SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT 380 E. Vanderbilt Way, San Bernardino, CA REGULAR MEETING OF THE BOARD OF DIRECTORS AGENDA

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1 SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT 380 E. Vanderbilt Way, San Bernardino, CA REGULAR MEETING OF THE BOARD OF DIRECTORS AGENDA 2:30 PM Tuesday, September 4, 2018 CALL TO ORDER/PLEDGE OF ALLEGIANCE/ROLL CALL 1. PUBLIC COMMENT - Any person may address the Board on matters within its jurisdiction. 2. APPROVAL OF MINUTES 2.1. August 21, 2018, Meeting Minutes DISCUSSION AND POSSIBLE ACTION ITEMS 3.1. State Water Project Contract Amendment Draft Agreement in Principle Staff Memo SWP Contract Amendment AIP Final Draft AIP 4. REPORTS (DISCUSSION AND POSSIBLE ACTION) 4.1. Board of Directors' Workshop, August 14 (Page 28) Summary Notes BOD Workshop docx 4.2. Water Use Efficiency, August 15 (Page 31) Summary Notes Water Use Efficiency Cmte Legislative and Policy Committee, August 23 (Page 34) Summary Notes Legislative and Policy Cmte SAWPA Meeting Report (Page 3) (Page 14) 4.5. Primary Representatives' Report 1

2 4.6. Directors' Activities 5. ANNOUNCEMENTS 5.1. List of Announcements (Page 38) List of Announcements 6. CLOSED SESSION 6.1. Conference with Legal Counsel Existing Litigation Pursuant to Government Code Section (a),(d)(1) San Bernardino Valley Municipal Water District et al v. San Gabriel Valley Water Company et al Case No. CIVDS (San Bernardino Superior Court) 6.2. Conference with Legal Counsel Existing Litigation Pursuant to Government Code Section (a),(d)(1) Endangered Habitats League v. U.S. Army Corps of Engineers - Case No. 2:16-CV (U.S. District Court, Central District of California) 6.3. Conference with Legal Counsel Existing Litigation - Pursuant to Government Code Section (d)(1)) - County of Butte v. California Department of Water Resources (3rd District Court of Appeal, No. C CVCV091258) 7. ADJOURNMENT PLEASE NOTE: Materials related to an item on this Agenda submitted to the Board after distribution of the agenda packet are available for public inspection in the District s office located at 380 E. Vanderbilt Way, San Bernardino, during normal business hours. Also, such documents are available on the District s website at subject to staff s ability to post the documents before the meeting. The District recognizes its obligation to provide equal access to those individuals with disabilities. Please contact Lillian Hernandez at (909) two working days prior to the meeting with any special requests for reasonable accommodation. 2

3 6872 MINUTES OF THE REGULAR BOARD MEETING SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT August 21, 2018 Directors Present: Mark Bulot, Susan Longville, Gil Navarro, and June Hayes Directors Absent: Steve Copelan Staff Present: Douglas Headrick, Bob Tincher, Cindy Saks, Wen Huang, Ron Merckling, Heather Dyer, Lillian Hernandez, and Brendan Brandt Registered Guests: Ronald Coats, East Valley Water District Paul Kielhold Joseph W. Mays, Jr., Westside Action Group Wendy McCammack James Folmer, Highland Community News Cris Fealy, Fontana Water Company T. Milford Harrison, San Bernardino Valley Water Conservation District Clayton Larkins, Tetra Tech Don Olinger, West Valley Water District Tom Shalhoub, Yucaipa Valley Water District James Morales, East Valley Water District Melody McDonald, San Bernardino Valley Water Conservation District David Raley, San Bernardino Valley Water Conservation District The regular meeting of the Board of Directors was called to order by President Bulot at 2:32 p.m. at the District office, 380 E. Vanderbilt Way, San Bernardino. A quorum was noted present. Agenda Item 1. Public Comment. President Bulot invited any members of the public to address the Board. Hearing none, the meeting proceeded with the published agenda items. 3

4 6873 Agenda Item 2. Approval of Minutes of the August 7, 2018, Board Meeting. Director Navarro moved to approve the minutes of the August 7, 2018, Board meeting. Director Hayes seconded. The motion was unanimously adopted with Director Copelan being noted as absent. Agenda Item 3. Presentation 3.1) Update on Sterling Natural Resource Center by East Valley Water District. John Mura, General Manager East Valley Water District, gave an update on the Sterling Natural Resource Center (SNRC). It is a 14-acre state of the art facility that will initially treat 8 million gallons of flow on a daily basis. The treatment process will include highly efficient membrane bio reactors and ultra violet disinfection. It will have no noise or odor. It will have robust odor control and the design features will focus on reliability, efficiency, and flexibility. They have secured a State Revolving Fund loan for $119 million and they were also able to secure a $6.7 million grant. They are currently working on the guaranteed maximum price. They selected their design-build partner which is a group of companies lead by Balfour Beatty. Balfour Beatty will be the general contractor on the project with Arcadis as the treatment plant designer and engineer of record. Ruhnau Clarke out of Redlands is the project architect. Trussel Techologies will help with the permitting and process and WSP for offsite sewer and recycled water pipelines. Inframark will assist with operations as they turn the project over from the contractor to their in-house staff. Balfour Beatty is an industry leader in providing general contracting, at-risk construction management, and design-build services. They are familiar with the firm as they designed and constructed East Valley Water District s headquarters facility. Heavy civil and vertical construction is their specialty. They do hospitals and schools and are migrating into the water infrastructure field. They are ranked number six on the domestic building contractor in the United States as ranked by Engineering-News Record. The project has a lot of amenities. It is a community asset project as well as a recycled water project. Their headquarters is located on the far east section of their district which presents a challenge to a lot of their customers who want to interact with them on a dayto-day basis. So they are excited to have a presence on the west side of the district which is a corner stone of the project. They will have a satellite payment and customer service office on this site. They will have a multi-purpose community event center. Their headquarters was designed and built as a public benefit project. Their headquarters has been booked for private events every weekend and is currently booked a year in advance. They want to have an outdoor community space. They have a unique opportunity because of the recharge basins. There will be a water feature. There will be an education center. There will be an outdoor community space for movies in the park or concerts in the park type events. There will be passive recreation opportunities as well. They are in negotiations with San Bernardino Unified School District to bring in a Fortune 5 company that is interested in making some technology investments so they can partner with the school adjacent to the SNRC. They designed the parking lot to have emergency fairs and small Farmer s Market type events. 4

5 6874 They have been working diligently since selecting Balfour Beatty to come up with the guaranteed maximum price which is the next step. They anticipate completing that within the next week and a half with a Special Board Meeting on September 19th and then move forward with final loan approval. They anticipate having ground breaking sometime in October 2018 with commencement of the construction starting soon after. It is a month project. They anticipate exceeding expectations both from the budgetary standpoint, from the deliverables standpoint, and the schedule standpoint. They appreciate all the SBVMWD Board and staff has done toward the project. They commit to keeping the District a part of the project. Agenda Item 4. Discussion and Possible Action Items. 4.1) Consider a Reprimand of Director Susan Longville or Adoption of Resolution No Regarding Censure Per Board Policy. Douglas Headrick stated that on July 17th staff was requested to place an item for censure of Director Longville on the agenda and was followed up by Director Hayes providing a written request which as required by the Board Censure Policy. That vote did take place after some changes were made to the draft censure policy based on recommendations from Director Hayes on August 7th. The vote failed 2-2 with Director Copelan noted as absent at that meeting. At the same meeting, President Bulot asked that a reprimand be considered by the Board. Staff prepared the censure as modified on August 7th and the reprimand as requested by President Bulot for consideration. Director Longville stated that she wished to address two issues before the action is taken. She would like her statements, some of which she had to repeat, in the minutes. The minutes of the last meeting say what the general manager said, what President Bulot said, and what Director Hayes said. Director Longville said you would think she was never there and never spoke. She made these comments and they are not in the minutes. She did not think it was important to amend the minutes because the motion failed but she wants to make sure they are in the minutes this time. The first issue Director Longville wanted to address was to refute the Kombucha allegations. She disputes the recollections of Director Hayes and the incident she believes happened on June 13th or 14th. There are summary notes that have been approved by this committee, none of which say that this is the date in which it happened. Director Longville said we have no idea on what date it happened. What she said at the opening of the committee meeting, before she called it to order because she was the Committee Chair, is that she had a bottle of Kombucha and it is the first one she had ever seen that in this little tiny place on the label at the very bottom, same brand same flavor, that it contains alcohol. She walked into the Committee and she said she bought the drink at Clark s Nutrition and Natural Food Store. It is the only place she had ever been to that has one that says contains alcohol. All Kombucha is sold in the Delicatessen section of any store. It must be refrigerated because once it is sealed the fermentation will continue if it is not refrigerated. That is why it is there so she blew the whistle on herself and she set the bottle down. She also told them that she did not see this until after she purchased it. The clerk didn t ask her for her identification. She went in a second time and the same thing happened. Director Longville asked the clerk, and the clerk said, they only ask for identification when skateboarders 5

6 6875 come in with huge quantities of Kombucha. It is not taxed as an alcoholic beverage at the store. She brought the bottle into the workshop because it can explode if left in a hot car. She had it happen to her in the hot weather before so she brought it in. Director Longville made the following statements, Director Hayes said she consumed it. Does Director Hayes have an empty bottle? Does Director Hayes have pictures that Director Longville consumed it? Obviously not. Director Longville stated that she recalls drinking it at home. Director Longville went on to state that the only Director that made any comment that day was Director Bulot who said orange juice has naturally fermented alcohol in it and they proceeded to do their business. Director Longville stated that she wanted to talk about the other issues in the complaint that was in the agenda packet. Director Hayes said in her revised memo that this is about the Board Handbook and how it is used. Director Longville read two statements. Director Hayes says that none of this makes any sense if we apply the principles of censure for failure to comply to individuals whom we do not like or if we only apply it to people of color or are in any way selective or discriminatory. She says the offense we recently censured was an infraction and had nothing to do with Valley District yet the Board member was formally censured and had his positions of authority removed. The fact is that Director Navarro was censured on May 15th on a 3-2 vote with Director Hayes and Director Navarro opposing and as a member of the majority of the Board that approved this censure, Director Longville finds it disappointing that a dissenting Director continues to characterize the action of the majority of the Board in this way. Director Longville stated she knows that is not why she did it and she did not believe Director Bulot or Copelan did it for that reason either. Director Longville contends that this is not who Valley District is. It is not what they do and it is not how they are known for behaving. So on October 17th after the Board sent its Censure Policy to the Advisory Commission on Water Policy to see what they thought of it and they approved it unanimously, they brought it back to the Board to vote on it. The Board voted to approve it 3-2 once again with Directors Hayes and Navarro opposed. At the end of this meeting, Director Hayes brought forward this complaint. Director Longville stated, if the Censure Policy had not been approved by a 3-2 majority Director Hayes would not be able to do this. Director Longville stated that Director Hayes knew she was going to lose and she was prepared to use the policy that she is angry the Board approved. Director Longville stated that Director Hayes didn t want it approved, we know, we were in a Board workshop where we heard her say the two things she says before: doesn t make any sense if you apply it only selectively, used it wrongly the other way. Director Longville contended again, this is not who Valley District is, it is not how they behave, and it is not what they are known for. Director Longville continued by saying that in 77 days the Director the Board is considering taking action against will be in the general election. After filing closed, Director Longville obtained a campaign statement filed by an opponent. This person filed three days after the Board had first considered this item and on it, it shows two of the Board members have endorsed this candidate. Director Longville said to get an endorsement listed on a ballot statement, that candidate has to go in with a signed endorsement from the people listed. She finds that incredible because this decision that the Board made on August 7th and the decision they may make today has a material effect on an election Director Longville said this proposed action already has had an effect. Director Longville stated that the issue is in 6

7 6876 the Highland Community News and it has already had a material effect on this election. Director Longville stated that she has been on this Board for almost four years. She has had her disagreements over policy with a number of the Directors. She had never seen any Director behave this way towards any Director in the four years she has been there. She never has and she said to the Board if something has an appearance of impropriety do not do it. This was told to her 25 years ago when she accepted her first appointment on a regulatory agency. She remembered it the three times she has been elected. She never did anything that looked like an impropriety for that reason. Do not do it. This does look like an impropriety. Director Longville stated she is getting comments, she does not post such things like this on Facebook but somebody else did. She is getting comments from people about it. Director Longville stated this action makes the Board look silly, childish, and she is getting comments. Director Longville asked the Board not to do it. She wanted to make sure this is in the minutes. She wanted to thank the Board for their consideration and that was all she had to say. Director Hayes moved to reprimand Director Longville. Director Navarro seconded. The motion was adopted by a 3-1 vote with Director Longville opposing the motion and Director Copelan being noted as absent. Director Longville wanted to know if the reprimand prevented her from travel. The Board said it did not prevent her from travel. 4.2) Election of Board Vice-President Pursuant to Water Code Section Douglas Headrick stated if the Board so desired it was time to consider the election of a Vice-President. There is no Water Code requirement for the Board to have a Vice- President but a good administrative process in case the President cannot be available for the meeting. Director Navarro nominated Director Hayes for the position of Vice- President. President Bulot seconded. The motion was adopted by a unanimous vote with Director Copelan being noted as absent. 4.3) Appoint a Member to the Ad Hoc Committee with West Valley Water District. President Bulot appointed himself to the Ad Hoc Committee with West Valley Water District. 4.4) Consider Fiscal Year State Water Project Audit Contract with Ernst & Young LLP. Cindy Saks summarized the proposal from Ernst & Young for audit services relating to the State Water Project for the twelve month period ending June 30, This is an annual renewal of a contract to audit the State Water Project through the State Water Contractors Independent Audit Association. The District s share of the cost would vary depending on participation by the other State Water Contractors but would not exceed $42,495. Ms. Saks recommended the Board approve the contract for an amount not-toexceed $42,495. 7

8 6877 Director Hayes moved to approve authorizing the general manager to enter into the contract with Ernst & Young for auditing services for the year relating to the State Water Project for an amount notto-exceed $42,495 and authorize the general manager to execute the engagement letter. Director Navarro seconded. The motion was unanimously adopted with Director Copelan noted as absent. 4.5) Consider Second Amendment to Grant Agreement P with the California Department of Fish and Wildlife and Adoption of Resolution No Heather Dyer stated that in 2014 the Upper Santa Ana River Habitat Conservation Plan (HCP) was awarded $500,000 from the U.S. Fish and Wildlife Service and the California Department of Fish and Wildlife (CDFW) for a planning grant that is meant to assist with the extensive planning and studies that need to be done as part of the HCP. Last year the Board approved Amendment 1 to this grant which increased the amount awarded by $135,000 for a total of $635,345 and extended the period of the grant an additional year until September 8, At this time, staff requested a second amendment because two of the items are not complete; a Draft Environmental Impact Report and a Draft Implementing Agreement. There is approximately $200,000 left to spend in the grant on these two items. The two items are in the draft process currently and should be complete by the end of this calendar year but in order to fully use the grant funds that are available for these last two items, the Board needs to extend the grant period for one more year to September 8, Staff recommended that the Board approve Resolution No authorizing the general manager to execute a second amendment to the CDFW Cooperative Endangered Species Conservation Grant Agreement and to take any other actions believed appropriate to implement this resolution. Director Navarro moved to adopt Resolution No Director Hayes seconded. The motion was unanimously adopted by a roll-call vote with Director Copelan being noted as absent. RESOLUTION NO A RESOLUTION OF THE BOARD OF DIRECTORS OF THE SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT ADOPTING AN AMENDMENT TO GRANT AGREEMENT P BETWEEN THE SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT AND THE CALIFORNIA DEPARTMENT OF FISH AND WILDLIFE (See Resolution Book) 4.6) Consider Local Resources Investment Program. Bob Tincher stated that this item was discussed at the August 14th Board of Directors Workshop where staff was requested to move the item forward to the full Board for discussion and possible action. Director Navarro requested a meeting to ask questions about the program. That meeting took place and his questions were answered. Staff recommended that the Board consider 8

9 6878 developing a Local Resources Investment Program that would offer a financial incentive to any agency in the District s service area that constructs a project which provides a new source of supplemental water such as recycled water or storm water capture. Such a program would increase water supply reliability which is one of the goals in the Upper Santa Ana River Integrated Regional Water Management Plan. The current drought along with the reduced reliability of imported water from the State Water Project and the availability of grant funds for recycled water projects, lead the District to begin focusing more on a regional recycled water strategy. The Board took part in June 2015 by participating in development of a regional recycled water concept study which was jointly funded with East Valley Water District, San Bernardino Municipal Water Department, and Yucaipa Valley Water District. In addition to identifying recycled water projects in the valley, that study also looked for ways that San Bernardino Valley Municipal Water District (SBVMWD) could participate in and encourage the development of recycled water projects. This program is one of the options that was recommended in the report. This program is based on a program the Metropolitan Water District of Southern California has and District staff has incorporated their suggestions. The way it would work is the District would calculate the average variable costs for State Water Project (SWP) water. The cost for SWP water contains a fixed component that pays for the infrastructure to move the water south and a variable component based on how much water the District actually receives. For the Local Resources Investment Program the District would calculate an average variable component using the last five years of data to determine the value to SBVMWD for the financial incentive. At the workshop, staff recommended that it be recalculated every 5 years because energy costs sometimes change dramatically from year to year. Since that workshop there was a request from an agency to consider recalculating the incentive every two years. The fiscal impact should the entire 15,000 acre-foot program be subscribed, would be $2.6 million per year from the general fund. Staff recommended that the Board authorize staff to work with legal counsel on the legal documents necessary to implement this program and the Board approve the program and authorize staff to move forward with implementation. Director Navarro moved to approve the Local Resources Investment Program and authorize staff to work with legal counsel on the legal documents required to implement the program. Director Hayes seconded. The motion was unanimously adopted with Director Copelan being noted as absent. 4.7) Consider On-Call Grant Support Services. Bob Tincher stated that this item was discussed at the August 14th Board of Directors Workshop where staff was requested to move the item forward to the full Board for discussion and possible action. In May 2016, the Board authorized a not-to-exceed $100,000 on-call services contract with Kennedy Jenks to provide grant administration services. Kennedy Jenks reviews the District s projects, identifies upcoming grant opportunities, and at the Board s request, prepares and submits grant applications. They did that for the Yucaipa Groundwater Sustainability Agency and received an $815,000 grant. The District has been happy with their performance but their contract expired on June 30th so staff asked the Board to consider another contract with Kennedy Jenks for the same amount of not-to-exceed $100,000. 9

10 6879 Staff recommended the Board authorize the general manager to enter into the standard consulting agreement with Kennedy Jenks Consultants to provide on-call grant services for an amount not-to-exceed $100,000. Director Longville indicated that she could support the item if it was for one year but not for an indefinite period of time. Director Navarro moved to authorize the general manager to enter into the standard consulting agreement with Kennedy Jenks Consultants to provide on-call grant services for an amount not-to-exceed $100,000. Director Hayes seconded. The motion was adopted by a 3-1 roll call vote with Director Longville opposing the motion and with Director Copelan being noted as absent. Agenda Item 5. Reports (Discussion and Possible Action Items). 5.1) General Manager s Report. Douglas Headrick reported that the contract extension for the State Water Project has been delayed. Riverside Public Utilities has requested that SBVMWD take the lead on the Rubber Dam project. Staff will be bringing a formal request to a workshop for the Board to provide the authority to take on the leadership for that project. The three project partners will continued to be involved. The California Water Commission awarded $816 million to the Sites Reservoir Project. The project was eligible for more but they decided to allocate the money more incrementally and spread it across more projects. It is certainly possible if not probable that some of the projects that received interim funding will not be able to move forward and meet some of the deadlines and then the Sites Project would be in a position to have additional grant funds allocated to it. There are two other funding sources that the project sponsors are looking at from the Federal government. The WIIN Act and the U.S. Department of Agriculture has approved a $500 million low interest loan for those areas where the partners in the project have an agricultural interest. Mr. Headrick and Mr. Tincher facilitated a meeting between SAWPA staff and the City of Beaumont staff. The City of Beaumont for several years has been trying to work on a connection to the Inland Empire Brine Line and since they are outside of the five SAWPA agency boundaries, they have to ask for a waiver from Orange County Sanitation District (OCSD), the owner and operator of the treatment plant. 5.2) External Affairs Committee Workshop, July 9, No report was given as a written report was included in the Board packet. 5.3) SAWPA Commission Meeting, August 217, President Bulot reported on the following items: 1. Welcomed Mark Bulot, the newly appointed San Bernardino Valley Municipal Water District Commissioner who will also serve as Commission Chair. 2. Nominated Commissioner Bruce Whitaker, Orange County Water District, as a SAWPA representative on the Santa Ana River Conservancy Advisory Group for a five-year term. 10

11 Authorized the general manager to execute an agreement continuing partner participation of the University of California Irvine in the Disadvantaged Communities Involvement Program. 4. Adopted the Riverside County Operational Area Multi-Jurisdictional Local Hazard Mitigation Plan as required by the Federal Disaster Mitigation and Cost Reduction Act of Approved an additional $27,874 purchase as part of the IT Infrastructure Server Network Upgrade Project for additional storage, smart controllers and a 48-port switch. 6. Received a report on the eligibility criteria and rating and ranking system adopted by the OWOW Steering Committee for the upcoming Proposition 1 IRWM implementation grants. 7. Adopted a resolution in memoriam of Commissioner Philip L. Anthony. 5.4) Primary Representatives Reports. Director Hayes reported that she attended the third public hearing regarding districting at West Valley Water District. They will have two more public hearings. They approved a map. 5.5) Directors Activities. Director Hayes reported that she has some concerns regarding the Conservation as a California Way of Life. She is receiving concerns from citizens and suggested the District and retail agencies do some public education on the program. Director Navarro indicated he had some concerns with the Defend the Drop campaign. He suggested that presentations be made to the participating retail water agencies. Director Longville reported that she attended the San Bernardino County Water Conference. She also attended a meeting on the ongoing legal items for the Santa Ana Watershed Project Authority. She informed the Board that she was contacted by people connected with the Netflix Series Rotten. They will be filming in the area on the Nestle Arrowhead Mountain Springs Water issue. She informed them that she nor the District wanted to be involved in the episode. She did provide them information on the drought, the hole in the basin, and basin levels. She read the language from the reprimand which stated Director Susan Longville failed to comply with minimum behavior requirements as set for in the Board Member Handbook and Censure Policy by consuming an alcoholic beverage at the District Office in violation of a City Ordinance. This statement serves as a Reprimand for the violation of these requirements, a reminder of the critical importance of following District rules and will be recorded in the Board Minutes. She stated she did not consume an alcoholic beverage but the Board thinks she did. 5.6) Operations Report. No report was given as a written report was included in the Board packet. 11

12 ) Treasurer s Report. Director Hayes presented the Treasurer s Report. Director Navarro moved approval of the following expenses for the month of July The State Water Contract Fund $5,770,331.00, Devil Canyon/Castaic Fund $386,504.00, and General Fund $937, Director Bulot seconded. The motion was unanimously adopted. Agenda Item 6. Announcements. 6.1) List of Announcements. No changes. Agenda Item 7. Closed Session. President Bulot adjourned the meeting to Closed Session at 3:45 p.m. in honor of Philip Anthony. 7.1) Conference with Legal Counsel Existing Litigation Pursuant to Government Code Section (a),(d)(1) San Bernardino Valley Municipal Water District et al v. San Gabriel Valley Water Company et al Case No. CIVDS (San Bernardino Superior Court) 7.2) Conference with Real Property Negotiators Pursuant to Government Code Section Property APN Nos , , , , , , , , , , , Owner: San Bernardino Valley Water Conservation District Under Negotiation: Price and Terms Agency Negotiator: Douglas Headrick 7.3) Conference with Legal Counsel Existing Litigation Pursuant to Government Code Section (d)(1) Inland Valley Development Agency v. San Bernardino Valley Municipal Water District et al Case No CU-WM-GDS (Sacramento Superior Court) Agenda Item 8. Adjournment. Pursuant to Government Code Section President Bulot returned the meeting to Open Session at 4:55 p.m. and reported that the Board took no reportable action in closed session. There being no further business, President Bulot adjourned the 4:55 p.m. 12

13 6882 APPROVAL CERTIFICATION I hereby certify to approval of the foregoing Minutes of San Bernardino Valley Municipal Water District. Respectfully submitted, Secretary Date Lillian Hernandez Board Secretary 13

14 DATE: September 4, 2018 TO: FROM: SUBJECT: Board of Directors Douglas Headrick, General Manager State Water Project Contract Amendment Draft Agreement in Principle Summary An Agreement in Principle (AIP) for a contract amendment has been negotiated between the State Water Contractors (SWC) and the California Department of Water Resources (DWR). The main purpose of this amendment is, 1) to allow the five north of Delta SWP Contractors to not be obligated to pay for California WaterFix since they derive no benefit, and 2) to provide more flexible water transfer and exchange options so Contractors can more efficiently use and store their available SWP supplies. At the request of DWR, Staff is requesting that the Board consider approving this AIP as a framework for conducting any necessary CEQA analysis and developing a Contract Amendment. This item would normally be brought to a Board Workshop. However, there was available space on this agenda so Staff is asking the Board to consider it today. Background Over a period of several months earlier this year, the SWCs participated in a series of public negotiation sessions with DWR for the purpose of amending the State Water Project (SWP) Contracts. I attended these sessions on behalf of Valley District. This contract amendment process was conducted in anticipation of the California WaterFix implementation and included two primary objectives. First, the five SWCs that are located north of the Sacramento San Joaquin Delta that will not benefit from the water supply from the California WaterFix requested that the contract with DWR be amended to ensure that they would not be responsible for any of the costs to build or operate the project. Section II starting on page 7 of the attached Agreement in Principle (AIP) contains the provisions to ensure that the costs associated with California WaterFix are paid by those SWCs that benefit from the project. 14

15 The second objective and the one that required the majority of the negotiation session time to resolve, pertains to contract changes that allow more flexible water management options. This set of provisions that are described starting on page 1 of the attachment, allow SWCs with different water supply reliability objectives to participate in California WaterFix. For example, those SWCs that are willing to forego some of the water supply benefits of California WaterFix will be allowed to work with another SWC to transfer or exchange those water supplies. On the other hand, some SWCs are interested in acquiring more water supply benefits from California WaterFix than would be derived from their Table A allocation. However, the current SWP Contract does not allow this level of flexibility so a Contract Amendment is being pursued. Section I.1 in the attached AIP (Page 1) describes the proposed changes to water transfers. Of particular note is Section 1.3 that eliminates the Turnback Pool. Valley District has been opposed to the establishment of the Turnback Pool from its inception and actually did not sign a previous Contract Amendment (Monterey Amendment) because of this provision. The Turnback Pool was established in the Monterey Amendment as the exclusive method to transfer excess SWP water supplies at extremely low values. Valley District objected to the concept of being tied to a program that did not value the excess water at market rates. Over the last decade, other SWCs have concluded that the Turnback Pool concept was not equitable and it is now proposed to be eliminated. Section I.2 on Page 2 of the AIP establishes new rules for water exchanges including a provision that ties the return water requirement to the annual SWP allocation percentage. Section I.3 on Page 2 provides more details on how transfers and exchanges will be effectuated including protection from harm to non-participating SWCs. Section I.4 on Page 4 describes the due diligence requirements for a Public Water Agency (PWA) aka SWC, that is proposing to transfer or exchange a portion of its water supply in a given year or series of years. Section I.5 describes how transfers and exchanges will be integrated into the existing carry over and storage programs that are available to all SWCs. Based on detailed evaluation of the provisions in the AIP, Staff believes that it represents an enhancement to the State Water Project Contract by providing more robust tools for SWCs to manage their SWP water supplies. Staff is requesting that the Board consider approving the attached Draft Agreement in Principle for the SWP Water Supply Contract Amendment for Water Management and California WaterFix as a framework for conducting any necessary CEQA analysis and developing a Contract Amendment. The Contract Amendment will be brought back to the Board for consideration when complete. 15

16 Fiscal Impact There is no direct fiscal impact to approving this AIP. Staff Recommendation Approve the attached Draft Agreement in Principle for the SWP Water Supply Contract Amendment for Water Management and California WaterFix as a framework for conducting any necessary CEQA analysis and developing a Contract Amendment. The Contract Amendment will be brought back to the Board of Directors when complete. Attachment Draft Agreement in Principle for the SWP Water Supply Contract Amendment for Water Management and California WaterFix 16

17 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # Draft Agreement in Principle for the SWP Water Supply Contract Amendment for Water Management and California WaterFix This straw proposal for a draft Agreement in Principle (AIP) is from the Consolidated Talking Points as of May 30, 2018 from the contract amendment negotiations. Many provisions are under discussion and the workgroup will update the Draft AIP after future public negotiations. [Format used in this document is preliminary and is subject to revision.] DRAFT Proposed Project Objectives The California Department of Water Resources and the PWAs have agreed to the following proposed project objectives for amending the SWP water supply contract: 1) Supplement and clarify terms of the SWP water supply contract that will provide greater water management regarding transfers and exchanges of SWP water within the SWP service area; 2) Provide a fair and equitable approach for cost allocation of California WaterFix facilities to maintain the SWP financial integrity. I. PRINCIPLES TO ACHIEVE DRAFT PROPOSED OBJECTIVE FOR WATER MANAGEMENT TOOLS AND ACTIONS 1. Water Transfers Terms of a Transfer Agreement: The PWAs shall determine duration and compensation for all transfers; this includes allowing single, Transfer Packages and multi-year transfers to be as long as the remainder of the term of the contract Transfer Package Definition: A Transfer Package is comprised of two or more transfer agreements between the same PWAs. If a transfer package is presented to DWR for approval, DWR shall consider each proposed transfer within the package at the same time and shall apply the transfer criteria listed below in the review of each transfer. DWR shall not reclassify a Transfer Package or Transfer as an exchange. 17 Page 1 of 11

18 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # All contract language in Article 56(d) and language related to the Turnback Pool shall be removed. 2. Water Exchanges. 2.1 Article 56(f) will be revised to include language permitting consideration of hydrology under a bona fide exchange and will include the following criteria for return ratios: For SWP allocations >= 50%, return ratio is up to 2: 1 For SWP allocations > 25 and < 50%, return ratio is up to 3: 1 For SWP allocations >15% and <=25%, return ratio is up to 4: 1 For SWP allocations <=15%, return ratio is up to 5: The PWAs shall use the applicable return ratio using the SWP allocation at the time the exchange transaction is executed between the PWAs Notice to Contractors Attachment A, Section A, Bona Fide Exchanges, Item 4 Cost compensation reads as follows: Maximum cost compensation for a bona fide exchange may not exceed the exchanging PWAs combined conservation facilities, transportation facilities, and CWF facilities fixed charges (capital and minimum charges including capital surcharges). The allocation percentage in the denominator of the compensation calculation will be set by the SWP allocation which has incorporated the May 1 monthly Bulletin 120 runoff forecasts. If exchanges are requested prior to the allocation identified above, DWR will provide timely approval with the obligation of the PWAs to meet the requirement of the maximum compensation if the compensation exceed s the maximum, the PWAs will re-visit the agreement and adjust the compensation. If a cost adjustment is made, the PWA must notify DWR. 3. Transfers and Exchanges, including Transfers and Exchanges using Carryover Water in San Luis Reservoir (SLR) Buyers and Sellers in Same Year. PWAs may be both buyers and sellers in the same year and enter into multiple transfers and/or exchanges in the same year Basic Criteria Required for Proposed Transfers and Exchanges Transfers and exchanges must be transparent Transfers and exchanges must not harm non-participating PWAs. 18 Page 2 of 11

19 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # Transfers and exchanges must not create significant adverse impacts in a PWA service area Transfers and exchanges shall comply with all applicable laws and regulations Transfers and exchanges shall be scheduled only if they do not impact normal SWP operations Transfers and exchanges shall not impact the financial integrity of the SWP A PWA may petition the Director for an exception in the following cases. In each case, the PWA must provide explanatory information to the Director. A transfer or exchange does not meet the basic criteria, but the PWA feels that there is compelling need to proceed with the transfer or exchange. A PWA that has received water in a transfer or exchange cannot deliver all of the water from the transaction in the same calendar year, and wishes to carry over the water in its name. The Director shall have discretion to approve exceptions Dispute Resolution Process, Prior to Executing an Agreement. PWAs and DWR shall comply with the following process to resolve disputes if a PWA that is not participating in the transfer or exchange claims that the proposed transfer and/or exchange has a significant adverse impact Any claim to a significant adverse impact may only be made after the submittal of a term sheet to DWR and before DWR approves a transfer/exchange agreement In the event that any dispute can t be resolved among the PWAs, DWR will convene a group including DWR (the Chiefs of SWPAO, Legal, and Operations or their designees) and the PWA parties involved (PWA representatives to be chosen by each PWA party). Any PWA claiming an adverse impact must submit written documentation to support this claim and identify a proposed solution. This documentation must be provided 2 weeks in 19 Page 3 of 11

20 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # advance of a meeting of the group that includes SWPAO, Legal, Operations and the involved PWA representatives If this group can t resolve the dispute, the issue will be taken to the Director of DWR The Director s decision will be the final Water Delivery Priorities: Exchange and transfer water shall be scheduled in accordance with Article 12 (f) priorities retaining the associated priority level. The transfer water will not have the protection of Article 14(b) and the delivery cannot impact any other PWAs. 3.5 Although DWR will not be a party to any transfer or exchange agreement between the PWA s, DWR and the PWAs shall enter into an agreement to address DWR s role in effectuating the transfer or exchange. Such agreement shall include certain standardized provisions designed to protect SWP operations, finances and liability, along with other provisions tailored to the particular transaction or as otherwise agreed among DWR and the PWAs. 3.6 Timely Processing. DWR will timely process requests to be incorporated into the schedule to deliver water that given year. 3.7 Shortages: In regards to shortages, DWR retains authority as set forth in Article 18(a). 3.8 Article Tulare Lake Basin Water Storage District, Empire Westside Irrigation District, Oak Flat Water District, and Kings County may transfer a portion of their Article 21 water to another PWA The Director, in his or her discretion, may approve the transfer of a portion of other PWA s allocation of Article 21 water to another PWA where there is a special need for the transfer. The Department will prepare criteria to be applied for the review of a PWA request to transfer Article 21 water. This will not impact the Department s process for allocating Article 21 water. 4. PWA Due Diligence. 4.1 Each PWA participating in an exchange or transfer shall confirm the following in a resolution or other appropriate document approving the transfer or 20 Page 4 of 11

21 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # exchange, including the use of stored water/carryover water, if applicable, provided to DWR as follows: That the PWA has complied with all applicable laws for this transfer/exchange and shall specify the notices that were provided to the public agencies and the public regarding the proposed transfer or exchange That the relevant terms of the transfer/exchange have been provided to all State Water Project PWAs and the SWC Water Transfer Committee; That the PWA is informed and believes that this transfer/exchange will not harm other SWP PWAs, or impact SWP operations That the PWA is informed and believes that the transfer/exchange will not affect its ability to make all payments, including payments for its share of the financing costs of DWR s Central Valley Project Revenue Bonds, when due, under its water supply contract That the PWA has considered the potential impacts of the transfer/exchange within the PWA s service area Add language to the contract that requires PWAs parties to an exchange or transfer to publicly post and provide information to non-party PWAs. The PWAs and DWR agree that DWR will send a Notice to Contractors to outline the following process related to transparency for transfers and exchanges: At the time the PWA parties submit the Contract Information Form to DWR, they will provide the Contract Information Form to the non-party PWAs. During the time period beginning with the PWA parties submitting the Contract Information Form to DWR and the time before there is a final agreement with DWR for storage or conveyance, the PWA parties will publicly post information regarding the transfer or exchange. If applicable, the PWA parties will request the State Water Contractor Board to support the water transfer. If the State Water Contractor board votes to support the transfer or exchange, the General Manager will send a letter of support to DWR and to the non-party PWAs. Once a storage or conveyance agreement is completed it will be provided to the non-party PWAs If requested by the DWR Director with respect to any confirmation of Basic Criteria for Transfers, Exchanges and Carryover Water, the PWA shall 21 Page 5 of 11

22 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # cooperate with DWR in providing DWR with information supporting the basis for the confirmation or basic criteria. 5. Stored Water/Carryover Water Store and Transfer SWP Water in the Same Year. Modify Article 56(c)(4) and any other applicable sections to allow PWAs to store and transfer Table A water in the same year and modify Article 56(c) and any other applicable sections to allow a PWA to transfer Table A water to another PWA s service area. DWR will continue to coordinate through the PWAs under the existing SWP contracts. 5.2 Carryover Water Program: Carryover Water Program shall require transfers and/or exchanges of carryover water in years of need, as confirmed by the receiving PWA, to meet the following criteria: Carryover water available for transfer or exchange in this amendment is defined only as stored water described in Article 56(c)(1) and 56(c)(2) and not 12(e) Carryover water may only be exchanged or used in single-year transfers The PWA purchasing the carryover water must take delivery, in its service areas, unless an exemption is granted under A PWA may transfer or exchange up to 50% of its carryover water A PWA may transfer/exchange greater than 50% of its carryover water, if the PWA demonstrate that the transfer or exchange of carryover water will not prevent it from meeting critical water needs in the current year or the following year and obtain approval by DWR Director All transfer and exchange of carryover water are subject to section The PWA receiving the water must confirm that the PWA has a need for that water for use within its service area during the current year unless an exception is granted under A PWA may request an exception for the following, but not limited to, from the DWR Director: 22 Page 6 of 11

23 DRAFT WORKING DOCUMENT FOR PUBLIC DISCUSSION Draft 3 June 27, 2018 Doc # For any exceptions to the criteria listed above; Requests for the transfer and exchange of stored (or carryover) water prior to this water being displaced; and Using San Luis Reservoir as the transfer/exchange point. II. PRINCIPLES TO ACHIEVE OBJECTIVE FOR CWF COST ALLOCATION 1. These costs would be billed to and collected from SWP PWAs participating in the SWP portion of CWF (Participating PWAs), except those SWP PWAs situated north of the Delta (Non-Participating PWAs), through their annual Statement of Charges (SOC). 2. CWF Facilities Definition: CWF Facilities shall mean those facilities that are constructed to convey water from the north Delta to the south Delta through facilities as described in the California Water Fix Final EIR/EIS SCH # In general, CWF Facilities will divert water from the Sacramento River through three intakes on the east bank of the Sacramento River, through pipelines and tunnels to the south Delta, to new forebay located northwest of the existing Clifton Court Forebay, and finally to connections with the California Aqueduct north of the Jones and Banks pumping plants. 3. CWF Facilities Charge Components: The purpose of the CWF Facilities is water conservation and/or transportation. Accordingly, all capital and minimum operations, maintenance, power and replacement (OMP&R) costs associated with the CWF Facilities are 100% reimbursable and shall be recovered by the DWR from Participating PWAs through their annual SOCs. These costs shall be allocated to and billed under two new charges as follows: (1) CWF Facilities Capital Charge Component (2) CWF Facilities Minimum OMP&R Component 4. CWF Facilities Capital Charge Component Method of Computation 4.1 This computation will recover actual annual debt service created by financing activities (Financing Method) for CWF Facilities. 4.2 Each Financing Method shall provide an annual repayment schedule, which includes all Financing Costs. 4.3 Financing Costs shall mean the following: Principal of and interest on Revenue Bonds, 23 Page 7 of 11