Thursday January 18, 2024

State Water Contractors via Maven’s Notebook

Last week, the Third District Court of Appeals ruled in favor of the California Department of Water Resources (DWR), upholding amendments to DWR’s water supply contracts with water agencies throughout the state for the long-term operation of the State Water Project (SWP). The amendments extend the 1960s-era contracts to 2085. After reviewing the amendments in an Environmental Impact Report (EIR) in accordance with the California Environmental Quality Act (CEQA), DWR filed an action to approve the amendments in 2018.

Parties opposed DWR’s action, and two additional petitions were filed challenging the amendments under CEQA, the Delta Reform Act, and the public trust doctrine. The court’s ruling last week in favor of DWR confirms that water supply contracts for water from the most important piece of water infrastructure in the state can be extended far into the future.

DWR’s water supply contracts with public water agencies were executed with initial terms of 75 years ending between 2035 and 2042 and “evergreen” clauses that allow continued service beyond the 75-year terms upon election by the public water agencies. Because the SWP relies heavily on revenue bonds, the approaching end of the initial term presented an existential financial challenge for DWR. Despite the “evergreen” provision, the stated term prevented DWR from issuing revenue bonds and spreading repayments beyond 2035, as opposed to spreading repayment over the customary 30 years. The resulting cost compression would dramatically escalate the cost of the SWP for these public water agencies and their ratepayers.

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