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7A Page 3 • If water usage for the regional wa#er system exceeds the 265 MGD fnterim Supply Limitation, #hen an "environmental enhancement surcharge" will be le�ied on those agencies (including San Francisco) #hat exceed their indi�idual limitations. Wholesaie Revenue Requirement: Estab[ishes the methodo�Qgy to alloca#e capital cosfs for the regiona! water system. In fhe current Master Contract, the "utiiity method" of recovering capital costs is used. This method requires the whoiesale customers ta pay depreciation and a rate of return on the net book value of the assets. The WSA discontinues #his method and replaces i# wi#h the "cash method� for new asse#s. In addition, the Wholesale Customers wil! pay their remaining share of existing assets bui�t and in service as of June 30, 2009, through a series of level payments over 25 years. The proposed Water Suppiy Agreement received appro�al fiom #he SFPUC on April 28, 2�09. Each BAWSCA member agency is asked ta review and take action an the proposed Agreement prior #o July 1, 2�09. As wefl, all wholesale customers are required to approve an Individual Water Sales Contracfi w�th San Francisco. The Confiract establishes Redwood City's service area boundaries and points of connection to the Hetch-Hetchy sys#em pipelines. Staff recommends that the Ci#y Council apprave both the Agreement and Contract which are on file with the CEty Clerk.. As part of the effort to comply with the Caiifornia Environmental Quality Act (CEQA}, #he Ci#y, as a responsible agency, is required to consider aspects of fihe Water Supply Agreement and the lndi�idual Water Sales Contract as ascertained by the approva! process conducted on behalf of San Francisco as the �ead agency. The San Francisco Planning Commissivn ce�tified #he Program Environmental fmpact Report �PEIR} on Oc#ober 30, 2Q48, and fihe SFPUC subsequently approved #he PEIR for the Water System Improvement Program. Council is asked to adopt by resolution San Francisco's CEQA analysis, approval and findings. ALTERNATIVES None. FlSCAL IMPACT There is no additional fiscal impact to the City genera#ed by the appro�al of the Water Suppiy Agreement and the lndividual Water Sales Gontract. Whoiesale water rates will not increase as a result of approving the proposed Agreement andlor Contract. Rather, the wholesale cost of water is expected to increase to pay for seismic upgrades to the regional water system. Cost increases resu[ting from this required system impro�ement wifl occur regardless of agreemenfilcontract. Lang #erm, the Agreement allows for a surcharge to be imposed on water usage in excess of the City's allocated amount. Continued water conservation and water demand monitoring efforts will be requ�red to avoid the surcharge.