Negotiating SWP contract extensions (or not)

DWR has been holding Contract Extension Negotiation Sessions with the State Water Project Contractors.  Meeting summaries are posted for May 1 and May 15, but by May 29 things seem to have been breaking down. 

Now the session scheduled for June 12 has been cancelled.  Another is tentatively scheduled for June 26.

DWR and the SWP contractors entered into water supply contracts in the 1960s to provide water service in exchange for payments to finance, build, improve, operate, and maintain SWP facilities.  The first contract was with Metropolitan Water District, and it extends to 2035.  Other contracts signed later have terms that extend to 2035 or beyond.  According to an April memo from DWR, “Several SWP Contractors have expressed interest in extending their contracts beyond the current termination date and amending certain financial provisions.”

One issue: Contractors need to be able to sell bonds and keep the debt service as low as possible.  Bonds typically sold with a 30-year repayment period can now be sold with only 22-year repayment periods due to the 2035 maturity date limitation.  They’ll have to sell bonds to help finance the Peripheral Tunnels.

Another issue is reserves.  The SWP is the largest state-built utility in the U.S. and costs $1 billion annually.  (So should BDCP maybe adjust that $1.5 billion estimate for operating and maintaining the Tunnels for 50 years?)  Current reserves are only $27 million (less than 3 percent).  DWR would like to get that reserve up to $200 million, which represents 120 days of operational reserves and power purchases.

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