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BACKGROUND The stability and future reliability of the Tri-Valley's contractual water supplies from the State Department of Water Resources (DWR) changed significantly this past year. This change came about partially as a result of a federal judge's decision this past summer that the operation of the State Water Project (that pumps water out of the Delta) was causing a detrimental impact to an endangered species of fish known as the Delta smelt. The judge's decision required DWR to develop both ashort-term and long-term plan to remedy this impact. DWR's short-term plan to mitigate this issue is to cut normal deliveries from the State Water Project this year (2008) by approximately 20%. Since the Tri-Valley area relies on the State Water Project's water supplies from the Delta for approximately 80% of its water supplies, this decision had, and will continue to have, a number of ramifications on water supplies to the Tri-Valley area. As an example, due to the Delta smelt issues, DWR decided to shut down the State Water Project pumps for several weeks this past summer to mitigate further Delta smelt reductions. This action caused the Tri-Valley to rely on its local groundwater and stored local surface water during this period for a significant portion of its water supplies, with the only imported water supplies available being used to serve areas in eastern Livermore that could not be supplied without the imported supplies available. The impact of the federal judge's decision regarding the endangered Delta smelt is just one piece of the .,State Water Project/Delta water supply puzzle. Additional litigation, such as lawsuits alleging Delta water exports' adverse impacts to salmon and steelhead, also have the potential to affect the amount of water available from the State Water Project in the future. Coupled with the Delta environmental issues is the uncertainty regarding how future hydrological conditions will impact water supplies during the next few years. The amount of rain and snowfall the entire State of California received during the 2007 water year was the lowest this state has experienced since 1988. As a result, State water managers had to draw down reservoir levels this past summer to make up for low rainfall amounts and the DWR decision to reduce and halt pumping from the Delta for several weeks. In addition, while portions of the State appear to be receiving ample rainfall and snowpack this winter (2008), the water year is still predicted to be dry from a state hydrologic perspective. Despite the issues with the SWP and the Wanger decision, Zone 7 was able to supply the Tri-Valley with adequate water supplies (except for a temporary period to the eastern portions of Livermore as described above) this past fiscal year. This was accomplished as Zone 7 and the Tri-Valley Water Retailers Group (TWRG) requested customers to reduce their water use by 10% during the summer and fall of 2007. Based upon the initial estimates of the environmental mitigation impacts to next year's imported surface supplies, Zone 7 has stated it would be able to supply the Tri-Valley with adequate water deliveries during 2008. However, these deliveries most likely will require a combination of additional local groundwater pumping next year, possible Page2of3