![](media/image1.wmf){width="1.0in" height="1.0152777777777777in"}United
States Department of the Interior

BUREAU OF RECLAMATION

Mid-Pacific Regional Office

IN REPLY 16349 Shasta Dam Boulevard

REFER TO: Shasta Lake, California 96019

MP-440

WTR-4.0

July 11, 2002

VIA ELECTRONIC MAIL ONLY

Stuart L. Somach

General Counsel

Glenn-Colusa Irrigation District

400 Capital Mall, Suite 1900

Sacramento, CA 95814-4407

Subject: Sacramento River Settlement Contract - Reclamation Response to
Contractors'

May 31, 2002, Draft Contract

Dear Mr. Somach:

The Bureau of Reclamation's guiding principle in the Sacramento River
Settlement Contract Renewal Negotiations remains the same as when the
original contracts were negotiated nearly 40 years ago. That is, given
the uncertainties of an unadjudicated river system, we believe the
various parties should conduct themselves in a manner that respects both
Contractors' interests in providing irrigation water and the United
States' interests in operating the Central Valley Project (CVP), one of
the Nation's most significant water resource management infrastructures.

As negotiations continue, Reclamation's actions will be predicated upon
protecting:

\(1\) the Federal investment; (2) CVP Project Water Service Contractors
and other CVP purposes; and (3) the environment. Reclamation's proposals
have been prepared with these principles in mind, as well as on the
belief that most of the existing language has served all parties well
over the past several decades.

In this proposal, Reclamation conveys a reasonable offer we believe
meets our mutual needs. The offer is presented as a "package" and
represents some give and take from the parties' recent proposals. The
cornerstones of the package include:

1.  Leaving water quantities untouched both as to total volume and
    allocation between Base Supply and Project Water (subject to
    verification by a water needs assessment).

2.  Continuing to assure the Sacramento River Settlement Contractors a
    minimum 75 percent allocation of water, even in critically dry
    years.

3.  Calculating Project Water payment annually using cost-of-service
    rates and appropriate charges.

4.  Requiring payment for the benefit of rescheduling the monthly
    quantities in Exhibit A from one month to another.

5.  Implementing a modified "take or pay" principle.

6.  Requiring Contracting Officer approval of Contractor proposals to
    transfer Base Supply and Project Water.

7.  Continuing the principle that return flows can be used and reused by
    the District within that District's boundary, but Reclamation is not
    relinquishing any right it may have to such return flows once the
    water leaves the District's boundary.

The proposed package honors commitments made 40 years ago and allows us
to continue our strong partnership in the future. With that in mind, the
following comments will explain the changes Reclamation has made in the
enclosed draft contract. In preparing this proposal, we have considered
the points raised by the Contractors' in our negotiation sessions.

1\. The initial title block identifies the United States Department of
the Interior, Bureau of Reclamation, and the Central Valley Project.
This allows Reclamation to readily identify the document.

2\. With respect to the title, we understand the Contractors' desire to
differentiate this settlement contract from a strictly water service
contract. However, the term Water Rights Settlement implies a permanent
adjustment of water rights such as was accomplished in the San Joaquin
Exchange Contracts. As a compromise, the proposed language demonstrates
the contract was entered into as settlement of a water rights dispute,
and that it also provides for the delivery of Central Valley Project
water.

3\. We have accepted the majority of the changes you proposed in the
preamble. We believe that the reference to the 1939 Act should include
reference to section 9 as well as section 14 as there is an element of
Central Valley Project water.

4\. We have changed the first "Whereas" to eliminate the detailed
itemization of project purposes as requested by the Contractors and have
replaced it with a generic statement of purposes.

5\. We have accepted your proposed changes to the second and fourth
^"^Whereas" clauses.

6\. We have accepted a portion of your recommended change to the fifth
"Whereas", but have also modified your language as discussed at the June
26, 2002, negotiation.

7\. Reclamation has accepted the majority of the change proposed to the
sixth "Whereas". Some editorial revisions remain to be discussed.

8\. Article 1(a). This contract was not intended to equate Base Supply
with a quantified amount of water to be diverted under a water right.
Our proposal recognizes the Contractors' right to divert from the river
without quantifying that right.

9\. Article 1(b) reflects discussions at earlier negotiation sessions
and attempts to identify specific charges that would be applicable.

10\. Article 1(d) 2. We have returned to the language of the existing
contract and have changed the benchmark date to that used in the
original contract.

11\. Article 2. In addition to making what had been a further proviso to
Article 2 into a separate stand-alone subarticle (b), we have agreed to
the Contractors' suggested language indicating that conversion to a 9(d)
contract applies to Project Water only.

12\. Article 3(a). We did not include the addition of the word
"surface." We do not understand why it is necessary and need further
explanation why it adds value to the contract. We have added the phrase
"during the period April through October" in order to make this section
consistent with the definition of Base Supply.

13\. Article 3(b). We have accepted language offered by the Contractors
and have modified that language to reflect that diversions made pursuant
to after-acquired water rights are not a part of Base Supply or Project
Water. We have added language requiring the Contractor to identify in
their schedule any water to be diverted during the months of April
through October pursuant to water rights acquired by the Contractors
after the execution of the Existing Contract.

14\. Article 3(c). We have modified the existing scheduling provision to
provide for advance scheduling of the Contract Total.

15\. Article 3(c) has been modified but retains the requirement that
diversions during the period July-August/September not exceed the
aggregate of the Contract Totals for those months. This article allows a
Contractor to move diversion of water from one month to another (subject
to restrictions) and requires that the Contractor pay a fee based upon
storage costs for the flexibility being provided by Reclamation
facilities. The CVP has had constraints placed on its operational
flexibility in the period since the signing of the original contracts.
Given the direct diversion nature of the Contractors' water rights, it
is appropriate to recover a fee for this service provided at the
Contractors' request.

16\. Article 3(e). Reclamation's modifications to this Article retain
the original intent of these contracts to meet the demands for water
associated with a specific service area. The

> Contracting Officer's approval is proposed to ensure proposed
> transfers meet with Reclamation's Guiding Principles for these
> contracts.

17\. Article (3)(f). The Contractors' change cannot be agreed to, as it
would negate the rest of the contract. Reclamation's proposal clarifies
that the settlement contract is intended to cover each season from April
through October.

18\. Article 3(g)(4). Reclamation has retained the waiver of liability
for errors in operations. Without examples of how this language has
unfairly burdened the Contractor over the past 40 years, we cannot agree
to increasing our exposure.

19\. Article 4. Reclamation agrees with the principle that return flows
can be used and reused by the District within that District's boundary,
but Reclamation is not relinquishing any right it may have to such
return flows once the water leaves the District's boundary.

20\. Article 5. Reclamation has deleted the concept of "incremental
deficiencies" contained in this Article, and returned to the original
contract language.

21\. Article 6. Reclamation has retained most of this Article. However,
the last sentence has been deleted, as it would require Reclamation to
commit to agreements outside the scope of this contract.

22\. Article 7(a). Reclamation agrees with the rewording of this
Article, with the addition of "related" to clarify that landscape
irrigation relates to domestic use, and not to agricultural purposes.

23\. Article 7(b). Reclamation cannot agree to the Contractors' proposed
change regarding establishment of a baseline, as the U.S. Fish and
Wildlife Service (or the National Marine Fisheries Service) determines
the baseline to be used in preparation of biological opinions.

24\. Article 8(a). Reclamation is modifying its position on "take or
pay" to provide that only 75 percent of the Project Water will be
subject to "take or pay". Project Water delivered to the contractor in
excess of 75 percent of the amount shown in Exhibit A will be paid for
only if actually diverted. Article 8(j)(1) has also been changed to
reflect this modification.

25\. Article 8(d1). This Article is required to properly account for the
fees collected for the movement of water from one month to another, as
provided for in Article 3(c)(2).

26\. Article 8(e). Reclamation cannot agree to the Contractors'
proposal, as it would limit the scope of the activities described in
this Article.

27\. Article 8(h). Reclamation has changed this Article to reference the
proper section of the CVPIA that applies to transfers of Project Water
to non-CVP contractors.

28\. Article 9(a)(2). Reclamation has modified the Contractors' proposal
to clarify that this provision applies to Article 9(a) only.

29\. Article 9(b). **- *To be reviewed by Regional Solicitor -***

30\. Article 10(e). Reclamation believes that the existing language is
adequate.

31\. Article 10(f). We received the Contractor's proposal but we have
not yet reviewed it.

32\. Article 20. Reclamation's believes the original language of this
Article retains the intent of these contracts to meet the demands for
water associated with a specific service area.

33\. Article 21. Reclamation must retain approval over consolidations in
order to verify the financial integrity of the new entity and to ensure
the proposed consolidation is accomplished in a manner that recognizes
Reclamation's interests in operating the Central Valley Project.

34\. Article 29. *[Water Conservation]{.underline} **- ***We received
the Contractor's proposal but we have

not yet reviewed it.

> Sincerely,

/s/

> Michael J. Ryan
>
> Area Manager

Enclosure