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HomeMy WebLinkAboutStaff Report 341-06City of Palo Alto City Manage TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:SEPTEMBER 11, 2006 CMR:341:06 SUBJECT:RESOLUTION APPOINTING THE BAY AREA WATER SUPPLY AND CONSERVATION AGENCY AS AUTHORIZED REPRESENTATIVE OF THE CITY OF PALO ALTO IN DISCUSSIONS AND NEGOTIATIONS WITH SAN FRANCISCO RECOMMENDATION Staff recommends that the Council approve the resolution authorizing the Bay Area Water Supply and Conservation Agency (BAWSCA) to negotiate on behalf of the City of Palo Alto for a water services agreement with the City and County of San Francisco. BACKGROUND Palo Alto’s water supply consisted entirely of groundwater provided by the wells it owned and operated until 1937, when the City contracted with San Francisco for a supplemental supply of water. In 1962, after a survey was conducted to determine the water softening cost to Palo Alto water users, the Council decided to purchase all of its water supplies from San Francisco. At that time, a 20-year water supply contract was signed with San Francisco and Palo Alto’s wells were placed in standby status. Since then, the wells were used for several extremely hot days in the 1960’s, for two weeks during the San Francisco employees’ strike of 1976, and as supplemental supply in 1988 and 1991 during an extended drought. In 1974, San Francisco raised water rates to its wholesale customers by 20.5 percent but increased San Francisco retail rates by only 14.5 percent. In response, the wholesale customers sought and obtained a Preliminary Injunction and Temporary Restraining Order barring the rate increase. This decision was affirmed, upon appeal, in 1977. In 1978, plaintiffs filed an Amended and Supplemental Complaint in the action (City of Palo Alto et al. v. City and County of San Francisco), which broadened the scope of the complaint into an attack upon the method San Francisco used to charge its wholesale Customers for water. After the lawsuit was filed, at the urging of the trial judge, the parties engaged in negotiations to resolve their differences and develop a framework for a new relationship. The Settlement Agreement and Master Water Sales Contract (Master Contract) was signed by all parties in 1984. CMR:341:06 Page 1 of 4 The lengthy negotiations that extended from the time of the initial action to the successful conclusion was led by the Bay Area Water Users Association (BAWUA), an organization_ comprising the 28 cities, water districts, and private water utilities that purchase water from-San Francisco on a wholesale basis. Each wholesale agency, including Palo Alto, has an individual water supply contract entered into at the same time as the Master Contract. Palo Alto’s individual water supply contract describes the service territory, points of connection with San Francisco’s regional water system, interties with neighboring systems, and billing and payment details. DISCUSSION The term of the Master Contract and Palo Alto’s individual water supply contract is 25 years, and expires on June 30, 2009. It is time to prepare for negotiations for a new agreement with San Francisco. The Bay Area Water Supply and Conservation Agency (BAWSCA) was formed in 2003 and is BAWUA’s successor organization. BAWSCA member agencies are the same agencies that were members of BAWUA and include all agencies that purchase water from the regional water system owned by the City and County of San Francisco and operated by the San Francisco Public Utilities Commission (SFPUC). The attached letter from Palo Alto City Council Member Bern Beecham, BAWSCA’s chair, to Mayor Kleinberg indicates that BAWSCA is ready and able to negotiate a new water service agreement on behalf of its member agencies. This is the same role that BAWUA performed for its member agencies in the 1974 to 1984 negotiation period for the existing Master Contract. The attachment to the letter describes the environment under which negotiations for a new water service agreement will take place. A key factor is the fact that the SFPUC has adopted a $4.3 billion Water System Improvement Program (WS~) to upgrade and repair the regional water system that Palo Alto relies on. The Program Environmental Impact Report (PEIR) for the WSIP is underway and provides a venue for public scrutiny. The existing Master Contract settled the issues of its time, which were primarily related to cost allocation and the restriction of costs allocated to wholesale agencies to those facilities and services that benefit them. Many .other issues were either not settled or not addressed in the Master Contract. The goals that have been expressed by the BAWSCA member agencies can be distilled into BAWSCA’s overall goal of ensuring a reliable supply of high quality water at a fair price. The attachment to the letter lists more specific elements of that overarching goal. BAWSCA’s, and previously BAWUA’s, role continues to be one of coordinating and advocating for the joint interests of its member agencies in their relationship to San Francisco and the regional water system. BAWSCA is nota party to the Master Contract - it is between the individual agencies and the City and County of San Francisco. However, it makes sense for BAWSCA to coordinate the negotiations and act on its member agencies’ behalf for several reasons. The power of the group of agencies in such a negotiation is much greater than that of a single agency negotiating on its own behalf. In addition, the pooling of member agency CMR:341:06 Page 2 of 4 resources at BAWSCA enables experts in many areas to be available to assist in the negotiations. The resources BAWSCA has gathered include expertise in accounting, economics, engineering, municipal finance, legal counsel, and strategic counsel Council’s grant of grant of authority to negotiate on the City’s behalf to BAWSCA still leaves the final decision of whether to enter into any agreement with the Council. In addition, the Council may withdraw the authority given to BAWSCA at any time. BAWSCA has committed to providing quarterly reports on the progress of the negotiations. Staff will communicate these reports to the Council as they are received. RESOURCE IMPACT The costs of negotiating a new water services agreement are included in the BAWSCA budget that is allocated to its member agencies. Palo Alto’s allocation is included in its water budget. Staff time for monitoring this work is also already incorporated into the budget. Prior to committing to a potential new agreement, any adjustments to the cost of the water contract will be analyzed and reported to the Council. POLICY IMPLICATIONS The underlying goal for the negotiations for a new water services agreement is to ensure a reliable supply of high quality water at a fair price. The Council has supported this goal by its approval of the Water Integrated Resources Plan Guidelines in December 2003 [CMR:547:03]. ENVIRONMENTAL REVIEW A decision as to whether renewal of the water services contract will require environmental review will be made at a later date. This work would likely be coordinated by the City and County of San Francisco as the lead agency. NEXT STEPS BAWSCA is currently in the process of collecting the authorizations for those member agencies that wish to join in the coordinated negotiations. BAWSCA expects to begin the negotiations with San Francisco this fall. Quarterly reports on progress and status of the negotiations will be forthcoming as the negotiations proceed. ATTACHMENTS 1. Resolution Appointing the Bay Area Water Supply and Conservation Agency as Authorized Representative of the City of Palo Alto in Discussions and Negotiations with San Francisco for an Agreement To Provide a Reliable Supply of High Quality Water at a Fair Price 2.Letter dated July 31, 2006 from Bern Beecham, Chair of BAWSCA, to Mayor July Kleinberg regarding: Negotiations of Agreement with San Francisco to Provide Its Regional Customers a Reliable Supply of High Quality Water at a Fair Price CMR:341:06 Page 3 of 4 PREPARED BY: DEPARTMENT HEAD: Jane Ratchye,~enior Resource Planner C~ATS Directo~ CITY MANAGER APPROVAL: Assistant City Manager CMR:341:06 Page 4 of 4 NOT YET APPROVED RESOLUTION NO. RESOLUTIQN OF THE COUNCIL OF THE CITY OF PALO ALTO APPOINTING THE BAY AREA WATER SUPPLY AND CONSERVATION AGENCY AS AUTHORIZED REPRESENTATIVE OF PALO ALTO IN DISCUSSIONS/NEGOTIATIONS WITH SAN FRANCISCO FOR AN AGREEMENT TO PROVIDE A RELIABLE SUPPLY OF HIGH QUALITY WATER AT A FAIR PRICE WHEREAS, in 1984, the City of Palo Alto (the "City"), together with other water suppliers in Alameda, San Mateo and Santa Clara counties, entered into a "Settlement Agreement and Master Water Sales Contract" (the ~1984 Contract") with the City and County of San Francisco (~San Francisco"). The 1984 Contract settled a federal lawsuit brought by the City and other water suppliers to these communities challenging the legality of water rates charged by San Francisco; WHEREAS, the 1984 Contract and the individual water supply contract entered into concurrently by the City and San Francisco will expire on June 30, 2009; WHEREAS, in April 2003, the City and other water suppliers in Alameda, San Mateo and Santa Clara counties established the Bay Area Water Supply and. Conservation Agency (~BAWSCA"), and represented on the BAWSCA board of directors, as authorized by Water Code Section 81300 et seq. pursuant to State legislation enacted in 2002 (AB 2058); WHEREAS, BAWSCA has proposed to serve as the representative of its members in discussions and negotiations with San Francisco leading toward a continued, and improved, contractual relationship with San Francisco for delivery of drinking water after June 2009 and has provided funds for this activity in its budget for Fiscal Year 2006-07; WHEREAS, BAWSCA has the capabilities required to serve in this capacity by virtue of BAWSCA staff and consultants in relevant disciplines including civil engineering, water supply planning, finance, economics, accounting, and law; WHEREAS, BAWSCA’s General Manager has met with the City’s representatives to discuss its perspective on a continued contractual relationship with San Francisco for water supply; 060817 jp 0072750 NOT YET APPROVED NOW, THEREFORE, the Council of the City of Palo Al~o does RESOLVE as follows: SECTION i. The Council hereby appoints BAWSCA as its authorized representative in discussions and negotiations with San Francisco for the terms and conditions of delivery of drinking water after June 2009, to be incorporated in a new overall agreement between San Francisco and its regional customers. SECTION 2. BAWSCA, through its General Manager, shall confer with and keep the City informed on the status of these discussions and negotiations. To that end, the General Manager shall provide a report to the City no less frequently than each calendar quarter, on developments during the preceding three months and expected activities during the ensuing three months. SECTION 3o This appointment shall continue unless and until revoked by the City Council. SECTION 4. This resolution confers no authority on BAWSCA to enter into a contract with San Francisco or to make any commitments legally binding on the City. The authority to enter into any contracts is expressly reserved to the City Council. SECTION 5. The Council finds that the adoption of this resolution does not constitute a project under the California // // // // // // // // // 060817 jp 0072750 NOT YET APPROVED Environmental Quality Act and the CEQA Guidelines therefore, no environment assessment is required. INTRODUCED AND PAssED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Senior Asst. City Attorney Mayor APPROVED: City Manager Director of Utilities Director of Administrative Services 060817 jp 0072750 Bay Area Water Supply & Conservation Agency July 31, 2006 ,. The Honorable Judy Kleinberg, Mayor City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Negotiation of Agreement with San Francisco to Provide Its Regional Customers a Reliable Supply of High Quality Water at a Fair Price Dear Mayor Kleinberg: The City of Palo Alto is one of the 28 members of the Bay Area Water Supply and Conservation Agency (BAWSCA), whose board I have the honor to chair. In the early 1980s, the Bay Area Water Users Association (BAWUA), the voluntary coalition of the regional wholesale customers of San Francisco, took the lead in the negotiations which led to the 1984 Master Water Sales Contract between all BAWSCA agencies and San Francisco. This master agreement, under which our cities and water districts receive Hetch Hetchy water, is the result of those negotiations. Now, as you may know, the 1984 Master Contract will expire, after 25 years, in June 2009. BAWSCA is the legal and political successor to BAWUA. BAWSCA’s governing board is comprised primarily of elected officials from each member agency. Member agencies have expressed a desire for BAWSCA to play a similar role (as in the 80’s) in negotiations for the new agreement with San Francisco. BAWSCA is ready to do so, as described in the accompanying attachment. We’ll provide this service to all member agencies which so request and which provide the necessary authorization through adoption of a resolution along the lines of the enclosed sample. While BAWSCA will provide a strong central voice in negotiating the new master agreement with San Francisco, final signature authority will remain with each member agency. BAWSCA would like to begin discussions/negotiations with San Francisco soon after the Program Environmental Impact Report on the $4.3 billion Water System Improvement Program is released in draft. That’s expected to happen in November of this year. Therefore, it would be most helpful to receive all authorizations by the end of September. We hope Palo Alto will enact an authorizing resolution promptly. If you have any questions, please call Art Jensen, BAWSCA’s General Manager, at (650) 349-3000. Bern Beecham Chair Enclosures co: Mr. Frank Behest, City Manager 155 Bovet Road, Suite 302 ¯San Mateo, CA 94402 ¯ph 650 349 3000 *fx650 349 8395 ¯www.bawsca.org Attachment to July 28, 2006 letter from Bern Beecham on Negotiation of an Agreement for San Francisco to Provide Its Regional Customers With a Reliable Supply of High Quality Water at a Fair Price This attachment has two purposes. The first is to convey BAWSCA’s readiness to represent all of its member agencies in negotiations with San Francisco for the terms on which San Francisco will deliver, and BAWSCA agencies will purchase, water after the 1984 Settlement Agreement and Master Water Sales Contract expires in mid-2009. The goal will be a new, or extended, agreement with San Francisco for a reliable supply of high quality water at a fair price. The second purpose is to request that the governing board of each agency which wants BAWSCA to serve in this capacity take formal action to establish BAWSCA’s authority, and responsibility, to act on its behalf by adopting a resolution substantially along the lines of the sample attached. This attachment provides background and specifics about this action. The first part of the attachment provides background on the existing contract and some of the context in which negotiations for the future agreement will take place. It then describes BAWSCA’s formation and recent activities, as well as summarizing the respective roles that BAWSCA and its member agencies could each logically play in negotiations. The third section describes BAWSCA’s capabilities in terms of a multi-disciplinary negotiating "team". The fourth section outlines in brief and general terms the overall objectives that BAWSCA would seek to accomplish in the negotiations, based on the interests that member agencies have themselves articulated in a consultative process with BAWSCA over the past year. The final section addresses the mechanics of each agency delegating the necessary authority to BAWSCA, as well as the approximate schedule for beginning discussions with San Francisco. A sample resolution appointing BAWSCA as your agency’s representative is attached. 1.EXISTING WATER CONTRACTS WILL EXPIRE IN JULY~ 2009 The Settlement Agreement and Master Water Sales Contract signed in 1984 by San Francisco and all wholesale customer agencies will expire on June 30, 2009. (Its title reflects the fact that the 1984 contract settled a federal court lawsuit, brought by wholesale agencies, challenging San Francisco water rates.) The individual water supply contracts for all but two of the agencies also expire in June 2009. The contracts are expiring at a time .of change and uncertainty. San Francisco faces a challenge of unprecedented scale - rebuilding and improving the regional water system after decades of deferred maintenance to standards designed to withstand major earthquakes on the three faults that lie beneath the system’s dams, pipelines, and treatment plants. A top priority for all residents, businesses and community organizations of the four-county service area is for San 1263192.5 Background Information Page 2 Francisco to complete this vital Water System Improvement Program (WSIP), on time (by 2014) and on budget ($4.3 billion). ¯ At the same time, there are also unprecedented challenges to increasing diversions of water from the Tuolumne River. The river is the obvious choice for obtaining at least the majority of the additional water projected to be needed by BAWSCA agencies from the San Francisco system in 2030. San Francisco has the necessary water rights, the water is of extremely high quality, and the cost of sizing facilities to allow for wholesale customer demand to be met from the Tuolumne River is small in comparison to the rest of the $4.3 billion capital program and in comparison to most alternatives. Environmental organizations based both in the Tuolumne River watershed and in the Bay Area are generally opposed to taking any more water from the fiver. The Federal Energy Regulatory Commission (FERC) license for New Don Pedro Reservoir (where San Francisco has a substantial "water bank") expires in 2012. It is likely that FERC will be urged to require more water be left in the river, rather than less. Moreover, the California Department of Water Resources has just recently released a report evaluating the feasibility of removing O’Shaughnessy Dam and draining Hetch Hetchy Reservoir. San Francisco has not yet made any firm commitments to meeting the increased demand in the wholesale service area, which is projected to occur by 2030 even after cost-effective conservation measures and recycling projects are deployed. The Program Environmental Impact Report (PEIR) on the overall WSIP is expected to be released in draft by the San Francisco Planning Department for public comment this fall. Its release will sharpen the terms of the public debate over water supply alternatives and regional growth in the Bay Area. The resolution of these issues will, of course, profoundly influence the terms of a new or extended agreement expected to be in effect from 2009 through 2030. For example, San Francisco has indicated that it will use the negotiations to seek commitments from wholesale agencies to implement even more aggressive conservation and recycling measures, irrespective of cost- benefit considerations. The multi-billion cost of the WSIP will also affect negotiations for a new agreement. Continued application of the cost allocation principles embedded in the current contract would result in a nearly 300% increase in wholesale water rates by 2015. And San Francisco has indicated that it may seek changes to the financial provisions of the Master Contract. One such change that has been mentioned would require wholesale agencies to contribute more quickly to the cost of capital projects, by sharing in debt service as soon as bonds are issued rather than waiting until projects are completed and placed into service. We expect that the discussions and negotiations leading to a new agreement will be complex and technical as regards both the water supply and the financial provisions. 1263192.5 Background Information Page 3 o BAWSCA’S ROLE AS REPRESENTATIVE OF WHOLESALE WATER CUSTOMERS BAWSCA was formed in the Spring of 2003 by unanimous decisions of the governing bodies of city and special district members. The State law that authorized BAWSCA’s formation was enacted in 2002, one of three landmark pieces of legislation supported by the Bay Area Water Users Association (the non-profit corporation that preceded BAWSCA and that played a leading role in the negotiations that culminated in the 1984 water sales contract). These bills were supported by the cities, water districts and other water suppliers now represented on BAWSCA’s board of directors and were voted for by the overwhelming majority of State legislators. For the past two years, BAWSCA has focused its attention primarily on the rebuilding and improving of the San Francisco regional system. This has entailed closely tracking San Francisco’s major, year-long process of revisions to facilities, construction schedule and cost of the WSIP, including active involvement with the review of those revisions by the California Department of Health Services and the California Seismic Safety Commission, which concluded just a few months ago. It has also meant playing an assertive, constructive role in the lengthy PEIR process, in the development of accurate forecasts of water demand in 2020 and 2030 that underlie basic decisions about the San Francisco system’s capacity, and in analyses of the economic effects of water shortages on industries in the BAWSCA service area. In addition, BAWSCA has continued to offer an array of cost-effective water conservation programs to member agencies on a voluntary subscription basis, to monitor San Francisco’s compliance with the cost-allocation rules of the existing Master Contract, and to enforce compliance with them through discussions with San Francisco whenever possible and through arbitration when necessary. More recently, anticipating requests from member agencies to take a leading role in the negotiations for a new agreement, BAWSCA staff have been meeting with representatives of all member agencies. The purpose of these meetings has been to learn the perspectives of member agencies on how the existing contract has worked and what they would like to see continued, or changed, in their relationship with San Francisco after 2009. These meetings included: (1) an individual meeting with each agency’s City Manager/General Manager or their designee; (2)a series of small group meetings with the agencies’ designated representatives, held between January and May of this year; and (3) a meeting with all agencies’ representatives held in June to review the input we had received through the small group meetings. One of the important facts we learned from this extensive consultation is that there is a general expectation and desire for BAWSCA to take the lead in negotiating the "global" issues common to all agencies and on which those agencies have similar interests. These issues include: water supply reliability; water quality; cost allocation (as between San Francisco and its wholesale customers); efficient contract administration; and increased collaboration -- rather than 1263192.5 Background Information Page 4 confrontation -- with San Francisco on regional water matters whenever appropriate and possible. There was also broad recognition that most agencies do not have independent resources sufficient to address these "global" issues as effectively as can be done through a pooled effort. A clear understanding emerged from these meetings in terms of the respective roles of BAWSCA and individual member agencies in the negotiation process. First, BAWSCA should assume responsibility for negotiating the "global" issues, which apply to the overall relationship between San Francisco and wholesale customers collectively. (Some of these issues are those addressed in the 1984 "Master Contract" signed by San Francisco and all wholesale agencies.) Second, the ultimate decision on whether or not to accept the resolution of the "global" issues in a proposed new agreement is up to the governing body of each BAWSCA member agency. Third, individual BAWSCA agencies will have the principal responsibility for negotiating the separate (and much shorter and simpler) individual water supply contracts which address matters unique to each agency such as service area, points of connection between the San Francisco transmission system and the retail system, minimum purchase requirements for those agencies with multiple suppliers, etc. Those individual contracts will most likely not be addressed until negotiation of the new overall agreement is nearing completion. 3.BAWSCA’S CAPABILITIES BAWSCA has a very strong, in-house staff and has also assembled an equally strong team of consultants in each of the disciplines likely to be called on during negotiations. The negotiations would be led by BAWSCA’s General Manager, Art Jensen, who is well-qualified for this task. Art received a Ph.D. in civil engineering from CalTech and has over 30 years of experience in California urban water supply, initially with a major consulting engineering firm, and then as a planner and manager for large Bay Area water utilities, including the San Francisco Water Department and the Contra Costa County Water District, He has served as General Manager of BAWSCA and its predecessor BAWUA since 1995. He is highly regarded in the California water industry. BAWSCA staff provides Art with capable and experienced support in key areas. Nicole Sandkulla, P.E., is an engineer with relevant experience at East Bay MUD before joining BAWSCA in 1999. John Ummel is thoroughly familiar with the financial provisions of the existing Master Contract, having monitored San Francisco’s implementation of it for over 10 years. And Ben Pink brings strong analytical skills to water supply planning issues. BAWSCA’s strong in-house staff is supplemented by capable consultants, some of whom have served BAWSCA, and its predecessor, for many years and are extremely knowledgeable about the San Francisco water system and the Master Contract. 1263192.5 Background Information Page 5 Accounting: Burr, Pilger & Mayer, LLP (Steve Mayer and Jeff Pearson). BPM is a Bay Area-based CPA firm which is currently assisting BAWSCA in reviewing recent compliance audits of San Francisco’s implementation of the Master Contract cost allocation and accounting rules. Mr. Mayer and Mr. Pearson have extensive experience in analyzing complex financial transactions and in auditing of California water agencies, respectively. Economics: Energy & Water Economies, Inc. (William Wade, Ph.D.). Dr. Wade is broadly experienced in natural resource economic analysis. His clients have included major water supply agencies in California and on the East Coast. He has recently assisted BAWSCA in assessing the economic impact of water shortage on Bay Area individual customers. Engineering: Stetson Engineers (Allan Richards, P.E.). Stetson Engineers is a civil engineering firm that has specialized in water supply for over 30 years. Mr. Richards has assisted BAWSCA (and previously BAWUA) for many years with the complex water use measurement protocols that the Master Contract requires and is thoroughly familiar with the hydraulics of the San Francisco regional system. Municipal Finance: Kelling Northcross Nobriga/Public Resources Advisory Group (David Brodsly). KNN is a Bay Area-based firm specializing in advising public agencies on financing. PRAG is a similar national firm. David Brodsly, whose background in punic finance includes service with cities and a national bond rating agency, has assisted BAWSCA in the analysis of alternative capital cost recovery approaches. KNN has also constructed a computer model that can be used to evaluate various cost allocation proposals. Legal Counsel: Hanson Bridgett Marcus Vlahos & Rudy, LLP (Ray McDevitt). Hanson Bridgett is a Bay Area-based law firm with a long- standing local government law practice. Ray McDevitt, a senior partner in the farm, participated in the lawsuit against San Francisco that led to the 1984 Master Contract and played a major role in negotiation of that contract. He has served as legal counsel for BAWUA and BAWSCA for many years. Mr. McDevitt can call on other attorneys at Hanson Bridgett with specialized expertise in litigation, environmental law, and municipal finance, including Allison Schutte, who has been assisting BAWSCA staff on a range of issues with the WSIP and associated PEIR. Strategic Counsel: Bud Wendell is a seasoned public affairs professional with many years of experience in both the public and the private sectors, including Fortune 500 companies and federal, state and local government. He played a central role in the successful effort to secure State legislation requiring San Francisco to repair the water system and establishing BAWSCA. 1263192.5 Background Information Page 6 More recently, he has been instrumental in discussions with San Francisco Mayor Gavin Newsom relating to the WSIP. .. - BAWSCA’s Board has made provision in our FY 2006-2007 budget to support significant activity directed toward agreement negotiations, and I fully expect that it will continue to support the effort to a successful conclusion. 4.BAWSCA AGENCIES’ OBJECTIVES The goals expressed by members can be summarized, at a high level of generality, as seeking an agreement that provides them with a reliable supply of high-quality water at a fair price. Some of the specific elements that contribute to each of these goals include: A. Reliable Supply ¯Completion of the seismic rehabilitation!WSIP on time and on budget. ¯Commitment to good system maintenance practices in the future. ¯Equal treatment in delivery of water by San Francisco to customers inside and outside of San Francisco in the event of a major system disruption. °Management of the system by San Francisco so that generation of hydroelectric power at Hetch Hetchy remains subordinate to providing a reliable water supply to the Bay Area. ¯Firm individual entitlements for each agency, with flexibility to trade water entitlements, and water, among BAWSCA agencies. ¯Ability for BAWSCA to "wheel" water from outside sources during drought. No High Quality A commitment by San Francisco to deliver potable water requiring no additional treatment (except for Coastside). °Prompt notification of possible Safe Drinldng Water Act violations or changes in water quality affecting individual customers. Co Fair Price ° In general, agencies expressed desire to preserve the basic cost allocation architecture of the existing Master Contract: o Cost of water to be limited to facilities and services that benefit wholesale customers (i.e., no in-City costs, no Hetch Hetchy power costs, unless power revenues also shared.) o Costs of regional facilities allocated between San Francisco and wholesale customers on basis of relative usage. ~Maintenance of the balancing account to monitor and account for overpayments/underpayments. °Provide greater flexibility in administration to prevent sharp rate fluctuations from year to year. 1263192.5 Background Information Page 7 The foregoing is an illustrative, rather than comprehensive, list of BAWSCA member goals. Moreover, it doesn’t include any of the points that San Francisco may propose-be - incorporated into a new contract. 5.MECHANICS AND SCHEDULE BAWSCA will negotiate on behalf of only those agencies that explicitly authorize it to do so. A sample resolution for your agency’s governing body is attached which, if adopted, will provide this authorization. As you will see, it is a carefully crafted document, designed to be both sufficiently broad while also reserving full authority in your agency’s governing body to withdraw that authority at any time and to make clear that the ultimate authority to enter into any agreement is reserved to your agency. In terms of timing, a logical point at which to begin negotiations is shortly after the PEIR is released in draft form. This is expected to occur in November of this year. Ideally, it would be most helpful to receive all of the authorizations by the end of September. If you, or any members of your governing board have any questions about this information or the accompanying resolution, please let Art Jensen know as soon as possible. He, and the entire BAWSCA team, are available to answer any questions you may have and to attend the meeting of your governing body at which the resolution will be considered. 1263192.5