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1992-0630_MUNICIPAL WATER DISTRICT OC_Agreementti AGREEMENT FOR INTERIM LICENSE AND LEASE OF CAPACITY IN ALLEN-MCCOLLOCE PIPELINE THIS AGREEMENT FOR INTERIM LICENSE AND LEASE OF CAPACITY ("Agreement") is entered into this 30th day of June, 1992, by and between MUNICIPAL WATER DISTRICT OF ORANGE COUNTY ("MWDOC") as managing agent of the Allen-McColloch Pipeline ("AMP") on behalf of the Participants under the "Agreement for Construction, Operation and Maintenance of Pipeline and to Enter into Sublease Concerning the Diemer Filtration Plant/Santiago Aqueduct Intertie" and all amendments and agreements related thereto ("Diemer Agreements") and CAPISTRANO VALLEY WATER DISTRICT ("Lessee"). RECITALS WHEREAS, MWDOC has entered into an agreement with Municipal Water District of Orange County Water Facilities Corporation ("MWDOCWFC") and the Participants in the Allen-McColloch Pipeline ("AMP"), consisting of Yorba Linda Water District, the City of Anaheim, the City of Orange, East orange County Water District, Irvine Ranch Water District, Santiago County Water District, Los Alisos Water District, E1 Toro Water District, Moulton -Niguel Water District, Santa Margarita Water District, Trabuco Canyon Water District and The Irvine Company ("Participants"), to construct the AMP Flow Augmentation Project which will increase the capacity of the AMP; and 1 WHEREAS, MWDOC, MWDOCWFC and the Participants have entered into negotiations with Metropolitan Water District of Southern California ("Metropolitan") for the sale of the AMP to Metropolitan to be effective June 30, 1998 and, if an agreement is needed, upon completion of that sale, Metropolitan would undertake to supply all demands within its service area at all delivery points along the AMP; and WHEREAS, in contemplation of the sale of the AMP to Metropolitan, the Participants are willing to lease a portion of their capacity in the AMP pending transfer of title to Metropolitan, and WHEREAS, the Lessee is within the service area of Metropolitan and desires to lease capacity in the AMP on an interim basis until title to the AMP is transferred to Metropolitan; NOW, THEREFORE, in consideration of the facts set forth in the Recitals and the promises and covenants set forth herein, the parties agree as follows: 1. METROPOLITAN PURCHASE OF AMP. The Lease of capacity in the AMP hereunder is subject to execution of a formal and binding agreement (the "Metropolitan Purchase Agreement") among MWDOC, MWDOCWFC, the Participants and Metropolitan for the sale of the AMP to, and the purchase of the AMP by, Metropolitan, on terms and conditions determined in the sole discretion of MWDOC, MWDOCWFC, the Participants and Metropolitan. Neither MWDOC, MWDOCWFC, the Participants nor Metropolitan shall be obligated to agree to any specific term or condition for the proposed sale of the AMP nor 2 shall they be liable to Lessee if the negotiations fail to result in an agreement. The Lease of Capacity under this Agreement shall have no force or effect until the Metropolitan Purchase Agreement for the sale of the AMP to Metropolitan is executed by all parties, although an Interim License will be permitted during negotiations on the terms and conditions set forth herein. Lessee acknowledges that the AMP is a facility financed and constructed by a consortium of public water agencies and a private corporation and that MWDOC, as trustee and managing agent, has no authority or discretion to operate or permit the use of the AMP to serve non -Participants except as may be expressly permitted and limited by agreement with MWDOCWFC and the Participants. The Lease or Interim License of FAP Capacity under this Agreement shall in no way be deemed, interpreted or construed as creating or evidencing an obligation on the part of MWDOC, MWDOCWFC or the Participants to serve or continue to serve Lessee or any person or entity through the AMP except as expressly provided hereunder. Lessee represents and covenants that Lessee will be ready and able to sustain a reduction or termination of use and will not oppose reduction or termination of use pursuant to the terms of this Agreement on the grounds that such reduction or termination would result in hardship or water shortage conditions within Lessee's service area. Lessee expressly covenants that Lessee will communicate the terms of this Agreement pertaining to the potential reduction or termination of capacity hereunder ("Termination Provisions") to each of its sublessees and will require the same covenant regarding the ability 3 E to sustain and not opposing reduction or termination from its sublessees. Lessee further covenants that Lessee has in force or will, within three months of execution of this Agreement, place in force an ordinance or other formally approved plan by the water purveying agency to deal with water shortage situations within its service area. The ordinance or plan shall include specific provisions addressing water shortages due to water transmission capacity shortages which would occur under implementation of the Termination Provisions of this Agreement. Any sublease which Lessee enters into for all or any part of the capacity leased hereunder shall require that the sublessee and all retail agencies using such capacity shall comply with this requirement. 2. DEFINITIONS. For purposes of this Agreement, the following terms are defined as follows: a. "Gravity Float Capacity" shall mean that capacity of the AMP which exists under gravity flow conditions, while meeting all contractual HGL requirements, prior to completion of the AMP Flow Augmentation Project. Gravity Flow Capacity is not subject to reduction if demand on the AMP exceeds available capacity. b. 11FAP Caoacit3C shall mean that capacity in the AMP which will be created by completion of the Diemer Pump Station phase of the AMP Flow Augmentation Project. By agreement with the Participants, MWDOC will monitor demands and construct the Diemer Pump Station if demand is projected to reach maximum Gravity Flow Capacity within a two-year period which is the 4 time necessary to build the Pump Station. Until the AMP Flow Augmentation Project is actually completed (with the Pump Station), FAP Capacity is not guaranteed. By agreement among the Participants, owners or lessees of FAP Capacity are permitted to utilize unused Gravity Flow Capacity prior to completion of the AMP Flow Augmentation Project up to the maximum amount of their FAP Capacity, subject to reduction or termination when the total demand exceeds available capacity. C. "AMP Flop Augmentation Proiect" means all planned phases of the Project authorized under the "Fifth Amendment to Agreement for Construction, Operation and Maintenance of Pipeline and to Enter into Sublease Concerning the Diemer Filtration Plant/Santiago Aqueduct Intertie", dated June 7, 1989. d. "Leasee shall mean the leasehold interest created under this Agreement at such time as the Metropolitan Purchase Agreement is executed as described in Section 1. The Interim License does not constitute a Lease. e. *$Interim Licensee shall mean a temporary operational accommodation to the Prospective Lessee allowing the Prospective Lessee to receive water deliveries from the AMP prior to the commencement of the term of the Lease as provided in Section 4. The Interim License period shall commence on June 1, 1992 if the Metropolitan Purchase Agreement has not been executed on that date and shall continue until the Metropolitan Purchase Agreement has been executed or until the 5 Interim License is terminated pursuant to Section 9 hereof. The Interim License shall not create any leasehold rights or other interest in the Prospective Lessee and shall not be deemed a license coupled with an interest, notwithstanding the payment of consideration. The Interim License shall be revocable at all times, subject to the notice required in Section 9. f. $'Utility Uses' shall mean the sum of all FAP Capacity in use at a given time by all Participants which are at that time exceeding their Gravity Flow Capacity. g. I'Prosoective Lesseell shall mean the Lessee under this Agreement prior to commencement of the term of the Lease. 3. LEASED CAPACITY. Subject to the conditions set forth herein, MWDOC hereby leases to Lessee and Lessee leases from MWDOC 5 cfs of FAP Capacity in the AMP. The leased capacity extends through Reach S5 of the AMP for delivery at the ST -21 flow meter. All water delivered through capacity leased hereunder shall be deemed delivered at the point it passes through the ST -21 flow meter. Transmission, distribution and storage of such water after it passes through the ST -21 flow meter becomes the sole responsibility of Lessee. Lessee shall be solely responsible for compliance with all rules and regulations, and payment of all fees, charges and assessments imposed by Santa Margarita Water District for water delivered into the South County Pipeline Project at the direction of Lessee. 21 3.1 MWDOC hereby acknowledges and agrees that Lessee may sublease the capacity leased hereunder, however, any such sublease shall not affect or increase any obligation on the part of MWDOC hereunder nor shall it relieve or reduce any obligation of Lessee. MWDOC's obligations under this Agreement shall run solely to Lessee and no person or entity shall acquire the right to bring legal action to enforce this Agreement with respect to obligations of MWDOC, except Lessee. Lessee shall remain primarily liable for the performance of all obligations to be performed by Lessee hereunder. As a condition of any sublease, Lessee shall require that the sublessee assume all covenants provided in this Agreement, including, but not limited to, the covenants contained in Sections 1 and 9.c. 4. TERM. The term of the Lease shall commence on the later of June 1, 1992 or the date the Metropolitan Purchase Agreement has been duly executed by Metropolitan, MWDOC, MWDOCWFC and the Participants as provided in Section 1 of this Agreement ("Commencement Date"). The term of this Lease shall expire on the earlier of May 31, 1998 or the date Metropolitan assumes ownership of the AMP under the Metropolitan Purchase Agreement ("Termination Date"), Nothing herein shall be deemed to limit or bind MWDOC, MWDOCWFC or the Participants with respect to the date of transfer of the AMP under the Metropolitan Purchase Agreement. 7 0 0 5. PAYMENT. a. As consideration for the Lease of capacity, Lessee shall make annual payments in the sum of $25,000.00 per cfs, which shall be due in advance on the Commencement Date and on the anniversary of the Commencement Date each year thereafter during the term of the Lease. If the Termination Date is other than an anniversary of the Commencement Date, then the payment for the final partial year shall be $25,000.00 per cfs. b. Lessee shall pay an AMP surcharge on each acre-foot of water delivered to Lessee through the AMP and an ST -21 surcharge on water delivered through the ST -21 Pump Station Facility in an amount established by MWDOC from time to time in accordance with the provisions of the Diemer Agreements. The AMP surcharge charged to Lessee shall be at the same rate as that charged to Participants. C. In addition to the payments specified in 5.a and 5.b, Lessee shall pay a proportionate share of all AMP operation and maintenance charges on the same basis as said costs are allocated among the Participants under the Diemer Agreements. (Specifically, operation and maintenance costs will be allocated on the CFS -Foot Weighting Method described in Section 7 of the Fifth Amendment to Agreement for Construction, Operation and Maintenance of Pipeline and to Enter into Sublease Concerning the Diemer Filtration Plant/Santiago Aqueduct Intertie ("Fifth Amendment"), unless 8 0 0 amended.) Included in operation and maintenance costs charged to users of FAP Capacity shall be the cost of operating the DI -08 pump station as required under the Fifth Amendment. The operation and maintenance costs will be assessed on an annual basis and MWDOC will submit an invoice to Lessee in April of each year during the term of the Lease showing both the annual payment and the operation and maintenance charge to be paid June 1 of that year. d. The full amount of the payments and charges specified herein shall be due and payable notwithstanding any shutdowns, outages, emergencies or reductions in deliveries from Metropolitan, and notwithstanding Lessee's failure to utilize all or any portion of the leased capacity, or the reduction of FAP Capacity due to demand exceeding the gravity flow capacity of the AMP under Section 7.b. 6. PEAR CAPACITY. The capacity leased under this Agreement by Lessee shall be the maximum capacity to which Lessee shall be entitled under peak demand by Lessee throughout the term of the Lease. Lessee shall not exceed the maximum capacity flow specified herein whether or not there is unused capacity in the AMP. MWDOC shall rely on reports from Santa Margarita Water District to monitor flows from the AMP to the South County Pipeline to ensure that Lessee has not exceeded the leased capacity. Upon notification from Santa Margarita Water District that Lessee has received flows in excess of the leased capacity, MWDOC shall direct Santa Margarita Water District to manually limit flows to Lessee to �' the leased capacity amount. This Section shall not apply to excess flows delivered at MWDOC's option under Section 8. 7. LIMITATIONS ON CAPACITY. a. No Guaranty of Deliveries. This Agreement provides for a lease of capacity only. No representation or warranty is made concerning the supply or availability of water for delivery through the leased capacity during the term of the Lease. The delivery of water is subject to availability of supplies from Metropolitan and neither MWDOC, MWDOCWFC nor the Participants shall be obligated to augment, insure or increase the Metropolitan supply or obtain other sources of supply. In the event of a reduction of water supply by Metropolitan to MWDOC, MWDOC shall have sole discretion with respect to allocation of said supply within MWDOC's service area. If Lessee is not within MWDOC's service area, then, in the event of a reduction of water deliveries by Metropolitan to Lessee, Lessee shall have sole discretion with respect to allocation of said supply within Lessee's service area. b. Limitations on FAP Capacity. Lessee acknowledges that Lessee is aware that construction of certain phases of the AMP Flow Augmentation Project has been delayed indefinitely by agreement of the Participants, MWDOC and MWDOCWFC with the expectation that construction of those phases may be avoided entirely upon purchase of the AMP by Metropolitan. The leased capacity hereunder has been designated as FAP Capacity. MWDOC, MWDOCWFC and the 10 0 E Participants have agreed to allow use of FAP Capacity by the owners and lessees thereof pending completion of the AMP Flow Augmentation Project or sale to Metropolitan, subject to reduction or termination if the available capacity in the AMP is not sufficient to meet all demands, therefore, FAP Capacity leased hereunder shall be subject to the following additional limitations. 1) At such time as the total demand on the AMP exceeds the available capacity, all owners and lessees with Gravity Flow Capacity shall have priority rights to use of capacity up to the amount of their full Gravity Flow Capacity. 2) Any capacity which is available after all gravity flow capacity priority demands have been satisfied shall be allocated among owners and lessees of FAP Capacity in proportion to their FAP Capacity rights in such a way that all owners and lessees of FAP Capacity whose demands are not satisfied have been cut-back in the same proportion. 3) The availability of FAP Capacity in periods where demand exceeds availability is also subject to the physical ability of the AMP to deliver that capacity to the desired delivery point after priority demands have been met. 11 0 0 C. Monitoring of Capacity Usaae. In order to fully protect the rights of the Participants to priority use of their Gravity Flow Capacity in the AMP, MWDOC shall monitor flows and usage on the system and the total amount of capacity being leased. In accordance with the agreement among the Participants, MWDOC, and MWDOCWFC for deferring construction of the pump station at Metropolitan's Diemer Filtration Plant, MWDOC is required to proceed with construction of the pump station at such time as peak flows on the AMP reach 366 cfs or if future demand is at any time projected to reach 416 cfs within two years. At no time shall the combination of Utility Use and Lease capacity under all Leases exceed the sum of 140 cfs. 8. EXCESS BLOWS. From time to time, MWDOC may request that Lessee take delivery of flows in excess of Lessee's requested delivery and possibly in excess of Lessee's leased capacity, in connection with special circumstances involving the operation of the AMP, emergencies in other importation systems or other extraordinary conditions which warrant a sharing of facilities to meet health and safety needs within the County. Lessee will be expected to comply with such requests to the extent possible under Lessee's operating capabilities. Lessee will not be charged additional Lease payments or the operation and maintenance charge on water delivered in excess of Lessee's requested delivery. Lessee will be responsible for payment for the water delivered, including the AMP surcharge and ST -21 surcharge on water delivered 12 0 0 pursuant to this Section. 9. INTERIM LICENSE. Commencing on June 1, 1992 and as long as it appears to MWDOC, MWDOCWFC and the Participants, in their sole opinion, that negotiations with Metropolitan are proceeding well and that an agreement for sale of the AMP to Metropolitan is imminent, MWDOC shall permit Prospective Lessee to have an Interim License for use of capacity in the AMP and permit Prospective Lessee to receive deliveries of water from the AMP pending commencement of the Lease. The Interim License under this provision does not constitute a Lease of capacity in the AMP and creates no leasehold or other right or interest in the Prospective Lessee. The Interim License shall not be deemed to be a license coupled with an interest, notwithstanding the payment of consideration and shall be revocable at all times, subject to 3 months' written notice. The Interim License is subject to all restrictions, limitations, obligations and requirements which apply to the Lease and is subject to the following additional restrictions, limitations, obligations and requirements: a. Notwithstanding the provisions of Section 5.a of this Agreement, the consideration to be paid by Prospective Lessee for the Interim License for use of capacity shall be the sum of $50,000.00 per cfs of capacity annually which shall be due in advance on June 1, 1992 and on the anniversary of that date until the Commencement Date of the Lease or termination of the Interim License, whichever occurs first. If the Commencement Date of the Lease occurs on or before 13 0 0 June 1, 1993, then the consideration paid by Prospective Lessee for the Interim License shall be applied to the Lease term such that the effective rate from the date the Interim License was initiated June 1, 1992, shall be $25,000.00 per cfs per year. If the Commencement Date occurs after June 1, 1993, then the consideration paid by Prospective Lessee for the year in which the Lease commences shall be prorated on the basis of twelve 30 -day months as of the Commencement Date such that the effective rate is $50,000.00 per cfs per year during the Interim License period and any balance shall be applied to the consideration payable under the Lease. All amounts payable under Sections 5.b and 5.c of this Agreement shall be payable by Prospective Lessee for the Interim License and the terms of Section 5.d of this Agreement shall apply equally to the Interim License. b. Notwithstanding subsection 9(a), supra, if, prior to execution of a final agreement with Metropolitan, MWDOC, MWDOCWFC and the Participants have received a letter from Metropolitan in a form acceptable to MWDOC, MWDOCWFC, and the Participants acknowledging Metropolitan's commitment to purchase the AMP on agreed terms and conditions, subject only to drafting and execution of the final agreement of purchase and sale finalizing the agreement, then the consideration for the Interim License from the date of receipt of such letter to the Commencement Date shall be $25,000 per cfs per year and shall be prorated for any partial year prior to the 14 0 0 Commencement Date with the balance applied to the Lease term. The Interim License may be terminated by MWDOC or Lessee at any time without cause or warning upon three months' written notice. In the event the Interim License is terminated by MWDOC or Lessee pursuant to this Section 9.b, then the consideration for any partial year preceding the termination date shall be prorated on the basis of twelve 30 -day months and the balance refunded to Lessee. The refund of consideration for any partial year after termination shall be the sole payment and remedy to which Lessee shall be entitled as a result of termination of the Interim License pursuant to this Section. Termination pursuant to this Section 9.b shall be as to all capacity used under this Interim License; there shall be no right to terminate as to a portion of the capacity. C. Prospective Lessee represents and covenants that at all times during the Interim License, Prospective Lessee shall be ready and able to sustain a termination of use under the Interim License on three months' written notice. Prospective Lessee shall be bound by all of the covenants and representations contained in Section 1 of this Agreement with respect to Prospective Lessee's use under the Interim License. d. The Interim License shall be limited to the identical amount of capacity to be leased by Prospective Lessee during the term of the Lease. Subject to the restrictions in Section 3.1 and all limitations and 15 0 0 restrictions provided in this Section 9, Prospective Lessee may assign all or some of Prospective Lessee's rights under this Interim License to other agencies within its service area. 10. CALIFORNIA ENVIRONMENTAL QUALITY ACT (CEQA) COMPLIANCE. The environmental impacts of delivery of water from the AMP through the South County Pipeline were addressed in the Environmental Impact Report (EIR) prepared prior to approval of the South County Pipeline Project. To the extent that the use contemplated by Lessee under the Lease or the Interim License involves a significant expansion of use beyond that addressed in the EIR for the South County Pipeline, Lessee represents and covenants that it has complied with all requirements of the regulations implementing CEQA prior to approving and executing this Agreement. 11. JOINT USE OF CAPACITY IN WATER CONVEYANCE FACILITIES. By executing this Agreement, Lessee/Prospective Lessee acknowledges that the compensation provided herein for the Lease of capacity and the Interim License is fair and reasonable, and that the other terms and conditions are fair and reasonable all within the meaning of Water Code §§1810 through 1814, inclusive, and specifically that the provisions for termination of the right to use capacity hereunder are fair and reasonable in view of the circumstances surrounding this Agreement. As a part of the consideration for this Agreement, Lessee/Prospective Lessee hereby waives any right to bring a judicial action or any proceeding under Water Code §1813 to challenge the terms and conditions of this Agreement or to 16 0 0 compel continuance of the use of capacity in the AMP after termination of such use pursuant to the terms of this Agreement. The waiver of rights by Lessee under Water Code §§1810 through 1814 shall survive the termination of this Agreement. 12. DEFAULT. In the event Lessee defaults in the payment of any amount which Lessee is obligated to pay under this Agreement and does not cure such default for a period of thirty days after written notice of such default is given to Lessee, MWDOC shall have the option to (1) suspend Lessee's use of capacity in the AMP until such time as Lessee has paid all delinquent amounts with interest at the rate of ten percent (10%) per annum from the date said payment became due; or (2) terminate this Agreement and Lessee's right to capacity in the AMP and make said capacity available for lease to another agency. If MWDOC elects to terminate the Lease because of non-payment, MWDOC shall be entitled to recover from Lessee the difference between the payment which would have been due under the Lease with Lessee and the payments, if any, which MWDOC is able to obtain by leasing said capacity to another agency. If Lessee breaches any representation, covenant or obligation other than non-payment of any amount due hereunder and does not cure such default for a period of sixty days after written notice specifying the nature of the default is given to Lessee, then MWDOC shall have the option to terminate the Lease immediately upon written notice to Lessee. Upon termination for breach of any representation, covenant or obligation hereunder other than non-payment, MWDOC shall have the right to recover from Lessee all damages and costs 17 0 0 incurred by MWDOC as a result of such breach, including the payments which would have become due for the balance of the term and reasonable attorneys' fees. 13. NOTICES. All notices to be given under this Agreement shall be personally delivered or deposited in the U. S. Mail, postage prepaid, addressed as follows: To MWDOC: Municipal Water District of Orange County 10500 Ellis Avenue P. O. Box 20895 Fountain Valley, CA 92728 ATTN: Karl Seckel Asst. Mgr./Dist. Engineer To Lessee: Coastal Municipal Water District 3 Monarch Bay Plaza, Suite 205 Dana Point, CA 92627 ATTN: Hunter Cook, General Manager Notices will be deemed given on the date personally delivered or three days after the date deposited in the mail. 14. INDEMNITY. Lessee shall indemnify and hold harmless MWDOC, MWDOCWFC and the Participants from any and all claims, damages, liabilities, obligations or legal actions, including court costs and attorneys' fees, to or by third parties arising out of Lessee's or its sublessees' use of capacity under this Agreement or out of the termination or reduction of water deliveries hereunder. MWDOC shall indemnify and hold harmless Lessee and any sublessees of Lessee from any and all claims, damages, liabilities, obligations, or legal actions, including court costs and attorneys' fees to or by third parties arising out of MWDOC's operation and maintenance of the AMP and AMPFAP, except such claims, damages, liabilities, obligations or legal actions which arise out of the termination or 18 reduction of water deliveries to Lessee or its sublessees in accordance with the terms of this Agreement. DATED: 12.2- If, 19 MUNICIPAL WATER DISTRICT OF ORANGE COUNTY By01� - "LESSEE" CAPISTRANO VALI WATER DISTRICT BY