Contract
EXHIBIT
99.1
LETTER
OF INTENT
BETWEEN
THE
Golden
State Water Company
AND
CADIZ
WHEREAS,
Cadiz owns and controls approximately 35,000 acres of land located in the Cadiz
and Xxxxxx valleys of San Bernardino County (“the Property”);
WHEREAS,
substantial quantities of percolating groundwater exist within the aquifer
system underlying the Cadiz Property that naturally migrates to dry lakes and
then is lost to evaporation;
WHEREAS,
the water that would otherwise be wasted can be conserved and made available for
reasonable and beneficial use in accordance with sustainable groundwater
management practices;
WHEREAS,
existing and potential aquifer capacity exists within the underlying aquifers
that can be prudently used to store conserved and imported water for subsequent
beneficial use;
WHEREAS,
the County of San Bernardino has previously approved a Conditional Use Permit in
1993 authorizing the withdrawal of water for agricultural uses on the overlying
land and Cadiz has made substantial investments in continuing its agricultural
concern on up to 9,600 acres;
WHEREAS,
Cadiz has acquired a 99-year right of way along an active railroad line from the
Arizona & California Railroad to construct a pipeline and power line to
convey water to and from the Property to the Colorado River Aqueduct
(CRA);
WHEREAS,
Golden State Water Company (“WP”) is evaluating supplemental water and
conjunctive use opportunities that may provide benefits to its service area(s)
within Southern California;
WHEREAS,
Cadiz has agreed to reserve up to a maximum of 10% of the conserved water and
storage developed from the Property for reasonable and beneficial uses within
San Bernardino County;
WHEREAS,
Cadiz will exercise good faith and best efforts to select companies based
primarily within the Inland Empire to provide the materials and services that
will be required to construct and operate any water related projects on the
Property;
WHEREAS,
Cadiz executed a memorandum of understanding with the Natural Heritage Institute
on May 14, 2009 pledging to comply with sustainable land management practices
and to evaluate the potential for improving environmental conditions
elsewhere;
WHEREAS,
Cadiz and the parties that may elect in their discretion to participate in the
program will coordinate their efforts and seek cooperation from the Metropolitan
Water District (MWD) and other MWD member agencies to implement any water
project on the Property and they will further collaborate in good faith to
create regional benefits;
WHEREAS,
the implementation and construction of a water banking project will require
environmental review under the California Environmental Quality Act (CEQA) and
the parties desire to fairly apportion the budgeted costs by further agreement
and reserve their respective rights not to proceed if such an agreement cannot
be reached; and
NOW
THEREFORE BE IT RESOLVED AND AGREED BY CADIZ AND WP THAT THE PROJECT SUMMARY AND
ECONOMIC TERMS SET FORTH BELOW WILL PROVIDE THE BASIS TO PREPARE A PROJECT
DESCRIPTION AND NEGOTIATE AN ENVIRONMENTAL COST SHARING AGREEMENT.
A. Project
Summary. Cadiz will
prepare a “project description” that satisfies the requirements of CEQA and is
consistent with the parameters contemplated by the parties and described
herein.
1. Cadiz
will seek to develop a groundwater banking operation on the Property for the
purpose of augmenting water supplies available for irrigation, solar, municipal
water supply, environmental and other beneficial uses. This program will bank
and market (a) native groundwater water conserved by reducing controllable
losses from the aquifer system and implementing prudent groundwater management
strategies, and (b) water imported from outside the property (probably from the
Colorado River) and percolated to actively recharge the aquifer. This
program will be conducted consistent with prevailing groundwater management
methodology governed by three primary principles: (1) Recharge and extraction of
native and imported water within the Property will be conducted in a manner that
achieves and then maintains optimal, long-term, safe (sustainable) yield and
conjunctive use of water; (2) Management of the groundwater levels will not
result in harm to the aquifers, or cause material adverse changes in water
quality, differential land subsidence, or impairment of habitats dependent upon
near-surface expressions of groundwater (such as phreatophytic vegetation,
wetlands or surface stream flows); (3) The banked water will directly and
indirectly result in restoration of unrelated aquatic ecosystems currently
impaired by water development. Cadiz intends to achieve environmental
restoration benefits through the banking of imported water for active recharge
and its use for environmental restoration purposes. Several examples
have been identified for further exploration - but do not constitute a
commitment — including providing water to substitute for some fraction of delta
exports during critically dry years to reduce ecological conflicts in that
system; providing substitute water to San Xxxxxxx water users to facilitate
restoration of fishery flows in that system; providing substitute water supply
to LADWP to enable restoration of the Owens River Valley; and enabling
environmental flows to be released and maintained into the Colorado River
delta.
2. Groundwater
captured by the Cadiz well-field will be made available as an Annual Quantity
Right and delivered to the Colorado River Aqueduct (CRA) at the cost of $975 per
afy subject to an annual escalation to be agreed upon but that will be
capped. WP will not be obligated to pay Cadiz unless conditions set
forth in B1, B2 and B3 (among other conditions that may be mutually agreed by
the parties) have been satisfied, the project is operational, the pipeline is
fully constructed and water is physically made available to the WP at the
CRA.
3.
Up to 1,000,000 acre-feet of available dewatered storage capacity will be
managed and made available for groundwater banking. Of this amount,
150,000 acre-feet of the dewatered storage capacity will be initially reserved
for first priority Carry-Over Storage Accounts (the right to carry over from
year to year unproduced groundwater). These Carry-Over Storage
accounts may be
acquired by those parties holding Annual Quantity Rights and acquired for the
storage of conserved water and for the storage of imported
water. They may be purchased at a cost of $7.5 million per each 5,000
acre-feet of Carry-Over Storage ($1,500 per af). At the request of WP, Owner
will finance 50 percent of the initial purchase price at 7 percent, over 30
years. If WP elects to acquire Carry-Over Storage, it will pay the
following costs:
·
|
$20
per acre-foot annual fee for administration, management and maintenance of
Carry-Over Storage.
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·
|
No
fee for accrual to Carry-Over Storage and no fee other than reimbursement
for incremental power on delivery of native water from Carry-Over
Storage.
|
·
|
$75
per acre-foot for puts and $75 per acre-foot for takes of imported water only,
plus actual power, subject to a $25 per acre-foot discount for puts for
entities that meet to be agreed upon environmental stewardship
objectives.
|
·
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WP
may pay the incremental cost of upsizing the conveyance pipeline to
deliver a quantity equivalent to the capacity of their purchased
Carry-Over Storage Account on a firm basis at an estimated cost of $12
million per 5,000 acre-feet of additional pipeline
capacity.
|
4. The
balance of any remaining storage will be made available for storage and recovery
of imported water in increments of 20,000 acre-feet at $7.5 million ($350 per
acre foot). At WP’s request, Cadiz will finance 50 percent of
purchase price at 7 percent interest only over 30 years. If WP elects
to proceed with the purchase of an imported storage account it will pay the
following costs:
·
|
$20
per acre-foot annual fee for administration, management and
maintenance.
|
·
|
$75
per acre-foot for puts and takes of imported water, subject to a $25 per
acre-foot discount for puts for entities that agree to meet to be agreed
upon environmental stewardship
objectives.
|
·
|
WP
will also either: (a) contribute 50 percent of the firm capacity capital
costs per each 5,000 acre-feet of pipeline capital costs to connect the
Cadiz Property to the CRA for “space available” capacity, or in the
alternative (b) pay the actual incremental cost of upsizing the conveyance
pipeline up to a cumulative maximum of 300
cfs.
|
·
|
Any
WP contribution for “space available” capacity will be used to
proportionately reduce the pipeline capacity costs for those WPs holding
firm capacity.
|
5. All
water recovered and conveyed to and from the Property to the CRA will be
transported along an active railroad line that Cadiz has acquired from the
Arizona & California Railroad.
6. Cadiz
will assume all responsibility for managing the groundwater banking
program. It will select a qualified operator with substantial
experience in the field of groundwater production and management to operate the
system and the conveyance system that connects the Property to the
CRA. Cadiz will also consult with NHI regarding potential banking and
environmental restoration opportunities.
7. The
Term of the agreement will be 50 years, plus extensions.
8. WP
will only pay for water actually delivered by Cadiz to the CRA or as it is
stored. Cadiz will assume all operational risks associated with
making water available from the groundwater bank and conveying it between the
CRA and the Property. WP will assume responsibility for energy costs
attributable to moving imported water
between the Property and the CRA.
9. To
the extent WP successfully arranges for the receipt of State and Federal grants,
programs, bonds and stimulus to pay some or all of the capital costs of the
pipeline that will connect the Property to the CRA, a commensurate reduction
will be made in their respective contributions towards pipeline conveyance and
to that portion of the cost of the Annual Quantity that is attributable
thereto.
B. Conditions. The parties have
executed this non-binding letter of intent subject to several acknowledged
conditions precedent (among others that the parties may negotiate in their
discretion) to the implementation of any project.
1. The
parties intend to coordinate their efforts and to work constructively with MWD
and MWD member agencies to determine the most efficient method to achieve their
objectives and to obtain access to the MWD conveyance and distribution
system. In its complete discretion, Cadiz may offer an “in kind”
contribution to MWD for the purpose of reducing the cost of conveying and
exchanging water for the benefit of the WP. If Cadiz makes such an
“in kind” offer and MWD accepts, the parties will exercise best efforts to
negotiate equitable remuneration for Cadiz that fairly reflects the benefit that
has been conferred by Cadiz on the WP.
2. Prior
to the initiation of environmental review for any project on the Property, Cadiz
will provide WP with a study regarding available water resources within the
watershed, watershed precipitation, aquifer recharge total quantities of
groundwater in storage and the safe quantity of dewatered storage that may be
made available for a conjunctive use project. The study will be
prepared by a competent qualified hydrogeologist with substantial experience in
groundwater studies of this nature.
3. Any
groundwater banking program will be subject to environmental review as may be
required by CEQA and compliance with all applicable law. Unless
otherwise agreed by Cadiz and WP, Cadiz will cause the completion of
environmental review. The full cost of environmental review will be
agreed upon pursuant to an environmental cost sharing agreement to be negotiated
among the participants in the project and Cadiz.
C. Non-Binding.
1. The parties do not intend
that the terms in this letter be legally binding. Neither party
intends, by setting forth in this letter the provisions of a possible
transaction, to create for itself or any other person or entity any legally
binding obligation or liability. No subsequent oral agreement or
conduct of the parties (including partial performance) shall be deemed to impose
any such obligation or liability. The parties shall be bound only on
execution of a definitive written agreement(s).
2. This
Non-Binding LOI does not obligate WP or Cadiz to initiate a specific project of
any kind or to take any further action with respect to the matters described
herein. However, the parties mutually intend that they will seek to
develop a binding memorandum of understanding (MOU) that will establish a
project description, incorporate the above referenced economic terms and provide
for the equitable cost sharing of budgeted environmental review
costs.
3. Cadiz
and WP each retain their complete and unfettered discretion to negotiate a
binding MOU or to terminate the discussions at any time.
4. Cadiz
reserves complete and unfettered discretion to seek substitute WP’s and to
revise and modify the proposed program, and WP reserves complete and unfettered
discretion to pursue other water supply alternatives without any obligation or
commitment to Cadiz.
D. No
Liability. Cadiz warrants and
represents that it expressly and knowingly waives any and all rights to litigate
any issue of any kind, arising from or related in any way to this letter of
intent, including but not limited to any decision by WP not to pursue a
definitive agreement(s) with respect to the project and/or WP’s decision not to
pursue a water project with Cadiz.
E. Next
Steps. The parties will
meet in a good faith effort to fully develop a project description within the
meaning of CEQA and to fairly apportion the costs that may be incurred in
undertaking environmental review of that project.
IN WITNESS WHEREOF, the
Parties have set forth their signatures as of the date below:
GOLDEN STATE WATER COMPANY | CADIZ INC. |
/s/ Xxxxxx Xxxxxx | /s/ Xxxxx X. Xxxxxx |
Xxxxxx Xxxxxx | Xxxxx X. Xxxxxx |
Senior Vice President, Regulated Utilities | General Counsel |
Date: May 28, 2009 | Date: June 1, 2009 |