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Home My WebLink About01/13/2004, STUDY SESSION 1 - NACIMINETO PIPELINE WATER SUPPLY PROJECT i e I d O CD a4 0 JULY-DEC 2004 D JANUARY a 6,2004 10 0 id G JULY 2004 0 � m v H O OA • y M FEBRUARY 2004 an �b 0 a � m JUNE 2004 b 5 w o 0 C7 0 CD FEBRUARY 2004 APRIL 2004 r. a � _ p' MARCH 2004 1 � council �o y j agenba aEpont. "°mb. io CITY O F SAN LUIS OBISPO FROM: John E.Moss,Utilities Direc117-� SUBJECT: Nacimiento Pipeline Water Supply Project CAO RECOMMENDATION Receive report regarding the Nacimiento Pipeline Water Supply Project status, draft participation agreements, cost allocation options and upcoming Council consideration and required actions. REPORT IN BRIEF The Nacimiento Pipeline Water Supply Project has come to a point in its development where the County of San Luis Obispo will be offering agreements for participation in the design, construction and operation of the project. The City has been a participant in the project to date, and is included in the environmental impact report OEM)for the project. The EIR will be presented to the Board of Supervisors on January 6, 2004 for certification. This report is intended to begin the process of Council's consideration of the City's continued participation in the Nacimiento project. The proposed Nacimiento project entails the construction of about 60 miles of water transmission pipeline from Lake Nacimiento in the Northern portion of the county, south along the Highway 101 corridor to San Luis Obispo. The project is being designed to deliver 16,200 acre feet of water per year and is estimated to cost $165,471,000 to construct the raw water delivery system. There are currently 15 participating agencies requesting a total allocation of 13,575 acre feet. The County has prepared participation agreements which address the key elements of construction, ownership, agency entitlements, operations, maintenance, project financing, cost allocation, governance, and capital maintenance. Paavo Ogren, Deputy Director of Public Works for the County of San Luis Obispo, will be presenting the draft agreement to the Council in a study session/workshop forum. The draft agreement is included with this report as Attachment 1. On a project of this magnitude and this costly, maintaining the participation of all agencies involved is key to the project's feasibility. With cost being a primary factor in agency participation . decisions, the method of cost allocation to the agencies involved is a key policy decision to be made by the Board of Supervisors. There are currently three cost allocation methods being considered. They are: Specific Identification of Facilities; Average Cost per Unit of Water; and a Hybrid methodology. In this report, staff will identify the issues and advantages of each method and how each method may affect the City's cost and participation in the project. This Council meeting is the first in a series of proposed meetings to provide the Council with the information required to determine the appropriate level of participation in the Nacimiento project for the City. Future meetings will cover, in detail, existing City policy related to water supply, project cost, rate and fee implications, otherwater supply options and any additional information as requested by the Council. I ` � I �I Council Agenda Report-Nacimiento Pipeline Project January 13,2004 Page 2 DISCUSSION The purpose of this study session is to begin the process of Council's consideration of the City's participation in the County's Nacimiento Pipeline Water Supply Project. A significant amount of work has gone into this project over the past 10 years and the project has now reached a point where potential participating agencies are being requested to consider their commitment to the project prior to design and construction. A decision to participate will commit the City to the partnership with the County and other agencies for the design, construction and operation of the Nacimiento Pipeline Water Supply Project. A decision not to participate may result in the project not proceeding or an alternate project being developed to serve only the North County. There are many factors and policies for the Council to consider relative to the City's participation in the project,not the least of which is cost. This is a very expensive project. At the same time,this is perhaps the last significant fresh water supply project available to the City, and the only project at this time with regional water supply benefits. Council's decision relative to this project should be based on consideration of a broad range of issues and policies. It is staffs desire to provide the Council with complete information and analysis in a systematic and organized approach. A successful outcome of the upcoming series of meetings, proposed for consideration of the City's participation in the project, will be Council's comfort that they have been provided and considered all relevant information needed to make their decision. This first meeting is intended to provide the Council with brief review of the project status and description, a review of the proposed participation agreements, an overview of three possible cost allocation models under consideration by the County, and a discussion of the proposed upcoming meetings and timelines relative to our"decision"and continued development of the project. Background The Nacimiento Pipeline Project has been under development since 1994 when the County first began preparation of a project description and Environmental Impact Report (EIR) for the project. The Nacimiento Pipeline is a regional water supply project consisting of conveyance and possibly treatment facilities for approximately 16,200 acre-feet of water per year from Lake Naciiniento, located in the Northern portion of the county. The project would entail construction of an intake structure at the dam and approximately 60 miles of pipeline ranging in size from 36 inches in diameter at the upstream reaches to 10 inches in diameter at the downstream end of the proposed system. The project would be constructed to serve water to cities and agencies along the highway 101 corridor from San Miguel to San Luis Obispo. A draft EIR was prepared and circulated for the project in 1997. However, this draft EIR was not certified due to concerns over significant construction related impacts to the North County. A revised project description was developed and revised Draft EIR was released for public comment in July of 2003. The project was redefined and rerouted through Camp Roberts and then South along the eastern side of the Salinas River in order to avoid many of the construction related impacts associated with the first project alignment. On August 19, 2003 a presentation of the Draft EIR was made to the Council by staff from the County Public Works and Environmental Coordinators Offices. The EIR is to be considered for certification by the County Board of Supervisors on January 6, 2004. Staff will report the results of the Boards actions relative to the �-a Council Agenda Report-Nacimiento Pipeline Project January 13,2004 Page 3 EIR at the study session. As a participant and "responsible" agency, the City Council will have to "consider" the final EIR and make findings following the County's filing of the Notice of Determination and completion of the 30 day protest/appeal period. This Council action relative to the EIR will likely occur in spring of 2004, prior to execution of the participation agreement, assuming the City chooses to participate in the project. There were no significant impacts found for the project that staff believes would be of concern to the City or would preclude the City from considering participation in the project. Table 1 below identifies the current list of participating agencies and their allocation requests as shown in the EIR. Table 1. Water Pu ve or ... __ ._ _ Allocation Request( ) San Mi el CSD 610 City of Paso Robles 4 000 Templeton CSD 250 Atascadero MWC 3,000 Santa Margarita Ranch - 200 CSA 23—Santa Margarita 100 City of San Luis Obis _ 380 Cainp San Luis Obispo 200 - San Luis CUSD—Morro Bay 55 CSA 10A—Ca cos 80 Lewis Pollard Trust—Ca . cos 50 Morro Rock MWC-Ca cos 30 CSA 22—Airport Area - 890 Fiero Lane Water Company 30 Edna Valle MWC—Airport Area 700 Subtotal 13,575 SLO County (unallocated) 29625 Total 16,200 In considering the above Table and the participating agencies, it is important to recognize that the participation levels indicated were provided by the agencies a number of years ago, and were "for the purposes of environmental review". It is anticipated that the allocation requests of a number of agencies, including San Luis Obispo, will change with the execution of the final participation agreements. In some cases, the requests may actually overlap those of another agency, for example CSA 22 and Fiero Lane are actually located largely within the City of San Luis Obispo's General Plan Urban Services Line and the water required to serve these areas should be included in our water supply planning. As stated previously, this is a very expensive project. As currently defined, the base capital cost for the Raw Water project alternative is estimated at $165,471,000 and the Treated Water alternative is estimated at $209,811,000. At our currently listed participation level, our share of the project Council Agenda Report- Nacimiento Pipeline Project January 13,2004 Page 4 capital construction cost would be $54,385,782 for the Raw Water Alternative, or an annual cost of $5,058,974 including costs for debt service, operations and maintenance. These estimated costs for San Luis Obispo are basad on the levels of participation defined in the ElR and a cost allocation methodology that applies a percentage share of the costs of all upstream facilities to the City. As requests are adjusted up or down, by the various participating agencies, the costs to the other agencies participating in the project will also vary. The costs to any one agency may be affected by the participation of the other agencies and their location along the pipeline relative to that agency. A more thorough discussion of the cost allocation models being considered for the project and how they may affect costs to the City of San Luis Obispo will be provided later in this report. Additionally, the County is currently preparing additional cost analyses and on February 10, 2004 staff will provide Council with a possible range of project costs (depending on overall project participation) and impacts to City rates and fees associated with that range of costs. Final costs to the City can not be known until our level of participation in the project and that of all other agencies is known and a final cost allocation methodology is agreed upon and approved by the County. Draft Participation Agreement A Draft participation agreement has been prepared by County Public Works and legal staff. The agreement was developed using agreements of other regional water supply projects as a template. The draft agreement has been customized to reflect the circumstances and particularities of the Nacimiento Project. In the development of the agreement, the County has been open to modification of many of the terms where consensus could be reached among the participants. Other terms and conditions are as required by the financing or bond issuers and are needed to ensure the financial viability of the project. Paavo Ogren, Deputy Director of Public Works for the County of San Luis Obispo, will be providing the Council with a presentation of the key elements of the draft participation agreement. There are, as currently proposed, 41 Articles in the draft agreement. The agreement has been developed under the assumption that this will be a County Flood Control District owned, constructed, maintained and operated project. At this time, staff supports this assumption as the most efficient and timely method to developing and completing the project. The contract provisions cover a range of issues including construction, ownership, the Master Water Contract with Monterey County, prior commitments to lakeside properties,participating agency entitlements, operations, maintenance,project financing,cost allocation, governance and capital maintenance. City Utilities staff and the City Attorney have reviewed the agreement and have provided comments to the County. The attached draft agreement (Attachment 1) does not reflect the comments made by all agencies. The agreement is still being modified and will continue to be in draft form until approved by the Board of Supervisors. Board approval of the agreement is tentatively scheduled for February 2004. County staff will be-seeking approval of the draft agreement by the Board with the flexibility to make needed modifications in the following four areas: 1. Technical edits needed to better describe the agreed-upon intent of the applicable provisions; 2. Changes that all agencies mutually agree upon; 3. Edits needed to secure bond financing; and 4.Filling in the blanks based on the request of the participating agencies, e.g. allocation request. The County's proposed contract review schedule is included as Attachment 2. This schedule may change as required based on the - 4 i Council Agenda Report-Nacmi iento Pipeline Project January 13,2004 Page:S timing of the actions of the participating agencies and the Board of Supervisors. However the schedule does provide a proposed timeline for decision making and reflects an aggressive schedule for moving ahead with the project. Prior to presentation of the final agreement to Council for approval and execution (if appropriate), staff will seek review of the agreement by our water rights attorneys, Hatch and Parent, who are very familiar with major regional water project agreements. This outside legal counsel review will be coordinated through the City Attorney's Office in order to monitor cost and ensure local issues of concern are taken into account. Any final comments and or modifications suggested from this review will be presented to the County for consideration and Council will be apprised of the suggested modifications and their importance. It is not critical at this point for Council to become intimately familiar with the participation agreement. This presentation and study session is intended to begin the process of familiarization and to present the key components of the agreement so that Council and the community understand the general direction of the project and what our participation in the project will require. Knowing what form of agreement we may be committing to and understanding the key terms of the agreement, in at least.a general sense, will be key considerations in our ultimate decision whether to participate in the project. Cost Allocation Methodologies Cost allocation for the project may be a critical policy decision that ultimately affects the participation and participation level of the agencies involved. Given the significant capital costs associated with this project, and the likely significant rate impacts needed to support this capital commitment, the allocation of costs to the participating agencies may have a tremendous impact on an agency's decision to participate. The method of cost allocation will ultimately be a policy decision made by the County Board of Supervisors. However, this decision will likely be influenced by the recommendations of the participating agencies. Understanding the cost allocation methodology options, the impacts of the options on the City and other participants, and working toward a mutually acceptable methodology with the other participating agencies and the County will be one of the primary areas of policy level cooperation for this project. There are three primary cost allocation methodologies or approaches that can be considered for a project such as the Nacimiento Pipeline project: 1. Specific Identification of Facilities; 2. Average Cost per Unit of Water, or 3. A Hybrid methodology. The following discussion of the three methodologies will use the current estimated project cost information based on the participation levels identified in the project EIR for order of magnitude comparison purposes only. It is anticipated that the costs and participation levels will change dramatically as agencies consider whether or not to participate and/or at what level. A more thorough discussion of project costs, as well as rate and fee implications for the City will be provided at the February 10, 2004 study session. Specific Identification of Facilities The current contract agreement reflects the Specific Identification of Facilities methodology which is based on identification of the specific facilities required to serve an agency and the agencies t , Council Agenda Report-Nacin lento Pipeline Project January 13,2004 Page 6 percentage share of those facilities. The policy supporting this cost allocation methodology would be that each agency should be responsible for their share of the costs of the facilities required to serve that agency, similar to how we set and apply development impact fees. This is perhaps the most common form of cost allocation for a project of this nature. This methodology has a sound technical basis, i.e. an agency should pay for those facilities, and only those facilities, required to serve the agency. The downside of this methodology is that as you proceed downstream with the project, the costs to the downstream agencies continue to increase and may reach a point where the project is not financially feasible for the downstream agencies. When this occurs, and downstream agencies drop out of the project, the costs to the remaining agencies upstream increase due to'a loss of economy of scale. This methodology of cost allocation is the least favorable option for San Luis Obispo because we are at or near the downstream end of the project. Based on the current participation levels identified in the project EIR, San Luis Obispo's cost for Nacimiento raw water is estimated at$1,497 per acre foot. For participants downstream of San Luis Obispo the costs are even greater. On the other hand, this cost methodology is likely the most favorable to Paso Robles, which is located on the upper end of the system and thus requires fewer facilities for service and those facilities, are shared by nearly all participants. Again based on the current participation levels identified in the EIR,Paso Robles' cost for Nacimiento raw water is estimated at $787 per acre foot. These costs would still represent a significant increase in cost and rates to Paso Robles over their current supply costs and at some future time treatment facilities will also be required. Average Cost per Unit of Water The Average Cost per Unit of Water methodology takes the total allocations requested by all agencies and divides them into the total cost of the project to provide an average cost per acre foot value. A policy basis for this form of cost allocation might be that all agencies are receiving essentially the same benefit from the project, i.e. acre feet of additional water supply, and thus should pay the same price for the water. This is similar to how we set our rates for water to our customers, i.e. the unit cost of water is the same across the City. This methodology would have a stronger basis in policy and may be less technically obvious. This methodology would certainly be more favorable to San Luis Obispo than the Specific Identification of Facilities method, however would increase the cost to upstream agencies. Based on the total participation levels identified in the project EIR of 13,575 acre feet, the average cost per unit of water for all project participants would be$1,248 per acre foot. Hybrid The Hybrid cost allocation methodology would, as the name implies, represent a hybrid of the previous two cost allocation methodologies, where some components of the project cost would be allocated based on a specific identification of facilities method and others would be based on an average cost per unit of water. The policy supporting this methodology would be based on what is most likely needed to support maximum participation in the project. All agencies will benefit by doing what they can to maximize the participation of other agencies in the project, at least on a cost per acre foot basis, as there will be a greater distribution of the project costs. l' Council Agenda Report-Nachr iento Pipeline Project January 13,2004 Page 7 Additional Cost Analyses The County is currently preparing additional cost analyses to demonstrate to what degree a hybrid (or other) methodology should be considered. The County is currently preparing an analysis of the cost of the project assuming all agencies south of Cuesta.Grade drop out. It is anticipated that this will demonstrate the economies of scale in keeping San Luis Obispo and other downstream agencies involved in the project. If this analysis demonstrates the degree that the cost to the North County agencies is greater without our participation, then this will help set the parameter by which the North County agencies may be willing to cooperate in terms of a hybrid cost allocation methodology to ensure San Luis Obispo and others maintain their participation. Additionally, the County will be preparing estimates assuming varying levels of participation in the project overall, again to assist agencies in evaluating their desired level of participation. For example, decreasing overall project participation from the 13,575 acre feet as identified in the EIR to 10,000 acre feet increases the average cost per unit of water from$1,248 per acre foot to $1,694 per acre foot. Increasing overall participation should see a corresponding decrease in cost per acre foot, recognizing however that while increasing our participation may decrease our cost per acre foot,it may also increase our share of the total project costs. The additional cost analysis being prepared by the County will be presented to Council on February 10, 2004 along with estimated rate and fee implications. Actual distribution of costs as well as . required rate and fee increases for all agencies can not be determined until all agencies have identified their final participation level and executed the participation agreement. Based on the County's most recent project schedule, execution of the participation agreement is estimated to occur by summer 2004. Upcoming Council Meetings—Schedule and Content There are currently two additional Council meetings scheduled to continue our review of the Nacimiento project. February 10, 2004 The February 10, 2004 study session is intended to provide Council with a thorough discussion of the policy as well as cost implications of the City's participation in the Nacimiento project. The City has adopted water policies that may or may not support our participation in the project. Staff will present the City's existing water supply policies, the basis of those policies and a discussion of how Council may wish to consider those policies relative to this project. Additionally, the February 10, 2004 study session is anticipated to include: a. discussions of various participation levels and their impacts to rates and fees, b. issues associated with not participating in the project, c. the security of our water in the future, d. issues and opportunities associated with our other water supply options, e. issues confronting other participating agencies, f. regional issues and opportunities, g. philosophical and future planning issues (current General Plan and beyond), i Council Agenda Report-Nacimiento Pipeline Project .January 13,2004 Page 8 Staff will not be seeking any final decision at the February 10, 2004 meeting. Staff will be asking Council to consider a broad range of issues and provide staff with direction as to what additional information may be desired to aid Council in honing in on the policies that will help the City determine our most probable participation level. Staff will also request that Council identify any additional information desired that may assist in Council's consideration of this project. Staff will then be able to prepare and present this additional information to Council at the March 9, 2004 Council meeting. March 9, 2004 Business Discussion March 9, 2004 staff will return.to Council seeking a decision on whether the City is likely to continue participation in the project, and if so, what would be the "most probable number" of acre feet per year for our participation in the project. To develop a CAO recommendation, staff will take the information presented in the early February study session, combine it with any additional information the Council,requests, and work with the Council in developing the policy that will both guide and support our identification of the appropriate level of participation for the City. The decision to be made at the March 9, 2004 meeting is really what the Council feels is "right" for San Luis Obispo based on an analysis and thorough discussion of the issues and implications of a range of options. Once the City and other agencies indicate their likely continued participation in the project and provide their "most probable number" to the County, the County will then prepare a final cost analysis based on the likely participation levels of the agencies. Final participation agreements or "offers of participation" will be prepared and forwarded to the agencies for execution. It will be at this point that the City and other agencies will have their most accurate information regarding participation levels and likely cost, short of actually bidding the project for construction. The County anticipates the offer to participate will expire in summer 2004. Execution of the participation agreement will obligate the City at that time to the project through at least the design phase. A final "opt out" provision is proposed by the County that would allow agencies to opt out of the project at the time bids are received should.project costs exceed the engineer's estimate. City Required Actions Relative to the EIR The City, as a participant in the.Nadimiento project is considered a "responsible" agency under CEQA. Following certification of the EIR and approval of the project by the Board of Supervisors, a Notice of Determination will be filed and a 30 day protest/appeal period will commence. Following this appeal period, and if and when Council approves the City's participation in the Nacimiento project, the Council will be asked to consider the EIR and make findings (potentially the same as those made by the County, the lead agency) and file a notice of determination. Staff anticipates this action to occur at the time the City considers execution of the final participation agreement. Attachment 3, prepared by the Environmental Programs Division of the County Flood Control District, identifies the applicable sections of CEQA relative to the requirements of a "responsible" agency. FISCAL IMPACT A fiscal analysis of the rate and fee impacts of the City's participation in the Nacimiento project Q � � b Council Agenda Report-Nacimiento Pipeline Project January 13,2004 Page 9 will be provided at the February 10, 2004 Council meeting. No direct fiscal impact will result until such time as the City approves and executes the participation agreement for the Nacimiento project. ALTERNATIVES This report only asks Council to receive information relative to the Nacimiento project. However, staff has proposed a process for consideration of the project, which will include a discussion of water supply project alternatives. Council may wish to provide comments to staff on the proposed process and additional information desired to further aide Council in their consideration of the City's participation in the Nacimiento project or their consideration of other water supply project alternatives. Attachments. 1. Draft Nacimiento Project Water Delivery Entitlement Agreement 2. County's Revised Contract Review Schedule 3. Nacimiento Water Project-CEQA Requirements for Responsible Agencies ATTACHMENT 1 DRAFT NACIMIENTO PROJECT WATER DELIVERY ENTITLEMENT AGREEMENT Attachment 1 'TABLE OF CONTENTS ARTICLE1: Definitions.................................................:...............................................................5 ARTICLE2: Term of Contract; Rescission........................:...........:...:...:...........:...:..................... 13 ARTICLE 3: Construction of the Nacimiento Project................................................................. 14 ARTICLE 4: Ownership, Operation and Maintenance of Nacimiento Project by District........... 17 ARTICLE 5. District's Existing Obligations: Master Water Contract; District's Prior CommitmentWater....................................................................................................................... 18 ARTICLE 6: Agency's Delivery Entitlement.............................................................................. 19 ARTICLE 7: Time for Delivery of Agency's Delivery Entitlement............................................20 ARTICLE 8: Place of Delivery of Agency's Delivery Entitlement, Surplus Water...............:.....21 ARTICLE 9: District's Measurement of Agency's Delivery Entitlement and of Agency's Surplus Water.............................................................................................................................................22 ARTICLE 10: District Not Responsible for Delivery and Distribution of Agency's Delivery Entitlement or Surplus Water Beyond Agency's Place of Delivery.............................................22 ARTICLE 11: Water Quality........................................................................................................23 ARTICLE12: Surplus Water.........................................................................................................23 ARTICLE 13: Curtailment of Delivery of Nacimiento Project Water for Maintenance Purposes.........................................................................................................................................26 ARTICLE 14: Nacimiento Project Water Shortages....................................................................26 ARTICLE 15: Limitations on Obligation of District to Furnish Water.......................................29 ARTICLE 16: Agency's Obligations for District's Nacimiento Project Costs ...........................30 ARTICLE 17: Agency's Contract Payments....................................................:...........................35 12/30/2003 12:39 PM Draft 1 ATTACHMENT i ARTICLE 18: Use by District of Total Agency Contract Payments.............................................40 ARTICLE 19: Agency's Obligation to "Take-or-Pay...................................................................41 ARTICLE 20: Agency's Pledge of Water Enterprise Gross Revenues and Covenants Re Establishment and Collection of Rates and Charges.....................................................................41 ARTICLE 21: Operation and Maintenance of Agency's Water Enterprise..................................42 ARTICLE 22: Agency Not to Serve Outside of District ..:................... .......................................44 ARTICLE 23: Agency's Failure to Levy, Set or Collect Taxes, Rates and Charges; Establishment of Coverage Account by Agency...........................................................................45 ARTICLE 24: Agency's Obligations Several and Not Joint; Step-Up Provisions and Reimbursement...................:...............:..............:...........:...............................................................46 ARTICLE 25: Events of Default by Agency; District's Remedies ..............................................49 ARTICLE 26: Changes in Organization of Agency .....................................................................52 ARTICLE 27: District Additional Capital Projects......................................................................53 ARTICLE28: District's Use of District's Reserve Water..................::........................................54 ARTICLE 29: District's Use of District's Reserve Capacity .......................................................58 ARTICLE30: Contracts to be Uniform.........................................................................................60 ARTICLE 31: Amendments to Contract.......................................................................................60 ARTICLE 32: Establishment of Nacimiento Project Advisory Committee.................................61 ARTICLE 33: Opinions and Determinations; Good Faith ...........................................................62 ARTICLE 34: Waiver of Contract Rights by Either Party...........................................................62 ARTICLE35: Notices...................................................................................................................62 12/30/2003 12:39 PM Draft 2 ( — t � ATTACHMENT 1 ARTICLE 36: Assignment: Required Approval by Parties; Required Approvals While Tax- Exempt Obligations Outstanding...............................:...................................................................63 ARTICLE 37: Inspection of Books and Records.:.....:.....:.........:...............:..................................64 ARTICLE38: Severability............................................................................................................64 ARTICLE 39: Water Rights;Effect of Contract on......................................................................65 ARTICLE 40: Governing Law............................................................................;,............................65 ARTICLE41: Validation.......................:...:...:...:.....:...........:.:...........:....,.......:......:......................65 12/30/2003 12:39 PM Draft 3 ATTACHMENT 1 Nacimiento Project Water Delivery Entitlement Contract This Contract, made this_day of , 200_, by and between the San Luis Obispo County Flood Control and Water Conservation District, a Flood Control and Water Conservation District duly established and existing under the San Luis Obispo County Flood Control and Water Conservation District Act, Act 7205, of the Uncodified Acts of the California Water Code, (the"District"), and a (the"Agency"), as follows: WITNESSETH: Whereas,the lands and inhabitants within the jurisdiction of the Agency are in need of water; and Whereas, the District has certain rights to water stored in the Nacimiento Reservoir and the District is willing to provide a portion of said water to the Agency and to other public water distribution agencies within the District; and Whereas,the Agency desires to contract with the District for a water supply to be for the use and benefit of the lands and inhabitants served by the Agency; and Whereas, the Agency and the District desire to join with other public water distribution agencies within the District to have the District finance, construct and operate a water system 12/30/2003 12:39 PM Draft 4 ATTACHMENT 1 which will convey the District's waters from the Nacimiento Reservoir to the Agency and to the other public water distribution agencies all on the terms and conditions hereinafter set forth; NOW, THEREFORE,IT IS HEREBY MUTUALLY AGREED by and between the Agency and the District, as follows: ARTICLE 1: Definitions (A) "Agency's Contract Payments": Those payments due from the Agency to the District, as more particularly set forth.in Articles 16 and 17 hereof. (B) "Agency's Coverage Account": An account established for the Agency either with the District or with a Depository, as provided in Article 23 hereof. (C) "Agency's Coverage Factor Percent (._%) of Agency's Debt Service, determined in accordance with Article 23 hereof; calculated for each Fiscal Year. (D) "Agency Delivery Entitlement": The quantity of District's Nacimiento Project Water which the Agency is entitled to have delivered by the District to the Agency under this Contract in any given Water Year, as set forth in Article 6 (A) hereof. (E) "Agency's Delivery Entitlement Share": The proportion of the Agency's Delivery Entitlement as compared to the District's Total Delivery Entitlement Obligation, in any given Water Year. The Agency's Delivery Entitlement 12/30/2003 12:39 PM Draft 5 - ATTACHMENT 1 Share shall be calculated by District and expressed as a percentage, as set forth in Article 6 (A) herein. (F) "Agency's Unit Percentage Share": The Agency's proportional share of the District's Capital Reserve Costs, and the District's Operation and Maintenance Costs for each Unit and as set froth in Article 16 (C) (1) herein. (G) "Agency Water Enterprise": The water system operated and to be operated by the Agency for sales of water to the general public within the Agency's jurisdiction. (F) Agency's Water Enterprise Charges": The rates and charges imposed and collected by the Agency for the provision of water services by its Water Enterprise. (I) "Board of Supervisors": The Board of Supervisors of the San Luis Obispo County Flood Control and Water Conservation District. (J) "Calendar Quarter": Each three-month period commencing on January 1, April 1,July 1, and October 1 of each year. (K) "Denository": A financial institution designated for the deposit and administration of the Agency's Coverage Account, as and when appointed in accordance with Article 23 hereof. 12/30/2003 12:39 PM Draft 6 (- lam ATTACHMENT 1 (L) "District Additional Capital Project": One or more capital projects related to the Nacimiento Project, or other improvements or repairs to the Nacimiento Project, undertaken from time to time by the District which: (1) The District has determined to be necessary to keep the Nacimiento Project in good repair and operating condition and to maintain the water supply at the quality required hereunder and under Like-Contracts with Other Agencies or which has been ordered or directed by a Governmental Authority (a"Required Additional Project"); and/or (2) Any other capital project agreed to by the District and the Agency and/or any Other Agencies (an "Agreed Additional Project") and which will be paid for by the Agencies participating in the Agreed Additional Project. (M) "District Additional Capital Projects Costs": Costs expended or incurred by the District for District Additional Capital Projects and not attributable to financed by and included in the District's Capital Projects Installment Debt Service. (N) "District CaQtal Projects Installment Debt Service": For District's debts incurred for the Nacimiento Project and consisting of, in the aggregate, (a)principal and interest (or mandatory sinking fund payments, installments or lease or similar payments due) with respect to all Tax-Exempt Obligations at the time outstanding in accordance with their terms,provided that capitalized interest funded from the proceeds of Tax- Exempt Obligations need not be taken into account, (b) annual costs of administering the Tax- Exempt Obligations, including the annual fees of any trustee or paying agent therefor, and(c) the costs, if any, of annual credit enhancement for the Tax-Exempt Obligations. In the event, and to 12/30/2003 12:39 PM Draft 7 ATTACHMENT I the extent that, any District Additional Capital Project is financed by means of additional Tax- Exempt Obligations, then the payments and costs associated with the additional Tax-Exempt Obligations shall become a part of the District Capital Project Installment Debt Service. (0) "District's Capital Reserves": Those reserves established and maintained by the District for(i) the Scheduled Maintenance of the Nacimiento Project or(ii)for anticipated costs of a Required Additional Project for modifications or improvements imposed, or likely to be imposed, by Governmental Authority (an "External Requirement") in order for the District to continue to operate the Nacimiento Project,provided however, that the District shall not expend any portion of Capital Reserves for any External Requirement until and unless such External Requirement becomes a final order of such Governmental Authority, not subject to further appeal. Such Capital Reserves may be established by the District either, (i)on a year-to-year basis by the District in its annual budgets, copies of which shall be supplied to the Agency promptly following adoption, or(ii)on a multi-year basis by the District through the development and promulgation to the Agency of a long-term capital improvement plan of the District;provided, however, that no Agreed Additional Capital Projects shall be funded from the District's Capital Reserves. The District's annual costs of such Capital Reserves, as determined by District ("District's Capital Reserve Costs"), shall be budgeted annually by the District as provided for in Article 4 (C) herein, and shall be apportioned among the Agency and the Other Agencies as provided for Article 16 (C) (1) herein. 12/30/2003 12:39 PM Draft, 8 - - ATTACHMENT I (P) "District's Master Water Contract Costs"`: Those amounts that the District is obligated to pay under the Master Water Contract and which are attributable to the 16,200 acre-feet per year of District's Nacimiento Project Water. (Q) "District's Nacimiento Project Costs": As set forth in Article 16 (A) hereof. (R) "District's Nacimiento Project Water": In each Water Year, the District's Total Delivery Entitlement Obligation plus the District's Reserve Water, but not more than Sixteen Thousand Two-Hundred (16,200) Acre-Feet of District's Nacimiento Reservoir Water. District's Nacimiento Project Water is the source of the "Agency's Entitlement Water", "Surplus Water" and"District's Reserve Water". (S) "District's Nacimiento Reservoir Water": The total of Seventeen Thousand Five Hundred (17,500) Acre-Feet of water which the District has the right to take from the Nacimiento Reservoir pursuant to the Master Water Contract in each Water Year. (T) "District's Operation and Maintenance Costs": The reasonable and necessary current expenses of maintaining, repairing and operating the Nacimiento Project, including District administrative expenses directly attributable to the Nacimiento Project, but excluding the District's Capital Reserves Costs, and the District's Capital Projects Installment Debt Service, all computed in accordance with generally accepted accounting principles applicable to enterprise funds of government agencies. (L ) "District's Prior Commitment Water": As set forth in Article 5 (B) hereof. 12/30/2003 12:39 PM Draft 9 ATTACHMENT I (V) "District's Reserved Capacity": That part of the capacity of the Nacimiento Project which is not needed by the District for the delivery of the District's Total Delivery Entitlement Obligation. (See Article 29 herein.) (W) "District's Reserve Water": That part of the District's Nacimiento Water remaining after the subtraction of the District's Prior Commitment Water, and the subtraction of the District's Total Delivery Entitlement Obligation. (See Article 28.) (X) "District's Total Delivery Entitlement Obligation": Subject to the Master Water Contract, in each Water Year the total amount of District's Nacimiento Project Water which the District shall make available as Delivery Entitlements to the Agency and to the Other Agencies, under this Contract and under all the other Like-Contracts, and which total shall not exceed District's Nacimiento Reservoir Water less the District's Prior Commitment Water and less the District's Reserve Water. (Y) "District's Variable Energy Costs": The actual Nacimiento Project pumping energy costs incurred by the District in conveying and delivering: (i) the Agency's Delivery Entitlement and Surplus Water to the Agency and(ii)the respective Agency's Delivery Entitlements and Surplus Waters to the Other Agencies and as set forth in Article 16 (C) (2) hereof.. (Z) "Fiscal Year": The twelve-month period from July 1 of a Calendar Year to June 30 of the immediately following Calendar Year, both dates inclusive. 12/30/2003 12:39 PM Draft 10 AITAcHMEfVT (AA) "Governmental Authority": Any State of California, federal or local government authority having jurisdiction or authority over the District or the Nacimiento Project, or any portion thereof, empowered to regulate or control any aspect of its or their operations. (AB) "Master Water Contract": That certain agreement entitled" " entered into by and between the District and the Monterey County Flood Control and Water Conservation District on , 19_, which Monterey County Flood Control and Water Conservation District was succeeded by the Monterey Water Agency, ("Monterey Water Agency"). (AC) "Nacimiento Project": The project described in Resolution No. of the District, adopted 200_, consisting of the following works and improvements: (Note: Get EIR Final Project Description for 16,200 ac-ft pipeline.) (AD) "Nacimiento Project Advisory Committee": That certain advisory committee comprised of representatives of the District, the Agency and each of the Other Agencies, appointed by their respective governing bodies,from time to time and meeting at scheduled intervals to advise the District on matters relating to the Nacimiento Project, this Contract, and the Nacimiento Project Water Delivery Entitlement Contracts entered into by and between the District and Other Agencies. (AE) "Nacimiento Project Water Delivery Entitlement Contracts": This Contract and the other Nacimiento Project Water Delivery Entitlement Contracts entered into by and between the District and Other Agencies. 12/30/2003 12:39 PM Draft 11 Al 1ACHMENT I (AF) "Other Agency': Any other water-distributing public agency of the State of California or mutual water company established under the laws of the State of California, which, having the legal power to do so, executes aNacimiento Project Water Delivery Entitlement Contract substantially identical to this Contract (a"Like-Contract"), except for agency information, dates,Unit Participations, Agency's Unit Percentage Share and Agency's Delivery Entitlement Share, other than for the purpose of purchasing Surplus Water, including, as of the date hereof, the City of Paso Robles, the Atascadero Mutual Water Company, the City of San Luis Obispo, and the County of San Luis Obispo (the "Initial Agencies"). (AG) "Scheduled Maintenance": The maintenance tasks for the Nacimiento Project which are required to be accomplished less frequently than annually, a portion of the cost of which is set aside in each annual budget of the District in anticipation of such requirement. (AH) "Surplus Water': As defined in Article 12, herein. (AI) "Tax-Exempt Obligations Those certain obligations executed and delivered by or on behalf of the District, representing and evidencing interests of the owners thereof in certain installment payments to be made by the District for the acquisition and construction of the Nacimiento Project (and/or any District Additional Project), whose proceeds are to be used to finance or reimburse the costs of the Nacimiento Project (and/or any District Additional Project),in an aggregate principal amount 12/30/2003 12:39 PM Draft 12 I—� T_ of not to exceed the net amount required to complete the Nacimiento Project (and/or any District Additional Project)pursuant to the District's competitive bid process for such Nacimiento Project (and/or any District Additional Project). (AJ) "Total Agency Contract Payments": All of the payments due from the Agency and the Other Agencies pursuant to Articles 16 and 17 hereof and the same Articles of the Like-Contracts with the Other Agencies. (AK) "Total Nacimiento Project Construction Costs": The costs and expenses incurred by the District in the acquisition and construction of the Nacimiento Project. (AL) "Unit": Those facilities, which collectively make up the Operating Segments of the Nacimiento Project, delineated as follows: (1) Unit No._: (2)Unit No._: (3)Unit No. (4)Unit No. (AM) "Water Year": The twelve-month period from April 1 of a Calendar Year to March 31 of the immediately following Calendar Year, both dates inclusive. ARTICLE 2: Term of Contract; Rescission (A) Term. This Contract shall become effective on the date first above written and shall remain in effect throughout the term provided by Article_of the Master Water Contract; 12/30/2003 12:39 PM Draft 13 e,—a3 provided, that if and when, through no fault of the District, one or more provisions of the Master Water Contract is terminated or suspended in the manner and for a cause specified in the Master Water Contract, the District's obligations to the Agency and to the Other Agencies, under this Contract and under Like-Contracts, shall likewise be terminated or suspended,provided, however,that this Contract may not be terminated or suspended so long as there remain outstanding any Tax-Exempt Obligations issued by the District for the Nacimiento Project (and/or any District Additional Project). (B) Rescission. Subject to the provisions of subparagraph (A) of Article 2 above, this Contract may be rescinded by the unanimous written consent of the District, and the Agency and all Other Agencies. ARTICLE 3: Construction of the Nacimiento Project (A) District's Authority to Enter Contracts,to EngageConsultants-and to Finance the Nacimiento Project. The Agency understands and agrees that the District will finance the acquisition and construction of the Nacimiento Project by means of Tax-Exempt Obligations and the Agency agrees that the District will have to, and is hereby authorized to, cause the execution and delivery of the Tax-Exempt Obligations on terms and conditions favorable to the District, to the Agency and to the Other Agencies, and which terms and conditions will be established by the market conditions at the time of the sale of the Tax-Exempt Obligations. In particular,the Agency acknowledges and agrees that: (1) The District shall contract for the public works comprising the Nacimiento Project on such terms as the District,in its sound business judgment may deem in the best 12/30/2003 12:39 PM Draft 14 - AST IACH M EWT interests of the District,the Agency and the Other Agencies, but only following consultation with the Nacimiento Project Advisory Committee; and (2) The District may engage contractors and consultants, including, without limitation, environmental specialists, engineers, financial consultants, underwriters, attorneys and accountants (collectively, the "Consultants"), as may be necessary and/or convenient in order to plan, finance, acquire and construct the Nacimiento Project and to issue and sell the Tax-Exempt Obligations, on such terms and conditions as the District shall determine:provided, however, that the District and the Agency hereby agree that all such contracts already in place as of the effective date of this Contract shall be deemed valid and the costs thereof to the District shall be deemed appropriate costs and expenses of the District in the acquisition and construction of the Nacimiento Project; and (3) The District may authorize and sell at either public or private sale, and cause to be executed and delivered, the Tax-Exempt Obligations at any time, or times, following the effective date hereof, to provide for the financing or reimbursement to the District of the costs of the acquisition and construction of the Nacimiento Project, to establish a reserve fund for the Tax-Exempt Obligations and to pay the costs of delivery Thereof; and (4) The Agency shall execute and provide such instruments, certificates and agreements as may be necessary in order for the District to deliver the Tax-Exempt Obligations, including, without limitation, information for inclusion in the disclosure document for the Tax-Exempt Obligations and a continuing disclosure agreement to 12/30/2003 12:39 PM Draft 15 ' Sa 9P��ud��eu1�9 permit compliance with Rule 15c2-12 of the Securities and Exchange Commission, respecting the Agency's financial condition and operations; and (5) The Agency will cooperate with the District and its Consultants in connection with the planning, acquisition and construction of the Nacimiento Project and the authorization and delivery of the Tax-Exempt Obligations. (B) Commencement of Construction. The District will use its best efforts to cause or accomplish the construction and financing of the Nacimiento Project, the obtaining of all necessary authority and rights, and the performance of all things necessary and convenient therefor. The District will commence the acquisition and construction of the Nacimiento Project on any date prior to , 200_, only in the event the following conditions are met: (1) The District determines such acquisition and commencement of construction is permitted under the Master Water Contract and state, federal and local law; and (2) The District has received from the District's Consulting Engineer a certification that, based on contracts awarded by the District for the acquisition and construction of the Nacimiento Project, and based upon the Consulting Engineer's estimates of the costs of the portions of the Nacimiento Project for which contracts have not been awarded,the District has sufficient moneys from (i)the proceeds from the District's Tax-Exempt Obligations, together with (ii) estimated proceeds to be derived from any other authorized but unissued District Tax-Exempt Obligations, and(iii) moneys on deposit with the District and legally available for the Nacimiento Project, to complete the Nacimiento Project. 12/30/2003 12:39 PM Draft 16 Al ARTICLE 4: Ownership, Operation and Maintenance of Nacimiento Project by District (A) District Ownership of the Nacimiento Project. The Nacimiento Project and all of its pumps, machinery, conduits, apparatus, fixtures, fittings and equipment of any kind, and real property (including rights-of—way), and capacity, are and shall be owned by the District and shall be held and operated and maintained by the District as provided for herein. (B) District's Objectives and Covenants. The parties hereto acknowledge and agree that the primary goal of the District under this Contract shall be to deliver District's Nacimiento Project Water to the Agency, and to the Other Agencies, subject to cost considerations as to which the District shall be expected to exercise sound business judgment. In this regard, the District covenants and agrees that it will operate and maintain the Nacimiento Project in accordance with the Master Water Contract, all governmental laws, ordinances, approvals,rules, regulations and requirements, including, without limitation, such zoning, sanitary,pollution, environmental and safety ordinances and laws and such rules and regulations thereunder as may be binding upon the District. The District further covenants and agrees that it will maintain and operate the Nacimiento Project in good repair, working order and condition, and that it will from time to time inspect and test all Nacimiento Project facilities against then-current water supply industry standards, and that the District will pursue all necessary and proper replacement, repairs, renewals and improvements thereto. (C) District's Capital Reserves: Annual Budgets to be Prepared by the District. In order to satisfy its covenants set forth in this Article, the District shall determine, prior to each Water Year, the amount of the District's Capital Reserves necessary for the Nacimiento Project for the upcoming Water Year, shall prepare its draft annual budget by no later than March 1 to 12/30/2003 12:39 PM Draft 17 9YCUy81�� J reflect such District's Capital Reserves, shall provide copies of each such budget to the Nacimiento Project Advisory Committee, to the Agency and to the Other Agencies for review and comment, prior to the distribution of the draft annual budget to the Board of Supervisors, and shall, if deemed necessary or advisable, develop and promulgate to the Nacimiento Project Advisory Committee, and to the Agency and to the Other Agencies a multi-year improvement plan for the Nacimiento Project, reflecting the annual requirements for the District's Capital Reserves. ARTICLE 5. District's Existing Obligations: Master Water Contract;District's Prior Commitment Water (A) Primacy of Master Water Contract. The obligations of the District under this Contract and the obligations of the District under each and every Like-Contract with Other Agencies, shall be subject to the provisions of the Master Water Contract and should the provisions of the Master Water Contract restrict, impair or prohibit the District from the performance any or all of the District's obligations under this Contract and/or the Like-Contracts with the Other Agencies, then the District shall, to the extent that the District is so restricted, impaired or prohibited, be relieved of its said performance obligations to the Agency under this Contract. This Contract does not create in the Agency any right, or rights, or interest, in or to the Master Water Contract. (B) Primacy of District's Prior-Commitment Water. Under the Master Water Contract, the District has certain rights to 17,500 acre-feet of water from the Nacimiento Reservoir each Water Year. Of the said 17,500 acre-feet of water, the District has permanently committed 1300 acre-feet in each Water Year, to persons and entities other than the Agency and 12/30/2003 12:39 PM Draft 18 �' Ob the Other Agencies ("District's Prior-Commitment Water"). No part of the 1300 acre-feet of the District's Prior-Commitment Water shall be used by the District to satisfy any of the District's obligations under this Contract with the Agency, or under Like-Contracts with Other Agencies, or for the District's agreements with District's Reserve Water Customers or third parties. ARTICLE 6: Agency's Delivery Entitlement (A) Amount of Agency's Delivery Entitlement. Subject to the Master Water Contract, the District shall make available to the Agency, in each Water Year, the Agency's Delivery Entitlement of () acre-feet of District's Nacimiento Project Water. The Agency's Delivery Entitlement comprises Percent (_%), (the "Agency's Delivery Entitlement Share"), of the District's Total Delivery Entitlement Obligation. Notwithstanding the foregoing: (1) The District's Total Delivery Entitlement Obligation available under this Contract, and under the Like-Contracts with the Other Agencies, may be reduced, following written notice given to the Agency from the District, for any of the conditions or reasons set forth in Article 13, 14 and 15 hereof; and (2) Under this Contract and all Like-Contracts, the District shall not be obligated to deliver to the Agency or to any Other Agencies, nor shall said Agencies have any rights in or to, any of the District's Prior-Commitment Water.. (B) Limit on Rate of Deliveries of Water to Agency. In no event shall the District be obligated to deliver the Agency's Delivery Entitlement and/or Surplus Water through any delivery structure of the Nacimiento Project at a total combined instantaneous rate of flow exceeding cubic feet per second. The maximum amount of said water to be delivered 12/30/2003 12:39 PM Draft 19 1 " U ' by the District to the Agency from the Nacimiento Project in any one month of any year shall not exceed acre-feet. While the District is not required to deliver more than_acre-feet of water to the Agency in any one month of any year, and while the District is not obligated to deliver the Agency's Delivery Entitlement and/or Surplus Water through any delivery structure of the Nacimiento Project at a total combined instantaneous rate of flow exceeding cubic feet per second, in the event deliveries required to be made by the District to the Other Agencies do permit a higher monthly rate of delivery to the Agency, then the District shall have the discretion to temporarily exceed the maximum monthly deliveries provided for herein. (C) No District Obligation to Deliver at Particular Head or Pressure. The District is under no obligation to the Agency to deliver the Agency's Delivery Entitlement at any particular head or pressure. (D) Agency's Right to Acquire Additional Delivery Entitlement. To the extent that District has available District's Reserved Water, Agency shall have the right to apply to, and acquire from, the District, additional delivery entitlement as provided for in Article 28 herein. ARTICLE 7:Annual Water Year Delivery Amounts and Schedule for Delivery of Agency's Delivery Entitlement. The amounts, times and rates of delivery of the Agency's Delivery Entitlement to the Agency during any Water Year shall be in accordance with a water delivery schedule determined by the District in the following manner: (A) Preliminary Water Delivery Schedule. On or before October 1 of each Calendar Year, the Agency shall submit, in writing, to the District a preliminary water delivery schedule which sets forth the amounts, dates and times of the conveyance and delivery of the Agency's 12/30/2003 12:39 PM Draft 20 Delivery Entitlement as is desired by the Agency for each month of the next succeeding three (3) Water Years. (B) Coordination with Other Agency Preliminary Schedules. Upon receipt of the Agency's preliminary water delivery schedule, the District will consider the Agency's requested schedule, and the preliminary water delivery schedules submitted to the District by the Other Agencies, and, after consultation with the Agency, the District shall make such modifications in the Agency's preliminary water delivery schedule as will allow the District to schedule the amounts, times and rates of the conveyance and delivery of the Agency's Delivery Entitlement, and those of the Other Agencies, so that the requests of the respective Agencies will match as closely as possible their respective requests but in a manner which is consistent with the efficient and economical operation of the Nacimiento Project. (C) Amendment of Schedules. The Agency's water delivery schedule may be amended, from time to time, upon the written request of the Agency to the District, subject to the pre-existing obligations of the District under the water delivery schedules of Other Agencies for the same period of time. ARTICLE 8: Place of Delivery of Agency's Delivery Entitlement, Surplus Water (A) Place of Delivery. All of the Agency's Delivery Entitlement and all Surplus Water furnished to the Agency shall be delivered to the Agency at. (B) Request for Change in Place of Delivery. If the Agency shall desire at any time during the term of this Contract to change the place of delivery, or to request an additional place(s) of delivery,the Agency may do so,provided, the new or additional place of delivery will not interfere with, or restrict, or impair, the conveyance or delivery of the Agency's Delivery 12/30/2003 12:39 PM Draft 21 -3+ Entitlement of any Other Agency and,provided that the Agency shall furnish to the District all of the costs and expenses which the District shall incur in the acquisition and construction of the new or additional place of delivery for the Agency. ARTICLE 9: District's Measurement of Agency's Delivery Entitlement and of Agency's Surplus Water All of the Agency's Delivery Entitlement and all Surplus Water furnished to the Agency pursuant to this Contract shall be measured by the District by means of the District's measuring device(s) located at the place(s) of delivery established for the Agency under Article 8 of this Contract. Upon the request of the Agency, the District shall investigate the accuracy of the District's measurements, and the District, in writing, shall deliver the findings of the District to the Agency. Any error discovered in the course of such an investigation shall be cause for an adjustment in the amounts charged the Agency. The Agency may, at the Agency's expense, and after reasonable notice to the District, inspect the District's measuring equipment for the purpose of determining the accuracy of the equipment. ARTICLE 10: District Not Responsible for Delivery and Distribution of Agency's Delivery Entitlement or Surplus Water Beyond Agency's Place of Delivery After the Agency's Delivery Entitlement, or any portion thereof, and/or after the Agency's Surplus Water, or any portion thereof, have passed the place(s) of delivery established for the Agency under Article 8 of this Contract, neither the District nor its officers, agents or employees shall be liable for the control, carriage, conveyance, handling, use, disposal, distribution or changes occurring in the quality, or quantity, of such water, or for any claim or damages of any nature whatsoever, including but not limited to property damage, personal injury 12/30/2003 12:39 PM Draft 22 JJ or death, arising out of or connected with the control, carriage, conveyance, handling, use, disposal, distribution or changes occurring in the quality, or quantity, of such water beyond such place(s) of delivery, and the Agency shall defend, indemnify and hold harmless the District and its officers, agents and employees from and against any such damages or claims of damage. ARTICLE 11: Water Quality When the District shall deliver the Agency's Water Entitlement and/or any Surplus Water to the Agency from the District's Nacimiento Project Water, the said water shall be at a quality that is substantially the same as the quality of said water at the time it was taken from the Nacimiento Reservoir by the District and the District shall assume no further or additional responsibility for the quality of the water delivered to the Agency under this Contract and the District does not warrant the quality of any such water for any particular use. The Agency shall be responsible for the treatment of all such water to the minimum. water quality standards for water for domestic use as may be established from time to time by the State of California and/or by the federal government and the Agency shall defend, indemnify and hold harmless the District from and against any and all claims,damages, costs, expenses,judgments, attorney fees or other liability to any person or entity asserting that said water does not meet or has not met said domestic use water quality standards. ARTICLE 12: Surplus Water (A) District Determination of Amount of Surplus Water. Beginning with the 200_-0— Water Year, and in each Water Year thereafter, the amount of Surplus Water available in any Water Year shall be the amount of District's Total Delivery Entitlement Obligation remaining, if any, after the District deducts, for the Water Year, the amount of the Agency Delivery 12/30/2003 12:39 PM Draft 23 � -33 Entitlement scheduled to be delivered during the Water Year, according to the provisions of Article 7 herein, to the Agency and to all Other Agencies. The District shall notify the Agency of the total amount of Surplus Water, if any, available for the current Water Year, and once so declared by the District, said amount shall not be changed by the District without first obtaining the consent of the Agency and the Other Agencies. Surplus Water purchased by the Agency will be delivered to the Agency, to the extent that there is capacity to do so, in the same manner provided for the delivery of the Agency's Delivery Entitlement and to the extent that all of said Surplus Water purchased by the Agency is not so delivered by the end of the Water Year in question,then such undelivered amount of Surplus Water shall revert to District and shall not thereafter be available to the Agency. Surplus Water shall not mean and does not include District's Reserved Water. If Agency, and/or any Other Agency, desires to acquire District's Reserved Water then the Agency may do so, (i) on a temporary basis as a District's Reserve Water Customer as provided for in Article 28 herein; and/or on a permanent basis by acquiring additional delivery entitlement(s) as provided for in Article 6(D) and Article 28 herein. (B) Sale of Surplus Water by District Rates. The District shall sell Surplus Water as follows: (1) The District shall first offer Surplus Water to the Agency and to the Other Agencies in accordance with their respective Agency's Delivery Entitlement Shares. The price which the District shall charge the Agency for each Acre-Foot of Surplus Water actually purchased by the Agency shall be the sum of: 12/30/2003 12:39 PM Draft 24 (a) The District's Operation and Maintenance Costs incurred by the District in the immediately preceding Water Year for each acre-foot of delivery of all Delivery Entitlements to the Agency and to all Other Agencies; plus (b) The District's Variable Energy Costs incurred by the District for the delivery of the Agency's Surplus Water as calculated in Article 16 (C)(2) hereof. (2) If the Agency shall commit in writing to purchase such Surplus Water from the District, the Agency shall be obligated to pay for such Surplus Water, whether or not the Agency accepts delivery of the Surplus Water, so long as such Surplus Water was available for the period in question. Neither the Agency not any Other Agency shall resell Surplus Water at any time to persons or entitles not a party to this Contract and Like-Contracts,without the prior written consent of the District and all Other Agencies. (3) The District may offer to sell and deliver any Surplus Water not purchased by the Agency or the Other Agencies to any other prospective purchaser without right of renewal, in a manner and at prices which will return to the District the largest net revenue practicable, but in no event at prices less than those at which such Surplus Water is offered to the Agency, unless the Agency is first allowed another opportunity to purchase such Surplus Water at the lower price, and in each case, attempting to recapture the District's Operation and Maintenance Costs, the District's Variable Energy Costs, and the District's Capital Project's Installment Debt Service attributable to the volume of Surplus Water actually purchased by such third parties, at the highest price the market will then bear. 12/30/2003 12:39 PM Draft 25 (4) All revenues derived by the District from the sale of Surplus Water to the Agency, any Other Agency or any third party hereunder shall be applied as a credit against the Agency's obligations under this Contract in the manner described in Article 17(B)(3)herein. ARTICLE 13: Curtailment of Delivery of Nacimiento Project Water for Maintenance Purposes The District may temporarily discontinue or reduce the amount of Nacimiento Project Water to be furnished to the Agency during such time as the District is maintaining, repairing, replacing, investigating, or inspecting any of the facilities necessary for the furnishing of water to the Agency. Insofar as it is feasible, the District shall give the Agency notice in advance of any such temporary discontinuance or reduction, except in the case of emergency, in which case no notice need be given. In the event of such discontinuance or reduction, the District will upon resumption of service, deliver, as nearly as may be feasible the quantity of Nacimiento Project Water which would have been furnished to the Agency in the absence of such discontinuance or reduction. ARTICLE 14: Nacimiento Project Water Shortages (A) Temporary Shortages. In any Water Year in which there may occur a shortage or interruption, due to drought or other temporary cause, in the supply of the District's Nacimiento Reservoir Water available for delivery by the District to the Agency, to the Other Agencies, and/or to District's Reserve Water Customers, with the result that the amount of such supply is less than the total of: (i) the annual Agency's Delivery Entitlement of the Agency and (ii) of all Other Agencies plus (iii) the amount of the District's obligations to District Reserve Water Customers for that Water Year, the District shall calculate the amount of said reduced supply of 12/30/2003 12:39 PM Draft 26 water available to the District for use as District's Nacimiento Project Water and shall apportion the reduced supply of water as follows: (1) From the reduced amount of the District's Nacimiento Reservoir Water available to the District under the Master Water Contract in the Water Year in question, the District will subtract One Thousand Three Hundred(1,300) Acre-Feet of the District's Prior-Commitment Water and the result shall be the reduced amount of District's Nacimiento Reservoir Water available to the District for use as the District's Nacimiento Project Water under this Contract and under the Like-Contracts with Other Agencies, and for District's obligations to District Reserve Water Customers; and (2) For the Water Year in question, the District shall first apply the said reduced supply of the District's Nacimiento Project Water to satisfying the Agency's Delivery Entitlement and the Delivery Entitlements of the Other Agencies under Like- Contracts, and then, if there is any of the reduced supply of the District's Nacimiento Project Water remaining, to the satisfaction of the District's obligations to District Reserve Water Customers. In the event that the said reduced supply of Nacimiento Project Water is insufficient to meet, in full, the Agency's Delivery Entitlement and the delivery Entitlements of the Other Agencies under Like-Contracts, then the District (i) shall make no deliveries to District Reserved Water Customers for that Water year, and (ii) shall reduce the delivery of water to the Agency, and to the Other Agencies, by applying the Agency's Delivery Entitlement Share of the Agency, and each Other Agency's Delivery Entitlement Share, to such reduced amount in determining the amount 12/30/2003 12:39 PM Draft 27 - 311 u. �. of the District's Nacimiento Project Water to be delivered by the District to the Agency and to the Other Agencies in such Water Year. (B) Permanent Shortages. In the event that there is a reduction in the supply of the District's Nacimiento Reservoir Water provided to the District under the Master Water Contract which, notwithstanding the preventative or remedial measures taken by the Monterey Water Agency, threatens or causes a permanent shortage in the amount of the supply of the District's Nacimiento Reservoir Water available to the District under the Master Water Contract, with the result that the District concludes such supply will, for an indefinite period extending beyond the current Water Year,be less than Seventeen Thousand Five Hundred (17,500) Acre-Feet, the District shall calculate and apportion the permanently reduced supply of water as follows: (1) From the reduced amount of the District's Nacimiento Reservoir Water available to the District under the Master Water Contract, the District will subtract One Thousand Three Hundred (1,300) Acre-Feet of the District's Prior-Commitment Water and the result shall be the reduced amount of District's Nacimiento Reservoir Water available to the District for use as the District's Nacimiento Project Water under this Contract and under the Like-Contracts with Other Agencies, and for District's obligations to District Reserve Water Customers; and (2) For future Water Years, the District shall first apply the said reduced supply of the District's Nacimiento Project Water to satisfying the District's obligations to the Agency under this Contract and to the Other Agencies under Like-Contracts, and then, if there is any of the reduced supply of the District's Nacimiento Project Water remaining; to the satisfaction of the District's obligations to District Reserve Water 12/30/2003 12:39 PM Draft 28 �,%do x`. i Customers. In the event that the said reduced supply of the District's Nacimiento Project Water is insufficient to meet,in full, the District's obligations to the Agency under this Contract and to the Other Agencies under Like-Contracts, then the District shall permanently reduce the delivery of water to the Agency, and to the Other Agencies, by applying the Agency's Delivery Entitlement Share of the Agency, and each Other Agency's Delivery Entitlement Share, to such reduced amount in determining the amount of the District's Nacimiento Project Water to be delivered by the District to the Agency and to the Other Agencies. (C) No Liability for Shortages, Neither the District nor any of its officers, agents, or employees shall be liable for any damage, direct or indirect, arising from shortages in the amount of the District's Nacimiento Project Water to be made available to the Agency under this Contract caused by the non-availability of water to the District under the Master Water Contract or caused by drought, operation of the Nacimiento Reservoir, operation of area of origin laws, or any other cause beyond the control of the District. ARTICLE 15: Limitations on Obligation of District to Furnish Water (A) Limited District Obligations. Notwithstanding any provisions of this Contract to the contrary, the obligation of the District to furnish the District's.Nacimiento Project Water hereunder shall be limited to the times and to the extent that water from the Nacimiento Reservoir and the facilities necessary for furnishing the same are available to the District pursuant to the Master Water Contract. (B) District Not Liable for Monterey Water Agency Failure to Perform Master Water Contract. The District shall not be liable for the failure to perform any part of this Contract to 12/30/2003 12:39 PM Draft 29 iT,--u the extent that such failure is caused by the failure of the Monterey Water Agency to perform any obligation imposed on the Monterey Water Agency by the Master Water Contract;provided, that the District shall diligently and promptly pursue all rights and remedies available to the District to enforce the rights of the District against the Monterey Water Agency under the Master Water Contract relative to such failure to perform and, provided further, that the costs and expenses incurred by the District in the enforcement or attempted enforcement of said rights under the Master Water Contract shall be considered to be a part of the District's Operation and Maintenance Costs under this Contract. ARTICLE 16: Agency's Obligations for District's Nacimiento Project Costs (A) Agency's Obligations to Pay. The Agency shall pay to the District, in the manner provided below, the Agency's portion of all costs incurred by the District, (the "District's Nacimiento Project Costs"), for: (1) The Total Nacimiento Project Construction Costs; and (2) The operation and maintenance of the Nacimiento Project, of any District Additional Capital Projects, and all other costs attributable to the acquisition, construction, operation and maintenance of the Nacimiento Project, all as provided herein. (B) District's Determination of District's Nacimiento Proiect Costs for each Fiscal Year. On or before April 1 of each Calendar Year, the District shall estimate the District's Nacimiento Project Costs for the Fiscal Year commencing on the immediately following July 1 and the result shall comprise the Total Agency Contract Payments due, collectively, from the 12/30/2003 12:39 PM Draft 30 ��4o 1G'_ ici'L`V tl Agency hereunder and from the Other Agencies under their respective Like-Contracts for the said Fiscal Year. District's Nacimiento Project Costs shall include: (1) District's Total Nacimiento Project Construction Costs, (2) District's Additional Capital Projects Costs, (3) District's Capital Projects Installment Debt Service, (4) District's Master Water Contract Costs,. (5) District's Capital Reserve Costs, (6) District's Operation and.Maintenance Costs, and (7) District's Variable Energy Charges. (8) District's Reserved Capacity Costs, (9) District's Environmental Mitigation Costs, and (10) District's Other Costs. (C) District's Allocation of District's Nacimiento Project Costs. The District's Nacimiento Project Costs shall be allocated by the District among the Agency, and all Other Agencies, as follows: (1) Allocation of the District's Capital Reserve Costs, and the District's Operation and Maintenance Costs. The District shall allocate District's Capital Reserve Costs, and the District's Operation and Maintenance Costs, to the Agency, and to all Other Agencies, on the basis of the Agency's Unit Percentage Share of the District's Capital Reserve Costs and the District's Operation and Maintenance Costs attributable to the Units used by the District to deliver the Agency's Delivery Entitlement to the Agency. As of the date of execution of this Contract, there is apportioned to the Agency 12/30/2003 12:39 PM Draft 31 t4t o (� the following proportional share of the said costs (expressed as a percentage) for each of the Units used to deliver water to the Agency: Unit No. _ : Agency's Unit Percentage Share Unit No. _ : Agency's Unit Percentage Share Unit No. _ : Agency's Unit Percentage Share Unit No. _ : Agency's Unit Percentage Share The Agency shall pay such amounts allocated to the Agency under this paragraph ("Agency's Contract Payments") in the manner provided for in Article 17 (A) (1) and(2) below. (2) Allocation to Agency's of District's Variable Energy Costs. For each Calendar Quarter, the District's Variable Energy Costs shall be determined by the District and shall be allocated by the District to the Agency, and to the Other Agencies, by: (a) Dividing the District's Variable Energy Costs, for the Calendar Quarter in question, by the total acre-feet of the District's Nacimiento Project Water delivered by the District, during such Calendar Quarter, to the Agency and to all Other Agencies pursuant to this Contract and Like-Contracts; and, (b) Multiplying this acre-foot energy cost by the number of acre-feet of the District's Nacimiento Project Water delivered by the District to the Agency during such Calendar Quarter, which result shall be allocated to the Agency. The District shall notify the Agency, in writing, of the amount of the District's Variable Energy Costs allocated to the Agency by a date no later than the fifteenth day following the end of each Calendar Quarter, for the variable costs attributable 12/30/2003 12:39 PM Draft 32 �r r of to the Calendar Quarter most recently concluded. The Agency shall pay such amounts allocated to the Agency under this paragraph ("Agency's Contract Payments") in the manner provided for in Article 17 (A) (3)below. (3) Allocation of the District's Capital Projects Installment Debt Service. The District shall allocate the District's Capital Projects Installment Debt Service as follows: The District's Capital Projects Installment Debt Service shall have three components: (a) The Capital Project Installment Debt Service attributable to environmental mitigation requirements ("Environmental Mitigation Construction Cost Component"). This Cost Component shall be allocated on the basis of the Agency's Share of Delivery Entitlement for the Agency and for each such Other Agency. As of the date of execution of this Contract, there is apportioned to the Agency Percent (_%) of the Environmental Mitigation Construction Cost Component. (b) The Capital Project Installment Debt Service attributable to the District's Reserve Capacity ("The District's Reserve Capacity Construction Cost Component"). This Cost Component shall be allocated on the basis of the Agency's Share of Delivery Entitlement for the Agency and for each such Other Agency. As of the date of execution of this Contract,there is apportioned to the Agency 12/30/2003 12:39 PM Draft 33 �, Lk3 Percent (_%) of the District's Reserve Capacity Construction Cost Component. (c) The Capital Project Installment Debt Service attributable to the all other construction costs ("The `All Other' Construction Cost Component). This Cost Component shall be allocated on a unit percentage share basis. As of the date of execution of this Contract,there is apportioned to the Agency the following proportional share of the said costs (expressed as a percentage) for each of the Units used to deliver water to the Agency: Unit No. _ : Agency's Unit Percentage Share Unit No. _ : Agency's Unit Percentage Share Unit No. _ : Agency's Unit.Percentage Share Unit No. _ : Agency's Unit Percentage Share The Agency shall pay such amounts allocated to the Agency under this paragraph ("Agency's Contract Payments") in the manner provided for in Article 17 (A) (1) and (2) below. (4) Allocation of Remaining District's Nacimiento Project Costs including District's Additional Capital Projects Costs, and Master Water Contract Costs. The District shall allocate all other District's Nacimiento Project Costs not otherwise provided for above, including: the District's Additional Capital Projects Costs, and the District's Master Water Contract Costs, to the Agency and to all of the Other Agencies on the basis of the Agency's Share of Delivery Entitlement for the Agency and for each such Other Agency. As of the date of execution of this Contract, there is apportioned to the Agency 12/30/2003 12:39 PM Draft 34 ��44 Percent (_%) of the District's said remaining costs, including the Additional Capital Projects Costs, and the District's Master Water Contract Costs. The Agency shall pay such amounts allocated to the Agency under this paragraph ("Agency's Contract Payments") in the manner provided for in Article 17 (A) (4) below. (5) District's Calculations. The foregoing allocations shall be calculated by the District each Fiscal Year for the Agency and for each Other Agency and the District's calculations of said allocations shall be made available to the Agency. (6) CPA Review. No more frequently than annually,the District shall retain a certified public accountant, or firm thereof, ("CPA"), with the approval of the Nacimiento Project Advisory Committee, which CPA shall be responsible for reviewing and confirming the District's allocation to the Agency of the Agency's portion of the District's Nacimiento.Project Costs, and reporting the same to the Agency, the District and each Other Agency. (7) Agency's Obligations for Agreed Capital Project. The obligations of the Agency, if any, for any Agreed Additional Project will be established at the time of, and in, the agreement for each such Agreed Capital Project. ARTICLE 17: Agency's Contract Payments (A) Time and Amount of Agency's Contract-Payments. The Agency's Contract Payments to the District shall commence in the first Fiscal Year during which the Agency's Delivery Entitlement is made available to the Agency hereunder. Agency's Contract Payments shall be determined by the District as provided in Article 16 of this Contract and shall be paid by the Agency to the District in accordance with the further provisions of this Article, except and to 12/30/2003 12:39 PM Draft 35 the extent the Agency shall, in accordance with paragraph (B) below; be entitled to an offsetting credit. (1) On or before July 1 of each Fiscal Year, a sum equal to sixty percent (60%) of the Agency's Allocation of the District's Capital Reserve Costs, and the District's Operation and Maintenance Costs as calculated and allocated under Article 16, paragraph (C) (1) above; and (2) On the immediately following January 1 of each Fiscal Year, a sum equal to forty percent(40%) of the Agency's Allocation of the District's Capital Reserve Costs, and the District's Operation and Maintenance Costs as calculated and allocated under Article 16, paragraph (C) (1) above; and (3) On or before the fifteenth day following the end of each Calendar Quarter during a Fiscal Year,the District's Variable Energy Costs as calculated and allocated under Article 16,paragraph (C) (2) above, for the Calendar Quarter most recently concluded; and (4) On or before July 1 of each Fiscal Year, a sum equal to the Agency's Allocation of the District's Capital Projects Installment Debt Service as calculated and allocated under Article 16, paragraph (C) (3) above. (5) On or before July 1 of each Fiscal Year, a sum equal to the Agency's allocation of Remaining District's Nacimiento Project Costs, including the District Additional Capital Projects Costs, and the District's Master Water Contract Costs as calculated and allocated under Article 16, paragraph (C) (4) above. 12/30/2003 12:39 PM Draft 36 l - 0 T Th (B) Agency Credits against Agency's Contract Payments. The following shall constitute credits against the obligations of the Agency's Contract Payments to the District: (1) . Credit for Any Capital Share Contribution by the Agency. The "Agency's Capital Share" of the Total Nacimiento Project Construction Costs shall be expressed as a percentage, which percentage shall be the same as the percentage comprising the Agency's Delivery Entitlement Share. If, prior to the date upon which the District causes the Tax-Exempt Obligations to be sold, the Agency shall contribute to the District, in cash, a sum as and for the Agency's Capital Share of the District's estimate of the Total Nacimiento Project Construction Costs, or any portion of the Agency's Capital Share of said Construction Costs, so that the aggregate principal component of the Tax-Exempt Obligations is reduced by such sum, then the amount of the District's Capital Projects Installment Debt Service allocated to the Agency under Article 16 (C)(3) above, shall be reduced accordingly, but in no event to less than zero; and (2) Credit for Any Agency's Debt Service paid by Agency-levied ad valorem property taxes, etc. If the Agency shall, following the date of delivery of the Tax- Exempt Obligations, successfully implement a financing plan within its jurisdiction to fund, during the term of the Tax-Exempt Obligations, by means of a levy of ad valorem property taxes, special assessments or special taxes, then all or a portion of the amount of the District's Capital Projects Installment Debt Service to be allocated to the Agency under Article 16(C)(3) above, shall be credited to the Agency from amounts paid under such levy as though such amounts were paid directly by the Agency hereunder, subject to the prior approval of each rating agency then rating the Tax-Exempt Obligations and 12/30/2003 12:39 PM Draft 37 any bond insurer then providing insurance therefor;provided however, that the District shall be made a third-party beneficiary of any pledge of such alternate source of revenues, with the power to enforce collection thereof,in the event that the Agency should fail to do so; and (3) Credit for Agency's Portion of Any of District's Revenues from the.Sale of Surplus Water,from Wheeling Charges,from the Sale of District's Reserved Capacity, from Wheeling Customers and/or District Reserve Water Customer Revenues. The Agency shall be entitled to a credit, against the Agency's obligations to the District hereunder, the credit being a share of the net revenues the District shall have received during the Fiscal Year in question: (a) from the sale of Surplus Water, and (b) from Wheeling Customers, and (c)from any balance of the revenues received by the District from the sale of the District's Reserve Water. In determining the amount of such credits against the obligations of the Agency hereunder, the District shall apportion the District's net revenues from the foregoing sources, (i)first, against the obligations allocated to the Agency and to the Other Agencies for the District's Reserved Capacity Construction Cost Component and in the same amount as the percentage allocation set forth for the Agency in Article 16(C)(3)(a)herein, and then (ii) against the obligations allocated to the Agency and to the Other Agencies for the District's "All Other" Construction Cost Component and in the same amount as the percentage allocation set forth for the Agency in Article 16(C)(3)(c) herein. (4) Credit resulting from District's Annual Reconciliation of District's Operation and Maintenance Costs and District's Capital Reserve Costs. On or before 12/30/2003 12:39 PM Draft 38 4R V G„ �i1 fi,a December 1 of each year, the District shall deliver to the Agency a statement as to the actual District's Operation and Maintenance Costs and the actual District's Capital Reserve charges incurred or imposed during the Fiscal Year most recently concluded, and shall set forth in such statement the District's determination as to whether the Agency's Contract Payments theretofore paid by the Agency, as Agency's Unit Percentage Share of those particular District's Nacimiento Project Costs, were in excess of, or less than, the Agency's allocated share of the actual costs incurred by the District for said items. If the Agency shall have paid less than the actual Agency's Unit Percentage Share for said items for such Fiscal Year, the Agency shall remit the difference to the District within (180) days of the date upon which the Agency receives such a statement form the District; if the Agency shall have paid more than the actual Agency's Unit Percentage Share for such items for such Fiscal Year, the District shall credit the difference against the obligations of the Agency's Contract Payments to the District. (5) Credit Resulting from District's Commitment of Real Property Taxes Apportioned to the District. If, in any Fiscal Year, the Nacimiento Water Fund of the District receives any portion of the ad valorem taxes levied on the real property within the County of San Luis Obispo under the authority of Article XIIIA, Section 1(a), of the California Constitution, which taxes cannot exceed One Percent(1%) of the full cash value of such property and which One Percent (1%)tax is collected by the County of San Luis Obispo and apportioned according to law to the districts within the County, then the District shall apply said apportioned amount received by the District to the reduction of the District's Reserve Capacity Construction Cost Component and the District shall 12/30/2003 12:39 PM Draft 39 l ��q continue to do so in each Fiscal Year in which the District receives such apportioned amounts up to and until the said District's Reserve Capacity Construction Cost Component is paid. The District shall credit to the Agency the Agency's Unit Percentage Share of said apportioned tax proceeds received by the Nacimiento Water Fund of the District, less any amounts, (i) which the District is obligated to pay under the terms of the Master Water Contract and/or(ii) any amounts which are not received or retained by the District because of the operation of the Community Redevelopment Law (California Health and Safety Code sections 33000 et seq.) as it now reads or is amended, and any like or similar law that reduced the said portion of ad valorem taxes received by the Nacimiento Water Fund of the District ARTICLE 18: Use by District of Total Agency Contract Payments During the term of this Contract and of the terms of Like-Contracts with Other Agencies, the District shall proceed with due diligence to collect Total Agency Contract Payments as and when due, and shall apply amounts collected in the following order of priority: (A) To the payment of District's Master Water Contract Costs; then (B) To the payment of District's Operation and Maintenance Costs; then (C) To the payment of District's Variable Energy Charges; then (D) To the payment of District's Capital Projects Installment Debt Service; then (E) To the payment of District's Additional Capital Project Costs; then (F) To the replenishment of funding of District's Capital Reserves for the Nacimiento Project. 12/30/2003 12:39 PM Draft 40 c'. N s� i`t h'A L 919 ARTICLE 19:Agency's Obligation to "Take-or-Pay" The Agency's failure or refusal to accept delivery of water from the Nacimiento Project to which the Agency is entitled under this Contract shall in no way relieve the Agency of its obligations to make payments to the District as provided for herein. Commencing on the first date that debt service payments are due under the Tax Exempt Obligations provided for herein, the Agency shall pay all amounts due hereunder, including, without limitation, under Article 17 hereof, without reduction or offset of any kind, whether or not the Nacimiento Project or any part thereof is then operating or operable or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part, due to any of the reasons set forth in Articles 6(A), 13, 14 and 15, or otherwise, and such Agency payments shall not be conditional upon the performance or nonperformance by any party to this Contract, or to the Like-Contracts, for any cause whatsoever;provided, however, that any savings from non-operation of the Nacimiento Project shall be apportioned among the Agency and the Other Agencies in accordance with their respective percentages of each such Agency's Unit Percentage Share. ARTICLE 20:Agency's Pledge of Water Enterprise Gross Revenues and Covenants Re Establishment and Collection of Rates and Charges The Agency, unless it shall have paid cash as the Agency's portion of the Total Nacimiento Project Construction Costs, as provided in Article 16 hereof, hereby pledges the gross water sales revenues of the Agency's Water Enterprise to the Agency's obligations under this Contract, and covenants and agrees to establish, fix and.collect Rates and Charges from the customers of Agency's Water Enterprise at levels sufficient to produce revenues from the Agency's Water Enterprise which are at least equal to: 12/30/2003 12:39 PM Draft 41 LYY7 � I (A) The costs of operating and maintaining the Agency's Water Enterprise, plus (B) The Agency's Contract Payments, calculated in accordance with Article 16 hereof, including (C) The amounts allocated to the Agency as the Agency's share of the District's Capital Projects Installment Debt Service under Article 16 (C)(3) hereof,plus (D) The Coverage Factor for the amounts allocated to the Agency as the Agency's share of the District's Capital Projects Installment Debt Service under Article 16 (C)(3) hereof; and, provided, however, that the Agency understands and agrees that the provisions of Article 24 (B) hereof may impose upon the Agency a surcharge following the occurrence of any payment default by the Agency. The Agency further acknowledges and agrees that its obligations hereunder shall comprise, for accounting purposes, an operation and maintenance expense of the Agency's Water Enterprise. ARTICLE 21: Operation and Maintenance of Agency's Water Enterprise The Agency covenants and agrees: (A) No sale, lease or disposing of Agency's Water Enterprise. Not to sell, lease or otherwise dispose of its Water Enterprise or any part thereof essential to the proper operation thereof or to the earning or collection of the gross revenues of the Agency's Water Enterprise, nor to enter into any agreement or lease which would impair the operation of the Agency's Water Enterprise, or any part thereof necessary in order to secure adequate revenues for the payment of amounts due under this Contract;provided, however, that any real or personal property which has become nonfunctional or obsolete or which is not needed for the efficient operation of the Agency's Water Enterprise may be sold or disposed of if such disposition will not have the effect 12/30/2003 12:39 PM Draft 42 of reducing revenues of the Agency's Water Enterprise below the levels required under this Contract, and (B) Agency to Maintain Agency's Water Enterprise. To maintain and preserve the Agency's Water Enterprise in good repair and working order at all times, to operate the same in an efficient and economical manner and to pay all operation and maintenance costs of the Agency's Water Enterprise as they become due; and (C) Agency's Budget. Not later than the first day of each Fiscal Year, to adopt and deliver to the District a budget approved by the Agency's governing body setting forth the amounts budgeted to be paid under this Contract; and (D) Agency's Covenants. To comply with, keep, observe and perform all agreements, conditions,covenants and terms, express or implied, required to be performed by the Agency contained in all contracts for the use of the Agency's Water Enterprise and all contracts affecting or involving the Agency's Water Enterprise to the extent that the Agency is a party thereto; and (E) No Superior Liens or Payments. Not to create or allow any lien on or payment from the revenues of the Agency's Water Enterprise or any part thereof prior to, or superior to, the Agency's obligations to amounts payable under this Contract; and (F) Agency to Insure. To procure and maintain such insurance relating to the Agency's Water Enterprise which the Agency shall deem advisable or necessary to protect its interests, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with similar water enterprises in the State of California;provided, that the Agency shall not be required to procure or maintain any such insurance unless such insurance is commercially available at reasonable cost; and provided further, that any such 12/30/2003 12:39 PM Draft 43 f- � 3 TA��OiI��L insurance may be maintained under a self-insurance program, so long as such self-insurance program is maintained in accordance with standards and in such amounts as are then usually maintained for similar water enterprises in the State of California; and (G) Agency to Pay Obligations; Observe Laws. To pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency's Water Enterprise or any part thereof when the same shall become due; to duly observe and conform to all valid regulations and requirements of any governmental authority relative to the operation of the Agency's Water Enterprise,that are not being contested by the Agency in good faith; and (H) Eminent Domain. If all or any material part of the Agency's Water Enterprise shall be taken by eminent domain proceedings, or if the Agency receives any insurance proceeds resulting from a casualty loss to any material portion of the Agency's Water Enterprise, the proceeds thereof shall be used by the Agency to construct or install replacements for the condemned or destroyed components of the Agency's Water Enterprise or to prepay the Agency's share of the District's Capital Projects Installment Debt Service under Article 16 (C) (3) of this Contract. ARTICLE 22: Agency Not to Serve Outside of District Neither the Agency's Delivery Entitlement nor the Agency's Surplus Water, nor any portion of either, shall be sold or delivered or otherwise disposed of by the Agency outside the boundaries of the District. 12/30/2003 12:39 PM Draft 44 ARTICLE 23:Agency's Failure to Levy, Set or Collect Taxes, Rates and Charges; Establishment of Coverage Account by Agency (A) Agency's Failure to Establish Taxes, Rates and Charges; Establishing Coverage Account. If the Agency for any reason shall fail or refuse to establish or levy taxes or rates and charges sufficient to satisfy the requirements of Article 20 hereof, or if the Agency shall be precluded from establishing rates and charges at the levels required by said Article 20, then the Agency shall promptly notify the District of such fact, in writing, and shall establish either(1) with the District; or(2) with a Depository designated by the Agency to the District in writing; a Coverage Account, into which the Agency shall deposit, from the first lawfully available funds therefor, an amount equal to one year's Coverage Factor for the amounts allocated to the Agency as the Agency's Installment Debt Share under Article 16 (C)(3) hereof. The Coverage Account shall be invested in accordance with applicable provisions of the Government Code, subject to any limitations established pursuant to Section 148 of the Internal Revenue Code of 1986, as amended, applicable to surplus moneys of the Agency and shall be made and remain available to the Agency and to the District as a source of funds to remedy any failure of the Agency to make its Agency's Contract Payments hereunder. The Coverage Account shall be pledged to the District for the purposes described herein, and the Agency covenants and agrees to execute such instruments as may be necessary in order to effect a pledge of amounts on deposit in the Coverage Account, acknowledging and agreeing as well to follow the advice of special tax counsel to the District in connection with the pledge and investment of the Coverage Account, as may be necessary or advisable in order to maintain the tax status of the Tax-Exempt Obligations. 12/30/2003 12:39 PM Draft 45 (B) Release of Coverage Account. If at any time following the establishment of the Coverage Account hereunder, the Agency shall again be able to and does collect rates and charges as required under Article 20 hereof, the Coverage Account may be released to the credit and name of the Agency for any lawful purpose thereof, upon delivery to the District of evidence satisfactory to the District that (1)the Agency has successfully levied rates and charges for the Agency's Water Enterprise at the appropriate levels for at least one full Fiscal or Water Year since the Coverage Account was first created, and(2) the Agency is then current on all payments due under this Contract;whereupon, the District shall either release the Coverage Account to the Agency or shall direct the Depository to do so, free from the lien described herein. ARTICLE 24:Agency's Obligations Several and Not Joint; Step-Up Provisions and Reimbursement (A) Agency Not Responsible for Failures of Other Agencies; Exception. Except as provided in paragraph (B)of this Article, the Agency shall be solely responsible and liable for performance under this Contract and shall not be responsible for any failures of any Other Agency to perform such Other Agency's obligations under any other Like-Contract. The obligations to the District to make payments under this Contract and under the other Like- Contracts are expressly recognized by the District as several, and not joint, and no default on the part of one, or more, of the Other Agencies shall, in and of itself, create an event of default under this Contract. The Coverage Account of the Agency, if any is established hereunder, shall not be available for any failure of any Other Agency to make payments under any of the other Like- Contracts between the District and the Other Agencies, unless otherwise directed or approved in writing by the Agency. 12/30/2003 12:39 PM Draft 46 ATTACHMENT `i (B) Agency's "Step-Up" Obli atg ions. If an Other Agency, (a"Delinquent Agency"), shall fail to pay its Agency's Contract Payments under its Like-Contract, for any reason, the amount of the Delinquent Agency's Contract Payments not paid in full by the Delinquent Agency, (the "Shortfall"), shall be paid by the Agency and.by each Other Agency who is not a Delinquent Agency ("Non-Delinquent Agency"). If there is more than one Delinquent Agency, then the amount of the Shortfall shall be the sum of the said unpaid amounts for each Delinquent Agency. When such a Shortfall occurs,the Agency shall be required to increase the Agency's Contract Payments for the particular Water Year by an amount equal to the Shortfall;provided, however, that each Other Agency who is not a Delinquent Agency shall be required by the Other Agency's Like-Contract to also contribute the Shortfall so that the Agency, and all of the Other Agencies who are not Delinquent Agencies, shall each contribute to the Shortfall in a proportion determined by dividing each said Non-Delinquent Agency's Installment Debt Share (under Article 16 (C)(3) of this Contract and the Like-Contracts)by the aggregate of all the Agency's Installment Debt Shares of all Non-Delinquent Agencies, including the Agency; and provided further, that the Agency in no event shall be required under this paragraph to contribute to the Shortfall by an amount in any Water Year exceeding the amount which is Percent (_%) of the Agency"s Share of the District Capital Projects Installment Debt Service allocated to the Agency under Article 16 (C) (3) hereof. (C) Repayment of Agency by Delinquent Agency. If payments are made by the Agency during any Water Year under the foregoing paragraph (B), as a Non-Delinquent Agency, the District shall, beginning on the first date upon which payments are due from a Delinquent Agency and not paid in accordance with the Delinquent Agency's Like-Contract (each, a"Due 12/30/2003 12:39 PM Draft 47 ST) _ ATTACHMENT I Date"), declare a default as to such Delinquent Agency under the Delinquent Agency's Like- Contract and the District shall be entitled to suspend deliveries of the Delinquent Agency's Delivery Entitlement; notwithstanding the foregoing, by the terms of its Like-Contract, such Delinquent Agency shall nonetheless continue to be obligated for amounts paid on its behalf by the Non-Delinquent Agencies, until the Defaulting Agency has reimbursed each Non-Defaulting Agency in full. Amounts advanced by the Agency and the Non-Delinquent Other Agencies hereunder are immediately due and payable to the District by the responsible Delinquent Agency, and, if not so paid, and notwithstanding the provisions of Article25(C)of the Delinquent Agency's Like-Contract, shall incur interest on the unpaid portion until paid in full at a rate per annum equal to the average rate for the County Treasury Pool of San Luis Obispo County,plus Two Percent (2%) per annum, for the month for which the County Treasury Pool rate was most recently calculated, based on a 360-day year of twelve 30-day months;provided, however; that payments to be made as reimbursements by a Delinquent Agency are deemed and understood to be subordinate to the obligations of the Delinquent Agency to pay the amounts allocated to the Delinquent Agency as the Delinquent Agency's share of the District's Installment Debt Share under Article 16 (C)(3)of the Delinquent Agency's Like-Contract. (D) "Step-PR".tote Exhausted before Recourse to Debt Service Reserve Fund/Surety Bond. Shortfalls in Total Agency Contract Payments shall be remedied under this Article prior to the District's making any withdrawal from the debt service reserve fund established, or under the reserve surety bond posted, for the Tax-Exempt Obligations, if any, drawings on or under which shall be delayed until and unless insufficient moneys are available from Non-Defaulting Agencies hereunder. 12/30/2003 12:39 PM Draft 48 ATTACHMENT `+l (E) District's Covenant to Owners of Tax-Exempt Obligations. The District covenants and agrees to enforce the provisions of this Contract with due diligence, including, without limitation,the provisions of this Article for the benefit of the owners,from time to time, of the Tax-Exempt Obligations. ARTICLE 25: Events of Default by Agency; District's Remedies (A) Events of Default by Agency. The following shall constitute events of default hereunder: (1) The Agency shall fail to make timely payments in full of all amounts due from the Agency under the terms of this Contract; or (2) The Agency shall fail to establish or collect, or cause to be collected, all rates and charges, and other sums, necessary to enable it to make the payments required hereunder, as provide in Article 20 hereof, and, following thirty(30)days written notice from the District to the Agency, the Agency shall fail to remedy such failure to the satisfaction of the District; or (3) The Agency shall fail to perform any other obligation or covenant hereunder and shall fail to remedy such failure to the satisfaction of the District within thirty(30)days following the Agency's receipt of written notice from the District, or for such additional time as is reasonably required, in the sole discretion of the District, to correct the same; or (4) The Agency shall file any petition or institute any proceedings under any act or acts, State or federal, dealing with or relating to the subject of bankruptcy or insolvency or under any amendments to such act or acts, either as a bankrupt or as an 12/30/2003 12:39 PM Draft 49 ATTACHMENT .) insolvent or as a debtor or in any similar capacity, wherein or whereby the Agency seeks or prays to be adjudicated a bankrupt or is to be discharged from any or all of its debts or obligations, or offers a reorganization of its obligations for the benefit of creditors, or asks for similar relief. (B) District's Remedies. Upon the occurrence of an event of default hereunder, the District shall be entitled to protect and enforce the rights vested in the District by this Contract by appropriate judicial proceedings as the District may deem most effective or convenient,either in equity or law. The use by the District of any remedy specified herein for the enforcement of this Contract is not exclusive and shall not deprive the District of, or limit the application of, any other remedy provided hereunder or by law or by equity. Without limiting the generality of the foregoing,the District shall be entitled to pursue any of the following remedies; (1) The District may suspend the delivery to the Agency of water hereunder during the period when the Agency is delinquent in its payments or other obligations to the District hereunder, but only following notice to the Agency and the imposition of such remedy following a formal hearing conducted by the Board of Supervisors, unless such failure to pay is as described in subparagraph (5)below; (2) The District may compel the Agency, or its governing board, by action in any court of competent jurisdiction to account to the District as the trustee of an express trust; (3) The District may pursue an action in any court of competent jurisdiction to enjoin any acts or things which may be unlawful or in violation of the rights of the District hereunder; and 12/30/2003 12:39 PM Draft 50 t '(�C7 ATTACEiRMTi (4) The District may proceed in mandamus or other suit, action or proceeding at law or in equity to enforce its rights against the Agency (and its governing board, officers, agents and employees) and to compel the Agency to perform and carry out its duties and obligations under the law and its covenants and obligations asset forth herein. (5) If the Agency shall fail to make timely payments in full of all amounts due from the Agency under the terms of this Contract, and if, as a result, payments are made by any Other Agency during any Water Year, as a Non-Delinquent Agency under Article 24(B) hereof, then the District shall, beginning on the first date upon which each such payment is due from the Agency and not paid, (each, a"Due Date"), declare a default as to the Agency and the District shall be entitled to suspend deliveries of the Agency's Delivery Entitlement without referring the matter to the Board of Supervisors for a hearing; notwithstanding the foregoing, by the terms of this Contract, the Agency shall nonetheless continue to be obligated for amounts paid on its behalf by the Non- Delinquent Agencies, until such time as the Agency has reimbursed each Non-Defaulting Agency in full. Said amounts advanced by the Non-Delinquent Agencies are immediately due and payable by the Agency, and, if not so paid,and notwithstanding the provisions paragraph (C) of this Article, shall incur interest on the unpaid amounts until paid in full at a rate per annum equal to the average rate for the County Treasury Pool of San Luis Obispo County, plus Two Percent(2%) per annum, for the month for which the County Treasury Pool rate was most recently calculated, based on a 360-day year of twelve 30-day months;provided, however, that payments to be made as reimbursements under this paragraph are deemed and understood to be subordinate to the obligations of 12/30/2003 12:39 PM Draft 51 ATTACHMENT the Agency to pay the amounts allocated to the Agency as the Agency's share of the District Capital Projects Installment Debt Service under Article 16 (C)(3) of this Contract. (C) Rate of Interest. Upon each charge to be paid by the Agency to the District pursuant to this Contract which remains unpaid after the time the same shall have become due and payable, interest shall accrue at an annual rate equal to that earned by the San Luis Obispo County Treasurer's investment fund as provided in California Government Code at Section 16480 et seq.,calculated monthly on the amount of such delinquent payment from time to time after the due date when the same becomes due until paid, and the Agency hereby agrees to pay such interest;provided, that no interest shall be charged to or paid by the Agency unless such delinquency continues for more than thirty (30)days. The Agency hereby agrees to pay such interest to the District, whether or not the District shall pursue any of the remedies specified in this Article. In no event shall said default interest be compounded. ARTICLE 26: Changes in Organization of Agency The Agency shall furnish the District with maps showing the boundaries of the Agency and showing the service area or areas of the Agency's water distribution system. Throughout the term of this Contract, the Agency shall promptly notify the District of any changes in said boundaries and in said services area or areas occasioned either by addition or by removal of territory. So long as there are outstanding any Tax-Exempt Obligations, the Agency shall take no action to remove any lands from the Agency or its service areas without the prior written consent of the District. 12/30/2003 12:39 PM Draft 52 1 '(0 A TAC a;��HQ7 i ARTICLE 27: District Additional Capital Projects (A) Required Additional Projects. At any time, and from time to time, without the consent of the Agency or any Other Agency, the District shall have the authority to undertake the construction or equipping of any Required Additional Project,provided that, before a Required Additional Project may be commenced by the District pursuant to direction or order of a competent Governmental Authority, the Agency and the Other Agencies shall be afforded notice by the District of said direction or order and each shall have the opportunity to oppose the imposition of such requirement before a court of competent jurisdiction;only if a final judgment is thereafter rendered, in favor of such direction or order of the said Governmental Authority, or if no such opposition is filed, shall the directed or ordered project be undertaken by the District. It is the intention of the parties hereto that the District shall, as and when necessary, be deemed to assign its rights to pursue opposition to the creation of any obligations hereunder by a Governmental Authority, to the Agency and/or the Other Agencies as third party beneficiaries hereof and real parties in interest (B) Agreed Additional Projects. An Agreed Additional Project may be undertaken at any time, and from time to time,by the District in accordance with the terms of the specific agreements between the District and the Agency and the Other Agencies,provided that, funding for an Agreed Additional Project will not be from the District's Capital Reserves but from a new and separate capital fund established by the District as a part of the agreement establishing each Agreed Additional Project. (C) Emergency Projects. An Emergency Project is a Required Capital Project which the District has the authority to undertake whenever the District determines that there is a 12/30/2003 12:39 PM Draft 53 ATTACWHT -1 substantial risk of harm to the Nacimiento Project or to the operation of the Nacimiento Project which requires immediate remedy. Emergency Projects, including emergency repairs to the Nacimiento Project, may, notwithstanding the above, be made by the District without notice to, or consultation with the Agency or the Nacimiento Project Advisory Committee or with any Other Agency. ARTICLE 28: District's Use of District's Reserve Water The District may use the District's Reserve Water as follows: (A) Priorities. The District shall use the District's Reserve Water in the following priorities: (1) First,for the alleviation of any permanent water shortage described in Article 14 (B) hereof; then to the extent that any of District's Reserve Water remains available, (2) Second, for the alleviation of any temporary water shortage described in Article 14 (A) hereof, then to the extent that any of District's Reserve Water remains available, (3) Third, for the satisfaction of the District's obligations to each of then existing District's Reserve Water Customers; then to the extent that any of District's Reserve Water remains available, (4) Fourth, to the extent that the District's Reserve Capacity is sufficient to do so, for adding to and supplementing the Agency's Delivery Entitlement for the Agency and/or the Other Agencies who are Initial Agencies as provided for by Article 6(D) herein; then to the extent that any of District's Reserve Water remains available, 12/30/2003 12:39 PM Draft 54 (5) Fifth,to the extent that the District's Reserve Capacity is sufficient to do so, for additional and new Other Agencies who were not Initial Agencies; then to the extent that any of District's Reserve Water remains available, (6) Sixth, to the extent that the District's Reserve Capacity is sufficient to do so, for such other purposes as the District deems useful and beneficial to the Nacimiento Project. (B) District's Sale of All or a Portion of the District's Reserve Water/Reserve Cavacityby Amending Agency's Contract and/or the Like-Contracts of Other Agencies who were Initial Agencies. In the event that the Agency, or any Other Agency who was an Initial Agency, desires to purchase additional capacity in the Nacimiento Project and to purchase additional rights to have conveyed and delivered to the Agency a portion of the District's Reserve Water; and to the extent that the amount of the District's Reserve Water and the District's Reserve Capacity is sufficient to do so, then the District and the Agency may amend this Contract (or, in the case of an Other Agency, the Like-Contract),provided that the District shall not enter into any such amendment which provides terms more favorable than those presently existing in this Contract, and in each Like-Contract, and provided that the Agency shall, in addition to the payments required under the Like Contract, pay to the District a "Purchase of Reserve Water Delivery Entitlement and Reserve Capacity Fee" amounting to a sum which will reasonably compensate the District for the Agency's Unit Percentage Share of the Total Nacimiento Project Construction Costs plus the costs of any Additional Projects which are necessary or convenient for the conveyance and/or delivery of the Agency's Delivery Entitlement. The District shall apply the "Purchase of Reserve Water Delivery Entitlement and 12/30/2003 12:39 PM Draft 55 Reserve Capacity Fee" as a credit to the obligations of the Other Agencies based on the respective Agency's Unit Percentage Shares of the Other Agencies. However, District shall not so amend this Contract without having first provided sixty (60) days written notice to each Other Agency of the fact that Agency has applied to the District for such an amendment to this Contract and providing each such Other Agency an opportunity to likewise apply for an additional delivery entitlement of the District's Reserve Water/Reserve Capacity. In the event that Other Agencies shall also apply to the District, at the time of Agency's application, for additional delivery entitlements of District's Reserve Water,then to the extent that there is not sufficient District's Reserve Water or District's Reserve Capacity to satisfy all of the applications for additional delivery entitlements,the Agency and all Other Agencies applying for additional delivery entitlements shall be granted additionaldelivery entitlements in proportion to their respective Agency Delivery Entitlements existing at the time of the applications. (C) District's Contract(s) for All or a Portion of the District's Reserve Water and Reserve Capacity by Execution of Like-Contracts with New Agencies who were Not Initial Agencies. In the event that a public entity, who was not an Initial Agency, desires to acquire rights to capacity in the Nacimiento Project and rights to have conveyed and delivered to the said entity a portion of the District's Reserve Water, and to the extent that the amount of the District's Reserve Water and the District's Reserve Capacity is sufficient to do so,then the District, after consulting with the Nacimiento Project Advisory Committee, and after receiving the written approval of such new Like-Contract from Agencies holding, in the aggregate, at least Sixty Percent (60%) of the total of all Agency Delivery Entitlements existing at that time, may enter into a Like-Contract with such public entity (a"new Agency"),provided that said New Agency 12/30/2003 12:39 PM Draft 56 ATTACHj t T j shall,,in addition to the payments required under the Like Contract, pay to the District a "Purchase of Reserve Water Delivery Entitlement and Reserve Capacity Fee" as described above herein. The District shall apply the "Purchase of Reserve Water Delivery Entitlement and Reserve Capacity Fee" as a credit to the obligations of the Agency and the Other Agencies (excluding the New Agency),based on the Agency's Unit Percentage Share. Notwithstanding any other provision of this Contract, the District shall not execute a Like-Contract with a New Agency if such execution would result in any of the:Tax=Exempt Obligations being treated as an obligation not described in Section 103(a) of the Internal Revenue Code of 1986, as amended,by reason of classification of such Tax-Exempt Obligation as a`-`private activity bond" within the meaning of Section 141 of said Code. (D) District's Sale of District's Reserve Water to District Reserve Water Customers. (1) Conditions for Sale of District's Reserve Water. The District may enter into an agreement to deliver all or a part of the District's Reserve Water to District Reserve Water Customers under the following conditions: (a) There is District's Reserve Water and District Reserve Capacity .available in any year after application of the priorities set forth above herein. (b) The agreement cannot be for a period of time in excess of ten years. (c) The price charged by the District to any District's Reserve Water Customer for the delivery of said Reserve Water may not be less than the greater of: (i)Rates that the District would charge for Surplus Water, under Article 12 of this Contract, delivered to that Agency.geographically nearest the place where the 12/30/2003 12:39 PM Draft 57 A6 tAcHom ,District Reserve Water Customer takes delivery of the District's Reserve Water; or, (ii)the charges resulting from the application of the provisions of Article 29 (A) hereof. (2) Application of Revenues. The District's revenues from an agreement for the temporary delivery of District's Reserve Water to District's Reserve Water Customers shall be applied by the District to effect a credit under Article 17 (C) (3) hereof("Credit for Agency's Portion of Any of District's Surplus/Wheeling/District Customer Revenues"). ARTICLE 29: District's Use of District's Reserved Capacity The District shall use its best efforts to temporarily lease that part of the capacity of the Nacimiento Project that is not needed by the District for the delivery of the District's Total Delivery Entitlement Obligation (the "District's Reserved Capacity"). (A) District's Use of Capacity in the Nacimiento Project for the Delivery of District's Reserve Water through the Nacimiento Project to a District Reserve Water Customer. If at any time during the term of this Contract, the District conveys District's Reserve Water through any Unit to a District Reserve Water Customer, the District Reserve Water Customer shall be required to pay the District for such conveyance and delivery service in a manner and at prices which will return to the District the largest net revenue practicable, but in no event shall such conveyance be effected at charges less than those applicable to the conveyance of Agency's Delivery Entitlement through the same Unit or Units. In determining the appropriate charges for water conveyed and delivered for a District Reserve Water Customer,the District shall take into account the particular Unit or Units through which conveyance of such water occurs; shall 12/30/2003 12:39 PM Draft 58 ( -lQ7> 1 compare the District's Operation and Maintenance Costs and District's Capital Projects Installment Debt Service apportionable to such Unit or Units with District's Nacimiento Project Costs, and shall further compare the amount of water conveyed for District Reserve Water Customers through such Unit or Units with the amount of Nacimiento Project Water conveyed for the Agency and for the Other Agencies through such Unit or Units for the same period of time. B) Wheeling of Water. If at any time during the term of this Contract, the District conveys water, other than Nacimiento Project Water, through any Unit to any person or entity(a "Wheeling Customer"), said Wheeling Customer shall be required to pay the District for such conveyance and delivery service in a manner and at prices which will return to the District the largest net revenue practicable, but in no event shall such conveyance be effected at charges less than those applicable to the conveyance of Agency's Delivery Entitlement through the same Unit or Units. In determining the appropriate charges for water conveyed and delivered for a Wheeling Customer,the District shall take into account the particular Unit or Units through which conveyance of such water occurs, shall compare the District's Operation and Maintenance Costs and District's Capital Projects Installment Debt Service apportionable to such Unit or Units with District's Nacimiento Project Costs, and shall further compare the amount of water conveyed for Wheeling Customers through such Unit or Units with the amount of Nacimiento Project Water conveyed for the Agency and for the Other Agencies through such Unit or Units for the same period of time. 12/30/2003 12:39 PM Draft 59 i -uq ARTICLE 30: Contracts to be Uniform Nacimiento Project Water Delivery Entitlement Contracts executed by the District with the Other Agencies(or with any New Agency) shall be substantially uniform with respect to basic terms and conditions, when compared with this Contract,but shall provide for different dates, and quantities of water to be conveyed and delivered, the places of water delivery, each Agency's Delivery Entitlement Share and each Agency's Unit Percentage Share, and the payment amounts for each Agency. ARTICLE 31:Amendments to Contract This Contract shall be subject to amendment at any time by mutual agreement of the parties hereto, except insofar as any proposed amendments are in any way contrary to applicable law,or would have a material adverse effect upon the owners of any of the Tax-Exempt Obligations. As a condition to any amendment to this Contract or to the Like Contracts with the Other Agencies,the District shall first have received written confirmation from the rating agency or agencies then providing a rating for the Tax-Exempt Obligations, to the effect that the proposed amendments will not adversely affect the rating of the Tax-Exempt Obligations and, in the event that the Tax-Exempt Obligations, or any portion thereof, shall be covered by municipal bond insurance, the District shall have received prior written consent to such proposed amendments form the provider of such bond insurance. Amendments to this Contract and to the Like Contracts of the Other Agencies shall occur only after the written and unanimous consent of the District, the Agency and all Other Agencies: except, that, the following Additional Projects may be effected without said unanimous consent and upon the following conditions: 12/30/2003 12:39 PM Draft 60 ATTQCH�A�cG u `j (A) Agreed Additional Projects. Subject to the provisions of Article 27 hereof, and upon the request of the Agency, or of any Other Agency,the District may enter into an amendment of this Contract, and/or of Like Contracts, in order to undertake the acquisition and construction of an Agreed Additional Project;provided, however; the Agency and/or Other Agencies desiring such Project shall first demonstrate that the said Project will be economically feasible with the financial support of only the Agency and/or the Other Agencies participating in the Project. (B) Required Additional Project/Emergency Project. The undertaking of a Required Additional Project, or of any Emergency Project, by the District shall not require the consent of the Agency or of any Other Agency nor the amendment of this Contract or of any Like Contract(s). ARTICLE 32: Establishment of Nacimiento Project Advisory Committee The.District shall form an advisory committee whose members shall be representatives of the District and of the Agency and of the Other Agencies. The purposes of the Advisory Committee shall be: (A) Monitor Contract. To monitor all aspects of this Contract and the Like-Contracts and to advise the governing bodies of the District and the Agency and the Other Agencies on the functioning of this Contract and any related agreements, and to recommend to the said governing bodies any modifications to this Contract, which may,from time to time, be appropriate; and (B) Review Budget. To review the annual budgets for the District as provided for in Article 4 (C) hereof; and 12/30/2003 12:39 PM Draft .61 i (C) RecommendationsRegardingOperation and Modification of Project. To formulate and make recommendations to the District on such matters as plans and specifications for the operation and modification of the Nacimiento Project facilities. To the extent reasonably possible the Committee shall be informed by the District of the details of such matters in a timely manner and, except in emergencies, the District will seek and consider the advice of the Advisory Committee on all such matters. Final decisions on such matters shall be made be the District. ARTICLE 33: Opinions and Determinations; Good Faith Where the terms of this Contract provide for action to be based upon opinion,judgment; approval, review or determination of either party hereto, such terms are not intended to be and shall never be construed as permitting such opinion,judgment, approval, review, or determination to be arbitrary,capricious, or unreasonable. ARTICLE 34: Waiver of Contract Rights by Either Party Any waiver at any time by either party to this Contract of the party's rights with respect to a default or any other matter arising in connection with this Contract, shall not be deemed to be a waiver with respect to any other default or matter. ARTICLE 35: Notices All notices that are required either expressly or by implication to be given by any party to the other under this Contract shall be signed for the District and for the Agency by such officers as they may, from time to time, authorize to so act. All such notices shall be deemed to have been given and delivered if delivered personally or if enclosed in a properly addressed envelope 12/30/2003 12:39 PM Draft 62 �- 101 and deposited in a United States Post Office for delivery by registered or certified mail. Unless and until formally notified otherwise, all notices shall be address to the parties as follows: To the Agency: (Agency address) Attention: To the District: Department of Public Works County of San Luis Obispo County Government Center San Luis Obispo, CA 93408 Attention: ARTICLE 36:Assignment. Required Approval by Parties; Required Approvals While Tax- Exempt Obligations Outstanding The provisions of this Contract shall apply to and bind the successors and assigns of the respective parties, but no assignment or transfer of this Contract, or any part hereof or interest herein, shall be valid until and unless approved by the District. The District shall not approve any such assignment or transfer to any person or entity that is not one or more of the Initial Agencies, or a then-existing New Agency, unless and until the proposed assignment or transfer of this Contract has been offered to and refused in writing by all said Agencies. The offer of any such assignment or transfer of this Contract shall be on the same basis to all said Agencies and if more than one of the said Agencies desires to accept the offer,this Contract or portion thereof to be assigned or transferred shall be prorated among them in proportion to their respective Agency's Unit Percentage Share in the facilities involved in the assignment or transfer. The 12/30/2003 12:39 PM Draft 63 t - 9 foregoing notwithstanding, no assignment or transfer of this Contract or any part hereof or interest herein shall be valid until such time as the District has received assurances from each rating agency then rating the Tax-Exempt Obligations, to the effect that such assignment or transfer will not adversely affect the rating on the Tax-Exempt Obligations, and, so long as any Tax-Exempt Obligations are then being insured by a municipal bond insurance company, until such time as the District has received the written consent from such bond insurer as to such assignment or transfer. The Agency understands and acknowledges that the District may pledge amounts received and to be received hereunder and under the other Like-Contracts to a financial institution and/or nonprofit corporation as further support for the District's obligations under the Tax-Exempt Obligations. ARTICLE 37: Inspection of Books and Records The authorized officers of the Agency shall have full and free access at all reasonable times to the account books and official records of the District insofar as the same pertain to the matters and services provided for in this Contract, with the right at any time during regular business hours of the District to make copies thereof at the Agency's expense, and the authorized officers of the District shall have similar rights in respect to the account books and records of the Agency for its Water Enterprise. ARTICLE 38: Severability Any provision of this contract that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction,be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof affecting the validity, enforceability or legality of such provision in any other jurisdiction. 12/30/2003 12:39 PM Draft 64 ile u l ;J ARTICLE 39: Water Rights; Effect of Contract on The parties hereto acknowledge and agrees that this Contract is an agreement for service, and only contractual rights are created by this Contract, and that it does not create an entitlement to,nor does it convey to the Agency any property right or interest in the Master Water Contract. No provision of this Contract shall be considered to be in derogation of any existing water right(s) or claim(s)to water tights by, or any agreements concerning water rights of, any party hereto, including but not limited to overlying, prescriptive, appropriative, riparian, or pueblo rights, nor shall this contract be construed to result in any relinquishment or adjustment of any such water rights or claims thereto; and, in particular, no provision of this Contract shall be considered to diminish, reduce or affect, in any way, any party's rights pursuant to California Government Code Section 1005.1 and/or Section 1005.2. ARTICLE 40: Governing Law This contract shall be interpreted, governed and enforced in accordance with the laws of the State of California applicable to contracts made and performed in such State. ARTICLE 41: Validation Either the District,the agency or any Other Agency may file and diligently prosecute to a final decree in a court of competent jurisdiction a proceeding in mandamus or other appropriate proceeding or action for the judicial examination, approval, and confirmation of the proceedings had for the organization of the District and for the participation of the Agency in the Nacimiento Project hereunder, or for the validation of the agreement(s) which is the basis for the Tax- Exempt Obligations, or any of them, or the proceedings of the governing body of the Agency 12/30/2003 12:39 PM Draft 65 leading up to and including the making of this Contract and the validity of the provisions thereof and hereof. IN WITNESS WHEREOF, the parties hereto have executed this contract on the date first above written. SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By Chairperson, Board of Supervisors APPROVED AS TO FORM: COUNTY COUNSEL: By Deputy County Counsel ATTEST: JULIE L. RODEWALD, COUNTY CLERK By Deputy County Clerk AGENCY By Mayor APPROVED AS TO FORM: ATTEST: CITY ATTORNEY CITY CLERK By. By Deputy City Clerk By Deputy City Clerk 12/30/2003 12:39 PM Draft 66 Attachment 2 Revised Contract Review Schedule 1/16/2004: Complete and distribute the Final Agenda Report for 1/27/04 Board of Supervisors Meeting (Recommendation: Review and approval of the revised draft water supply contracts, adopt cost allocation policies, and approval the attached resolution directing staff to prepare offers of participation for local agency consideration)... Note: The recommended approval of the draft/revised water supply contracts is anticipated to include the delegation of four types of edits that staff (with County Counsel's approval) will subsequently be allowed to make: 1. Technical edits to better describe the agreed-upon intent of the applicable provision(s). 2. Changes that all agencies agree upon mutually. 3. Edits and changes that are needed to secure Municipal Bond financing. 4. Fill in the blanks based on the recommendation and/or request of the participating agencies. March 2004 District provides offers of participation to participating agencies. Beginning of local agency approval period. Summer 2004 End of term of offer. End of local agency approval period. Summer/Fall 2004—Winter/Spring 2005 Creation of Nacimiento Water Project Commission Beginning of Initial Project Efforts Request for Consultant Proposals Development of Final Governance Recommendations' Secure Design-phase funding Select Design Consultant and initiate design Since governance decisions can be accomplished during"initial project efforts,"and before any project debt is incurred,an edit to the draft contract could establish the timing of final governance review and recommendations. This approach may be advisable to"elevate" final governance discussions to the Commission(i.e.—decision makers). DRAFT (�Q 12/17/2003 (3:52 PM) `O Attachment 1 SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT Environmental Programs Division Nacimiento Water Project CEQA Requirements for Responsible Agencies CEQA Guidelines Section 15367 Lead Agency "Lead Agency" means the public agency which has the principal responsibility for carrying out or approving a project. The Lead Agency will decide whether an EIR or Negative Declaration will be required for the project and will cause the document to be prepared. Criteria for determining which agency will be the Lead Agency for a project are contained in Section 15051. In the case of the Nacimiento Water Project, the Lead Agency is the San Luis Obispo County Flood Control and Water Conservation District. Lead agency environmental contact: Mark Hutchinson Phone: (805) 781-5458 Environmental Programs Manager Fax: (805) 788-2768 County Government Center Rm 207 mhutchinson@co.slo.ca.us San Luis Obispo CA 93408 CEQA Guidelines Section 15381 Responsible Agency "Responsible Agency" means a public agency which proposes to carry out or approve a project, for which a Lead Agency is preparing or has prepared an EIR or Negative Declaration. For the purposes of CEQA, the term "Responsible Agency" includes all public agencies other than the Lead Agency which have discretionary approval power over the project. In the case of the Nacimiento Water Project, Responsible Agencies include all public agencies (as defined by CEQA) that participate (including provide funding for) in the project, as well as all State agencies with approval authority over all or a part of the project. Process: January 6, 2004: Lead agency (San Luis Obispo County Flood Control and Water Conservation District) approves project and adopts findings, then files a Notice of Determination (The NOD will be fled with BOTH the County Clerk and the State Office of Planning and Research). Lead agency will also pay the Fish and Game Filing Fee ($1,250.00). Filing of the NOD will trigger a 30 day statute of limitations for challenges to the adequacy of the EIR, the CEQA process, and/or adequacy of the findings. Lead agency will transmit copies (hard copy and/or electronic) of the Staff Report, CEQA findings and Notice of Determination to project participants 1 �0p i Attachment 3 February 5, 2004: statute of limitations expires. After 02/05/03, at the first point in time where each agency approves their initial participation in the project, that agency adopts findings (potentially the same findings as the lead agency), and each files a Notice of Determination with the County Clerk and with the State Office of Planning and Research. (State agencies issuing permits for the project will adopt findings and file a Notice of Determination with OPR at the point in time that they issue the permit or approval.) Findings: The responsible agency relies on the lead agency's environmental document in acting on whatever aspect of the project requires its approval. The responsible agency must, however, issue its own findings regarding the feasibility of relevant mitigation measures or project alternatives that can substantially lessen or avoid significant environmental effects. Furthermore, where necessary, a responsible agency must issue its own statement of overriding considerations. (CEQA Guidelines, § 15096, subds. (f), (g), (h); Resource Defense Fund v. Local Agency Formation Commission of Santa Cruz County (15t District. 1987) 191 Cal.App.3d 886, 895 [236 Cal.Rptr. 794].) Notice of Determination: A responsible agency must file its own Notice of Determination (NOD) which, unlike an NOD filed by a lead agency, need not state that the EIR complies with CEQA, although it must state that the responsible agency did "consider" the document (CEQA Guidelines, § 15096, subd. (i).) The filing of the NOD triggers a 30-day statute of limitations during which time legal challenges may be filed. (Pub. Resources Code, § 21167, subd. (e).) CEQA Guidelines Section 15096 Process for a Responsible Agency (a) General. A Responsible Agency complies with CEQA by considering the EIR or Negative Declaration prepared by the Lead Agency and by reaching its own conclusions on whether and how to approve the project involved. This section identifies the special duties a public agency will have when acting as a Responsible Agency. (b) Response to Consultation. A Responsible Agency shall respond to consultation by the Lead Agency in order to assist the Lead Agency in preparing adequate environmental documents for the project. By this means, the Responsible Agency will ensure that the documents it will use will comply with CEQA. (1) In response to consultation, a Responsible Agency shall explain its reasons for recommending whether the Lead Agency should prepare an EIR or Negative Declaration for a project. Where the Responsible Agency disagrees with the Lead Agency's proposal to prepare a Negative Declaration for a project, the Responsible Agency should identify the significant environmental effects which it believes could 2 4 �5 Attachment result from the project and recommend either that an EIR be prepared or that the project be modified to eliminate the significant effects. (2) As soon as possible, but not longer than 30 days after receiving a Notice of Preparation from the Lead Agency, the Responsible Agency shall send a written reply by certified mail or any other method which provides the agency with a record showing that the notice was received. The reply shall specify the scope and content of the environmental information which would be germane to the Responsible Agency's statutory responsibilities in connection with the proposed project. The Lead Agency shall include this information in the EIR. (c) Meetings. The Responsible Agency shall designate employees or representatives to attend meetings requested by the Lead Agency to discuss the scope and content of the EIR. (d) Comments on Draft EIRs and Negative Declarations. A Responsible Agency should review and comment on draft EIRs and Negative Declarations for projects which the Responsible Agency would later be asked to approve. Comments should focus on any shortcomings in the EIR, the appropriateness of using a Negative Declaration, or on additional alternatives or mitigation measures which the EIR should include. The comments shall be limited to those project activities which are within the agency's area of expertise or which are required to be carried out or approved by the agency or which will be subject to the exercise of powers by the agency. Comments shall be as specific as possible and supported by either oral or written documentation. (e) Decision on Adequacy of EIR or Negative Declaration. If a Responsible Agency believes that the final EIR or Negative Declaration prepared by the Lead Agency is not adequate for use by the Responsible Agency, the Responsible Agency must either: (1) Take the issue to court within 30 days after the Lead Agency files a Notice of Determination; (2) Be deemed to have waived any objection to the adequacy of the EIR or Negative Declaration; (3) Prepare a subsequent EIR if permissible under Section 15162; or (4)Assume the Lead Agency role as provided in Section 15052(a) (3). (f) Consider the EIR or Negative Declaration. Prior to reaching a decision on the project, the Responsible Agency must consider the environmental effects of the project as shown in the EIR or Negative Declaration. A subsequent or supplemental EIR can be prepared only as provided in Sections 15162 or 15163. (g) Adoption of Alternatives or Mitigation Measures.. (1) When considering alternatives and mitigation measures, a Responsible Agency is more limited than a Lead Agency. A Responsible Agency has responsibility for 3 � �g � Attachment 3 mitigating or avoiding only the direct or indirect environmental effects of those parts of the project which it decides to carry out, finance, or approve. (2) When an EIR has been prepared for a project, the Responsible Agency shall not approve the project as proposed if the agency finds any feasible alternative or feasible mitigation measures within its powers that would substantially lessen or avoid any significant effect the project would have on the environment. With respect to a project which includes housing development, the Responsible Agency shall not reduce the proposed number of housing units as a mitigation measure if it determines that there is another feasible specific mitigation measure available that will provide a comparable level of mitigation. (h) Findings. The Responsible Agency shall make the findings required by Section 15091 for each significant effect of the project and shall make the findings in Section 15093 if necessary. (i) Notice of Determination. The Responsible Agency should file a Notice of Determination in the same manner as a Lead Agency under Section 15075 or 15094 except that the Responsible Agency does not need to state that the EIR or Negative Declaration complies with CEQA. The Responsible Agency should state that it considered the EIR or Negative Declaration as prepared by a Lead Agency. Note: Authority cited: Sections 21083 and 21087, Public Resources Code; Reference: Sections 21165, 21080.1, 21080.3, 21080.4, 21082.1., and 21002.1(b) and (d), Public Resources Code. Discussion: Most of the statutory requirements for the CEQA process are focused on the Lead Agency, but the statute clearly requires Responsible Agencies to take a number of actions also. Responsible Agencies are generally freed from the need to prepare EIRs or Negative Declarations because they must use the document prepared by the Lead Agency subject to a few exceptions. This section spells out the process to be used by a Responsible Agency. The section organizes the requirements according to the probable sequence of actions as a Responsible Agency administers the process. Public Resources Code Sections 21104 and 21153 as amended by Chapter 1514, Statutes of 1985 now limit comments by responsible and other public agencies to activities which fall in an area of expertise of the agency or which are required to be carried out or approved by the agency. Further, such comments must be supported by specific documentations. Corresponding Guideline section 15044 and this section have been amended to conform to the revised provisions of the Public Resources Code. 4 c —g3 Attachment Z o o u_ M c 10 D ,: N � Z <D O E led w a 3 0 w o m >. �• IL � c�. — C LU v LU n a w a o _ z w LU OR aCL z10 0. ,n 0 CDt 13- o m > a c� o U �D I