ITEM VI A PUBLIC HEARING -- CONSIDER APPLICATION TO CREATE MONTEREY BAY SHORES WATER DISTRIBUTION SYSTEM

MEETING DATE: SEPTEMBER 18, 2000

SUMMARY: The Board will consider an application (Exhibit 1) by Mr. Edward Ghandour of SNG Development to create the Monterey Bay Shores Water Distribution System to provide drinking water for the Monterey Bay Shores Resort (MBSR). As proposed, the resort is a 495-unit, beach-front, mixed use (visitor serving/residential) project that was approved by the City of Sand City on November 17 and December 1, 1998. The project water needs total an estimated 109 acre-feet per year (AFY). A summary of the project is provided as Exhibit 2.

The application requests Board approval for the MBSR water distribution system to serve the water needs of the 39-acre property from an existing well (presently inactive; formerly used for sand mining until 1986), and possibly other wells (Exhibit 3). The primary well, known as the "PCA well" (State Well #T15S/R1E-15K1), would draw from the Paso Robles aquifer within the Seaside Basin coastal subarea, which is part of the Monterey Peninsula Water Resources System. A supplemental backup well and a monitoring well are also planned. The California-American Water Company (Cal-Am) is proposed to operate the system on a contractual basis, as described in Exhibit 4. The MBSR system would be independent of Cal-Am facilities as this property is located outside of the Cal-Am service area. There would be no intertie to the Cal-Am system.

This application was first heard by the Board at its October 18, 1999 meeting. On that date, the Board closed the public hearing and denied the application without prejudice. The Board advised the applicant that the Board would consider a new application after two conditions were met:

(a) compliance with Title 22 water quality standards is confirmed by the California State Department of Health Services (DHS or "State Health"); and

(b) a definitive determination (by either voluntary, regulatory or judicial action) is made regarding the applicant's water rights in relation to those of other producers in the Seaside Basin, particularly Cal-Am.

These two requirements have been met. Exhibit 5 is a letter dated May 9, 2000 from the District confirming receipt of a March 22, 2000 letter from State Health advising Mr. Ghandour that the water quality of the well meets Title 22 water quality standards. Exhibit 6 is an August 7, 2000 cover letter from the applicant attaching a June 21, 2000 letter from Cal-Am's attorney advising the District that previous objections to the MBSR have been withdrawn, and acknowledging the applicant's overlying water rights in the Seaside Groundwater Basin.

Extensive documentation for this application listed in Exhibit 7 has been provided to the Board under separate cover, and is available for public review at the District office. Materials include the October 1999 Board packet materials; the complete original application, along with attachments and supplemental information; other pertinent correspondence associated with the resubmitted application; and the Environmental Impact Report (EIR) on the project.

Notice of this Public Hearing has been advertised in The Herald and notices have also been posted at the project area. In addition, nearby property owners, Cal-Am and the Seaside Municipal water system have been mailed notices of this hearing.

RECOMMENDATIONS: Staff recommends that the Board:

Consider CEQA documentation prepared by the City of Sand City and subsequent documentation requested by the District insofar as it relates to water issues. A summary of the project EIR certified by the City of Sand City on November 17, 1998 is provided as Exhibit 8. The EIR was previously provided to the Board and is available at the District office for public review. CEQA Guidelines (Section 15096) allow a responsible agency to consider a certified environmental document prepared by the lead agency rather than conduct a separate environmental analysis. The Board must focus on issues within its authority. As part of the October 1999 hearing, the Board reviewed additional hydrologic information relating to potential project impacts. These materials have been provided to the Board for review for this hearing.

Adopt Findings that support the determination for approval. The proposed Findings are provided as Exhibit 9.

Approve the application to create the MBSR water distribution system, with conditions. This action includes setting the annual system capacity (water production) limit of 109.4 AFY, the expansion capacity limit (total number of water connections) of 325 connections, and other conditions of approval defined in Exhibit 10.

Rationale for Staff Recommendation: District Rule 22, which governs approval of permits to create or establish a water distribution system, requires denial of an application in three situations:

(1) the water source does not comply with Title 22 drinking water standards;

(2) the system will create an overdraft or increase an existing overdraft; or

(3) the system will adversely affect the ability of existing systems to provide water to users.

Notably, District regulations require that findings be made about the potential of the system to "result in significant environmental effects that cannot be mitigated by conditions attached to the permit," but do not require denial if such unmitigated adverse effects are identified.

Perusal of the October 18, 1999 board packet reveals significant staff concerns about the above three issues. Presently, these three issues have been addressed in the following ways:

Regarding Item 1 (water quality), compliance with Title 22 water quality standards has been demonstrated, as shown in Exhibit 5. It is notable that the applicant must provide additional information to State Health in order to receive a permit to operate the system. Staff recommends that the MPWMD permit conditions include a requirement to confirm receipt of the State Health permit before the proposed water distribution system becomes operational.

Regarding Item 2 (overdraft), due to Cal-Am's willingness to amend its operations to accommodate the MBSR system as stated in Exhibit 6, and the fact that the basin has not been formally declared to be in overdraft, there is no compelling evidence at this time to support a finding that the proposed MBSR system will create or increase an existing overdraft. The Cal-Am letter states that Cal-Am will coordinate production from the Seaside Basin with prospective use from the MBSR project to operate within the safe yield of the basin as defined by the District. The District interprets this language to mean that Cal-Am would reduce production in the Seaside Basin, if needed. The State Water Resources Control Board (SWRCB) does not have jurisdiction in the Seaside Basin.

Regarding Item 3 (impact to other systems), the applicant's water rights have been acknowledged by Cal-Am (Exhibit 6), and no other basin pumper with legal standing has challenged them to date. Cal-Am's letter withdraws previous objections and apparently acknowledges that the applicant's overlying rights are superior to Cal-Am's appropriative rights from the Seaside Basin. The Cal-Am letter further states that the MBSR project would not impair or interfere with Cal-Am's ability to exercise its appropriative rights to waters from the Seaside Basin, nor will the project impair Cal-Am's ability to provide water to existing customers. The City of Seaside has not commented on the application to date, and is aware of the application as the City was named in a lawsuit by the applicant. The parties have agreed to dismiss the case.

As described below in the "Discussion" section, staff has concerns about proposed system's direct and cumulative environmental effects, and the effectiveness of proposed mitigation measures. Some mitigation measures cannot be guaranteed to be successful at this time, but the measures are within the range of reasonable probability of occurring. Also, the applicant has committed to funding or co-funding back-up measures in case of failure, and the permit conditions require this back-up action. Because there is not compelling evidence that the suite of mitigation measures are infeasible, staff has recommended approval with the permit conditions shown in Exhibit 10 to help address these concerns. Staff recognizes action by other parties, such as Cal-Am and/or the Cities of Seaside and Sand City, may be needed to fully address potential cumulative effects.

It is notable that the mitigation measure staff believes would be the most effective hydrologically is not presently allowed due to constraints imposed by SWRCB Order WR 95-10. This measure is for Cal-Am to serve the MBSR project from Cal-Am wells located farther inland from the coast in exchange for the applicant to not pump his wells close to shore. If the MBSR project goes forward, staff recommends discussing this issue with the SWRCB to determine whether such a "well exchange" could be facilitated for the protection of the basin.

The MPWMD Board will hold an afternoon workshop on Monday, September 18, 2000 on Seaside Basin issues. The workshop is educational in nature and no action is anticipated. It is notable that the October 1999 staff recommendation for the MBSR project encouraged the Board to formally make a determination about overdraft in the Seaside Basin, and evaluate whether or not there is a need to reduce the existing "sustainable yield" amount of 4,375 AFY for the basin or other management action. A formal determination that the basin is in overdraft is beyond the scope of this agenda item, and would need to be based on extensive technical information and public hearings in the future.

BACKGROUND: As summarized in Exhibit 2, the MBSR project approved by the City of Sand City on November 17 and December 1, 1998 is comprised of 495 units -- 362 visitor-serving units (hotel, vacation ownership and rental condominiums) and 133 residential (condominium) units. This would correspond to 325 water connections and an estimated water production of about 109 AFY. The current Assessor's Parcel Number (APN) is 011-501-014, which is proposed to be divided into multiple APNs.

Appeals of the project approved by Sand City were heard before the California Coastal Commission (CCC) at its May 13, 1999 meeting. Prior to the CCC hearing, the applicant proposed a modified (reduced size) version of the project totaling 378 rather than 495 units. The Commission did not take action on the modified project proposal. Instead, the CCC voted on May 13, 1999 to continue its consideration of the project approved by Sand City until a variety of tasks had been completed, including water distribution system permits from MPWMD and State Health. Thus, the applicant and MPWMD staff used the 495-unit project size for calculations associated with this application. If the project size is changed by action of the CCC, the District permit will be amended to reflect those changes.

The Draft EIR for the MBSR project was prepared in April 1998. The October 1998 Final EIR for the project was certified by Sand City on November 17, 1998. The MPWMD submitted a May 22, 1998 comment letter on the Draft EIR with six substantive comments. The comments suggested text corrections; posed questions about historical well production, potential project water demand, and travel times for seawater intrusion; expressed concerns about basin overdraft; and noted that a water distribution system permit would be required. The Final EIR responded to the MPWMD comments by either amending the text or explaining why the report authors believe the Draft EIR text is appropriate.

In response to an MPWMD staff request for more detailed project and environmental information, the applicant on August 20, 1999 submitted well capacity (pumping) test results, water quality analyses and a report, Ground Water Operations and Monitoring Plan - Monterey Bay Shores Resort ("MBSR Groundwater Plan"). Additional refinement and clarification about information in the MBSR Groundwater Plan were requested by staff in a letter dated August 26, 1999. A response was provided in an information packet dated September 4, 1999. Copies of the Plan and related information were provided to the Board and are available for review at the District office.

DISCUSSION: This application raises certain environmental and policy issues which are addressed in the following paragraphs. They include:

direct and cumulative environmental impacts on the Seaside Basin,
adequacy of mitigation measures,
Seaside Basin overdraft concerns, and
indirect effect on Cal-Am customers.

Potential Adverse Impacts: The MBSR Groundwater Plan indicates that simulated water levels in the project area would be chronically below sea level under MBSR project operations and current basin management conditions. An Addendum to the Plan states that actual pumping tests indicate that water levels would still be below sea level, but not as low as the simulated values. District staff consider any chronic depression of water levels below sea level in the coastal area to be a potential adverse impact, especially in light of recent water level trends in the Seaside Basin (see further discussion below).

The MBSR Groundwater Plan states, "The simulated water level data suggest that the project pumping will locally reverse the gradient, subjecting the area to potential seawater intrusion." However, the report notes, "While the project locally depresses water levels below sea level, on-going basin-management goals keep average basin-wide coastal water levels above sea level." The report asserts that historical ground water extractions for the sand-washing operation likely had a similar impact. District staff concur that historical extractions at the project site likely depressed groundwater levels locally below sea level. However, existing basin conditions, in terms of sustained demand, are different than those during the period (pre-1986) when sand mining and processing were active on the property.

It is notable that the proposed MBSR system service area was never annexed into the Cal-Am service area. As early as 1981, the District Board recommended such annexation as a means to discourage groundwater development near the coast, due to the potential for seawater intrusion.

Mitigation Measures: The MBSR Groundwater Plan (page 11) and Addendum (M. Feeney, 9/3/99, pages 2 and 3), and conversations with the applicant conclude that the ability of the applicant to mitigate drawdown impacts is limited against the backdrop of current basin management; and any sustained pumpage at the project site will result in water levels below sea level at the coast. Approaches to be taken by the applicant "that can partially mitigate these impacts" that should be included as permit conditions include:

Reduce total and seasonal extractions from the Paso Robles Aquifer. Non-potable irrigation water could be taken from the shallow dune sand aquifer underlying the site, which could reduce Paso Robles Aquifer use by about 4 AFY (4% of annual total); this is considered as a "slight" reduction. A larger one-million gallon storage tank could be used to reduce peak demand in summer and dampen the seasonality of extractions from the Paso Robles Formation. In an October 7, 1999 telephone conversation, the applicant indicated that this action could reduce the groundwater drawdown by about one-half foot.

Locate the production well as far away from the coast as possible. This is already in the project design to the degree feasible on the property.

Reduce project water use as much as possible via ultra-low flow fixtures and other water saving devices. Low-flow fixtures and drought-tolerant landscaping are already required by MPWMD for new construction, and form the basis of existing water calculations.

Construct and maintain monitor wells on site; report results quarterly as an "early warning" system about possible changes in water quality. While helpful, monitoring alone is not considered mitigation without follow-up action. Some possible follow-up actions are described below.

The MBSR Groundwater Plan and Addendum state, "Mitigation of the drawdown impacts at the site can most effectively be achieved by changes in basin management," especially those that increase water levels at the coast. Approaches that might be taken by entities other than the applicant, with a commitment of pro-rata financial support by the applicant, include:

Move other wells farther inland, especially large Cal-Am production wells. This would entail additional feasibility studies, CEQA (and possible NEPA) review, obtaining well sites, right-of-way access, cooperative agreements among pumpers, and facility design and construction. This concept has conceptual merit and the applicant is to be commended for offering financial support. However, the reasonably foreseeable feasibility of this mitigation measure is presently not demonstrated due to the uncertainties associated with successful completion of each of the above steps. For example, District staff have found that obtaining a site for a single test well in inland areas can be very difficult, but not impossible. This uncertainty does not mean this measure is unreasonable or infeasible; it means that successful implementation cannot be assured at this time.

Use artificial recharge projects to increase basin water levels. This would depend on full-scale implementation of the District's Seaside Basin injection/recovery project, which is presently in the pilot stage. Again, this concept has conceptual merit and the applicant is to be commended for offering financial support. Because Carmel River water is the injection source, the SWRCB edict about one-for-one replacement would affect how the injected water could be used (e.g., SWRCB officials have stated that injected water should not be used to facilitate new development prior to full compliance with Order 95-10). Regardless of how the yield is used, injected water would help improve the groundwater situation, but it is presently unknown to what degree. Until a specific full-scale project is defined, reasonably demonstrated to be viable, and detailed modeling studies are performed, definitive information on how an injection/recovery project would improve groundwater levels to mitigate project effects (and cumulative effects) cannot be known. However, if such a project is implemented, it is reasonable to conclude that some improvement to the existing situation would result. It is notable that several "Plan B" long-term water supply concepts include injection/recovery as an integral component.

Fund or co-fund desalination plant. The applicant reports note that "complete mitigation of pumping impacts could be achieved through construction of a dedicated [onsite] desalination facility or participation in a regional facility." These measures also are identified as contingency action if the proposed water system fails. The applicant has confirmed willingness to co-fund a pro-rata share of a regional or Sand City desalination facility, as a contingency measure, if the plant receives final discretionary approval within five years of MPWMD approval of the MBSR water system permit. In an October 7, 1999 telephone conversation, the applicant would not agree to construct a dedicated desalination plant unless there was a major failure of the water distribution system and a regional plant was not in existence. The applicant expressed concern about the feasibility of amending the existing coastal development permit to construct a desalination project on-site. District staff recommend that the MPWMD permit conditions include construction of a site-specific desalination plant if other means to address adverse impacts are not feasible.

The District understands that Sand City is considering pursuit of a city-owned desalination plant and associated infrastructure, sized only for anticipated projects within Sand City, including water for the MBSR project. It is premature to conclude that a Sand City desalination plant is foreseeable in the near future, but this is not an unreasonable concept. There is extensive community and Board interest in a non-dam, long-term water project ("Plan B") that would likely include a large regional desalination plant. The Plan B goal does not presently include water for new uses, but a Plan B desalination plant could potentially be upsized to meet future needs.

The concept of reduced pumping by Cal-Am and other appropriative users in the Seaside Basin is addressed below. Such action is more germane to ensuring that regional sustainable yield limits are maintained rather than mitigating site-specific project impacts. As noted earlier, the best measure from a hydrologic perspective would be for Cal-Am to serve the MBSR project from inland wells in exchange for the applicant to not pump his wells on the coast. Amendment to SWRCB Order 95-10 would be needed to facilitate this concept.

In summary, the project could result in potential significant adverse impacts associated with chronic water levels below sea level in the Seaside Basin coastal area. Mitigation measures to reduce direct impacts to a less than significant level have been proposed. If these measures are not successful, other measures are available that have merit, if they can be successfully implemented. Successful implementation cannot be guaranteed at this time, but is reasonably probable.

Status of Seaside Basin: The MPWMD sets a goal to manage the amount of total water production from all pumpers using the coastal subareas of the Seaside Basin, based on a series of hydrogeologic assessments, most recently the September 1997 Hydrogeologic Assessment, Seaside Coastal Groundwater Subareas, Phase III Update by Fugro West, Inc. Based on the Board's acceptance of that report in December 1997, the District set the long-term sustainable yield estimate at 4,375 AFY for combined Cal-Am and non-Cal-Am production in the coastal subareas. Staff was directed to work with Cal-Am to develop an amended operations scheme to reduce impacts at specific wells, in conjunction with regular quarterly water supply strategy meetings. For example, the District staff may recommend which Cal-Am wells should be pumped in a specific order to help reduce impacts on the basin.

The District has not formally declared the coastal Seaside Basin to be in long-term overdraft. If exceeding the 4,375 AFY sustainable yield estimate can be considered a form of "overdraft", then the basin may have been in short-term overdraft in Reporting Years (RY) 1995-96 and 1996-97. Annual production reports indicate that the 4,375 AFY yield was exceeded in the July 1 through June 30 reporting period for both years. As shown in Exhibit 11, the 4,375 AFY goal was exceeded by roughly 700-1,100 AF in RY 1995-96 and 1996-97; production in RY 1997-98 and 1998-99 was roughly 150 AF under the limit. (Production in RY 1999-2000 has yet to be tabulated.) In contrast, production in RY 1992-93 through 1994-95 was roughly 1,000 to 1,800 AFY below the 4,375 AFY goal, which is significantly lower than post-1995 values. This difference in production is primarily due to the July 1995 SWRCB Order requiring Cal-Am to cut back on Carmel River Basin diversions and to maximize production in the Seaside Basin. Even without the MBSR system, there is potential for the sustainable yield goal to be exceeded in the future as long as the SWRCB Order is in effect, especially in a year like 1997, characterized by a dry spring, and a hot summer and fall.

The District regularly tracks water levels and selected water chemistry parameters in a network of monitor wells that serve as an "early warning" system for seawater intrusion. As shown in Exhibit 12 water levels in the Seaside Basin coastal subareas have not returned to pre-1995 levels, despite the relatively wet years since 1995, including El Niño in RY 1997-98, indicating that the basin is not fully recovering during wet periods. One significant factor responsible for this disturbing downward trend is the SWRCB Order requiring Cal-Am to maximize production in the Seaside Basin every year. This is in contrast to pre-1995 conditions, where pumping from the Seaside Basin was reduced in wet years to let the basin "rest" (that is, naturally recharge). Further evaluation of the water level data by the District is needed to assess whether specific action should be taken, which is beyond the scope of this item.

Effect on Cal-Am Customers: A difficult situation potentially elicited by this application is the possibility that the broader community served by Cal-Am (over 100,000 residents) would potentially be required to conserve greater amounts of water to facilitate new construction by a non-Cal-Am water system that shares the common groundwater resource. This concern must be balanced by the applicant's overlying water rights in the Seaside Basin, which are generally recognized to be superior to appropriative rights, and the fact that the applicant is not responsible for restrictions on Cal-Am production in the Carmel River Basin imposed by the SWRCB.

The feasibility of Cal-Am's compliance with Order WR 95-10 could be affected if reductions in Cal-Am's ability to pump from the Seaside Basin are required due to the applicant's asserted superior water rights, combined with possible measures to address concerns about Seaside Basin overdraft. These factors also could combine to increase Cal-Am diversions from the Carmel River, thereby making Cal-Am's compliance with Order WR 95-10 more difficult, and resulting in potential fines to the community or further mandatory conservation to avoid fines. For example, the 15,285 AFY annual target now used in Stage 3 of the District's Conservation Plan could be reduced to a smaller number if Cal-Am must pump less than 4,000 AFY from the Seaside Basin.

On a technical note, if pumping reductions by Cal-Am or other Seaside Basin producers were to be required to facilitate MBSR production, this would not necessarily equate to a one-for-one exchange due to the hydrogeology of the area and location of existing wells. For example, if the MBSR system produced 100 AFY, Cal-Am (and/or others) would need to reduce production by at least that amount, because MBSR wells within 1,400 feet of the coastline are expected to have a greater impact on coastal water levels than an equivalent amount of water produced from wells farther inland. The exact ratio is difficult to determine and would require further evaluation.

Broader Policy Issues

A broader policy issue beyond the scope of this application is whether or not MPWMD should undertake more detailed administration of the Seaside Basin, which is more hydrologically complex than the Carmel Valley Alluvial Aquifer. Ideally, long-term yield estimates would be set for each aquifer zone of the Seaside Basin, resulting in more effective management than the 4,375 AFY estimate currently used for the coastal subareas as a whole. However, staff believes that the number of wells and associated production records are presently insufficient to establish aquifer-specific production limits. Setting these limits would require the integration of extensive technical information and formal means to set production limits for each participant. In addition, implementation of such limits would require considerable investment in new well facilities designed to target production to specific aquifer zones.

Possible action by the District or others to address reduced Seaside Basin water levels could include: (a) MPWMD managing pumping by parties in accordance with water rights; (b) City of Seaside enforcement of conditions of the Paralta well use permit; or (c) judicial adjudication of the basin. A discussion is provided in the October 1999 materials provided to the Board and available to the public for review at the District office. The District's authority in the Seaside Basin, and presumably some of these concepts, are to be discussed at the September 18, 2000 afternoon workshop.

EXHIBITS: The following exhibits are associated with this staff note:

Exhibit 1 - November 1999 application package (without referenced materials)

Exhibit 2 - Executive summary/project description

Exhibit 3 - Location of wells to serve MBSR Water Distribution System

Exhibit 4 - Letter from Cal-Am describing operations pending agreement

Exhibit 5 - Letters confirming compliance with Title 22 water quality standards

Exhibit 6 - Letters confirming Cal-Am acknowledgment of applicant water rights and plans to coordinate production to facilitate applicant's water use

Exhibit 7 - List of previous documents available for public review

Exhibit 8 - Executive Summary of EIR for MBSR Project

Exhibit 9 - Draft MPWMD Findings for MBSR Water Distribution System

Exhibit 10 - Draft Conditions of Approval for MBSR Water Distribution System

Exhibit 11 - Table of production in Seaside Coastal Groundwater Basin, RY 1993-1999

Exhibit 12 - Set of figures showing declining water levels in Seaside Basin coastal area

2^nd draft reviewed by DF/JO, 9/13/00

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