HomeMy WebLinkAboutC-2134 - San Joaquin Reservoir memo of settlement agreementCITY OF NEWPORT BEACH
OFFICE OF
CITY ATTORNEY
0
NOVEMBER 26, 1979
TO: CITY CLERK
FROM: CITY ATTORNEY
SUBJECT: EXECUTION OF SAN JOAQUIN RESERVOIR
MEMORANDUM OF SETTLEMENT PRINCIPLES
On November 12, 1979, the City Council approved the execution of
the Memorandum of Settlement Principles. I am transmitting herewith
the original document to be executed by the Mayor and City Clerk.
I have approved the document as to form. I am also sending a
blank copy for your file. When the original has been executed
by the Mayor, please return it to my office for transmittal to
the offices of Rutan and Tucker who are collecting all the executed
originals. When all parties to the agreement have executed counter-
part originals, a conformed copy will be returned to us.
If you have any questions, please don't hesitate to contact me.
HUGH R. COFFI
CITY ATTORNEY
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RUTAN & TUCKER
ATTORNEYS AT LAW
WELLS FARGO BA NI BOiLViNG
401 CIVIC CENTER DRNF 'N_-�.
POST OFFICE SOY 1976
SANTA ANA, CALIFORNIA 92702
TELCCOP.ER I7141558.1566
1714) 835-2200
November 8, 1979
Alexander Bowie, Counsel for
Irvine Ranch Water District
Jack Rimel, Counsel for
Coastal Municipal Water District and
Laguna Beach County Water District
Thomas Woodruff, Counsel for
South Coast County Water District
,brugh Coffin, Assistant City Attorney
for City of Newport Beach
Fred Vendig, Deputy General Counsel
for Metropolitan Water District
Gail Hutton, City Attorney
for City of Huntington Beach
Michael An Banzhaf, Staff Attorney
for The Irvine Company
Russell Behrens, Counsel for
Municipal Water District of Orange County
n
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Re: San Joaquin Reservoir
Memorandum of Settlement Principles
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CITY OF
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Enclosed please find two copies of the final draft
(dated October 5, 1979) of the San Joaquin Reservoir Memo-
randum of Settlement Principles. Please have the appro-
priate officers of your clients execute the Memorandum in the
appropriate place and return the executed counterpart
original to this office. When we have received all of the
RUTAN & TUCKER •
ATTORNEYS AT LAW
November 8, 1979
Page 2
executed counterpart originals, we will provide a fully
conformed copy, with xeroxed signatures of all the parties,
to each of you. We will retain the counterpart originals
in our files in case they are ever needed for future
reference.
We are pleased to inform you that virtually all
of the parties involved in the San Joaquin Reservoir have
approved the Memorandum of Settlement Principles. The
City of Newport Beach and The Irvine Company are the only
parties yet to obtain approval from their governing bodies.
We understand that the Memorandum will be presented to the
Newport Beach City Council on this coming Monday, Novem-
ber 12, 1979, and that approval is anticipated since the
matter has been placed on the consent calendar. We also
- understand that approval by The Irvine Company Board of
Directors is anticipated in the near future. We certainly
appreciate the effort that each of you have exerted in order
to obtain the necessary approvals for this Memorandum of
Settlement Principles.
While all of the parties have given their approval
in concept to the Memorandum, several agencies have raised
concerns which they hope to see addressed in the final
Trust Agreement. Since the Memorandum of Settlement Prin-
ciples is intended as a broad conceptual outline of the
future Reservoir relationships, we believe that the con-
cerns which have been raised are not inconsistent with
the Memorandum. We are recommending, therefore, that the
Memorandum be finally executed and that the additional
concerns which have been raised since the final draft of
the Memorandum should be held and incorporated into the
final Trust Agreement. If any of you have a different view,
please call the undersigned immediately.
The concerns which have been raised are delineated
below:
(a) Metropolitan's approval of the Memoran-
dum was conditioned on The Irvine Company not being
a party to the Memorandum. Metropolitan's counsel
has raised concern as to whether Metropolitan can
finance the restoration and improvement work on the
Reservoir if a private company is involved in the
transaction. However, since TIC is an owner of the
Reservoir at present, it seems evident that TIC must
RUTAN & TUCKER . .
ATTORNEYS AT LAW
November 8, 1979
Page 3
be a party to the Memorandum. We believe that
the question of whether TIC will participate in
Metropolitan's construction financing can be
appropriately addressed in the Trust Agreement
without disturbing the Memorandum. Metropolitan's
staff, therefore, has undertaken to have the
Memorandum reapproved by the Metropolitan Board
next week in order to have the condition with
respect to TIC removed.
(b) IRWD has expressed concern with respect
to the percentage of ownership interests in the
Reservoir required to approve major capital expend-
itures in the future. IRWD is concerned that a
majority of owners may be able to approve substan-
tial capital projects without IRWD concurrence
even though IRWD will be obligated to pay nearly
half of the costs. We believe that the question
of substantial capital expenditures may appropriately
be addressed as we prepare the final Trust Agreement.
The Memorandum contemplates that certain types of
decisions will require unanimous approval and other
types of decisions will require only majority appro-
val. The Memorandum contemplates that the precise
delineation of what topics will require which level
of approval will be worked out in the final Trust
Agreement. Consequently, we believe that IRWD's
concern can be addressed in the Trust Agreement
and we are confident that a satisfactory solution
to the concern can be worked out.
(c) MWDOC has identified several concerns
to be addressed in final preparation of the Trust
Agreement. MWDOC desires that the Trust Agreement
explicitly recognize the position of MWDOC and
Coastal in water transactions with Metropolitan.
MWDOC is also concerned that nothing in the final
San Joaquin Reservoir solution will be detrimental
to other MWDOC customers who are not parties to
the transaction. MWDOC is also concerned about
Metropolitan's 200 acre foot emergency storage
reserve in the Reservoir but is willing to defer
to Metropolitan's judgment with respect to that
matter. Finally, MWDOC has requested that MWDOC
and Coastal be ex officio members of the San Joaquin
Reservoir Advisory Committee. We believe that each
of these concerns may appropriately be addressed
in the preparation of the Trust Agreement and do not
require modification of the Memorandum.
RUTAN & TUCKER
ATTORNEYS AT LAW
November S, 1979
Page 4
•
(d) The Irvine Company is concerned that
the Memorandum requires TIC to pay a share of
future Reservoir operating, maintenance and capital
costs. Since TIC is a pre -paid owner of Reservoir
capacity, by virtue of having donated the Reservoir
site, TIC management has raised objections to
these costs. We believe that it is generally
understood among all the parties to the negotia-
tions that TIC's capacity in the Reservoir is
pre -paid and that TIC is not obligated for all
Reservoir costs to the same extent as other parties.
We also believe that there is general concurrence
with the concept that when TIC's capacity is
transferred to the City of Newport Beach or any
other agency, the capacity loses its character as
"pre- paid" and the acquiring agency should be
required to pay a pro rata share of Reservoir
expenses like any other party to the transaction.
While the Memorandum has provisions which are
contrary to the concept that TIC capacity is pre-
paid and not subject to all Reservoir expenses,
we believe that the Memorandum also contemplates
that TIC capacity is "special" and not subject
to all of the rules applicable to other capacity
in the Reservoir. Moreover, TIC's capacity in the
Reservoir is relatively minor. For these reasons,
we believe that TIC's concern can be worked out
at the final Trust Agreement stage without requiring
modification of the Memorandum at this time.
(e) The City of Huntington Beach has raised
the question of future liability of Reservoir
owners for accidents which may occur in connection
with the existence or operation of the Reservoir.
Certainly, the matter of liability and any possi-
bility of hold harmless provisions will need to be
addressed in the Trust Agreement.
We believe all the foregoing concerns to be non -
fundamental and to be not inconsistent with the central
concepts of the Memorandum of Settlement Principles.
We further believe that each of the concerns can be
addressed in the final Trust Agreement without requiring
modification of the Memorandum. We hope that each of
you concur in this view and that you can obtain execution
of the Memorandum without necessity of redrafting or
reapproval by the governing bodies.
RUTAN & TUCKER
ATTORNEYS AT LAW
November 8, 1979
Page 5
By way of information, we wish to report that
negotiations between Mesa Consolidated Water District and
James M. Montgomery Consulting Engineers, Inc. are pro-
gressing satisfactorily. These negotiations are for the
purpose of settling the Cross - Complaint brought by Mesa
against Montgomery in connection with the Reservoir. It
will be necessary to achieve settlement of the Mesa -
Montgomery lawsuit in order for the balance of the liti-
gation to be resolved. While the Mesa - Montgomery settlement
is not yet final, we believe that a compromise will be
achieved in the near future. Implementation of that compro-
mise, naturally, will be contingent upon satisfactory
resolution of the balance of the lawsuit.
Now that we apparently have substantial agreement
with respect to the broad outline for settling the Reservoir
dispute, it is time to commence working out the details in
a Trust Agreement, Settlement Agreement, and other documents
necessary to effect transfer of Reservoir interests and
implement the settlement principles. Since the time exten-
sion on the litigation will run out in less than two months,
it seems incumbent upon each of us to devote the time
necessary to implement the Memorandum of Settlement Prin-
ciples. To this end, we suggest an early meeting among
attorneys to begin organizing the conduct of this work.
Therefore, we would like to call a meeting among attorneys
to be held at 2:00 p.m. on Wednesday, November 14, 1979,
at the offices of Rutan & Tucker. If that time, date and
place is inconvenient to any of you and you do not have an
available assistant to attend the meeting in your place,
please notify my secretary so that we can contact the others
and work out more acceptable arrangements.
Again, we would like to thank each of you for your
contribution to working out the Memorandum of Settlement
Principles and obtaining approval from your clients. We
look forward to working with each of you in the coming weeks
as we attempt to finally conclude the San Joaquin Reservoir
litigation.
Very truly yours,
RUTAN & TUCKER
Arthur G. Kidman
AGK:jb
Enc.
r.
TO: CITY COUNCIL
FJ
November 12, 1979
CITY COUNCIL AGENDA
ITEM NO. H -2(f)
7 o lr 4_ C1
FROM: Utilities Director NOV 12 1919
SUBJECT: SAN JOAQUIN RESERVOIR AGREEMENT By ihs CITY COUNCIL
CITY OF NIVOVRI BiACH
RECOMMENDATION:
Adopt a resolution authorizing the Mayor and City Clerk to execute
the attached Memorandum of Settlement Principles for the San Joaquin
Reservoir.
DISCUSSION:
At the present time 9 different water serving agencies and The
Irvine Company have ownership rights in the 3,000 acre -foot San Joaquin Reservoir.
The agencies having an interest are as follows:
1. Irvine Ranch Water District
2. Mesa Consolidated Water District
3. City of Huntington Beach
4. Metropolitan Water District
5. Municipal Water District of Orange County
6. Coastal Municipal Water District
7. Laguna Beach County Water District
8. South Coast County Water District
9. The Irvine Company
10. City of Newport Beach
The approved master plan for the development of the portion of the
City's water system serving water pressure Zones III, IV and V requires that
The Irvine Company dedicate to the City one maximum days water storage in
the San Joaquin Reservoir as a condition of development within the areas being
served by these higher zones. Because the water in the San Joaquin Reservoir
is stored at an elevation high enough to serve all of Zone III by gravity
and high enough to reduce the pumping requirements for Zones IV and V,
it represents a vital element in the daily operation of the City's water system.
To date only 4 acre feet has been transferred to the City of Newport Beach.
However, negotiations are currently underway to obtain an additional 30+ acre
feet of storage from The Irvine Company.
Since its construction in 1965 a number of very complex engineering,
water quality, financial and legal problems have arisen among the participat-
ing agencies regarding the joint use and ownership of the reservoir. Some of
t
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November 12, 1979
San Joaquin Reservoir Agreement
Page 2
these problems have resulted in legal action being taken by several of the
participating agencies. In.an effort to settle the long- standing litigation,
the participating agencies have been meeting on a regular basis to develop
a more workable institutional arrangement for owning and for operating the
reservoir. This effort has resulted in the attached Memorandum of Settlement
Principles being prepared and forwarded to all participating agencies for
approval. All the agencies listed as parties have approved the Settlement
except the City of Newport Beach and The Irvine Company.
Although the City of Newport Beach has avoided any direct involve-
ment in the litigation, both the City Attorney and the Utilities Director
have closely followed the development of all phases of the Memorandum of
Settlement and recommend its approval.
The reasons for recommending approval are as follows:
The Settlement will not alter the City's basic position or
interest in the Reservoir.
The settlement could avoid continued litigation between
some of the participants in the reservoir.
3. The relationship between parties proposed in the Settlement
could help provide a better base for resolving or mitigating
the complex engineering, operational and water quality
problems now surrounding the joint use of the reservoir.
To save on paper Exhibits "A" and "B" of the Settlement have not
been included in the attachments. These exhibits show the "buy -in" costs
and debt service schedules for the different agencies and do not effect the
City of Newport Beach since the City's interest is a direct grant from The
Irvine Company.
a
J seph T. ppevlin
U�ilities' irector
r
'Attachment
ti
I•
1979
By fhe CITY COUNCIL
CITY OF NBWPOAT uAc4I
RESOLUTION NO. 9 67 4
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF NEWPORT BEACH AUTHORIZING THE MAYOR AND
CITY CLERK TO EXECUTE THE SAN JOAQUIN RESERVOIR
MEMORANDUM OF SETTLEMENT PRINCIPLES
WHEREAS, there has been presented to the City Council
of the City of Newport Beach a certain San Joaquin Reservoir
Memorandum of Settlement Principles between the IRVINE RANCH
WATER DISTRICT, CITY OF NEWPORRT BEACH, CITY OF HUNTINGTON
BEACH, THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA,
MESA CONSOLIDATED WATER DISTRICT, LAGUNA BEACH COUNTY WATER
DISTRICT, SOUTH COAST COUNTY WATER DISTRICT, COASTAL MUNICIPAL
WATER DISTRICT, MUNICIPAL WATER DISTRICT OF ORANGE COUNTY, and
THE IRVINE COMPANY; and
WHEREAS, the City Council has reviewed the terms and
conditions of said Memorandum of Settlement Principles and finds
them to be satisfactory and that it would be in the best interest
of the City to execute said Memorandum,
NOW, THEREFORE, BE IT RESOLVED by the City Council of
the City of Newport Beach that the Memorandum of Settlement
Principles above described is hereby approved, and the Mayor and
City Clerk are hereby authorized and directed to execute the same
on behalf of the City of Newport Beach.
ADOPTED this 12th day of November , 1979.
Mayor
ATTEST:
City Clerk kv
11/6/79
Finai:AGK:i0 -5 -79
SAN JOAQUIN RESERVOIR
MEMORANDUM OF SETTLEMENT PRINCIPLES
1. INTRODUCTION:
This Memorandum, dated October 1, 1979 for convenience,
outlines principles for a settlement of the San Joaquin
Reservoir litigation. The parties to the litigation have
executed a stipulation extending by six months the legal
deadline to commence a trial. The purpose of this time
extension is to permit opportunity to implement this pro-
posal for settlement of the litigation and for the future
ownership and operations of the Reservoir. This Memorandum
summarizes the principles in concept to accomplish the
settlement and to establish a new framework for the future
of the San Joaquin Reservoir.
2. TRANSFER OF OWNERSHIP TO PARTICIPANTS:
A. Ownership Percentaqe.
IRWD will sell, and the other parties will buy,
undivided percentage ownership in the entire Reservoir prop-
erty in proportion to the storage capacities shown in Table
I. Such storage capacity shall be available for use by
each owner for regulatory and emergency purposes. The un-
divided percentage ownership interest and the storage
capacity of each party are listed below:
• M
TABLE I
* Since TIC and Newport Beach capacity was fully paid
for in kind at the time of Reservoir construction, their
capacity is not subject to buy -in or future shares of
IRWD's San Joaquin Reservior annual bond debt retirement.
TIC and Newport Beach may freely exchange their capacity
between themselves as they alone agree.
Percentage ownership in the Reservoir may be sold to
other public agencies, whether or not the buyer is an owner
in the Reservoir at present. Any owner desiring to sell
percentage ownership shall notify Metropolitan and the other
owners of the amount of capacity to be offered for sale.
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Capacity
Allocation
Percentage
Agency Name
(Acre Feet)
Ownership
Irvine Ranch
Water District
1,330
43.6%
Mesa Consolidated
Water District
530
17.4%
City of
Huntington Beach
400
13.1%
Metropolitan
300
9.88
Laguna Beach
County Water District
209
6.98
South Coast
County Water District
181
5.98
The Irvine Company *
60
2.0%
City of
Newport Beach *
40
1.3%
TOTAL
3,050
100.08
* Since TIC and Newport Beach capacity was fully paid
for in kind at the time of Reservoir construction, their
capacity is not subject to buy -in or future shares of
IRWD's San Joaquin Reservior annual bond debt retirement.
TIC and Newport Beach may freely exchange their capacity
between themselves as they alone agree.
Percentage ownership in the Reservoir may be sold to
other public agencies, whether or not the buyer is an owner
in the Reservoir at present. Any owner desiring to sell
percentage ownership shall notify Metropolitan and the other
owners of the amount of capacity to be offered for sale.
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•
All capacity so offered for sale will be held in a common
pool from which any buyer may purchase. Any owner that
becomes aware of a potential buyer shall notify Metropolitan
and the other owners of the identity of such buyer. The
proceeds from any sale will be divided among the owners in
the pool in proportion to the amount of their capacity in
the pool at the time of the sale. Participants in the pool
will remain responsible for all payments provided for in the
Trust Agreement for so long as the capacity remains unsold.
All sales from the pool shall be subject to the following
conditions.
(i) The buyer shall hold the capacity repre-
sented by such ownership interest subject to the
same terms, conditions, obligations and liabil-
ities as it was held by participants in the pool.
No new burdens will be imposed upon Metropolitan
as a result of the sale. The capacity and owner-
ship rights of owners not participating in the
sale will not be altered as a result of the sale.
The sale notwithstanding, the partici-
pants in the pool immediately prior to the time of
the sale (except TIC and Newport Beach) will
remain obligated to IRWD for payment of a share of
IRWD's San Joaquin Reservoir annual bond debt
retirement (see paragraph 2D) in proportion to
their capacity in the pool before the sale, if the
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0 a
buyer defaults on any such payments. IRWD in its
sole discretion may release the selling agencies
from this obligation if IRWD is satisfied with the
credit worthiness of the buyer.
(iii) The sale notwithstanding, the partici-
pants in the pool immediately prior to the time of
the sale will remain obligated to Metropolitan,
and to all other owners to pay a share of Reser-
voir expenses (see paragraphs 3E and 5B) in
proportion to their capacity in the pool before
the sale if the buyer defaults on any payment. If
1008 of the owners are satisfied with the credit
worthiness of the buyer and so agree, the Seller
may be released from this obligation.
(iv) Metropolitan shall act as escrow holder
for the purchase price and documents transferring
ownership percentage and shall be entitled to de-
duct from a defaulting pool participant's share of
such purchase price an amount equal to any default
as provided in Section 3F.
B. Metropolitan Acquisition.
Metropolitan's share of Reservoir ownership will
be obtained without cash contribution, except as provided in
paragraphs 2D and 2E, in consideration of the following:
(i) settlement of the litigation.
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(ii) Metropolitan's past expenses in operat-
ing the Reservoir.
(iii) Metropolitan's commitment to operate and
maintain the Reservoir for the benefit of partici-
pants in the Reservoir.
(iv) A new ownership and operating agree-
ment.
All water in the Reservoir shall become the property of
Metropolitan. Metropolitan shall pay to Coastal Municipal
Water District and to Municipal Water District of Orange
County, and they in turn shall pay to the other Reservoir
participants, a sum equal to the original cost to the
participants to purchase water to fill initially the reser-
voir with water.
C. Other Agency Acquisitions.
Participants in the Reservoir, other than Metro-
politan, will "buy -in" (or receive refunds) for Reservoir
ownership as shown in Exhibit "A" attached hereto and by
this reference incorporated herein. Exhibit "A" is based
upon a calculation of each agency's share, as shown in Table
II, of IRWD's Reservoir capital and other expenditures since
inception of the Reservoir. This calculation is intended to
place each participant in the same position it would have
held if ownership in the Reservoir had been purchased when
the Reservoir originated. Credit against the buy -in will be
made by IRWD for rents paid on leases or subleases in the
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0 a
Reservoir. Any such computation will take into considera-
tion debt service payments heretofore paid by IRWD. The
Bond Reserve Fund from bond proceeds will be used propor-
tionately to fund the last payment or payments. Interest
earned will be distributed annually by IRWD in the pro-
portions shown in Table II. Refunds will be made by IRWD
to any participant whose rental payments have exceeded this
formula buy -in price. In recognition of the fact that they
own capacity free and clear at the present, the City of
Newport Beach and The Irvine Company shall be allocated
their ownership percentages without buy -in cost.
The respective shares of the owners for buy -in purposes
only are summarized on the following table:
TABLE II
Capacity Buy -in
Name of Agency Subject to Buy -in Percentage
Irvine Ranch Water
District 1,330 50.28
Mesa Consolidated
Water District 530 20.08
Huntington Beach 400 15.18
Metropolitan Water
District
Laguna Beach County
Water District 209 7.98
South Coast County
Water District 181 6,88
The Irvine Company
Newport Beach
2,650 1008
• •
D. Future Debt Payments.
Each Reservoir owner, including Metropolitan,
will annually deposit with IRWD a share, as shown in Table
III, of IRWD's San Joaquin Reservoir annual bond debt
retirement. The Trust Agreement will specify the dates for
such deposits and will provide that IRWD will, for the
benefit of the depositing owner, deposit all such sums to
interest for the period of time held. These future debt
payment obligations are set forth in Exhibit "B ". Since The
Irvine Company, and through it the City of Newport Beach,
holds capacity in the Reservoir free and clear of IRWD's
bond debt, TIC and Newport Beach shall not be subject to
this requirement but shall be subject to other Reservoir
expenses in proportion to ownership percentage.
The respective shares of the owners for the payment of
IRWD's San Joaquin Reservoir annual bond debt retirement are
summarized on the following table:
Name of Agency
Irvine Ranch Water
District
Mesa Consolidated
Water District
Huntington Beach
Metropolitan Water
District
TABLE III
Capacity Subject Future Debt
to Future Debt Percentage
1,330 45.18
-7-
530 18.08
400 13.58
300 10.28
• •
Laguna Beach County
Water District 209 7.18
South Coast County
Water District 181 6.18
The Irvine Company -- --
Newport Beach
2,950
1008
3. OPERATING TRUST:
A. Creation of Trust.
The present Reservoir operating agreements will be
mutually terminated by the parties thereto. Each owner will
transfer its title to the Reservoir to Metropolitan "in
trust subject to the San Joaquin Reservoir Trust Agreement ".
The Trust Agreement will provide that Metropolitan will
operate and maintain the Reservoir for the benefit of all
the owners to meet their regulatory and emergency require-
ments. For future Metropolitan pricing purposes, an owner's
regulatory or "peaking" needs which are satisfied from the
Reservoir shall be deemed to have been met from storage
within that owner's system. Specific operating criteria,
setting forth the requirements of each owner, will be
specified in the Trust Agreement. Subject to the terms of
the Trust Agreement, Metropolitan will have full authority
to operate, maintain, and improve the Reservoir.
.a
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B. Advisory Committee.
The Trust Agreement will establish a San Joaquin
Reservoir Advisory Committee which will be composed of
a representative from each owner. Each representative
will have voting power equivalent to the percentage owner-
ship of the agency represented.
C. Authority of Committee.
The San Joaquin Reservoir Advisory Committee
shall have the following powers under the Trust Agreement.
Such powers may be exercised only upon the affirmative vote
of a majority of owners representing in excess of 508 of the
total ownership interests.
(i) Approval of an annual audit of Metro-
politan's Reservoir activity.
(ii) Approval of an annual budget, including
all capital and operation and maintenance expendi-
tures.
(iii) Prior approval of any capital expendi-
tures not specified in the annual budget.
(iv) Amendment of non - fundamental provisions
of the Trust Agreement. Amendment of fundamental
provisions shall require 1008 consent of the
owners. The Trust Agreement will identify the
provisions which are fundamental.
Q�
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(v) Consultation with Metropolitan at
least quarterly concerning operation, maintenance,
repair or improvement of the Reservoir.
D. Authority of Metropolitan.
Subject to the foregoing general powers of over-
sight to be exercised by the San Joaquin Reservoir Advisory
Committee, Metropolitan shall have complete authority
to decide all matters pertaining to the operations, main-
tenance, repair, replacement, modification or improvement of
the Reservoir and shall have full discretion to exercise its
powers in accordance with the terms of the Trust Agreement
without prior consent of the Advisory Committee or any
owner. The Trust Agreement will provide unrestricted
discretion to Metropolitan to operate the Reservoir to
protect public health and safety in the event of a catas-
trophe involving the Reservoir itself.
E. Reservoir Expenses.
All operations, maintenance, and improvement
costs, shall be allocated among the owners in accordance
with their percentage ownership interests shown in Table I.
The affirmative vote of at least a majority of owners repre-
senting at least 508 of the total ownership interests shall
be required to approve such expenditures.
The Trust Agreement will provide covenants that each
owner shall establish a San Joaquin Reservoir Fund in its
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a a
annual budget and shall appropriate from water and water
related revenues to such Fund sums sufficient in each year
to meet the owner's share of the Reservoir budget together
with its share of debt payment as provided in paragraph 2D
or its share of modification or improvement costs as pro-
vided in paragraph 6B, or both.
F. Default.
Metropolitan may terminate use of the Reservoir
to any owner that fails or refuses to pay its share of
expenses approved in accordance with the Trust Agreement
or its share of debt payments as specified in paragraph 2D.
In the event that Metropolitan is required by force of law
to provide water from the Reservoir to a defaulting party,
Metropolitan may impose a special charge upon the defaulting
party in an amount sufficient to offset the default. Each
owner will agree in advance to pay such charge during a
period of default. If an owner in default desires to sell
its Reservoir ownership percentage, the amount of the
default shall be deducted from the purchase price and paid
to Metropolitan or to IRWD, as the case may be, as provided
in Section 2A(iv) hereof. The sum to be collected by any of
the foregoing methods shall include, in addition to the
amount of the default, the costs and attorneys' fees of the
agency or agencies seeking collection of the default. The
remedies for default provided above shall in no way restrict
-11-
a a
Metropolitan or the other participants from bringing suit or
seeking other remedy to legally compel payment from the
defaulting party.
In the event of default, the expenses and /or debt
service payments shall be reallocated among the remaining
non - defaulting owners in proportion to the shares shown in
Table I or Table III, as the case may be, as though the
capacity in default did not exist. All such contributions
to cover defaults shall be reimbursed when the default is
paid by or on behalf of the defaulting owner.
4. EMERGENCY OPERATION:
The Trust Agreement will contain covenants from all of
the parties to mutual aid in the event of the water shortage
emergency within any one or more of the owner agencies.
Each agency will agree to operate its system to minimize
demands on the San Joaquin Reservoir so that the agencies
experiencing emergency can draw on the Reservoir. The Trust
Agreement will establish specific Reservoir operating cri-
teria to be implemented by Metropolitan in the event of an
outage in the East Orange County Feeder #2. To the maximum
possible extent under the circumstances, Metropolitan will
operate the Reservoir, and Metropolitan's other facilities
related to the Reservoir, to permit water to be delivered
to any agency with a water shortage emergency.
-12-
M
w
5. RESERVOIR MODIFICATION OR IMPROVEMENT:
A. Reservoir Studies.
Metropolitan will engage the services of outside
consulting engineers (probably Montgomery and Wahler) to:
(1) determine criteria for operating the reservior to meet
the capacity requirements, both regulatory and emergency, of
the owners including the method and manner by which water
from the Reservoir will be delivered to each owner; (2)
evaluate the advisability and cost of modification or
improvement work and do preliminary design to stabilize
Reservoir side slopes so that the Reservoir can be operated
in accordance with the operating criteria; (3) study the
methods and costs of correcting water quality problems
experienced in the Reservoir. The cost of this engineering
work will be included in the cost of the Reservoir modifica-
tion or improvement work to be allocated among the parties
in accordance with Section 5B below. Execution of this
memorandum shall not constitute present consent to any
future modification or improvement work recommended in
the engineering studies. Actual modification or improvement
work will be commenced only after execution of the Trust
Agreement by all the parties. The Trust Agreement shall
include the operating criteria, the proposed modifications
or improvements and estimated costs of such modifications or
improvements.
-13-
M a
B. Construction and Financing.
After execution of the Trust Agreement and ap-
proval by the State Division of Safety of Dams, Metropolitan
will undertake final design and construction of the modifi-
cation or improvement work. While the Reservoir is being
modified or improved as herein provided, Metropolitan,
Coastal, and MWDOC shall not impose a peaking or minimum
flow charge against any owner to the extent that peaking
demands otherwise would be satisfied, or a minimum flow
charge would be avoided, by use of the Reservoir. If as a
result of the modification or improvement work the capacity
of the Reservoir is reduced, the reduction will be shared on
a pro rata basis by all owners in accordance with the
ownership percentages set forth in Table 1. To the extent
legally permissible Metropolitan shall finance all such work
but shall be reimbursed by the owners in accordance with the
ownership percentage set forth in Table I in at least twenty
equal annual installments to cover debt service, including
necessary related reserve requirements, commencing one year
after execution of the Trust Agreement and based upon the
cost estimates contained in the studies provided for in
paragraph 5A. The amount of the annual installments shall
be adjusted when the actual cost of the modification and
improvement work, including the interest rate raid by
Metropolitan on the funds issue used to finance such work,
is known.
-14-
a a
6. CLOSING PROCEDURE:
It is anticipated that a Settlement Agreement will be
executed which will provide for dismissal of all the
suits and counter suits. In addition, the Settlement
Agreement will provide for termination of all existing
capacity lease and sublease agreements, construction agree-
ments, and operation agreements relating to the Reservoir.
It will also provide for transfer of ownership from IRWD to
the new owners and incorporate the Trust Agreement. The
parties will simultaneously execute the Trust Agreement.
IRWD will provide evidence of clear title to the entire
Reservoir property and appurtenances. All documents trans-
ferring title from IRWD to the other participants, and from
the other participants to Metropolitan, will be executed and
all buy -in money (or refunds) and water purchase money will
be paid simultaneously with execution of the Settlement
Agreement and the Trust Agreement.
7. OFFER OF COMPROMISE:
This memorandum and all of its provisions are part of
the negotiations for a compromise settlement of the San
Joaquin Reservoir litigation and shall not constitute an
admission of any party as to any matter. Any party may
object under Evidence Code 51152 to the admissability as
evidence of any portion of this memorandum.
8. EXECUTION:
By execution of this Memorandum, each party evidences
its agreement in principle to the concepts set forth herein.
Each party hereby covenants to negotiate in good faith with
-15-
El
1:
the other parties to implement these principles for settle-
ment, but no party is bound by execution of this Memorandum
to execute any implementing documents or to settle the
litigation.
IRVINE RANCH WATER DISTRICT
CITY OF HUNTINGTON BEACH
THE METROPOLITAN WATER DISTRICT
OF SOUTHERN CALIFORNIA
MESA CONSOLIDATED WATER DISTRICT
(formerly COSTA MESA COUNTY
WATER DISTRICT)
-16-
a
AP "",:�' ✓FD AS To FORM
C;1-11 A., -171,14 Y
;
F
LAGUNA BEACH COUNTY WATER
DISTRICT
SOUTH COAST COUNTY WATER DISTRICT
COASTAL MUNICIPAL WATER DISTRICT
MUNICIPAL WATER DISTRICT OF
ORANGE COUNTY
CITY OF NEWPORT BEACH
THE IRVINE COMPANY
-17-
N
so
SAN JOAQUIN RE
"Buy -In" Sett
as of June 3C
Amount for
Mesa Consolidated $510,
City of Huntington Beach $ 82,
South Coast County
Water District
Laguna Beach County
Water District
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