Sites Reservoir Update August 19, 2024

By Don A. Wright

Let me tell you who rocks – Robert Kunde. Kunde is the former General Manager of Wheeler Ridge Maricopa Water Storage District, which is located just about as far south in the San Joaquin Valley as you can get before you go up the hill to cross the mountains on your way to Los Angeles. Now let me tell you why he rocks – and for our purposes here, rocks is a good thing. Kunde shares his Sites reports with us – thank you Rob. The Sites Reservoir Project is one of the few bright spots on the improvement of California’s water infrastructure to come along in a while. While the California Water Commission has sat on $7 billion of taxpayer financed Prop One funding for increased surface storage – for the past 10-years (maybe they spent a little) – the Sites Project has been moving forward.

Let me tell you who does not rock – Patagonia – the clothing manufacturer. That company set up a non-profit that financed a study that found Site would cause a massive amount of greenhouse gas over the next century if allowed to be completed. The methodology used to reach that conclusion was never peer reviewed or used in any previous studies. It was as though they invented a brand new way to predict greenhouse gas emissions using journalist math. If I recall using that methodology would show Lake Tahoe as one of the major polluters on the planet – if you consider carbon dioxide pollution. Don’t forget plants need carbon dioxide for photosynthesis.

Here’s Kunde’s report:

Sites Reservoir Project – Monthly Reports – R. Kunde – Litigation on Sites Final Environmental Impact Report

On May 31, the Yolo County Superior Court ruled in the Sites Project Authority’s favor in every claim asserted by the six environmental plaintiffs (Friends of the River et al, hereafter Appellants), and therefore the Sites Reservoir Project Final Environmental Impact Report (Final EIR) fully complied with CEQA. The formal judgement was rendered on June 12. This is a significant decision supporting the viability of the Sites Reservoir Project.

On June 14, Appellants filed notice of intent to appeal the Yolo County Superior Court decision to the state’s 3rd District Court of Appeals. On July 12, Appellants filed their Appellants’ Opening Brief. In this appeal, Appellants challenge the adequacy of the Final EIR on two grounds: 1) that it relies on an improper environmental baseline; and 2) it fails to evaluate a reasonable range of alternatives. The Superior Court found in the Authority’s favor on these two grounds.

Appellants did not appeal the Superior Court ruling on 4 other causes of action thereby foreclosing the legal case on those causes. On August 6, the Authority filed its “Respondents Brief”. A Reply Brief from the Appellants is due by August 21. No date for oral arguments has been set, but it is expected this date to be set before the end of August.

SB149 requires expedited consideration of CEQA litigation, including appeals, “if feasible” for certified projects such as Sites Reservoir. October 26, 2024 would be the SB149 deadline for an Appellate Court decision.

Water Right Hearing Schedule

The updated hearing schedule is as follows: Deadlines/schedule Original Dates Revised Dates deadline for submission of case-in-chief exhibits May 24, 2024 July 1, 2024 hearings on policy statements, evidentiary submittals, case-in-chief June 17 through October 10, 2024, August 19 through October 2, 2024 rebuttals TBD closing briefs November 12, 2024 April 17, 2025. Hearing Officer recommendation to SWRCB January/February 2025 June/July 2025. SWRCB decision February 2025 August-October 2025.

The revised dates may be helpful to the Sites Project as the California Department of Fish and Wildlife is expected to issue an Incidental Take Project in fall 2024 which should be helpful to the SWRCB Hearing Officer and staff in evaluating endangered species permit compliance and environmental mitigation. The delay will be detrimental to the Project as the construction and operational dates will be delayed, and delays increase Project costs due to inflation.

Closing the Water Right Application Protest Resolution Period

(Updated from the March Report.) At the Sites Project’s February 16 meeting, the Reservoir Committee and Authority Board authorized “the Executive Director to submit the protest resolution status report immediately following the end of the protest resolution period on February 28, 2024, requesting the State Water Resources Control Board (SWRCB) close the Sites Project water right application’s protest resolution period and implement their hearing process to achieve a Sites Water Right Permit and associated Order/Decision no later than February 1, 2025.”

However, as of the April 19 Sites Project meeting, the protest resolution status report had not been submitted pending ongoing settlement discussions with some of the Protestants. Some, but not all, of the 15 Protests are expected to be resolved prior to the formal evidentiary hearing later this year.

July Joint Meeting of Sites Project Authority (SPA) and Reservoir Project

Committee (RPC)

At its July 19, 2024 meeting, the SPA and/or RPC took actions as follows:

1. approved the Consent Agenda (5 items) including revisions to an Agreement with the National Marine Fisheries Service regarding Biological Opinion preparation, and
2. adopted a general Asset Management Policy in preparation for specific policies needed for land acquisition.

Discussion items were as follows:

3. An update was provided on the to be developed Partnership Agreement for federal participation in the Sites Project with the Bureau of Reclamation, and on the Operations Agreement being developed to ensure coordination of Sites Project operations with the State Water Project and the Central Valley Project.

4. Adam Nichols, Principal Deputy Regional Director for Reclamation Region 10 (California-Great Basin) discussed the recent appropriation to fulfill Reclamation’s 9% share of the Sites Project. Reclamation is committed to get to a 16% share if available and has authority to go to a 25% share.

1. Reclamation anticipates if it can get to 16% that it may be able enter into Sites Project water contracts with interested water agencies. These would not be CVP contracts. These would be Irrigation contracts for 40 years with no interest and with acreage limitations, or M&I contracts with an interest component. Reclamation is seeking contract partners to pay Reclamation’s share of Sites O&M charges in order to not rely on Congressional appropriations. Partners would not pay debt service until Sites was operational, and then Reclamation would amortize a pro rata share of capital into annual payments over 40 years after which the contract would become a repayment contract.

5. Construction Manager at Risk (CMAR) Procurement development of a Request for Qualifications (RFQ) was discussed. CMAR allows qualifications-based selection and open-book pricing and ability to consider value engineering options. Phase 1 would be for pre-construction services associated with Golden Gate Dam. Issuance of the RFQ is anticipated before the end of 2024 after Board approval.

6. An update was provided on discussions with two local water agencies to use their canals to convey diverted Sites water via Local Facilities Use Agreements.

A closed session was held regarding the water right application, property acquisition and CEQA litigation. The next regular joint Sites Project Authority/Reservoir Project Committee Meeting will be held on August 16, 2024.

June Sites Reservoir – Joint Meeting of Sites Project Authority (SPA) and Reservoir Project Committee (RPC)

At its June 21, 2024 meeting, the SPA and/or RPC took one action as follows:

1. Approved the Consent Agenda (Minutes, Treasurer’s Report, Payment of Claims). Discussion items were as follows:

2. The status update was discussed for the mid-year FY2024/2025 budget review and Workplan update for the Amendment 3 work period. Importantly:

1. the Cash Flow curve indicates the Project will run out of cash at end of year 2025 which is before some Participants will have signed the Benefits and Obligations Contract to fund the increase in design to 60% and initial construction;

1. the budgeted $3M contingency was wiped out by the CEQA litigation;
2. so some Workplan priorities have been shifted or deferred; for example, a $2M payment to the California Independent System Operator for electrical interconnection studies will be deferred until 2026;

1. the schedule contingency to account for project delays has been used up due to water right permitting delays;

1. the improved interest rate environment (5% through the local bank) will help with meeting cash flow needs through the end of 2025; and

1. some added expense for water right hearing matters is not currently in the budget.

In summary, “The identified workplan changes would result in an estimated decrease in overall expenses by $2.7M [to $74.7M] and decrease in overall revenue (including carryover funds from 2023) by $1.5M [to $76.4M]. The balance at the end of the 2-year work period is estimated at $1.7M. The Amendment 3 performance period is set to end December 31, 2025. However, staff has identified potential delays, specifically in the Water Right hearing and the signing of the Benefits and Obligations Contracts. Staff will continue to closely monitor project schedule and expense and revenue assumptions and provide updates at semi-annual work plan checkins. The next Workplan update will be provided in October/November 2024.”

3. The Chair noted the Yolo County Superior Court ruling that the Sites Final Environmental Impact Report fully complied with CEQA and all environmental plaintiffs claims were denied.

4. Staff reported on the recent 3-day lobbying trip to Washington DC. Sixteen meetings were held with Congressional and Administration staff including the Bureau of Reclamation Commissioner and California Senator Alex Padilla. The Commissioner expressed strong support for the Sites Project and reinforced Reclamation’s desire for 16% participation in the Project. A closed session was held regarding the water right application, property acquisition and CEQA litigation.

May Sites Reservoir – Additional Reclamation Funding

(From the Sites press release) On May 30, “the Department of the Interior awarded the Sites Reservoir Project (Project) $67.5 million in federal funding, as part of President Biden’s Investing in America agenda, to add additional water storage capacity in the western region of the United States … This investment builds on the $204.5 million announced in March 2024 to Sites Reservoir, increasing the current total to $516 million in federal funding committed to the project when constructed. Sites is a beneficiary pays project, so these federal funds will secure benefits for Reclamation’s water operations planned to include meeting ecosystem objectives and water supply reliability. Reclamation seeks to secure approximately 16% capacity interest in the project. When combined with the State’s planned 17% capacity share in ecosystem objectives with Proposition 1 bond money, it is possible that up to 1/3 of the reservoir would support meeting ecosystem objectives.”

Prior to the May 30 announcement, Reclamation’s share of Sites was 9%, and Sites was fully subscribed at this level. Additional Reclamation share of capacity will depend on existing Participants reducing their share of the Project. Reclamation’s request for additional participation has a higher priority than the District’s request for additional participation.

May Sites Reservoir – Joint Meeting of Sites Project Authority (SPA) and Reservoir Project Committee (RPC)

At its May 17, 2024 meeting, the SPA and/or RPC took actions as follows:

1. approved the Consent Agenda (4 items) including the 1st Quarter Financial Report; and
2. adopted a Resolution allowing some Sites costs incurred in the current Phase 2 to be eligible for reimbursement from future WIFIA loans.

Discussion items were as follows:

3. development of the Sites Operations Plan 2.0 including identification of second and subsequent priorities for use of downstream facilities e.g. the Dunnigan Pipeline required for releases to South of Delta Participants;

4. discussion of the draft Biological Terrestrial Mitigation Contracting Strategy;
5. discussion of draft Development Agreements and Permitting with Counties with a focus on the Sites responsibilities for road repairs due to construction traffic; and

6. receive an update on the activities related to implementing the Reservoir Construction Manager At Risk contracting strategy and process.

A closed session was held regarding the water right application, property acquisition and CEQA litigation. The next regular joint Sites Project Authority/Reservoir Project Committee Meeting will be held on June 21, 2024.

May Sites Reservoir – Communications

The Retired Annuitant provided the following information to District Water User Participants and others interested in the Project: Sites press releases regarding increased Reclamation funding and the Yolo County Superior Court decision affirming the Sites Final Environmental Impact Report

May Sites Meetings. The Retired Annuitant attended the following Sites meetings during the month.

May 29 Sites Reservoir – Benefits and Obligations Contract – Appendix 7

May 31 Sites Reservoir – Benefits and Obligations Contract – Appendix 7

May 10 Sites Reservoir – Budget and Finance Committee

May 03 Sites Reservoir – CEQA Litigation Hearing in Yolo County Superior Court

May 03 Sites Reservoir – Conveyance Ad Hoc Committee

May 08 Sites Reservoir – Coordination Committee

May 14 Sites Reservoir – Governance Ad Hoc Committee

May 17 Sites Reservoir – Joint Authority/Reservoir Committee Board of Directors

May 15 Sites Reservoir – Operations and Engineering Work Group

May 01 Sites Reservoir – Operations and Engineering Workgroup

May 02 Sites Reservoir – Sites/DWR/Reclamation Operations Agreement Drafting Committee

May 24 Sites Reservoir – Sites/DWR/Reclamation Operations Agreement Drafting Committee

April Sites Reservoir – Joint Meeting of Sites Project Authority (SPA) and Reservoir Project Committee (RPC)

 At its April 19, 2024 meeting, the SPA and/or RPC took actions as follows:

1. approved the Consent Agenda (3 items); and
2. approved a task order amendment with CH2M Hill Engineers for additional modeling services in the amount of $462,000; this modeling was necessary for additional water diversion modeling runs required by the California Department of Fish and Wildlife, and to transition the model from CalSIM2 to CalSIM3; funding was provided by reprioritizing other tasks within the existing budget.

Discussion items were as follows:

3. An update was provided on the state Incidental Take Permits for Construction and Operations required to comply with the state Endangered Species Act. Bi-weekly meetings will continue in order to work through complex technical, legal and policy matters. Issuance was anticipated for October 2024.

4. An update was provided on the two step process for obtaining federal Biological Opinions (BiOp) required to comply with the federal Endangered Species Act. Sites will be included in a “programmatic” BiOp in conjunction with the ongoing federal CVP/SWP consultation. Subsequently, Sites would be issued its project-specific BiOp with a May 2025 target date which, based on experience, is likely to slip. Bi-weekly meetings will continue in order to work through complex technical, legal and policy matters.

5. An update was provided on the updated Sites cost estimate. The 30% design required for the Level 3 cost estimate is done, and cost estimating in 2024$ is in progress, The cost estimate will include financing costs, mitigation costs, soft (overhead) costs, and an independent review with presentation in 2024 Q3. The “Program Cost Forecast” including value engineering opportunities, power, wheeling costs, capital, O&M and financing options is forecast for completion by the end of 2024.

6. An update was provided on the Plan of Finance including funding of construction and interim financing in advance of the WIFIA loan. Financing options for consideration include capitalized interest, interest only during construction, and principal and interest during construction. Using capitalized interest through construction results in 25% higher overall costs compared to interest only. It is anticipated an Interim Financing package will be released by November 2024 with selection in January 2025 and initial borrowing in the second half of 2025. The exact timing will depend on when the water right permit is issued and the time required for Participants to execute Benefits and Obligations Contracts.

7. An update was provided on the development of the Benefits and Obligations Contract. Revisions to the existing draft (but not executions) will need to be done by September 2024 to coincide with the WIFIA loan timeline.

The Executive Director reported the water right permit schedule was revised as noted above. The six month delay will result in about $50 million in additional overall project costs due to inflation and financing costs. A closed session was held regarding the water right application, property acquisition and CEQA litigation. The next regular joint Sites Project Authority/Reservoir Project Committee Meeting will be held on May17, 2024.

April Sites Reservoir – Communications

The Retired Annuitant provided the following information to District Water User Participants and others interested in the Project:

• Sites 2021 capital cost information to 3 parties,
• discussion of future Sites participation level with one Water User Participant,
• Sites collateral information with 2 Directors and General Counsel,
• an invitation to attend the Sites discussion meeting at ACWA Conference to Water User Participants and the District Board of Directors, and to the Water User Participants, the memorandum to the District Board of Directors, as revised April 8, 2024, entitled “Sites Reservoir Project – Benefits and Obligations Contract Update” including the Sites Project’s “Draft Benefits & Obligations Contract and Governance Development – Frequently Asked Questions (FAQ) Related to these Subjects.”

Editor’s Note: Kunde is the Retired Annuitant referred to in the report and the District is presumably Wheeler Ridge Maricopa Water Storage District. Thanks again to Rob and WRWSD for sharing this information.

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