MEETING DATE: OCTOBER 26, 2000

SUMMARY: The Board will continue its consideration of an application by SNG Development Company (SNG) to create the Monterey Bay Shores Water Distribution System to provide drinking water for the 39-acre Monterey Bay Shores Resort (MBSR). The public hearing was closed on September 18, 2000. However, the record remains open to receive additional evidence and public comment regarding: (a) California-American Water Company's (Cal-Am) position on the application; (b) status of the project application before the California Department of Health Services (State Health); and (c) District Findings and Conditions related to mitigation measures for potential project impacts to the Seaside Groundwater Basin.

As proposed, the MBSR project is a 495-unit, beach-front, mixed use (visitor serving/residential) project that was approved by the City of Sand City in 1998. The project water needs total an estimated 109.4 acre-feet per year (AFY). The project would be primarily served from a well that draws water from the Paso Robles Formation, an aquifer zone within the Seaside Basin coastal subareas. A supplemental backup well and a monitoring well are also planned. Cal-Am is proposing to operate and manage the system on a contractual basis. The MBSR system would be independent of Cal-Am facilities as the SNG property is located outside of the Cal-Am service area. There would be no intertie to the main Cal-Am system.

The SNG application and many supporting materials were included in the September 18, 2000 Board information package. Extensive documentation for this application was also provided to the Board in September 2000, and is available for public review at the District office. The record for this item also includes materials presented at the September 18, 2000 public workshop on the status of the Seaside Basin. Notice of this Public Hearing has been advertised in The Monterey County Herald.

RECOMMENDATIONS: This application brings forth a complex interplay of technical, legal and policy issues including property rights, concern about existing and future groundwater levels in the Seaside coastal subareas, and potential impact to the broader community of over 100,000 people. Complicating matters is new information obtained since the September 18, 2000 hearing, which differs, in part, from previous understandings.

A forthright staff recommendation is difficult due to the variety of scenarios that could occur in the future with varying levels of impact, ranging from benign to adverse. Presently, it cannot be reliably predicted which actions and resulting effects will actually occur. Also, future decisions and actions by entities that cannot be controlled by the applicant or MPWMD affect the future situation. For these reasons, staff has provided three decision options for the Board to consider (with pros and cons), which are enumerated after the summary table below.

In making a decision on any water distribution system permit, the Board must address four basic questions:

• Does the water source comply with Title 22 water quality standards?
• Will the system create an overdraft or increase an existing overdraft?
• Will the system adversely affect the ability of an existing system to provide water to users?
• Will the system result in adverse environmental impacts that cannot be mitigated by conditions attached to the permit?

Staff recommends that the Board consider the pros and cons of the following options, and direct staff on a specified course of action.

Option 1: Approve the application and adopt draft Findings and Conditions shown as Exhibit 1 and 2, respectively. 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 to serve 495 units. The Findings and Conditions have been refined since the September 18, 2000 meeting based on Board feedback and applicant suggestions.

PRO- The applicant's water source meets Title 22 water quality standards. Currently, there is no declared overdraft, and the intended source of water (Paso Robles Formation) is relatively stable. Cal-Am believes that pumping from the MBSR system will not impair Cal-Am's right to extract water from the Seaside Basin, but Cal-Am's primary concern is that the MBSR system will not adversely effect Cal-Am's ability to serve its customers. The applicant has committed to mitigation measures to address direct and regional cumulative impacts, including operations actions, pro rata funding of regional solutions, proportional reduction of system water extractions if total production in the basin must be limited, and an on-site desalination project to replace pumping, if needed. Applicant should not bear unfair burden of existing regional problem. Regional water supply solutions are being pursued by MPWMD, Cal-Am, CPUC and others to fully comply with SWRCB Order 95-10, thereby ending the need for Cal-Am to maximize pumping in the Seaside Basin, which greatly contributes to system stress. Applicant has overlying water rights and an existing well, and plans to form a mutual water company structured to preserve his asserted superior water rights.

CON- Existing evidence and 1996-2000 water use trends may support a finding of overdraft as defined in MPWMD Rule 11. Declaration of overdraft is possible in the near future, but ramifications are unclear at this time. Overdraft situation could change assumptions about Cal-Am coordination with applicant. If Cal-Am must reduce use in Seaside Basin to facilitate applicant's project, this could affect ability to serve customers due to SWRCB Order 95-10 limits on Cal-Am Carmel River diversions. At this time, no entity can guarantee that the regional mitigation measures described in the Findings and Conditions (Exhibits 1 and 2) will occur, predict when they will occur, or how effective they will be. Approval and operation of system could worsen the existing situation until long-term solutions to Order 95-10 and Seaside Basin stress are identified and implemented.

Option 2: Postpone action on the application until a determination at a public hearing is made as to whether or not the Seaside Basin (or portions thereof) is in overdraft. Pursuant to the State Permit Streamlining Act, responsible agency action must be taken within 180 days after determination that an application is complete. Staff determined the MBSR application was complete in a letter dated August 1, 2000; thus the Board decision deadline is no later than April 1, 2001.

PRO- More time to digest and assess recent information would facilitate more informed decision making by MPWMD. It would be prudent to postpone action so that the potential effect of likely future action by Cal-Am to refurbish wells in the Paso Robles Formation could be assessed in light of other regional activities that affect the Seaside Basin. Delay until the March 2001 Board meeting would not adversely delay the coastal development permit for the project because the applicant must demonstrate technical, managerial and financial viability to State Health, including refurbishing the existing well. Compliance with the Endangered Species Act must also be demonstrated before the Coastal Commission will hear the application. These processes will take several months and are not dependent on the MPWMD permit.

CON- Roughly five months may not be enough time for staff to clearly assess (including computer modeling) the relationships and dynamics of the two Seaside Basin aquifer units (Santa Margarita Formation and Paso Robles Formation) and how varying pumping regimes would affect them, given existing responsibilities. Also, the MPWMD budget and staff work plans do not envision this major task in fiscal year 2000-2001. The benefits of delaying a decision may be marginal. The applicant has already expressed concerns about delays.

Option 3: Deny the application and direct staff to adopt Findings of Denial. These findings would be similar to those presented in October 1999 (Exhibit 3), but would be changed to reflect current knowledge.

PRO- District Rule 22 requires denial if the system will create or increase an existing overdraft, or adversely affect the ability of an existing system to provide water to users. Rule 22 does not require a formal declaration of overdraft through any specified process; a determination of overdraft can be based on the facts at hand. Based on the definition of "overdraft" in District Rule 11, the existing record includes enough evidence that an overdraft exists in the Santa Margarita Formation of the Seaside Basin coastal subareas, and that the cumulative effects of the proposed project with other reasonably foreseeable activities by Cal-Am and others could potentially result in adverse stress to the Paso Robles Formation. If cut-backs in Seaside by Cal-Am and others are required, the ability to meet SWRCB Order 95-10 would be compromised, to the detriment of over 100,000 customers. The uncertain implementation and success of mitigation measures can also be cited. A "reasonable probability of success" is not enough upon which to base a permanent decision. Also, the denial of this water distribution system permit does not deny applicant use of water or exercise of his water rights on his property; the applicant has other options that he could pursue on the property for economic benefit.

CON- Currently, there is no declared overdraft, and the intended source of MBSR water (Paso Robles Formation) is relatively stable. Applicant has committed to mitigation measures to address onsite and regional impacts, including pro rata funding of regional solutions, proportional reduction of water use if total production in the basin must be limited, and construction of an on-site desalination project to replace pumping, if needed. Regional water supply solutions are being pursued by MPWMD, Cal-Am and CPUC that would resolve SWRCB Order 95-10, resulting in reduced Cal-Am pumping in Seaside, which would address the overdraft situation as well. The applicant has overlying water rights and asserts that a mutual water company can be structured to preserve those claimed priority rights. Litigation by the applicant against the District claiming a "taking" of property could ensue if the application is denied.

The following sections address background information on key issues, new information and exhibits, and synthesis of information that supports the staff recommendations.

BACKGROUND: 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.

A June 21, 2000 letter from Cal-Am's attorney to the District acknowledged a change in Cal-Am's position from support in 1998 to opposition in 1999, and stated that:

• the applicant's overlying rights should not interfere or impair with Cal-Am's appropriative rights in the Seaside Basin as long as an overdraft had not been formally declared;

 
• Cal-Am's main concern is to insure that operation of the MBSR system will not interfere with or adversely affect the ability of Cal-Am to serve its customers; and

 
• Cal-Am will, to the best of its ability, coordinate its production in the Seaside Basin with the prospective MBSR system use while operating within the safe yield of the basin.

In addition, the MPWMD Board held an afternoon workshop on Monday, September 18, 2000 on Seaside Basin issues. Basic hydrology, water use and groundwater level trends, and legal issues were discussed. The Board expressed concern about the fact that water levels in the Santa Margarita Formation, the primary source of Cal-Am production in the Seaside Basin, were below sea level and were falling. It is notable that the shallower Paso Robles Formation, from which the applicant plans to pump, has exhibited a slight upward trend in the vicinity of the proposed MBSR site in the last several years, and is not below sea level. However, the Paso Robles Formation is exhibiting a downward trend in inland areas closer to Cal-Am's main production wells.

It is also notable that as early as November 1998, the Board had discussed concerns about recent groundwater extractions in the Seaside Basin, and whether to re-evaluate if the existing "sustainable yield" amount of 4,375 AFY for the basin should be reduced, or other management action. Staff's understanding is that District legal counsel is presently researching the issue of declaring an overdraft at the direction of the Chairperson. 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.

NEW INFORMATION: The following paragraphs summarize new information on the State Health process, Cal-Am position, and data relevant to the mitigation measures since the September 18, 2000 public hearing.

State Health Process

State Health has not received a new permit application for the MBSR project since its March 2000 letter. Exhibit 4 is a letter from the applicant explaining why additional information has not been submitted to State Health to date. The applicant asserts that State Health will not accept an application unless it is complete, including engineering design drawings for the water distribution system, which depend on the project description approved by the California Coastal Commission. In a Catch-22 situation, the Coastal Commission requires a State Health permit in order to reconsider the applicant's project. The applicant's letter indicates that Commission staff recognize this Catch-22, and will not require final State Health approval in order to process the coastal development permit.

Discussion on October 12, 2000 with Janice Oakley, the State Health representative responsible for the MBSR project, indicates that State Health is most interested in the long-term reliable yield (water quantity) and water quality of the refurbished well, and would accept preliminary engineering design drawings in an application. In order to issue a permit, State Health requires documentation to show that the applicant has the financial and technical resources, organizational structure and personnel to ensure that the water system reliably complies with all applicable drinking water standards and other regulations on an ongoing basis.

Cal-Am Position

District staff met with Cal-Am management on October 11, 2000 to discuss the June 21, 2000 letter, and requested a formal clarification letter. The key points Cal-Am made on October 11, 2000 (confirmed by Terry Ryan, General Manager, on October 17, 2000) include:

• Cal-Am plans to continue pumping up to 4,000 AFY from the Seaside Basin (assuming existing facilities) as long as there is no formal declaration of overdraft, whether or not the MBSR project exists.

 
• Cal-Am believes the use of up to 4,000 AFY from the Seaside Basin is critical in order to comply with State Water Resources Control Board (SWRCB) Order 95-10, which currently limits production from the Carmel River Basin to 11,285 AFY.

 
• If a formal declaration of overdraft is made by the District, Cal-Am is presently unclear on their position regarding continued production of up to 4,000 AFY. Cal-Am assumes that the water rights (overlying vs. appropriative), historical water use, existing water waste, potential for conservation, operations (and potential changes to operations to reduce impacts) for each extractor (and potential extractor) within the District's authority must be carefully evaluated prior to any production limitation imposed by the District.

• Cal-Am assumes that the District, in cooperation with basin extractors and other agencies, would continue to evaluate and pursue physical measures, such as injection/recovery, desalination, regional reclamation or reuse projects, conservation or long-term water supply augmentation projects that would correct the overdraft problem and restore the stability of groundwater levels in the Seaside Basin coastal areas. Cal-Am believes these efforts would be more fruitful than focusing on permanent adjudication, while recognizing that short-term sacrifices may be needed.

• Cal-Am does not believe that the MBSR project will "impair or in any way interfere" with its ability to extract water from the Seaside coastal basin.

 
• Cal-Am's "main concern" is to insure that the prospective operation of the MBSR system will not interfere with or adversely affect its ability to serve its customers. No position is taken on this subject, but Cal-Am notes that past studies "have not indicated there is interference between producers" [presumably in the Seaside Basin].

 
• Cal-Am removed the previous reference to "coordinating its production with the prospective MBSR project" within the safe yield of the Seaside Basin.

 
• Cal-Am believes "future impacts of production, and contemplated mitigation for those impacts, are the responsibility of the regulators." This statement is erroneous because the entity that causes an adverse impact is responsible for addressing it. Staff believes the statement's intent is to acknowledge that the District or other regulators will determine whether adverse effects are occurring, decide which measures should be taken, and direct water extractors to take specific corrective action.

Information provided at the September 18, 2000 workshop showed that Cal-Am and non-Cal-Am water use in the 1993-1999 reporting period remained below the reliable yield limits set by the District in five out of seven years. As described more completely in Agenda Item IV-C, Reporting Year (RY) 1999-2000 Production Summary Report, water use by Cal-Am barely exceeded the 4,000 AFY limit by 13 acre-feet and non-Cal-Am use increased to 1,111 AF, a 68% increase over last year's production of 662 AF. Total production from the coastal subareas was 5,124 AF, which is 749 AF (17%) over the long-term reliable yield estimate of 4,375 AFY. A summary of Seaside Basin production, including the most recent reporting year, is provided as Exhibit 6. 

Notably, Cal-Am annual production is formally assessed using a water year (October through September), not the reporting year (July through June). Cal-Am reported that water production use for Water Year 2000 (October 1, 1999 through September 30, 2000) was 3,753 AF, which is below the limit of 4,000 AF. A reporting year is used for the annual water distribution system summary report because current District regulations require non-Cal-Am users to report once each year for the July through June period. Cal-Am water production for a reporting year may be higher or lower than production in a water year, depending on the distribution of pumping within a particular year.

The impact of increased Seaside Basin production on groundwater trends depends on where the increased production occurs (which aquifer zone as well as location in relation to other major production wells), and is beyond the scope of this item.

Water Rights and Other Legal Issues

Exhibit 7 is a letter from the applicant's attorney reiterating his assertion that the MBSR water distribution system can be structured to retain the overlying water rights status, asserted to be superior to that of Cal-Am and other appropriators (e.g., Seaside Municipal Water Company, Black Horse/Bayonet golf course complex). The letter also highlights recent California and federal Supreme Court cases that recognized the priority of overlying rights, and that mitigation measures imposed on an applicant must be proportional to the impact caused (that is, an applicant cannot be compelled to bear an unfair burden in resolving regional environmental problems). The letter asserts that the proposed system would not adversely harm Cal-Am, and that permit denial by the District would be a "taking" for which the applicant must be compensated. District counsel has previously stated that denial of a water distribution system permit does not prevent the applicant from beneficial economic use of his property, as a variety of other options could be pursued.

Mitigation Measures

Exhibit 8 is a letter from the applicant with suggestions to refine Condition No. 13 and draft mitigation measures of September 18, 2000 to provide better assurance that effective measures can and will be carried out. Staff has discussed mitigation concepts with the applicant and has incorporated these suggestions, with some text changes, into revised Findings and Conditions (Exhibits 1 and 2). A substantive new mitigation measure is that the applicant will proportionally reduce his extractions from the Seaside Basin, along with other extractors, if other mitigation measures do not adequately address regional impacts. For example, if a 20% reduction in total basin production is needed to meet reliable yield goals set by the District, the MBSR system would reduce its use by 20% from the system production limit approved in the water distribution system permit. This reduction would remain in place until the District determined that impacts have been reduced to a less than significant level.

The applicant verbally described on October 12, 2000 that a reduction in water use could be implemented via Conditions, Covenants and Restrictions (CC&R) which are imposed on all condominium/time-share owners as well as educational efforts and physical changes for the resort component of the system. Examples include CC&R regulations prohibiting waste and promoting water conservation, very high water rates or penalties for condominium owners who exceed set limits, flow restrictors in extreme cases, signage in all rooms, turning off fountains or shutting down spas or pools, and perks for guests who do not have towels and sheets changed daily.

The revised draft Conditions (Exhibit 2, Condition No. 13) require the applicant to develop a Water Use Reduction Plan that identifies what actions would be taken to achieve different water reduction goals (10%, 20% and 30% cutbacks) in a declared water supply emergency (or similar designation) for the Seaside Basin, and how they would be implemented to achieve success. The District water distribution system permit would not vest until the Water Use Reduction Plan is approved by the District General Manager.

The applicant has also agreed to submit a preliminary design, cost estimate and environmental summary (potential impacts and mitigation measures) for an on-site desalination project sized to produce up to 109.4 AFY (or appropriate daily peaking amounts). This technical and environmental information must be prepared by a qualified professional and approved by the District General Manager before the District water distribution system permit is valid. Given the new mitigation measure to reduce system production (described above), staff did not believe it is reasonable for the applicant to show proof at this time of a permit for a desalination plant that may never be needed. Staff believes the required information to be submitted in the near-term will provide reasonable assurance that the plant can feasibly be constructed and operated on the property, if such action is needed in the future. The District acknowledges that information on desalination projects is available via the District's 1993 EIR on the Sand City desalination project and Marina Coast Water District's recent experience.

SYNTHESIS AND CONCLUSIONS:

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

• the water source does not comply with Title 22 drinking water standards;
• the system will create an overdraft or increase an existing overdraft; or
• the system will adversely affect the ability of existing systems to provide water to users.

Water Quality

District rules focus on the water source, which has been shown to comply with Title 22 water quality standards. State Health staff have acknowledged that the water source quality will not likely change with the refurbished well. The State Health permit depends on a more rigorous evaluation of all aspects of the water distribution system. A final permit from State Health is one of the recommended MPWMD conditions of approval before the proposed water distribution system becomes operational.

Seaside Basin Overdraft

District Rule 11 defines "overdraft" as "the condition of a groundwater basin where the amount of water withdrawn by pumping exceeds the amount of water replenishing the basin over a period of time, or where the amount of water withdrawn by pumping results in unacceptable degradation of water quality of the groundwater within the basin."

To date, the Seaside Basin has not been formally declared to be in overdraft, though there is existing evidence available to justify that one strata of the coastal basin, the Santa Margarita Formation (SMF, formerly known as the Santa Margarita Sandstone), has been in overdraft since 1995. As shown in Exhibit 9, water trends in the SMF have been declining and are below sea level. However, the same exhibit shows that water levels in the Paso Robles Formation (PRF) are not declining at a similar rate, and are relatively stable or increasing slightly since 1998 in the vicinity of the MBSR site. Notably, the PRF is declining in others areas of the basin, near Cal-Am production wells (Exhibit 10). 

About 75% of Cal-Am production currently is extracted from wells primarily producing water from the SMF, the deeper and more productive aquifer unit. Since 1998, the District has encouraged Cal-Am to refurbish existing wells or drill new wells completed in the PRF to take some of the "production pressure" off the deeper SMF aquifer. Cal-Am's operations manager notes that if the refurbished wells were activated, only an estimated 100 AFY could be reliably extracted because the PRF is much more dense and less productive than the SMF. This estimate has not been confirmed by District staff. However, staff believe that higher volumes could be produced, depending on how many wells are rehabilitated or drilled. It is notable that the applicant's proposed system would also extract from the Paso Robles Formation. The cumulative effect of the MBSR production and additional Cal-Am production on water levels in the PRF aquifer are presently unknown, and should be the subject of additional investigation, likely including more extensive computer modeling.

Impact to Other Systems

The applicant's overlying water rights have been acknowledged by Cal-Am, and without a declaration of overdraft, Cal-Am believes the Cal-Am and MBSR systems can coexist. The situation is less clear in the context of a declared overdraft or direction by the District for Cal-Am to reduce water production from the Seaside Basin to reduce adverse impacts. Cal-Am has expressed concern about insuring that the new MBSR system does not adversely impact the Cal-Am system, but does not take a position on whether or not it would. The City of Seaside and other water extractors have not commented on the impact of the proposed MBSR system to their systems. As noted earlier, in the context of an overdraft, District directives for Cal-Am to reduce pumping from the Seaside Basin could make Cal-Am vulnerable to exceeding SWRCB limits in the Carmel River Basin, as long as Order 95-10 remains in effect. Increased reliance on Carmel River water would increase the risk of the community paying fines if Carmel River system limits are exceeded, or further reducing water use to avoid exceeding the SWRCB limits.

Mitigation Measures

There are potential adverse direct and cumulative environmental effects associated with the project. Several mitigation measures recommended by the applicant and staff have promise for resolving identified impacts and have a reasonable probability of occurring, but they cannot be guaranteed to be implemented or successful at this time. One notable, new measure is the requirement this permit imposes on the applicant to proportionally reduce water extractions along with other users to meet specific reduction goals set by the District to attain production below the long-term reliable yield (Condition No. 13 of Exhibit 2). Successful implementation of regional measures is beyond the control of the applicant or MPWMD; cooperation and action by entities such as Cal-Am, the Cities of Seaside and Sand City, SWRCB, CPUC, the U.S. Army and others may be needed to fully address potential cumulative effects. The Board will need to determine what level of probability of success is acceptable.

Recent Supreme Court decisions state that an applicant cannot be burdened for more than his/her fair share to resolve regional cumulative impacts. Thus, mitigation measures and conditions are geared to the proportional share of the MBSR water distribution system to total production in the Seaside coastal areas.

Please refer to the October 1999 and September 2000 Board information packages, and associated supplemental documentation for a complete discussion of previous mitigation measures.

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refined as directed by DF on 10/19/00