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EVMWD and Hydro Settle Long-Running Dispute over LEAPS Project

In July 2018, The Hydro Company, Incorporated (“Hydro”), an engineering and energy consulting firm specializing in hydroelectric facilities and related transmission lines, and Elsinore Valley Municipal Water District (“EVMWD”) reached a settlement agreement in a dispute over their 1997 agreement over the development of the Lake Elsinore Advanced Pumped Storage Project (“LEAPS Project”).

The history of the proposed LEAPS Project goes back more than two decades. In April 1995, EVMWD obtained a preliminary permit from the Federal Energy Regulatory Commission (“FERC”) and in 1997 contracted with Hydro to develop the project. In 2004, the parties applied for a new joint permit, but FERC dismissed the application in 2011 when disputes over the development of the project lead the parties to provide separate and divergent answers to FERC’s “request for just cause,” which asked for an explanation why the application should not be dismissed. Following the FERC decision, Hydro submitted a new application in its own name, and EVMWD gave Hydro a written notice of termination and notice of default purporting to terminate the 1997 agreement and demanding repayment of fees paid to State Water Resources Control Board. Hydro subsequently sued for “sunk costs,” and additional actions, including counter-complaints and amended complaints, were filed in 2012.

Hydro is now trying to revive the project, which would include

  • A new upper reservoir with a 200-foot main dam and gross storage of 5,750 AF;
  • A 21-foot diameter power shaft and power tunnel with lined penstocks;
  • an underground powerhouse with reversible pump-turbine units that will provide a total capacity of 500 megawatts;
  • The existing lower reservoir (Lake Elsinore), which has a gross storage volume of 54,500 AF; and
  • Transmissions lines to connect to the Southern California Edison and San Diego Gas & Electric Company transmission systems.

Mediation conferences and settlement negotiations lead the development of the settlement agreeent.

On July 27, 2018, the Honorable Judge Timothy Casserly of the Superior Court of the State of California, County of San Diego, North County Division issued a consent judgement. The judgement states that the 1997 development agreement is terminated and obligations under it are extinguished, except that EVMWD will continue to provide water service to the LEAPS Project.

The terms of the consent judgement specify how convey and evaporative losses will be accounted and outlines terms for securing and maintaining a water supply to meet Hydro’s needs. On conveyance losses, the parties will meet to determine an appropriate methodology for projecting those losses and flow measurements will be taken to determine actual conveyance losses. Evaporative losses are Hydro’s responsibility.

To ensure a sufficient water supply, EVMWD will, at Hydro’s cost, make an initial one-time acquisition of 15,000 AF and subsequent acquisitions as needed to maintain that supply. The water will be stored in Lake Elsinore. Of the total volume, 9,000 AF will be permanently stored and maintained, and 6,000 AF will be available for use in connection with the LEAPS Project. They anticipate that the water will come from the Metropolitan Water District of Southern California via Western or Eastern Municipal Water District. In addition, if the district has unallocated Tier 1 water available, it is to make that water available to Hydro. If Article 21 water is made available by the Department of Water Resources, the district is to purchase that water for the benefit of Hydro, and if the district identifies an available source that has a lower cost than untreated Tier 2 water the district is to purchase that water and split the savings with Hydro. Hydro retains the discretion to make alternative arrangements for its water supply.

Hydro will pay the actual costs for the water, plus a 10% administrative fee, and will pay for any flow meters or other devices needed to improve the accuracy of conveyance loss calculations.

Under the settlement agreement, the parties terminate the 1997 development agreement. EVMWD agrees to pay Hydro a sum of $154,851.76, the amount of a refund check from the U.S. Forest Service was mistakenly paid to EVMWD instead of Hydro, along with another $2 million in additional monetary compensation. All remaining claims from the ongoing litigation are released and waived.

EVMWD’s leadership believes that settling the lawsuit was in the best interest of its ratepayers.

“We have agreed to the settlement to protect EVMWD’s rate payers from the costs of ongoing litigation and to avoid exposure to millions in damages,” said John D. Vega, general manager for EVMWD.


Written by Marta L. Weismann