25C - AGMT - WATER PURCHASE ORDER

Home Browse Search

11/18/2014 Board Meeting 8 -1 Page 2 FY 2003 through FY 2014. The demand base is unique for each member agency, reflecting its use of Metropolitan's system water over time; • An overall purchase commitment by the member agency based on the demand base period chosen, times ten to reflect the ten -year Purchase Order term. Those agencies choosing the more recent 12 -year period may have a higher Tier 1 Maximum and commitment. The commitment is also unique for each member agency; • The opportunity to reset the base period demand using a five -year rolling average; • Any obligation to pay the Tier 2 Supply Rate will be calculated over the ten -year period, consistent with the calculation of any Purchase Order commitment obligation; and • An appeals process for agencies with unmet purchase commitments that will allow each acre -foot of unmet commitment to be reduced by the amount of production from a local resource project that commences operation on or after January 1, 2014. The Administrative Code provides that a member agency's Tier 1 Maximum is 60 percent of their calculated Revised Base Firm Demand. Each member agency's Revised Base Firm Demand is shown in Administrative Code Section 4122. Under the Purchase Orders, member agencies will have the option to purchase a greater amount of water at the lower Tier 1 Supply Rate in exchange for a commitment to purchase a minimum amount of water over the term of the Purchase Order. The current sum of the Tier I Maximum for member agencies, with and without Purchase Orders, totals 2.05 million acre -feet (MAF) for Calendar Year 2014. Discussions with member agencies regarding possible new Purchase Orders indicate that the total sum of the Tier 1 Maximum amounts is expected to remain at approximately 2.05 MAF. The current sum of the annual average commitment for member agencies with a Purchase Order total approximately 0.9 MAF; the total sum of the annual average commitment for member agencies anticipated to execute a new Purchase Order is also expected to remain at approximately 0.9 MAF. Some member agencies use Metropolitan as a full requirements provider, some use Metropolitan as a partial requirements provider, and some member agencies use Metropolitan for standby service. The cost -of- service analyses and the resulting Readiness -to -Serve Charge, Capacity Charge, and volumetric rates capture the costs of these varying needs. Tiered supply rates, however, allow Metropolitan to cover higher incremental resource costs to supply users with increasing demands. Tier 2 revenues realized in the current or future biennial budget period will be transferred to the Water Management Fund to cover these higher incremental resources costs, including North of Delta transfers, as well as additional conservation expenses to address the increased demand and mitigate its impact. For member agencies that sign new Purchase Orders and commit to purchase a minimum amount of water, their obligation to pay the Tier 2 Supply Rate will be calculated over the term of the Purchase Order, consistent with the calculation of the commitment obligation. In this way, the Purchase Order focuses any Tier 2 obligation on agencies with demands that are increasing or agencies that are unable to maintain local resources on an ongoing basis, rather than hydrologic variations which are accommodated in Metropolitan's current supply portfolio and financial reserves. Calculating member agencies' Tier 2 obligations over the entire term also accommodates responsible and sustainable water management by member agencies that may be cost prohibitive if Tier 2 obligations were calculated annually. For example, the cumulative calculation of any Tier 2 obligation allows member agencies with Purchase Orders to take large amounts of water in a short period of time in order to replenish storage but still stay within their Tier 1 base demand as long as they manage their deliveries over the long term. Member agencies that accrue a Tier 2 obligation by virtue of exceeding their Tier 1 Maximum at the end of year five of the Purchase Order will pay their Tier 2 obligation annually. Any member agency without a Purchase Order must pay their Tier 2 obligation in the calendar year in which it accrues. Member agencies give their prospective commitments considerable deliberation when determining whether to sign a Purchase Order or not. Their commitment to purchase system water from Metropolitan over the term 25C -13