COMMITTEE AGENDA MEMORANDUM
Water Supply and Demand Management Committee
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: title
Receive Update on the Sites Reservoir Project, including Draft Sites Water Right Permit Terms, Proposed Contract Between Participants and Sites Authority, and State and Federal Funding.
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RECOMMENDATION: Recommendation
Receive and discuss information on the Sites Reservoir Project, including the draft Sites water right permit terms, proposed contract between Participants and Sites Authority, and State and federal funding.
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SUMMARY:
The Sites Reservoir Project (Project) is a proposed 1.5 million acre-foot (AF), off-stream reservoir that would be located north of the Delta approximately 10 miles west of the town of Maxwell in Colusa County. The Project is designed to divert excess flows on the Sacramento River during storms and store this water in Sites Reservoir, this water can then be released to provide water supply during dry years. In addition to providing water supply for Project participants, the Project will provide public benefits including environmental water supply, recreation facilities, and regional flood benefits. Current members of the Sites Project Authority (Authority) and Reservoir Committee (Participants) include both Central Valley Project water agencies north of the Delta and State Water Project (SWP) water agencies south of the Delta. The Project is one of several investment options evaluated in the Water Supply Master Plan 2050 (WSMP) planning process to help ensure water supply reliability. The latest capital cost estimate for the Project is $6.8 billion to $7.8 billion in 2025 dollars, not including financing costs.
Valley Water currently has a 0.66% participation level in the Project, which corresponds to a storage capacity of 9,351 AF and an expected average dry year yield of approximately 2,100 AF of water. In July 2022, Valley Water requested to be placed on the waitlist to increase its participation level in the Project up to a maximum of 2.65% participation, which would correspond to a storage capacity of 37,404 AF and an expected average dry year yield of approximately 8,300 AF.
Update on Draft Water Right Permit
In March 2026, the State Water Resources Control Board (State Board) issued a draft water right permit and decision for the Project. The draft permit allows the Project to divert up to 986,000 AF per year into the Reservoir. However, several terms in the draft
permit would constrain Project operations and impact the Project’s expected benefits, potentially making the project less affordable or reliable.
The State Board’s schedule for the water right decision included a 60-day comment period, which ended May 22nd. Valley Water has submitted a joint comment letter on the draft water right with other SWP contractors participating in the Project indicating our concern with the above terms and requesting revised permit terms. A revised draft permit is anticipated mid-July, followed by a 30-day comment period, with the final water right permit decision expected to occur in September. A summary of key draft permit terms which impact the Project is provided below.
• Diversion criteria are at odds with California Department of Fish and Wildlife (CDFW) Incidental Take Permit (ITP). While the Project’s ITP authorizes diversion when Sacramento River flows (at Wilkins Slough) flows are 10,930 cubic feet per second (cfs), the draft water right permit only allows diversions when flows are above 14,125 cfs and it adds pulse flow protection without evidence that the added limits will produce meaningful incremental fish benefits.
• Terms are inconsistent with how the proposed Bay Delta Plan Update is being implemented. The draft permit terms circumvent the State Board’s process to update the Bay-Delta Water Quality Plan and create an inflexible overlay of requirements that may be at odds with the final Bay-Delta Plan.
• It involves the Sites Authority in South Delta export operations that should be managed by solely by the Department of Water Resources (DWR) and U.S. Bureau of Reclamation (Reclamation).
Update on Benefits & Obligations Contract
The Sites Reservoir Benefits and Obligations Contract (Contract) will define the benefits, costs, risks, and financing obligations for Project participants. Negotiations for the Contract are nearly completed, with the Sites Authority aiming to finalize the Contract in June 2026. Key participation terms in the current draft include:
• Participants will own a capacity interest in the project. The contract term is indefinite, and participants will own their storage and conveyance capacity in perpetuity.
• Participants will have a seat on the Reservoir Management Board which has authority over decisions affecting the Project’s costs, benefits, and operations.
• Participants will decide how their storage space is operated and have control over when to fill or release water from their storage space.
• Participants can sell or lease their storage space and/or conveyance capacity to another Participant or to a non-Participant; however other participants will have first right of refusal for leases or sales.
• The Sites Authority Board and Reservoir Management Board can terminate the project prior to completing construction if the project is no longer deemed viable. Participants would be required to pay for any costs incurred to that point.
• When Participants’ collective construction payments reach $500 million, the Reservoir Management Board will assess the Project’s progress and vote to authorize further construction expenses.
• In the event of a Participant default, the Authority will ask first whether any Participants wish to voluntarily take over defaulted Participant’s capacity interest before looking for non-Participants to fill the gap. If a buyer cannot be found, the defaulted Participant’s share will be apportioned pro rata to the remaining participants. A Participant’s pro rata share may not be increased by more than 50% of their voluntary participation level.
Participants are still discussing contract terms related to several topics, including:
• The “Point of Delivery” terms for water released from Sites Reservoir and use of Partner facilities to move water into and out of Sites Reservoir. This topic is intertwined with the development of the Partner Agreements with Tehama-Colusa Canal Authority and Glenn-Colusa Irrigation District, which are still under development.
• Revised language around project governance is still being discussed by the Governance Ad-hoc Committee.
Update on State and Federal Participation & Funding
The Project has secured State funding through the Water Storage Investment Program (WSIP), which is intended to fund public benefits associated with water supply projects. Sites Reservoir was conditionally awarded up to $1.094 billion in funding for ecosystem, flood control, and recreation benefits. The Project is also applying for an additional WSIP benefit for drought emergency response.
To secure this funding, the Sites Authority must enter into a Contract for Administration of Public Benefits (CAPB) with CDFW for the ecosystem benefit DWR for the drought emergency response, flood control, and recreation benefits. Draft CAPB contracts were provided to participants in May 2026, key terms of the CAPBs include:
• The State will have a 17.3% share of storage and conveyance capacity and corresponding Sites water. The Sites Authority will deliver this water to wildlife refuges.
• The Sites Authority will construct recreation facilities to provide recreational opportunities, including boating, swimming, and fishing, hiking, and camping.
• The Sites Authority will develop a Flood Management Plan and provide incidental flood protection for local creeks in the Project’s watershed.
• The Sites Authority will maintain a “Safe for Continued Use” Judgment as part of annual inspections by the Division of Safety of Dams.
• The M&I Participants, through the Sites Authority, will commit to operating their storage space to meet target water deliveries in the 3rd consecutive drought year. Each M&I participant’s use of their own stored water counts towards this benefit, there is no obligation or commitment to provide water to other Participants.
• If sufficient water is not available to meet target deliveries during qualifying years, then the M&I participants will consider reoperating their storage in future droughts to ensure that the target water volume is available or purchasing water from other Sites participants.
Reclamation is also currently negotiating to increase their investment in the Project from a 9.1% participation level to a 16% participation level, which would provide 225,600 AF of storage. Reclamation’s increase in storage is expected to be facilitated by several North-of-Delta participants assigning their capacity to Reclamation. Reclamation’s increased participation in the Project could further enhance the operational flexibility of the Central Valley Project and improve cold water pool management at Lake Shasta.
The Sites Authority has been negotiating a Partnership Agreement with Reclamation to cover their participation. Key draft terms of the Partnership Agreement include:
• Reclamation will be granted a 16% share of storage and conveyance capacity.
• Reclamation will commit to providing the $798 million in federal funds that have been appropriated for the Project and will diligently pursue the remaining funds needed to pay for their 16% share.
• Reclamation will have first right of refusal for any leases and sales commensurate with other participants.
• If Reclamation is unable to secure funding for the full 16% share during construction, the unpaid capacity share shall be forfeit. The Authority will take steps to facilitate the sale of the unpaid capacity share. If unsuccessful, the unpaid capacity share would be allocated to other participants following the default provisions in the Benefits and Obligations Contract.
• If Reclamation fails to make timely payments of project costs or operations and maintenance costs after construction is complete, they forfeit the right to use their share of storage and conveyance until they are no longer in default. During that time, the Sites Authority may sell water from Reclamation’s share of storage to cover the defaulted amount and other participants may utilize Reclamation’s capacity share until they are no longer in default.
Schedule & Next Steps
Upcoming anticipated key milestones for the Project:
• Benefits & Obligations Contract Finalized: July 2026
• Revised Draft Water Right: July 15, 2026
• Final Water Right Decision: September 1, 2026
• Investor Commitment Period: August 1 - December 1, 2026
• CWC WSIP Funding Award: December 2026
While the Investor Commitment Period, where participants are expected to make their final participation decision for the Project, is currently scheduled for August 1-December 1, 2026, this may shift if the State Board’s issuance of the final water right is delayed or if more time is needed for contract negotiations. Valley Water staff will continue analyzing the Project’s costs, benefits, risks, and participation terms in preparation for making a recommendation to the Board on our final participation decision through the adaptive management process of the WSMP 2050. Staff anticipate returning to this Committee in late summer 2026 for the next update.
ENVIRONMENTAL JUSTICE IMPACT:
There is no environmental justice impact associated with this item.
ATTACHMENTS:
Attachment 1: PowerPoint
UNCLASSIFIED MANAGER:
Manager
Vincent Gin, 408-630-2633