REPORT TO COUNCIL
SUBJECT
Title
Adopt two Resolutions to Approve the 2025 Amendment to the Water Supply Agreement (WSA) Between the City and County of San Francisco (SFPUC) and the Wholesale Customers in Alameda, San Mateo and Santa Clara Counties and to Approve the Updated Tier 2 Drought Response Implementation Plan
Report
REPORT IN BRIEF
Staff recommends that the City Council (Council):
1. Adopt a Resolution amending the Amended and Restated Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (WSA) (Attachment 1 to the report). This amendment addresses 3 key areas:
a. Minimum Purchase Requirements: Modifies minimum purchase requirements to align with evolving water supply conditions.
b. Tier 1 Water Shortage Allocation Plan (Tier 1 Plan): Establishes a new method for considering collective Wholesale Customer San Francisco Public Utility Commission (SFPUC) purchases when determining how excess use charges will be applied.
c. Updates: Revisions to address discrete issues that arose over the course of implementing the WSA.
2. Adopt a Resolution approving an updated Tier 2 Drought Response Implementation Plan (Tier 2 Plan) (Attachment 2). The Tier 2 Plan provides the method for allocating water from the San Francisco Regional Water System (RWS) among the Wholesale Customers during periods of shortage caused by drought.
The proposed amendments to the Water Supply Agreement (WSA) include changes to minimum purchase requirements, drought response plans, and administrative updates, with limited financial and operational impacts on the City of Sunnyvale, and some potential benefits in drought scenarios.
• Minimum Purchase Quantities (MPQs): Lowering the MPQs for four wholesale customers subject to MPQs (Alameda County Water District and the cities of Milpitas, Mountain View and Sunnyvale) will result in a modest increase in wholesale water rates-estimated at $0.007 to $0.04 (0.13%-0.72%) per ccf (1 ccf=748 gallons) - shared across all wholesale and SFPUC retail customers. This change addresses excess costs currently borne by some agencies, notably Mountain View.
• Tier 1 Water Shortage Allocation Plan: The updated Tier 1 plan poses no risk to Sunnyvale and may provide benefits. If Sunnyvale exceeds its drought allocation but overall wholesale usage remains below limits, it will avoid excess use fees.
• General WSA Updates: Administrative in nature, these changes have no financial or resource impact.
While the revised Tier 2 plan slightly increases water cutbacks for Sunnyvale during droughts (e.g., from 22.6% to 23.4% for a 20% system-wide reduction), it aligns with the City’s existing Water Shortage Contingency Plan and will not alter customer restrictions.
Resolution Amending the Amended WSA
The proposed amendments to the WSA aim to adjust the minimum purchase requirements and improve the Tier 1 Water Shortage Allocation Plan for the Wholesale Customers of the RWS, in response to evolving water use patterns and regional needs. Adjusting the minimum purchase requirement, does not reduce the Individual Supply Guarantee of 12.58 million gallons per day Sunnyvale has under the current agreement.
The amendments revise the existing Minimum Purchase Quantities (MPQs) for the four Original Minimum Purchase Customers (Alameda County Water District, and the Cities of Milpitas, Mountain View, and Sunnyvale). The MPQs, initially based on 1980s water usage, will now be recalculated to 80% of each customer’s average water use over the past four non-drought years. Additionally, a 10-year review cycle will be established for ongoing adjustments. To further account for fluctuations during drought periods, a temporary one-year reduction in MPQs will be applied during drought rebound years, based on the demand reduction observed. Furthermore, collective water purchases from these four customers will be considered together when determining whether individual customers meet their Minimum Purchase Requirements, helping to avoid penalties for minor shortfalls when the collective group meets its overall commitment.
The Tier 1 Water Shortage Allocation Plan has been updated to include a new “Tier 1 Family Plan.” During water shortages, if the Wholesale Customers collectively use less than the allocation, no Wholesale Customer will be penalized. If the Wholesale Customers collectively use more than the allocation, excess use charges will be applied proportionally to those agencies exceeding their individual allocations, as is the case now.
Various sections of the WSA have been revised to reflect current cross-references, dates, and corrections for clarity and accuracy. All amendments are shown in redline in Attachment 3 and in a clean format in Attachment 4.
Resolution Approving Updated the Tier 2 Drought Response Implementation Plan
The updated Tier 2 Plan (Attachment 5) refines how water from the RWS is allocated among Wholesale Customers during droughts, maintaining key features of the existing plan while introducing important updates to improve equity, resilience, and flexibility.
The updated plan is grounded in four core guiding principles:
1. Ensure basic health and safety water needs are met.
2. Minimize economic and social impacts of shortages.
3. Provide predictable and flexible allocation rules and
4. Encourage water use efficiency and alternative supply development.
The new Tier 2 formula uses a structured, sequential approach to distribute available water, considering minimum and maximum cutback percentages, residential indoor use, non- residential indoor use, and seasonal demand. Any remaining water is allocated to move each customer toward a “Target Allocation” that reflects both historical use and their Individual Supply Guarantee (ISG), while staying within the cutback bounds.
BACKGROUND
Water Supply Agreement History
The City of Sunnyvale purchases approximately 53 percent of its potable water supply from the San Francisco Public Utilities Commission (SFPUC) Hetch Hetchy System under the terms of the Water Supply Agreement (WSA). The remaining potable water supply comes from Valley Water and the city’s seven groundwater wells. Sunnyvale is a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), an agency formed under State law to represent the interests of 26 member agencies including cities and water districts (Wholesale Customers) that purchase SFPUC water.
The WSA Between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County was signed in 2009, subsequently amended and restated, and expires in 2034, and sets forth the terms by which Wholesale Customers purchase water from San Francisco. The WSA stipulates that the agreement may be amended with the written consent of SFPUC and of Wholesale Customers representing at least two-thirds in number and seventy five percent of the quantity of water delivered by San Francisco to all Wholesale Customers during the fiscal year immediately preceding the amendment.
On February 26, 2019, the City Council, by Resolution No. 930-19 (RTC 19-0072), approved the Amended and Restated WSA, under which the SFPUC agrees to deliver up to 184 million gallons per day (MGD) of water to the Wholesale Customers. Section 3.07 of the Amended and Restated WSA provides that four Wholesale Customers (Alameda County Water District and the Cities of Sunnyvale, Mountain View, and Milpitas, collectively, the “Minimum Purchase Customers”) may purchase water from sources other than the SFPUC, but they are each obligated to purchase a specific minimum annual quantity of water from the SFPUC, referred to as a “Minimum Purchase Requirement." If a Minimum Purchase Customer does not meet its minimum purchase requirement in a particular fiscal year, it must pay the SFPUC for the difference between its metered water purchases and its minimum annual purchase quantity.
On May 24, 2022, the City Council by Resolution No.1119-22 (RTC 22-0298), approved the 2021 Amended and Restated WSA (Attachment 6) to provide a procedure for expediated and permanent transfers of annual purchase water quantities in a manner that safeguards the financial and water supply interests of Wholesale Customers not participating in such transfers.
Drought Supply Allocations-Tier 1 & Tier 2
During a water shortage condition caused by drought, the WSA divides available water supply between SFPUC and the Wholesale Customers collectively through the Tier 1 Water Shortage Allocation Plan (Tier 1 Plan) included as Attachment H of the WSA. The Wholesale Customers are responsible for dividing their collective Tier 1 allocation between the individual 26 Wholesale Customers. This is accomplished through the Tier 2 Drought Response Implementation Plan (Tier 2 Plan), which is approved by all 26 Wholesale Customers (but not SFPUC).
The previous Tier 2 Plan was originally set to expire in 2018, but negotiations on a new Tier 2 Plan were postponed due to other statewide activities (such as the “Making Conservation a California Way of Life” regulations and the 2020 Urban Water Management Plan deadlines). The BAWSCA Board of Directors extended the Tier 2 Plan on an annual basis until agency representatives were ready to negotiate and finalize a new Tier 2 Plan. Negotiations on the Tier 2 Plan occurred over the last two years and concluded recently. Staff recommends approving the new Tier 2 Plan concurrent with (and contingent on) adoption of the WSA amendment. The Tier 1 and Tier 2 are illustrated below with the 2024 water usage information.
A Tier 2 Plan must be adopted by all 26 Wholesale Customers. If all Wholesale Customers do not adopt the Tier 2 Plan, the water allocations may be adopted by the Board of Directors of BAWSCA. If no agreed upon plan has been adopted by all Wholesale Customers or the BAWSCA Board of Directors, water shortage allocations to Wholesale Customers may be made by SFPUC.
EXISTING POLICY
City of Sunnyvale General Plan-Environmental Management, Chapter 7
GOAL EM-1 Adequate Water Supplies - Acquire and manage water supplies so that existing and future reasonable demands for water, as projected in the 20-year forecast, are reliably met.
Policy EM-1.1 Water Supply - Manage water supply to meet demands for potable water through the effective use of water supply agreements
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) as is an organizational or administrative activity that will not result in direct or indirect physical changes to the environment.
DISCUSSION
Proposed Amendments to the Water Supply Agreement
Minimum Purchase Requirements
If a Minimum Purchase Customer does not meet its Minimum Purchase Requirement in a particular fiscal year, it must pay for the difference between its metered water purchases and its minimum annual purchase quantity set forth in Attachment E of the 2021 WSA. The Minimum Purchase Requirements were originally designed to prevent the four specific multi-source agencies from shifting from SFPUC to other imported water sources. However, changed conditions, including recurring droughts, improved water use efficiency, and investments in local supplies have reduced demand on the Regional Water System (RWS). Despite these improvements, the RWS remains vulnerable to severe droughts, prompting the SFPUC to invest in alternative water supplies. The Minimum Purchase Customers are well-positioned to develop their own local, drought-resilient supplies, which would reduce the regional dry-year supply gap, improving reliability of the RWS for all users. The proposed amendments may reduce a perceived existing disincentive to improve efficiency and develop alternative supplies.
a. Reduction of Minimum Annual Purchase Quantities (MPQ)
MPQs set in the 1984 Settlement Agreement and Master Water Sales Contract (1984 Contract) were calculated based on 80% of each of the four Original Minimum Purchase Customer’s purchases from the RWS in the 1980s. The MPQs were later reduced by 5% as part of the 2009 WSA. With this proposed amendment, the minimum annual purchase quantities of the Original Minimum Purchase Customers will be reset to 80% of each of the Minimum Purchase Customer’s average purchases from the most recent four non-drought years and the amendment will establish a continuing, periodic review of the minimum annual purchase quantities on a 10-year schedule. For Sunnyvale the current MPQ is 8.930 million gallons per day (mgd), under the proposed amended agreement the new MPQ will be reduced to 7.142 mgd.
b. Rebound Year Minimum Annual Purchase Quantity
Existing Section 3.07.C of the 2021 WSA provides that Minimum Purchase Requirements will be waived during drought, other period of water shortage on the RWS, or if the Governor declares a state of emergency that impacts water supply use or deliveries from the RWS. Minimum Purchase Requirements are reinstated in the first year immediately following a drought. However, water use does not typically rebound to pre-drought levels for several years, depending on the level of conservation achieved.
The proposed amendment provides a temporary, one-year reduction in the minimum annual purchase quantities equal to half of the demand reduction from pre-drought levels to allow for drought rebound. For example, for Sunnyvale the MPQ is proposed to be 7.142 mgd, and if during a future regional drought Sunnyvale used 5.816 mgd from the SFPUC, then Sunnyvale will be assigned a MPQ of 6.479 mgd for the one year immediately following conclusion of the drought.
c. Collective Minimum Annual Purchase Quantities Considered Before Application of Imputed Sales
Existing Section 3.07 of the 2021 WSA provides that if a Minimum Purchase Customer does not meet its Minimum Purchase Requirement in a particular fiscal year, it must pay the SFPUC for the difference between its metered water purchases and its minimum annual purchase quantity. The proposed amendment provides that the collective purchases from Original Minimum Purchase Customers will be considered together before an individual Original Minimum Purchase Customer is required to pay the difference between its metered water purchases and its Minimum Purchase Requirement. If collective purchases are less than the sum of minimum annual purchase quantities, payments to the SFPUC for an Original Minimum Purchase Customer(s) who did not meet its Minimum Purchase Requirement will not be required. If collective purchases are more than the sum of minimum annual purchase quantities, payments to the SFPUC for an Original Minimum Purchase Customer(s) who did not meet its Minimum Purchase Requirement will be proportionate to its share.
Proposed Tier 1 Water Shortage Allocation Plan
The Tier 1 Water Shortage Allocation Plan is the method and process for allocating water from the RWS between San Francisco retail customers and the Wholesale Customers collectively during system-wide shortages of 20% or less caused by a drought. Section 3.11.C.3 of the WSA provides that the SFPUC will honor allocations of water among the Wholesale Customers (“Tier 2 Allocations”) provided by BAWSCA or if unanimously agreed to by all Wholesale Customers.
The Tier 1 and Tier 2 Plans were implemented for the first time during the 2021 to 2023 drought. During the 2014 to 2017 drought, the Tier 1 and Tier 2 Plans were superseded by state-wide mandates.
During Tier 2 Plan negotiations, BAWSCA, the SFPUC, and the Wholesale Customers agreed to update the Tier 1 Plan to add a new “Tier 1 Family Plan.” When the SFPUC declares a shortage emergency, it determines whether voluntary or mandatory rationing is required. At the end of the 12-month drought period, each Wholesale Customer’s purchases from the RWS are compared to their annual drought allocation. Excess use charges are only applied during mandatory rationing periods.
The new Tier 1 Family Plan ensures that excess use charges are only applied when the collective Wholesale Customer usage exceeds their Tier 1 allocation. If this occurs, excess use charges will be proportionally applied to agencies that exceeded their individual Tier 2 Allocations. For example, if the twenty-six Wholesale Customers collectively exceed the Tier 1 allocation by 2 MGD, and only two agencies exceed their Tier 2 Allocations by 3 MGD each, then these two agencies will share the excess use charges on the 2 MGD proportionally.
Proposed General Updates to the WSA
Sections 2.03, 3.09, 9.07, and Attachment 1, Definitions of “Imputed Sales” and “Level of Service Goals and Objectives” are being updated with current cross references, dates and corrections (Attachment 3).
Updated Tier 2 Drought Response Implementation Plan
The updated Tier 2 Plan maintains many of the key elements of the existing Tier 2 Plan, such as a rolling base period that captures service area growth over time and inclusion of Individual Supply Guarantee (ISG), but it also provides necessary updates to ensure a minimum supply of RWS water for base/indoor use for the portion of each service area where RWS is delivered.
Tier 2 Plan Update Process
Between January 2022 and June 2024, BAWSCA facilitated negotiations between the Wholesale Customers through a series of meetings, workshops, and workgroups to update the Tier 2 Plan. The Wholesale Customers began by reviewing the prior Plan and other shortage allocation plans throughout the state, then discussed and agreed upon policy principles for a revised Tier 2 Plan. BAWSCA, with support from a technical consultant team, introduced potential elements of a formula to align with the agreed upon policy principles. In monthly workshops, the Wholesale Customers discussed these options and provided feedback on which elements should be included, along with suggested refinements. These workshops, and the discussions, suggestions, and comments expressed by the Wholesale Customers during this process, provided the primary forum through which the updated Tier 2 Plan was developed.
Tier 2 Plan Policy Principles
The Wholesale Customers collectively developed four policy principles to guide the development and performance of the updated Tier 2 Plan, as follows.
• Policy Principle #1 - Provide sufficient water for the basic health and safety needs of customers.
• Policy Principle #2 - Minimize economic and other adverse impacts of water shortages on customers and the BAWSCA region.
• Policy Principle #3 - Provide predictability of drought allocations through consistent and predetermined rules for calculation, while allowing for flexibility to respond to unforeseen circumstances.
• Policy Principle #4 - Recognize benefits of, and avoid disincentives for, water use efficiency and development of alternative water supply projects.
Tier 2 Plan Allocation Formula
The updated Tier 2 Plan establishes a sequential allocation formula to determine how the available water from the RWS will be allocated among the individual Wholesale Customers. The allocation formula can generally be described as follows:
• The Minimum and Maximum Cutback establish the upper and lower bounds for each Wholesale Customer’s final allocation. The Minimum Cutback is equal to 1/3 of the Overall Average Wholesale Customer Reduction, but no less than 5%. The Maximum Cutback is equal to 1.5 times the Overall Average Wholesale Customer Reduction.
• Each Wholesale Customer is allocated water on a residential per capita basis based on the State Indoor Water Use Efficiency Standard1 and the portion of each Wholesale Customer’s water demand met by the RWS.
• Each Wholesale Customer is allocated water based on its estimated non-residential indoor use by applying a cutback factor equal to half of the Overall Average Wholesale Customer Reduction to each Wholesale Customer’s estimated non-residential indoor demand, also known as Base Period purchase, from the RWS.
• Each Wholesale Customer is allocated water based on its estimated seasonal purchases from the RWS.
• Remaining water is allocated to bring each Wholesale Customer’s final allocation as close to its “Target Allocation” as possible, while ensuring that each Wholesale Customer’s final allocation is between the Minimum and Maximum Cutback bounds. The Target Allocation is based on a weighted share of (1) the Wholesale Customer’s Base Period purchases from the RWS and (2) its ISG.
Tier 1 & Tier 2 Impact on Sunnyvale
The proposed amendments to the WSA regarding the Tier 1 Plan modification will have no adverse impact on Sunnyvale. However, the amendments do have potential benefits. If Sunnyvale were to exceed its water allocation during a drought, but the Wholesale Customers collectively use less than the total wholesale allocation, Sunnyvale would not be charged excess use fees.
The proposed Tier 2 Plan does not result in a fiscal or resource impact but does yield slightly higher water cutbacks for Sunnyvale during droughts. This is mainly due to the large amount of outdoor water use in the City, which is of relatively lower importance in times of shortage compared to indoor uses.
During times of water shortages, Sunnyvale implements a Water Shortage Contingency Plan which lays out increasingly strict water use restrictions depending on the “stage” of shortage. The differences between the current Tier 2 Plan and the new negotiated Tier 2 Plan are small enough such that the actions Sunnyvale customers will be asked to take will not change. For example, for a 20% Wholesale Customer cutback, the current Tier 2 Plan results in a 22.6% cutback for Sunnyvale whereas the new Tier 2 Plan results in a 23.4% cutback for Sunnyvale. Stage 3 of Sunnyvale’s Water Shortage Contingency Plan covers cutbacks from 20%-30%.
FISCAL IMPACT
The updated Tier 1 plan poses no risk to Sunnyvale and may provide benefits. If Sunnyvale exceeds its drought allocation but overall wholesale usage remains below limits, it will avoid excess use fees. In addition, Sunnyvale also has alternate water supply that could be used during the drought to avoid any SFPUC surcharges.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
STAFF RECOMMENDATION
Recommendation
Adopt two resolutions:
(a) Authorizing the City Manager or his designee execute the 2025 Amended and Restated Water Supply Agreement Between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County, and Santa Clara County; and
(b) Approving an updated Tier 2 Drought Response Implementation Plan.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
_X_ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Mansour Nasser, Water & Sewer Division Manager
Reviewed by: Ramana Chinnakotla, Director, Environmental Services
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Resolution Amending the Amended and Restated Water Supply Agreement
2. Resolution Approving the Updated Tier 2 Drought Allocation Implementation Plan
3. Redline Comparing 2021 WSA and 2025 Proposed Amendments
4. CLEAN Water Supply Agreement Amendments
5. Tier 2 Drought Response Implementation Plan
6. 2021 Amended and Restated Water Supply Agreement