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6.G. - Page 3 of 238 The SFPUC delivers water to the northern portions of the cities of San Jose and Santa Clara on a temporary and interruptible basis in accordance with individual contracts with these cities. To date, the SFPUC has not exercised its contractual right to terminate or reduce water supply to San Jose and Santa Clara, nor has it agreed to make either of the cities a permanent customer. Accordingly, San Jose and Santa Clara do not have Individual Supply Guarantees. The WSA required that by December 31, 2018, the SFPUC was to decide whether to make San Jose and Santa Clara permanent customers and whether to offer additional supply to other Wholesale Customers. Currently, there is insufficient data for the SFPUC to make these decisions at this time. This amendment will extend the deadlines for SFPUC to decide and obligate SFPUC to providing annual updates to its Commission regarding developing permanent supply for San Jose and Santa Clara. The amendment also expands Santa Clara's service area map for operational purposes. 4. Asset Classification (2009 WSA new Section 5.11 and definitions and Attachment R; revisions to Section 4.07): A basic principle of the 1984 Agreement involved the classification of Regional Water System assets used to serve Retail and Wholesale Customers. Asset classification is critical to the allocation of Hetch Hetchy Enterprise capital and operating costs in order to separate out the Power function, the costs for which have never been paid by Wholesale Customers. "Upcountry" Regional Water System assets, which are generally those assets located in the Tuolumne, Stanislaus, and San Joaquin counties, are classified as Water, Power, or Joint. For Joint upcountry assets that have both power and water benefits, costs are split 55% to the Power Enterprise and 45% to the Water Enterprise. Wholesale and Retail Customers then pay for the water portion based on their proportional purchases of water. The 1984 Agreement was a legal settlement that included a list of Hetch Hetchy asset classifications. These classifications were incorporated into the 2009 Agreement without change. In FY 2010-11, SFPUC unilaterally changed the classification and the related cost allocation of a small number of assets of the System. BAWSCA disputed this decision and, rather than submit the dispute to arbitration, the parties negotiated this resolution. This amendment documents and fixes the classification of all significant "upcountry" existing assets of the Regional Water System and limits the changes from historical classifications for seven specific and known projects on five assets, without changing the classification of the underlying asset. This facilitates efficient contract administration and limits and mitigates Wholesale Customer exposure to financial risks on certain projects. In particular: • Mountain Tunnel Interim and Long Term Improvements: these improvements for Mountain Tunnel will be classified as Water, except for the new Flow Control Facility, which will be classified as Joint. • Lower Cherry Aqueduct repair: this project will be classified as Water. • Kirkwood and Moccasin Penstock repairs or replacement: these projects will be classified as Joint. City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 334