October 11, 2007

The purpose of this Notice is to provide Water Users and other interested parties with important information regarding Court ordered reductions in your 2008 and future water supply. This Notice is very important and you should read it all. It is summarized as follows.

1. As requested per letter to you of September 26, please advise the District of increases or decreases in your water order while the District can still make such changes. Consider purchasing Agency 150 Water for carryover into 2008.
2. The recent federal court decision by Judge Wanger is harmful to your 2008 water supply.
3. Other legal matters will affect your future water supplies.
4. The outlook for your 2008 SWP water supply is discussed at various levels of precipitation. There is currently a 1 in 4 chance of having an 80% supply or greater reduced to 60% to 70% by the Wanger decision. There is currently a one in 10 chance of having a 35% supply or lower reduced to 25% to 30% by the Wanger decision..
5. District banking projects and other sources will help with 2008 water shortages.
6. Consider purchasing water from the 2008 Dry Year Water Program. Decide by November 15.
7. Peak deliveries in May and June 2008 may be limited due to the Wagner decision.
8. The District faces long term water shortages even without the Wanger decision. Changes in your crop patterns and increased use of private wells are likely.
9. Your active involvement is necessary to fight threats to the District water supplies due to Delta instability and environmental litigation.
10. A Peripheral Canal around the Delta is a long-term solution to many of the water supply threats.
11. You are encouraged to attend either District workshop on these matters to be held at the District office on Thursday, October 18, at 8:30 a.m., and Tuesday, October 23, at 1:00 p.m.

A. 2007 Water Supply. By letter of September 20, you were advised to review your remaining 2007 water supply and demands, and request increases or decreases in your water orders in a timely fashion. There is no definite deadline for returning or ordering water. It is expected, without guarantee, that returns or orders of water through October 15 can be accommodated. The District will extend this flexibility as long as possible.

Additional purchases of Agency 150 Water can now be made on a first come, first served basis. Such purchases can be made for delivery in 2008 until San Luis Reservoir fills (see the SWP 2008 Water Supply discussion below. This opportunity could close at any time.

B. The Wanger Decision. Your 2008 water supplies are likely to be significantly reduced as a result of the recent U.S. District Court decision by Judge Wanger in NRDC v. Kempthorne. This decision restricts pumping operations in the Sacramento-San Joaquin Delta by the State Water Project (SWP) and Central Valley Project (at Banks and Tracy/Jones pumping plants, respectively). The Court ruled these restrictions are necessary to protect delta smelt under the federal Endangered Species Act. These restrictions will be in place until a new Biological Opinion on such pumping is issued by the U.S. Fish and Wildlife Service. The new Biological Opinion is expected between August and November 2008, so the Court restrictions will affect 2008 water supply operations. There is concern the Court action will influence the Biological Opinion process and result in long term reductions on SWP and District water supplies.

There is widespread acknowledgment that the decline of delta smelt could be due to many factors such as non-native invasive species that eat delta smelt or reduce its food supply, hundreds of unscreened water diversions from the Delta including large power plants, screened water diversions from the Delta (there are only three including Banks and Tracy pumping plants), municipal waste discharges, and toxics in the water from urban, mining, and/or agricultural runoff. Although evidence was presented to the Court regarding these factors, the Court found it can only regulate the parties to the litigation regardless of whether or not those parties such as DWR are the real cause of the decline.

In our judgement, the State of California and its Department of Water Resources (DWR), which operates the State Water Project, did a poor job of defending the SWP supply during the Court hearing. The State was too willing to give away SWP water that was not theirs and that District Water Users, not DWR, still have to pay for.

Despite DWR’s public statements identifying the smelt decline factors noted above, DWR did not raise these issues to the Court, and supported the U.S. Fish and Wildlife service proposal to reduce pumping when smelt are near the pumps. The Court largely accepted the FWS proposal as supported by DWR. Fortunately, the Court did not agree to the plaintiff’s proposals to restrict pumping even more than the FWS proposal. It has been suggested that DWR may have violated its SWP water supply contracts by not adequately defending and protecting the water supply of the State Water Project.

C. Other Litigation. On April 27, 2007 in Watershed Enforcers v. DWR, the Alameda County Superior Court ordered DWR to obtain a state permit for fish take at Banks Pumping Plant or stop pumping. This decision has been stayed during appeal. The appeal will be heard in 2008.

On September 27, 2007, the Coalition for a Sustainable Delta, joined by this District and three other Kern County water districts, issued a Notice of Intent to Sue against Mirant Corporation, related entities, and the U.S. Army Corps of Engineers for failing to prevent substantial delta smelt from being taken by two power plants in the Delta operated by Mirant.

D. 2008 SWP Water Supply. The Wanger decision was issued from the bench. It has not yet been finalized in written form. While it is certain that pumping reductions will occur in January through June of 2008, there are significant disagreements between the plaintiffs and defendants regarding these reductions. There is therefore some uncertainty regarding any water supply impact analysis. Nonetheless, DWR has developed preliminary estimates of these impacts on SWP water supplies for 2008 as follows:

--Projected Final 2008 Allocation–POE* Hydrology before decision after decision Loss to Distric

25% Wet 80% 60% to 70% 20,000 to 40,000 acre-feet

50% Below Normal 75% 55% to 70% 10,000 to 40,000 acre-feet

75% Dry 55% 50% to 55% 0 to 10,000 acre-feet

90% Critically Dry 35% 25% to 30% 10,000 to 20,000 acre-feet

The expected December 1, 2007 initial SWP allocation for 2008 of 25% to 30% is based on the 90% POE.

In addition, the SWP Article 21 water supplies that are a critical element of refilling the District’s groundwater banking projects will be reduced by 35% in wet conditions and essentially eliminated under drier conditions.

San Luis Reservoir is estimated to fill (and undelivered carryover water is lost) in February 2008 (wet conditions), March 2008 (below normal and dry conditions), and not filled (critically dry conditions).

E. Overall Water Supplies for 2008. The District’s investment in water banking projects and local District wells will provide additional water supplies in 2008.

At a 50% SWP allocation, the District anticipates demands of 185,000 acre-feet will be met with 100,000 acre-feet of SWP supply and 85,000 acre-feet from its banking projects. All demands up to the Contract Amount of Water (CAW) are expected to be met. For demands over the CAW, some District well capacity and Kern County Water Agency entitlement (Agency 150 Water) may be available. However, it is not known if all demands over the CAW (about 7,000 acre-feet in 2007) can be met.

At a 30% SWP allocation, the District anticipates demands of 165,000 acre-feet will be met with 60,000 acre-feet of SWP supply, 85,000 acre-feet from its banking projects, and 20,000 acre-feet from District wells. All demands up to the Contract Amount of Water (CAW) are expected to be met. However, no District well capacity will exist to meet demands over the CAW. The availability of Agency 150 Water will be limited.

These banking project and District well supplies are more costly than SWP water, and their increased use due to the Wanger decision will decrease available banking project water supplies in subsequent years of natural or regulatory drought.

F. 2008 Dry Year Water Program. You should consider purchasing on option for water from this Program for 2008. This Program is still in development by the State Water Project Contractors Authority. It is expected these supplies will likely only be available if the SWP allocation is less than 45%, and will be expensive (at least $170 per acre-foot plus pumping). It is expected about $20 per acre-foot (including the option cost) will be required to sign up for this Program, and this money is due to the District by November 15. There are various subsequent deadlines to purchase this water or receive partial refunds. Please contact the District for further information.

G. Peak Capacity Limitations. The above banking project water availability assumes May and June peak delivery requirements can be met by Banks pumping plant and drawdown of San Luis Reservoir, and that the District can advance deliver some water in peak months and repay such advance with excess banking project capacity in the fall. However, during the 2007 delta smelt pumping reductions, peak delivery limitations were very close to being imposed as excess drawdown rates in San Luis Reservoir would threaten dam integrity. Because of the Wanger decision, peak delivery limitations may be required 2008, and it may be necessary to allocate peak delivery capacity among Water Users.

H. Long Term Outlook. It is important to note the Wanger decision is only one symptom of an increasing set of risks to the District’s SWP water supplies. It is widely acknowledged the Delta cannot be sustained in its current form and continue to meet existing needs for water supply and quality, in-Delta agriculture, environmental values, and recreation. There is a 2 in 3 chance that soil subsidence, earthquakes, insufficient maintenance, increased flooding and sea level rise due to global warming, will cause catastrophic levee failures and water supply interruptions of up to two years within our lifetime. Environmental and fishery threats to water supply will increase. The District and others are developing short and long-term strategies to address these threats, but your active involvement will be critical to the success of these efforts.

Due to recent crop demand increases in the District, SWP supplies (even before the Wanger decision) were anticipated to be insufficient to meet these demands in future years. For example, 2008 District water deliveries are currently projected to be 185,000 to 190,000 acre-feet, but the State Water Project can only deliver a long-term average of 140,000 acre-feet per year (an average 70% allocation). This value excludes flood waters (e.g. Article 21 water) used for refilling banking projects. If delta smelt or other fishery restrictions continue beyond 2008, the long term average SWP supply will be less (perhaps an average 50% allocation, or 100,000 acre-feet per year). The District therefore faces continuing long-term water shortages even if the Wanger decision impact is limited to 2008 only.

I. What You Can Do. The only remedies for this shortage under your direct control are to adjust your cropping patterns and/or use your own groundwater wells. The District recommends you re-activate inactive groundwater wells, and consider drilling new wells, in order to make up anticipated future short-term and long-term District water supply shortages. In many cases, these wells can be connected to the District’s water distribution system or the California Aqueduct under the District’s User Input Program in order to fully utilize the individual well capacity.

For 2008, the District has little ability to directly influence the Biological Opinion discussed above. Pressure will be exerted on DWR to fulfill its obligation under the SWP water supply contracts to protect the SWP water supply during the Biological Opinion process. However, the recent performance of DWR is not encouraging in this regard.

In order to coordinate activities to protect the District water supply, including litigation, the District is a participant in the recently formed Committee for Delta Reliability. This informal public agency group is focused on research and public relations efforts to protect operations of the SWP Banks pumping plant. The cost of District participation in the Committee is funded through District Reserves and will not affect your water rates.

The Committee is coordinating its efforts with the Coalition for a Sustainable Delta. The Coalition is a group of private landowners primarily within Kern County. The Coalition is pursuing aggressive measures to protect pumping operations through litigation and other means. You are urged to consider joining the Coalition both financially and through participation in Coalition meetings. Please review and consider the enclosed Coalition letter.

J. Peripheral Canal. As noted above, the Delta is a Katrina-like catastrophe waiting to happen. A campaign by the Association of California Water Agencies (of which the District is a member) is underway to educate the public on this threat. Please visit www.calwatercrisis.org for information. A Peripheral Canal around the Delta, while expensive, is a critical component to ensuring the availability and reliability of future water supplies for the District. A legislative or initiative ballot measure on this matter may be placed before the voters in 2008. The District will provide you additional information when available.

Refreshments will be served.

The District will continue to keep you informed on these matters.

Very truly yours,

Wm. A. Taube

Engineer-Manager