EI Paso Water Utilities (EPWU) purchases surface water for treatment and distrib
ID: 2479535 • Letter: E
Question
EI Paso Water Utilities (EPWU) purchases surface water for treatment and distribution to EPWU customers from EI Paso County Water Improvement District during the irrigation season. A new contract between the two entities resulted in a reduction in future price increases in the cost of the water from 8% per year to 4% per year for the next 20 years. If the cost of water next year (which is year 1 of the new contract) will be $260 per acre-foot, what is the present worth of the savings (in $/acre-ft) to the utility between the old and the new contracts? Let the interest rate equal 6% per year.Explanation / Answer
Year New Contract Price Per Acre-Foot - Inc. - 4% Old Contract Price Per Acre-Foot - Inc. - 8% Savings per Acre - Foot 6% Factor PV Of Savings 1 260.00 260.00 - 0.94340 - 2 270.40 280.80 10.40 0.89000 9.26 3 281.22 303.26 22.05 0.83962 18.51 4 292.46 327.53 35.06 0.79209 27.77 5 304.16 353.73 49.56 0.74726 37.04 6 316.33 382.03 65.70 0.70496 46.31 7 328.98 412.59 83.60 0.66506 55.60 8 342.14 445.59 103.45 0.62741 64.91 9 355.83 481.24 125.41 0.59190 74.23 10 370.06 519.74 149.68 0.55839 83.58 11 384.86 561.32 176.46 0.52679 92.96 12 400.26 606.23 205.97 0.49697 102.36 13 416.27 654.72 238.46 0.46884 111.80 14 432.92 707.10 274.18 0.44230 121.27 15 450.24 763.67 313.43 0.41727 130.79 16 468.25 824.76 356.52 0.39365 140.34 17 486.98 890.75 403.77 0.37136 149.95 18 506.45 962.00 455.55 0.35034 159.60 19 526.71 1,038.97 512.25 0.33051 169.31 20 547.78 1,122.08 574.30 0.31180 179.07 Total PV of Savings per acre-foot 1,774.64
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