October 1, 2002 

Via Email and First Class Mail 

Michael J. Ryan 

U.S. Bureau of Reclamation 

Shasta Area Manager 

16349 Shasta Dam Boulevard 

Shasta Lake, CA 96019-8400 

 Re: Settlement Contractors’ Further Red-Line Draft of Renewal Contract for 

Discussion at the October 7, 2002 Negotiating Session 

Dear Mr. Ryan: 

 In preparation for our October 7, 2002 negotiating session, I am enclosing an 

October 1, 2002 draft of the Settlement Contract. This draft includes and highlights revisions 

discussed during the September 11, 2002 negotiating session. The provisions that have been 

tentatively agreed to are not shaded. Accordingly, we anticipate that our negotiations and 

discussions would primarily focus on the shaded provisions. Following is a discussion of the 

shaded provisions, and an explanation of the further modifications proposed by the Settlement 

Contractors: 

 1. A “reservation of rights” recital has been added as the 6th Whereas clause, 

which is intended to incorporate certain provisions previously developed by the Settlement 

Contractors and Reclamation, as modified to reflect the dismissal of the Article 9 litigation. 

 2. A further proviso is proposed at the end of Article 3(b), which we believe is 

consistent with our prior discussion of other acquired water rights. 

 3. A new Article 3(c)(1) is included, which is intended to reflect the concepts and 

issues we discussed during the September 11, 2002 negotiating session regarding 

Reclamation’s proposed rescheduling fee for the movement of base supply. In this regard, it 

bears reemphasis that this base supply rescheduling fee is a significant departure from the 

existing Settlement Contracts. Reclamation proposed this while simultaneously asserting that 

it desired to make only the minimum changes necessary in the contracts during these contract 

renewal negotiations. Under the existing contracts, no fee may be charged for rescheduling 

base supply. The only conditions on rescheduling base supply are that the Contractor must 

submit a written schedule, and any rescheduling may not cause the Contractor to divert 

quantities of base supply in excess of the Contract Total or the applicable limit during the 

Contractor’s critical months. In addition, it is the Settlement Contractors’ position that under 
Michael J. Ryan 

October 1, 2002 

Page 2 

Article 9(a) of the existing Settlement Contract, the United States is precluded from imposing 

this fee. Nonetheless, as a further effort to break the deadlock on this issue, the Settlement 

Contractors are willing to offer a payment to Reclamation as set forth in the new proposed 

language. 

As support for this proposal, we have also enclosed herewith a table entitled “Table of 

Year Type and SWRCB Water Availability Notices.” This table adds information to the table 

presented by Reclamation during the September 11, 2002 session, which was marked as 

USBR Exhibit 9 for our negotiations. In accordance with the information set forth in the 

enclosed table, the Settlement Contractors propose the imposition of the rescheduling fee in 

the months of June, July, and August of Critical Years (as defined in the Settlement 

Contract).1 The proposed imposition of the fee only in those months during Critical Years is 

generally based upon the frequency and duration of the SWRCB’s unavailability notices, and 

the fact that even under Reclamation’s most recent proposal, Term 91 was not in effect after 

August 31 (except in 1992), and rarely in effect prior to mid-June, during the 1990-2002 

period. The 50% figure is intended to account for the fact that in many of the June months 

under Reclamation’s most recent proposal, Term 91 was not in effect for the entire month. In 

addition, in two of the three years when there was a notice of unavailability, water was still 

available for diversion in June. The 50% figure is also derived in part from the fact that the 

Settlement Contractors will only be receiving 75% of their supplies during these Critical 

Years. In closing, the Settlement Contractors believe that this is a reasonable means to end 

the deadlock on this issue, particularly when viewed within the context of the existing 

Settlement Contracts, where absolutely no fee may be imposed. 

4. Consistent with the preceding item, the Settlement Contractors have deleted 

Reclamation’s proposed definition for “Term 91” in Article 1(q). 

 5. After further review and consideration, the Settlement Contractors propose 

deleting, in its entirety, Article 3(c)(2). This prior written approval provision is not included 

in the existing Settlement Contracts, and is a wholly new requirement that was proposed by 

Reclamation. In addition, requiring advance written approval is inconsistent with Article 3(c) 

of the draft renewal contract, which already recognizes the Contractor’s right to change its 

monthly diversions, provided that the Contractor submits a written schedule before April 1 

and before the first day of each month thereafter, as appropriate. 

 6. The proposed changes to existing Article 3(c)(3) are merely grammatical. 

7. As we discussed during the September 11, 2002 session, we understand that 

Reclamation is willing to consider alternative approaches to the take-or-pay provisions of 

Articles 8(a), and the related water conservation requirements under Article 29. In this 

regard, the Settlement Contractors remain concerned that the renewal contract, as presently 

 

1

 Note, under the existing contacts and the draft renewal contract, a Contractor could not move base 

supply from non-critical months into critical months, but could move base supply within critical months or from 

critical months into non-critical months. Under these limitations, the proposed fee would be charged for moving 

July base supply into August, or August base supply into July. The fee would also be charged when base supply 

water from any month is moved into June. 
Michael J. Ryan 

October 1, 2002 

Page 3 

structured, provides no incentives for additional water conservation by the Settlement 

Contractors. To address this concern, the Contractors wish to discuss with Reclamation, 

initially on a conceptual level, the development of a contractual mechanism that would allow 

for the adjustment of rates based on a determination by Reclamation that water conservation 

measures implemented by a Contractor have resulted in actual benefits to the CVP. The 

Settlement Contractors also believe that such a provision would provide them with a financial 

incentive for implementing costly new water conservation measures. 

 In addition, a few of the Settlement Contractors may propose that they maintain their 

100% take-or-pay obligation, but as part of maintaining this obligation, these Contractors 

would not have the base supply rescheduling fee provision (Article 3(c)(1)) included in their 

renewed Settlement Contracts. We assume that Reclamation will address this additional 

option with such Contractors during the Contractor-specific negotiations. 

 Finally, while the Settlement Contractors have reviewed, in general, Reclamation’s 

September 30, 2002 email containing Reclamation’s proposed revised language for Article 9 

of the draft renewal contract, we are not yet in a position to respond. We will, however, be 

able to address these issues during our October 7, 2002 negotiating session. 

 Please do not hesitate to contact me if you have any questions or need additional 

information. 

 Very truly yours, 

 Stuart L. Somach 

 General Counsel, 

 Glenn-Colusa Irrigation District 

Encls. 

cc: Kevin O’Brien 

 Mark Atlas 

 Paul Bartkiewicz 

 William Baber 

 John Kenny 

 Van Tenney 

 William Menke 

 Dennis Michum 

 David Guy 

 Marc Van Camp 

 Andrew Hitchings 

SLS:sb