CALDARELLI HEJMANOWSKI PAGE LEER 12340 ELCamino Rest, Suite 430 I San Diego. California 92130 I LEE E. HEJMANOWSKI Direct 858-764?8106 is a ilawmom June 2, 2015 VIA E-MAIL AND U.S. MAIL Con?dential Settlement Communication ?gbiect to Evid. Code 58 1152. 1154 Frederic A. Fudacz, Esq. - Nossarnan LLP 777 South Figueroa Street, 34th Floor Los Angeles, CA 90017 Re: Michael Ahat?, Trustee at at. v. Imperial Irrigation District Imperial County Superior Case No.: ECU07980 Dear Fred: 'As the IID representatives requested during our conference call on Thursday, May 21, Michael Abatti has authorized this letter to be sent to convey two different settlement outlines that he would like to discuss with members of the IID Board. So that the IID Board can appreciate better the potential impact of the EDP on Mr. Abatti and other irrigators in the Imperial Valley, I offer the following discussion. Mr. Abatti owns approximately 5,000 acres of land which historically have required the use of an average of approximately 7 acre-feet of water per acre to farm. He also leases an additional approximately 3,000 acres of land Mr. Abatti?s bene?cial use of water on these lands has supported the development of the water rights which IID holds in trust for its users. Some of the acres Mr. Abatti owns or leases are very sandy and require as much as 13 acre?feet per acre to farm. Other acres are less sandy and require only 5 acre-feet per acre to farm. Ifthe IID uses a straight-line apportionment method among inigators, which is the default method of apportionment under the EDP, Mr. Abatti could be apportioned 5 acre?feet per acre or less, depending on various factors. If so, for him to continue farming only the land he owns and not the land he leases, he must request an additional 2 acre?feet per acre be provided to his operations through the Water Clearinghouse. This would amount to 10,000 acre?feet of water. There are no guarantees under the EDP that water can be made available to Mr. Abatti through the Water Clearinghouse to satisfy his needs, nor are there plans in place which document the quantities of water which might reasonably be available in the Water Clearinghouse to assess the risk that may exist. If Mr. Abatti?s requests for additional water through the clearinghouse are not met and if the District exceeds its 3.1 MAF allocation of Frederic A. Fudacz, Esq. June 2, 2015 Page 2 Colorado River water, the EDP requires that Mr. Abatti reimburse the District to pay back his 10,000 acre-feet portion of the overrun. The fee which the District charges for pay?back water for agricultural water users is not identi?ed in the EDP. The EDP does, however, identify a fee for industrial water users who contribute to an overrun. That fee is identi?ed as being the amount contained within the District?s ?Water Rate Schedule No. 13 Conserved Water? which is presently $512 per acre-foot. If the District were to apply this same charge to Mr. Abatti under the EDP, he would need to pay the District $5,120,000 for the 10,000 acre-feet of additional water required to farm only the land he owns. Conversely, the cost to deliver that volume of water to Mr. Abatti is $200,000 at the standard agricultural water delivery rate of $20 per acre?foot. By comparison, other agricultural water users in the District who have historically required only 5 acre-feet per acre or less due to their clay-like soil conditions and cropping patterns suffer no threats in reductions or risks to their water use. Mr. Abatti?s farming Operations cannot be sustained if he has to pay for additional water at rates exceeding the standard agricultural water delivery rate. The lawsuit that Mr. Abatti has ?led as a result of such potential impacts raises a host of legal questions of far-ranging importance, including: What are the terms of the trust relationship between the and its users? How must the HD apply its ?duciary duties in the present circumstances? What strictures are imposed upon the in apportioning water created from water rights that are appurtenant to the land of the inigators within the District? What is the impact of the ?no injury? rule in this situation? What is the meaning of ?equitable? in the provisions of the Water Code enacted more than 100 years ago which govern the apportionment and distribution of water by irrigation districts? Does ?equitable? mean anything other than the distribution of water to the land to which the water rights are appurtenant? Are ?straight-line? allocations inequitable per so because they do not take into account relevant circumstances? What signi?cance is there regarding the division of title between ?legal? and ?equitable? ownership of water rights? In what manner is the appropriative rights doctrine, including priority of use, relevant in determining equitable allocations? The District?s answer raises other questions, including: What is the meaning of, and the law relating to, the phrase ?unilaterally disaggregated?? May the District exercise its alleged discretion to adopt ?inequitable? allocation rules? What is the source of the District?s claimed ?legislative power?? But perhaps the parties and the Court can avoid wrestling with those signi?cant concepts in the present case. First Settlement Proposal The ?rst outline of settlement terms Mr. Abatti proposes relates in part to terms for creating water for new municipal, commercial and industrial users. The EDP allows for an open?ended commitment of water to new users at signi?cant expense to existing agricultural users. While current MCI uses and environmental uses are relatively small compared to Frederic A. Fudacz, Esq. June 2, 2015 Page 3 existing agricultural uses, these uses are anticipated to grow considerably in the future. MCI and environmental water users currently use approximately 100,000 acre-feet per year, while agricultural water users use approximately 2.6 million acre-feet (MAP) per year. Based upon projections contained within the 2012 Imperial Integrated Regional Water Management Plan (?2012 and other planning documents, we anticipate that MCI and environmental water use could increase by 300,000 acre-feet per year or more in the future. The EDP allows for the apportionment of water to these new MCI and environmental water uses from the agricultural water pool with no mitigation requirements. Similarly and disconcertingly, the 2012 HRWP describes a water management program under which new non?agricultural water demands may be met by reapportioning water ?-om existing agricultural users under the EDP. Such an apportionment would reduce the water available to agricultural water users to 2.3 MAP, a reduction of 11.5%. The reapportionment of water from agricultural users to MCI and environmental users was graphically described in Figure 5-20 of the 2012 IIRWMP. A reduction of this magnitude will adversely impact all agricultural water users in Imperial Valley. Previously, on September 29, 2009 the IID Board had adopted an ?Interim Water Supply Policy? or and accepted a draft Integrated Water Resources Management Plan which attempted to create a permanent means of providing water to these new uses without adversely impacting existing agricultural water users. The IWSP provided for the collection of fees from new non-agricultural water users which would be used to fund future water development programs, although no speci?c water development programs were identified in the IWSP. One of the key cornerstones of the draft IWMP that the IID Board accepted at the September 29, 2009 meeting was the creation of an Exchange? through which new water would be created to satisfy new non-agricultural demands. The section of the IWMP entitled ?Apportionment of Water within the Existing 3.1 MAP Supply? on page ?7 provides, ?In conjunction with the program for annual apportionment and building on its existing fallowing program, it is recommended that the Board develop a type of MCI Water Exchange along with related policies that would allow fallowing for in-valley uses and apportionment of any reduction in water use assOciated with land being converted from agricultural to MCI uses.? That program was never implemented after the IID pursued the development of the more comprehensive and more conceptual 2012 IIRWMP. Mr. Abatti preposes that the IID implement an MCI Exchange as the exclusive means of generating water for new municipal, and industrial users without adversely impacting existing agriculttual users. The district should make clear its intention not to use the EDP to reapportion water from existing agricultural water users to new non-agricultural water users by adopting a resolution stating that intention. Also, Mr. Abatti preposes revisions to the existing October 2013 Equitable Distribution Plan. Mr. Abatti preposes that the EDP provide for allocation among irrigators, if necessary, based upon the irrigators? historical water usage, which is more equitable that straight-line Frederic A. Fudacz, Esq. June 2, 2015 Page 4 apportiomnent because it takes into account the di??erent soil types and crops grown in the Imperial Valley, and because it is consistent with the credit given by the Bureau of Reclamation for water conserved through fallowing. the Bureau of Reclamation recognizes a parcel?s right to water to be equal to its historical use, not a district average or some other arbitrary value) To avoid any prejudice to farmers who have invested signi?cant amounts in 011wa conversation measures since the 2003 Quanti?cation Settlement Agreement, Mr. Abatti pr0poses that the historical usage data for the apportionment calculations re?ect the water used in the ten years before the 2003 QSA. Mr. Abatti understands that data is available to the IID. In addition, Mr. Abatti proposes that the EDP be revised to allow agricultural water users to exceed their apportionment during those years in which overruns are allowed under the Bureau of Reclamation?s Inadvertent Overrun and Payback Policy (IOPP). Funds required for the district to payback overruns should be collected from the irrigators who exceed their historical usage at the prevailing water delivery rate charged to agricultural users. Furthermore, Mr. Abatti proposes that during those years in which it is envisioned that shortage conditions exist on the Colorado River and no overrun is allowed, the district should undertake a fallowing program to ensure that suf?cient water is available within the Water Clearinghouse should it be required. The cost of the land fallowing should be borne by all water users through necessary adjustments in the District-wide water delivery rates. Second Settlement Proposal The second settlement structme Mr. Abatti proposes is much simpler. Alternatively, he would be willing to dismiss the present litigation with prejudice in exchange for a binding commitment from the HD to supply Mr. Abatti, his brother James Abatti, and father Ben Abatti with the water they reasonably need for farming in exchange for payment of the then-prevailing rates for the IID to transfer water to its agricultural users. Mr. Abatti is willing to consider different structures and terms for documenting that proposal so that it poses the least potential di?iculty for the in regard to other persons. Very truly ours, Lee E. 1%ij Caldarelli ejmanowski Page Leer cc: Michael Abatti