July 8, 2011 Dear Commissioner Gordon, Our Board of Directors met today to discuss the New Mexico Compact

Commissioner offer to loan water to the Rio Grande Project from their current credit balance. We are certainly desperate for water, and we appreciate the efforts of Governor Martinez and the New Mexico Compact Commissioner to find a creative solution. However, we will have to decline the offer and hope for a better 2012. The offer, which is based on a strategy used in 1951, results in several problems: 1. In 1951, the arrangement to allow release of Colorado Compact credits came in February, so the water could be rolled into the allocation to the Project from the beginning. This offer comes in July, and as of today, we have diverted and delivered our entire allocation for the year, and are shut down. 2. If we were to accept the offer, we would have to restart our diversions into the canal system and deliveries to our farmers. This would have both accounting and hydrologic effects that would limit the amount of water that would actually be available for use by our constituents. Restarting 3. There are several details that would have to be worked out with the State of New Mexico and the Compact Commission before we could put the water to use, such as evaporation accounting under the Compact and allocation accounting within the Rio Grande Project. In 1951, Colorado was not charged for any evaporation on their credits for the entire year. What is intended for evaporation accounting this year is not specified. Other details at the Compact level would also have to be worked out. 4. We would also have to work out how the water resulting from the offer would be handled within Rio Grande Project accounting. In 1951, the Project was operated as a single unit, and the released credit water was rolled into the single allocation to the two districts. Since the two districts took over in 1980, there have been separate allocations to the two districts. El Paso County Improvement District No. 1 indicated in a meeting yesterday that they do not plan on accepting water through the offer, and will finish the season with the allocated water they have now. While we could very likely work out the details, it would take time. 5. The longer we delay getting restarted, the greater the hydrologic and accounting losses that would be incurred. Our board is not comfortable accepting the water without being clear on the terms, and so a significant delay is inevitable.

6. Whatever we take this year will come out of next year’s allocation. This is already a terrible season that our farmers are prepared to finish out, but we do not want to compromise next year. This is an exceptional year in terms of drought, and based on the flows at Otowi and into Elephant Butte Reservoir, we understand the New Mexico Commissioner’s refusal to relinquish water, as such relinquishment would likely put them into a deficit credit balance when 2011 Compact accounting is applied next year. Unless we have an exceptional monsoon that adds a huge amount of water to the flow between Otowi and Elephant Butte, New Mexico will have a large Compact debit for 2011, and the water that would be released under the offer would be available for use in the Project in 2012 with none of the complications and losses to EBID constituents described above. Sincerely, Gary Esslinger Treasurer/Manager Governor Susana Martinez, State of New Mexico New Mexico Rio Grande Compact Commissioner John D’Antonio EPCWID Manager Jesus Reyes Bureau of Reclamation Albuquerque Area Office Manager Mike Hamman Bureau of Reclamation El Paso Field Office Manager Filiberto Cortez EBID Board of Directors EBID Attorney Steven Hernandez