenues subsidizing ADD
                                                                                                                                                                                                             service?
                                                                                                                                                                                                 Cost/payment predictability for participants


                               Predictable short-term costs;                                                                                                                              To what extent does the ADD Water Program
Unpredictable costs and rigid                                         Predictable long-term costs;       Predictable long-term costs;     Predictable long-term costs;
                              unpredictable long-term; limited                                                                                                               16%        provide a predictable mechanism for determining
   payment requirements                                               limited payment alternatives      adequate payment alternatives     flexible payment alternatives
                                   payment alternatives                                                                                                                                  participants costs and provide participants with
                                                                                                                                                                                                  flexible payment alternatives?

                                                                                                                                                                                                          Flexible funding source
                                                                                                                                           Multiple funding sources
 Single source funding (all on      Limited funding alternatives     Funding available to those who        Multiple funding sources
                                                                                                                                           available to all users with       15%
      CAP; all on users)                      available                         need it                     available to all users                                                        To what extent does the mechanism allow for
                                                                                                                                           money available up-front
                                                                                                                                                                                            flexible funding arrangements for users?

                                                                                                                                                                                                                Affordability

   …for few users and uses          …for some users and uses          …for many users and uses            …for most users and uses          …for all users and uses          11%
                                                                                                                                                                                            To what extent is the program affordable?

                                                                                                                                                                                                                    Value
Increased cost with no benefit    Disproportionate distribution of                                                                          Benefits exceed costs;
                                                                         Benefits/costs related;         Benefits/costs proportionate;                                                    To what extent does the ADD Water process
  to users; growth stops; no         benefits/cost; regulatory                                                                            sustainability and maximum         10%
                                                                       regulatory goals supported         regulatory goals fully met                                                    provide value over the existing water acquisition,
      regulatory benefits              constraint on growth                                                                                           utility
                                                                                                                                                                                               allocation and delivery framework?

                                                                                                                                                                                                               Administration
  Structure is unpredictable,                                            Somewhat efficient and                                          Low overhead; effective, highly
                                  Inefficient structure that impairs                                   Mostly efficient structure that
   ineffective, complicated;                                         effective structure that does not                                    efficient structure that works      6%         To what extent can the agreed upon program be
                                               program                                                  works for most participants
  inefficient; high overhead                                                  impair program                                                  well for all participants                          efficiently and effectively run?

                                                                   ACC likely to allow recovery of                                                                                                  Private water provider cost recovery
                                                                                                                                          ACC likely to allow adjuster
                                   ACC likely to allow deferral of some costs in normal rate case ACC likely to allow full recovery
       approval any
   ACC appro al of an cost                                                                                                                                 insure full
                                                                                                                                            mechanism to ins re f ll                     To what extent is the cost of participation to the
                                     costs for possible future        process and implement        of costs in normal rate case                                               5%
      recovery unlikely                                                                                                                   recovery of costs in current
                                             recovery                mechanism to fully recover               process                                                                     private water provider recoverable in private
                                                                                                                                                rates and fees
                                                                          deferred costs                                                                                                          water provider rates or fees?
* Percent of decision is based on pair-wise comparison results averaged at the stakeholder group level. Percents may not add to 100% due to rounding.
                                                             INTEREST: To share water and to provide access to new supplies by all participants in the three county area
                                                                                Acceptable                                                                                 % of
                Bad                                  Poor                     (can live with)                     Good                            Excellent              Decision *                  Clarifying Question and Arena Name


                                                                                                                                                                                                                  Sharing of new supply

                                 Everyone gets some of what they                                                                                                                                     To what extent does the ADD Water
Some get part of their needs met                                 Everyone gets some of what they                                                     Everyone gets what they want
                                 need but too many misgivings to                                                 Everyone gets what they need
     and others get none                                           need with some misgivings                                                                  and need                               program meet the current and future
                                          be acceptable
                                                                                                                                                                                                     demands of water users in the three
                                                                                                                                                                                                                county area?
                                                                                                                                                                                           19%
                                                                                                                                                                                                    ADD water sharing process structure (apportioning)

                                                                                                                                                    Process is: fully understandable,
   Confusing, rigid, dictatorial,      Vague, general disagreement on         Generally acceptable process                                                                                            To what extent is the process for
                                                                                                                   Structured process that has      adaptable, long term, predictable,
   unpredictable contentious            process and outcome; limited             and outcome with clear                                                                                             apportioning ADD Water supplies fully
                                                                                                                            flexibility                  not complex and easily
            process                               flexibility                 standards and some flexibility                                                                                        understandable, adaptable, long term,
                                                                                                                                                              implemented
                                                                                                                                                                                                     predictable, not complex and easily
                                                                                                                                                                                           18%                  implemented?

                                                                                                                                                                                                                     Planning certainty
                                                                                                                  What is planned is delivered
   What is planned for highly             Most of what you plan for is        What is planned is delivered
                                                                                                                annually and surplus is available
                                                                                                                       y          p                           p
                                                                                                                                                           Surplus is available                      To what extent does the ADD Water
   uncertain and/or unreliable                     delivered                            annually
                                                                                                                         on limited basis                                                           program provide planning certainty for
                                                                                                                                                                                           18%             future water supplies?

   Third party (including CAP)                                                                                                                                                                                    Determination of need
                                                                            Participants determine own need Participants determine own need
  decides need based on their           Third party decides with limited                                                                    Participants determine their own                          To what extent will the ADD Water
                                                                               with mutually agreed upon     with minimal mutually agreed
   criteria without stakeholder                stakeholder input                                                                                          needs                                     process establish criteria to determine
                                                                                          criteria                    upon criteria
            agreement                                                                                                                                                                                               need?
                                                                                                                                                                                           17%
                                                                                                                                                                                                            Who can buy ADD water (eligibility)

                                        A minority of interested parties        Majority have eligibility to     Everyone has some eligibility to    Everyone has equal eligibility to               To what extent is any interested party
  Eligibility is limited to very few
                                           are eligible to purchase                     purchase                           purchase                            purchase
                                                                                                                                                                                                    eligible to purchase new water supplies
                                                                                                                                                                                                        through the ADD Water process?
                                                                                                                                                                                           11%
                                       Will only meet current state and                                                                     Exceeds current state and local                                         Water Management
  Cannot meet state and local                                                Meets current state and local  Exceeds current state and local
                                          local regulations including                                                                        regulations including assured
 regulations including assured                                               regulations including assured   regulations including assured                                                           To what extent does the program help
                                       assured water supply for those                                                                       water supply for those who want
water supply for those who want                                             water supply for those who want water supply for those who want                                                         users meet regulations and solve water
                                             who want it with user                                                                            it and solves existing water
                it                                                                          it                              it
                                                 enhancement                                                                                      management problem                                       management problems?
                                                                                                                                                                                           10%
                                                                                                                                                                                                      Operational Flexibility for CAP facilities to meet
                                                                                                                  CAP uses existing and ADD                                                                       customer obligations
                                           Some "special interest"           CAP uses ADD water supplies                                               CAP free to use existing and
   CAP abdicates control of its                                                                                   water supplies according to
                                                               CAP s
                                           agreements limit CAP's           according to defined policies and                                        ADD water supplies as it sees fit
   system to multiple "special
                 lti                                                                                             defined policies and practices
                                                                                                                       d li i        d    ti                                                           To what extent will the ADD Water
                                        operational flexibility hindering     practices maximizing system                                           to fully optimize system operation
     interests" agreements                                                                                       optimizing the system to meet                                                       process provide operational flexibility
                                                  optimizing                  operation to meet obligations                                                  to meet obligations
                                                                                                                           obligations                                                              for CAP to meet customer obligations?
                                                                                                                                                                                           7%
All existing water rights and          All existing water rights and        All existing water rights and       All existing water rights and       All existing water rights and          Not
                                                                                                                                                                                                     Protection of Existing water rights and contracts
contracts are protected                contracts are protected              contracts are protected             contracts are protected             contracts are protected              Weighted


* Percent of decision is based on pair-wise comparison results averaged at the stakeholder group level.
               ATTACHMENT C

Policy Paper #15 ADD Water and CAGRD

Policy Prepared for the HIOG on ADD Water and CAGRD.




                        57
 
                                     ADD Water Policy Briefing Paper #15
                                                      Revised November 20, 2009

TOPIC AREA: CAGRD and ADD water
This policy paper addresses all of the clarifying questions and specifically
addresses:

Q26 – How does ADD water work with CAGRD?

Background information can be found in the Summary of Stakeholder Team
Alternatives and the Summary of Stakeholder Agreements and Areas of Further
Discussion. Points of emerging consensus related to the CAGRD can be found in
all the policy papers produced to date. The summary of emerging consensus
below restates those agreements relative to how they are applied to the CAGRD.

Summary of emerging consensus:

1. CAGRD is eligible to obtain a water service contract for ADD water that
   entitles it to delivery of a specified amount of water for a specified period of
   time, but not a specified source of supply.
2. CAGRD is eligible for any class of ADD water contract including: long-term or
   short-term service, interruptible or spot market.
3. CAGRD can use ADD water under its contract for legal purposes under
   applicable state and federal law, including underground storage and recovery
   and replenishment.
4. To opt-in to the ADD Water program, CAGRD must sign an ADD water
   contract and comply with all financial requirements either described in the
   contract or otherwise due at the time the contact is signed.
5. CAGRD must use its ADD water inside the CAP's three county service area.
6. If the CAGRD does not use its entire contract amount, it should not be able to
   market the unused supply to others.
7. CAGRD may not independently assign any part of its ADD water contract to
   another entity.
8. If CAGRD decides to opt-out of a portion of its ADD Water contract, then a
   water provider serving member lands or a member service area will hold the
   first priority for receiving the assigned contract if the assigned water will be
   substituted for excess groundwater pumping and will reduce the CAGRD's
   replenishment obligation.
9. If an ADD Water contractor decides to opt-out of its contract and CAGRD is
   required to replenish excess groundwater delivered within the assigning
   contractor's service (or development) area, then CAGRD holds a priority to



                                         59
   the assigned water that is second only to an entity assuming responsibility to
   deliver the water within the assigning contractor's service (or development)
   area.
10. CAGRD is not restricted to obtaining ADD water contracts only. CAGRD may
    secure water supplies independently (e.g. contracts for effluent).
11. Like other ADD water contractors, CAGRD would have the first right of refusal
    to unused ADD water supplies.
12. During a shortage, CAP would not deliver water to the CAGRD for any spot-
    market or interruptible ADD water contracts.
13. CAGRD will pay two fixed postage stamp OM&R rates:
     - ADD water contractors will pay an ADD water fixed OM&R rate designed
       to cover OM&R costs tied to clearly separable and identifiable ADD Water
       assets. Any fixed OM&R costs that are not based on clearly separable
       and identifiable ADD Water assets will be incorporated into the existing
       CAP fixed OM&R rate and paid by both existing CAP customers and ADD
       water contractors.
     - ADD water contractors will also pay their share of the existing CAP fixed
       OM&R rate.
14. CAGRD would be required to pay fixed OM&R costs for water scheduled for
    delivery whether taken or not. CAGRD would be relieved of this obligation
    only to the extent that CAP, or the CAGRD, is able to find another customer
    for any unused water.

Issues to Hammer-Out:

These issues will be discussed in the Hammer-It-Out Group:

1. Interim set aside for existing plan of operation.
2. How can we make sure that the cost of ADD Water contracts does not drive
   all new growth to the CAGRD?
3. How do CAGRD members recover money they've paid to CAGRD if they
   want to contract for ADD Water themselves at a later date?
4. Relationship between the CAGRD Plan of Operation, ADD water plans of
   operation and the Assured Water Supply program. (no strawman developed)

Issue #1: CAGRD's Interim Set-Aside

Strawman Proposal: As a result of Project Wheel, the CAP Board approved an
interim set-aside of CAP aqueduct capacity for CAGRD totaling 105,000 AF/year.
This volume was based on CAGRD’s projected annual replenishment obligation
for members enrolled through 2015, the majority of which are already enrolled
(therefore limiting the amount of “up-front funding” that can be generated from
those members). Under this proposal, CAGRD would maintain its right to use up


                                       60
to an average of 105,000 AF per year of CAP aqueduct capacity for the
transportation of Interruptible ADD Water. Transportation of this Interruptible
ADD Water must be accomplished without harm to CAP contractors and
subcontractors and may be transported through the additional capacity
developed under the ADD Water program only if that capacity is not needed to
meet Long-Term and Short-Term ADD Water contract demands. In other words,
CAGRD’s Interim Set-Aside capacity will be replaced with a commitment for use
of the space “in between” CAP deliveries and ADD Water Long and Short-Term
contract deliveries. Thus, the availability of capacity under CAGRD’s set-aside is
subject to reduction from year-to-year (possibly to zero) due to (1) surplus
declarations on the Colorado River, or (2) canal outages required for repair or
maintenance. Rights granted under this set-aside do not limit CAGRD’s ability to
contract for Long and Short-Term ADD Water service under the same terms as
other ADD Water contractors.

Issue #2: Prevent ADD Water from Driving Growth to the CAGRD

Strawman Proposal: All CAGRD membership enrollments occurring after the
implementation of ADD Water must be conditioned on the payment to CAGRD of
an amount sufficient to cover CAGRD’s costs of acquiring an ADD Water
contract that is large enough to meet the member’s projected annual
replenishment obligation at build-out. Alternatively, the prospective member may
acquire its own ADD Water contract and transfer it to the CAGRD in lieu of cash
payment. The payment or contract transfer for a member may occur
incrementally, but must ensure that CAGRD has access to ADD Water prior to
incurring a replenishment obligation. [Note: this proposal will likely necessitate
different assessment rates for members that enrolled before ADD Water vs.
those that enroll after ADD Water is implemented]

Issue #3: Conversion from Replenishment to Direct Delivery of ADD Water

Strawman Proposal:

A. For members that paid ADD Water costs up-front, CAGRD will agree to
   transfer that portion of its ADD Water contract that was acquired in
   conjunction with that member’s enrollment to the water provider that commits
   to serve the member, thereby reducing the volume of excess groundwater
   delivered to the member. This will require formal acknowledgement by
   ADWR that CAGRD’s replenishment obligation is reduced.
B. For members that did not pay ADD Water costs up-front, CAGRD will keep
   track of the total amount of fee and rate revenues generated on behalf of the
   member for water supply acquisition. CAGRD will agree to transfer that
   portion of its Interruptible Add Water contract that was acquired in support of
   that member’s enrollment, up to the total value associated with water
   acquisition revenues collected, to the water provider that commits to serve the
   member ("recipient"), thereby reducing the volume of excess groundwater


                                       61
delivered to the member. This will require formal acknowledgement by
ADWR that CAGRD’s replenishment obligation is reduced. To the extent the
recipient wishes to convert the Interruptible ADD Water contract into a Long-
Term ADD Water contract, CAWCD will allow the conversion only if (1) all
other opt-out/opt-in conditions are satisfied, and (2) the recipient agrees to
pay to CAWCD the difference in cost between an Interruptible ADD Water
contract and a Long-Term ADD Water contract.




                                    62
                   ATTACHMENT D

Policy Paper #18 Administration of ADD Water

 Policy Prepared for the HIOG on Administration of ADD Water.




                             63
 
                                   ADD Water Policy Briefing Paper #18
                                                    Revised November 20, 2009

TOPIC AREA: Administration of ADD Water
This policy paper addresses the following clarifying questions:

Q1 – What is the role of participants in overseeing and managing the ADD Water
Program?
Q2 – What is the governance structure?

Background information can be found on page 1 and 2 of the Summary of
Stakeholder Team Alternatives.

Summary of Emerging Consensus:

No emerging consensus was reached.

Issues to Hammer-Out

These issues remain to be addressed by the Hammer-It-Out Group:

1.   General points
2.   Scope and elements of plans and budgets
3.   Development process for plans and budgets
4.   Approval process for plans and budgets

Issue #1: General points for consideration

• A decision to implement ADD Water must be made by the CAWCD Board of
  Directors.
• CAP will begin developing plans and budgets for ADD Water upon approval
  and direction to proceed from the CAWCD Board of Directors.
• CAP will administer the ADD Water Program.
• Prior to signing ADD Water contracts, CAP will need to prepare plans and
  budgets to guide implementation.
• ADD water contractors, potential ADD water contractors and other
  stakeholders should have the option to be involved in developing operational
  plans and budgets for ADD water through a formalized process.




                                        65
Issue #2: What is the scope and what are the elements of the plans and
budgets needed to implement ADD Water?

Strawman: Every 10 years or sooner if desirable, CAWCD will prepare a plan of
operation for the ADD Water Program. The first plan will be prepared by July 1,
2012. The purpose of the plan of operation is to describe the action CAWCD will
take during the 100 calendar years following submittal of the plan to provide a
continuously available water supply for its three county service area. The plan
would include the following information:

• ADD water deliveries:
   - Contract volume, type of contract and name of contract holder for each
     ADD water contract signed previous to the submittal of the plan.
   - Volume of new ADD water contracts projected to be executed during the
     ten years following submission of the plan.
• ADD water supplies:
   - Description of water supplies acquired to satisfy ADD water contracts.
   - Description of the water resources CAP plans to acquire to satisfy ADD
     water contracts.
   - Description of actions CAP plans to take to meet ADD water deliveries
     during shortages and surpluses.

• ADD water infrastructure:
   - Description of infrastructure improvements made to deliver ADD water in
     the ten years preceding submittal of the plan.
   - Description of facilities and projects CAP plans to use to meet ADD water
     deliveries during the twenty calendar years following submission of the
     plan.

• ADD water costs and rates:
   - Description of charges and rates for ADD water in the ten years preceding
     submittal of the plan.
   - Description of potential charges and rates for ADD water during the twenty
     calendar years following submission of the plan.

• Additional information:
   - Any other information required by ADWR to ensure ADD water contracts
     can be pledged for assured water supply purposes by ADD water
     contractors.
   - Any other information CAWCD deems necessary to implement the ADD
     Water Program.

To accompany the Plan of Operation, CAWCD will prepare all budgets consistent
with its budgeting procedures.




                                      66
Issue #3: How will the ADD Water plan of operation and associated
budgets be developed?

Strawman: CAP will convene an advisory group to participate in the
development of the ADD Water Plan of Operation. For the initial Plan of
Operation, any potential ADD water contractor or other stakeholder can
participate in the development of the ADD Water Plan of Operation. The process
used to develop the plan will be similar to the processes used for the ADD Water
Process and the CAGRD Plan of Operation process. CAP will pay for the cost of
developing the plan and supporting the advisory group. Those costs will be
tracked and incorporated into the start-up costs for ADD Water. Once ADD
water contracts are signed, CAP will convene an on-going advisory group made
up of ADD water contractors to advise CAP on implementation issues.

After the plan is developed, CAP will prepare all budgets consistent with its
budgeting procedures but will also include an opportunity for the advisory group
to have input into the budget related to ADD Water.

Issue #4: What is the approval process for the ADD Water plan of
operation and associated budgets?

Strawman: The CAP Board will approve the ADD Water plan of operation and
associated budgets. Prior to approval, the CAP will conduct a formal review
process for the plan. The budget will be approved through CAP's standard
budgeting procedure.

CAP will also submit the ADD Water plan of operation to the Arizona Department
of Water Resources (ADWR) for review and approval as it pertains the Assured
Water Supply Program. This review will follow the same procedure used by
ADWR to determine the CAGRD's Plan of Operation is consistent with the goals
of the Assured Water Supply Program.




                                       67
 
                   ATTACHMENT E

          Administration of ADD Water

                Policy paper prepared by the

Arizona Municipal Water Users on Administration of ADD Water.




                             69
 
                      ADMINISTRATION OF ADD WATER

          Alternative Ideas to ADD Water Policy Briefing Paper #18
                              November 19, 2009

Introduction

The CAWCD was established by the legislature to levy an ad valorem tax in
order to assist in repayment of the CAP, to contract with the Secretary of the
Interior for the repayment and delivery of CAP Water, and to subcontract for the
use of CAP Water. A.R.S. § 48-3703. The legislature later expanded the duties
of the CAWCD to add the responsibility to replenish excess groundwater pumped
for member lands and member service areas. At that time, the legislature
authorized CAWCD to:

       "Acquire, transport, hold, exchange, own, lease, store or replenish,
       water, except groundwater withdrawn from an active management
       area, subject to the provisions of title 45, for the benefit of member
       lands and member service areas.

       Acquire hold, exchange, own, lease, retire or dispose of water
       rights for the benefit of member lands and member service areas."

A.R.S. § 48-3772.B (emphasis added).

The ADD Water Program will be a new area of responsibility for CAWCD that will
likely require additional enabling legislation. Because of this, the respective roles
of the CAWCD and ADD Water contractors will need to be defined. Existing
models of administration for CAP Water or the replenishment of excess
groundwater may not be suitable for the ADD Water Program for many reasons,
including:

• At least part of the costs of acquiring ADD Water will be paid up-front and
  some
• ADD Water contractors may self-finance these costs. (see Policy Briefing
  Paper #10)
• Any water rights acquired by CAWCD for ADD Water will be held for the benefit
  of the ADD Water contractors. (see Policy Briefing Paper #2)
• ADD Water long-term service contracts will be for permanent service. (see
  Policy Briefing Paper #3)

Additionally, a different model of administration for the ADD Water Program may
help to avoid conflicts between this program and CAWCD's existing
responsibilities.




                                         71
CAWCD, as the operator of the CAP canal and other facilities used to transport
ADD Water and the entity that will acquire ADD Water supplies for the benefit of
the ADD Water contractors, has a significant role to play in the administration of
an ADD Water Program. ADD Water contractors, who will ultimately pay either
up-front or over time and who require certainty and clarity to allow informed
decisions, should also have a significant role in certain aspects of the
administration of an ADD Water program. In some cases, CAWCD should have
sole decision-making authority. In other cases, CAWCD should consult with the
ADD Water contractors before arriving at a decision. In certain cases, CAWCD
should not proceed without the consent of the ADD Water contractors.

Following are some ideas on sharing the administration of the ADD Water
Program. The organizational structure for implementing these ideas needs
further exploration and is not addressed here.

Ideas

CAWCD Sole Decision-Making Responsibilities

Examples include:

1. All existing responsibilities as authorized by state and federal law, i.e., duties
   related to the CAP Project and the replenishment of excess groundwater.
2. Day-to-day operation of the ADD Water Program.

CAWCD Decision-Making Responsibilities in Consultation with ADD Water
Contractors

Examples include:

1. Scheduling of ADD Water.
2. Development of an ADD Water reserve fund policy.
3. Procedure and guidance for assigning ADD Water contracts.
4. Any program for storing unused ADD Water supplies underground to ensure
   the reliability of future ADD Water deliveries to ADD Water contractors, as
   well as recovery of that stored water.

CAWCD Decision-Making Responsibilities Requiring Consent of ADD Water
Contractors

Examples include:

1. Types of water sources that will be pursued for ADD Water, e.g., present
   perfected rights to Colorado River water, groundwater, desalinated water.


                                         72
2. Phases of ADD Water supply acquisition and infrastructure construction.
3. Upper limits on the costs of ADD Water acquisition and infrastructure
   construction, including environmental compliance.
4. Funding mechanisms for capital costs of ADD Water supplies and
   infrastructure.
5. Case-by-case determination of using ADD Water outside the CAP Service
   Area (i.e., those uses not specifically authorized by Policy Briefing Paper
   #11).
6. Form of the standard ADD Water contract.
7. Enabling legislation.




                                       73
 
                          ATTACHMENT F

Administration of ADD Water: Strawman Proposal Draft

                         December 29, 2009

                        Policy paper prepared by the

 Policy paper prepared by the Arizona Municipal Water Users, City of Tucson,

     potential water supply sellers, Resolution Copper, APS and SRP on

                        Administration of ADD Water.




                                     75
 
                                    ADMINISTRATION OF ADD WATER

                                                Strawman Proposal 1
                                                      Draft
                                                 December 29, 2009


The CAWCD Board of Directors has many existing responsibilities that are
prescribed by law. An ADD Water program should not diminish any of the
current authority of the CAWCD Board. However, because the ADD Water
Program will be a new area of responsibility for CAWCD, a clear definition of the
respective roles of CAWCD and the ADD Water contractors is necessary.
CAWCD, as the operator of the CAP canal and other facilities that will be used to
transport ADD Water and the entity that will acquire ADD Water supplies for the
benefit of the ADD Water contractors, has the primary responsibility for the
administration of an ADD Water Program. ADD Water contractors, who will
finance the ADD Water Program and will rely on ADD Water to provide a
sustainable water supply, also need a role in order to ensure the certainty and
clarity that will enable them to make informed decisions.

Many responsibilities of an ADD Water Program are within the sole purview of
CAWCD. For example, CAWCD will be responsible for the day-to-day operation
of the ADD Water Program.

Other responsibilities should be carried out by CAWCD only after receiving
advice from stakeholders. An example is the development of a standard form of
contract for ADD Water.

Some aspects of an ADD Water Program are best implemented by CAWCD after
it consults with those who have signed an ADD Water Contract. Examples
include:

1.          Scheduling of ADD Water.

2.          Development of an ADD Water reserve fund policy.

3.          Procedure and guidance for assigning ADD Water contracts.

4.          Any program for storing unused ADD Water supplies underground to
            ensure the reliability of future ADD Water deliveries to ADD Water
            contractors, as well as recovery of that stored water.

5.          Case-by-case determination of using ADD Water outside the CAP Service
            Area (i.e., those uses not specifically authorized by Policy Briefing Paper
            #11).
1
    Developed by representatives of AMWUA, the City of Tucson, potential water supply sellers, Resolution Copper, APS and SRP.



                                                                77
Finally, certain responsibilities of an ADD Water Program are best administered
pursuant to a standard form contract between the CAWCD and the ADD Water
contractor. A contractual relationship has many benefits, including providing the
confidentiality CAWCD will need to effectively negotiate the acquisition of ADD
Water supplies and the certainty ADD Water contractors will require to invest in
the ADD Water Program. Examples of these responsibilities include:

1.       Types or classes of water sources that will constitute the water supply for
         each type/class of ADD Water, e.g., present perfected rights to Colorado
         River water, groundwater, desalinated water, etc.

2.       Timing of ADD Water supply acquisition and infrastructure construction for
         the block of water and infrastructure indentified for the current ADD Water
         contracts.

3.       Upper limits on the costs of ADD Water acquisition and infrastructure
         construction, including environmental compliance.

4.       Financing mechanisms for capital costs of ADD Water supplies and
         infrastructure.

General Process for Implementing the Strawman Proposal

CAWCD will convene (or continue) a stakeholders process to develop a standard
form of contract for ADD Water. The process will include the establishment of a
legal subcommittee for the purpose of drafting (for ultimate approval by the
CAWCD Board of Directors) the standard form of ADD Water contract, which will
define the roles and responsibilities of the contracting parties as outlined above.
The process will also include the development of necessary enabling legislation
for an ADD Water Program.

The standard form of contract for ADD Water will include the terms and
conditions previously developed during the ADD Water stakeholders process and
a time-limited feasibility phase. During the feasibility phase, CAWCD will, among
other things:

     •   Identify specific water sources that will be pursued for ADD Water, up to
         the initial target amount of 300,000 acre-feet.
     •   Determine the timing of ADD Water supply acquisition and infrastructure
         construction.
     •   Estimate costs of ADD Water acquisition and infrastructure construction,
         including environmental compliance.
     •   Secure options or other legal assurances for the acquisition of identified
         water supplies.
     •   Develop necessary financing.


                                          78
Any ADD Water contractor who does not agree with the findings of the feasibility
phase may opt out of the contract and will incur no further financial responsibility
for the ADD Water Program. Additionally, other stakeholders may opt-in to the
ADD Water Program during the feasibility phase or before the implementation
phase begins by signing an ADD Water contract.

Once the feasibility phase is complete, the water supplies and infrastructure
referenced in the ADD Water contracts will be developed during an
implementation phase. (The implementation phase may include financial
provisions that spread the costs of infrastructure construction.) Expansion of the
ADD Water Program beyond the existing contracts will be accomplished by
initiating a new feasibility phase and a new set of contracts, which will not
interfere with the contractual rights of existing contractors.




                                         79
                            Summary of Stakeholder Responses by Interest, Concern and Expectations
      Interest                         Concern                                   Stakeholders expect…

                            Stakeholders recognize that access           Existing CAP (and other) contracts will not be impaired
                             to water is critical to their interests      Interests of CAGRD will be protected
                             and are concerned that this process
                                                                          CAGRD will not be given preferential treatment
                             not result in certain entities
                                                                          CAGRD to meet its obligations
                             becoming winners and others
To fairly share water                                                     Interests of agriculture, industrial, and other non-municipal
                             becoming losers.
and to provide                                                             providers will be considered
                            ADD Water process may allow water
access to new                                                             That those without, or with limited, CAP entitlements and
                             supplies to be tied up for specific
supplies by all                                                            other renewable supplies will be able to get water they need
                             users in advance of the need in
participants in the
                             order to meet AWS rules                      Have a renewable water supply to replace groundwater
three county area.                                                         usage and meet population growth demands
                            Whether CAWCD is statutorily
                             mandated to give preference to               To prevent hoarding
                             CAGRD in water                               Customer driven process and equal access to new supplies
                            Workable process that is customer             by all participants
                             driven; ” non command”                       An alternative to the CAGRD

                            Protecting groundwater supplies              Enough water to off set surface water supplies during
To plan for drought         Preparing for climate change                  shortages and droughts
and other shortages         Having enough water for drought              Provide water for shortage protection, including AWBA and
                             protection                                    additional recharge options
                                                                          Outcome of ADD Water to have broad support
                                                                          CAP Board to support a consensus decision to share and
                                                                           pay for water
                            Failure of process, lack of                  Decision to be made before it's too late
To develop a solution        consensus                                    Will reduce competition and result in lower cost
that will be adopted        Lack of leadership support                   Regional solution to acquiring water supplies
                            Take too long                                Single entity like CAP acquiring new supplies for the region
                                                                          Solution will be compatible, to the extent practicable, with
                                                                           existing water resource programs and plans
                                                                          Simple, smooth process for requesting supplies.

                                                                                                                                   1
                             Summary of Stakeholder Responses by Interest, Concern and Expectations
       Interest                         Concern                                   Stakeholders expect…

To have sufficient       Stakeholders are concerned that
water delivery           sufficient system capacity, reliability and
                                                                       Infrastructure issues will be addressed
capability               redundancy be made available.

                             Existing or future legislation and
                              regulation may create barriers to the
                              ADD Water process. Among those
                                                                          New water supplies have the ability to satisfy assured water
To address                    concerns are environmental
                                                                           supply requirements
regulatory barriers to        regulations, potential Federal
                                                                          Work within existing laws, regulations and policies where
implementation                conditions on the use of the CAP
                                                                           practicable and seek changes to accommodate solutions
                              aqueduct.
                                                                           when necessary
                             ADD Water process may not satisfy
                              AWS requirements

                                                                          Affordable, equitable and financially sustainable
                             Whether or not pricing strategies will      Equitably allocated among current users
To design a fair              be equitable, affordable and                Equitably allocated between current and future users
mechanism to pay for          reasonable.                                 Achieve Arizona Corporation Commission (ACC) rate
new water supplies.          Postage stamp or variable                    approval
                             Upfront funding needs                       Understandable and flexible
                                                                          Those who use it pay for it

                         Participants identified background
                         information that includes:
                          Roles of regulatory agencies                   To monitor the process
To receive enough
                          Alternatives for cost and sharing              To protect their interests
information to make
                          Clarify CAP customer expectations              To craft a solution
an informed decision
                          Current and potential future water             To learn
                             supplies including the CAGRD water
                             portfolio


                                                                                                                                  2
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009

                                 GOVERNANCE MANAGEMENT STRUCTURE

                 What is the role of participants in overseeing and managing the ADD Water Program?

ALTERNATIVES
1. Existing Stakeholder Process
 Existing CAP Board policy regarding stakeholder input to CAP Board Committee:
  - Collaborative stakeholder process with goal of achieving consensus
  - CAP staff makes recommendations to Board Committee
  - Possible new Board committee for ADD Water

2. Advisory Council Approach
 ADD water advisory committee, comprised of participants in ADD water; rotating membership; various interest groups
  represented.

3. Participant's Council
…there would be a Participants Council whose duties and rights would be defined in a contract with the CAWCD Board.
The Participants Council would work with CAWCD staff on oversight and management of the planning and budgeting of
ADD Water and the financial contributions of the participants.

OTHER CONSIDERATIONS
 Each ADD Water Participant should have a vote on adoption of the Master Plan, Annual Budget, and Operations Plan.
  An appropriate weighting mechanism to balance the financial commitment of the Participants and other key
  considerations should be addressed.
 A Participants’ Council would be formed for each phase of ADD Water.
 Representation on Participant's Council (Alternatives)
1. Representatives of participants
   - Once a Participant has entered into a contract with CAWCD to participate in the ADD Water Program, the
      Participant is then eligible for representation on a “Participants Council”. Representatives on the Participants Council
      are selected by the Participants.
2. Participant represents his or her self
   - A Participants Committee would be established, and would be comprised of those participants who wish to obtain
      ADD water services.




                                                              1
                                Summary of Stakeholder Team Alternatives
                                      Prepared August 19, 2009

                                GOVERNANCE MANAGEMENT STRUCTURE

                                          What is the governance structure?

ALTERNATIVES
1. All decisions made by CAP limited only by contract
 CAWCD Board of Directors, elected by popular vote, as under current statutes.
 Decisions by Board of Directors subject to terms of contract between CAWCD and participants.

2. CAP Board and Participants Council through Participation Agreement
 ADD Water would be governed by the CAWCD Board of Directors and the Participants Council through Participation
  Agreements between the CAWCD and members of the Participants Council. The relationship between CAWCD and the
  Participants Council is based on the Participation Agreements specifying the rights and obligations of all parties.

3. Decisions made by Participant's Council
 …certain important decisions regarding ADD Water must be made by a Participants Council.

4. Balance between decision making roles of all parties
 …there will be a relationship between the role of the CAWCD Board and the strength of the protections for the
  participants contained in the contracts. To the extent that the CAWCD Board has greater responsibility for final decision
  making, some members of the team believe that the contracts must contain strong protections for the participants.
  However, there was no consensus on the nature and extent of the protections necessary. To the extent that the
  participant’s themselves are responsible for final decision making, contractual protections become less important.

OTHER CONSIDERATIONS
 CAWCD Board and Participants' Council (in a contractual relationship) with Technical Advisory Committee to the Council
  appointed by the Council.
 ADD Water Participants should have input to the ADD Water program by having a role in the development and adoption
  of a long-range Master Plan, Annual Budget and Annual Operations Plan for ADD Water that is separate and distinct
  from CAWCD budget and operations.
 If there is no Participants Council, then ADD Water contracts will need to be much more detailed and structured.




                                                            2
                                Summary of Stakeholder Team Alternatives
                                      Prepared August 19, 2009


                                          PARTICIPATION ELIGIBILITY
                                Who is eligible to obtain a contract to use the supply?
ALTERNATIVES
1. Three county area only
    …ADD Water should be available to any municipal, industrial or agricultural and Indian users within the existing 3-
     County CAWCD service area, and to the CAGRD and CAGRD members.
    … water authority…

2. Outside three county area
    Grandfather in water planning areas of existing users that extend beyond the three county area (Peoria exception)
    Any user who can access the water from existing or new turn-outs along the CAP (including those outside the three
      county service area) and any existing or new diversion point along the Colorado River

3. Remarketers (speculators) in or outside three county service area
OTHER CONSIDERATIONS
 Water user who makes the requirement financial commitment to participate.
 Any…water user…including municipal water providers and individual subdivisions that need replenishment services




                                                            3
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009



                                          PARTICIPATION ELIGIBILITY


                                  What are different classes of ADD Water contracts?

ALTERNATIVES
1. Two or more classes of water
 Firm (also known as Long-term, Firm Annual, Primary Contract)
  - Contracts offered of sufficient reliability such as to ensure satisfaction of existing assured water supply
     requirements.
 Non-firm, excess, back-up, reserved, unused, interruptible, secondary contract (may or may not be the same classes
  of water)
  - Contracts offered for users who want a water supply on demand to make up shortages or as a drought/emergency
     supply and/or for users willing to accept an interruptible supply.

2. One class of water
 One type of contract
 Can use for any legal purpose
 Supply is 100 year firm
OTHER CONSIDERATIONS
 Drought supply program (references bullets below)
 Drought supply program for existing long-term CAP customers
  - Long-term municipal CAP subcontracts (M&I and Off-Res Indian contracts) are kept whole in all conditions
    (shortage or not)
  - Determine value of 1.5 to 1.8 MAF canal capacity and compare to the value of an independently acquired drought
    supply for CAP subcontractors
  - Distribute cost accordingly
 Drought supply program for ADD Water program




                                                          4
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009


                                           PARTICIPATION ELIGIBILITY

                                     How can entities opt-in of the supply option?

ALTERNATIVES
1. Join Anytime Program
 Entities can join the ADD Water Program at any time by executing a contract and paying the charges due

2. Block Party Approach
 Initial participants will be asked to answer a "call" for a water supply subscription
 Participants will participate in the block methodology until the subscription is exhausted
 Participants will be given x amount of time to raise the capital needed to invest in the subscription and for CAP to make
  the supply "delivery ready"

3. Participant Agreement Approach
 CAP will draft a standard Participation Agreement for review by and negotiation with potential Participants. This
  agreement will address initial decision-making, start-up costs, and the size of Participants’ initial shares of ADD Water.
  This initial group will develop long-term Participation Agreements prior to any capital expenditures being made.
 Anticipated phases for upfront payments, off-ramps and changes to commitment levels:
  - Start-up.
  - Initial investigation and due diligence for water acquisition. Design of increased capacity sufficient to develop cost
    estimates.
  - Commitment to construct improvements.
  - Commitment to acquire water. There may be separate requirements as different blocks of water become available
    over time.

4. Multi-Contract Approach
 By taking a planning contract for a particular phase, participants can participate in the planning for that phase.
 Capacity contracts for a particular phase would be issued to participants with planning contracts who choose to pursue
  a capacity contract.
 Contracts for water supply acquisition within a phase would be issued separately from capacity contracts; e.g., water
  could potentially be acquired prior to the time that delivery capacity is constructed.

OTHER CONSIDERATIONS
 Entities must make the required financial and contractual commitments to opt-in to the ADD water program.




                                                              5
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                            PARTICIPATION ELIGIBILITY

                                     How can entities opt-out of the supply option?

ALTERNATIVES
1. Assignment
 An entity wishing to opt out of the program may assign its contract to another entity.
 Assignments will require CAP's approval (based only on operational considerations) and must not have adverse
  impacts on the other participants.
 The assigning entity may not receive more money for the water being transferred than the current amount that the
  assignee would have paid CAP to obtain an ADD Water contract of equal volume.
 Other participants will have the first right of refusal to assume a withdrawing Participant’s position.

2. Relinquish contract and water to CAP
 Initial participants can transfer their ADD Water contracts according to transfer procedures similar to transfer policies for
  existing CAP subcontracts which limits the return on investment (profit)
 CAP acts as the clearinghouse for re-assignments; water will be reassigned to interested parties, and shared pro-rata if
  oversubscribed.

3. Participant Agreement Approach
 Anticipated phases for upfront payments, off-ramps and changes to commitment levels:
  - Start-up.
  - Initial investigation and due diligence for water acquisition. Design of increased capacity sufficient to develop cost
     estimates.
  - Commitment to construct improvements.
  - Commitment to acquire water. There may be separate requirements as different blocks of water become available
     over time.

4. Multi-Contract Approach
 Opt-out requires either: (1) a decision not to enter into contracts when they are made available, or (2) transfer of the
  contract to another entity.

OTHER CONSIDERATIONS
 No financial relief until contract is assumed by others.
 …discourage use of ADD water as a ‘bridge supply’.
 A Participant may opt out…as long as there are no adverse impacts on other Participants.




                                                              6
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                           PARTICIPATION ELIGIBILITY

                         How to accommodate future participants in terms of sharing water?

ALTERNATIVES
1. Join Anytime Program
 Entities can join the ADD Water Program at any time by executing a contract and paying the charges due
 Future Participants may join the ADD Water program at any time, subject to availability, by executing an ADD Water
   Participation Agreement and making the required financial commitment.

2. Assume an ADD Water contract from an initial participant
 Future participants can participate in subsequent ADD Water phases, or may acquire ADD Water contracts from
  existing participants.
 Future participants can assume an ADD Water contract from a participant in an earlier subscription according to the
  following:
  - Assignment of existing ADD Water contracts managed by CAP according to policies established by CAP board
     similar to existing ADWR/CAP transfer policies
  - If the transfer criteria are exhausted, then relinquished ADD Water contracts are incorporated into the next
     subscription

3. Reserve portion of supply/capacity for future users
 Portion of ADD water capacity/supply reserved for future needs
 Reserve 100,000 acre-feet per year of ADD Water Canal Capacity.
 Acquire water supplies for future Participants at a later date.

4. Block Party or Phasing Approaches
 Future participants can wait until CAP opens a new subscription
 By taking a planning contract for a particular phase, participants can participate in the planning for that phase.

5. Rolling 10 Year Process
 Participants can join at any time, so long as they have an estimated need for ADD water within next 10-year period.

6. Addressed in Master Plan
 Access to ADD Water for future participants shall be addressed in the Master Plan and reviewed periodically in the
   Plan of Operation. Current needs and available ADD Water supplies and projected future demand shall form the basis
   of the analysis.




                                                              7
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                            PARTICIPATION ELIGIBILITY

                                  How to financially accommodate future participants?

ALTERNATIVES
1. Keeping initial participants whole
 …new participants compensate existing participants
 If a future subscriber assumes an existing contract, then they are required to pay all the previously paid costs
  associated with the contract according to the transfer and relinquishment policy administered by CAP
 The addition of future participants must have no adverse financial impacts on existing participants. The financial
  structure must keep initial participants whole.

2. Block Party or Phasing Approaches
 If a future subscriber is part of a future subscription, they pay like everyone else in the subscription
 Future participants will have the opportunity to buy in to future phases under the same process…

3. Join Anytime Approaches
 Costs are determined at the time of contracting, based on the class of ADD Water contract
 Initial fee to join ADD Water is adjusted each year to take into account time value of money
 CAWCD Board has the option each year to adjust the initial fee, based on changes in the estimated costs of acquiring
  water and installing infrastructure
 All participants pay the same postage stamp rate on capital needed to build total ADD capacity up to 2.2. MAF (or
  whatever master plan indicates is cost effective max capacity)

4. Rolling 10 Year Process
 Later participants pay some make-up charge to account for loss in value of money from date ADD water opens for
  business.
 Participants may increase contract year-to-year automatically
OTHER CONSIDERATIONS
 The distribution of capacity contracts would be periodically revisited after the initial issuance. Any capacity contract that
  becomes associated with an actual water supply contract prior to the reassessment becomes vested and cannot be
  redistributed without consent. Otherwise, capacity contracts can be redistributed to other users with vested contracts in
  the same phase (carrying costs would be repaid).
 Relinquishing subscribers are reimbursed when CAP collects funds from the new subscriber also consistent with the
  policy
 …parties that sign on later could be required to make payments that could be used to reimburse earlier Participants for
  any higher upfront costs that they contributed earlier in the program.
 Assuming up to 700 KAF of ADD Water contracts, all ADD Water participants pay capital charges:
  - Water rights and related infrastructure if needed
  - Expansion of main stem CAP system
  - Timing of program entry (charge amount increases over time)




                                                               8
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009


                                              NEED DETERMINATION

                                  How does "need" play a role in sharing the supply?
ALTERNATIVES
1. Participant-defined need backed by financial buy-in
 Participants projected needs and ability to pay are used as basis for supply sharing
 Each participant's share is determined by that participant based on its financial buy-in
 Contract amount is limited based upon demonstrated 10-year growth

2. Block Party Approach
 Determine the volume of subscription one
 Could determine based on requests from a "call"
  - Could determine based on volume acquired by CAP
  - If the "call" is oversubscribed, then proceed to the "block party" method:
 "Block Party" methodology
  - Divide the subscription volume by the number of requestors to determine first round offers (e.g. 100,000 acre-foot
     subscription volume with 10 requestors equals 10,000 acre-foot first round offer)
  - Each requestor may accept up to the round one offer volume
  - At the close of round one, if the sum volume not accepted under contract then:
  - Divide the volume not accepted in round one by the number of participants left after round one to determine round
    two offer volume (e.g. 20,000 acre-feet left in subscription with 5 requestors left equals a 4,000 acre-foot round two
    offer)
  - Each requestor may accept up to the round two volume
 Continue until subscription one is exhausted

3. Rolling Ten Year Need Projection Process
 Participation in ADD water grows over time as need for ADD water grows.
 Participant determines 10-year projection for ADD water needs. No second guessing by CAWCD.
 On replenishment side, CAWCD may estimate needs for service for existing members, as they currently do.
 Each year, contract is extended by one year to accommodate increased ADD water demands for next year (i.e. 11th
  year, 12th year, etc.). This can occur automatically by participant submitting an estimate of their ADD water demand for
  the extension year, plus the initial fee for the extension year, based on the incremental increase for that year.
 Sidebars needed in contract to prevent over-estimating water demands. Possible choices:
  - Holding fee
  - Take or pay provisions.
  - Possible forfeiture or reset of contract if consistently take less water than projected over period of time.

4. Primary User Category Program:
For each new phase, planning contracts would be made available within three primary user categories: municipal,
CAGRD, and “Other” (including industrial, non-firm, and agricultural) based on a formula to be agreed upon by the ADD
Water stakeholders. The formula would divide capacity within each phase among the primary user categories based on
projected growth in water use within those categories over 10 years (e.g. 50% GRD, 30% municipal, 20% other).
Contracts would be available within each category for a specific “open contracting period.” In the event of conflicting
applications within a category, reductions would be unanimously agreed upon by all the participants in that category.

The formula is intended to ensure that ADD Water will be made available to CAGRD, municipalities, and other users to
meet growth demands. If a planned phase will not address these needs, another phase should be opened to address
them.

Note that the redistribution process, together with the separation of capacity and supply contracts, would prevent
                                                              9
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009

                                              NEED DETERMINATION

                                 How does "need" play a role in sharing the supply?
“hoarding” of capacity/supply beyond that which can actually be used.

OTHER CONSIDERATIONS
 If initial requests exceed potential supply, requests will be reduced pro rata. Consideration should be given to allowing
   a de minimus participation that will not be subject to proration.
 The Participants Council will determine the availability of ADD Water for future Participants.
 Need should NOT be determined by ADWR, CAP or any other agency.
 "Need" is not a factor used to determine who gets ADD Water.




                                                            10
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                                NEED DETERMINATION

                                                 Who determines the need?
 ALTERNATIVES
 1. Participants/users determine need
 ...participants should determine their own need and report the number to CAWCD for planning purposes.
 Each participant determines its own need.
 Need should not be determined by ADWR, CAP or any other agency.

 2. Participant's Council determines need:
 Participant presents need to Participants Committee
 Participants Committee conducts peer review of Participant’s stated need
 Contract amount is determined by Participants Committee based upon demonstrated need

 3. Plans of organizations determine need
 CAGRD plan of operation, municipal water plans, and other user-submitted demand growth information (e.g., planned
   industrial uses) would be used to establish the distribution formula for planning contracts [presumes CAP would prepare
   projections based on this information]

OTHER CONSIDERATIONS
 Contract should identify a set of estimating criteria that all parties will use in estimating demand (i.e., gpcd)
 Should be sidebars that discourage over-ordering, over-subscription, or hoarding




                                                               11
                                   Summary of Stakeholder Team Alternatives
                                         Prepared August 19, 2009


                                              PRIORITIES/CONDITIONS

                                  What conditions are placed on the use of the supply?

ALTERNATIVES
1. Authorized uses
 Use only for legal purposes under applicable state and federal law.
 ADD Water would be eligible to create long-term storage credits under the same terms and conditions as other
   sources of water. Minor statute changes may be needed.

2. Three county area only
 …ADD water may only be used in the 3-county service area.

3. Outside three county area
 ADD Water may only be used within the three-county CAWCD service area; provided, however, that service outside
      of the three-county service area will be allowed only if all of the following conditions are met:
      - The service is provided by a municipal provider;
      - The majority of the municipal provider’s service area is within the three-county service area;
      - The area outside of the three county service area to be served is contiguous to the municipal provider’s service
         area within the
      - three-county service area; and
      - The area being served was within the municipal provider’s boundaries as of January 1, 2009.

4. Remarketing of credits okay
 Storage of ADD Water is permissible, as well as remarketing of stored water.
 Can be recharged and recovered in accordance with applicable regulations.
 Any resale or remarketing of ADD Water, either on an annual basis or on a permanent entitlement basis, should be
  subject to a process overseen by CAWCD
 A Participant may transfer or resell any ADD Water or storage credits developed by ADD Water, provided that any
  “profit” from such transfer shall be returned and used to reduce the costs of the other Participants.

 5. Remarketing of ADD Water or credits prohibited beyond ADD Water participants
 …ADD Water should not be a commodity for profit; that there should be no remarketing of ADD Water, contracts, or
     entitlements other than through the relinquishment procedure set forth below.
 …ADD Water, contracts, or entitlements may be relinquished to other participants on a right of first refusal basis or
  back to CAWCD for disposition. Any use of the right of first refusal must be done pro-rata to all participants who wish to
  participate in proportion to their current committed ADD Water volume.
 …there should be no sale of any long-term storage credits derived from ADD Water but long-term storage credits could
  be transferred at cost to an ADD Water participant or to CAWCD for ADD Water purposes.
 …any gain made by CAWCD on the sale or transfer of ADD Water (through a program for sales of unscheduled ADD
  Water) be returned for the benefit of the ADD Water.

OTHER CONSIDERATIONS
 ADD Water will be subject to delivery conditions developed in the ADD Water Master Plan
 Water delivery timing must be consistent with existing CAP contracts/subcontracts and ADD Water contracts




                                                              12
                                    Summary of Stakeholder Team Alternatives
                                          Prepared August 19, 2009


                                             PRIORITIES/CONDITIONS

                                        What are the priorities during shortages?

ALTERNATIVES
1. Pro-rata reductions by one or more water class
 Shortages shared pro rata within class based upon amount of contract in relation to magnitude of shortage to ADD
  Water supplies
 If only one class, then whole supply is shared pro-rata

2. Priorities on water classes and/or phases
 Long-term ADD Water contracts have priority to excess ADD Water contracts
 The following priority system will be followed within ADD Water
   - Long-term Firm ADD Water contracts have highest priority
   - Long-term Non-Firm ADD Water contracts are next
   - Short term (spot market) ADD Water contracts have lowest priority
 Shortages would be allocated within…each phase based on the actual availability of the water supplies that are the
  source of water for that class.

3. Priorities based on water deliveries
 Fill direct use orders first
 Fill annual recharge and recovery (put & take) second
 Fill long term storage credit recharge and recovery third
OTHER CONSIDERATIONS
 Drought supply program for existing long-term CAP customers
  - Long-term municipal CAP subcontracts (M&I and Off-Res Indian contracts) are kept whole in all conditions (shortage
    or not)
  - Determine value of 1.5 to 1.8 MAF canal capacity and compare to the value of an independently acquired drought
    supply for CAP subcontractors
  - Distribute cost accordingly
 Drought supply program for ADD Water program
 Some believe there may be instances where ADD Water used for replenishment must continue without a proportional
  reduction due to current statutory requirements for completion of replenishment within three years. Others feel
  immediate use is a higher need, but that statutory changes may be necessary to accomplish this.
 Consider extending time for conducting replenishment services; consider extending time for replenishment in advance.




                                                              13
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009



                                              OWNERSHIP INTEREST


                                               Who owns the water right?

ALTERNATIVES
1. CAWCD owns
 CAP owns water right
 CAWCD would either own or have the contractual right to control the water delivered

2. CAWCD holds on behalf of Participants
 CAWCD holds the ADD Water water rights on behalf of the Participants
 …CAWCD will own the water rights, leases, and other contracts that result in ADD Water on behalf of the participants
OTHER CONSIDERATIONS
 CAWCD may use Project Water for ADD water purposes, if available considering deliveries under long-term CAP
  contracts and subcontracts.
 To the extent that ADD Water funds purchase of water rights that results in delivery of "Project Water" into canal, that
  water is used for ADD water purposes
 Do not tie a particular participant to a particular supply.




                                                             14
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009



                                              OWNERSHIP INTEREST


                                               What does end user hold?

ALTERNATIVES
1. ADD Water contract
 The ADD Water participant has a contract with CAWCD that details the Participant's right to the delivery of a specified
  amount of water for a specified period of time
 End user holds a permanent service contract for water
 Contract includes a volume and a term
2. Right to delivery capacity
 The ADD Water participant has a contract with CAWCD that details the Participant's right…to delivery capacity,
  contingent upon making the required financial commitment.

OTHER CONSIDERATIONS
 An equity interest or use right in the infrastructure not owned by the U.S.
 A seat on the Participant's Council
 A participation agreement
 A water source that qualifies for 100 year AWS




                                                             15
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009



                                               OWNERSHIP INTEREST


                                              Who owns the infrastructure?

ALTERNATIVES
1. CAWCD owns infrastructure
 Ancillary facilities constructed to develop ADD Water supplies or transport those supplies to the CAP or to a CAP
  delivery point would be owned by CAWCD.
 CAWCD, with the Participants having an equity interest or use right in the infrastructure not owned by U.S.

2. U.S. owns infrastructure
 … United States owns the CAP Canal, including the increased capacity in the Canal resulting from ADD Water.
OTHER CONSIDERATIONS
 Title to main CAP facilities remains with the United States.
 Ancillary facilities for the delivery of ADD Water beyond the CAP delivery point would be the responsibility of the end
  user and would be owned by the end user
 If necessary, a wheeling agreement will be negotiated with the United States for the ADD Water Canal Capacity.




                                                             16
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009



                                      USE OF UNSCHEDULED SUPPLIES


                                           How are unused supplies shared?

ALTERNATIVES
1. CAWCD markets unused supply independently
  Unscheduled supplies would be marketed on an annual basis by CAWCD in a manner similar to CAP excess water.
  CAWCD may offer unused supplies on an annual basis to any municipal, industrial or agricultural user.

2. CAWCD markets unused supply according to Master Plan
  Unused supplies are available for sale by CAP pursuant to the Master Plan, Annual Budget and Operations Plan
    approved by the Participants Council

3. Participant markets its unused supply
  To be determined from time to time by the participant who is not using the water and the Participant Council in
    accordance with the provisions of the Participation Agreement

OTHER CONSIDERATIONS
 Proceeds from the sale of unused supplies to eligible entities will be used, first, to make non-using participants whole
  and, second, to reduce the costs to other participants
 Unused ADD Water shall not be sold for less than the cost CAP/ADD water
 Unused supplies should be defined as "ADD Water that is not scheduled by the participants in any given year".
 ADD Water participants (both firm and non-firm) have first right of refusal to unused supplies on an annual basis.
  CAWCD may offer, on an annual basis, any remaining unused supplies to any municipal, industrial or agricultural user
 Unused ADD Water supplies within a particular category in any given year are remarketed within that category
 Groundwater supplies not used to meet scheduled deliveries in any year should be left in place for future use
 Surface water supplies not used to meet scheduled deliveries in any year may be stored underground for future use




                                                            17
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                            CAPITAL COSTS – SUPPLY

                                                                  How are capital costs associated with acquiring the
       How is up-front capital funding generated?
                                                                                    supply repaid?
ALTERNATIVES
1. Participants pay up-front
 ADD Water Participants are responsible for generating their own funding to pay the upfront capital charge for the
  requested volume at the time the contract is executed.
 Each participant generates its own capital.
 …a portion of capital costs of ADD Water supplies must be paid for in advance (i.e., a kind of down payment)
 Capital required for water supply acquisition would be generated via the water supply contract component.
 Payment must be made before water deliveries begin
 Capital funding is required upfront…therefore, no repayment of capital costs is needed.

2. Lay Away Program
 Paid up-front over x period of time; x period might be 10 years from "call"
 Consideration should be given to allowing a Participant to make the upfront payment into an interest bearing escrow
  account over a five-year period.
 Seed money may be desirable.
 Capital costs can be repaid by:
  - Periodic lump sum payments; to be determined from time to time by the Participants Council.

3. Financing through CAP
 Bulk of up-front capital generated through bonding program by CAWCD.
 Contract costs would include payment of up-front capital costs and/or payments to underwrite bonds issued by CAWCD
  at the contractor's option.

4. Use of other revenues generated by CAP
 Other sources of capital funding for water supply:
  - ad valorem taxes;
  - initial fee to join ADD water based on amount of projected ADD water supply in 10th year.
  - annual holding fee for future water supplies (similar to membership fee). Apply to both augmentation and
     replenishment water. Holding fee may decrease as water deliveries to participant increase.
  - connection fee payable upon pulling building permit within ADD water city or participant.
  - rates for delivered water include component to retire bonds.
 Capital costs can be repaid by:
  - Separate component in water rates

5. Master Plan approach
 Master plan used as basis to determine estimated total costs of supply
 Capital costs can be repaid by…periodic lump sum payments to be determined from time to time by the Participants
  Council.

OTHER CONSIDERATIONS
 Anticipated phases for up-front payments, off-ramps and changes to commitment levels:
  - Start-up.
  - Initial investigation and due diligence for water acquisition. Design of increased capacity sufficient to develop cost
    estimates.
                                                             18
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009

                                             CAPITAL COSTS – SUPPLY

                                                                   How are capital costs associated with acquiring the
       How is up-front capital funding generated?
                                                                                     supply repaid?

  - Commitment to construct improvements.
  - Commitment to acquire water. There may be separate requirements as different blocks of water become available
     over time.
 Payment includes water rights and related infrastructure (other than CAP canal) components
 The amount of up-front payments may be established to differentiate between the classes of product. Non-firm Water
  may not need an up-front payment.
 Water acquisition capital fee based on blended costs of total supply
 If initial participants have paid for ADD Water that will be used by future Participants, future Participants must pay their
  proportional share of capital costs for such ADD Water to reduce the costs to initial Participants.
 Determine the per unit rate (unit is an acre-foot)
  - Convert the costs of the water rights and off-site improvements into net present value
  - Divide the sum of the volumes offered in the subscription by the net present value of the water rights and off-site
     improvements (i.e. infrastructure to develop and transport the supply to the canal) for the subscription




                                                              19
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009


                                             CAPITAL COSTS – SUPPLY

                                    How are costs associated with replacement paid?

ALTERNATIVES
1. No replacement costs for supply
 Replacement costs are not applicable to the acquisition of water supplies.
 …there will not be a charge for replacement of water supplies that are for permanent use.
 No replacement costs associated with water supply acquisition are anticipated.

2. Collect from participants directly
 Additional Participant capital contributions

3. Pay through OM&R rates
 Unforeseen replacement costs are paid through OM&R rates
 As expenses under OM&R

4. CAWCD debt
 CAWCD incurred debt; to be determined from time to time by the Participants Council.

5. Same process as initial supply
 Finite supplies acquired for a subscription include a component for replacement cost
 To the extent that any short-term supplies must be replaced, the funding process would be the same as that for the initial
  supplies.
 Same program as for initial water supplies. CAWCD would periodically have to replace or increase water supplies as
  contracts expire or ADD water demand increases.

OTHER CONSIDERATIONS
 “Replacements” could include water treatment.




                                                            20
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009



                                     CAPITAL COSTS – INFRASTRUCTURE


                                                                   How are capital costs associated with infrastructure
       How is up-front capital funding generated?
                                                                                         repaid?

ALTERNATIVES
1. Participants pay up-front
 ADD Water Participants are responsible for generating their own funding to pay the up-front capital charge for the
  requested volume at the time the contract is executed.
 Infrastructure costs are paid up-front by the Participants to assure that CAWCD is not put at risk by using its own funds
  for the infrastructure…
 No repayment is involved, since all costs are paid upfront.
 No need for repayment, except that future Participants must pay proportional share of capital costs to reduce costs to
  the initial Participants

2. Lay-away program
 Consideration should be given to allowing a Participant to make the upfront payment into an interest bearing escrow
  account over a five year period.
 100% is paid up-front over x period of time (x period might be 10 years from "call")
 Canal capacity infrastructure is separate component paid upfront; One-time payment or five-year payment schedule
 Capital costs can be repaid by:
  - Periodic lump sum payments; to be determined from time to time by the Participants Council.

3. Financing through CAP
 …a substantial portion of the up-front capital costs for infrastructure must be financed: either by CAWCD, the
  participants themselves, or some combination thereof.
 Bulk of up-front capital generated through bonding program by CAWCD.

4. Use other revenues generated by CAP
 Other sources of capital funding for infrastructure:
  - ad valorem taxes;
  - initial fee to join ADD water based on amount of projected ADD water supply in 10th year.
  - annual holding fee for future water supplies (similar to membership fee). Apply to both augmentation and
     replenishment water. Holding fee may decrease as water deliveries to participant increase.
  - connection fee payable upon pulling building permit within ADD water city or participant.
  - rates for delivered water include component to retire bonds.
 Capital costs can be repaid by:
  - Separate component in water rates
  - As part of OM&R costs
OTHER CONSIDERATIONS
 …those who desire to participate in ADD Water should pay for infrastructure capital cost in proportion to their
  participation.
 Initial buy-in requirement. The participant is required to pay CAP's water acquisition capital charge multiplied by its
  desired entitlement to ADD water as of 2020.
 Determine target range given canal capacity constraints (400 to 700,000 acre-feet)
 Issues associated with determining the target canal capacity
                                                              21
                                   Summary of Stakeholder Team Alternatives
                                         Prepared August 19, 2009


                                      CAPITAL COSTS – INFRASTRUCTURE


                                                                    How are capital costs associated with infrastructure
        How is up-front capital funding generated?
                                                                                          repaid?

    -  Size of the pool? (400 to 700,000 acre-feet)
    -  Need to understand the nature of the use of the canal
    -  Who paid the cost to increase pump capacity to 3600 cfs?
    -  How do we make sure existing users are not impaired?
    -  Include infrastructure above 2.1 MAF (last 100,000 acre-feet really expensive)
    -  Include infrastructure below 1.8 MAF (impacts on existing users)
   The amount of up-front payments may be established to differentiate between the classes of product. Non-firm Water
    may not need an upfront payment.
   Periodic off-ramps or changes to commitment levels for Participants will be allowed, but money previously paid will not
    be refunded unless another or a later Participant picks up the share. In lieu of a per acre-foot fee, a Participant’s share
    may be calculated in terms of being a percentage of the ADD Water project.
   CAP will use those capital funds (i.e. infrastructure-related) to purchase water. There may be a lag time between the
    acquisition of water and the delivery based upon CAP’s ability to purchase water, unless CAP develops a starter pool of
    ADD Water.
   Infrastructure includes: improvements to the CAP Canal to improve annual capacity and, potentially, seasonal capacity;
    regional connectors to allow the delivery of augmentation water and replenishment water to strategic locations in the
    three-County area; other capital projects, such as a Buckeye desalination project; sinking fund to reserve for next
    improvements to Canal system beyond current 2.2 MAF plan.




                                                               22
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009



                                     CAPITAL COSTS – INFRASTRUCTURE



                                       How is peaking handled in terms of costs?


ALTERNATIVES
1. Participant manages and pays for its own peaking
 End users manage, to the maximum extent possible, peak demands locally
 CAP will not invest in peaking capacity
 No additional costs for peaking will be incurred
 Limitations on what portion of a contract is delivered each month needs to be studied before determining what the
  delivery limitation for ADD Water contracts will be
 Conditions for taking deliveries will be incorporated into contracts

2. Limited peaking controlled through contracts
 Peaking will be allowed to the extent the entire CAP system allows
 Limitations on what portion of a contract is delivered each month needs to be studied before determining what the
  delivery limitation for ADD Water contracts will be
 Conditions for taking deliveries will be incorporated into contracts

3. Incorporate into up-front infrastructure costs
 Canal capacity cost component is adjusted up or down based upon peaking

4. Peaking surcharge
 ADD Water contractors pay a peaking surcharge based on CAP capacity utilization during critical months.
 The funds generated from the surcharge would be used to address peaking issues (e.g., increasing delivery capacity or
  improving customers' ability to take water off peak).

5. Master Plan approaches
 Participants Committee determines as a part of development of ADD Water Plan of Operation
 Will be developed in the ADD Water Master Plan
 In general, peaking will be addressed in the Master Plan and Annual Operating Plan
OTHER CONSIDERATIONS
 Peaking of ADD Water should not have an impact on existing contract holders.




                                                             23
                                  Summary of Stakeholder Team Alternatives
                                        Prepared August 19, 2009



                                    CAPITAL COSTS – INFRASTRUCTURE



                                  How are costs associated with replacement paid?


ALTERNATIVE
1. Incorporate into up-front infrastructure costs
 ADD water infrastructure capital fee must be designed to cover direct up-front capital cost plus anticipated replacement
  costs for 100 years (to match term of supply)
 Additional Participant capital contributions

2. Incorporate into OM&R
 Alternately can capture replacement costs in “R” portion of OM&R
 As expenses under OM&R
 …through a "Big R'". (Same methodology as CAP uses today for CAP long-term contracts, but the cost pool is specific
  to ADD water infrastructure…)

3. Master Plan approaches
 As part of a per AF charge or periodic installment payments; to be determined from time to time by the Participants
  Council.
 Will be developed in the ADD Water Master Plan
OTHER CONSIDERATIONS
 Costs incurred by CAP or ADD that benefit the other will be shared appropriately and "appropriate share" will be
  determined in advance




                                                            24
                                Summary of Stakeholder Team Alternatives
                                      Prepared August 19, 2009


                            OPERATION MAINTENANCE AND REPAIR (OM&R)

                                  How are fixed costs associated with OM&R paid?

ALTERNATIVES (existing CAP fixed OM&R)
1. Fixed OM&R for existing CAP spread over CAP and ADD water in a postage stamp rate
 Fixed OM&R costs for the basic CAP system are spread evenly ("postage stamp" rate) across all users of the system—
  i.e., both CAP contractors /subcontractors and ADD Water contractors.
 The rate is determined by dividing total CAP fixed OM&R by the total amount of water (CAP and ADD) deliveries
  scheduled for that year. (Same methodology as used currently for M&I subcontracts, but with costs spread over a
  larger denominator.)

2. Share of OM&R for existing CAP apportioned to ADD Water
 …share of other CAWCD costs equitably apportioned to ADD Water. Participants Council will have oversight of the
  apportioning of shared CAWCD costs.
 CAWCD would assess a reasonable allocation of total OM&R to ADD Water based on incremental cost. ADD Water
  uniform delivery rates would be based on a “postage stamp” rate.

ALTERNATIVES (ADD Water only fixed OM&R)
1. Separate ADD Water Fixed OM&R
 Postage stamp rate
 Total costs established for Fixed OM&R for ADD Water infrastructure separately, and divided by the total amount of
  ADD Water ordered for the year
 Fixed OM&R costs specific to ADD Water facilities/infrastructure—i.e., new infrastructure necessary to introduce the
  ADD Water supplies into the CAP system—are spread evenly across all ADD Water deliveries.

OTHER CONSIDERATIONS
 Take or pay requirement on some portion [50% to 100%, depending on how up-front funding is handled] of the
  contractor’s ADD Water demand /entitlement to discourage hoarding and speculation.
 [Assumption : Reconciliation is a possibility]




                                                           25
                                Summary of Stakeholder Team Alternatives
                                      Prepared August 19, 2009


                            OPERATION MAINTENANCE AND REPAIR (OM&R)

                                             How are variable costs paid?

ALTERNATIVES
1. Spread over scheduled deliveries
 The variable costs for developing and transporting ADD Water supplies in any year will be spread evenly across all
  ADD Water scheduled for delivery in that year, up to a certain cost.

2. Spread over actual deliveries
 …variable OM&R costs should be paid by participants based on the annual amount of ADD Water delivered to the
  participant in proportion to the total amount of ADD Water delivered…

OTHER CONSIDERATIONS
 [Assumption : Reconciliation is a possibility]
 Peak deliveries would be assessed an appropriately increased portion of variable costs (e.g., to account for higher
  energy costs).
 May be appropriate to consider postage stamp rates for portions of OM&R
 No use of Project power
- ADD Water is not Project Water and is not entitled to use CAP "project power."
- The ADD Water pumping energy rate will be computed separately from the pumping energy rate for CAP Project Water.
 Use of Project power
- ADD Water may use Project Power, if it is available.




                                                           26
                                    Summary of Stakeholder Team Alternatives
                                          Prepared August 19, 2009


                            OPERATION MAINTENANCE AND REPAIR (OM&R)

                                    How are costs associated with replacement paid?

ALTERNATIVES
1. Pay through fixed OM&R rates
 Incorporate into fixed OM&R and treat the same.
 Replacement costs…will be spread across all ADD Water deliveries through a “Big R” component. (Same methodology
  as CAP uses today for CAP long-term contracts, but the cost pool is specific to ADD Water infrastructure and increased
  CAP capacity, and the customer base is limited to ADD Water.)

2. Additional Participant capital contributions

3. Reserve fund
 …OM&R replacement costs (little r) will be paid through a reserve fund by those participating in ADD Water based on
  the amount of ADD Water delivered to the participant, with an annual reconciliation process.

4. CAWCD incurred debt

5. Master Plan approach
 Will be developed in the ADD Water Master Plan
 The Master Plan and Annual Operating Plan shall identify replacement costs associated with the ADD Water Program
  and factor them into the rates.
 …determined from time to time by Participants Council through the Master Plan and Annual Operating Plan shall
  identify replacement costs associated with the ADD Water Program and factor them into the rates.

OTHER CONSIDERATIONS
 A replacement component (“Big R”) should be included in the cost for deliveries of the ADD Water supply and specified
  in the Participant’s Contract.
 …an annual reconciliation process.




                                                           27
                               Summary of Stakeholder Team Alternatives
                                     Prepared August 19, 2009



                                          ADDITIONAL QUESTIONS



                                     How does ADD Water qualify for an AWS?


ALTERNATIVES
1. ADD Water Assured Water Supply Eligible
 ADD water supply contracts will be AWS eligible once AWS-eligible water supplies are actually acquired by CAWCD.
2. Allocation of Assured Water Supply Eligible ADD Water amongst participants
 There should be a mechanism for dividing AWS-eligible supplies among those Participants that need to prove an AWS.
 Some portion of AWS-eligible supplies would be set aside for replenishment purposes.
 Remainder pro-rated among ADD water participants that desire AWS-available water.
OTHER CONSIDERATIONS
1. Firm water supply contracts will be AWS eligible within each phase
2. …eligibility of a particular water supply for AWS would be evaluated by ADWR under the current AWS rules but there
   may be a need to make changes to the regulations, as long as this does not weaken the AWS program.




                                                         28
                                 Summary of Stakeholder Team Alternatives
                                       Prepared August 19, 2009



                                             ADDITIONAL QUESTIONS



                                     How does ADD Water work with the CAGRD?


ALTERNATIVES
1. Prevent driving users to CAGRD
 ADD Water should not push additional obligations onto the CAGRD.
 To avoid driving future users into CAGRD as an alternative to participation in ADD Water, all future CAGRD enrollment
  beyond the current plan of operation will need to be backed by an ADD Water contract. CAGRD enrollment will need
  to be altered appropriately to reflect this and ensure that CAGRD doesn’t become a cheaper alternative to ADD Water;
  CAGRD will also need to be able to bond or otherwise raise revenues necessary to fully participate in ADD Water.

2. Portion of ADD Water phase assigned to CAGRD
 The intent of this alternative is to ensure that, as part of the planning contract distribution formula, CAGRD receives an
  appropriate quantity of available capacity within a new ADD Water phase. Because the distribution formula allocates
  capacity/supply based on projected growth, this quantity would be directly related to CAGRD’s projected growth within a
  given plan of operation period, and would thus allow CAGRD to access new supplies to meet its growing obligations in
  the same manner as that available to other water users/providers.

3. Replenishment becomes a function of ADD Water
 Replenishment activities would be conducted by CAWCD under ADD water mantle, rather than CAGRD.
 In most ways, ADD water participants would be treated the same. Initial fees, holding charges, connection fees and
  delivery charges would be the same for new members. Member lands that are already built-out and taking
  replenishment services simply pay the property tax for replenishment services as currently done.
 ADD water contracts for replenishment are built on same 10-year projection of demand for replenishment services as
  are augmentation services, with year-to-year extensions and could be subject to similar sideboards as augmentation
  services.
 Replenishment services are still subject to Plan of Operation approval. If there is no approval of a Plan of Operation,
  current contracts for ADD water remain in place, but there are no further extensions. Both types of participants ‘hit the
  wall together’. Do not want to have one category of ADD water participant

OTHER CONSIDERATIONS
 …CAGRD and CAGRD members are eligible to obtain an ADD Water contract.




                                                             29
                                       SUMMARY OF STAKEHOLDER AGREEMENTS
                                         AND AREAS OF FURTHER DISCUSSION


                                             PARTICIPATION ELIGIBILITY – Q3
                                  Who is eligible to obtain a contract to use the supply?
                           AGREEMENTS:
                           1. Any municipal, industrial or agricultural and Indian users within the existing 3-
  Small Group Agreements




                              County CAWCD service area, and the CAGRD are eligible; this includes the
                              water planning areas of participants that extend beyond the three county
                              area (Peoria exception)
                           2. "Remarketers" inside or outside the 3 county service area are not eligible to
                              participate.
                           FURTHER DISCUSSION (HIO Group):
                           1. Should any user who can access the water from existing or new turn-outs
                              along the CAP (including those outside the three county service area) and
                              any existing or new diversion point along the Colorado River be eligible to
                              participate?
                           2. Is the AWBA eligible to obtain a contract for the supply?

                            Define "remarketers"
Comments




                            How will CAGRD work with ADD Water?
 Plenary




                            What role will remarketers play?




                                             PARTICIPATION ELIGIBILITY – Q4

                                    What are different classes of ADD Water contracts?
                           AGREEMENTS:
                            There should be a class of ADD Water contract that meets assured water
                             supply requirements
Small Group
Agreements




                            There should be a class of ADD Water contract for short-term/spot market
                             water—i.e., ADD Water supplies that are not being used by ADD Water
                             contractors in any given year
                           FURTHER DISCUSSION (HIO Group):
                            Should there be another class of ADD Water contract for non-firm supplies?
                            Should there be another class of ADD Water contract for a firm water supply
                             for less than 100 years?
                           We agree.
Comments
 Plenary




                                                                1
                                      SUMMARY OF STAKEHOLDER AGREEMENTS
                                        AND AREAS OF FURTHER DISCUSSION


                                             PARTICIPATION ELIGIBILITY – Q5
                                       How can entities opt-in of the supply option?

                           AGREEMENTS:
                            Sign an ADD water service contract for each pool.
                             - Amount of water
                             - When the water becomes physically available
                             - Need lead time to get dollars and water supply
                             - Cost per acre-feet include:
                                        o Planning costs
                                        o Supply costs
                                        o Backbone infrastructure
  Small Group Agreements




                                        o Off-site supply infrastructure
                            Have an option to be involved in the planning for each pool?
                            May be additional fees included for planning for each pool
                            Formalized planning process
                            Pay up-front
                           FURTHER DISCUSSION (HIO Group):
                            How CAP goes about acquiring the water
                            How involved will participants be in the planning process?
                            Will be planning contracts be required?
                           IMPLEMENTATION:
                            How much water you get
                           NO LONGER IN CONSIDERATION:
                            Join anytime program
                            Block party approach
                            Multi-contract approach             Certain components have been
                            Participant agreement approach combined in our current agreement
                            Capacity contract

                           PLENARY COMMENTS:
Comments




                            Timing of portions of payments
 Plenary




                            Take pool portion of agreement to HIO discussion
                            Change agreement to include payment described in contract "or what's due at
                             time of contract"
                            Whole question to HIO




                                                               2
                                      SUMMARY OF STAKEHOLDER AGREEMENTS
                                        AND AREAS OF FURTHER DISCUSSION


                                             PARTICIPATION ELIGIBILITY – Q6

                                      How can entities opt-out of the supply option?

                           AGREEMENTS:
                           1. Assignment
                               An entity wishing to opt out of the program may assign its contract to
                                another entity.
                               Assignments will require CAP's approval (based only on operational
                                considerations) and must not have adverse impacts on the other
  Small Group Agreements




                                participants.
                               The assigning entity may not receive more money for the water being
                                transferred than the current amount that the assignee would have paid
                                CAP to obtain an ADD Water contract of equal volume.
                               Other participants will have the first right of refusal to assume a
                                withdrawing Participant’s position.
                               If additional provisions are needed, will be outlined in water services
                                contract

                           OTHER CONSIDERATION
                            No financial relief until contract is assumed by others.
                           NO LONGER IN CONSIDERATION:
                            Multi-contract approach
                            Participant agreement approach
                            Relinquish contract and water to CAP
                            Should there be priorities to assume a contract under specific conditions?
Comments




                            Discuss "right of refusal" in HIO. Should there be a right of refusal?
 Plenary




                            Further discussion around what the entity will pay
                            Define time/length of contracts
                            Move first bullet to HIO




                                                              3
                                       SUMMARY OF STAKEHOLDER AGREEMENTS
                                         AND AREAS OF FURTHER DISCUSSION


                                              PARTICIPATION ELIGIBILITY – Q7

                            How to accommodate future participants in terms of sharing water?
                            AGREEMENTS:
                             Availability of water must be defined.
   Small Group Agreements




                             Future Participants may join the ADD Water program at any time, subject to
                              the defined availability, by executing an ADD Water Participation Agreement
                              and making the required financial commitment.
                             All or part of an existing ADD Water contract can be assumed by a future
                              participant subject to predetermined criteria.
                            FURTHER DISCUSSIONS (HIO Group):
                             Whether a volume of ADD Water should be reserved for future uses, and, if
                              so, volume to be reserved.
                             Method of defining the volume of available ADD Water supply.
                             Master Plan to address future participants and triggers for supplies "beyond
                              ADD Water."
                             We agree.
Comments




                             Includes capacity and water to HIO
 Plenary




                             Consider how the availability of water is defined.




                                              PARTICIPATION ELIGIBILITY – Q8

                                    How to financially accommodate future participants?

                            AGREEMENTS:
                             Keep existing participants whole by requiring future participants to mitigate
Small Group
Agreements




                              adverse financial effects.
                             Buyout and transfers of ADD Water contracts will operate like transfers of
                              existing CAP subcontracts.
                             We agree you cannot contract for a specific capacity or specific supply, but
                              rather for ADD Water.
                             Future participants can join anytime – costs are determined at time of
                              contracting subject to water availability.
                             Move second statement to HIO discussion
                             Add Water "Power" when discuss capacity and supply
Comments




                             Clarify "mitigate adverse financial effects" in HIO
 Plenary




                             Is there a blending process?
                             How is the acquisition of the water priced?
                             We agree to bullet 4
                             Bullets 1, 2 and 3 go to HIO


                                                                4
                         SUMMARY OF STAKEHOLDER AGREEMENTS
                           AND AREAS OF FURTHER DISCUSSION


                                   NEED DETERMINATION – Q9

                      How does "need" play a role in sharing the supply?

              AGREEMENTS:
              Participants determine their own needs
Small Group
Agreements




              If the (ADD Water supply/size of program or phase) exceeds the collective
              needs of participants, then need does not play a role in sharing the supply
              FURTHER DISCUSSIONS (HIO Group):
              If the collective needs of participants exceed the (ADD Water supply/size of
              program or phase), then there needs to be a method for determining who gets
              how much; need may or may not play a role in that process
              We agree.
Comments
 Plenary




                                  NEED DETERMINATION – Q10

                                    Who determines the need?

              AGREEMENTS:
Small Group
Agreements




               Participants determine their own needs




               Add further clarification of when all needs are not met
Comments
 Plenary




                                                  5
                                      SUMMARY OF STAKEHOLDER AGREEMENTS
                                        AND AREAS OF FURTHER DISCUSSION


                                              PRIORITIES/CONDITIONS – Q11

                                  What conditions are placed on the use of the supply?

                           AGREEMENTS:
  Small Group Agreements




                           1. Supply may be used for legal purposes under applicable state and federal
                              law, including underground storage and recovery.
                           2. Supply may be used within the three county service area, including the
                              "Peoria Exception".
                           3. In general, long-term storage credits generated through the storage of ADD
                              Water, may not be sold at a profit, unless those profits are returned to the
                              ADD Water program.
                           FURTHER DISCUSSION (HIO Group):
                           1. May ADD water be used outside the three county service area, in addition to
                              the Peoria Exception.

                           Agreements (We agree)
Comments
 Plenary




                                                              6
                                       SUMMARY OF STAKEHOLDER AGREEMENTS
                                         AND AREAS OF FURTHER DISCUSSION


                                               PRIORITIES/CONDITIONS - Q12

                                          What are the priorities during shortages?


                            AGREEMENTS:
                             If there are different classes of ADD Water contracts, then the following
   Small Group Agreements




                              priority system will be followed for ADD Water:
                                - Long-term Firm ADD Water contracts have highest priority
                                - Long-term Non-Firm ADD Water contracts are next
                                - Short term (spot market) ADD Water contracts have lowest priority

                             If there is only one class of ADD Water contract, then the available ADD
                              Water supply will be shared pro-rata
                            FURTHER DISCUSSIONS (HIO Group):
                             Are there multiple classes of ADD Water contract?


                             We agree!
Comments




                             Discuss shortages between classes (priority) what are priorities within a class
 Plenary




                             Resolve class issues




                                                OWNERSHIP INTEREST – Q13

                                                  Who owns the water right?

                            AGREEMENTS:
Small Group
Agreements




                             CAWCD will own the water rights, water leases and other contracts that result
                              in the ADD Water supply for the benefit of the participants.




                             We agree
Comments
 Plenary




                                                                7
                                        SUMMARY OF STAKEHOLDER AGREEMENTS
                                          AND AREAS OF FURTHER DISCUSSION



                                                 OWNERSHIP INTEREST – Q14

                                                 What does the end user hold?

                            AGREEMENTS:
   Small Group Agreements




                             The ADD Water participant has a contract with CAWCD that details the
                              Participant's right to the delivery of a specified amount of water for a specified
                              period of time, but not to a specified source of supply.


                            FURTHER DISCUSSIONS (HIO Group):
                             Are there circumstances in which a participant should be allowed to contract
                              for a specific source of supply, i.e. diversions from Lake Powell.


                             Pooling still needs to be discussed
Comments




                             We agree
 Plenary




                                                 OWNERSHIP INTEREST – Q15

                                                 Who owns the infrastructure?

                            AGREEMENTS:
                             Title to main CAP facilities remains with the United States.
                             Ancillary facilities constructed to develop ADD Water supplies or transport
Small Group
Agreements




                              those supplies to the CAP canal or to a CAP delivery point would be owned by
                              CAWCD.
                             Ancillary facilities for the delivery of ADD Water beyond the CAP delivery point
                              or Colorado River delivery point (if applicable) would be the responsibility of
                              the end user and would be owned by the end user.
                             If necessary, a wheeling agreement will be negotiated with the United States
                              for the ADD water Canal Capacity.

                             Define the CAP canal delivery point.
Comments




                             Could be to an ancillary facility that doesn't touch canal
 Plenary




                             How do we deal with brackish water?




                                                                 8
                                      SUMMARY OF STAKEHOLDER AGREEMENTS
                                        AND AREAS OF FURTHER DISCUSSION



                                        USE OF UNSCHEDULED SUPPLIES - Q 16


                                             How are unused supplies shared?

                           AGREEMENTS:
                           CAWCD markets unused supply according to Master Plan
                            ADD Water participants (both firm and non-firm) have first right of refusal to
  Small Group Agreements




                             unused supplies on an annual basis.
                            Groundwater supplies not used to meet scheduled deliveries in any year
                             should be left in place for future use
                            Surface water supplies not used to meet scheduled deliveries in any year may
                             be stored underground for future use
                            If unused ADD Water is sold by CAWCD, the net proceeds from sale go back
                             to ADD Water Program
                           FURTHER DISCUSSIONS (HIO Group):
                            How is the master plan developed
                            How water that ADD Water participants don't want will be used?
                           NO LONGER IN CONSIDERATION:
                            Participant markets its unused supply
                            Change should to may on bullet #2
Comments




                            Move participants market's its unused supply to HIO discussion
 Plenary




                                                               9
                                             SUMMARY OF STAKEHOLDER AGREEMENTS
                                               AND AREAS OF FURTHER DISCUSSION


                                                CAPITAL COSTS – SUPPLY Q 17a and b
                                             How is up-front capital funding generated?
                                  How are capital costs associated with acquiring the supply repaid?
                                  AGREEMENTS:
                                  1. Each participant is responsible for generating its own capital funding. CAP's
                                      existing financial authority will not be made available.
                                  2. Before taking delivery or ordering that portion of the water supply the capital
                                      costs must be paid.
Team A - Small Group Agreements




                                  3. There should be some flexibility regarding payment of capital costs as long
                                      as a significant amount of the total cost is paid up front to allow for
                                      acquisition of the total supply needed by the participant.
                                  4. Since there may be different classes of ADD Water (firm, non-firm) there
                                      may be different cost structures.
                                  FURTHER DISCUSSIONS (HIO Group):
                                  1. There is consensus that existing CAP (CAWCD) financing mechanisms will
                                      not be used to fund ADD water. However, because of regulatory roadblocks
                                      or financial limitations, some entities do not have the capability to generate
                                      their own capital up-front. Further discussion of this issue should be
                                      delegated to the HIO to consider whether new financing mechanisms should
                                      be established to help finance the acquisition of water supplies, such as:
                                       New bonding authority,
                                       New ad valorem taxing authority,
                                       Participants gees,
                                       Other concepts
                                  2. Using master plan and/or participant's council approach to determine the
                                      cost of supply.
                                  AGREEMENTS:
                                   Pay to Play (100% of water paid for up-front)
Team B - Small Group Agreements




                                   CAP does not acquire supplies until money is in CAP's account
                                   Shared costs within any pool of water [pool – (definition) collection of water
                                    rights available for contract]
                                   Pay to play means:
                                    - At least two ways to pay:
                                    - You can write a check and pay up-front
                                    - Development of a lay away program
                                    - Participant responsible for financing whether up-front or layaway
                                  IMPLEMENTATION:
                                  Master Plan approach:
                                   Pay upfront for each block of water based on timeframe
                                   Develop lay away program
                                   All paid for before CAP acquires the water – before CAP pays any costs
                                   Costs for master plan should be shared




                                                                     10
                                 SUMMARY OF STAKEHOLDER AGREEMENTS
                                   AND AREAS OF FURTHER DISCUSSION
                                     CAPITAL COSTS – SUPPLY Q 17a and b
                                  How is up-front capital funding generated?
                       How are capital costs associated with acquiring the supply repaid?
                       NO LONGER IN CONSIDERATION:
                        Use of other revenues generated by CAP
                        Should CAP be involved in any form of financing for ADD water? If CAP
                         financing is consider these things should be consider:
                         - Shouldn't impact current CAP customers
                         - Still don't get the water until its paid in full
                         - Pay carrying or holding charge to protect CAP bond rating
                       AGREEMENTS:
                        At least part of the costs should be paid upfront by participants.
Team C - Small Group




                        ADD Water supply costs are separate from non-ADD Water.
    Agreements




                       FURTHER DISCUSSIONS (HIO Group):
                        Upfront costs need to address gamesmanship.
                        Decide what portion is paid upfront.
                        Financing through CAP.
                        Definition of "supply costs" – at the canal or prior to the canal?
                        Financing as related to governance.
                        Agree that a Master Plan needs to be done, but not sure which question it
                         answers.




                                                         11
                                         SUMMARY OF STAKEHOLDER AGREEMENTS
                                           AND AREAS OF FURTHER DISCUSSION


                                      CAPITAL COSTS – INFRASTRUCTURE Q 20a and b

                                          How is up-front capital funding generated?
                                  How are capital costs associated with infrastructure repaid?
                                    AGREEMENTS:
                                    Principles:
                                     Costs of ADD Water infrastructure should be shared proportionately
                                      among all ADD Water participants
                                     No financial benefits to those who come in early or those who wait
                                     Early participants are not subsidizing later participants; later participants
Team D – Small Group Agreements




                                      are not subsidizing early participants
                                    Methodology:
                                     Identify size of ADD Water program or phase (HIO issue)
                                     Determine costs of infrastructure needed to implement that
                                      program/phase
                                     Present value all infrastructure costs
                                     Divide present value by size of program to determine initial
                                      infrastructure rate/AF
                                     Escalate rate/AF over time based on cost of money
                                     ADD Water participants pay rate/AF at time of contracting
                                    Payment options:
                                     Participants pay all up front
                                     Participants pay over time (proportional benefits)
                                    Financing options:
                                     Participants get their own financing
                                     Financing through CAWCD provided that it draws only on ADD Water
                                      revenues; no financial impact on existing CAP customers or revenues
                                    FURTHER DISCUSSIONS (HIO Group):
                                     Identify size of ADD Water program or phase




                                                                  12
                                         SUMMARY OF STAKEHOLDER AGREEMENTS
                                           AND AREAS OF FURTHER DISCUSSION

                                      CAPITAL COSTS – INFRASTRUCTURE Q 20a and b

                                          How is up-front capital funding generated?
                                  How are capital costs associated with infrastructure repaid?
                                    AGREEMENTS:
                                    1) Master Plan
                                    - Do this first
                                    - Define cost, quantity (demand, supply), timing
                                    - Define financing plan based on master plan
                                    - Periodic updates that would allow for flexibility and adaptations
                                    - Scope of work (plan for the master plan) to be done similar to current
                                      ADD Water stakeholder process
Team E – Small Group Agreements




                                    2) Combination of financing mechanisms available
                                    - Add Water participants pay up front (lump sum or installment
                                      commitment)
                                    - Other means can be available:
                                      - installment plan (lay away)
                                      - bonding (revenue bonds, general obligation bonds,
                                         combination/double-barrel)
                                      - ADD Water rates and fees
                                      - taxes
                                    - Financing mechanism decided up front (clear willingness to pay)
                                    - Participants paying up front would not be required to subsidize the other
                                      financial mechanisms, but could opt to
                                    3) Who pays
                                    - Costs for ADD Water capital paid for by ADD Water participants
                                      proportional to benefits (acre-feet participation)
                                    - "What is ADD Water Capital?" must be addressed in Master Plan
                                    - Current CAP contractors should not pay for ADD Water
                                    FURTHER DISCUSSIONS (HIO Group):
                                    What kind of taxes would be appropriate?




                                                                 13

				
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Description: Exercise is very important to add water, the method should be in the interval of water, not just to drink after workouts. You can also water poured over the body, thereby reducing the body temperature.