CONTACT: Thomas McCann David Johnson (623) (623)

Agenda Number 12. CONTACT: Thomas McCann David Johnson (623) 869-2343 (623) 869-2375 tmccann@cap-az.com djohnson@cap-az.com MEETING DATE: October 2, 2014 AGENDA ITEM: Discussion and Consideration of Action to Approve the Standard-Form Forbearance Agreement and Approve Revisions to the Ag Pool Program RECOMMENDATION: Staff recommends that the Board approve the standard-form Forbearance Agreement and approve revisions to the Ag Pool Program FINANCIAL IMPLICATIONS: Impact on Budget: No Expense impact on General Fund Expenses Additional spending authority requested: None Impact on Reserves: For entire Ag Pool Program Year General Fund Reserves Reserves Reserves (Over) / Under Requested Included in Published Rates 2015 $43,468,792 $41,600,000 ($1,868,792) 2016 $44,023,944 $41,600,000 ($2,423,944) $87,492,736 $83,200,000 ($4,292,736) Impact on Rates: None. The Impact that would have affected Fixed OM&R rates by decreasing deliveries of CAP water are covered by utilizing the reserves originally planned to cover the Ag pool deliveries that are to be forborne plus the above requested reserves.

LINKAGE TO STRATEGIC PLAN, POLICY, STATUTE OR GUIDING PRINCIPLE: 2010 CAWCD Board of Director Strategic Plan Finance: Maintaining CAP's Financial Health Project Reliability: Effectively Operate and Maintain CAP Assets Water Supply: Reliability of the CAP Water Supply Supplemental Policy for Marketing Excess Water for Non-Indian Agricultural Use 2004 Through 2030 established on November 4, 2010 (Attachment 1). PREVIOUS BOARD ACTION/ACTIVITY: The Board was briefed on this in executive session on September 4, 2014. The Ag Pool Program to be modified through this action was first established by the Board on May 18, 2000, modified by the Board on December 5, 2002, and further modified by the Board on November 4, 2010. ISSUE SUMMARY/DESCRIPTION: Forbearance Program The Colorado River Drought Response and Sustainability Plan seeks to preserve 1.5 to 3.0 million acre-feet of additional water in Lake Mead over the next 5 years through individual and combined actions of the seven Colorado River Basin States. While the Plan has not yet been executed, CAWCD staff have been exploring various programs to satisfy the Arizona component of the Plan, which is the storage of 345,000 acre-feet of water in Lake Mead. Among those options is this short-term forbearance program developed by CAWCD and representatives of Maricopa-Stanfield Irrigation and Drainage District ("MSIDD"), Central Arizona Irrigation and Drainage District ("CAIDD"), and New Magma Irrigation and Drainage District ("NMIDD"). The terms of this forbearance program are reflected in the Forbearance Agreement attached to this brief as Attachment 2. Though the Forbearance Agreement was negotiated by the above parties, CAWCD staff intends to offer the forbearance program to any irrigation district ("ID") holding an allocation of Excess Water from the pool of non-indian agricultural use water ("Ag Pool Water"). In this forbearance program, any ID holding Ag Pool Water can participate by agreeing to forbear a portion of their Ag Pool Water in exchange for a reduced pumping energy rate on their remaining Ag Pool Water deliveries. Any water forborne through this program is water that CAWCD would not divert from the Colorado River and would retain in Lake Mead. CAWCD intends that this forborne water will become Extraordinary Conservation Intentionally Created Surplus pursuant to an exhibit to the Lower Colorado River Basin Intentionally Created Surplus Forbearance Agreement (the "LCR Forbearance Agreement"). A draft of that exhibit is attached to this brief as Attachment 3.

To qualify for this program, an ID must have accepted full delivery of their Ag Pool Water during the years 2012-2014 and must agree to forbear at least 23% of their Ag Pool Water. Due to the mechanics of the LCR Forbearance Agreement, CAWCD has to set certain limitations on the maximum quantity of water that may be forborne. This limit is the lesser of 75% of the ID's allocated Ag Pool Water or 20,000 acre-feet. In exchange for accepting reduced deliveries of Ag Pool Water, IDs would receive a reduced pumping energy charge for any Ag Pool Water deliveries remaining after forbearance. For 2015, the reduction would decrease the pumping energy rate to a fixed $36 per acre-foot, which represents a $17 reduction from the published Ag Pool rate of $53 in 2015. For 2016, the reduction would decrease the pumping energy rate to a fixed $38 per acre-foot, which represents a $19 reduction from the published Ag Pool rate of $57 in 2015. These published Ag Pool rates of $53 for 2015 and $57 for 2016 are the difference between the full CAP Pumping Energy Rate minus current agricultural incentives. CAP water received by an ID through some other mechanism, such as re-marketing of another IDs unscheduled Ag Pool Water, would not be entitled to this reduced rate. MSIDD, CAIDD, and NMIDD have indicated that they would be unable to forbear any portion of their remaining Ag Pool Water in 2017 because of the reduction in the Ag Pool in that year. Therefore, this program will automatically terminate at the end of 2016. In addition, should a shortage be declared in 2016, CAWCD and participants in the program have the option to terminate the Forbearance Agreement prior to 2016. Costs to CAWCD for the Forbearance Program Under existing contract and Board policy, the 2015 cost to CAWCD for delivering 400,000 acre-feet of Ag Pool Water is $41,600,000. This includes Fixed OM&R charges and current agricultural incentives. As the forbearance program is currently contemplated, MSIDD, CAIDD, and NMIDD will each forbear 20,000 acre-feet per year for a total of 120,000 acre-feet over the life of the forbearance program. For 2015, the forbearance of 60,000 acre-feet by these IDs will result in a total Ag Pool Program cost of $43,468,792.00, or net costs for the forbearance program of $1,868,792.00. This net cost is the result of the additional agricultural incentive and the inclusion of Fixed OM&R costs for water not delivered that would otherwise have been passed along to other customers. The net cost to CAWCD of both years of the forbearance program is $4,292,736, which corresponds to $35.77 per acre-foot of forborne water. Should additional IDs choose to enter the program, the total cost of the program will change slightly, but the cost per acre-foot of water forborne should be comparable.

Revisions to Ag Pool Policy Ag Pool Program policy has been set by the Board on three separate occasions. Most relevant to this forbearance program is the Supplemental Policy For Marketing Of Excess Water For Non-Indian Agricultural Use 2004 Through 2030 dated November 5, 2010. Pursuant to that policy, the allocations of Ag Pool Water in the Pinal AMA were adjusted from 1.3 acre-feet per acre to 1.0 acre-feet per acre. Ag Pool Water that became unallocated pursuant to that change was to be "available to any ID within the Pinal AMA before being offered in other AMAs [or INAs] just as any water allocated but not requested is handled under current procedures." In order to assure that any water that is forborne pursuant to this forbearance program remains in Lake Mead, CAWCD staff is proposing a change to the re-marketing portion of the Ag Pool Program. Specifically, CAWCD staff is proposing that any Ag Pool Water that is forborne pursuant to this forbearance program would not be re-offered to other IDs. Instead, CAWCD would retain discretion over any water that is forborne pursuant to this or similar agreements developed in the future. Should the Board adopt this policy, re-marketing of the Ag Pool Water would occur in the following order: 1. Ag Pool Water that is forborne pursuant to contractual agreement with CAWCD shall not be re-marketed and shall remain under the discretion of the Board; 2. Re-marketed to other Ag Pool participants in the same AMA; 3. Re-marketed to all other Ag Pool participants. Modifying Board policy in this manner does raise one additional issue: whether this forbearance program would impact an IDs ability to serve as a Groundwater Savings Facility ("GSF") and accept cost-shared CAP water. ADWR requires that before an ID can serve as a GSF for CAP water, that ID must use all CAP water "reasonably" available. "Reasonably" available includes physically deliverable and economically affordable. After meetings between CAWCD and ADWR staff, ADWR has stated that this forbearance program meets the spirit of the "reasonably" available requirement, is a rational interpretation of the definition of "reasonably" available, and that this program would not impact an ID from serving as a GSF. If adopted, this Action Brief will be added to the Board policy manual to document the change to the Supplemental Policy for Marketing Excess Water for Non-Indian Agricultural Use 2004 Through 2030. SUGGESTED MOTION: I move that the Board approve the standard-form Forbearance Agreement, authorize its execution on behalf of CAWCD in substantially the form in which it was presented today, approve the revisions to the Ag Pool Program, and grant additional reserve authority of up to $4,292,736 for 2015-2016.

Agenda Number 12. Attachment 1. Agenda Number 6. CONTACT: Larry Dozier (623) 869-2377 ldozier@cap-az.com DATE: October 28, 2010 AGENDA ITEM: Consideration of Action to Approve Revisions to the Ag Pool Program RECOMMENDATION: Staff recommends that the Board approve changing the Ag Pool allocations for irrigation and drainage districts in the Pinal AMA from 1.3 acre-feet per acre to 1.0 acre-feet per acre. FINANCIAL IMPLICATIONS: Impact on Budget: No impact on budget. Additional spending authority requested: $0 Impact on Reserves: Perhaps some increase if any Ag Pool water is not used and the water is subsequently sold as full cost Excess Water. Impact on Rates: No change. Impact on Revenue: Perhaps some increase in fixed OM&R revenues. RELEVANT POLICY, STATUTE OR GUIDING PRINCIPLE: Supplemental Policy for Marketing of Excess Water for Non-Indian Agricultural Use 2004 through 2030 (Attachment 1).

PREVIOUS BOARD ACTION/ACTIVITY: April 22, 2010 Finance, Audit & Power Committee June 3, 2010 CAWCD Board Meeting October 7, 2010 CAWCD Board Meeting ISSUE SUMMARY/DESCRIPTION: During the water rate setting process for 2011/2012, staff was requested to work with the ag user customers and Arizona Department of Water Resources (ADWR) to identify alternatives to help reduce the rising cost of CAP water to our ag customers. CAP staff met with ADWR and ag user representatives to mutually develop a proposal to adjust the ag pool allocation for the Pinal County irrigation districts. Those districts are the most significantly impacted by the rising cost of CAP water. Staff prepared a Discussion Paper (Attachment 2) that describes the issues and the proposal and shared that paper with a cross section of the ag and M&I user community. No negative comments have been received. Several positive responses have been offered by ag and M&I users. At the October 7, 2010, Board meeting, some requests were made for information about the current allocation and use of Ag Pool water and for a specific example of the allocation with the proposed updates. I have attached that information. Attachment 3 is the actual use of Ag Pool water in 2009. Attachment 4 shows the initial allocation of the Ag Pool when 2009 schedules were originally submitted and the subsequent reallocations that took place during the year. Attachment 5 is the allocation of the Ag Pool in 2011 with the proposed reductions of the initial allocation for the Pinal AMA irrigation and drainage districts (IDDs). In this example, it is presumed that those IDDs will request the additional water in the redistribution process. The action to be considered by the Board at its November 4, 2010, meeting does not require any change to the actual Policy. The only change will be to the application of the table entitled, Ag Pool Allocation (Initial Offer 2004). The acre-feet per acre for the Pinal AMA would be changed from 1.3 acre-feet per acre to 1.0 acre-feet per acre. This Action Brief and the Discussion Paper will be added to the Board policy manual to document that change, if adopted. SUGGESTED MOTION: I move that the Ag Pool Allocation for the four irrigation and drainage districts in the Pinal AMA be reduced from 1.3 acre-feet per acre to 1.0 acre-feet per acre. As is consistent with the current Policy (adopted December 5, 2002), the unallocated water resulting from this change will first be offered to the irrigation and drainage districts in the Pinal AMA before being offered to the other Ag Pool participants.

Agenda Number 6. Attachment 2. Discussion Paper November 4, 2010 An Alternative to the Current Ag Pool Allocation Procedure, Impact on the Blended Cost of Ag Water, and Effect on Continued Ag Water Use Background The Arizona Water Settlements Act establishes a pool of first priority Excess Water to be allocated to the CAP agricultural water customers at the incremental cost of pumping. This allocation was a part of the overall agreement for the ag users to relinquish their long-term CAP subcontract allocations so that water supply could be used for Indian water settlement. At that time, it was projected that power rates related to the Navajo Generating Station would rise slowly and the Ag Pool water would remain affordable. In reality, power rates have risen much more rapidly and the Ag Pool water has become the most expensive component of the ag water user's water supply. Use of CAP water by the agricultural community is an important component of CAP. The Ag Pool is about 25 percent of the CAP supply (400 kaf) and direct use by agriculture through the Groundwater Savings Facility (GSF) program adds another 15 percent (220 kaf). In total, agriculture uses about 40 percent of the CAP supply. If that use were to drop off dramatically, we do not have the facilities or the funds to store all of that water in Underground Storage Facilities. Ultimately, some Arizona water would be left on the Colorado River for use by others. The CAP has added to its water rate programs an opportunity for ag users to earn delivery incentives for participation in certain activities beneficial to CAP. These activities include 1) use of the allocated Ag Pool, 2) serving as a GSF for storage by the AWBA or CAGRD, and 3) participating in stored water recovery programs. While not all ag users' qualify for all programs, the incentives for 2010 range from $6 to $10 per acre-foot (af) for the Ag Pool allocation and will be $8 to $12 per af in 2011. At the time the 2011 rates were established, the CAWCD Board directed staff to work with the ag users and Arizona Department of Water Resources (ADWR) to identify other alternatives that would help keep the overall cost of CAP water affordable for ag use. Issue Discussion The ag users have three types of water available: 1) their groundwater right, 2) CAP Ag Pool, and 3) cost-shared CAP water stored in a GSF. Any CAP water replaces a use of their groundwater right. The lowest cost water is that portion of their groundwater that can be pumped with lower cost federal power. The second lowest is the cost shared GSF water in which the storing partner will "buy down" the cost of CAP water so that it is a lower cost than the next level of groundwater pumping. The CAP Ag Pool allocation is usually the most costly except for some "peak" groundwater pumping.

Discussion Paper - November 4, 2010 An Alternative to the Current Ag Pool Allocation Procedure, Impact on the Blended Cost of Ag Water, and Effect on Continued Ag Water Use Page 2 of 2 The ADWR requires that before an ag user can serve as a GSF for CAP water, that user must use the CAP water "reasonably" available. Reasonably available includes physically deliverable and economically affordable. The CAP Ag Pool allocation was deemed to be reasonably available. The CAP Ag Pool was established as a specific pool of 400,000 af declining to 300,000 af, then to 225,000 af over the period from 2004 to 2030. The allocation of that pool was done as a subset of a CAP policy. The allocation was based on "CAP eligible acres" in each irrigation district (ID). In the Phoenix AMA (and the Harquahala INA), those IDs with a history of use pursuant to a CAP subcontract were allocated 1 af per ac. Other ag users in the Phoenix AMA were allocated.5 af/ac. In the Pinal AMA, the IDs were allocated 1.3 af/ac. Those users sought a higher allocation because they had less opportunity to find GSF partners because their service areas were not close to large municipal users. In the Tucson AMA, there was little historic use of ag water. Those users were allocated.5 af/ac. More recently, opportunities for GSF partners have increased in the Pinal AMA due to the desire to store water for future use by mining companies, energy companies, and the Gila River Indian Community. The requirement to use the larger, more costly CAP Ag Pool allocation before receiving GSF water causes the total costs for CAP water to be higher than in other areas. If the requirement to use all of the Ag Pool water was removed or the allocation was lowered, those IDs in the Pinal AMA would be able to seek more GSF partners and lower the overall cost of CAP water. The ADWR did not feel it was appropriate to eliminate the requirement regarding the full use of the CAP Ag Pool allocation before receiving GSF water. A suggested solution was for CAP to adjust the Pinal AMA IDs allocation to 1.0 af/ac, the same as similar IDs in the Phoenix AMA. This has no effect on the current ADWR process. The proposal was acceptable to ADWR and the ag representatives who attended the initial meeting. The unallocated Ag Pool water arising from this revised allocation would be available first to any ID in the Pinal AMA before being offered in other AMAs just as any water allocated but not requested is handled under current procedures. One possible outcome is any unused Ag Pool water would become Excess Water available to be sold to GSF partners. In that case, CAP would receive full price for that water and would not be subsidizing the Ag Pool rate or the Ag incentives. Another possibility would result in all of the Ag Pool water being used, just in a different AMA or in the Harquahala INA. The GRIC community would order more contract water for GSF use in the Pinal AMA. There would be increased competition for a somewhat smaller Excess Water Pool thereby helping ensure all of Arizona's Colorado River water is used.

CY 2011 AG Settlement Pool Allocations Agenda Number 6. Attachment 5. Revised: October 18, 2010 (A) (B) (C) (E) (F) (G) (H) (I) (J) (M) Eligible AF/per Initial Allocation % of Redistributed Redistributed Redistributed Bring to 400k Total CY 2011 Acres Acre Volume Scheduled AMA Pinal AMA (*) Phoenix AMA Tucson AMA Maximum Annual Allotment Pinal AMA Central Arizona IDD 85,438 1.0 85,438 85,438 38% 25,632 0 0 0 85,438 Hohokam IDD 27,614 1.0 27,614 27,614 12% 8,284 0 0 0 27,614 Maricopa Stanfield IDD 83,986 1.0 83,986 83,986 38% 25,196 0 0 0 83,986 San Carlos IDD 25,884 1.0 25,884 25,884 12% 7,765 0 0 0 25,884 Subtotal 222,922 222,922 100% 66,877 0 0 0 222,922 Phoenix AMA Chandler Heights CID * 542 1.0 542 495 1% 0 47 0 0 495 MWD 8,000 0.5 4,000 4,000 7% 0 0 0 0 4,000 New Magma IDD 27,325 1.0 27,325 27,325 47% 0 0 0 0 27,325 Queen Creek ID 12,000 1.0 12,000 12,000 21% 0 0 0 0 12,000 Roosevelt WCD 10,000 0.5 5,000 5,000 9% 0 0 0 0 5,000 SRP 7,600 0.5 3,800 0 0% 0 3,800 0 0 0 San Tan ID 1,400 1.0 1,400 0 0% 0 1,400 0 0 0 Tonopah ID 3,460 1.0 3,460 3,460 6% 0 0 0 0 3,460 Subtotal 57,527 52,280 100% 0 5,247 0 0 52,280 Tucson AMA BKW Farms 3,270 0.5 1,635 1,635 11% 0 0 0 0 1,635 Cortaro-Marana ID 11,500 0.5 5,750 0 0% 0 0 5,750 0 0 FICO (?) 6,194 0.5 3,097 0 0% 0 0 3,097 0 0 Kai Farms/Marana 4,200 0.5 2,100 0 0% 0 0 2,100 0 0 Kai Farms/Red Rock 2,000 0.5 1,000 1,000 7% 0 0 0 0 1,000 Subtotal 13,582 2,635 100% 0 0 10,947 0 2,635 Outside AMA Harquahala Valley ID 32,537 1.0 32,537 32,537 100% 0 0 0 0 32,537 Total 352,950 326,568 310,374 100% 66,877 5,247 10,947 6,555 400,000 (*) Redistributed volume reflects 0.3 AF/per acre allocation reduction. (?) May submit a CY 2011 water schedule.

Agenda Number 12. Attachment 2. AND CENTRAL ARIZONA WATER CONSERVATION DISTRICT FORBEARANCE AGREEMENT This Forbearance Agreement is made this day of, 2014, by and between the (the "Contractor"), an Arizona, and the Central Arizona Water Conservation District ("CAWCD"), a multi-county water conservation district organized under existing laws of the State of Arizona. RECITALS A. Contractor and CAWCD have determined to establish a Forbearance Program, whereby Contractor has agreed to forbear delivery of a portion of its Excess Water in exchange for a reduction in the Pumping Energy Charge paid per acre-foot of certain of Contractor s deliveries of Excess Water from the pool of non-indian agricultural use water established pursuant to CAWCD Policy on Excess Water Marketing for Non-Indian Agriculture Use - 2004 through 2030 dated May 18, 2000 ("Ag Pool Water"). B. In reducing its deliveries of Ag Pool Water, CAWCD shall forbear from diverting Colorado River water that otherwise would have been delivered to Contractor, so that the forborne water may be retained in Lake Mead as Extraordinary Conservation Intentionally Created Surplus, thereby increasing the elevation of Lake Mead and reducing the chance of a declaration of shortage in the Lower Basin of the Colorado River. C. This Forbearance Program will be available only to those parties (1) holding contracts for the delivery of Ag Pool Water; (2) forbearing a minimum of twenty-three percent (23%) and a maximum of seventy-five percent (75%) of their allocated Ag Pool Water, not to exceed 20,000 acre-feet; and (3) who have accepted full delivery of their allocated Ag Pool Water each year during the period 2012-2014. D. Contractor desires to participate in this Forbearance Program and enter into this Forbearance Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, and intending to be legally bound, the Parties agree as follows: ARTICLE 1 DEFINITIONS

1.1 "CAP Repayment Stipulation" shall mean the Stipulated Judgment and the Stipulation for Judgment (including any exhibits to those documents) entered on November 21, 2007, in the United States District Court for the District of Arizona in the consolidated civil action styled Central Arizona Water Conservation District v. United States, et al., and numbered CIV 95-TUC-WDB (EHC) and CIV 95-1720-PHX-EHC. 1.2 "CAWCD" means the Central Arizona Water Conservation District. 1.3 "Excess Water" means "Excess Water" as that term is defined in section 5(d)(1) of the Stipulation for Judgment portion of the CAP Repayment Stipulation. 1.4 "Excess Water Agreement" means the Agreement Providing for the Delivery of Excess Central Arizona Project Water dated, 200_. 1.5 "Party" or "Parties" means one or both of the parties to this Forbearance Agreement. 1.6 "Year" means a calendar year. ARTICLE 2 TERM AND TERMINATION OF FORBEARANCE AGREEMENT 2.1 Term: This Forbearance Agreement shall be effective as of the date set forth in the introductory paragraph of this Forbearance Agreement and shall terminate on December 31, 2016, unless either or both parties sooner terminate in accordance with the terms of this Forbearance Agreement. 2.2 Early Termination: If the Secretary of the Interior declares a shortage on the Colorado River such that Arizona's share of deliveries from Lake Mead are reduced in 2016, CAWCD and/or Contractor may terminate this Forbearance Agreement by providing written notice to the other Party by October 1, 2015. Termination shall be effective at midnight on January 1, 2016. ARTICLE 3 PROCEDURE FOR FORBEARING AG POOL WATER 3.1 Notwithstanding section 5(b)(iii) of the Excess Water Agreement, for the purposes of establishing the procedure for ordering and forbearing Ag Pool Water under this Forbearance Agreement, upon receipt of Contractor's water delivery schedule, CAWCD shall

modify Contractor's water delivery schedule by reducing the amount of the water order by, acre-feet. Following modification of Contractor's water delivery schedule, CAWCD shall review it together with all other water delivery schedules, and determine whether Excess Water is available for delivery in the following Year, and, if so, the amount of Excess Water available for delivery under this Agreement in the following Year. 3.2 Except as provided above, all terms, conditions, and provisions of the Excess Water Agreement shall remain unchanged and in full force and effect during the term of this Forbearance Agreement. 3.3 This Article 3 shall not survive termination of this Forbearance Agreement. ARTICLE 4 MODIFICATION OF WATER ORDER 4.1 In reducing the amount of Contractor's water delivery schedule pursuant to section 5(b)(ii) of the Excess Water Agreement as amended above, CAWCD shall use its best efforts to work with Contractor to establish a reduced water delivery schedule that is acceptable to Contractor. ARTICLE 5 WATER SERVICE CHARGE 5.1 During the term of this Forbearance Agreement, in exchange for forbearing deliveries of a portion of its Ag Pool Water, CAWCD will reduce the Pumping Energy Charge associated with the delivery of Contractor's remaining Ag Pool Water to a fixed rate as shown in the following chart: Pumping Energy Rate for Remaining Ag Pool Water ($/af) 2015 2016 Firm Firm $36 $38 5.2 This reduction in the Pumping Energy Charge shall apply only to Contractor's Ag Pool Water that is either currently allocated to Contractor or Ag Pool Water that was previously allocated to Contractor prior to adoption of CAWCD Supplemental Policy for Marketing Excess Water for NIA Use 2004-2030-UPDATE dated November 4, 2010. 5.3 The Pumping Energy Rate provided in section 5.1 above is a fixed rate and includes any agricultural incentives provided to Contractor pursuant to CAWCD policy.

ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.1 Representations and Warranties of Contractor: Contractor represents and warrants as follows: (i) Contractor is a municipal corporation duly organized and validly existing under the laws of the State of Arizona. To the best of Contractor's knowledge the execution and delivery hereof to CAWCD and the performance by Contractor of its obligation under this Agreement will not violate the terms or provisions of any agreement, document or instrument to which Contractor is a party or by which Contractor is bound; (ii) All proceedings required to be taken by or on behalf of Contractor to authorize it to make, deliver and carry out the terms of this Forbearance Agreement have been duly and properly taken. 6.2 Representations and Warranties of CAWCD: CAWCD represents and warrants as follows: (i) CAWCD is a multi-county water conservation district duly organized and validly existing under the laws of the State of Arizona. To the best of CAWCD's knowledge, the execution and delivery hereof to Contractor and the performance by CAWCD of its obligation under this Agreement will not violate the terms or provisions of any agreement, document or instrument to which CAWCD is a party or by which CAWCD is bound; (ii) All proceedings required to be taken by or on behalf of CAWCD to authorize it to make, deliver and carry out the terms of this Forbearance Agreement have been duly and properly taken. ARTICLE 7 LIMITATION ON REMEDIES 7.1 No Party shall be entitled to seek any remedy for a breach of, or default under, this Forbearance Agreement except for those remedies already provided in the Excess Water Agreement. ARTICLE 8 GENERAL PROVISIONS 8.1 Interpretation: This Agreement is governed by and must be construed and interpreted in accordance with and in reference to the laws of the State of Arizona and any applicable federal laws, without regard to its conflicts of laws provisions. Any action to resolve any dispute regarding this Forbearance Agreement shall be taken in a state court of competent jurisdiction located in Maricopa County, Arizona. 8.2 Third Party Rights: The Parties do not intend to create rights in or to grant remedies to any third party or others as a beneficiary of this Forbearance Agreement or of any duty, covenant, obligation or undertaking established thereunder.

8.3 Assignment: No Party may assign, delegate, or otherwise transfer this Forbearance Agreement, in interest therein, or the Party's rights or obligations under this Forbearance Agreement without the prior written consent of the other Party. 8.4 Amendments. This Forbearance Agreement may be modified, amended or revoked only by the express written agreement of the Parties hereto. 8.5 Waiver. No delay in exercising any right or remedy shall constitute a waiver unless such right or remedy is waived in writing signed by the waiving Party. The waiver by either Party of a breach of any term, covenant, or condition in this Forbearance Agreement shall not be deemed a waiver of any other term, covenant, or condition of this Forbearance Agreement. 8.6 Severability. Any determination by any court of competent jurisdiction that any provision of this Forbearance Agreement is invalid or unenforceable does not affect the validity or enforceability of any other provision of this Forbearance Agreement. 8.7 Captions. All captions, titles, or headings in this Forbearance Agreement are used for the purpose of reference and convenience only and do not limit, modify, or otherwise affect any of the provisions of this Forbearance Agreement. 8.8 Notices. Except as otherwise required by law, any notice given in connection with this Forbearance Agreement must be in writing and must be given by personal delivery, overnight delivery, facsimile, or United States certified or registered mail. Any such notice must be addressed to the appropriate Party at the following address (or at any other address as a Party may hereafter designate by written notice given as required by this paragraph): CONTRACTOR: For delivery use and For U.S. Mail use: CAWCD: For delivery use: c/o General Manager 23636 N. 7 th Street Phoenix, AZ 85024

For U.S. Mail use: c/o General Manager P.O Box 43020 Phoenix, AZ 85080-3020 Notice is deemed to have been given on the date on which notice is personally delivered, delivered to an overnight delivery service, transmitted by facsimile or mailed. Notice is deemed to have been received on the date on which the notice is actually received or delivery is refused. 8.9 Additional Acts and Documentation: Each Party, upon the request of the other Party, agrees to perform such further acts and to execute and deliver such other documents as are reasonably necessary to carry out the provisions of this Forbearance Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Forbearance Agreement on the day and year first above written. CAWCD: CENTRAL ARIZONA WATER CONSERVATION DISTRICT By: Its: ATTEST: CONTRACTOR: By: Its: ATTEST:

Agenda Number 12. Attachment 3. Exhibit Type: 2.1 H. Other extraordinary conservation measures, including development and acquisition of a non-colorado River System water supply used in lieu of Mainstream water within the same state, as agreed upon by the Parties pursuant to this Forbearance Agreement. Under agreements to be negotiated with Central Arizona Water Conservation District (CAWCD) customers holding contracts for the delivery of excess Central Arizona Project (CAP) water for non- Indian agricultural use, CAWCD will conserve Colorado River water that would otherwise be delivered to these CAWCD water users from Colorado River system storage by offsetting or reducing that Colorado River water use. Such conservation will be achieved by mechanisms, including but not limited to the following: use of local Arizona water supplies, which may include the transfer or delivery of long-term storage credits, investment in new conservation programs and infrastructure, investment in new water development projects and infrastructure, investment in new reuse programs, investment in new demand reduction programs, and fallowing irrigated agricultural lands. Verification: On or before October 1 of each year, CAWCD receives water orders from all of its customers, including those holding contracts for the delivery of excess Central Arizona Project (CAP) water for non-indian agricultural use. For each CAWCD subcontractor that is made a part of this EC ICS program, CAWCD shall provide a copy of their original water order to the United States Bureau of Reclamation prior to January 1 of the following year. By delivering local water supplies to CAWCD subcontractors or reducing their usage of water through conservation programs, CAWCD will reduce its net deliveries of lower Colorado River water by a like quantity of water. This reduction in net deliveries will also result in an equivalent reduction in net diversions by CAWCD of lower Colorado River water at Mark Wilmer Pumping Plant and a net reduction in releases from Colorado River system storage. Only those reductions in net deliveries to Mark Wilmer Pumping Plant, as measured against CAWCD's original water orders submitted by CAWCD subcontractors, shall be eligible to earn credits pursuant to this Exhibit _. Total Amount of ICS Credited Annually: The amount of EC ICS that can be created during any Year is limited to the net reduction in the amount of water that CAWCD diverts from the Colorado River from those CAWCD deliveries that were originally scheduled to be delivered, provided that CAWCD does not divert such water. The volume of water conserved pursuant to this program to be devoted to the creation of EC ICS is further limited to the quantity set forth in Sections 2.5(D)(2)(c) and 2.5(D)(3)(c) of the Forbearance Agreement and is subject to the following: Limitations on Creation of EC ICS a) The amount of EC ICS that CAWCD may create in any Year is limited to the amount of Colorado River water that, if added to its consumptive use, would not result in an inadvertent overrun pursuant to the October 10, 2003 Inadvertent Overrun and Payback Policy.

b) The total amount of annual EC ICS created by this program is limited to the amount of water that could have been delivered for beneficial use from the Colorado River. c) Underused or unused CAWCD apportionment is not eligible to earn EC ICS. EC ICS may only be earned on CAWCD water orders that are reduced by the delivery of local water supplies. In Witness of this Exhibit to the Forbearance Agreement executed contemporaneously herewith, the Parties affix their official signatures below, acknowledging approval of this document on the day of, 201_. Approved as to form: THE STATE OF ARIZONA acting through the ARIZONA DEPARTMENT OF WATER RESOURCES Chief Counsel Michael Lacey Director Attest: PALO VERDE IRRIGATION DISTRICT General Manager Chair Attest and Approved: IMPERIAL IRRIGATION DISTRICT Legal Counsel John Hanks President Approved as to form: COACHELLA VALLEY WATER DISTRICT Legal Counsel Jim Barrett General Manager Approved as to form: THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA

General Counsel Jeffrey Kightlinger General Manager Approved as to form: SOUTHERN NEVADA WATER AUTHORITY Deputy General Counsel John Entsminger General Manager Approved as to form: COLORADO RIVER COMMISSION OF NEVADA Deputy Attorney General Jayne Harkins Executive Director