EXHIBIT 10.11
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THE CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM
DEFINITIVE ECONOMIC TERMS AND RESPONSIBILITIES BETWEEN
METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA AND CADIZ INC.
March 6, 2001
1. General Provisions
1.1 The Cadiz Groundwater Storage and Dry-Year Supply
Program (Program) shall have a life of 50 years.
1.2 Except where otherwise noted, Cadiz Inc. or its
successors (Cadiz) and The Metropolitan Water
District of Southern California (Metropolitan) may
not contract with any third party for the use of
the Capital Facilities or the Cadiz or Fenner
groundwater basins for storage or exportation of
water during the life of the Program.
1.3 Except as otherwise provided, Metropolitan has
exclusive use of the Cadiz Program Capital
Facilities.
1.4 Year one of the program shall begin the first day
after completion of facilities necessary for the
storage of Colorado River water in the Cadiz Basin
and ending on December 31st of that year. Year
two and all-subsequent years of the program shall
begin on January 1st. Year fifty of the program
shall extend beyond December 31st up to the
fiftieth anniversary of the first day after
completion of facilities necessary for the storage
of Colorado River water in the Cadiz-Fenner
Groundwater Basin (Basin).
1.5 Except as otherwise provided, all payments shall
be made in quarterly installments and be due on
the first day of each calendar year quarter
(January 2nd, April 1st, July 1st, and October
1st). Except that the first payment, pursuant to
Section 4.1, shall be due no earlier than 45 days
from completion of facilities necessary for the
storage of Colorado River water in the Cadiz
Basin.
2. Capital Facilities
2.1 Metropolitan and Cadiz shall share equally the
actual cost of Capital Facilities (mutually agreed
estimates, at the time of execution of the
contract, not to exceed $150,000,000) including
spreading and recovery facilities and a conveyance
pipeline including pump
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facilities (all having a capacity to transport
150,000 AF per year to and from the Colorado
River Aqueduct and the Basin)and including the
costs of design, construction and Program
implementation cost of the Capital
Facilities (including estimated mitigation capital
costs, provided that these costs do not cause the
total capital cost to exceed $150,000,000). If
one party desires to modify the Capital
Facilities, and that modification increases costs,
the requesting party shall bear the increased
costs. If, when Metropolitan's Board authorizes
execution of the definitive contract, estimated
Capital Facilities costs listed above exceed
$150,000,000, because the environmental documents
and permits require mitigation measures that are
not anticipated as of the date of issuance of the
Supplement to the Draft EIR/EIS, then
Metropolitan's Board shall consider the impact of
these costs in determining whether to proceed with
the Program. Cadiz may assume such increased costs
or the parties shall meet to renegotiate the
agreement. If, after execution of the contract,
actual Capital Facilities costs listed above
exceed estimates due to construction costs
overruns then these costs shall be shared equally.
2.2 Metropolitan shall finance its portion of the
Capital Facilities, as Metropolitan deems
appropriate.
2.3 Any operation of the Capital Facilities after the
end of the 50 year Program term shall be
negotiated at a future date and shall give fair
compensation to Cadiz for any indigenous water or
storage beyond the terms of this agreement or to
Metropolitan for the use of the Capital Facilities
by Cadiz.
2.4 Cadiz shall pay for its portion of the Capital
Facilities. Prior to any payments by Metropolitan
to Cadiz, Metropolitan shall have the right to
review and reasonably approve the terms of Cadiz'
financing for Cadiz' one-half share of the costs
of the Capital Facilities. Any security interest
in the Capital Facilities created by Cadiz
financing shall not encumber Metropolitan's
ownership interest in, or interfere with
Metropolitan's right to operate, the Capital
Facilities.
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2.5 The parties shall jointly own the Capital
Facilities. Except as otherwise provided, the
parties shall equally share the cost of replacing
any portion of the Capital Facilities that
requires replacement during the term of the
contract unless the replacement is required due to
normal wear and tear or as a result of improper
maintenance, in which case these costs will be
paid by Metropolitan. Metropolitan shall use due
care in providing necessary maintenance of the
Capital Facilities pursuant to Section 3.1. Each
party shall insure its interest in the Capital
Facilities with reasonably acceptable commercial
insurance or, in the case of Metropolitan, self-
insurance.
3. O&M and Energy Costs
3.1 Except as otherwise provided, Metropolitan shall
be responsible for any and all O&M and energy
costs during the term of the contract to operate
the Capital Facilities. Metropolitan shall use
ordinary care in the operation and maintenance of
the Capital Facilities. Cadiz shall be
responsible for any and all costs, including but
not limited to O&M and energy, of the Groundwater
Monitoring and Management Plan (GWMMP) of the
Program beyond the capital costs shared pursuant
to Section 2.1.
4. Transfer Component Fees and Operations
4.1 In years 1-5 of the Program (a total of 20
calendar quarters), Metropolitan shall purchase a
minimum of 30,000 acre-feet per year (7,500 AF per
calendar quarter) of indigenous water for a
minimum total of 150,000 acre-feet to be banked or
withdrawn from the Cadiz basin at Metropolitan's
option. This purchased indigenous water shall be
guaranteed to Metropolitan in accordance with the
provisions of Sections 4.8, 8.6, and 8.14,
including through reduction in Cadiz' agricultural
water production. In years 6 through 25 of the
Program (a total of 80 calendar quarters),
Metropolitan shall purchase the balance of at
least 750,000 AF of indigenous water not purchased
by Metropolitan in years 1-5 of the Program,
subject to adjustments as described in Sections
4.6 and 4.8 (all water purchased by Metropolitan
pursuant to this Section 4.1 shall hereafter be
referred to as Firm Transfer Water). Subject to
Sections 4.6 and 4.8, Metropolitan shall build up
a "water bank" by purchasing up to 30,000 AF per
year (7,500 AF per quarter) of Firm
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Transfer Water. Metropolitan shall pay Cadiz a
"Transfer Fee" for the purchase of the Firm Transfer
Water.
4.2 The Transfer Fee shall initially be $230 per AF
("Base Rate") in year 1 of the Program and be
redetermined to an "Adjusted Rate", if applicable,
in years 2-25 of the Program as follows:
4.2.1 Metropolitan and Cadiz shall determine a
Fair Market Value through the process described in
Attachment A, provided that the increase or decrease in
the Fair Market Value shall not exceed 30% of the Fair
Market Value in the immediately prior redetermination
or 30% of the Base Rate in the initial redetermination;
4.2.2 The Adjusted Rate shall equal the Base
Rate plus one-half of the difference between the Fair
Market Value and the Base Rate. Example: If the Fair
Market Value is $350 per acre-foot, then the Transfer
Fee would be $230 + .5* ($350 - $230) = $290 per acre-
foot. If the Fair Market Value is $130 per acre-foot,
then the Transfer Fee would be $230 + .5* ($130 - $230)
= $180 per acre-foot.
4.3 The applicable Base Rate or Adjusted Rate shall be
paid upon the earlier of (a) delivery of the Firm
Transfer Water to the Colorado River Aqueduct or
(b) in accordance with the payment schedule set
forth in Section 4.1 in the year of payment,
whichever is earlier. Any indigenous water for
which Metropolitan has made payment but has not
taken delivery shall become part of a Metropolitan
"water bank" in the Basin and may be withdrawn by
Metropolitan at any time during the Program. Firm
Transfer Water deliveries in excess of the above
payment schedule shall be paid at the Base Rate or
Adjusted Rate in effect in the year of delivery.
Firm Transfer Water delivered and purchased ahead
of the above payment schedule will directly offset
subsequent scheduled purchases acre-foot for acre-
foot with 50% applied to the next scheduled
payment and 50% applied in inverse order from the
last scheduled payment.
4.4 Any payment for indigenous water constitutes the
complete payment for such water and establishes a
forward contract obligating Cadiz to deliver
indigenous water on demand to
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the Capital Facilities, subject to Section 4.8.
Deliveries of water shall be metered at the
Colorado River Aqueduct.
4.5 In each Program Year 1 through 25, Cadiz shall
have the right to sell to third parties indigenous
water (Third Party Indigenous Water) in an amount
up to 30,000 AF per year (Potential Sale Option
Amount) for sale and use in the Metropolitan
service area, subject to Sections 4.6.1 and 8.11.
Metropolitan shall deliver such water either
through unused capacity in the Metropolitan
conveyance system or through an Exchange (as
described in Section 8.10) choosing the method of
delivery at its sole discretion. Cadiz shall pay
a pro-rata share of direct O&M (O&M without
overhead or G&A expense) costs of the Capital
Facilities in the year of delivery to the Cadiz
customer based on Cadiz' pro-rata use of the
Capital Facilities to transfer indigenous water to
a third party or, in the case of an Exchange, the
amount that would have been paid for a third party
transfer.
4.5.1 In Program Years 1 through 25, Cadiz
shall have the option (Put Option) to require
Metropolitan to purchase in each year an amount of
indigenous water (Put Transfer Water) that equals the
difference between the Potential Sale Option Amount and
the amount of Third Party Indigenous Water for such
Program Year. If required under this section,
Metropolitan shall buy Put Transfer Water at a fixed
rate of $230.00 per acre-foot. Cadiz must inform
Metropolitan in writing of its exercise of the Put
Option no later than March 1st of each year. In the
event that Cadiz exercises the Put Option after January
1st, Metropolitan shall not be required to make payment
for the portion of Put Transfer Water delivered during
the first quarter of that year until April 1st
4.5.2 The annual Put Option shall expire if
not exercised within the time allowed in this Section,
and the Potential Sale Option Amount of water for sale
shall not accumulate and carry-over from year to year.
4.6 In years 1-5 of the Program, Metropolitan and
Cadiz shall operate the Program in a manner that
will assist in the continuing assessment of
recharge, safe yield, total volume of indigenous
water available for transfer during the life of
the Program, and the best mode of operations
consistent with the Groundwater Monitoring and
Management Plan.
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Prior to signing of an agreement, Cadiz and Metropolitan
shall agree on this 5-year operating plan within the
parameters of the GWMMP. During this five-year period,
Cadiz shall not pump water from nor add water to the
basin except in a manner consistent with its
current agricultural activities. Based on the
information gathered pursuant to the GWMMP and
through the initial five years of operations,
Cadiz and Metropolitan shall jointly determine the
total expected yield of the Cadiz indigenous water
over the life of the Program by consulting the
GWMMP and ensuring compliance with applicable
permit requirements. If the parties cannot agree
upon the expected yield, the dispute will be
referred to binding arbitration. Expected yield of
indigenous water from the Program shall be
reassessed on an ongoing basis every subsequent
two years for the life of the Program. The
expected yield of the Program shall be determined
after excluding (a) Cadiz' projected use of
indigenous water, unless Cadiz has agreed on terms
reasonably acceptable to Metropolitan not to use
such indigenous water, and (b) the amount of
indigenous water that any third party has the
legal right to use and is reasonably expected to
use.
4.6.1 If an adjustment is made under Section
4.6 decreasing the expected yield below 1,500,000 AF,
then the Potential Sale Option Amount shall equal
30,000 AF per year up to the positive difference, if
any, of the expected yield less 750,000 AF. If an
adjustment is made under Section 4.6 decreasing the
expected yield below 750,000 AF, Metropolitan shall
continue to make scheduled water bank program purchases
of Firm Transfer Water spread equally over the
remaining years beginning with the Program year
following the yield adjustment and continuing through
year 25 of the Program.
4.7 Upon 12 months notice of Cadiz indigenous water
supplies above 1.70 MAF based on the process in
Section 4.6, Metropolitan has the option to
purchase one-half of such supply of water in
excess of 1.70 MAF starting in Program Year 26 at
a rate of 30,000 AF per year at the Base Rate or
Adjusted Rate in effect in the year of payment.
If Metropolitan exercises such option, then Cadiz
may market to third parties within Metropolitan's
service area one-half of this supply in excess of
1.70 MAF at a rate of
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30,000 AF per year starting in Year 26 pursuant to
Section 8.12. If Metropolitan does not exercise this
option, then Cadiz may market to third parties within
Metropolitan's service area the entire supply in
excess of 1.70 MAF at a rate of 60,000 AF per year
starting in Year 26 pursuant to Section 8.12.
Cadiz shall be responsible for obtaining all
required approvals for the transfer of such water
to third parties under this Section 4.7.
Metropolitan shall deliver such excess water
through the Capital Facilities and Metropolitan
conveyance system only if there is unused
capacity.
4.8 Payments of Transfer Fees shall be suspended if
the expected Program yield agreed upon between
Metropolitan and Cadiz or determined by
arbitration (pursuant to Section 4.6), is the same
or less than the amount of indigenous water for
which Metropolitan has paid Cadiz. Cadiz shall be
obligated to repay Metropolitan for the
difference, up to a maximum of 300,000 AF which
shall be secured by Cadiz' obligations pursuant to
Sections 8.6 and 8.14. This repayment obligation
shall first offset any remaining payment
obligations for Puts and Takes, pursuant to
Section 5.3 with the remainder repaid to
Metropolitan dollar for dollar, within twelve
months of notice by Metropolitan. In the event
that the amount of water that Metropolitan is
entitled to be repaid for, or otherwise
compensated for, exceeds Metropolitan's unpaid
obligations for Puts and Takes and repayment for
300,000 AF, Metropolitan shall receive credits for
additional storage of water pursuant to Section
5.5 at the storage rates in effect at the time the
payments of the Transfer Fees were made.
5. Storage Component Fees and Operations
5.1 Metropolitan shall pay Cadiz $90 per AF, adjusted
by CPI commencing upon Metropolitan's Board of
Directors approval of contract "as to form", of
CRA water Metropolitan cycles through the Capital
Facilities and storage. This amount consists of a
rate of $50, adjusted by CPI commencing upon
Metropolitan's Board of Directors approval of
contract "as to form", to Put such water ("Put
Fee") and $40, adjusted by CPI commencing upon
Metropolitan's Board of Directors approval of
contract "as to form", to Take such water ("Take
Fee").
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5.2 At contract execution and subject to provisions
under Sections 2.4, 8.1 through 8.5 and 8.15,
Metropolitan shall pay at the rate set forth in
Section 5.1 for the operation of 600,000 AF of Put
and Take activity entitling Metropolitan to
600,000 AF of movement in and 600,000 AF of
movement out of the storage program.
5.3 In addition to amounts set forth in Section 5.2,
Metropolitan's minimum commitment for storage
shall include an additional 300,000 AF of Put and
Take activity for which Metropolitan must pay
Cadiz at the earlier of (a) delivery or
withdrawal; or (b) in accordance with the
following schedule: In each of Program Years 5
through 14, Metropolitan shall pay for the
operation of 30,000 AF of Put and Take activity
entitling Metropolitan to 30,000 AF of movement in
and 30,000 AF of movement out of the storage
program for each year of payment.
5.4 Metropolitan's minimum commitment for storage is
900,000 AF of Put and Take activity, provided that
Metropolitan's storage obligations under the
Program shall be in accordance with the GWMMP.
5.5 Additional operations of the Program above amounts
set forth in Sections 5.2 and 5.3 shall be paid at
rates listed in Section 5.1.
5.6 Program storage capacity shall be a minimum of
1,000,000 AF at any one time.
5.7 Evaporative and conveyance losses of stored water
shall initially be set to 10% and shall be reset
to actual losses through a biannual
redetermination in accordance with the GWMMP.
6. Water Quality Payment
6.1 The Principles of Agreement anticipated an avoided
cost payment to Cadiz for any benefit in reducing
salinity in the Metropolitan service area. In
consideration of the other terms and conditions
set forth herein, no water quality payment shall
be made. Currently, all constituent levels of
indigenous water in the Program area are below
state and federal Maximum Contaminant Levels
("MCLs"). Except as provided below, Cadiz will pay
the cost of treating all water introduced into the
Metropolitan delivery system if necessary so that
it meets all federal and state standards
applicable to the Colorado River Aqueduct as
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established by the California Department of Health
Services or other permitting authority. Due to
consideration of water quality benefits and
increases in supply reliability and subject to
approval through a public process for the
introduction of water into the Metropolitan
System, indigenous water introduced by Cadiz into
the Metropolitan delivery system shall not be
required to meet ambient conditions. With respect
to the Cadiz Program, this public process shall
take the form and run concurrently with the public
review by Metropolitan's Board of the Cadiz
Program. Action by the Metropolitan Board
approving the water quality provision of the Cadiz
Program shall be determinative and shall not be
subject to subsequent Board action establishing
any general policies. Further, Metropolitan shall
not impose any future ambient quality standards if
Cadiz continues to meet all federal and state
water quality standards at Cadiz' expense. Cadiz
may elect to have Metropolitan provide any
treatment required to meet federal and state water
quality standards and requirements provided that
Cadiz shall pay all costs incurred by Metropolitan
for providing such treatment. Metropolitan will
ensure that water it delivers for storage in the
Cadiz/Fenner groundwater basin shall, at a
minimum, meet all federal and state standards
applicable at the time of delivery to the Colorado
River Aqueduct as established by the California
Department of Health Services or other permitting
authority. If these federal or state standards
change as to any constituent in the water
Metropolitan delivered for storage so that the
stored water would not have met the changed
standards when it was delivered for storage, then
Metropolitan and Cadiz shall share the cost of
treatment for water withdrawn by Metropolitan from
the basin for that particular constituent based on
the proportion of the levels of the regulated
constituent above the changed regulatory standard
in Metropolitan's storage water to the levels of
the regulated constituent above the changed
regulatory standard in the indigenous groundwater
in the basin, if any.
7. Groundwater Management Plan
7.1 All withdrawals of water from the Basin shall be
made in accordance with the GWMMP.
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8. Other Provisions
8.1 The legal structure of the agreement between Cadiz
and Metropolitan shall have provisions to protect
Metropolitan's interest in the program. These
provisions shall include appropriate security
interests described in the attachment hereto
(Attachment B). Cadiz may propose alternative
security interests or agreement structures that
achieve the same results as those described in the
attachment. If Metropolitan determines that the
alternatives proposed by Cadiz do not provide the
same level of security as those described in the
attachment, Metropolitan, in its sole reasonable
discretion, may reject the proposed alternatives
and require the security interests in the form
described in the attachment as a condition to
proceeding with the program.
8.2 Any costs imposed by third parties for the use of
the Cadiz or Fenner groundwater basins or
exportation of transfer water shall be borne
exclusively by Cadiz.
8.3 Metropolitan shall have no obligation to make any
payments to Cadiz, acquire any project lands or
rights-of-way or pay for or perform any
construction work on the Capital Facilities until
the California Department of Health Services
approves the introduction of Program water into
the Colorado River Aqueduct.
8.4 Metropolitan shall have no obligation to make any
payments to Cadiz, pay for or perform any
construction work on the Capital Facilities until
all rights-of-way, use permits, or easements
necessary for the construction and maintenance of
the Capital Facilities have been obtained from the
Bureau of Land Management.
8.5 Metropolitan shall not execute the contract for
the Program prior to thirty (30) days after the
filing of a Notice of Determination by
Metropolitan as required by the California
Environmental Quality Act or the issuance of a
Record of Decision by the Bureau of Land
Management as required by the National
Environmental Policy Act, whichever is later. In
the event any litigation is filed challenging any
aspect of the Program's environmental compliance
or the authority or right of any party to perform
its obligations under the contract, then
Metropolitan and Cadiz shall jointly defend such
litigation. Counsel shall be selected by mutual
agreement, and all costs of litigation shall be
shared equally.
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8.5.1 If litigation challenging any aspect of
the Program's environmental compliance or the authority
or right of a party to perform its obligations under
the contract has been commenced, and the issuance of
any permits required for the Program or the performance
of any obligation required under the contract is
enjoined or withheld by a court or agency with
authority to do so, the performance of all other
obligations under the contract shall be suspended until
such permits are issued or such injunction is
permanently lifted. If such suspension is not lifted
within five years the parties' shall meet to negotiate
in good faith any future obligation under the contract.
8.5.2 If litigation challenging any aspect of
the Program's environmental compliance or the authority
or right of any party to perform its obligations under
the contract has commenced, but the issuance of any
permits required for the Program or the performance of
any obligations required under the contract has not
been enjoined or withheld by a court or agency with
authority to do so, the parties shall confer to
determine reasonably and in good faith whether there is
merit to the legal challenges which requires further
environmental review or other legal authority to
proceed with the Program. Either party may elect, if
it is reasonable to do so under all the circumstances,
to suspend performance of the contract pending
resolution of such legal challenge. If such suspension
exceeds five years from the election to suspend
performance, the parties' shall meet to negotiate in
good faith any future obligations under the contract.
8.5.3 If, after the parties have commenced
performance under the contract, the Program or any
permit required for the Program is permanently
suspended or terminated by the action of a court or
agency with authority to do so, then Metropolitan shall
not be required to proceed with further obligations
without the prior approval of its Board of Directors.
If the litigation or other legal challenge results in a
final determination that precludes the operation of the
Program, then:
8.5.3.1 Cadiz shall reimburse Metropolitan
the amount paid by Metropolitan for the right to
transfer indigenous water that Metropolitan has
paid for or banked and cannot transfer up to
300,000 AF of water;
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8.5.3.2 Cadiz shall reimburse Metropolitan
the amount paid by Metropolitan for the right to
store water that Metropolitan cannot store or that
Metropolitan has stored but cannot retrieve from
the basin; and
8.5.3.3 Such reimbursement shall be paid by
Cadiz to Metropolitan within twelve (12) months
following the final determination.
8.6 If, for any reason, Cadiz is unable or unwilling
to perform under the term of the agreement then
Metropolitan shall have the right to operate the
Program at its discretion without further payment
to Cadiz. This right shall include the right to
enter upon Cadiz land for operation and
maintenance of Capital Facilities. If the lack of
performance includes unrealizable water supplies
or moneys due to Metropolitan, then Metropolitan
shall have the right to take all or partial
possession and ownership of Cadiz lands in the
Cadiz and Fenner Valleys. Offsets as expressed in
Section 4.8 shall also apply. Cadiz shall provide
Metropolitan with a security interest in the Cadiz
share of the Capital Facilities and its land,
improvements and water rights related to the
groundwater basin in a form reasonably acceptable
to Metropolitan as a condition to Metropolitan's
performance of its obligations; provided, however,
that upon termination of the Program and
satisfaction of any surviving Cadiz obligations
such security interest shall be terminated. The
security interest in the Cadiz share of the
Capital Facilities shall be subordinate only to
direct construction liens on the Capital
Facilities and the security interest in the Cadiz
lands, improvements and water rights shall be
subordinate only to liens approved in accordance
with Section 8.8 and in an amount that shall not
exceed $25,500,000 during the term of the Program.
8.7 If Metropolitan executes the contract for the
Program:
8.7.1 Cadiz shall not increase its use of
Colorado River water on lands that it owns or controls
within the Palo Verde Mesa or Valley without the
consent of Metropolitan.
8.7.2 Cadiz shall take no action, and shall
use its reasonable good faith efforts to cause its
subsidiaries, affiliates, successors, directors,
officers, employees, shareholders and
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agents to refrain from taking any action, to interfere
with any cooperative water supply program between Palo
Verde Irrigation District and Metropolitan.
8.7.3 Cadiz shall take no action, and shall
use its reasonable good faith efforts to cause its
subsidiaries, affiliates, successors, directors,
officers, employees, shareholders and agents to refrain
from taking any action, to reduce or cause the
reduction of Colorado River water available to
Metropolitan or to increase the cost of Colorado River
water to Metropolitan with respect to: (1) Priority 1,
2 and 3(b) (Palo Verde Mesa lands) lands; (2) Present
Perfected Rights lands (miscellaneous rights holders or
tribal lands); and (3) Surplus Criteria.
8.8 Cadiz shall not deed or encumber ownership of its
properties in the Cadiz or Fenner Valleys, during
the life of the Program, without the written
permission of Metropolitan except as allowed under
Section 8.6. Such permission shall not be
unreasonably withheld.
8.9 Section 4.5 permits Metropolitan to perform an
exchange in response to a Cadiz request for
delivery of indigenous water to a third party.
Metropolitan may instead deliver water other than
indigenous water to such third party ("Exchange").
In such an event, an amount of indigenous water
equal to the amount of water subject to the
Exchange ("Exchange Water") shall be banked in the
Cadiz basin for later extraction by Metropolitan
without additional Transfer or Storage Fees.
Cadiz shall be responsible to deliver Metropolitan
banked Exchange Water upon demand. If Exchange
Water is not available and it is concluded through
subsequent determinations of the GWMMP that the
Exchange Water was not available for transfer,
Cadiz shall have the obligation to repay
Metropolitan for such Exchange Water.
Notwithstanding the above, if the Exchange Water
is not available due to a subsequent event, not
the result of Cadiz' intentional or negligent act
or omission, but in accordance with the GWMMP was
available for transfer at the time of Exchange,
Cadiz shall not be obligated to repay Metropolitan
for the Exchange Water. Cadiz shall provide
Metropolitan with a property interest in a form
reasonably acceptable to Metropolitan for the
purpose of recovering any exchange water.
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8.10 The rate charged to Cadiz for the use of the
Metropolitan conveyance system for the delivery at
Cadiz' request of indigenous water pursuant to
Section 4.5, either through conveyance or
Exchange, shall be Metropolitan's posted wheeling
rate for "as available" capacity. In addition,
Cadiz shall pay power costs as charged to member
agencies for wheeling or to third parties in long-
term (greater than 12 months) wheeling agreements,
and any water treatment costs for delivery of
treated water (which shall be provided, if
requested, at the water treatment rates as
uniformly charged to all purchasers of water
treated by Metropolitan's same treatment plant).
Cadiz shall also pay any water stewardship fees
that are uniformly charged on water delivered
through the Metropolitan conveyance system by
Metropolitan to all member agencies and third
party wheelers, excluding agreements negotiated
prior to the approval by Metropolitan's Board of
this Proposal "as to form."
8.11 The rate charged to Cadiz for the use of the
Metropolitan conveyance system for the delivery at
Cadiz' request of indigenous water pursuant to
Section 4.7, shall be Metropolitan's best
available wheeling rate offered to third parties
under equivalent terms and conditions. In
addition, Cadiz shall pay power costs as charged
to member agencies for wheeling or to third
parties in long-term (greater than 12 months)
wheeling agreements, and any water treatment costs
for delivery of treated water (which shall be
provided, if requested, at the water treatment
rates as uniformly charged to purchasers of water
treated by Metropolitan's same treatment plant).
Cadiz shall also pay any water stewardship fees
that are uniformly charged on water delivered
through the Metropolitan conveyance system by
Metropolitan to all member agencies and third
party wheelers excluding agreements negotiated
prior to the approval by Metropolitan's Board of
this Proposal "as to form."
8.12 Metropolitan shall take no action, and shall use
its reasonable good faith efforts to cause its
directors, officers, employees, agents and member
agencies to refrain from taking action, to
interfere with Cadiz' ability to market and
deliver the newly developed water supply as
described in Sections 4.5 and 4.7; provided that
the discretion and authority of
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Metropolitan, its directors, officers, and employees
to perform their duties and obligations authorized
by law shall not be impaired in any way. Actions taken
by Metropolitan within its authority, and actions
taken by its directors, officers, and employees
within the scope of their office or employment,
shall not be considered as actions which interfere
with Cadiz' ability to market and deliver the
newly developed water supply. However,
interference in breach of this provision shall
include actions taken by Metropolitan's directors,
officers, employees and agents acting
independently of the policy or direction of
Metropolitan's Board to prevent a purchaser from
entering into a transaction to purchase Cadiz
indigenous water.
8.13 At Metropolitan's option, and in accordance with
the expected Program yield as determined under
Section 4.6 and security interest under Section
4.8, Cadiz shall manage agricultural production in
the Cadiz/Fenner Valleys to ensure the
availability of at least the first 300,000 AF of
transfer water (including by adjusting the amount
of agricultural production). Cadiz shall not
increase its use of water for agricultural
production or other purposes in the Cadiz or
Fenner Valleys without the consent of
Metropolitan.
8.14 Cadiz shall grant to Metropolitan rights of
easement necessary for the construction and
maintenance of the Capital Facilities.
8.15 A final contract for the Project would be subject
to approval of Metropolitan's Board of Directors
and shall be in conformance with the terms and
conditions of any mitigation plan adopted by
Metropolitan's Board pursuant to CEQA.
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ATTACHMENT A
TRANSFER FEE REDETERMINATION PROCEDURE
1. GENERAL
To ensure that payments for indigenous water made under
the Cadiz Groundwater Storage and Dry-Year Supply Program
("Program") represent the fair market value for
transfers, a Transfer Fee Redetermination provision is
included as part of this Agreement. The purpose of this
provision is to adjust on a periodic basis the Transfer
Fee for Cadiz indigenous groundwater to ensure
consistency with prevailing market values for water
transfers with reasonably equivalent long term supply
reliability benefits to Metropolitan's Service Area.
2. TIMING AND FREQUENCY
In any year 2 through 25 of the Program in which
Metropolitan purchases indigenous groundwater from Cadiz,
either party may request a Transfer Fee Redetermination.
Such request shall be made in writing ("Transfer Fee
Redetermination Notice"). Within ninety (90) days
following such request, the parties shall exchange any
and all data relied upon by each party to calculate or
support the fair market value of transfers. Within
thirty (30) days following the exchange of data, the
parties shall negotiate in good faith to establish the
fair market value of Cadiz indigenous groundwater
purchased under this Program ("FMV"). The increase or
decrease in the FMV shall not exceed thirty-percent (30%)
from the FMV in the immediately prior redetermination, or
from the Base Rate in the initial redetermination. The
Adjusted Rate, calculated in accordance with Section
4.2.2, shall become effective as of January 1 of the year
in which the applicable Transfer Fee Redetermination
Notice is delivered.
Both parties agree the following guidelines should be
considered (including by any arbitration panel) in
establishing the FMV.
3. ELIGIBILITY CRITERIA
(a) INFORMATION AVAILABILITY: The data exchanged by each
party must include a complete copy of any underlying
contract, financial information, and similar
documents reflecting the terms, conditions and
costs, of water supplies upon which each party
relied as a basis for the Transfer Fee
Redetermination.
(b) VOLUNTARY NEGOTIATED TRANSFER: Each transfer must be
the result of a voluntary process between willing
participants establishing the terms, conditions and
costs of such transfer.
(c) AG-TO-AG WATER TRANSFERS: Transactions between
agricultural water users are eligible when either of
the following two conditions are met: 1) the ag-to-
ag transfer is the result of a general offer to sell
and the seller's water district has made general
offers to sell that resulted in a transaction
between the seller and a municipal and industrial
user or supplier in the past five years; or 2) the
area of origin is outside of Metropolitan's Service
Area and the transferred water will be applied to
agricultural operations within the Service Area.
(d) GEOGRAPHY: The source of water or water rights must
be capable of being used for domestic, municipal and
industrial, or agricultural use within
Metropolitan's Service Area.
(e) WATER QUALITY: The quality of the source of water,
when subjected to ordinary and customary treatment
in the Metropolitan Service Area, would fall within
the controlling Federal and State maximum
contaminant levels for potable water.
(f) WATER TRANSFERS: Transactions must be water transfer
agreements between arms-length participants executed
within five years of the price redetermination, but
not prior to the execution of this agreement. This
specifically excludes, groundwater conjunctive use
projects in
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Metropolitan's service area, desalination projects,
or water recycling projects.
(g) SIZE AND DURATION: Eligible transactions must be
sales of at least 20,000 acre-feet per transaction
and last a minimum duration of 4 years.
4. CALCULATION OF TRANSFER FEE
The initial FMV is a firm non-escalating $230 per acre-
foot until sufficient evidence is found to redetermine
the FMV. Sufficient evidence is defined as at least
five (5) transactions meeting the eligibility criteria
in Section 3 in the five years immediately preceding
redetermination. If sufficient information is found
then the FMV shall be calculated as the five-year
volume-weighted rolling average of eligible
transactions. Once a FMV has been established, it
shall persist for five years or until further
information exists to redetermine the FMV. If, five
years after a price redetermination has occurred, there
is insufficient information to re-estimate a FMV then
the parties shall negotiate to establish the FMV or
submit to arbitration to determine the appropriate
methodology for determining FMV.
A methodology for determining the delivered cost per
acre-foot, including necessary adjustments to reflect
differences in payment schedules, transport costs (1),
and treatment costs shall be developed and mutually
agreed to by both parties prior to the first price
redetermination. This methodology shall be adhered to
for all subsequent price redeterminations to ensure
consistency over time in the estimates of the delivered
cost per acre-foot of comparable transfers.
FN (1) For the purposes of the Cadiz transactions,
transportation costs shall include, among other costs,
1/2 of the capital cost paid by Metropolitan for the
development and construction of the Cadiz Program
5. FMV DISPUTE RESOLUTION
In the event the parties are not able to agree upon the
FMV within 90 days of entering into good faith
negotiations as described in Section 2, then the FMV
shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American
Arbitration Association ("AAA").
Any such dispute will be referred to one (1) arbitrator
agreed to by the parties within fifteen (15) days after
submission of the dispute to arbitration; provided,
however, that if the parties are unable to agree upon
the selection of an arbitrator, such dispute will be
referred to three (3) arbitrators. In such an event,
each party shall select one of the three arbitrators.
The third arbitrator will be selected by the two party-
appointed arbitrators; provided, however, if the two
party-appointed arbitrators are unable to agree upon
the third arbitrator, then the third arbitrator shall
be appointed by the AAA. Each arbitrator must have
expertise in California water issues and natural
resource valuation. Each arbitrator, including party-
appointed arbitrators, is subject to disclosure and
disqualification pursuant to Rule R-19 of the
Commercial Arbitration Rules.
Based on a schedule to be set by the arbitrator(s),
Cadiz and Metropolitan will each prepare a written
claim specifying its proposal for the FMV (denominated
in dollars per acre-foot of water) and written
documentation supporting its proposal, not to exceed
100 pages. No party may submit data or documentation
for any transfer that was not exchanged during the
negotiations between the parties. Metropolitan and
Cadiz each may also file a rebuttal to the other
party's submission, which shall not exceed 25 pages.
Except for disputes arising out of Section 6 below, the
only issue to be decided by the arbitrator(s) is which
of the two proposed amounts for the FMV (i.e., the
amount proposed by Metropolitan or the amount proposed
by Cadiz) is closest to the actual FMV. The proposed
amount chosen by the arbitration panel shall be the FMV
for purposes of calculating the Adjusted Rate for the
Transfer Fee as described in Sections 2 and 4.
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6. RE-FORMULATION OF THE TRANSFER FEE REDETERMINATION METHODOLOGY
If at any time during the course of this Agreement a
regularly published water transfer market index
accurately representing the relevant markets of
transfers for Metropolitan becomes available, either
party has the option to request the use of this index.
If both parties agree to the use of the index, it shall
replace the Transfer Fee Redetermination procedure set
forth in this Attachment. Disputes arising over the
substitution of an index meeting the above conditions
shall be addressed under the dispute resolution
provisions of this Agreement.
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ATTACHMENT B
ATTACHMENT RE FINANCING AND SECURITY ISSUES
FOR A METROPOLITAN-CADIZ WATER STORAGE
AND DRY-YEAR SUPPLY PROGRAM
1. Bankruptcy Remoteness. Cadiz shall establish a
separate single-purpose, "bankruptcy remote" corporate
entity for the purpose of owning its interest in the
Capital Facilities and the Program Agreement, the
property, water rights and other appurtenant rights
related to the Program and securing its obligations
under the Agreement. Cadiz would also guarantee
performance and payment of such subsidiary's
obligations under the Agreement. In connection with
the above, Cadiz shall comply with "bankruptcy remote"
structures by limiting the activities and liabilities
of the subsidiary, appointing an independent director
to the subsidiary's board of directors, and requiring
unanimous director approval to borrow money, dissolve,
sell all or substantially all of its assets, merge or
reorganize, file bankruptcy, or amend the articles of
incorporation.
* Single purpose subsidiary:
- No other liabilities.
- No other activities.
- Independent director.
- Unanimous vote for bankruptcy/winding-up/dissolution.
* Consent by senior Cadiz lender to assignment.
* Guarantee of performance by Cadiz:
- limit on other indebtedness of Cadiz/Cadiz subsidiary.
- Material Adverse Change standard.
- Limitation on other transactions.
* Title insurance/project-easement absolute.
2. SECURITY FOR PERFORMANCE. As collateral security for
Cadiz' performance of all contract provisions (to
deliver water and storage), a deed of trust on its
interests would be a condition of the Program. The
deed of trust would address:
* A junior lien on Cadiz' share of improvements.
* A junior lien on land.
* The priority to be determined, depends on other lenders
rights/agreements in the event of default and termination.
3. SEPARATE PROFITS AND EASEMENTS. The Program documents
should be separated into discrete packages of rights
and obligations for:
* Purchase of indigenous ground water.
* Storage of Colorado River surplus water.
This would keep the rights and conditions separate and
clean in case for any reason the supply arrangement was
terminated but the storage continued or was taken over
by MWD.
4. CONDITIONS PRECEDENT - The Program shall be subject to
the satisfaction of specific conditions precedent,
including:
* Obtaining environmental clearance for the Program
and all aspects of the removal and storage of water.
* The negotiation, approval and concurrent effectiveness
of all collateral security documents.
* The satisfaction of all Cadiz senior lender issues:
- The consent by Cadiz senior lender of the Program,
including the single-purpose entity and the easement
and profit.
- Dollar limitation on the senior indebtedness.
- Notice/cure rights granted in favor of MWD.
- Off-set rights.
- A purchase option granted in favor of MWD to
acquire the senior loan at a predetermined price.
* The availability and approval of Cadiz' project financing commitment.
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* The receipt of all permits and easements necessary or desirable
for the project.
* Joint approval of the Plan:
- To build the project, the EPC contract, Plans for the
project, the budget for the project.
- To operate the storage and removal Program, the
groundwater management plan
* No Material Adverse Change.
* The truthfulness of all representations, warranties
and covenants regarding the Program.
5. CADIZ PROJECT FINANCING. MWD's right to review and
approve the Cadiz financing shall include the right to
review and approve the establishment and structure of
the separate corporate entity and to obtain consent
from Cadiz' project lender on terms approved by MWD.
Any security interest in the Capital Facilities created
by Cadiz financing shall not encumber MWD's ownership
interest in, or interfere with MWD's right to operate,
the Capital Facilities, and shall acknowledge MWD's
rights under and in this Agreement. Cadiz's project
loan shall also:
* Be adequate to cover Cadiz's share of capital budget.
* Provide for an outside dollar limitation and set
forth the requirements for any equity investment.
* Be secured by a lien on Cadiz contract payments and
other Cadiz assets
* Be a firm commitment - ready to close.
* MWD protections to include:
- Subordination/acknowledgment of MWD rights in
contract and non-disturbance.
- Provide for notice/cure rights in favor of MWD.
- Provide for off-set rights.
- Acknowledge MWD's right to take over facilities
in certain circumstances, free of project lien.
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