RARE in EDMAM . ority T0: Dem-164531177210 DATE: 41/7/09 TIME: 7-9062?? April 2, 2009 308: stant General Manager SUBJECT: (Wino 4744493 El SEND MTTACH Ci REPLY El FORWARD SPAM DTRASH ior Water Resources Specialist P/mse /ef me fer/M7 jaw 777073143 :7 I ray/d a, @7175,? aesm?nze 12/ (m0 Mama 674/51") Groundwater Resources Auction Price ?oached by a representative of Chino Basin he Chino Basin Groundwater Resources 1e offered to the Water Authority, originally District, included the purchase of 40,000 acre- 6,000 acre-feet of Overlying (Non- -valuates the opportunities and bene?ts, maintain a Program in the Chino Basin as SIGNATURE: @b/we, 1ction Price Floor Agreement. Chino Basin m5 h, .5 ?It. 1 iter basin management entity, intends to sell by auction the sole and exclusive contractual right and interest of Groundwater Resources 1n Chino Basin. If the Water Authority enters into an agreement with the Watermasters, the Water Authority would secure an opportunity to purchase the Groundwater Resources if Watermasters is not able to obtain a higher Conforming Bid. The Water Authority would acquire 40,000 acre-feet of storage and 36,000 acre-feet of stored water (40,000 acre-feet with 10% loss already applied). If the Watermasters closes on a higher Conforming Bid than the Water Authority?s agreed price, the Water Authority would receive a ?Breakup Fee? from Watermasters, which Is equivalent to 10% of every pamthe Watermasters receive from the buyer of the Groundwater Resources. Opportunities and Bene?ts. There are a number of examples of conjunctive water management in California, particularly in adjudicated groundwater basins in Southern California. These management arrangements generally work well because the rights to groundwater are quanti?ed and the management agencies have legal authority to enforce the pumping limitations, pricing rules, and other policies that govern groundwater and surface water use. Chino Basin is adjudicated and has clear rules and procedures for the use of the storage capacity of the Basin. As such, a high degree of certainty would be provided that the terms and conditions of the 30-year agreement with the Watermasters would be fully valid and enforceable. In addition to the acquisition of 40,000 acre-feet of storage and 36,000 acre-feet of stored water, Chino Basin?s central location and access to several regional water transportation routes presents various options for the development of a feasible project with the Water Authority. Chino Basin has signi?cant extraction and storage infrastructure, including wells, recharge facilities, treatment plants, etc. These facilities are potentially available \anPRWijf/W San Diego County Water Authority April 2, 2009 TO: Dennis A. Cushman, Assistant General Manager FROM: Debbie Discar?Espe, Senior Water Resources Specialist RE: Analysis on Chino Basin Groundwater Resources Auction Price Floor Agreement On March 3, the Water Authority was approached by a representative of Chino Basin Watermasters to consider participating in the Chino Basin Groundwater Resources Auction (Groundwater Resources). The role offered to the Water Authority, originally negotiated with Western Municipal Water District, included the purchase of 40,000 acre- feet of storage for a term of 30 years and 36,000 acre-feet of Overlying (Non- Agricultural) Pool water. This document evaluates the opportunities and bene?ts, concerns and risks, and cost to operate and maintain a Program in the Chino Basin as offered by the Chino Basin Watermasters. Chino Basin Groundwater Resources Auction Price Floor Agreement. Chino Basin Watermasters, a court-appointed groundwater basin management entity, intends to sell by auction the sole and exclusive contractual right and interest of Groundwater Resources in Chino Basin. If the Water Authority enters into an agreement with the Watermasters, the Water Authority would secure an opportunity to purchase the Groundwater Resources if Watennasters is not able to obtain a higher Conforming Bid. The Water Authority would acquire 40,000 acre-feet of storage and 36,000 acre-feet of stored water (40,000 acre-feet with 10% loss already applied). If the Watermasters closes on a higher Conforming Bid than the Water Authority?s agreed price, the Water Authority would receive a ?Breakup Fee? from Watermasters, which is equivalent to 10% of 21? the Watermasters receive from the buyer of the Groundwater Resources. 7 7 R, W13, Opportunities and Benefits. There are a number of examples of conjunctive water 01"? 9 management in California, particularly in adjudicated groundwater basins in Southern M5 California. These management arrangements generally work well because the rights to . . m. u, groundwater are quantl?ed and the management agenCIes have legal authorlty to enforce [1 - the pumping limitations, pricing rules, and other policies that govern groundwater and e3 far?! surface water use. Chino Basin is adjudicated and has clear rules and procedures for the - . . . . [4 use of the storage capacny of the Basm. As such, a h1gh degree of certainty would be provided that the terms and conditions of the 30-year agreement with the Watermasters 77 p? I would be fully valid and enforceable. 0? In addition to the acquisition of 40,000 acre-feet of storage and 36,000 acre-feet of stored water, Chino Basin?s central location and access to several regional water transportation routes presents various options for the development of a feasible project with the Water Authority. Chino Basin has signi?cant extraction and storage infrastructure, including wells, recharge facilities, treatment plants, etc. These facilities are potentially available f/Chino Basin Analysis April 2, 2009 Page 2 of 4 for the implementation of a Water Authority project. Workable opportunities to store water in Chino Basin include: 1) enter into local market options; 2) exchange replenishment (or other) water; or 3) purchase of Metropolitan Water District (MWD) water. The following brie?y describes the program storage scenarios to ?put? water into the Water Authority?s storage account: 0 Local Market Options. Through this alternative, the Water Authority would obtain water from a basin holder to ?top-off? its storage account. 0 Exchange Replenishment or Other Water. The Water Authority would acquire water from a number of sources, such as replenishment program or via an in-lieu agreement where the Water Authority would contribute funds for another agency?s recycling water program thereby bene?tting from that agency assigning its water to the Water Authority in the basin. - Purchase of WD water. The Water Authority would purchase Replenishment or Tier 1 water from MWD. During dry conditions, the Water Authority may want to ?take? water from its storage program. There are also various opportunities to extract water from the basin, including: In lieu deliveries of wet water for later extraction. 0 Exchanges of water with other basin holder entities. 0 Actual wet water storage and extraction with physical wheeling of stored water to locations in and around the Chino Basin. The facilities needed to implement any of the alternatives above will depend on the nature of the project and agreements the Water Authority obtains to store and extract water. It should be noted; there are MWD member agencies Inland Empire Utilities Agency and Three Valleys Municipal Water District as well as, MWD sub-agencies that have assets in Chino Basin. This opens opportunity to potential partnerships within service area. Concerns or Risks. The Chino Groundwater Basin is in an ideal location in Southern California to conduct large-scale conjunctive use storage programs. It contains a large amount of available storage space and environmental review has already been completed for a regional conjunctive use project. Chino Basin?s location and access to several regional pipelines and waterways is ideal for a viable program. Through coordinated optimization of surface and groundwater supplies the Water Authority can increase its water supply reliability and reduce dry year demand de?cit. However, there are four major concerns with participating in the Groundwater Resources program: 1) does the Water Authority need additional storage; 2) is there available water to purchase and store in the basin; 3) is storage, retrieval, and delivery easily accessible; and 4) what ?nancial impact does participation in the Groundwater Resources program have on the Water Authority? Chino Basin Analysis April 2, 2009 Page 3 of 4 Storage Needs. The Water Authority identi?ed in the Environmental Impact Report (2003) for the carryover storage a need for 94,000 acre-feet over and above the carryover of 100,000 acre-feet, Imperial Irrigation District transfer water and desalination program, if MWD preferential rights is invoked. Through SB 1765 funds, the Water Authority purchased an additional 70,000 acre-feet in Kern County (Vidler and Semitropic- Rosamond), leaving a current requirement of 24,000 acre-feet of storage. It should be noted that the Water Authority may also add an additional desalination program, which the volume and timing is still uncertain, but could yield 160,000 acre-feet per year. As a result, the 40,000 acre-feet of storage is more storage than the Water Authority needs. Water Availability. Water supplies continue to be Vulnerable. Ther unknown restrictions due to a Biological Opinion for Chinook Salmon and two other listed species, which is expected to be released on June 2, 2009; storage levels are lower than this same period last year; overall hydrology continues to be dry; allocation of MWD supplies likely for 2009; and the outlook for available supplies to store is equally grim. However, the 36,000 acre-feet that comes with the storage is attractive. Program Accessibility. Successful participation in this program requires a partner with rights and facilities to store, access and extract water from the basin. The Water Authority must also gain support OQVIWD to deliver the water to the Water Authority?s service area either in?lieu or physical delivery; Watermastervv'vho haw?iversight of the basin; and court approval on the Water Authority?s storage and While not insurmountable, accessibility to the basin requires challenging coordination and approval, which cannot be successfully determined within the given timeframe to respond to this agreement. Financial Impacts to the Water Authority. The purchase price of the 40,000 acre-feet of storage capacity and 36,000 acre-feet of stored water to the Water Authority is $2.16 million ($600 per acre-foot of Groundwater Resources). In addition to the purchase price, for the ?rst four years of the agreement, the Water Authority must pay a ?Storage Payment? of $25 per acre-foot of available capacity the ?rst four years of the agreement. For example, the ?rst year that the Water Authority enters into the Groundwater Resources program, the remaining available capacity in its account is 4,000 acre-feet (40,000 acre-feet of storage minus the 36,000 acre-feet of stored water). This equates to $100,000 (4,000 acre-feet multiplied by $25 per acre-feet). On the ?fth year and through the remaining term of the agreement, the Storage Payment is equal to the product of 40,000 acre-feet multiplied by the applicable Indexed Storage Fee ($25 per acre-foot in today?s dollars), which equates to more than $1 million per year. It should be noted that the agreement does not clearly identify the use of the Storage Payment. Other Considerations. Conjunctive water use involves the coordination of groundwater and surface water management, usually by recharging the groundwater basin with surface water during times of hydrologic surplus and withdrawing the stored water during times of drought. Other considerations worth noting include: Chino Basin Analysis April 7., 2009 Page 4 of 4 l) Chino Basin has a natural discharge to the Santa Ana River, does participation in this program account for that spill amount? 2) Our initial assumption is that the water pumped from the storage account would essentially replace a portion of the receiving agency?s MWD allocation, thereby allowing the receiving agency to transfer that portion of its MWD allocation to the Water Authority. Are there any constraints on use of the water during a MWD allocation? For example, if MWD has its customers under and?llocatiorbwill the in-lieu agencies consider this part of their local back up supply? 3) How will the water he treated during an MWD allocation? 4) Will transaction with partnering agency meet primary and secondary water quality standards? Staff Recommendation. Given that the program includes more storage than the identi?ed needs of the Water Authority, program accessibility requires contracts that are uncertain within the given timeframe, and the cost to maintain the program is high, staff recommends not providing Chino Basin Watermasters with an offer for its Groundwater Resources Auction Price Floor Agreement. Mb all HATCH AND PARENT 1: 12m (?Imllo Street Snnu Barbara. CA Is) ?300le SCOTT S. SLATER (State Bar No. 1 17317) MICHAEL T. FIFE (State Bar No. 203025) HATCH PARENT, A LAW CORPORATION 21 East Carrillo Street Santa Barbara, CA 93101 Telephone No: (805) 963-7000 Facsimile No: (805) 9654333 Attorneys For CHINO BASIN WATERMASTER SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN BERNARDINO CHINO BASIN MUNICIPAL WATER Case No. RCV 51010 DISTRICT . . I . . .. Plaintiff, MICHAEL vs. DECLARATION OF JEFF KIGHTLINGER CITY OF CHINO, ET AL. Defendant. 1. My name is Jeff Kightlinger. I am the General Manager of the Metropolitan Water District. of Southern California I-became General Manager in February of 2006. Prior to serving as General Manager I was the General Counsel for MWD for approximately six years from 2000-2006. 2. MWD is the primary provider of imported water for the bene?t of over 18 million people in Southern California, and it is comprised of 26 member agencies, including the Three Valleys Municipal Water District the Western Municipal Water District and the Inland Empire Utilities Agency DECLARATION OF JEFF KIGHTLINGER SB 450222 HATCH AND PARENT 3} 2 Em Carrillo Street Sum Barbara. CA 9310! 10 ll 12capacity as General Manager I am responsible for management of all aspects of the District, including overseeing water supply planning efforts, and I have personal knowledge of imported water supplies and a general knowledge of operating infrastructure. 4. MWD provides wholesale water to its member agencies from two primary imported sources, the Colorado River and the State Water Project. 5. In addition, MWD has developed additional complementary water supply projects to augment these sources and to maximize overall water supply reliability. These water projects include substantial economic investments and physical improvements in surface and .sroundwater storage - Valley. 6. For example, MWD has made investments in dry-year supplies and the storage and recovery of groundwater through agreements with the Calleguas Municipal Water District, the IEUA and among others. MWD has ?nancially supported the efforts of its member agencies to develop local supplies, under its Local Resources Program. One program previously approved for support is the operation of the Chino I and Chino II Desalters. 7. am generally aware of the ongoing Water supply planning efforts undertaken by the MWD member agencies and their individual and cumulative projected demands on MWD. 8. Projected curtailment of State Water Project deliveries attributable to the recent federal judgment on Delta smelt protections will impact the total quantity of water available to Metropolitan on a year?to-year basis in the near term. It is my opinion that with planned actions and programs to improve reliability of State Water Project operations in the Delta, over time, these near- tenn impacts will be offset. Upon successful implementation of these plans, Metropolitan projects 2 DECLARATION OF JEFF 58 450222 I :008350.000l HATCH AND PARENT 3 2 Em Carrillo Street Santa Barbara. CA 93101 .52. that it would be able to provide water for groundwater recharge to meet needs for agencies such as IEUA, over the long term. 9. I am also generally aware that IEUA, and WMWD are working with the Chino Basin Watermaster to begin a novel groundwater management approach to preserve safe yield, desalt groundwater and reduce discharges of poor quality water to the Santa Ana River. This approach will result in widely expanded use of recycled water and reduce our reliance upon imported water. 10. In my opinion, the ef?cient development of local resources and increased conservation is in the public interest and consistent with the goals and objectives of MWD and the ?region ., . 11. I declare under penalty of perjury that I have personal knowledge of the facts stated herein and if called as a witness could competently testify thereto. I swear under penalty of perjury that the foregoing is true and correct to the best of my knowledge. Date: 2m? 3 DECLARATION OF JEFF SB 450222 VI ?18150900!