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<br />Allen Matkins Leck Gamble & Mallory LLP <br />attorneys at law <br /> <br />Interested Persons <br />May 25,2003 <br />Page 2 <br /> <br />Item #5 - "No QSA Off-Ramps" <br /> <br />Previous MWD position. Support for a QSA with off-ramps. <br /> <br />· Every iteration of the QSA has had off-ramps in the event of termination of the <br />lID/SDCW A Transfer Agreement, exhaustion of the committed environmental <br />mitigation funds, and expiration of the Inadvertent Overrun and Payback <br />Program. These off-ramps benefited all the parties to the QSA, including MWD. <br /> <br />· The December 2002 draft of the QSA approved by MWD at the Board Meeting <br />of December 10, 2002, contained MWD-supported off-ramps in the form of <br />conditions subsequent for (i) an unduly burdensome HCP on lID, Sections <br />1.1(29) and 3.4; and (ii) for failure to obtain necessary state or federal funding for <br />environmental mitigation, Sections 1.1(26), (32) and 3.4 plus termination if the <br />lID/SDCW A Transfer ended at year 30 or 45, if environmental budgets were <br />exhausted or if an injunction lasted 12 months. MWD also agreed that an <br />injunction stopping a transfer or acquisition, after a cure period lapses, should <br />result in termination, Sections 1.1(72) and 3.4. <br /> <br />Conclusion: MWD has repeatedly, over many years, publicly spoken in support of QSA <br />iterations that contained off-ramps. A no off-ramp QSA is not possible. <br /> <br />Item #1 - "No Diversion of Chapter 8 from Proposition 50 to the QSA" <br /> <br />Previous MWD position: It would not pay large environmental mitigation expense, and <br />so wanted state or federal funding. <br /> <br />· MWD approved the October 2002 Hertzberg term sheet which provided in <br />Section 5(a) and (d) that all environmental mitigation expenses, other than $30 <br />million to be paid by lID, were to be paid by MWD, CVWD, and SDCW A. <br /> <br />· After a budget was developed by an independent consultant retained by SDCW A, <br />the required mitigation expenses exceeded the expectations of MWD, CVWD and <br />SDCW A. Thus, the December 2002 draft QSA and Environmental Cost Sharing <br />Agreement ("ECSA") approved by MWD at the December 10, 2002 Board <br />meeting provided that within 18 months of execution of the QSA, sufficient state <br />and/or federal funding for environmental mitigation will be obtained or the QSA <br />will terminate, Sections 1.2(7),4.1(1) and (8) of the December 9,2002, draft of <br />the ECSA and Sections 1.1 ((26), (27) and (28) and 3.4 of the December 2002 <br /> <br /> <br />579387.01lSD <br /> <br />-YA1L'1 "n......u~.,o (\"/~'....I""l_ <br />