1. Southern California Agricultural Water Team Agricultural Water Summit November 12, 2008 Escondido, CA

2. Overview  Introduction −Interim Ag Water Program Background  Water Supply Conditions −Storage Conditions/2009 Outlook  MWD IAWP Revisions −Phase Out −Opt-Out/Ag Conservation Program −SDCWA Special Ag Water Rate  Decision Support −MWD Shortage Allocation Plan −MWD Rate Projections  Questions

3. MWD Ag Water Sales History  MWD deliveries for agriculture started in 1958  1991 MWD and CAC develop a water rate that recognizes the difference in water rates based on supplemental water use  Plan allows growers a fixed rate reduction in exchange for recognition of their use of supplemental water and the ability to be interrupted ahead of M&I users  1994 saw the program gain permanency and the IAWP (Interim Agricultural Water Program) was born through the efforts of the CAC

4. Interim Ag Water Program History  MWD and its member agencies utilize the IAWP to increase water sales and sustain Agriculture in Southern California through the 1990’s and into the 21st century  2006 – Federal Court Judge Oliver Wanger orders the California Department of Water Resources to restrict pumping from the Delta during certain critical times pursuant to the Endangered Species Act to protect to the Delta Smelt - known as the Wanger decision  This restriction caused MWD to alter their water import amounts and look for alternative water resources to meet the demands  MWD acquires water transfers at a net cost of  $250/AF  One of the resource actions that MWD used to balance the water resource need was to ask IAWP users to reduce water use by 30%  Not only did Ag comply with the request, but sustained it for all of 2008

5. IAWP/Long Range Finance Plan  In August of 2007, CAC and their Southern California Agricultural Water Team (SCWAT) recognized that the Wanger decision would have lasting and devastating affects on the IAWP  SCAWT, through their consultant, requested a meeting with MWD staff to see if a change could be made in the IAWP to reduce the impacts on Ag  MWD staff was willing to look at alternatives and for the next 10 months, worked with SCWAT and their consultant to formulate an alternative program  MWD and SCAWT recognized that as a result of the Wanger decision, that supplemental water would not be available in Southern California in the near term

6. MWD Supply Impacts Average Annual Supplies -950K

7. Water Supply Conditions

8. Los Angeles Aqueduct Colorado River Aqueduct State Water Project Local California Water - 2008

9. Lake Oroville Storage Level Current Storage Level = 1.03 MAF (29% of capacity) Reservoir Capacity - 3,537,600 Lowest End-of-Oct Storage Level Since 1977

10. San Luis Reservoir Storage Level SWP Share Current Storage Level =.147 MAF (14% of capacity) SWP Capacity - 1,062,000

11. Diamond Valley Storage Level Current Storage Level =.45 MAF (56% of capacity) Reservoir Capacity - 810,000 Lowest Storage Level Since Reservoir Fill

12. MWD Storage Conditions January 2007 January 2008 Estimated January 2009 ~ 1.7 MAF ~2.2 MAF ~ 1.1 MAF ~670 TAF

13. 2009 MWD Supply Outlook  Projected Initial SWP Table A allocation ≈ 15-20% (300–400TAF)  CRA Supplies ≈ 850TAF – 1MAF  WSDM Storage Available ≈ 1.1 MAF  Water Transfer – MWD will participate in DWR Drought Water Bank, 150+ TAF  If MWD Shortage Allocation Plan is implemented ≈ 5-20% Cut

14. MWD Supply/Demand Balance CY 2009 2009 Demand of 2.2 MAF 570 TAF 1 MAF Thousand Acre Feet

15. IAWP Revisions

16.  MWD Board adopted the following revisions to the IAWP at its October Board meeting  Revision elements: 1)4-yr IAWP phase out period 2)Opt-out provision 3)Ag conservation program 4)Ag water use reduction contracts 5)Tier 1 limit adjustment 6)Water Supply Allocation Plan adjustment

17. IAWP Phase Out  IAWP discount and supply reduction provisions (shortage cutbacks) are the same for 2009  Starting in 2010 the IAWP discount and supply reduction amounts will begin to decrease  Maximum amount of deliveries under the IAWP will be revised downward annually  As of January 1, 2013, the IAWP will no longer exist and water rates and reliability levels for Ag use will be equivalent to full service customers

18. IAWP Phase Out – Discount level Calendar Year Treated IAWP Discount Untreated IAWP Discount 2008$114/AF$90/AF 2009$114/AF$90/AF 2010$86/AF$68/AF 2011$57/AF$45/AF 2012$29/AF$23/AF 2013$0/AF

19. MWD Allocation PlanIAWP Reduction Percentage Shortage Level Shortage % 20082009201020112012 0VoluntaryUp To 30%Up To 24%Up To 18%Up To 11% 1 5%30% 24%18%11% 2 10%30% 25%20%15% 3 40% 34%28%21% 4 20%50% 43%35%28% 5 25%75% 63%50%38% 6 30%90% 75%60%45% 7 35%100% 84%68%51% 8 40%100% 85%70%55% 9 45%100% 86%73%59% 10 50%100% 88%75%63% IAWP Phase Out – % Reduction

20. Opt-Out Provision  Growers are able to immediately opt-out of the IAWP and purchase water at full-service water rates with the full-service level of reliability  MWD opt-out notification deadline - January 15, 2009 −Check with your retailer for their deadline  Growers may also opt-out of the IAWP at the end of each year during the phase out period  Once grower opts-out, they will no longer be eligible for IAWP discount  Growers must provide opt-out notifications to retail agency, not MWD or its member agencies  Growers opting out will still be held accountable for performance against their 2008 reduction plans

21. Ag Conservation Program  MWD will work with SCAWT/CAC, member agencies and others to develop a new Ag conservation program  Program will provide financial incentives to encourage the use of devices and activities that lead to greater water use efficiency in the agricultural sector  Ag customers opting out and paying full services rate will be eligible for incentives  First agricultural conservation incentives expected to be available by mid-2009

22. Contracts  MWD will offer dry-year water use reduction contracts to agricultural water users  Grower would agree to reduce water use for one-year upon call from MWD  MWD would only make a limited number of reduction calls over a given period of time  Example: PVID Land Management Agreement  Contract would be between MWD, member agency, and grower  Template for contracts will be developed by the end of 2009

23. Member Agency Adjustments  MWD Water Supply Allocation Plan (SAP) −Allocation based on historical data that did not include IAWP deliveries −SAP baselines will be increased as IAWP delivery is reduced through opt-out or phase out provisions  Tier 1 Limit Adjustment −IAWP deliveries were not originally included in the calculation of minimum purchase quantity −As the IAWP deliveries decrease, each member agency’s annual Tier 1 limit will be increased

24. SDCWA Special Ag Water Rate  SDCWA Board unanimously approved a 2-year transitional program for those growers opting out of IAWP, but wishing to still take advantage of the SAWR  Program provides same SDCWA discounts for storage and supply charges (currently $51/AF & $44/AF) as provided continuing IAWP participants  Two conditions of transitional program −Subject to same reduced allocation from ESP and CSP −Subject to MWD’s regional M&I cutback  SDCWA will form a workgroup to consider future options

25. IAWP Decision Support

26. Opt-out Considerations  Growers are able to opt-out and purchase water at full-service water rates with full- service reliability  Opt-out notification deadline - January 15, 2009 −Check with your retailer for their deadline  Decision Factors −30% IAWP cutbacks will remain in place for ‘09 −Likelihood and extent of MWD urban cutbacks −MWD Full Service Rates vs. IAWP Rates  Once grower opts-out, no longer be eligible for IAWP discount

27. Shortage Allocation Plan/IAWP Retail Shortage Stage Retail Reduction IAWP Reduction Stage 15%30% Stage 210%30% Stage 315%40% Stage 4 20%50% Stage 5 25%75% Stage 6 30%90% Stage 735%100%  If necessary, retail shortage allocation declared in April ‘09  Allocation period – July ‘09 through June ‘10

28. Current Reserves Emergency Available Unavailable Available in Year 1 Available in an Emergency Not Available in Year 1 Step 1-Determine Available Supplies Some of this water will be available in Year 2

29. Current Reserves Available Step 2-Reserves for Year 2 Save For Year 2 Amount depends on Year 2 conditions and risk tolerance

30. Current Reserves Available Step 3-Set Allocation Trigger Save For Year 2 Allowable Storage Drawdown

31. Current Reserves Available Step 4-Forecast Drawdown & Determine if Allocation is Needed Save For Year 2 Allowable Storage Drawdown Drawdown forecast depends on Year 1 conditions and risk tolerance

32. Current Reserves Available Step 4-Forecast Drawdown & Determine if Allocation is Needed Save For Year 2 Allowable Drawdown Supplies available at year’s end, no allocation necessary

33. Current Reserves Step 4-Forecast Drawdown & Determine if Allocation is Needed Save For Year 2 Allowable Drawdown No supplies available at year’s end, allocation necessary

34. MWD Allocation Considerations  SWP Allocation − 0% to 35% – M&I allocation certain/highly likely −36% to 50% - M&I allocation likely/possible −51% to 100% - M&I allocation unlikely  Impacts to MWD storage levels −Approximately 1.1 MAF currently in storage −Indicated 575 TAF may be available in 2009  Progress on near-term actions in Delta  Demands on MWD  Information available by notification deadline −December 1, 2008 Initial Allocation −Precipitation from Oct. – Dec. = 35% of SWP Water Year total

35. Projected MWD Rate Increases  MWD has begun developing preliminary estimates of “average” water rates for 2010  Current estimates for 2010 rates range from 15% to 21%  Projected increases for later years are 3-4%  Difference between treated and untreated assumed the same treatment surcharge level throughout the phase out period  Future rate increases will likely be higher if 2009 is dry

36. Projected MWD Water Rates Projected Treated, Tier 1 Rates Rate Increase20092010201120122013 15% increase in 2010, 3% thereafter $579$666$686$707$728 21% increase in 2010, 4% thereafter $579$701$729$758$788 Projected Treated, IAWP Rates Rate Increase20092010201120122013 15% increase in 2010, 3% thereafter $465$580$629$677$728 21% increase in 2010, 4% thereafter $465$615$672$729$788 Projected Untreated, IAWP Rates Rate Increase20092010201120122013 15% increase in 2010, 3% thereafter $322$406$443$480$518 21% increase in 2010, 4% thereafter $322$431$473$516$561

37. Scenarios

38.  Use scenarios to look at impacts to growers −Scenario 1: No MWD Allocation −Scenario 2: 10% MWD Allocation −Scenario 3: 15% MWD Allocation  Compare Opt-out reliability vs. IAWP  Compare Treated, Tier 1 rates vs. IAWP rates  Compare 15% vs. 21% rate increase  Assumed water use: 10-acre grove with 4 AF/AC/YR

39. 2009 Scenarios Scenarios Scenario 1: No Allocation Scenario 2: 10% Allocation Scenario 3: 15% Allocation Opt-outIAWPOpt-outIAWPOpt-outIAWP MWD Allocation100%70%90%70%85%60% Water for 10-acre grove (AF) 402836283424 Price of Water ($/AF) (Treated, Tier 1 vs IAWP) $579$465$579$465$579$465 Cost of Water for 10-acre grove $23,160$13,020$20,844$13,020$19,686$11,160 Eligible for MWD Funding YesNoYesNoYesNo

40. 2010 Scenarios Scenarios Scenario 1: No Allocation Scenario 2: 10% Allocation Scenario 3: 15% Allocation Opt-outIAWPOpt-outIAWPOpt-outIAWP MWD Allocation 100%76%90%75%85%66% Water for 10-acre grove (AF) 4030.436303426.4 Price of Water ($/AF) (Treated, Tier 1 vs IAWP) $666- $701 $580- $615 $666- $701 $580- $615 $666- $701 $580- $615 Cost of Water for 10-acre grove $26,640- $28,040 $17,627- $18,684 $23,976- $25,236 $17,396- $18,438 $22,644- $23,834 $15,308- $16,225 Eligible for MWD Funding YesNoYesNoYesNo

41. 2011 Scenarios Scenarios Scenario 1: No Allocation Scenario 2: 10% Allocation Scenario 3: 15% Allocation Opt-outIAWPOpt-outIAWPOpt-outIAWP MWD Allocation 100%82%90%80%85%72% Water for 10-acre grove (AF) 4032.836323428.8 Price of Water ($/AF) (Treated, Tier 1 vs IAWP) $686- $729 $629- $672 $686- $729 $629- $672 $686- $729 $629- $672 Cost of Water for 10-acre grove $27,440- $29,160 $20,625- $22,029 $24,696- $26,244 $20,122- $21,492 $23,324- $24,786 $18,110- $19,342 Eligible for MWD Funding YesNoYesNoYesNo

42. Next Steps  Track 2009 water supply conditions  Assess the likelihood and extent of an allocation of supplies by MWD  Monitor MWD 2010 rate setting process  Work with MWD to develop Ag Conservation Program  Update growers through CAC and SCAWT

43. 2009 Water Year Precipitation

44. Questions

45. Additional Slides

46. Million Acre-feet There is a range of potential impacts on SWP Deliveries Prior to Wanger Decision Range w/ Wanger Decision 2008 SWP Table A Allocations

47. Range of 2009 SWP Supplies

48. Million Acre-feet There is a range of potential impacts on SWP Deliveries Prior to Federal Decision Range w/ Federal Decision 2008 SWP Table A Allocations

49. LRFP Update/IAWP Discussion  Statements in Support - the program: -Generates revs from water that wouldn’t be sold -Provides regional water management benefits that reduce likelihood of shortage allocations to M&I users -Helps sustain an important segment of the economy -Provides environmental benefits -Public supports the program  Criticisms of IAWP - -Ag deliveries are not fully interruptible prior to full service cuts, thus IAWP discount should be smaller -Decision to provide discount to Ag users is best made at the member agency level -Concern that MWD is securing water transfers while simultaneously selling surplus water for Ag use at discount

50. Cumulative Supply Need Beyond Existing Storage (2009-2013) Million Acre-Feet

51. WSDM Plan Actions

52. Long Range Finance Plan Update  February 2007 - During CY 2008 rate setting process, MWD Board requests review of LRFP  July 2007 - Workgroup begins discussion of rate structure issues, including IAWP  December 2007 - MWD staff distributes IAWP White Paper  January 2008 - Ed Means presents to Workgroup  March 2008 - Staff presents 6 IAWP options  April 17, 2008 - Workgroup reviews options  May 13, 2008 - MWD Board reviews options  June 9, 2008 - MWD Board approves six month process to “evaluate” options

53. Resource Options – MWD 5 year Plan Resource OptionsAdd’l Annual Yield TAF Conservation215 - 415 CR Transactions100 – 250 Near-Term Delta Actions0 SWP Transactions110 - 350 Groundwater/Runoff Recovery25 - 80 Local Resources5 -7 Total455 – 1,102

54. MWD Ag Water Sales History  MWD deliveries for agriculture started in 1958  Objective: sell “surplus” water at a discount in exchange for: −Additional revenue −Ability to interrupt a portion of deliveries prior to curtailments to firm deliveries  1981 - the discounted rate was rolled into MWD’s “Interruptible Program”  1991 - MWD had to interrupt deliveries, agencies argued against 100% interruption  MWD adopts new plan which cut Interruptible deliveries at a higher % than noninterruptible

55. Interim Ag Water Program History  IAWP was negotiated in 1994  Program provides a discounted rate in exchange for up to a 30% initial cut to Ag customers prior to M&I users being cut  1999 Kelly amendment provides that ag water not sold at a discount is deemed for M&I uses and thus not surplus  Wanger Federal Court decision cuts likelihood of surplus from 70% to 30%  Ag customers are required to cut demands for the first time in 2008

56. IAWP/Long Range Finance Plan  MWD has used reserves in three out of the last four years to moderate rate increases - nearly 40% of its rate stabilization reserves  An LRFP Workgroup of MWD’s member agencies, sub-agencies and staff was formed to review identified issues and develop options for the Board  IAWP included in LRFP update because the IAWP rate is not based on “cost of service” as are majority of MWD’s rates  Workgroup identified six options for the future of the IAWP for Board review

57. MWD Supply/Demand Balance CY 2009 770 TAF 705 TAF 734 TAF 2.2 MAF – Current Trend Demands