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BACKGROUND The four Tri-Valley Water Retailers (the cities of Livermore and Pleasanton, the Dublin San Ramon Services District and the California Water Service Company-Livermore District) (TWRG), provide potable water service to approximately 95 percent of the Valley's municipal and industrial water customers. These agencies receive approximately 85 percent of their potable water supplies through contracts with Zone 7. Zone 7, in turn, receives approximately 80 percent of its water supply from the State Water Project (SWP), which conveys water from the northern Sierra Nevada through the Sacramento/San Joaquin Delta (Delta) to the Harvey O. Banks Pumping Plant (located in Byron, eight miles northwest of the City of Tracy), where it is pumped into the California Aqueduct for delivery to Zone 7 (through the South Bay Aqueduct) and twenty-eight other SWP contractors. The most important issue facing the Tri-Valley's water supplies continues to be the curtailment of water deliveries from the Sacramento-San Joaquin Delta (Delta) by the State Water Project (SWP) due to environmental mitigation requirements. As discussed below, even though snowfall and rainfall in the spring of 2011 was above normal, and most of the state's major reservoirs are above normal storage levels, deliveries from the SWP in 2011 were still only 80 percent of contracted amounts. The extent and duration of the curtailments is uncertain, and steps necessary to mitigate or offset the effects of curtailment are mired in political stalemates or facing environmental or institutional resistance or opposition. The last 100 percent allocation was in 2006, prior to the implementation of Delta pumping restrictions. 2011 Hydrologic Conditions Water Years 2007 through 2009 represented the twelfth driest three-year period in California's 100-year hydrologic record. Annual statewide precipitation averaged 63 percent in 2007, 72 percent in 2008 and 76 percent in 2009. Fortunately, hydrologic conditions improved in both 2010 and 2011 . The 2010 Water Year (which began on October 1, 2009) had average precipitation (107 percent of average through May 2010) and an above-average Sierra snowpack. The 2011 Water Year (which began October 1, 2010) had above average precipitation (145 percent of average through May 2011) and an above-average Sierra snowpack On May 2, 2011, DWR's final snow survey for the 2010-2011 season indicated that the water content in the mountain snowpack was 144 percent of average for the date. As a result of the increased precipitation and snowfall in the 2010-2011 season, reservoir levels improved significantly as compared to the previous year. DWR's 2011 Water Allocations In November 2010, DWR set the initial 2011 SWP allocation at 25 percent of total contracted water deliveries to SWP contractors. The initial allocation was a conservative delivery estimate and was much improved from 2010's initial projection of only 5 percent. Page 2 of 10