Case study - statistical forecasting techniques for evaluating an interruptible supply contract
Kullman, Rachel J., author
Rademacher, Karen R., author
Smith, Stephen W., author
U.S. Committee on Irrigation and Drainage, publisher
In Colorado, unprecedented changes are brought to bear on senior irrigation water rights, primarily due to drought and population growth. Changes have created both pressures and opportunities to the irrigators who hold these senior water rights. Changing administrative procedures, escalating water values, and curtailment of ground water pumping in Colorado necessitate irrigators make hard decisions about how they will preserve their water supply and agricultural operations for the long-term. In response to these changes, some irrigators in Colorado have explored options for "interrupting" their irrigation supply to provide water to a municipality or power company in exchange for financial compensation. These arrangements are often called interruptible supply plans or contracts. These contracts typically include guarantees that an irrigator will provide some portion of their water supply to the contracting entity. Despite the opportunity for financial compensation, many irrigators chose not to enter into such contracts because interrupting water supply can be uncertain and risky. The case study presented in this manuscript provides an example of one statistical methodology that can be used to determine the level of risk or uncertainty associated with entering into an interruptible water supply contract. Understanding the risk and uncertainty can help both contracting entities understand the implications of an interruptible supply contract. The methodology, known as Monte Carlo simulation, is widely applied across multiple disciplines. However, we are not aware of its use in previous interruptible supply analyses.
Presented at Ground water and surface water under stress: competition, interaction, solutions: a USCID water management conference on October 25-28, 2006 in Boise, Idaho.