DATE: September 2, 2025
TO: President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, District Manager
Marlene Suhashini, Assistant District Manager
FROM: Andrew Brozyna, Public Works Director
Zaheed Danish, Maintenance Manager
Yelena Cappello, Management Analyst
DEPARTMENT: Public Works
SUBJECT: AMENDMENT TO THE 2021 AMENDED AND RESTATED
WATER SUPPLY AGREEMENT BETWEEN THE CITY AND
COUNTY OF SAN FRANCISCO AND WHOLESALE
CUSTOMERS IN ALAMEDA COUNTY, SAN MATEO COUNTY,
AND SANTA CLARA COUNTY AND UPDATED TIER 2
DROUGHT RESPONSE IMPLEMENTATION PLAN
RECOMMENDATION
It is recommended that the Estero Municipal Improvement District (EMID) Board of Directors:
1. Adopt the attached resolution amending the 2021 Amended and Restated Water Supply Agreement Between the City and County of San Francisco Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County (WSA), approving those revisions to be incorporated into a revised WSA dated as of 2025, and authorizing President to execute such Agreement when final execution copies are prepared and distributed by Bay Area Water Supply and Conservation Agency (BAWSCA); and
2. Adopt the attached resolution approving the Tier 2 Drought Response Implementation Plan.
EXECUTIVE SUMMARY
The resolutions presented for approval include two items – 1) the Amendment to the 2021 Amended and Restated Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (WSA). Estero Municipal Improvement District is one of the 26 Wholesale Customers under the WSA; and 2) the updated Drought Response Implementation Plan (Tier 2 Plan).
1) The amendment addresses three key areas:
a. Minimum Purchase Requirements: Modifies Minimum Purchase requirements to align with evolving water supply conditions. The Minimum Purchase requirements do not apply to EMID. Agencies who have a minimum purchase requirement must pay for a minimum quantity of water, regardless of whether it is used by their customers. This change may result in a minor cost increase to customers – estimated at $.007 to $.04 per CCF – shared among San Francisco Public Utilities Commission (SFPUC)’s Wholesale and Retail customers. EMID may benefit from this modification because agencies with decreased minimum purchase requirements and associated fees may instead divert funds into the development of alternative water supply, thereby increasing the overall water availability and reliability in the region. b. Tier 1 Water Shortage Allocation Plan (Tier 1 Plan): Establishes a new method for considering collective Wholesale Customer SFPUC purchases when determining how excess use charges will be applied. This change is expected to be beneficial to EMID and the Wholesale Customers. If an agency exceeds its drought allocation, but overall, the wholesale usage remains below limits, the agency or agencies that exceeded the allocation will avoid excess use fees.
c. Updates: Revisions to address discrete issues that arose over the course of implementing the WSA. These updates are generally administrative and are not expected to have a financial or resource impact.
2) The updated Tier 2 Plan provides the method for allocating water from the San Francisco Regional Water System (RWS) among the Wholesale Customers during periods of shortage caused by drought. This update represents a relatively minor adjustment for EMID. For example, in a 15% average cutback on water allocation from San Francisco to Wholesale Customers, EMID’s cutback would be about 17% in the updated Tier 2 plan and was about 16% in the previous Plan. In accordance with EMID’s existing Water Shortage Contingency Plan, this will not represent a change to customer restrictions.
BACKGROUND
Water Supply Agreement History
In June 2009, EMID entered into a WSA with the City and County of San Francisco1 (San Francisco) and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (2009 WSA). The 2009 WSA establishes the terms by which the twenty-six Wholesale Customers (including EMID) purchase water from the RWS. The 2009 WSA builds upon the 1984 "Settlement Agreement and Master Water Sales Contract between the City and County of San Francisco and Certain Suburban Purchasers in San Mateo County, Santa Clara County and Alameda County." In September 2017, BAWSCA and the Water Management Representatives (WMR) of the BAWSCA member agencies began reviewing the issue of Minimum Purchase Requirements, as described in Section 3.07.C of the WSA, and discussing the creation of a process to transfer minimum annual purchase quantities among the Wholesale Customers. Throughout 2017 and 2018, the WMR held multiple meetings during which the agencies currently subject to Minimum Purchase Requirements (Original Minimum Purchase Customers) and the other Wholesale Customers shared their interests and concerns regarding changes to the Minimum Purchase Requirements and allowing transfers of minimum annual purchase quantities. While EMID is a “Wholesale Customer” under the WSA, the “Original Minimum Purchase Customers” are limited to the Alameda County Water District, and the cities of Milpitas, Mountain View, and Sunnyvale.
In 2019, EMID approved the 2018 Amended and Restated WSA (2018 WSA), at which time the Wholesale Customers expressed a collective interest in working together to develop a process for the expedited and permanent transfer of minimum annual purchase quantities. The Wholesale Customers directed BAWSCA to facilitate negotiation of a new WSA amendment to provide a procedure for expedited and permanent transfers of minimum annual purchase quantities in a manner that safeguards the financial and water supply interests of Wholesale Customers not participating in such transfers. This amendment was memorialized in the 2021 Amended and Restated WSA (2021 WSA).
Tier 2 Plan Negotiations and Development of Minimum Purchase Quantity Reset Proposal The WSA authorizes the Wholesale Customers to adopt a methodology for allocating the water collectively available from the RWS among the twenty-six Wholesale Customers during system-wide shortages caused by drought (the Tier 2 Plan). San Francisco is not a party to the Tier 2 Plan. The existing Tier 2 Plan was adopted in 2011 and was originally set to expire in 2018. In 2018, the California State Legislature passed two bills to implement a long-term framework for water use efficiency, commonly referred to as, “Making Water Conservation a California Way of Life.” These bills were anticipated to impact urban water use, and the extent of those impacts to the Wholesale Customers was unknown at the time. As such, the WMR instructed BAWSCA to hold off on initiating an update to the existing Tier 2 Plan. In 2018, and 1 City and County of San Francisco (San Francisco) refers to San Francisco as a party to the agreement. San Francisco Public Utilities Commission (SFPUC) refers to the department that operates the Regional Water System.
every year since, the BAWSCA Board of Directors (BAWSCA Board) has extended the term of the exiting Tier 2 Plan by one year. In 2024, the BAWSCA Board extended the term of the existing Tier 2 Plan through the end of 2025 and specified that the existing Tier 2 Plan will be superseded by an updated Tier 2 Plan once unanimously adopted by the twenty-six Wholesale Customers.
In January 2021, BAWSCA began facilitating an update to the Tier 2 Plan. Each Wholesale Customer appointed a lead negotiator to represent the interests of its agency in the negotiations. Between January 2022 and June 2024, BAWSCA and the lead negotiators, supported by a consulting firm providing technical and modeling expertise, met at least 62 times, most often for half-day, in-person meetings and smaller virtual sub-group sessions, to negotiate the terms of the updated Tier 2 Plan.
In November 2021, San Francisco declared a water shortage emergency in response to the Governor’s executive action declaring a drought state of emergency across most of California. This action triggered implementation of the Tier 1 and Tier 2 Plans by BAWSCA and San Francisco for the first time.
Throughout the two and a half years of Tier 2 Plan negotiations, the Wholesale Customers gained insight into unique characteristics of each agency and specific challenges related to water supplies and droughts. During these discussions, Wholesale Customers subject to the Minimum Purchase requirements (Minimum Purchase Customers) articulated the unique challenges that the Minimum Purchase Requirements present.
In June 2023, following several years of discussions regarding the Minimum Purchase Requirements, the SFPUC proposed amending the 2021 WSA to reset the existing minimum annual purchase quantities to align with current water consumption trends, while protecting investment in the RWS. For the remainder of 2023, the SFPUC, the Original Minimum Purchase Customers, and BAWSCA held multiple meetings to identify amendments that would address challenges related to the Minimum Purchase Requirements. Once the SFPUC and the Original Minimum Purchase Customers finalized their recommended amendments to the Minimum Purchase Requirements, the Original Minimum Purchase Customers presented the proposals to the broader Wholesale Customers’ group to secure their support. Negotiations among the Wholesale Customers were concluded in Fall 2024.
In June 2024, the lead negotiators concluded negotiations on the updated Tier 2 Plan.
The agency representatives collectively agreed that they were ready to recommend the Tier 2 Plan to their governing boards for adoption.
ANALYSIS
Summary of WSA Amendments
1. Minimum Purchase Requirements
Existing Section 3.07 of the 2021 WSA provides that four Wholesale Customers (Alameda County Water District and the Cities of Milpitas, Mountain View, and Sunnyvale, collectively, the “Original Minimum Purchase Customers”) may purchase water from sources other than from San Francisco, but they are each obligated to purchase a specific minimum annual quantity of water from the San Francisco, referred to as a “Minimum Purchase Requirement." If a Minimum Purchase Customer does not meet its Minimum Purchase Requirement in a particular fiscal year, it must pay San Francisco for the difference between its metered water purchases during the fiscal year, and its minimum annual purchase quantity set forth in Attachment E of the 2021 WSA.
It is assumed that the Minimum Purchase Requirements were originally designed to prevent four specific multi-source agencies from shifting from the RWS to other imported water sources. However, changed conditions, including recurring droughts, improved water use efficiency, and investments in local supplies have reduced demand on the RWS. Despite these improvements, the RWS remains vulnerable to severe droughts, prompting the SFPUC to invest in alternative water supplies. The Minimum Purchase Customers are well-positioned to develop their own local, drought-resilient supplies, which would reduce the regional dry-year supply gap, improving reliability of the RWS for all users. These amendments may reduce a perceived existing disincentive to improve efficiency and develop alternative supplies, thereby increasing the overall water availability and reliability in the region. This change may result in a minor cost increase to customers – estimated at $.007 to $.04 per CCF – shared among SFPUC’s Wholesale and Retail customers. This minor cost would not be expected to trigger a rate adjustment for EMID customers.
1.1.Reduction of Minimum Annual Purchase Quantities (MPQ) MPQs set in the 1984 Settlement Agreement and Master Water Sales Contract (1984 Contract) were calculated based on 80% of each of the four Original Minimum Purchase Customer’s purchases from the RWS in the 1980s. The MPQs were later reduced by 5% as part of the 2009 WSA. Upon adoption of this amendment, the minimum annual purchase quantities of the Original Minimum Purchase Customers will be reset to 80% of each of the Minimum Purchase Customer’s average purchases from the most recent four non-drought years and the amendment will establish a continuing, periodic review of the minimum annual purchase quantities on a 10-year schedule.
1.2.Rebound Year Minimum Annual Purchase Quantity
Existing Section 3.07.C of the 2021 WSA provides that Minimum Purchase Requirements will be waived during drought, other period of water shortage on the RWS, or if the Governor declares a state of emergency that impacts water supply use or deliveries from the RWS. Minimum Purchase Requirements are reinstated in the first year immediately following a drought. However, water use does not rebound to pre-drought levels for several years, depending on the level of conservation achieved.
The amendment provides a temporary, one-year reduction in the minimum annual purchase quantities equal to half of the demand reduction from pre- drought levels to allow for drought rebound. For example, if a Minimum Purchase Customer’s pre-drought use and minimum annual purchase quantity are 10 million gallons per day (MGD) and drought RWS purchases are 8 MGD, the Rebound Year minimum annual purchase quantity will be set at 9 MGD.
1.3.Collective Minimum Annual Purchase Quantities Considered Before Application of Imputed Sales
Existing Section 3.07 of the 2021 WSA provides that if a Minimum Purchase Customer does not meet its Minimum Purchase Requirement in a particular fiscal year, it must pay the SFPUC for the difference between its metered water purchases during the fiscal year and its minimum annual purchase quantity.
This amendment provides that the collective purchases from Original Minimum Purchase Customers will be considered together before an individual Original Minimum Purchase Customer is required to pay the difference between its metered water purchases and its Minimum Purchase Requirement. If collective purchases are more than the sum of minimum annual purchase quantities, payments to the SFPUC for an Original Minimum Purchase Customer(s) who did not meet its Minimum Purchase Requirement will not be required. If collective purchases are less than the sum of minimum annual purchase quantities, payments to the SFPUC for an Original Minimum Purchase Customer(s) who did not meet its Minimum Purchase Requirement will be proportionate to its share of total under usage.
2. Tier 1 Water Shortage Allocation Plan
The Tier 1 Water Shortage Allocation Plan (“Tier 1 Plan” included as Attachment H of the WSA) is the method and process for allocating water from the RWS between San Francisco retail customers and the Wholesale Customers collectively during system- wide shortages caused by drought of 20% or less. Section 3.11.C.3 of the WSA provides that the SFPUC will honor allocations of water among the Wholesale Customers (“Tier 2 Allocations”) provided by BAWSCA or if unanimously agreed to by all Wholesale Customers.
When the SFPUC declares a shortage emergency, it determines whether voluntary or mandatory rationing is required. At the end of the 12-month drought period, each Wholesale Customer’s purchases from the RWS are compared to their annual drought allocation. Excess use charges are only applied during mandatory rationing periods.
During Tier 2 Plan negotiations, BAWSCA, the SFPUC, and the Wholesale Customers agreed to update the Tier 1 Plan to add a new “Tier 1 Family Plan.” The new Tier 1 Family Plan ensures that excess use charges are only applied when the collective Wholesale Customer usage exceeds the Tier 1 allocation. If this occurs, excess use charges will be proportionally applied to agencies that exceeded their individual Tier 2 Allocations.
For example, if the twenty-six Wholesale Customers collectively exceed the Tier 1 allocation by 2 MGD, and only two agencies exceed their Tier 2 Allocations by 3 MGD each, then these two agencies will share the excess use charges proportionally.
3. General Updates to the WSA
Sections 2.03, 3.09, 9.07, and Attachment A, Definitions of “Imputed Sales” and “Level of Service Goals and Objectives” have been updated with current cross references, dates and corrections.
Summary of Tier 2 Plan
Since the existing Tier 2 Plan was adopted in 2011, conditions impacting water use have changed (e.g., water supply sources, water use trends, land use, and customer base). During the 2021 to 2023 drought, the Tier 1 and Tier 2 Plans were implemented for the first time. At that time, it became clear that the existing Tier 2 Plan no longer operated as originally intended and that an update was necessary.
The updated Tier 2 Plan maintains many of the key elements of the existing Tier 2 Plan, such as a rolling base period that captures service area growth over time and inclusion of Individual Supply Guarantee (ISG), but it also provides necessary updates to ensure a minimum supply of RWS water for base/indoor use for the portion of each service area where RWS is delivered. The updated Tier 2 Plan represents a relatively minor adjustment for EMID. For example, in a 15% average cutback on water allocation from San Francisco to Wholesale Customers, EMID’s cutback would be about 17% in the updated Tier 2 plan, and was about 16% in the previous Plan. In accordance with EMID’s existing Water Shortage Contingency Plan, this will not represent a change to customer restrictions.
Tier 2 Plan Policy Principles
The Wholesale Customers collectively developed four policy principles to guide the development and performance of the updated Tier 2 Plan. These policy principles are outlined below.
•Policy Principle #1 - Provide sufficient water for the basic health and safety needs of customers.
•Policy Principle #2 - Minimize economic and other adverse impacts of water shortages on customers and the BAWSCA region.
•Policy Principle #3 - Provide predictability of drought allocations through consistent and predetermined rules for calculation, while allowing for flexibility to respond to unforeseen circumstances.
•Policy Principle #4 - Recognize benefits of, and avoid disincentives for, water use efficiency and development of alternative water supply projects.
Tier 2 Plan Allocation Formula
The updated Tier 2 Plan establishes a sequential allocation formula to determine how the available water from the RWS will be allocated among the individual Wholesale Customers. The allocation formula can generally be described as follows:
•The Minimum and Maximum Cutback establish the upper and lower bounds for each Wholesale Customer’s final allocation. The Minimum Cutback is equal to 1/3 of the Overall Average Wholesale Customer Reduction, but no less than 5%.
The Maximum Cutback is equal to 1.5 times the Overall Average Wholesale Customer Reduction.
•Each Wholesale Customer is allocated water on a residential per capita basis based on the State Indoor Water Use Efficiency Standard2 and the portion of each Wholesale Customer’s water demand met by the RWS.
•Each Wholesale Customer is allocated water based on its estimated non- residential indoor use by applying a cutback factor equal to half of the Overall Average Wholesale Customer Reduction to each Wholesale Customer’s estimated non-residential indoor demand, also known as Base Period purchase, from the RWS.
•Each Wholesale Customer is allocated water based on its estimated seasonal purchases from the RWS.
•Remaining water is allocated to bring each Wholesale Customer’s final allocation as close to its “Target Allocation” as possible, while ensuring that each Wholesale Customer’s final allocation is between the Minimum and Maximum Cutback bounds. The Target Allocation is based on a weighted share of (1) the Wholesale Customer’s Base Period purchases from the RWS and (2) its ISG.
Tier 2 Plan Term
The term of the updated Tier 2 Plan is coordinated with the term of the WSA to avoid simultaneous renegotiation of these related agreements. 2 SB 1157 (Hertzberg), signed into law in September 2022, established the standard for efficient indoor residential water use be 47 gallons per capita per day, lowering to 42 GPCD in 2030.
CEQA
The WSA Amendment and Tier 2 Plan are not a "project" for the purposes of CEQA as both involve an administrative activity that does not result in a direct change to the environment (see 14 CCR Section 15378(b)(5)) and would not result in a direct or reasonably foreseeable indirect physical change in the environment (see 14 CCR Section 15060(c)(2)). In the event the WSA Amendment and Tier 2 Plan are considered a "project," both would be subject to the categorical exemption for operation, repair, and maintenance of existing facilities (see 14 CCR Section 15301) and the amendment does not implicate substantial changes that involve a new significant environmental effect (see 14 CCR Section 15162(a)).
FISCAL IMPACT
The WSA amendment may result in a minor cost increase to customers – estimated at $.007 to $.04 per CCF – shared among SFPUC’s wholesale and retain customers. For example, the average single-family home uses approximately 8ccf a month, so this cost may represent about a 6 cent to 35 cent monthly increase for the average bill. This minor cost would not be expected to trigger a rate adjustment for EMID customers.
There is no cost associated with the resolution updating the Tier 2 Drought Response Implementation Plan.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Facilities and Infrastructure
ATTACHMENTS
Attachment 1 – Resolution Approving Water Supply Agreement (WSA) Amendments Attachment 1a – Redline of WSA Amendment (Exhibit A)
Attachment 1b – Clean WSA Amendment
Attachment 2 – Resolution Approving Updated Tier 2 Drought Response Implementation Plan
Attachment 2a – Tier 2 Drought Response Implementation Plan (Exhibit A)