REPORT TO COUNCIL
SUBJECT
Title
Action on an Amendment to the Amended and Restated Water Supply Agreement between the City and County of San Francisco and its Wholesale Customers in Alameda County, San Mateo County and Santa Clara County, and Updated Tier 2 Drought Response Implementation Plan
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
In June 2009, the City of Santa Clara entered into a Water Supply Agreement with the City and County of San Francisco (San Francisco) and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (2009 WSA). The 2009 WSA establishes the terms by which the 26 Wholesale Customers purchase water from San Francisco’s Regional Water System (RWS). The 2009 WSA builds upon the 1984 "Settlement Agreement and Master Water Sales Contract between the City and County of San Francisco and Certain Suburban Purchasers in San Mateo County, Santa Clara County and Alameda County."
In September 2017, the Bay Area Water Supply and Conservation Agency (BAWSCA) and the Water Management Representatives (WMR) of the BAWSCA member agencies began reviewing the issue of Minimum Purchase Requirements, as described in Section 3.07.C of the WSA, and discussing the creation of a process to transfer minimum annual purchase quantities among the Wholesale Customers. Throughout 2017 and 2018, the WMR held multiple meetings during which the agencies currently subject to Minimum Purchase Requirements (Original Minimum Purchase Customers - Alameda County Water District, City of Milpitas, City of Mountain View and the City of Sunnyvale) and the other Wholesale Customers shared their interests and concerns regarding changes to the Minimum Purchase Requirements and allowing transfers of minimum annual purchase quantities.
In 2019, BAWSCA approved the 2018 Amended and Restated WSA (2018 WSA), at which time the Wholesale Customers expressed a collective interest in working together to develop a process for the expedited and permanent transfer of minimum annual purchase quantities. The Wholesale Customers directed BAWSCA to facilitate negotiation of a new WSA amendment to provide a procedure for expedited and permanent transfers of minimum annual purchase quantities in a manner that safeguards the financial and water supply interests of Wholesale Customers not participating in such transfers. This amendment was memorialized in the 2021 Amended and Restated WSA (2021 WSA).
Tier 2 Plan Negotiations and Development of Minimum Purchase Quantity Reset Proposal
In January 2021, BAWSCA began facilitating an update to the Tier 2 Plan, the method for allocating water from the RWS among the Wholesale Customers during shortages caused by drought. The Tier 2 Plan is an agreement among the 26 Wholesale Customers and must be unanimously adopted by them. Each Wholesale Customer appointed a lead negotiator to represent the interests of its agency in the negotiations. Between January 2022 and June 2024, BAWSCA and the lead negotiators, supported by a consulting firm providing technical and modeling expertise, met at least 62 times, most often for half-day, in-person meetings and smaller virtual sub-group sessions, to negotiate the terms of the updated Tier 2 Plan.
In November 2021, San Francisco declared a water shortage emergency in response to the Governor’s executive action declaring a drought state of emergency across most of California. This action triggered implementation of the Tier 1 and Tier 2 Plans by BAWSCA and San Francisco for the first time. The Tier 1 Plan allocates RWS water between San Francisco retail customers and the Wholesale Customers collectively. The Tier 2 Plan is the method for allocating the Wholesale Customers’ share of RWS supply during a drought emergency among the 26 Wholesale Customers.
Throughout the two and a half years of Tier 2 Plan negotiations, the Wholesale Customers gained insight into unique characteristics of each agency and specific challenges related to water supplies and droughts. During these discussions, Wholesale Customers subject to the Minimum Purchase requirements (Minimum Purchase Customers) articulated the unique challenges that the Minimum Purchase Requirements present. More detailed information about these issues is provided in Attachment 6, the Summary of the WSA Amendments.
In June 2023, following several years of discussions regarding the Minimum Purchase Requirements, San Francisco proposed amending the 2021 WSA to reset the existing minimum annual purchase quantities to align with current water consumption trends, while protecting investment in the RWS. For the remainder of 2023, the San Francisco Public Utility Commission (SFPUC), the Original Minimum Purchase Customers, and BAWSCA held multiple meetings to identify amendments that would address challenges related to the Minimum Purchase Requirements. Once the SFPUC and the Original Minimum Purchase Customers finalized their recommended amendments to the Minimum Purchase Requirements, the Original Minimum Purchase Customers presented the proposals to the broader Wholesale Customers’ group to secure their support. Negotiations among the Wholesale Customers were concluded in Fall 2024.
In June 2024, the lead negotiators concluded negotiations on the updated Tier 2 Plan. The agency representatives collectively agreed that they were ready to recommend the Tier 2 Plan to their governing boards for adoption, the Tier 2 Drought Response Implementation Plan is included as Attachment 5. A summary of the WSA amendments to the Tier 2 Plan is provided in Attachment 7.
Tier 1 Plan Amendment
In Fall of 2024, all 26 Wholesale Customers and San Francisco negotiated an amendment to the Tier 1 Plan in the WSA to incorporate a new “Tier 1 Family Plan,” whereby San Francisco may only apply excess use charges to Wholesale Customers who exceed their individual shortage allocation when the collective Wholesale Customer usage exceeds the Tier 1 allocation. A more detailed summary of the WSA amendments is provided in Attachment 7.
DISCUSSION
The proposed Amendments to the Water Supply Agreement (Attachment 2) and updated Tier 2 Drought Response Implementation Plan (Attachment 5) provides an overview of two important water supply reliability contract actions:
(1) An amendment to the Amended and Restated Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (WSA): This amendment addresses three key areas:
a. Minimum Purchase Requirements and Annual Notice: Modifies Minimum Purchase requirements to align with evolving water supply conditions. SFPUC will send a written notice to each wholesale customer regarding minimum purchase quantity.
b. Waiver and Rebound Year: The minimum annual purchase requirements will be waived during a drought or other period of water shortage. Tier 1 Water Shortage Allocation Plan (Tier 1 Plan): Establishes a new method for considering collective Wholesale Customer SFPUC purchases when determining how excess use charges will be applied.
c. Tier 2 Drought Response and Implementation Plan (Tier 2 Plan): Establishes method for allocating the Wholesale Customers’ shares of RWS supply among the 26 Wholesale Customers.
d. Updates: Revisions to address discrete issues that arose over the course of implementing the WSA.
(2) An updated Tier 2 Drought Response Implementation Plan (Tier 2 Plan): The Tier 2 Plan provides the method for allocating water from the San Francisco Regional Water System (RWS) among the Wholesale Customers during periods of shortage caused by drought.
This approval is conditioned upon all of the other 26 Wholesale Customers approving the Tier 2 Plan on or before December 31, 2025.
During Tier 2 negotiations City staff, in collaboration with BAWSCA staff and Wholesale Customer representatives, negotiated an improved drought allocation for San Francisco wholesale water purchases under the revised Tier 2 Plan. Under the previous Tier 2 Plan with a 15% cutback declared by San Francisco during a drought, Santa Clara received a 34% cutback. Under the new Tier 2 Plan, that cutback will be 16%, a substantially improved allocation.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
Approval of these amendments has a minimal fiscal impact. BAWSCA estimates wholesale water cost increases of $0.007 to $0.040 per CCF (0.13% to 0.72%) as a result of implementing this new plan. Based on 2024 wholesale water purchases from San Francisco, the fiscal impact to Santa Clara’s Water Utility would be between $1,000 and $6,000 annually, which can be absorbed in the Water Utility operating budget.
COORDINATION
This report was coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Adopt the Resolution Approving an Amendment to the Restated Water Supply Agreement (WSA) between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County for Minimum Purchase Requirements and the Tier 1 Water Shortage Allocation Plan on the terms presented, in a final form approved by the City Attorney.
2. Adopt the Resolution Approving the Amendment for Tier 2 Drought Response Implementation Plan (Tier 2 Plan) on the terms presented, in a final form approved by the City Attorney.
Staff
Reviewed by: John Ramirez, Director, Water & Sewer Utilities
Approved by: Jovan Grogan, City Manager
ATTACHMENTS
1. Proposed Resolution Amending WSA for Minimum Purchase and Tier 1
2. Redline Amended Water Supply Agreement Showing Changes to Sections 3.07, 2.03 (C), 3.09, 9.07, E, E-3 and H
3. Clean Amended Water Supply Agreement including Changes to Sections 3.07, 2.03 (C), 3.09, 9.07, E, E-3 and H
4. Proposed Resolution Approving Updated Tier 2 Plan
5. Tier 2 Drought Response Implementation Plan
6. Summary of WSA Amendments Minimum Purchase Quantity
7. Summary of WSA Amendments Tier 1 and Tier 2 Plan