25C - AGMT - WATER PURCHASE ORDER

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THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA • Board of Directors Finance and Insurance Committee 11/18/2014 Board Meeting RM Approve the proposed terms for Purchase Orders with Member Agencies; authorize the General Manager to execute Purchase Orders with Member Agencies consistent with the proposed terms; and approve the Proposed Amendments to the Administrative Code Executive Summary The Board is asked to approve the proposed terms for Purchase Orders with member agencies as outlined in Attachment 1, authorize the General Manager to execute Purchase Orders with member agencies consistent with the proposed terms, and approve the proposed amendments to the Administrative Code as shown in Attachment 3. The Purchase Orders will allow member agencies to purchase greater amounts of Metropolitan system water at the Tier 1 Supply Rate in exchange for a commitment to purchase a specific amount of water at a minimum over time which provides Metropolitan with a measure of revenue certainty over the term of the agreements. Details Purchase Orders are voluntary agreements that determine the amount of water that a member agency can purchase at the Tier 1 Supply Rate. They allow member agencies to purchase a greater amount of water at the lower Tier 1 Supply Rate than would otherwise be authorized by the Administrative Code. In exchange for the higher Tier 1 Maximum, the member agency commits to purchase a specific amount of water (based on past purchase levels) over the term of the agreement. Such agreements allow member agencies to manage costs and provide Metropolitan with a measure of secure revenue. As previously explained to the Board and as further clarified below, Purchase Orders are adjuncts to the cost -of- service study in that they implement Metropolitan's tiered supply pricing structure. Metropolitan's current cost -of service study, as well as the current budget and rates, assume no Tier 2 sales. If received, Tier 2 revenue will be used towards the incremental cost of acquiring additional water supplies to serve users with increasing demands and to fund additional conservation efforts. The Tier 2 Supply Rate also encourages efficient water resource management and conservation by indicating to member agencies the increased costs associated with demand increases. Purchase Orders also allow member agencies to maintain and manage local supplies by, for example, removing possible replenishment disincentives. The existing Amended and Restated Purchase Order agreements, entered into with 22 member agencies, expire on December 31, 2014. Through discussions with the Board and the member agencies, a proposal was developed for new ten -year Purchase Orders. The key terms of the new Purchase Orders are outlined in greater detail in Attachment 1, and include: • A ten -year term, effective January 1, 2015 through December 31, 2024; • For member agencies executing a Purchase Order, the choice between the demand base of the current Amended and Restated Purchase Order agreements, which is the highest fiscal year purchases during the 13 -year period of FY 1990 through FY 2002, or the highest year in the most recent 12 -year period of Exhibit 2 25C -12