HomeMy WebLinkAbout25C - AGMT - WATER PURCHASE ORDERREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
DECEMBER 16, 2014
TITLE:
WATER PURCHASE ORDER AGREEMENT
WITH METROPOLITAN WATER DISTRICT
{STRATEGIC PLAN NO. 6,1, & 4,1}
CITY IMNAGER
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
r,J ,.,.riLa
❑ As Recommended
❑ As Amended
❑ Ordinance on 15' Reading
❑ Ordinance on 2ntl Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
Authorize the City Manager and Clerk of the Council to execute a Current Base Purchase Order
Agreement with the Metropolitan Water District of Southern California to purchase imported water
during the 10 -year period from January 1, 2015, through December 31, 2024, subject to
nonsubstantive changes approved by the City Manager and City Attorney.
DISCUSSION
The Metropolitan Water District of Southern California (MWD) is a wholesale water district
supplying imported water to Southern California cities and water districts. To better plan long -term
water needs, MWD offers its member agencies the opportunity to participate in 10 -year water
purchase agreements. These water purchase agreements are 10 -year commitments to purchase
a minimum quantity of water on an annual basis and a minimum quantity of water over the course
of the 10 -year commitment. In return for these minimum purchase commitments, MWD assesses
a greater percentage of purchased water at a lower, Tier 1 rate. Agencies opting to forego the
commitments are assessed at a higher, Tier 2 rate for the greater percentage of their water
purchases. Commitments are on a "take or pay" basis; if actual water purchases are less than the
purchase commitment during the 10 -year period, participants are still required to pay for the
unused portion.
In December 2002 the City of Santa Ana, a member agency of MWD, entered into a 10 -year
purchase order agreement with MWD to assure that the City would be able to purchase up to
12,128 acre -feet (AF) of water at the Tier 1 rate. The Purchase Order Agreement was extended
for two years and will end on December 31, 2014. During both the 10 -year agreement period and
the 2 -year extension, the City fulfilled its water purchase commitments and benefitted from Tier 1
rates for additional water purchases.
At its November 18, 2014, meeting, the MWD Board authorized issuance of new water purchase
orders for the 10 -year period from January 1, 2015, through December 31, 2024. MWD is offering
three purchase order options for member agencies. As summarized below, each option affects
25C -1
Water Purchase Order Agreement with Metropolitan Water District
December 16, 2014
Page 2
member agency water purchase commitments and limits the quantity of water that can be
purchased at the lower, Tier 1 rate.
No Purchase Order Option
The No Purchase Order option allows member agencies to opt out of entering into an agreement
for water purchases. If this option were selected, the City's annual water purchases at the Tier 1
rate would be limited to a maximum of 13,078 AF. Any water required in excess of this amount
would be charged at the Tier 2 rate and be subject to the availability of Tier 2 water supplies.
Updated Base Purchase Order Option
The Updated Base Purchase Order option sets the limit of Tier 1 water available for purchase
based on the highest fiscal -year sales during the 12 -year period of FY 2003 through FY 2014.
Under this option the City's minimum annual purchase commitment would be 13,204 AR
Current Base Purchase Order Option
The Current Base Purchase Order option sets the limit of Tier 1 water available for purchase based
on the highest fiscal -year sales during the 13 -year period of FY 1990 through FY 2002. Under this
option the City's minimum annual purchase commitment would be 8,086 AF.
The table below provides a comparison of the three options for the City of Santa Ana:
Selection Criteria
Annual
Commitment
10 -Year
Commitment
Annual Tier 1
10 -year Tier
Tier 1
1
(AF)
AF
Maximum (AF)
Maximum
No PO
0
0
13,078
NA
Updated Base PO
13,204
132,040
19,807
198,070
Current Base PO
8,086
80,860
19,617
196,170
In recent years, total citywide water consumption has averaged approximately 40,000 AF per year.
Of that total, the amount of water purchased from MWD varies from year to year, depending on a
variety of operational factors, but is typically between 11,000 AF and 14,000 AF per year.
Staff recommends selecting the Current Base Purchase Order option which offers the lowest
purchase order commitment and, at the same time, allows the purchase of up to 19,617 AF per
year of water at the lower, Tier 1 rate. For Santa Ana, the 10 -year purchase commitment is 80,860
AF with the flexibility to purchase up to 196,170 AF at Tier 1 rates. Staff estimates that, based on
current water demand trends and supply sources, the purchase order commitment will be satisfied
by the eighth year, two years ahead of schedule.
STRATEGIC PLAN
Approval of this item supports the City's efforts to meet Goal #6 Community Facilities &
Infrastructure, Objective #1 (establish and maintain a Community Investment Plan for all City
assets). Approval of this item also supports the City's efforts to meet Goal #4 City Financial
Stability, Objective #1 (maintain a stable, efficient, and transparent financial environment).
25C -2
Water Purchase Order Agreement with Metropolitan Water District
December 16, 2014
Page 3
ENVIRONMENTAL IMPACT
There is no environmental impact associated with this action.
FISCAL IMPACT
Funds are budgeted annually in the Water Production and Supply Fund (Account 06017640-
63001).
APPROVED AS TO FUNDS AND ACCOUNTS:
re Mousavl our Francisco Gutierrez
Exe utive Director Executive Director
Public Works Agency Finance & Management Services Agency
FM /NS /RR
Exhibits: 1. Agreement
2. MWD Board Action
25C -3
25C -4
PURCHASE ORDER FOR SYSTEM WATER TO BE PROVIDED BY
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA
PURCHASER:
TERM
City of Santa Ana
10 years: January 1, 2015 – December 31
2024
INITIAL BASE PERIOD DEMAND:
EFFECTIVE DATE:
acre -feet
January 1, 2015
13,476
INITIAL TIER 1 MAXIMUM — Annual
INITIAL TIER 1 MAXIMUM— Cumulative:
Average:
acre -feet
acre -feet 19,617
196,170
PURCHASE ORDER COMMITMENT—
PURCHASE ORDER COMMITMENT —
Annual Average:
Cumulative:
acre -feet 8,086
acre -feet 80,860
Definitions of capitalized terms used in this Purchase Order are provided in Attachment
1. Terms used in this Purchase Order and not defined in Attachment 1 are defined in
Metropolitan's Administrative Code.
COMMITMENT TO PURCHASE:
In consideration of Purchaser's commitment to purchase System Water pursuant to this
Purchase Order, Metropolitan agrees to sell such System Water to Purchaser at the Tier 1
Supply Rate in an amount up to the Tier 1 Maximum — Cumulative. All System Water sold to
Purchaser in an amount greater than the Tier 1 Maximum — Cumulative shall be sold to the
Purchaser at the Tier 2 Supply Rate. In connection with the purchase of System Water, the
Purchaser also agrees to pay all other applicable rates and charges, as established by
Metropolitan from time to time. The rates and charges applicable to System Water as of the
Effective Date are shown in Attachment 2.
If Purchaser's applicable System Water purchases during the Term exceed Purchaser's
Tier 1 Maximum, Purchaser may elect to:
a.) Subject to the provisions of paragraph c) below, pay any Tier 2 Supply
obligations at the end of the Term, in an amount equal to the difference
between the Purchaser's applicable System Water purchases and the
Tier 1 Maximum — Cumulative during the Term times the average of the
Tier 2 Supply Rate in effect during the Term; or,
b.) pay any Tier 2 Supply obligations, annually as purchases are incurred, in
an amount equal to the difference between the Purchaser's applicable
annual System Water purchases and the Tier 1 Maximum — Annual times
the Tier 2 Supply Rate in effect during the calendar year. A true -up at
the end of the Term will be performed to ensure that the Purchaser has
received all Tier 1 Maximum — Cumulative purchases allowed by the
Purchase Order.
c.) if, after the end of the first five years, Purchaser has accrued a cumulative
Tier 2 Supply Rate obligation, Purchaser may elect to pay the initial five year cumulative Tier 2
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25C -5
supply rate obligation (i) in full at the end of year five of the Term , (ii) amortize it in five equal
installments over the remaining five calendar years of the Term or (iii) pay it at the end of the
Term Commencing in year 6 of the Term, Purchaser shall pay any additional Tier 2 Supply Rate
obligation annually. .
Purchaser agrees to purchase System Water from Metropolitan during the Term in an
amount not less than the Purchase Order Commitment. If Purchaser's applicable System Water
purchases during the Term are less than the Purchase Order Commitment, Purchaser agrees to
pay Metropolitan an amount equal to the difference between the sum total in acre feet of water
of the Purchase Order Commitment and the sum total in acre feet of water of Purchaser's
applicable System Water purchases during the Term times the average of the Tier 1 Supply
Rate in effect during the Term.
Purchaser agrees to pay all amounts owing to Metropolitan, whether to satisfy a
Purchase Order Commitment or a Tier 2 Supply Rate obligation, within the next regular billing
cycle following the reconciliation of all certifications for special programs that the Purchaser may
participate in. The Purchaser may elect to pay such amount in twelve equal monthly payments
over the course of the next twelve months beginning with the first regular billing cycle following
the reconciliation of all outstanding certifications for special programs. If the Purchaser elects to
pay such amount over the course of the next twelve months following the regular billing cycle
any outstanding balance shall bear interest at Metropolitan's then current investment portfolio
average yield. All other amounts payable under this Purchase Order shall be billed and paid in
accordance with the Administrative Code.
COMMITMENT APPEAL:
If the Purchaser's applicable System Water purchases during the Term are less than the
Purchase Order Commitment, each acre -foot of unmet commitment will be reduced by the
amount of production from a local resource project, measured in acre -feet, that commences
operation on or after January 1, 2014. Local resource production includes any project type as
approved by the Board under the Local Resources Program.
WATER SERVICE:
Conditions of water service by Metropolitan to the Purchaser, including but not limited to
(i) delivery points, (ii) water delivery schedules, and (iii) water quality, will be determined in
accordance with Chapter 5 (Section 4500 through 4514, inclusive, as applicable) of
Metropolitan's Administrative Code.
In accordance with its Administrative Code, Metropolitan shall use its reasonable best
efforts to supply System Water in the quantities requested by the Purchaser, but is not obligated
to dedicate any portion of System capacity for the conveyance, distribution, storage or treatment
of System Water for the benefit of the Purchaser or any other member agency. Metropolitan
shall use its reasonable best efforts to deliver the System Water when needed by the Purchaser
during the Term; provided however, there shall be no default under this Purchase Order if
Metropolitan fails to deliver water to the Purchaser in accordance with any such schedule of
deliveries during the Term.
By execution of this Purchase Order, the Purchaser recognizes and agrees that it
acquires no interest in or to any portion of the System or any other Metropolitan facilities or
supplies, or any right to receive water delivered through the System, excepting the right to
purchase up to Purchaser's Tier 1 Maximum — Cumulative at the Tier 1 Supply Rate provided
that System Water is available. This Purchase Order governs pricing of the System Water
delivered to the Purchaser pursuant to this Purchase Order and does not confer any entitlement
to receive System Water
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25C -6
System Water provided to the Purchaser under the terms of this Purchase Order shall
be subject to reduction in accordance with the shortage allocation provisions of the Water
Surplus and Drought Management Plan (the "WSDM Plan ") or other such policies and principles
governing the allocation of System Water as adopted by the Board.
In the event that Metropolitan's Board determines to reduce, interrupt or suspend
deliveries of System Water, any outstanding balance of the Purchase Order Commitment at the
end of the Term shall be reduced by the Purchase Order Commitment — Annual Average for
each and every fiscal or calendar year that a reduction, interruption or suspension occurred.
MISCELLANEOUS:
This Purchase Order will be interpreted, governed and enforced in accordance with the
laws of the State of California.
This Purchase Order will apply to and bind the successors and assigns of the Purchaser
and Metropolitan.
No assignment or transfer of the rights of the Purchaser under this Purchase Order will
be valid and effective against Metropolitan or the Purchaser without the prior written consent of
Metropolitan and the Purchaser.
If at any time during the Term, by reason of error in computation or other causes, there
is an overpayment or underpayment to Metropolitan by the Purchaser of the charges provided
for under this Purchase Order, which overpayment or underpayment is not accounted for and
corrected in the annual re- determination or reconciliation of said charges, the amount of such
overpayment or underpayment shall be credited or debited, as the case may be, to the
Purchaser. Metropolitan will notify the Purchaser in writing regarding the amount of such credit
or debit, as the case may be. In no case will credits or debits for charges provided for under this
Purchase Order be administered beyond the limit for billing adjustments as specified in
Metropolitan's Administrative Code.
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25C -7
IN WITNESS WHEREOF, this Purchase Order is executed by the duly authorized
officers of the Metropolitan Water District of Southern California and , as of December _, 2014.
THE METROPOLITAN WATER DISTRICT OF CITY OF SANTA ANA
SOUTHERN CALIFORNIA
0
Jeffrey Kightlinger
General Manager
Ba
[Title] DAVID CAVAZOS, City Manager
APPROVED AS TO FORM AND CONTENT:
General Counsel
0
Jose Sandoval, Chief Assistant City Att.
General (";nllnRP.l
Ba
-4-
25C -8
ATTEST:
MARIA D. HUIZAR
City Clerk
Attachment 1
Purchase Order for System Water
DEFINITIONS
"Act" means the Metropolitan Water District Act, California Statutes 1969, Chapter 209,
as amended and supplemented from time to time.
"Base Period Demand" means the greater of (i) the Initial Base Period Demand or (ii)
the five -year rolling average of the Purchaser's System Water purchases, measured on a fiscal
year basis.
"Effective Date" means the effective date of this Purchase Order as specified above.
"Demand" means the Purchaser's purchases of System Water supplies, including full
service, seasonal shift, Conjunctive Use Program, Surface Storage Operating Agreement water,
Recharge and Recovery Operating Agreement water, or any other water program deemed to be
a purchase of water.
"Initial Base Period Demand" means the Purchaser's highest annual Demand, as
determined by Metropolitan, in:
a). any fiscal year during the period from fiscal year 1989/90 through fiscal year
2001/02; or
b). any fiscal year during the period from fiscal year 2002/03 through fiscal year
2013/14.
"Metropolitan" means The Metropolitan Water District of Southern California.
"Purchase Order Commitment" means:
a). if the Purchaser elects option a). under the Initial Base Period Demand, then
60% of the Purchaser's Initial Base Firm Demand as previously calculated by
Metropolitan, which is the highest fiscal year firm Demand during the period from fiscal
year 1989/90 through fiscal year 2001/02, times 10; or
b). if the Purchaser elects option b). under the Initial Base Period Demand, then
60% of the Purchaser's highest fiscal year Demand during the period from fiscal year
2002/03 through fiscal year 2013/14, times 10.
"Purchase Order" means this Purchase Order for System Water.
"Purchaser" means the member public agency specified above, a duly organized
[city /water district/county water authority] of the State of California.
"System" means the properties, works and facilities of Metropolitan necessary for the
supply, development, storage, conveyance, distribution, treatment or sale of water.
"System Water" means water supplies developed by Metropolitan and delivered to the
Purchaser through the System or other means (e.g. conjunctive use storage).
"Term" means the term of this Purchase Order as specified above.
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25C -9
"Tier 1 Maximum — Annual" means an amount equal to 90% of the Initial Base Period
Demand.
"Tier 1 Maximum — Cumulative" means an amount equal to the Tier 1 Maximum —
Annual times 10.
"Tier 1 Supply Rate" means Metropolitan's per- acre -foot Tier 1 Supply Rate, as
determined from time to time by Metropolitan's Board of Directors. The initial Tier 1 Rate is
$158/AF.
"Tier 2 Supply Rate" means Metropolitan's per- acre -foot Tier 2 Supply Rate, as
determined from time to time by Metropolitan's Board of Directors. The initial Tier 2 Rate is
$290 /AF.
"Water Surplus and Drought Management Plan (WSDM)" means Metropolitan's
policy and procedures for managing supplies and drought conditions as adopted by the Board
from time to time.
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25C -10
Attachment 2
Purchase Order for System Water
RATES AND CHARGES
7-
25C -11
Effective
January
1, 2015
Effective
January
1, 2016
Tier 1 Supply Rate ($ /AF)
$158
$156
Tier 2 Supply Rate ($ /AF)
$290
$290
System Access Rate
($ /AF
$257
$259
System Power Rate
$ /AF)
$126
$138
Water Stewardship Rate
$ /AF
$41
$41
Full Service Untreated
Rate ($ /AF ):
Tier 1
$582
$594
Tier 2
$714
$728
Treatment Surcharge
$ /AF)
$341
$348
Full Service Treated Rate
($ /AF ):
Tier 1
$923
$942
Tier 2
$1,055
$1,076
Readiness -to -Serve
Charge ($ millions)
$158
$153
Capacity Charge $ /cfs)
$11,100
$10,900
7-
25C -11
THE METROPOLITAN WATER DISTRICT
OF SOUTHERN CALIFORNIA
• Board of Directors
Finance and Insurance Committee
11/18/2014 Board Meeting
RM
Approve the proposed terms for Purchase Orders with Member Agencies; authorize the General Manager to
execute Purchase Orders with Member Agencies consistent with the proposed terms; and approve the Proposed
Amendments to the Administrative Code
Executive Summary
The Board is asked to approve the proposed terms for Purchase Orders with member agencies as outlined in
Attachment 1, authorize the General Manager to execute Purchase Orders with member agencies consistent with
the proposed terms, and approve the proposed amendments to the Administrative Code as shown in
Attachment 3. The Purchase Orders will allow member agencies to purchase greater amounts of Metropolitan
system water at the Tier 1 Supply Rate in exchange for a commitment to purchase a specific amount of water at a
minimum over time which provides Metropolitan with a measure of revenue certainty over the term of the
agreements.
Details
Purchase Orders are voluntary agreements that determine the amount of water that a member agency can purchase
at the Tier 1 Supply Rate. They allow member agencies to purchase a greater amount of water at the lower Tier 1
Supply Rate than would otherwise be authorized by the Administrative Code. In exchange for the higher Tier 1
Maximum, the member agency commits to purchase a specific amount of water (based on past purchase levels)
over the term of the agreement. Such agreements allow member agencies to manage costs and provide
Metropolitan with a measure of secure revenue.
As previously explained to the Board and as further clarified below, Purchase Orders are adjuncts to the cost -of-
service study in that they implement Metropolitan's tiered supply pricing structure. Metropolitan's current cost -of
service study, as well as the current budget and rates, assume no Tier 2 sales. If received, Tier 2 revenue will be
used towards the incremental cost of acquiring additional water supplies to serve users with increasing demands
and to fund additional conservation efforts. The Tier 2 Supply Rate also encourages efficient water resource
management and conservation by indicating to member agencies the increased costs associated with demand
increases. Purchase Orders also allow member agencies to maintain and manage local supplies by, for example,
removing possible replenishment disincentives.
The existing Amended and Restated Purchase Order agreements, entered into with 22 member agencies, expire on
December 31, 2014. Through discussions with the Board and the member agencies, a proposal was developed for
new ten -year Purchase Orders. The key terms of the new Purchase Orders are outlined in greater detail in
Attachment 1, and include:
• A ten -year term, effective January 1, 2015 through December 31, 2024;
• For member agencies executing a Purchase Order, the choice between the demand base of the current
Amended and Restated Purchase Order agreements, which is the highest fiscal year purchases during the
13 -year period of FY 1990 through FY 2002, or the highest year in the most recent 12 -year period of
Exhibit 2
25C -12
11/18/2014 Board Meeting 8 -1 Page 2
FY 2003 through FY 2014. The demand base is unique for each member agency, reflecting its use of
Metropolitan's system water over time;
• An overall purchase commitment by the member agency based on the demand base period chosen, times
ten to reflect the ten -year Purchase Order term. Those agencies choosing the more recent 12 -year period
may have a higher Tier 1 Maximum and commitment. The commitment is also unique for each member
agency;
• The opportunity to reset the base period demand using a five -year rolling average;
• Any obligation to pay the Tier 2 Supply Rate will be calculated over the ten -year period, consistent with
the calculation of any Purchase Order commitment obligation; and
• An appeals process for agencies with unmet purchase commitments that will allow each acre -foot of
unmet commitment to be reduced by the amount of production from a local resource project that
commences operation on or after January 1, 2014.
The Administrative Code provides that a member agency's Tier 1 Maximum is 60 percent of their calculated
Revised Base Firm Demand. Each member agency's Revised Base Firm Demand is shown in Administrative
Code Section 4122. Under the Purchase Orders, member agencies will have the option to purchase a greater
amount of water at the lower Tier 1 Supply Rate in exchange for a commitment to purchase a minimum amount
of water over the term of the Purchase Order. The current sum of the Tier I Maximum for member agencies, with
and without Purchase Orders, totals 2.05 million acre -feet (MAF) for Calendar Year 2014. Discussions with
member agencies regarding possible new Purchase Orders indicate that the total sum of the Tier 1 Maximum
amounts is expected to remain at approximately 2.05 MAF. The current sum of the annual average commitment
for member agencies with a Purchase Order total approximately 0.9 MAF; the total sum of the annual average
commitment for member agencies anticipated to execute a new Purchase Order is also expected to remain at
approximately 0.9 MAF.
Some member agencies use Metropolitan as a full requirements provider, some use Metropolitan as a partial
requirements provider, and some member agencies use Metropolitan for standby service. The cost -of- service
analyses and the resulting Readiness -to -Serve Charge, Capacity Charge, and volumetric rates capture the costs of
these varying needs. Tiered supply rates, however, allow Metropolitan to cover higher incremental resource costs
to supply users with increasing demands. Tier 2 revenues realized in the current or future biennial budget period
will be transferred to the Water Management Fund to cover these higher incremental resources costs, including
North of Delta transfers, as well as additional conservation expenses to address the increased demand and mitigate
its impact.
For member agencies that sign new Purchase Orders and commit to purchase a minimum amount of water, their
obligation to pay the Tier 2 Supply Rate will be calculated over the term of the Purchase Order, consistent with
the calculation of the commitment obligation. In this way, the Purchase Order focuses any Tier 2 obligation on
agencies with demands that are increasing or agencies that are unable to maintain local resources on an ongoing
basis, rather than hydrologic variations which are accommodated in Metropolitan's current supply portfolio and
financial reserves. Calculating member agencies' Tier 2 obligations over the entire term also accommodates
responsible and sustainable water management by member agencies that may be cost prohibitive if Tier 2
obligations were calculated annually. For example, the cumulative calculation of any Tier 2 obligation allows
member agencies with Purchase Orders to take large amounts of water in a short period of time in order to
replenish storage but still stay within their Tier 1 base demand as long as they manage their deliveries over the
long term.
Member agencies that accrue a Tier 2 obligation by virtue of exceeding their Tier 1 Maximum at the end of year
five of the Purchase Order will pay their Tier 2 obligation annually. Any member agency without a Purchase
Order must pay their Tier 2 obligation in the calendar year in which it accrues.
Member agencies give their prospective commitments considerable deliberation when determining whether to
sign a Purchase Order or not. Their commitment to purchase system water from Metropolitan over the term
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11/18/2014 Board Meeting 8 -1 Page 3
provides a level of assurance between the member agency and Metropolitan, and among the member agencies,
that revenues will be generated. In particular, the Purchase Order commitment provides a level of assurance
among the member agencies that participating agencies will share in the costs of supporting Metropolitan, as
determined by cost -of- service analyses.
Attachment 2 summarizes each member agency's options.
Attachment 3 includes the proposed changes to the Administrative Code in strike - through and underline format
to incorporate the new Purchase Order.
Purchase Orders are voluntary and do not confer a contractual right to system water to a member agency. The
Tier 1 and Tier 2 Supply Rates for Calendar Years 2015 and 2016 have already been determined by the Board.
Biennially, the Board reviews the proposed Tier 1 and Tier 2 Supply Rates as part of the biennial rate setting
process.
Metropolitan Water District Administrative Code Section 4120: Purchase Order; Purchase Order Commitment
Metropolitan Water District Administrative Code Section 4122: Base Period Demand; Revised Base Firm
Demand; Initial Base Firm Demand;
Metropolitan Water District Administrative Code Section 4404: Purchase Orders
California Environmental Quality Act (CEQA)
CEQA determination for Option #1:
The proposed action is not defined as a project under CEQA because it involves continuing administrative
activities, such as general policy and procedure making (Section 15378(b)(2) of the State CEQA Guidelines). In
addition, the proposed action is not subject to CEQA because it involves other government fiscal activities, which
do not involve any commitment to any specific project which may result in a potentially significant physical
impact on the environment (Section 15378(b)(4) of the State CEQA Guidelines). In addition, where it can be
seen with certainty that there is no possibility that the proposed action in question may have a significant effect on
the environment, the proposed action is not subject to CEQA (Section 15061(b)(3) of the State CEQA
Guidelines).
The CEQA determination is: Determine that the proposed action is not defined as a project and is not subject to
CEQA pursuant to Sections 15378(b)(2), 15378(b)(4), and 15061(b)(3) of the State CEQA Guidelines.
CEQA determination for Option #2:
None required
Board Options
Option #1
Adopt the CEQA determination that the proposed action is not defined as a project and is not subject to
CEQA, and
a. Approve the proposed terms for Purchase Orders with member agencies as outlined in Attachment 1;
b. Authorize the General Manager to execute the Purchase Order with member agencies opting to execute
the Purchase Order consistent with the proposed terms, in a form approved by the General Counsel;
and
c. Approve amendment of Sections 4120, 4122, 4401, 4404, and 4507 of the Administrative Code as
shown in Attachment 3.
Fiscal Impact: The Purchase Orders will have no fiscal impact in FY 2014/15 and FY 2015/16; the biennial
budget assumes 1.75 MAF of sales in each fiscal year, with no Tier 2 purchases.
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11/18/2014 Board Meeting 8 -1 Page 4
Option #2
Do not approve the proposed terms for Purchase Orders with member agencies, do not authorize the General
Manager to execute the Purchase Order, and do not approve changes to the Administrative Code.
Fiscal Impact: Unknown
Staff Recommendation
Option #1
—4t� 11/3/2014
Gary Btha0 Date
Chief Financial Officer
Attachment 1 – Purchase Order for System Water to be Provided by the Metropolitan Water
District of Southern California: Key Terms
Attachment 2 – Tier 1 Maximum and Commitment Options
Attachment 3 – Proposed Amendments to Administrative Code
Ref# cfol2633440
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11/18/2014 Board Meeting 8 -1 Attachment 1, Page I of 2
Purchase Order for System Water to be Provided by the
Metropolitan Water District of Southern California
Key Terms
Term:
• 10 years, effective January 1, 2015 through December 31, 2024
Base Period:
• For purposes of determining their Tier 1 maximum, member agencies can choose between
the current Revised Base Firm Demand, which is the highest fiscal year sales during the
13 -year period of FY 1990 through FY 2002, OR the highest year in the most recent 12 -year
period of FY 2003 through FY 2014. Both calculations include Interim Agricultural Water
Program, Seasonal Storage Service —Long, Cyclic and Replenishment Program sales.
• Member agencies executing Purchase Orders will have a Tier 1 Maximum based on
90% of the respective base period peak year they choose.
• If a member agency opts to use the original 13 -year period for their Purchase Order,
their commitment will be 60% of the 2003 Initial Base Firm Demand (same as current
Purchase Order).
• If a member agency opts to use the more recent 12 -year period for their Purchase
Order, their commitment will be 60% of the highest year in the most recent 12 -year
period.
• Member agencies who do not execute a Purchase Order will have their Tier 1 limit set
at 60% of the Revised Base Firm Demand (same as current Purchase Order).
• The calculation of the rolling average for purposes of resetting the Tier 1 maximum
will exclude Water Supply Allocation Plan years and will use a 5 -year period. Once
the Tier 1 Maximum resets, this reset will not go down.
Tier 2 Applicability:
• Tier 2 should only be applied to a member agency if its cumulative sales for the term of the
Purchase Order exceed its cumulative Tier 1 Maximum, consistent with the methodology
currently utilized to satisfy the 60 percent Purchase Order commitment.
• Member agencies with Tier 2 obligations may choose:
To have the obligation calculated at the end of the 10 -year term and pay any Tier 2
obligations at that time, based on the average of the difference between the Tier 1 and
Tier 2 Supply Rates over the 10 -year term.
To pay any Tier 2 obligations as they are incurred, with a true -up at the end of the
10 -year period.
If, after Year 5, a Purchaser has accrued a Tier 2 obligation (purchases exceed the
Tier 1 Maximum annualized * 5), the Purchaser will begin paying any future Tier 2
obligation annually. Any outstanding Tier 2 obligation owing from the initial 5 -year
period can be amortized over the next 5 calendar years or paid at termination of the
Purchase Order.
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11/18/2014 Board Meeting 8 -1 Attachment 1, Page 2 of 2
Additional Aspects of the Purchase Orders:
• Purchase Orders are voluntary
• The commitment is cumulative over the term; agencies that do not meet the full amount of
the commitment during the term will pay for the unmet commitment at the average of the
Tier 1 Supply Rate in effect during the term. The Purchase Order will allow for an appeals
process at the end of the term for agencies with an unmet commitment. Each acre -foot of
unmet commitment will be reduced by the amount of production from a local resource
project, measured in acre -feet, that commences operation on or after January 1, 2014. Local
resource production includes any project type as approved by the Board under the Local
Resources Program.
• The commitment will be adjusted to exclude Water Supply Allocation Plan years.
• Purchase Orders do not confer a contractual right to system supply to a member agency. The
proposal does not accommodate the exchange or sale of purchase order quantities between
member agencies.
• All member agency purchase orders will extend over the same 10 -year period. Member
agencies purchase orders will be effective January 1, 2015.
• The Tier 2 Supply Rate for Calendar Years 2015 and 2016, as already determined by the
Board, will not change. Biennially, the Board reviews the proposed Tier 1 and Tier 2 Supply
Rates as part of the biennial rate setting process.
25C -17
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25C -18
11/18/2014 Board Meeting 8 -1 Attachment 3, Page 1 of 4
§ 4120. Purchase Order; Purchase Order Commitment.
"Purchase Order" shall mean a member agency's written commitment to purchase a
specified total volume of water from the District during a specified period, as provided in
Section 4404. and "Purchase Order Commitment" shall mean °
but net ..InAe— E), deliveries undef the
Ptne ass Order ee ,._mitt. ent the amount of system water a member agency commits to
purchase over the term of the Purchase Order.
M. I.44812 - March 12,2002; amended by M. I.45249 - March 11, 2003.
§ 4122. Base Diem- Period Demand; I„ Revised Base Firm Demand; Initial Base Firm
Demand.
"Base Finn Period Demand" shall mean the amount specified in a member agency's
Purchase Order, that is either: the greatef of the member agency's Initial-Revised Base Firm
Demand, as specified in this Section: or b) the member agency's highest fiscal year purchases
from fiscal year 2003 through 2014: provided, however, that if et-b) -the member agency's
teofive- fiscal year rolling average of deliver-ies-purchases of water from the District for the
most recent ten -five fiscal year period, excluding, o in either ease; water
purchased
under an interruptible program. exceeds the member agency's initial Base Period Demand
then the member agency's Base Period Demand for each subsequent calendar year shall be
increased to the member agency's five -fiscal year rolling age_
, "Initial Base Firm Demand" shall mean the member agency's
highest annual delivery of water from the District, excluding water delivered under Long -Term
Seasonal Storage Service, Interruptible Service, and Interim Agricultural Water Program
Service, during any fiscal year from fiscal year 1989/90 through fiscal year 2001/02.
25C -19
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25C -19
11/18/2014 Board Meeting
8 -1 Attachment 3, Page 2 of 4
Effective as of January 1, 2013, each member agency's r„ Revised Base Firm
Demand Post Aq i4he. ..,.. fef flunk atien of R- len t o
�.» .. �..� „p v"'�rrii�cairve- £=vzvcu
^n�is as follows:
Member Agency Revised IBFD
Anaheim
TA[�x/D
27,154
Beverly Hills
14,867
Burbank
18,640
Called
122,498
Central Basin
119,617
Compton
5,620
Eastern
102,694
Foothill
13,081
Fullerton
12,554
Glendale
29,135
Inland Empire
103,648
Las Virgenes
22,999
Lon Beach
57,560
Los Angeles
372,959
MWDOC
311,769
Pasadena
23,533
San Dieso
655,903
San Fernando
1,049
San Marino
1,998
Santa Ana
21,797
Santa Monica
12,344
Three Valleys
83,248
Torrance
23,297
Upper San Gabriel
74,698
West Basin
175,024
Western
94,567
§ 4401. Rates.
Supply Rate:
Tier 1. Supply Rate — The Tier 1 Supply Rate shall apply to water purchases which in
the aggregate for any calendar year, are less than or equal to 60 percent of the Revised Base
Firm Demand of such member agency as specified in Section 4122, unless that member
agency has executed a Purchase Order, as defined in Section 4120 in which case the Tier 1
Supply Rate applies to water purchases as established by the Purchase Order terms ,ems
25C -20
11/18/2014 Board Meeting 8 -1 Attachment 3, Page 3 of 4
90 dle Base
Tier 2 Supply Rate —The Tier 2 Supply Rate shall apply when a member agency's
cumulative total of fW1 seM� 'a ;es water purchases for the calendar year exceeds 60
percent of the member agency's Revised Base Firm Demand as specified in Section 4122, or
according to the terms of a Purchase Order 9013efee.. t-&� for member
public agencies that execute a Purchase Order
§ 4404. Purchase Orders.
(a) The General Manager shall establish and make available to member public
agencies the form of the Purchase Order and procedures for its administration. The General
Manager shall establish a deadline by which all Purchase Orders shall be executed by member
public agencies that desire to enter into such agreements with the District. Following the
deadline established by the General Manager, no member public agencies will be allowed to
execute Purchase Orders.
(b) The term of the ifriti&Purchase Orders shall be r T°«„° =y , 2004 t",.°..gh .. «a
ifi°,..a: «n 4ee Aw 3 2m'specified in the Purchase Order. All Purchase Orders in effect
for the same time period shall be on substantially the same terms shall be eji substantially the
°' °" ° ° «' ` - JhA ° .a�-ny -All aamendments to Purchase Orders M &b&-sa "met
tergcluire approval by the Board.
(c) Each member public agency executing a Purchase Order shall commit to purchase
at least its Purchase Order Commitment during the term of the Purchase Order.
(d) Purchase Orders shall permit tea member public agency that a a Purehase
Order shall be permi#ed-a�
to purchase up to 90 percent of its Base &rf3rPeriod Demand at the Tier 1 Supply Rate for
the tenn of the Purchase Order.
Y
•.
(g4 e)_All water deliveries under a Purchase Order shall be subject to the operational
conditions and constraints contained in this Division. In ienaddition, all billings and
payments for such water shall be subject to the provisions of this Division in the same manner
as other water delivered by Metropolitan.
25C -21
11/18/2014 Board Meeting 8 -1 Attachment 3, Page 4 of 4
§ 4507. Billing and Payment for Water Deliveries.
25C -22
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FOR!
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IN 11
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25C -22