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~# Water Supply and Demand Background. The water supply delivered to Redwood City and 27 other retail water agencies by the San Francisco regional water system originates in the Hetch Hetchy reservoir and surrounding watershed located in and around Yosemite National Park. Water flows by gravity across the California central valley, across the Hayward Fault and through the Irvington Tunnel, where four pipelines carry water across, and around the southern end of San Francisco Bay and feed the City's 13 connections to the regional water system. Hetch Hetchy water represents approximately 85% of the total water supply, with 15% provided by local reservoirs also operated by the San Francisco system. Water Supply Agreements. The City has entered into two contractual arrangements with the City and County of San Francisco, both of which expire in June 2009: (i) a "Master Water Sales Contract," which the City co-signed in 1984 with 29 (now 27) other suburban water purchasers, and (ii) an "Individual Contract," which went into effect in 1984. The City plans to participate in the renegotiation and extension of the Master Water Sales Contract, and to renegotiate or extend the Individual Contract, prior to the expiration of each Contract in 2009. Despite the expiration of these two contractual arrangements in 2009, the City believes that, under the Master Water Sales Contract, it is guaranteed an ongoing water supply assurance at approximately its current level. Water Supply Assurance. The Master Water Sales Contract assures a maximum supply of 184 million gallons per day collectively to all of the suburban purchasers. The City's water supply assurance is 10.93 million gallons per day, or approximately 12,243 acre feet per year. If additional water is available to the wholesale water purchasers within the 184 million gallon per day limit, the City's average annual water usage may increase, but in case of rationing due to drought, the City's usage may be limited pursuant to the Interim Water Shortage Allocation Plan ("IWSAP"), approved by City Council of the City in May 2001. The IWSAP was also adopted by San Francisco. In Fiscal Year 2004-05, San Francisco delivered an average of 11.11 million gallons per day to the City, or approximately 12,450 acre feet for the Fiscal Year. The six-year average (1999-2000 to 2004-05) delivery was 11.66 million gallons per day, or 13,060 acre feet per year. San Francisco Water Capital Improvement Plan and Long-Range Financial Plan. The San Francisco Public Utilities Commission has adopted and begun to implement a long-range financial plan and capital improvement plan to identify capital improvement needs and priorities for its water enterprise, which are intended to replace old systems or upgrade systems to improve reliability and meet future customer needs. The capital improvement plan encompasses 77 water infrastructure projects divided into two programs, the local water system projects (which are designed to benefit the water system within the city of San Francisco) and the regional water system projects (which are designed to benefit the larger infrastructure carrying water from Hetch Hetchy to both San Francisco and the suburban purchasers, including the City). The long-range financial plan recommends that capital improvement projects be funded from the issuance of revenue bonds by San Francisco. The total estimated construction and financing costs of the regional water system component of the San Francisco's capital improvement plan is approximately $[3.25] billion (in 2005 dollars), substantially all of which is currently anticipated to be paid with revenue bonds. Under the Master Water Sales Contract, the costs of capital improvements to the regional water system will be allocated to each suburban water purchaser based on its annual proportional usage of water. The City's share of 19