EXHIBIT 11-D
AGREEMENT REGARDING
FRONT-LOADING DELIVERY OF WATER
This Agreement Regarding Front-Loading Delivery of Water (“Agreement”) made by and between Cypress Pacific Investors LLC, a California limited liability company, successor to Muriel E. Calabrese 1987 Trust ("Cypress") and California-American Water Company, a California corporation (“CAWC”), hereinafter individually a “Party,” and collectively, the “Parties,” is entered into with respect to the following:
WHEREAS, CAWC, a public utility regulated by the California Public Utilities Commission (“CPUC”), owns and operates wells and infrastructure and a water distribution system which serves properties located within the Seaside Basin and generally on the Monterey Peninsula;
WHEREAS, Cypress is the owner and developer of property within the CAWC water service area;
WHEREAS, the Amended Decision governing the Seaside Basin Adjudication matter in the case of California American Water v. City of Seaside, et al. (Monterey County Superior Court, Case No. M66343) filed on February 9, 2007 (“Amended Decision”) established that Cypress has the right and title to produce and use a percentage of the Operating Safe Yield and Natural Safe Yield of Seaside Basin water as described more fully in the Amended Decision;
WHEREAS, Cypress intends to split its 14 acre-foot per year (“AFY”) Alternative Production Allocation designated in the Amended Decision into two components: (a) an 8.0 AFY Standard Production allocation which is subject to reduction per the formulas in the Amended Decision; and (b) 6.0 AFY that will remain as an Alternative Production Allocation for onsite use on Assessor’s Parcel Number 011-011-020;
WHEREAS, Cypress anticipates that it will file an application or applications with the appropriate local jurisdiction or jurisdictions for the necessary permits, approvals, and entitlements to develop such real property owned or controlled by Cypress, by a company affiliated with Cypress, and/or by any other persons or entities designated by Cypress, and located at one or more addresses and on one or more assessor’s parcel numbers within CAWC’s Seaside Basin water service area, as Cypress may designate from time to time (individually a “Cypress Property” or collectively “Cypress Properties”). Said permits, approvals, and entitlements are hereinafter referred to as the “Permits”;
WHEREAS, CAWC and Cypress intend to file one or more co-applications with the Monterey Peninsula Water Management District (“WMD”) requesting one or more amendments to the CAWC water distribution system permit as and if required to account for the lease by Cypress of up to eight (8) AFY of Cypress’s Court-adjudicated entitlement to Seaside Basin water to CAWC for the purpose of producing such water from or moving the production of such water to the inland wells operated by CAWC and for delivery of such water by CAWC to one or more of the Cypress Properties; and
WHEREAS, the Parties enter into this Agreement: (1) to make clear that they intend to comply with the terms of the Amended Decision, as clarified by the Monterey Court in its ruling on April 29, 2009, subsequent order filed on May 11, 2009, in Monterey County Superior Court, case number M66343, and any subsequent order of the court in said case; (2) to ensure operationally that only Seaside Basin water is produced and stored for the benefit of the Cypress Properties in advance of the Cypress demand for such water at any Cypress Property, and (3) to provide assurance (in addition to accounting and reporting requirements) that there will be no temporal or other impact on waters produced or stored from other sources, including, without limitation, the Carmel River.
NOW THEREFORE, the Parties agree as follows:
1. Leased Water/Commencement of Lease. Cypress agrees to lease up to a maximum of eight (8) AFY of its allocated water production under the Amended Decision to CAWC at no charge (“Lease” or “Leased Water”) for delivery to and use on one or more Cypress Properties. The Lease shall commence upon the occurrence of all of the following events: i) upon issuance of the Permits and satisfaction of the conditions of approval for the first Cypress Property to be served pursuant to this Agreement; ii) satisfaction of the conditions set forth in Section 6 of this Agreement; and iii) issuance of a water permit by the WMD for the new or increased uses on the Cypress Property pursuant to the Permits. CAWC agrees the Leased Water may only be used to serve the Cypress Properties in accordance with the terms and conditions of this Agreement.
2. Commencement and Terms of Service. With respect to each Cypress Property to be served with Leased Water pursuant to this Agreement, Cypress shall provide CAWC with written notice, sufficiently in advance to enable CAWC to produce water in accordance with Section 3, specifying: i) the address/location and owner of the Cypress Property; ii) the expected date for the meter to be set (if applicable); iii) as applicable, the expected date for initiation of water service by CAWC or increased water use by the Cypress Property; and iv) the amount of Leased Water to be provided (if the Cypress Property is already being served by CAWC with Carmel River water, the amount of Leased Water shall be exclusive of any baseline for past water use on said Cypress Property as recognized and documented by an appropriate methodology acceptable to the WMD and the State Water Resources Control Board (“SWRCB”), currently the lesser of either the actual average metered annual water use for a water year from the last five years of records or the amount calculated from the fixture unit count). CAWC shall have no obligation to serve any Cypress Property under this Agreement until it receives such notice. Service to any Cypress Property pursuant to this Agreement shall be subject to all of CAWC’s tariffs as authorized by the CPUC, including the conditions of and the rates charged for service.
3. Production of Leased Water. CAWC agrees to initially produce the Leased Water for each Cypress Property from its inland Seaside Wells at least 30 calendar days prior to either: i) the setting of a meter for the Cypress Property; or ii) if the Cypress Property to be served already has a meter, commencement of any increased use on said Cypress Property. CAWC will store the amount of Leased Water so produced in a CAWC storage facility deemed appropriate by CAWC. Thereafter, CAWC shall, as frequently as necessary, produce the Leased Water in an amount that exceeds the amount of water actually delivered to the Cypress Properties pursuant to this Agreement.
4. Interpretation. The Parties intend that any production, export, delivery, or use of water pursuant to this Agreement shall be in accordance and consistent with the Amended Decision and that nothing in this Agreement shall be construed to require either Party to violate the terms of the Amended Decision. Further, nothing in this Agreement shall be construed to prohibit the “mixing of molecules” from different sources or supplies of water, which is a practice recognized and allowed by California law and by the Amended Decision, as clarified by the Monterey Court on April 29, 2009, and memorialized in the court’s May 11, 2009, Order.
5. Accounting and Reporting. CAWC will account for and report the production of the Leased Water in accordance with Section 11 of the Rules and Regulations of the Seaside Groundwater Basin Watermaster as it may be amended from time to time. Cypress understands and agrees, and will so instruct the Watermaster, that under no circumstances shall production by CAWC of the Leased Water for use on any Cypress Property served pursuant to this Agreement be deducted from CAWC’s production rights under the Amended Decision.
6. Conditions Precedent. The application of this Agreement to any Cypress Property shall be conditional on all of the following:
a. Approval of a moratorium exception by the CPUC or the written approval of an authorized official of the SWRCB, as required to allow CAWC to produce and deliver Leased Water to the Cypress Properties pursuant to this Agreement;
b. Compliance with Section 9.0 of the Rules and Regulations of the Seaside Groundwater Basin Watermaster as it may be amended from time to time with respect to the assignment or transfer to CAWC of a portion of Cypress’s production allocation for purposes of this Agreement, and with Section III.B.3.e of the Amended Decision relating to changing a production allocation;
c. Approval of any amendment or amendments to the CAWC water distribution system permit by the WMD (or, alternatively, issuance of said permit or authorization granted by order of an applicable court) necessary to allow CAWC to produce and deliver Leased Water to such Cypress Property;
d. Acceptance and approval by CAWC of any conditions restricting or regulating CAWC water systems operations imposed by the WMD on its approval and/or issuance of any amended CAWC water distribution system permit or other permit necessary to allow service to such Cypress Property, which acceptance and approval by CAWC shall not be unreasonably withheld; and
e. The provision of Leased Water to such Cypress Property will not cause the total deliveries of Leased Water to all Cypress Properties under this Agreement to exceed eight (8) AFY as defined in the Amended Decision.
In the event any of the foregoing conditions is not satisfied with respect to any particular Cypress Property, the failure of such condition or conditions shall not affect the validity or enforceability of this Agreement with respect to any other Cypress Property.
7. Cooperation. Cypress and CAWC mutually agree to provide such notification and cooperation to one another as may be necessary to achieve the purposes and implementation of this Agreement. The Parties shall provide further assurances in writing or other documentation as necessary in order to achieve the purposes and implementation of this Agreement.
8. Termination. This Agreement may be terminated upon mutual written agreement of the Parties. Further, CAWC may terminate this Agreement as to Cypress Properties proposed to be served hereunder that have not received all necessary Permits prior to the date of termination if ordered to do so by the CPUC.
9. Cost Allocation. Costs to implement this Agreement will be paid as follows:
a. Except as provided in Section 10 below, CAWC will pay all costs to request and obtain any CPUC or SWRCB approval for an exception to the CPUC moratorium to allow CAWC to produce and deliver Leased Water to the Cypress Properties, including but not limited to preparation of any required Advice Letter and supporting documentation.
b. Cypress will pay any application fees and all other fees and costs charged by the WMD related to the application to the WMD for any amendment or amendments to the CAWC water distribution system permit necessary to allow CAWC to provide Leased Water to the Cypress Properties, including but not limited to consultant fees and any fees and costs related to compliance with the California Environmental Quality Act.
c. Notwithstanding any other provision of this Agreement, and except as provided in Section 10 below, each Party shall be responsible for its own legal costs and attorney’s fees associated with performance of the Agreement, including but not limited to all costs and fees related to drafting, review, and editing of applications, preparation and submittal of any application to the CPUC for a moratorium exception, preparation and submittal of any application to the WMD for any amendment or amendments to the CAWC water distribution system permit, monitoring of the CPUC and WMD processes for review and approval of the moratorium exception and amendment of the CAWC water distribution system permit, and compliance with any and all CPUC and WMD requirements.
d. Notwithstanding any other provision of this Agreement, and except as provided in Section 10 below, neither Cypress nor CAWC shall be responsible for paying costs associated with any time expended on the performance or implementation of this Agreement by any officer, director, manager, attorney, representative, agent, or employee of the other Party.
10. Indemnification.
a. Cypress agrees that, to the fullest extent permitted by law, CAWC shall be fully protected from any loss, injury, damage, claim, lawsuit, cost, expense, attorney’s fees, litigation costs, defense costs, court costs, or any other cost arising out of or in any way related to an Indemnified Claim as defined in Section 10(b), below. Accordingly, the provisions of this Section 10 are intended by the Parties to be interpreted and construed to provide the fullest protection possible under the law to CAWC with respect to such Indemnified Claims. Cypress acknowledges that CAWC would not enter into this Agreement in the absence of this commitment from Cypress to indemnify, defend, and hold harmless CAWC as set forth herein.
b. To the fullest extent permitted by law, Cypress shall defend, indemnify and hold harmless CAWC and its directors, officers, employees and agents (individually an “Indemnified Party” and collectively “Indemnified Parties”) from any claim, action, or proceeding to attack, challenge, set aside, void, or annul: (i) the entering into, making, or performance of this Agreement; or (ii) any governmental or regulatory approval related to implementation or performance of this Agreement (individually an “Indemnified Claim” and collectively “Indemnified Claims”). Cypress’s obligation to indemnify applies regardless of whether a liability is caused or contributed to by any act or omission of an Indemnified Party unless it is finally adjudicated that the liability is a result of the sole active negligence or sole willful misconduct of an Indemnified Party. The indemnification includes any damages, fees and/or costs awarded against an Indemnified Party, and costs of suit, attorney’s fees, and other costs, liabilities and expenses incurred by an Indemnified Party in connection with an Indemnified Claim, including any costs incurred as a result of an indemnification obligation imposed by a governmental or regulatory entity as part of an approval process.
c. Cypress’s duty to defend is a separate and distinct obligation from its duty to indemnify and shall arise immediately upon submittal to Cypress of notice of an Indemnified Claim in any form or at any stage of the Indemnified Claim, whether or not liability is established. CAWC shall have the right to approve defense counsel, all significant decisions concerning the manner in which the defense is conducted, and any and all settlements, which approvals shall not be unreasonably withheld. The obligation to defend extends through final judgment, including exhaustion of any appeals; or, alternatively, through final settlement of the claim. If it is finally adjudicated that liability was caused by the sole active negligence or sole willful misconduct of one of the Indemnified Parties, Cypress may submit a claim to CAWC for reimbursement of reasonable attorney’s fees and defense costs which claim shall be paid by CAWC within 90 days from submittal. CAWC shall also have the right, at any stage of the Indemnified Claim and at its own election, to conduct its own defense. This Section survives the completion or termination of this Agreement.
d. Notwithstanding any other provision of this Agreement, in the event any Indemnified Claim is threatened or asserted so as to give rise to Cypress’s indemnification obligation under this Section 10, Cypress shall have the unilateral right at any time, with or without CAWC’s consent, to agree to rescind or vacate any governmental or regulatory approval by any public agency that is necessary in order for CAWC to commence producing and delivering Leased Water to a Cypress Property pursuant to this Agreement, including but not limited to any amendment to the CAWC water distribution system permit by the WMD, provided that such rescission or vacation does not materially increase or adversely affect CAWC’s obligations or operations. For example, Cypress shall not have the unilateral right to rescind or vacate any such approval if CAWC has lawfully commenced producing and delivering Leased Water to the implicated Cypress Property. Prior to agreeing to rescind or vacate any such approval, Cypress shall provide CAWC with written notice of its intent to rescind or vacate the approval and the Parties shall meet and confer on whether a material increase in or adverse effect on CAWC's obligations or operations would result from the proposed rescission or vacation.
11. Assignment. Cypress may not assign its rights or delegate its obligations hereunder without the prior written consent of CAWC, which may be given or withheld in CAWC’s sole and absolute discretion. Notwithstanding the foregoing, Cypress shall have the unilateral right to designate the Cypress Properties to receive Leased Water under this Agreement without the consent of CAWC, notwithstanding the fact that neither Cypress nor its affiliate companies may be the record owner of such Cypress Property.
12. Notices. Any notice, consent, approval or disapproval to be given or other document to be delivered by any Party to the other or others hereunder may be delivered in person to the addressee identified below, or may be delivered by Federal Express, other private commercial delivery or courier service for next business day delivery, or may be deposited in the United States mail, duly certified or registered, return receipt requested, with postage prepaid, and addressed to the Party for whom intended, as follows:
If to CAWC: Eric Sabolsice
General Manager
511 Forest Lodge Road, Suite 100
Pacific Grove, CA 93950
Email: Eric.Sabolsice@amwater.com
If to Cypress: Peter Taormina, Managing Member
C/O MPE
Box 400
Marina, CA 93933
Email: peter@mpe2000.com
With a copy to: Anthony Lombardo
Anthony Lombardo & Associates
450 Lincoln Ave., Suite 101
Salinas, CA 93901
Email: tony@alombardolaw.com
Notice may also be given by electronic mail (“Email”) to any Party at the respective Email address given above provided receipt of such transmission shall be confirmed by follow-up notice within 72 hours by another method authorized above. Any Party hereto may from time-to-time, by written notice to the other, designate a different address or person which shall be substituted for the one above specified. Any notice shall be deemed served or delivered upon actual receipt or first attempted delivery (as shown by the records of the U.S. Postal Service or private delivery service) at the address listed above.
13. Amendment. This Agreement may only be amended by a document in writing signed by the Parties hereto.
14. Authority. The persons executing this Agreement on behalf of the Parties hereto warrant that: (i) such Party is duly organized and existing; (ii) they are duly authorized to execute and deliver this Agreement on behalf of said Party; and (iii) by so executing this Agreement such Party is formally bound to the provisions of this Agreement.
15. Governing Law; Disputes.
a. The Agreement shall be interpreted in accordance with California law, without giving effect to choice of law provisions. Headings used in this Agreement are for convenience only and are not to be used in the construction or interpretation of this Agreement.
b. The Parties agree that in the event of litigation, exclusive venue shall be in Monterey County, California.
c. In the event of any legal action or other proceeding between the Parties regarding this Agreement (an “Action”), the prevailing Party shall be entitled to the payment by the losing Party of the prevailing Party’s reasonable attorney’s fees, court costs and litigation expenses, as determined by the court.
d. Likewise, the prevailing Party in any Action shall be entitled, in addition to the amounts set forth in Section 15(c) above, to the payment by the losing Party of the prevailing Party’s reasonable attorney’s fees, court costs and litigation expenses incurred in connection with: (i) any appellate review of the judgment rendered in the Action; and (ii) any proceeding to enforce a judgment in such Action. It is the intent of the Parties that the provisions of this Section 15(d) shall be distinct and severable from the other rights of the Parties, shall survive the entry of judgment and shall not be merged into such judgment.
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16. No Third Party Beneficiaries. This Agreement is made and entered into solely for the benefit of Cypress and CAWC and no other person shall have any right of action under or by reason of this Agreement.
CALIFORNIA-AMERICAN WATER COMPANY
Dated: By:
_________________________________________
Print Name and Title
CYPRESS PACIFIC INVESTORS LLC
Dated: By:
_________________________________________
Print Name and Title
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