August 5, 2002

Michael J. Ryan

U.S. Bureau of Reclamation

Shasta Area Manager

16349 Shasta Dam Boulevard

Shasta Lake, CA 96019-8400

Re: [Comments -- USBR 7/11-2002 Draft of Settlement
Contract]{.underline}

Dear Mr. Ryan:

Representatives of the Contractors have had an opportunity to review the
above-referenced draft and to also consider the information obtained
during our July 17, 2002 negotiation session. Following are our
comments/suggestions.

1\. With the exception of the 6th Recital, the modifications/changes in
the 7/11-2002 Draft of the Settlement Contract (hereinafter "7/11
Draft") through page 4, line 8, are acceptable.

2\. As discussed, we believe that the substance of the "reservation of
rights" provision is best dealt with in the context of the litigation
with some type of cross-reference, within the Settlement Contract, to
the litigation documents. With this in mind, we would delete the 6th
Recital.

3\. Article 1(a) --- We would add the word "Surface" before "water" in
the definition of "Base Supply."

4\. A *new* Article 1(b) --- We would add a definition to the Settlement
Contract for "Basin-Wide Water Management Plan. A proposed definition is
provided below:

> \(b\) "Basin-Wide Water Management Plan" shall mean the mutually
> agreeable basin-wide water management plan developed by the United
> States Bureau of Reclamation and various Contractors in the Sacramento
> River watershed in accordance with: (1) the agreement entitled
> "Memorandum of Understanding Between Named Sacramento River Settlement
> Contractors and the United States of America For the Preparation of
> Data in Aid of the Renewal of the Settlement Contracts," as executed
> by the parties thereto in January 1997; and (2) the related agreement
> entitled "Cost Share Agreement Between Participating Sacramento River
> Settlement Contractors and the U.S. Bureau of Reclamation For
> Technical Studies in Preparation For Renewal of Settlement Contracts,"
> dated August 31, 1998.

5\. Existing Article 1(b) --- We agreed to modify the definition of
"Charges" as follows:

> "Charges" shall mean the payment for Project Water that the Contractor
> is required to pay to the United States in addition to the "Rates"
> specified in this Contract. The Contracting Officer will, on an annual
> basis, determine the extent of these Charges. The type and amount of
> each Charge shall be specified in Exhibit D.

6\. Existing Article 1(d)(2) --- This article should be corrected to
both reflect the Existing Contract language as well as current
circumstances, as follows:

The second sentence and following of Article 1(d)(2) should be a new
paragraph which refers to Articles 1(d)(2) and 1(d)(1). It should read
as follows:

> For the purpose of determining a critical year, the computed inflow to
> Shasta Lake shall be performed in a manner that considers the extent
> of upstream development above Shasta Lake during the year in question,
> and shall be used as the full natural flow to Shasta Lake. In the
> event that major construction has occurred or occurs above Shasta Lake
> after September 1, 1963 and which has materially altered or alters the
> regimen of the stream systems contributing to Shasta Lake, the
> computed inflow to Shasta Lake used, to define a critical year, will
> be adjusted to eliminate the effect of such material
> alterations. . . .

7\. Existing Article 1(l) --- We would add the word "Surface" before the
word "Water" in the definition of "Project Water."

8\. A new Article 1(q) --- We would add a definition to the Settlement
Contract of "Surface Water." A proposed definition is provided below:

> \(q\) "Surface Water" shall mean only those waters that are subject to
> appropriation as surface water under California law.

I believe that this new definition of "Surface Water" and the
modifications to the definition of "Base Supply" and "Project Water" are
consistent with our discussions during the July 17, 2002 negotiating
session.

9\. We agree to the provisions of Article 1 that I have not otherwise
discussed.

10\. Article 2 --- We agree to the Article 2, 7/11 Draft language.

11\. Article 3 --- We propose the following modifications to Article
3(b):

> \(b\) The Contractor may have acquired rights to divert water from the
> Sacramento River during the period April through October, ~~which~~
> [that]{.underline} were obtained after the date of execution of the
> Existing Contract[, or the Contractor may acquire such rights in the
> future]{.underline}. All diversions made from the Sacramento River,
> pursuant to such rights, during the period April through October,
> shall not be considered a part of the quantity of ~~Base Supply and
> Project Water specified in Exhibit A~~ [Contract Total]{.underline};
> Provided, that the quantities diverted pursuant to the above rights
> shall be identified on the schedule submitted pursuant to Article 3(c)
> below.

We assume that this "after acquired water" can be scheduled prior to
"Project Water."

12\. With respect to Article 3(c), payment provision, we are attempting
to schedule a technical session to discuss the question of benefits. We
also have asked for an example of how the provision would operate. We
assume that a shift of water from, for example, October to April could
result in a benefit to CVP operations and that this potential benefit
will be accounted for when considering claimed impacts. (We note
parenthetically that the provisions of Article 3(c)(2) should be deleted
in any event. From a practical standpoint, in many cases, neither the
Contractor nor Reclamation is aware of "excess diversions" until after
they have occurred.)

13\. The first sentence of Article 3(c) should be revised to read:

Before April 1 and before the first day of each month thereafter [when a
revision is needed]{.underline}, the Contractor will submit a written
schedule to the Contracting Officer indicating the Contract Total to be
diverted by the Contractor during each month under this Settlement
[Contract]{.underline}.

14\. Article 3(e) is still under discussion. We have asked that the
proposed language be clarified by deleting the word "guidelines." We
have also asked that the language be modified to provide that
Reclamation's "consent" not be "unreasonably withheld" and that it be
"timely." In this regard, we suggest a time within which Reclamation
will complete its review, or the proposed transfer is deemed approved.
We have further requested that Article 3(e)(2) should stand on its own
merits; that is, Reclamation's "consent" *not* involve a determination
of "compliance" with the matters dealt with in Article 3(e)(2). We also
believe that it would be helpful to add language that provides that
movement of water pursuant to the Basin Wide Water Management Plan is
not a transfer.

15\. I believe that we agreed that the language on page 12, line 17, of
the 7/11 Draft should be modified to read as follows: ". . . Settlement
Contract for surface irrigation or underground storage for the benefit
of the lands shown on . . . ." Assuming this is the case, we agree with
the language of Article 4.

16\. We agree with the language of Article 5.

17\. With the understanding that language cross-referencing other
related agreements will be added to individual Settlement Contracts, as
appropriate, we agree with the language in Article 6.

18\. We propose the addition of the following language prior to the last
sentence in Article 7(b).

> The Existing Contract, which evidences in excess of 40 years of
> diversions, for agricultural uses, of the quantities of water provided
> for in Article 3, and the underlying water rights of the Contractor
> will be considered in developing an appropriate base-line for the
> Biological Assessment prepared pursuant to the Endangered Species Act,
> and in any other needed environmental review.

19\. With respect to the "take-or-pay" issues that are addressed in
Article 8, we propose the addition of the following concept prior to the
last sentence in Article 8(a):

> The Contractor may notify the Contracting Officer not later than
> [\[DATE\]]{.underline} , in any year, that it will not take all or a
> portion of its Project Water. In that event, the amounts of Project
> Water on Exhibit "A" will be modified to reflect that notification and
> Rates and Charges will be imposed based upon that modification. The
> modification will be for a period of years with an option on the part
> of the Contractor to return to the full Exhibit A amounts of Project
> Water provided for in this Settlement Contract at the end of this
> period.

20\. As we discussed during the July 17, 2002 negotiating session, we
believe that what is dealt with in the 7/11 Draft Article 9(b) language
at page 22, lines 11-21, was negotiated and dealt with as part of the
preceding proviso and we are not willing to open that issue for
re-negotiation. To do so would be to re-evaluate and re-balance the
fundamental risk assessment that was undertaken 40 years ago.

21\. Articles 10 and 29 --- I have attached what we understand has been
agreed to with respect to language for these articles.

22\. We would propose modifying Article 20, as follows:

Delete the phrase "of Place of Use" from the heading.

> ~~19~~ [20]{.underline}. ~~(a) Unless the [written consent of
> the]{.mark} United States is first obtained [consulted]{.underline} no
> change shall be made in the place of water use shown on Exhibit B.~~
>
> (~~b~~ [a]{.underline}) While this ~~contract~~ [Settlement
> Contract]{.underline} is in effect, no change shall be made in the
> area of the Contractor as shown on its Exhibit B, by ~~inclusion or
> exclusion~~ [annexation or detachment]{.underline} of lands, by
> dissolution, consolidation, or merger or otherwise, [except
> upon]{.mark} ~~[unless]{.underline}~~ the Contracting [Officer's
> written assent thereto]{.mark} ~~[Officer is first
> consulted]{.underline}~~. [Such consent will not be unreasonably
> withheld and will be provided in a timely manner.]{.underline} \[There
> may need to be Contractor specific language added.\]
>
> (~~c~~ [b]{.underline}) In the event lands are [annexed to
> or]{.underline} ~~excluded~~ [detached]{.underline} from the area of
> the Contractor, as provided herein, the quantity of Project Water to
> be diverted may be [increased or]{.underline} decreased[, as may be
> appropriate,]{.underline} pursuant to a supplemental agreement to be
> executed in respect thereto.

23\. We agree to the balance of the 7/11 Draft.

I assume that we will focus on the remaining issues in disagreement
during our August 14, 2002 negotiating session. I would also like to
confirm that we, in fact, have "agreement" on the other provisions of
the Settlement Contract. In this context, any final agreement on the
provisions of the renewal Settlement Contracts will require individual
Settlement Contractor approval.

Very truly yours,

Stuart L. Somach

General Counsel

Glenn-Colusa Irrigation District

SLS:sb

Encl.

cc: J. Mark Atlas

Kevin M. O'Brien

Paul Bartkiewicz

William H. Baber

John Kenny

David J. Guy

Gary Nuss

Marc Van Camp

O.L. "Van" Tenney

New Articles 10 & 29

As Modified 7/17/02

R.O. Draft 05/15-2002

SRSC Draft 05/22/02

SRSC Draft 05/31/02

R.O Draft 6/21/02

SRSC Draft 7/9/02

> Revision Agreed to During     7/17/02 Negotiating Session     (Drafted
> 8/4/02)

#### 

#### MEASUREMENT OF WATER

10\. (a) All water diverted by the Contractor from Sacramento River will
be diverted at the existing point or points of diversion shown on
Exhibit A or at such other points as may be mutually agreed upon in
writing by the Contracting Officer and the Contractor.

\(b\) All water diverted from the Sacramento River pursuant to this
Contract will be measured or caused to be measured by the United States
at each point of diversion with existing equipment or equipment to be
installed, operated, and maintained by the United States, and/or others,
under contract with and at the option of the United States. The
equipment and methods used to make such measurement shall be in
accordance with sound engineering practices. Upon request of the
Contractor, the accuracy of such measurements will be investigated by
the Contracting Officer and any errors appearing therein will be
corrected.

\(c\) The right of ingress to and egress from all points of diversion is
hereby granted to all authorized employees of the United States. The
Contractor also hereby grants to the United States the right to install,
operate, maintain and replace such equipment on diversion or carriage
facilities at each point of diversion as the Contracting Officer deems
necessary.

\(d\) The Contractor shall not modify, alter, remove, or replace
diversion facilities or do any other act which would alter the
effectiveness or accuracy of the measuring equipment installed by the
United States or its representatives unless and until the Contracting
Officer has been notified with due diligence and has been given an
opportunity to modify such measuring equipment in such manner as may be
necessary or appropriate. In the event of an emergency the Contractor
shall notify the United States within a reasonable time thereafter as to
the existence of the emergency and the nature and extent of such
modification, alteration, removal, or replacement of diversion
facilities.

\(e\) The Contractor shall pay the United States for the costs to
repair, relocate, or replace measurement equipment when the Contractor
modifies, alters, removes, or replaces diversion or carriage facilities.

\(f\) Contractor and Contracting Officer shall develop a mutually
agreeable surface water delivery water measurement program which shall
be implemented by Contractor, and such measurement program shall be
consistent with the conservation and efficiency criteria evaluating
water conservation plans as provided in Article 29(a)**.**

\(g\) All new surface water delivery systems installed within the lands
delineated on Exhibit B after the effective date of this Contract shall
also comply with the measurement provisions described in this Article.

\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*\*

## WATER CONSERVATION

29\. (a) Prior to the diversion of Project Water, the Contractor shall
be implementing an effective water conservation and efficiency program
based on the Basin-Wide Water Management Plan and/or Contractor\'s water
conservation plan that has been determined by the Contracting Officer to
meet the conservation and efficiency criteria for evaluating water
conservation plans established under Federal law. The water conservation
and efficiency program shall contain definite water conservation
objectives, appropriate economically feasible water conservation
measures, and time schedules for meeting those objectives. Continued
diversion of Project Water pursuant to this Contract shall be contingent
upon the Contractor's continued implementation of such water
conservation program. In the event the Contractor\'s water conservation
plan or any revised water conservation plan completed pursuant to
subdivision (c) of Article 29 of this Contract have not yet been
determined by the Contracting Officer to meet such criteria, due to
circumstances which the Contracting Officer determines are beyond the
control of the Contractor, Project Water deliveries shall be made under
this Contract so long as the Contractor diligently works with the
Contracting Officer to obtain such determination at the earliest
practicable date, and thereafter the Contractor immediately begins
implementing its water conservation and efficiency program in accordance
with the time schedules therein.

\(b\) The Contractor shall submit to the Contracting Officer a report on
the status of its implementation of the water conservation plan on the
reporting dates specified in the then existing conservation and
efficiency criteria established under Federal law.

\(c\) At five (5)-year intervals, the Contractor shall revise its water
conservation plan to reflect the then current conservation and
efficiency criteria for evaluating water conservation plans established
under Federal law and submit such revised water management plan to the
Contracting Officer for review and evaluation. The Contracting Officer
will then determine if the water conservation plan meets Reclamation's
then current conservation and efficiency criteria for evaluating water
conservation plans established under Federal law.

\(d\) If the Contractor is engaged in direct ground-water recharge, such
activity shall be described in the Contractor's water conservation plan.

***\[Add definition of "Basin-Wide Water Management Plan" as new Article
1(b).\]***