TO: HONORABLE MAYOR FROM: Kerrie Romanow
AND CITY COUNCIL
SUBJECT: SEE BELOW DATE: March 28, 2022
Approved Date
3/29/2022
COUNCIL DISTRICT: 4
SUBJECT: AMENDMENT TO WATER SUPPLY AGREEMENT WITH THE CITY
AND COUNTY OF SAN FRANCISCO AND APPROVAL OF THE
MINIMUM PURCHASE TRANSFER FROM THE CITY OF MOUNTAIN
VIEW TO THE CITY OF EAST PALO ALTO
RECOMMENDATION
Adopt a resolution to:
(a) Approving 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 authorizing the City Manager to execute such Agreement when final execution copies are prepared and distributed; and (b) Approving a minimum purchase transfer from the City of Mountain View to the City of East Palo Alto.
OUTCOME
Approval of the amendment to the Water Supply Agreement (WSA) with the City of San Jose’s (City) and County of San Francisco (San Francisco) will allow for expedited transfer agreements between wholesale customers without new or different risks to the water supply or financial interests of wholesale customers not participating in a transfer. Approval of the recommended action will also indicate the City approval of the minimum purchase transfer from the City of Mountain View to the City of East Palo Alto.
BACKGROUND
San José’s Municipal Water System serves approximately 12% of City residents, including Alviso and a portion of North San José. The City purchases water from the San Francisco Public Utilities Commission’s (SFPUC) regional water system to serve customers in Alviso and North COUNCIL AGENDA: 4/12/22
FILE: 22-475
ITEM: 2.7
HONORABLE MAYOR AND CITY COUNCIL
March 28, 2022
Subject: Amendment to Water Supply Agreement with the City and County of San Francisco
San José and is a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), an agency formed under California law. BAWSCA represents the interests of 26 member agencies including cities and water districts (wholesale customers), all of which purchase water from San Francisco.
In June 2009, the City entered into a water supply agreement with San Francisco and wholesale customers in Alameda County, San Mateo County, and Santa Clara County. The WSA sets forth the terms by which the wholesale customers purchase water from San Francisco. The WSA stipulated that the agreement may be amended with the written consent of San Francisco and wholesale customers who represent at least two-thirds of the member agencies and 75 percent of the quantity of water delivered by San Francisco to all wholesale customers during the fiscal year immediately preceding the amendment.
In October 2018, City Council authorized the City Manager to negotiate and execute an Amended and Restated WSA. The City Manager approved the Amended and Restated WSA in May 2019.
Under the Amended and Restated WSA approved in May 2019 San Francisco agreed to deliver up to 184 million gallons of water per day to the wholesale customers, referred to as the “Supply Assurance.” Most wholesale customers have allocated shares of the Supply Assurance among themselves, referred to as Individual Supply Guarantees (ISG). Additionally, four of the wholesale customers have minimum purchase requirements under which they are obligated to purchase a specific minimum annual quantity of water from San Francisco. The cities of San José and Santa Clara are defined as temporary and interruptible customers and accordingly do not have an ISG or a minimum purchase requirement.
In 2019, the wholesale customers directed BAWSCA to draft a proposed amendment to the Amended and Restated WSA to provide a procedure for expedited and permanent transfers of minimum purchase quantities that safeguards the financial and water supply interests of wholesale customers not participating in such transfers. The result of this direction is the proposed 2021 Amended and Restated WSA.
ANALYSIS
The proposed 2021 Amended and Restated WSA would allow wholesale customers with ISGs to permanently transfer a portion of their minimum purchase quantity through an expedited procedure. The proposed amendment addresses the following areas and topics (see Attachment A):
1. Procedural safeguards built into the process that would allow wholesale customer to transfer a portion of its minimum purchase requirement and ISG and ensure that such transfers will not result in new or different risks to the water supply or impact financial interests of wholesale customers not participating in the transfer.
HONORABLE MAYOR AND CITY COUNCIL
March 28, 2022
Subject: Amendment to Water Supply Agreement with the City and County of San Francisco
2. A wholesale customer would be able transfer a portion of its minimum purchase requirement within its respective ISG and reduce its financial obligation to pay for imputed sales of minimum purchase water that it did not use.
3. An expedited, permanent transfer procedure that would allow intra-system water transfers of minimum purchase quantities to occur without a contract amendment approved by the wholesale customers, thus removing administrative obstacles to such transfers.
4. Expedited, permanent intra-system transfers of portions of minimum purchase quantities and ISG that would facilitate the development of new water supplies by the SFPUC that are necessary to support the cities of San José and Santa Clara becoming permanent wholesale customers.
San Francisco, acting by and through the SFPUC, approved the 2021 Amended and Restated WSA, as negotiated by BAWSCA, on January 26, 2021, pending approval by the requisite number of the wholesale customers. City Council’s approval of the proposed actions will not become effective unless and until the other wholesale customers agree under the terms of the WSA.
As a temporary and interruptible customer under the WSA, San José would not be entitled to use the new expedited procedure; however, the terms allow for the possibility of a water supply transfer to San José under the WSA’s original full amendment process. The proposed 2021 Amended and Restated WSA will not impact the City’s individual water sales contract with San Francisco that includes contract details specific to the City, including its temporary supply limit.
The City benefits from allowing the expedited transfers between the other wholesale customers because it helps to ensure that the available water supply is allocated where it is needed, especially during drought conditions.
Additionally, staff recommends approval of a minimum purchase transfer agreement between the cities of Mountain View and East Palo Alto. In 2017, the cities executed an agreement to transfer
1.0 million gallons per day of the City of Mountain View’s ISG to the City of East Palo Alto.
However, at the time, there was no procedure to effectuate a transfer of a corresponding portion of Mountain View’s minimum purchase requirement without amending the WSA. Because the 2017 Mountain View/East Palo Alto ISG transfer predates this 2021 Amended and Restated WSA amendment, approval of a Mountain View/East Palo Alto minimum purchase requirement transfer must be accomplished separately. The transfer from Mountain View to East Palo Alto provides for a more equitable distribution of water supply.
CONCLUSION
Approval of the 2021Amended and Restated WSA will allow for a wholesale customer that has an ISG to transfer a portion of its water supply to one or more wholesale customers under an
HONORABLE MAYOR AND CITY COUNCIL
March 28, 2022
Subject: Amendment to Water Supply Agreement with the City and County of San Francisco
expedited process. As a non-permanent wholesale customer, the 2021 Amended and Restated WSA will not have a direct impact to the City’s temporary supply limit. In addition, the transfer from Mountain View to East Palo Alto does not impact the City’s water supply.
EVALUATION AND FOLLOW-UP
Staff will continue collaboration with BAWSCA and update City Council as necessary.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for the April 12, 2022 Council Meeting.
COORDINATION
This memorandum has been coordinated with the Office of the City Attorney.
COMMISSION RECOMMENDATION/INPUT
No commission recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment.
/s/
KERRIE ROMANOW
Director, Environmental Services
For questions, please contact Jeff Provenzano, Deputy Director, at (408) 277-3288.
Attachment A - Proposed Amendment
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REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03
3.04 Permanent T ransfers of Individual Supply Guarantees and Minimum Annual Purchase Quantities
A. A Wholesale Customer that has an Individual Supply Guarantee may transfer a portion of it to one or more other Wholesale Customers, as provided in this section.
B. Transfers of a portion of an Individual Supply Guarantee must be permanent., as opposed t
o temporary or time-limited. Notwithstanding the previous sentence, a portion of an Individual Supply Guarantee that has been transferred under this section may be included in another
transfer under this section at a later date. The minimum quantity that may be transferred is 1/10th of a MGD.
C. Trans fers of a portion of a Minimum Annual Purchase Quantity may be included in transfers of a portion of an Individual Supply Guarantee and are subject to the same requirements for Individual Supply Guarantee transfers in this section as well as the following conditions:
1. Tra nsferor of Minimum Annual Purchase Quantity. A Wholesale Customer subject to the minimum annual purchase requirements of Section 3.07.C may transfer both a portion of its Individual Supply Guarantee and a portion of its Minimum Annual Purchase Quantity to one or more Wholesale Customers that have an Individual Supply Guarantee. The process by which such a transfer may be proposed and approved is set forth in subparts D and E of this section. A Wholesale Customer that had a Minimum Annual Purchase Quantity at the start of the Term of this Agreement may not cumulatively transfer, over the course of one or multiple transfers, more than half (50%) of its Minimum Annual Purchase Quantity as first specified in Attachment E at the start of the Term of this Agreement. Wholesale Customers that had a Minimum Annual Purchase Quantity at the start of the Term of this Agreement may not cumulatively transfer, over the course of one or multiple transfers, more than 6 MGD of the total aggregate Minimum Annual Purchase Quantity specified in Attachment E at the start of the Term of this Agreement. A Wholesale Customer that received a Minimum Annual Purchase Quantity through a transfer under this section may cumulatively transfer, over the course of one or multiple transfers, a portion of or all of the Minimum Annual Purchase Quantity it received pursuant to this section. The effect of such a transfer will be a reduction in the transferor’s Individual Supply Guarantee, specified in Attachment C, and a reduction in the transferor’s
ATTACHMENT A
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REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03 Minimum Annual Purchase Quantity, specified in Attachment E. The SFPUC and BAWSCA will update Attachments C and E to reflect such changes, pursuant to Section 3.04.F. The reduction in the transferor’s permanent Minimum Annual Purchase Quantity shall become effective in the same fiscal year in which the transfer becomes effective.
2. Tr ansferee of Minimum Annual Purchase Quantity. A Wholesale Customer that has an Individual Supply Guarantee may be the recipient, or transferee, of both a portion of Individual Supply Guarantee and a portion of Minimum Annual Purchase Quantity from another Wholesale Customer that has an Individual Supply Guarantee, whether or not the transferee is already subject to the minimum annual purchase requirements of Section 3.07.C.
When such a transfer is approved and effective, the transferee will initially have a revised Individual Supply Guarantee and a Temporary Modified Minimum Annual Purchase Quantity, which will be reflected on Attachments C and E-1, respectively, pursuant to Section 3.04.F. A Temporary Modified Minimum Annual Purchase Quantity will become effective in the same fiscal year in which the transfer becomes effective. The transferee’s Temporary Modified Minimum Annual Purchase Quantity will ultimately be replaced by a permanent Minimum Annual Purchase Quantity, as described in this sub-section, which will be reflected on Attachment E pursuant to Section 3.04.F.
3. Cal culation of Temporary Modified Minimum Annual Purchase Quantity.
The Temporary Modified Minimum Annual Purchase Quantity that a transferee receives from a transfer under this sub-section is the sum of (1) the average annual (fiscal year) quantity of water purchased by the transferee from the SFPUC (plus Imputed Sales, if applicable) in the most recent five previous non-drought fiscal years, plus (2) the relevant reduction in the transferor's Minimum Annual Purchase Quantity. For this calculation, the five previous non- drought fiscal years need not be consecutive. Notwithstanding the preceding sentences in this paragraph, if a transferee has an existing Temporary Modified Minimum Annual Purchase Quantity at the time of a new transfer under this sub-section, the transferee’s new Temporary Modified Minimum Annual Purchase Quantity under the new transfer will be the sum of (1) the transferee’s existing Temporary Modified Minimum Annual Purchase Quantity, plus (2) the relevant reduction in the transferor’s Minimum Annual Purchase Quantity. Attachment E-2 contains sample calculations of the Temporary Modified Minimum Annual Purchase Quantity for transferees who are subject to, or not yet subject to, the minimum annual purchase requirements of Section 3.07.C.
REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03 3 17168182.1
4. Dur ation and Expiration of Temporary Modified Minimum Annual Purchase Quantity.
a. Onc e a transfer under this sub-section is approved and effective, the transferee is required to purchase from the SFPUC its Temporary Modified Minimum Annual Purchase Quantity until the quantity of water delivered annually to the transferee by the SFPUC meets or exceeds the Temporary Modified Minimum Annual Purchase Quantity for three consecutive fiscal years. It may take many years for the quantity of water delivered to meet or exceed this amount. The transferee’s Temporary Modified Minimum Annual Purchase Quantity is subject to waiver by the SFPUC as described in Section 3.07.C. However, even in the event of such a waiver, a fiscal year in which the transferee still purchases from the SFPUC an amount of water that meets or exceeds its Temporary Modified Minimum Annual Purchase Quantity will count as a fiscal year in which the transferee has met or exceeded its Temporary Modified Minimum Annual Purchase Quantity for the purposes of this paragraph. b. Onc e the quantity of water delivered to the transferee by the SFPUC reaches the milestone described in the preceding paragraph, the transferee will no longer be subject to the Temporary Modified Minimum Annual Purchase Quantity. Instead, the transferee will have a new permanent Minimum Annual Purchase Quantity, which will equal the sum of (1) its previous Minimum Annual Purchase Quantity, if applicable, plus (2) the relevant reduction in the transferor’s Minimum Annual Purchase Quantity. The transferee’s new permanent Minimum Annual Purchase Quantity will be reflected on Attachment E, and its expired Temporary Modified Minimum Annual Purchase Quantity will be removed from Attachment E-1, pursuant to Section 3.04.F. Any other Temporary Modified Minimum Annual Purchase Quantities of the transferee will remain in effect on Attachment E-1.
D. Tr ansfers of portions of Individual Supply Guarantees, including transfers of portions of Minimum Annual Purchase Quantities, are subject to approval by the SFPUC.
SFPUC review is limited to determining (1) whether a proposed transfer complies with the Act, and (2) whether the affected facilities in the Regional Water System have sufficient capacity to accommodate delivery of the increased amount of water to the proposed transferee.
E. The participants in a proposed transfer shall provide written notice to the SFPUC and BAWSCA specifying (1) the amount of the Individual Supply Guarantee proposed to be transferred, (2) the proposed effective date of the transfer, which shall not be less than 60 days 4 17168182.1
REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03 after the notice is submitted to the SFPUC, and (3) the Individual Supply Guarantees of both participants resulting from the transfer. If a proposed transfer includes the tr ansfer of a portion of Minimum Annual Purchase Quantity, then the participants will provide additional written notice specifying (4) the amount of the Minimum Annual Purchase Quantity propose d to be transferred, (5) transferee's Temporary Modified Minimum Annual Purchase Quantity and per
manent Minimum Annual Purchase Quantity under the transfer, and (6) the transferor's new Minimum Annual Purchase Quantity under the transfer. The SFPUC may require that the participants in any proposed transfer pr ovide additional information reasonably necessary to evaluate the operational impacts of the transfer.proposed transfer and any additional information that will assist the SFPUC in its review of the proposed transfer. The SFPUC will not unreasonably withhold or delay its approv al of a propose d transfer; if the SFPUC does not act on the written notice provided by the par ticipants within 60 days, the transfer will be deemed to have been approved. An approved transfer becomes effective on the proposed effective date set forth in the written notice of the proposed transfer provided to the SFPUC and BAWSCA.
F. Within 30 days after the transfer has become effective, both the transferor and the transferee will provide written notice to the SFPUC and BAWSCA. By September 30 of each year during the Term, the SFPUC and BAWSCA will prepare an updated Attachment C, and updated Attachments E and E-1 where applicable, to reflect the effects of transfers occurring during the immediately preceding fiscal year. By September 30 of each year during the Term, the Individual Water Sales Contracts between San Francisco and any Wholesale Customers who ar e par ticipants in a transfer under this Section will be amended with the written concurrence of San Francisco and those Wholesale Customers to reflect the effects of transfers occurring during the immediately preceding fiscal year, as necessary.
G. Amounts transferred will remain subject to pro rata reduction under the circumstances described in Section 3.02.C and according to the formula set forth in Attachment D.
H. A proposed transfer that does not satisfy the requirements of this section may be presented as an amendment to this Agreement pursuant to Section 2.03. 5 17168182.1
REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03
3.07 Restrictions on Purcha ses of Water from Others; Minimum Annual Purchases A. Each Wholesale Customer (except for Alameda County Water District and the cities of Milpitas, Mountain View and Sunnyvale) agrees that it will not contract for, purchase or receive, with or without compensation, directly or indirectly, from any person, corporation, governmental agency or other entity, any water for delivery or use within its service area without the prior written consent of San Francisco.
B. The
prohibition in subsection A does not apply to:
1. recycled water;
2. wat
er necessary on an emergency and temporary basis, provided that the Wholesale Customer promptly gives San Francisco notice of the nature of the emergency, the amount of water that has been or is to be purchased, and the expected duration of the emergency; or
3. wat
er in excess of a Wholesale Customer’s Individual Supply Guarantee.
C. Alameda County Water District and the cities of Milpitas, Mountain View and Sunnyvale may purchase water from sources other than San Francisco, provided that San Francisco shall require that each purchase a minimum annual quantity of water from San Francisco. These minimum quantitiesMinimum Annual Purchase Quantities are set out in Attachment E and shall also be included in the Individual Water Sales Contracts between San Francisco and each of these four Wholesale Customers. The minimum purchase requirement in these Individual Water Sales Contracts Pursuant to Section 3.04, certain Wholesale Customers may also be required to purchase Temporary Modified Minimum Annual Purchase Quantities, set out in Attachment E-1, from San Francisco. Attachment E will be updated pursuant to Section 3.04 to reflect any reduction in existing Minimum Annual Purchase Quantities and any addition of new Minimum Annual Purchase Quantities when Temporary Modified Minimum Annual Purchase Quantities expire and are removed from Attachment E-1; Individual Water Sales Contracts between San Francisco and any Wholesale Customers who are participants in a transfer under Section 3.04 will similarly be amended, as necessary. After the end of each fiscal year, the SFPUC will send a written notice to each Wholesale Customer that is subject to the minimum annual purchase requirements of this section with a copy to BAWSCA. The notice will include: (1) the quantity of water delivered to the Wholesale Customer during the previous fiscal year; (2) whether or not the Wholesale Customer met its minimum annual purchase 6 17168182.1
REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03 requirement under this section; (3) any Imputed Sales charged to the Wholesale Customer; and (4) the status of any Temporary Modified Minimum Annual Purchase Quantity of the Wholesale Customer, if applicable. The minimum annual purchase requirements set out in Attachments E and E-1 will be waived during a Drought or other period of water shortage if the water San Francisco makes available to these Wholesale Customers is less than its minimum purchase quantity.Minimum Annual Purchase Quantity, and may be waived during a state of emergency declared by the Governor of California that impacts water supply use or deliveries from the Regional Water System.
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REDLINE COMPARING 2018 AMENDED AND RESTATED WATER SUPPLY AGREEMENT TO MINIMUM PURCHASE AMENDMENT: SECTIONS 3.04, 3.07, AND 2.03
2.03 Amendments
…
C. Am endments to Attachments. The following attachments may be amended with the written concurrence of San Francisco and BAWSCA on behalf of the Wholesale Customers:
Attachment Name
C Individual Supply Guarantees (amendments reflecting section 3.04 transfers only)
E Minimum Annual Purchase Quantities (amendments reflecting section 3.04 transfers only)
E-1 Temporary Modified Minimum Annual Purchase Quantities G Water Quality Notification and Communications Plan
(2019 Update of 2017 Plan, Rev. 6)
J Water Use Measurement and Tabulation
L-1 Identification of WSIP Projects as Regional/Retail
N-1 Balancing Account/Rate Setting Calculation Table
N-2 Wholesale Revenue Requirement Schedules
N-3 Schedule of Projected Water Sales, Wholesale Revenue Requirement and Wholesale Rates
P Management Representation Letter
R Classification of Existing System Assets (Subject to Section 5.11) Amendments to these attachments shall be approved on behalf of San Francisco by the Commission and on behalf of BAWSCA by its Board of Directors, unless the Commission by resolution delegates such authority to the General Manager of the SFPUC or the Board of Directors by resolution delegates such authority to the General Manager/CEO of BAWSCA.