EXHIBIT 7-A (1)

ORDINANCE NO. 109

AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE

MONTEREY PENINSULA WATER MANAGEMENT DISTRICT

REVISING RULE 23.5 AND ADOPTING ADDITIONAL PROVISIONS TO

FACILITATE THE FINANCING AND EXPANSION OF THE CAWD/PBCSD

RECYCLED WATER PROJECT

FINDINGS

1. The Monterey Peninsula Water Management District (“MPWMD”) is charged under the Monterey Peninsula Water Management District Law with the integrated management of the ground and surface water resources in the Monterey Peninsula area.

2. MPWMD has general and specific power to cause and implement water conservation activities as set forth in Sections 325 and 328 of the Monterey Peninsula Water Management District Law.

3. In Ordinance No. 39, MPWMD found and determined that it was in the best interest of MPWMD and the inhabitants thereof to provide for the design and construction of a tertiary treatment facility at the wastewater treatment plant owned by the Carmel Sanitary District (“CSD,” now the Carmel Area Wastewater District (“CAWD”)) to produce recycled water which could be used in lieu of potable water for the irrigation of vegetated areas within the Del Monte Forest, a distribution system capable of distributing the recycled water from the facility to a point of distribution in the Del Monte Forest for further distribution to such vegetated areas, and recycled water irrigation systems on each of such vegetated areas (the “Original Project”).

4. Ordinance No. 39 made various additional findings and set forth a method of financing the Original Project by selection of a Fiscal Sponsor who would guarantee the costs of the Original Project in exchange for the Water Entitlement as defined in Ordinance No. 39.

5. Pursuant to the provisions of Ordinance No. 39, MPWMD on October 3, 1989, adopted Resolution No. 89-21, A Resolution of the Board of Directors of the Monterey Peninsula Water Management District Approving the CSD/PBCSD Wastewater Reclamation Project, a Financing Plan Therefor and MPWMD’s Participation in such Project and Financing Plan; Selection of a Fiscal Sponsor pursuant to Ordinance No. 39; and Execution and Delivery of the Wastewater Reclamation Project Fiscal Sponsorship Agreement with Pebble Beach Company (the “Resolution”). The Resolution made various findings, approved the Original Project, approved a financing plan for the Original Project, selected Pebble Beach Company (“PBC”), J. Lohr Properties, Inc. (“Lohr”), and the Hester Hyde Griffin Trust (“Griffin”) as the Fiscal Sponsors for the Original Project, dedicated a Water Entitlement of 365 acre feet annually (“af”) to PBC, 10 af to Lohr, and 5 af to Griffin, approved the Wastewater Reclamation Project Fiscal Sponsorship Agreement (dated as of October 3, 1989) between MPWMD and PBC (the “Fiscal Sponsorship Agreement”) and approved the issuance of Water Use Permits to PBC, Lohr, and Griffin to “evidence” the Water Entitlement.

6. The Fiscal Sponsorship Agreement and the actions taken pursuant thereto provide suitable guarantees of payment of all costs of designing, constructing, equipping, and operating the Original Project as required by Ordinance No. 39. PBC, as stated in the Fiscal Sponsorship Agreement, has assumed the obligations of Lohr and Griffin as co-Fiscal Sponsors by providing all of the necessary guarantees and thus PBC is the sole Fiscal Sponsor for the Original Project for purposes of Ordinance No. 39 and the Fiscal Sponsorship Agreement.

7. All actions of MPWMD in the adoption of the Resolution, the terms of the Resolution itself, and the binding and enforceable effect of the Fiscal Sponsorship Agreement and all of its terms, and the obligations of MPWMD thereunder, were all validated by a final Judgment of Validation entered on July 12, 1990 in a validation action brought by MPWMD (Monterey Superior Court Case No. M21594).

8. As contemplated by the Fiscal Sponsorship Agreement, to pay for the Capital Costs of the Original Project, MPWMD issued interest-bearing Certificates of Participation in 1992 in the principal amount of $33.9 million, the full payment of which (both principal and interest) is guaranteed by PBC.

9. The facilities comprising the Original Project have been completed and are owned and operated either by CAWD or by the Pebble Beach Community Services District (“PBCSD”) pursuant to an agreement between such agencies.

10. It was originally estimated that the production of recycled water by the Original Project would lessen consumption of potable water by at least 800 acre feet per dry year, thus liberating such potable water for other uses.

11. The performance of the Original Project has not met the expectations of the parties to the Fiscal Sponsorship Agreement or the expectations of the parties to the Related Agreements (as defined therein), either with regard to quantity or quality, due to a number of factors beyond the consideration or control of any of the parties participating in the Original Project. Prominent among these factors are the salt-sensitivity of the dominant grass species planted in the greens of many of the golf courses, inadequacy of the drainage facilities to conduct accumulated salts away from the greens, smaller than anticipated amounts of secondary effluent due to decreased flows of influent to the CAWD wastewater plant (resulting in part from consumers’ water conservation efforts), increased amount of salinity in the recycled water due to reduced influent flows caused by water conservation efforts, increased salinity added by water softening units (the demand for which increased as the source water became more saline), internal wastewater plant processes contributing additional salinity loading, the lack of sufficient data concerning the composition of the secondary effluent produced by the CAWD Wastewater Treatment Plant or concerning the water quality and water quantity requirements for golf course irrigation, and the absence of any seasonal storage of recycled water.

12. Cal-Am has been limited in its ability to deliver potable water by California State Water Resources Control Board (SWRCB) Order No. 95-10, dated July 6, 1995, based upon a finding by SWRCB that Cal-Am does not possess the legal right to divert from the Carmel River system the amount of water historically (and presently) being diverted by Cal-Am, and that such diversions are causing damage to the Carmel River environment. In particular, the SWRCB found in Order No. 95-10 that Cal-Am had legal rights to only 3,376 AF in the Carmel River system, whereas Cal-Am was diverting 14,106 AF, and that such diversions were having an adverse impact on the instream beneficial uses of the Carmel River, including the riparian corridor and riparian habitat, wildlife resources, and fishery resources (especially the Steelhead). The Carmel River provides important habitat and recreational opportunities for the area. As a consequence, the SWRCB in Order No. 95-10 limited production by Cal-Am to 11,285 AF (currently) from the Carmel River system, and ordered Cal-Am to implement actions to terminate its unlawful diversions from the Carmel River, and in the interim to maximize its production from the Seaside Groundwater Basin

13. In the Seaside Groundwater Basin (a separate water supply source from the Carmel River system from which Cal-Am extracts a portion of its water to supply the Monterey Peninsula region), recent information suggests that current extractions may exceed the estimated annual yield of the Seaside Groundwater Basin based on its estimated annual recharge. Over-pumping of the Seaside Groundwater Basin over time can cause groundwater levels to drop, resulting in seawater intrusion, thereby threatening the water supply.

14. Two animal species that exist in the Carmel River watershed and for which the Carmel River watershed provides habitat have been listed as “threatened” species under the Federal Endangered Species Act (“ESA”). In particular, the U.S. Fish and Wildlife Service listed the Red Legged Frog as “threatened” species, and the National Marine Fisheries Service listed Steelhead as “threatened” species under the ESA. The Carmel River system provides habitat for both the Red Legged Frog and Steelhead.

15. The effects described in Findings 12 through 14 are the result of the amount of water being drawn from the Carmel River system and the Seaside Basin by Cal-Am. Efforts to mitigate the effects described above have concentrated on reducing Cal-Am withdrawals from the Carmel River system and reducing consumption of Cal-Am water by consumers throughout its service area.

16. Although the Water Entitlement is not subject to these limitations because the SWRCB views it as water liberated by the use of Recycled Water, the actual potable water being put to use pursuant to the Water Entitlement is potable water produced by Cal-Am from the same sources described in Findings 12 and 13, and which has the same environmental consequences as the same quantity of water produced for other users. Accordingly, it is essential to closely track, monitor, and account for the use of potable water furnished as part of the Water Entitlement.

17. PBC is willing to assist, and MPWMD desires that PBC assist, with the financing of an expansion of the Original Project (the “Project Expansion”), in conjunction with PBC’s continuing role in the financing and implementation of the Original Project. The Project Expansion, when implemented, will eliminate the need for reliance on supplemental potable water for the irrigation of vegetated areas within the Del Monte Forest as defined in Exhibit B to this Ordinance (except in cases of an Interruption as defined in this ordinance), thereby conserving additional potable water. It has been estimated by the parties primarily involved in the planning of the Project Expansion (CAWD, PBCSD, PBC, and the Independent Reclaimed Water Users Group (“IRWUG”)) that the Original Project together with the Project Expansion will produce sufficient quantities of Recycled Water each year to meet all of the irrigation needs of the Recycled Water Irrigation Areas without the addition of any potable water thereto (except during an Interruption as defined herein).

18. The parties primarily involved in the planning of the Project Expansion (CAWD, PBCSD, PBC, and IRWUG) contemplate that the Forest Lake Reservoir, one component of the Project Expansion, when filled to its capacity of 420 acre feet, will provide storage sufficient for 60 days supply during the period when irrigation usage is the greatest. Thus, if the Forest Lake Reservoir is filled, this storage will enable the Project to continue to provide Recycled Water even during a shutdown of the CAWD wastewater treatment plant or a break in (or other event preventing the continuous delivery of Recycled Water through) the distribution facilities “upstream” of the Forest Lake Reservoir.

19. Therefore, the parties primarily involved in the planning of the Project Expansion (CAWD, PBCSD, PBC, and IRWUG) have concluded that, after the Project Expansion is Completed, the use of supplemental potable water for irrigation on the Recycled Water Irrigation Areas, as defined in this Ordinance, will likely be necessary, if at all, only if one of the following four circumstances should occur: either (1) the Forest Lake Reservoir is destroyed or otherwise rendered inoperable, or (2) the facilities conveying Recycled Water to Forest Lake Reservoir are destroyed or otherwise rendered inoperable at a time when storage in Forest Lake Reservoir has fallen below 50 acre feet, or (3) the facilities conveying Recycled Water from Forest Lake Reservoir to Recycled Water Irrigation Areas are destroyed or otherwise rendered inoperable, or (4) the CAWD wastewater treatment plant or the PBCSD transmission facilities are rendered unable to deliver Recycled Water to the Forest Lake Reservoir for a period of time that allows the Recycled Water then remaining in storage Forest Lake Reservoir to be exhausted.

20. The parties primarily involved in the planning of the Project Expansion (CAWD, PBCSD, PBC, and IRWUG) have conferred with and advised MPWMD that they have concluded that the most effective means of financing and implementing the Project Expansion without public funds will be to make a portion of PBC’s existing Water Entitlement available for separate sale and conveyance, and applying the proceeds therefrom to the costs of the Project Expansion and Original Project as more specifically described in Section Three of this ordinance.

21. This ordinance shall authorize PBC, on terms and conditions set forth in Section Three of this ordinance, to separately sell and convey portions of its Water Entitlement for use on lands within the Del Monte Forest (as defined in Exhibit “B”) not owned by PBC at the time that this ordinance is adopted, through which PBC will attempt to raise funds sufficient to finance all Capital Costs of the Project Expansion as set forth in Section Three hereof; shall revise and amend Rule 23.5 of the Rules and Regulations of the Monterey Peninsula Water Management District as set forth in Section Four hereof; and shall adopt other provisions to facilitate the financing of the Project Expansion, as more particularly described below. It is the intent of the Board that Ordinance No. 109, the Supplemental Financing Agreement, the Supplemental Construction and Operation Agreement, and the Agreements for Sale of Recycled Water, together comprise a single indivisible transaction, and therefore, they should all become effective together or none of them shall have any effect.

22. Ordinance No. 39, which is among the body of actions and agreements supporting the issuance of MPWMD’s Certificates of Participation as a tax-exempt financing and defining MPWMD’s obligations to the holders thereof, remains in full force and effect, with all of its terms, except to the extent its terms are amended by the terms of this ordinance. Pursuant to Part VI of Ordinance No. 39, PBC as Fiscal Sponsor has agreed that the amendments to Ordinance No. 39 contained in this ordinance do not impair the interest of the Fiscal Sponsor.

NOW THEREFORE be it ordained as follows:

Section One: Short Title

This ordinance shall be known as the Recycled Water Project Expansion Supplemental Financing Ordinance of the Monterey Peninsula Water Management District.

Section Two: Purpose

It is the primary purpose of this ordinance to facilitate the financing of the Project Expansion. The objective of the Project Expansion is to provide sufficient quantities of Recycled Water of a quality suitable for irrigation of even the most water quality-sensitive plants on the golf courses and other vegetated areas located within the Del Monte Forest (“Recycled Water Irrigation Areas”), and thereby to completely eliminate the use of potable water for such irrigation (except during an Interruption as defined herein). To assist MPWMD in monitoring the success of eliminating the use of potable water for irrigation of the Recycled Water Irrigation Areas, reports of the quantities of potable water introduced into the Project on a daily basis shall be submitted to MPWMD each week. The Water Entitlement and Water Use Permits represent a portion of the potable water freed up by the implementation of the Original Project. However, the Original Project has not to date produced sufficient quantities of Recycled Water of a quality suitable for all irrigation needs within the Recycled Water Irrigation Areas.

This ordinance recognizes the existing annual dedication of 380 acre feet of potable water as the Water Entitlement, which is evidenced by Water Use Permits authorizing use within specific portions of the Del Monte Forest and a specific area of four lots immediately adjacent thereto, which portions are collectively defined as the “Benefitted Properties” in the Fiscal Sponsorship Agreement as amended. The MPWMD Board authorized certain amendments to the definition of such “Benefitted Properties” prior to the date that this ordinance is adopted.

This ordinance further authorizes PBC to separately convey, for valuable consideration, portions of PBC’s existing Water Entitlement solely for dedication to residential property, within the Del Monte Forest that is not owned by PBC as of the date that this ordinance is adopted. Any portion of the Water Entitlement thus conveyed may be used only on the specific property to which it is first dedicated following the conveyance, and the quantity of water purchased, and no more, shall be put solely to Residential use through a Residential Connection (as those capitalized terms are defined in Rule 11), and at no time shall any portion of such water be classified in any User Category other than Residential (as defined in Rule 11). All of the proceeds from each of these separate conveyances shall be applied exclusively to the costs of the Project Expansion and the Original Project as more specifically described in Subsections E, I, and J of Section Three.

This ordinance does not alter the continuing guarantees of PBC’s fiscal responsibility for the Original Project. It establishes a specific method by which PBC will attempt to raise funds to finance all Capital Costs of the Project Expansion. Funds thus raised in excess of the amount needed for Capital Costs shall be applied to the the costs of the Project Expansion and Original Project as more specifically described in Subsections E, I, and J of Section Three of this ordinance. Ordinance No. 39, which is among the body of actions and agreements supporting the issuance of MPWMD’s Certificates of Participation as tax-exempt financing and defining MPWMD’s obligations to the holders thereof, remains in full force and effect, with all of its terms, except to the extent its terms are amended by the terms of this ordinance.

For each Water Year as defined herein, MPWMD shall gather and maintain, and submit to the State Water Resources Control Board on a quarterly basis, information concerning (1) the quantity of potable water obtained from Cal-Am on a monthly and total annual basis to serve properties located within the Del Monte Forest, and including the Benefited Properties (wherever located), and (2) the quantity of Recycled Water produced by the Project on a monthly and total annual basis to serve properties located within the Del Monte Forest. To assist in gathering this information, MPWMD shall use its existing authority, including without limitation the provisions of this ordinance, Rule 42, MANDATORY RELEASE OF CUSTOMER INFORMATION FROM WATER DISTRIBUTION SYSTEMS, and shall adopt such additional Rules and Regulations, or execute such agreements, as are necessary or desirable. The purpose of maintaining and submitting this information is to document that (a) the new use of potable water does not exceed the historic quantity of potable water provided by Cal-Am to the Del Monte Forest, and (b) the quantity of Recycled Water put to beneficial use equals or exceeds the potable water use.

Section Three: Financing for the Project Expansion

A. The Board having selected PBC as the Fiscal Sponsor pursuant to Part II of Ordinance No. 39 and based upon the irrevocable commitment of PBC to underwrite, be responsible for, assure and guarantee the full payment of the Financial Commitment (Capital Costs and Net Operating Deficiencies and Ancillary Project Costs of the Original Project as set forth in the Fiscal Sponsorship Agreement, the agreement deemed by MPWMD to be “necessary or desirable” pursuant to Parts VI and VII of Ordinance No. 39), MPWMD has granted the Water Entitlement, and the General Manager has issued Water Use Permits, to PBC, Lohr, and Griffin. These Water Use Permits authorize the expansion and extension of the Cal-Am water distribution system to provide connections to, and potable water service in specific annual quantities (in acre feet) for the use on and benefit of, the specific properties identified in the Resolution and the Fiscal Sponsorship Agreement (such annual quantities being specified, and such properties being identified as the “Benefitted Properties,” in Exhibit “A” thereto as subsequently amended).

B. The parties primarily involved in the planning of the Project Expansion (CAWD, PBCSD, PBC, and IRWUG) have conferred with MPWMD and have concluded that the most effective means of financing and implementing of the Project Expansion without public funds is to expand the scope of the Benefited Properties within the Del Monte Forest, and to allow PBC, on terms and conditions set forth in the following Subsections of Section Three of this ordinance, to separately sell and convey portions of its existing Water Entitlement solely for dedication to the Benefited Properties (as defined in this Ordinance) not owned by PBC as of the date that this ordinance is adopted. PBC will devote and apply the proceeds of such sales and conveyances to the costs of the Project Expansion and the Original Project as more specifically described in Subsections E, I, and J of this Section Three.

C. In recognition of PBC’s undertaking to raise funds (comprising a part of the Supplemental Financial Commitment as defined herein) for, and to irrevocably commit such funds to, the Project Expansion through the sale of portions of its Water Entitlement (subject to the terms and conditions specified in this ordinance and in Rule 23.5), PBC is hereby authorized to separately sell and convey to other owners of land within Del Monte Forest, for such consideration and upon such terms and conditions as PBC in its discretion may determine, such portions of its Water Entitlement as it may choose, provided that no such conveyance shall be effective unless and until PBC has furnished the Supplemental Financial Commitment (as defined herein) and as further described in Subsections I and J of this Section Three; and provided further that each portion of the PBC Water Entitlement thus conveyed:

(1) shall be dedicated solely to property within the Del Monte Forest that is not owned by PBC as of the date that that this ordinance is adopted;

(2) shall be put solely to Residential use through a Residential Connection (as those capitalized terms are defined in Rule 11), and at no time shall any portion of such water be classified in any User Category other than Residential (as defined in Rule 11);

(3) shall be offered on the same terms and conditions to persons on the Monterey County waiting list for approved residential development projects awaiting water availability within the Del Monte Forest whose intended use is consistent with the preceding two subparagraphs (1) and (2), and

(4) all proceeds therefrom shall be applied to the costs of the Project Expansion and the Original Project as more specifically described in Subsections E, I, and J of this Section Three.

D. As of the date that PBC furnishes the Supplemental Financial Commitment as defined herein, each recipient of a portion of PBC’s Water Entitlement sold and conveyed pursuant to Subsection C shall be entitled to issuance by the General Manager of a Water Use Permit, the face of which shall limit uses to those permitted under the User Category entitled “Residential” (as these terms are defined in Rule 11), and shall further limit uses to the amount of the Water Entitlement as is documented in the conveyance documentation presented to the General Manager. The General Manager shall simultaneously note, on the face of the Water Use Permit issued pursuant to Rule 23.5, the quantity of the Water Entitlement thus conveyed and shall simultaneously account for a commensurate reduction in the aggregate amounts of the Water Entitlement thereafter held by PBC. The Water Use Permit shall provide that MPWMD shall have access to water use records of the Benefited Property in perpetuity.

E. All proceeds received by PBC from any separate sale or conveyance of a portion of PBC’s Water Entitlement as described in Subsection C of this Section Three shall be used to pay for, in the first instance, the Capital Costs of the Project Expansion. Any proceeds from such sales in excess of the Capital Costs of the Project Expansion shall be used to pay the Net Operating Deficiencies of the Project or the Capital Costs of the Original Project.

F. Any portion of the Water Entitlement of PBC separately conveyed pursuant to Subsection C of this Section Three may be used only on the specific property to which it is first dedicated following the conveyance, and the water shall be put solely to Residential use through a Residential Connection (as those capitalized terms are defined in Rule 11), and at no time shall any portion of such water be classified in any User Category other than Residential (as defined in Rule 11). In addition, the quantity of water acquired pursuant to Subsection C of this Section Three (i.e., the portion of the PBC Water Entitlement thus conveyed) and actually used shall not exceed the quantity set forth in the Water Use Permit issued pursuant to Subsection D of this Section Three. In order to facilitate enforcement of this limitation, as provided in Subsection D of this Section Three, MPWMD shall have access to water use records of the Benefited Property in perpetuity. Each of the restrictions of use (including the access to water use records) set forth above in this Subsection F of Section Three shall be set forth on the face of the Water Use Permit, and notice thereof shall be recorded in the form of a deed restriction against the Benefited Property to which the conveyed Water Entitlement is dedicated. Should MPWMD determine it to be necessary to enforce this deed restriction to limit water use to the amount set forth in the Water Use Permit, all costs of enforcement including reasonable attorneys fees shall be assessed to the prevailing party.

G. Nothing in the first sentence of Subsection F of this Section Three shall affect the right and ability of PBC to use and apply, on Benefited Properties owned by PBC as of the date that that this ordinance is adopted, such quantity of PBC’s Water Entitlement as has not been sold and conveyed by PBC pursuant to Subsection C of this Section Three. Specifically, PBC shall continue to have the right and ability to commence or to continue to apply and utilize the remaining portion of its Water Entitlement on any or all Benefited Properties owned by PBC as of the time that this ordinance is adopted, as provided in the Fiscal Sponsorship Agreement, for any lawful use as determined by the appropriate jurisdiction with land use authority thereover. In addition, PBC may sell and convey a parcel of land that it owns together with a portion of PBC’s remaining Water Entitlement without being required to apply any consideration received therefor to the Supplemental Financial Commitment further described in Subsections I and J of this Section Three.

H. All Water Use Permits issued pursuant to Subsection D of this Section Three to evidence the portions of the Water Entitlement separately conveyed by PBC pursuant to Subsection C of this Section Three shall not be Revoked (as defined in Rule 11) or Terminated as defined herein with respect to the entire Water Entitlement so conveyed; provided, however, in each case, that the actual use of water on each of the properties to which a portion of the Water Entitlement is dedicated (after conveyance by PBC pursuant to Subsections C and D of this Section Three) shall not exceed the quantity determined as specified in Subsection C of this Section Three and shall at all times remain subject to the limitations and restrictions referenced in this ordinance and Rule 23.5, and that such water use rights shall be subject to modification after year 2075 as provided in this ordinance and in Ordinance No. 39.

I. Pursuant to the Recycled Water Project Supplemental Financing Agreement (“Supplemental Financing Agreement”), an agreement to be entered into between MPWMD and PBC in connection with the approval of this ordinance, PBC will use its good faith efforts to sell such portions of its Water Entitlement pursuant to Subsection C of this Section Three as PBC in its discretion may determine to raise the funds necessary to cover the Capital Costs of the Project Expansion. At the end of each month after the effective date of this Ordinance, PBC shall report to MPWMD, in a manner that shall not adversely impact its continuing ability to sell such portions of its Water Entitlement pursuant to Subsection C of this Section Three, on PBC’s progress in raising the funds that comprise part of the Supplemental Financial Commitment (as defined herein).

J. As of the date of adoption of this ordinance, the Capital Costs of the Project Expansion are estimated at $22 million but may exceed this estimated amount. At such time as all of the elements of the “Supplemental Financial Commitment,” as defined herein, have been obtained by PBC, PBC will give notice thereof to MPWMD. Pursuant to Subsection E of Section Three of Ordinance 109, any proceeds received by PBC from the sales of portions of PBC’s Water Entitlement pursuant to Subsection C thereof shall be applied to payment of the Capital Costs of the Project Expansion (which, to the extent approved by MPWMD, may include repayment of any funds independently committed by MPWMD, PBC, IRWUG, CAWD, PBCSD, or any other entity as a part of the funding component of the Supplemental Financial Commitment), and any proceeds from such sales in excess of the Capital Costs of the Project Expansion shall be applied to the Net Operating Deficiencies of the Project or the Capital Costs of the Original Project.

K. If PBC has not, within one year after this Ordinance becomes effective in accordance with Section Eight hereof, given notice that all of the elements of the “Supplemental Financial Commitment,” as defined herein, have been obtained by PBC, MPWMD may hold a hearing to determine whether, and for what period of time, if any, to allow PBC to continue selling portions of its Water Entitlement. MPWMD shall PBC not less than 14 days written notice for such hearing. Upon rendering its determination of whether, and for what period of time, if any, to allow PBC to continue selling portions of its Water Entitlement, MPWMD shall give PBC not less than 10 days written notice of its determination, and the determination shall take effect on the 11th day following service of the notice by personal delivery or by facsimile, or the 16th days following service of the notice by mail. If MPWMD determines in accordance with the preceding procedure to disallow PBC to continue selling portions of its Water Entitlement, PBC shall, within 30 days after the effective date of such service, either (1) commence refunding the monies received from separate sales of portions of its Water Entitlement, or (2) file suit challenging such determination in Administrative Mandamus and, notwithstanding the provisions of section 394 of the Code of Civil Procedure, timely prosecute such case to judgment in the Monterey Superior Court.

Section Four: Amendment of Rule 23.5

Monterey Peninsula Water Management District Rule 23.5 shall be amended by adding the portion set forth in italicized typeface and by deleting all text shown in strikeout typeface. In all other respects, the text of Monterey Peninsula Water Management District Rule 23.5 shall remain unchanged and shall be republished by this ordinance.

Rule 23.5 PERMITS FOR WATER FROM THE CAL-AM WATER DISTRIBUTION SYSTEM DEDICATED FOR USE IN CONNECTION WITH THE PLAN TO FINANCE THE WASTEWATER RECLAMATION RECYCLED WATER PROJECT

A. ISSUANCE OF WATER USE PERMITS. Upon The Board having selectedion of all the Fiscal Sponsor/Sponsors pursuant to Part II of Ordinance No. 39 and based upon the irrevocable commitment by those sSponsors to underwrite, be responsible for, assure and guarantee payment of the Financial Commitment (Capital Costs and Net Operating Deficiencies and Ancillary Project Costs of the Reclamation Original Project recorded by the agreements required by Part VII of this Ordinance No. 39), MPWMD has granted the Water Entitlement and the General Manager shall has issued Water Use Permits to the Fiscal Sponsor/Sponsors Pebble Beach Company (“PBC”), J. Lohr Properties, Inc. (“Lohr”), and the Hester Hyde Griffin Trust (“Griffin”) authorizing the expansion and extension of the Cal-Am water distribution system to provide water service and connections for the benefit of the properties identified in the application(s) of the Fiscal Sponsor/Sponsors Fiscal Sponsorship Agreement (such properties hereinafter being called the “Benefitted Properties” described in the respective Exhibits “A” theretounder as amended). By virtue of the Water Entitlement, eEach Water Use Permit shall has granted an irrevocable present vested property interest upon one or more Benefited Parcels Properties for the prospective use and benefit of a specified quantity of potable water per year (in acre feet) produced by the Cal-Am water distribution system owned and operated by the California-American Water Company (“Cal-Am”).

Water Use Permits shall be subject only to the following limitations:

(1) Tthe permit shall not limit the power of the Monterey Peninsula Water Management District (“MPWMD”) to curtail water use in the event of any water emergency caused by drought, or other threatened or existing water shortage, as defined in Section 332 of the Monterey Peninsula Water Management Act, including without limitation the power of MPWMD to terminate water service as a consequence of a violation of water use restrictions;

(2) Tthe permit shall not relieve or reduce any obligation of the recipient of water to pay customary fees, connection charges, user fees, surcharges, taxes, utility taxes, and/or any other customary monetary obligation which may be imposed by the California Public Utilities Commission, Cal-Am, MPWMD District, or other Public Participants upon water users of the same class within the California-American Water Company service area, including but not limited to fees and charges due and payable to MPWMD by reason of Rule 24 of MPWMD’s Rules and Regulation, nor shall such permit limit the authority of Cal-Am or MPWMD to terminate water use for non-payment of such fees and charges;

(3) Tthe permit shall enable present use of the Water Entitlement by PBC only upon the commencement of operation of the Reclamation Project and upon the continuing financial assurance or guarantee by the Fiscal Sponsor/Sponsor(s) relating to the payment of Net Operating Deficiencies for the Reclamation Project; and

(4) Nnotwithstanding any other provision of this Rule Ordinance:

(a) the Water Entitlement allocated to the Benefited Properties as a whole shall not exceed 380 AF,

(b) the water usage under the Water Entitlement on any Benefited Property shall not exceed the amount of the Water Entitlement allocated to such Benefited Property,

(c) projected water usage of the Benefited Properties shall be calculated by MPWMD in the manner set forth in Subsections C.4 and C.5 of Rule 23.

(5) Further, notwithstanding any other provision of this Rule, once a new water connection is established through issuance of a Water Use Permit and use of all or a portion of a Water Entitlement,

(a) no user of water through such connection shall be entitled to preferential access to water over any other water user of the Cal Am water distribution system; and

(b) the fixtures on the Benefited Property served by that connection shall be subject to verification of water use capacity pursuant to Subsection E of Rule 23; and

(c) the actual use of water on the Benefited Property served by such connection shall be tracked by MPWMD through access to water use records of the Benefited Property in perpetuity; and

(d) the restrictions of use set forth above in Subsection F of Section Three shall be enforced, as determined by MPWMD to be necessary, through the deed restriction as specified in Subsection F of Section Three of Ordinance 109.

(6) The revocation and termination of any Water Use Permit shall not diminish or otherwise adversely affect present actual use of water by reason of a prior expansion or extension of the Cal-Am water distribution system through any connection previously made pursuant to such Water Use Permit, except that actual use of water may be reduced pursuant to the provisions of subparagraphs A(1) through A(5).

(7) Permits issued pursuant to this Rule shall represent a vested property interest upon issuance and shall not be subject to revocation or cancellation except as expressly set forth in subparagraph (D) below, except that actual use of water may be terminated pursuant to the provisions of subparagraphs A(1) through A(5).

(8) The Water Entitlement granted by each Water Use Permit shall not be subject to reallocation pursuant to District MPWMD Rule 30, nor shall it be terminated or diminished by reason of any water emergency, water moratorium or other curtailment on the setting of meters for the California-American Wwater Ssystem, nor shall it otherwise be subject to diminishment or revocation, except pursuant to the provisions of subparagraphs A(1) through A(5) or in the event that a Water Use Permit is rRevoked or cancelled as provided by subparagraph (D) below.

B. WATER USE PERMIT PROVISIONS. Each Water Use Permit shall be issued by the General Manager with respect to a single Benefitted Property and shall identify, with respect to the Benefited Property:

(1) the nature (industrial/commercial/residential, unless both the Property and the water dedicated thereto may be put to industrial or commercial use) and location of the water use to be applied to each Benefitted Property, and the consistency of such water use with existing land use and zoning plans;

(2) the number and nature of connections projected for each Benefitted Property; and

(3) the projected water use required by each connection proposed upon the Benefitted Property.

C. AMENDMENT OF WATER USE PERMITS.

(1) The Each Fiscal Sponsor Oowner of any Benefitted Property, shall, upon request, be entitled to an amendment to any Water Use Permit (except a Water Use Permit confirming a portion of the Water Entitlement acquired by sale and conveyance from PBC pursuant to Subsections C and D of Ordinance No. 109) to reduce, or increase, or change the number and type of connections and water use with respect to any Benefitted Property owned by such Fiscal Spponsor Oowner, provided that in no event shall the aggregate amount of estimated annual water usage for the Benefitted Properties owned by that Owner of that Fiscal Sponsor/Sponsors exceed the aggregate Water Entitlement allocated to the Benefitted Properties of that Fiscal Sponsor Oowner, and provided further that the reallocation of connections shall be allowed only among those locations identified in Exhibit A hereto the Fiscal Sponsor’s application.

(2) Portions of the Water Entitlement evidenced in Water Use Permits may be separately sold and conveyed transferred and assigned only by PBC, and then only to successors-in-interest to the Owners of the Benefitted Properties as defined in this ordinance; provided, however that such Owners who have received a Water Use Permit from MPWMD to confirm the portion of the Water Entitlement acquired by sale and conveyance from PBC pursuant to Subsections C and D of Ordinance No. 109 shall be entitled to use the quantity of the Water Entitlement evidenced therein, and no more, and only after the providing of the Supplemental Financial Commitment to finance the Project Expansion and then only on the Benefited Property to which it applies and shall not have the right to further sell or convey the Water Use Permit for any use other than residential use or on any other Benefited Property. The provisions of subparagraph C(1) shall not apply to any Water Use Permit confirming a portion of the Water Entitlement acquired by sale and conveyance from PBC pursuant to Subsections C and D of Ordinance No. 109.

D. REVOCATION, AND TERMINATION, OR MODIFICATION OF WATER USE PERMITS.

Each Water Use Permit held by the Fiscal Sponsor shall provide that it shall be revoked and terminated in the event that the Fiscal Sponsor shall default in any material manner upon its obligation, assurance, and guarantee of the Financial Commitment for the Reclamation Project, provided that nothing herein shall preclude PBC or any other subsequent Fiscal Sponsor from disputing in good faith any claim of default made by the Water Management District MPWMD nor shall the Water Management District MPWMD terminate or revoke any Water Use Permit unless the PBC or any subsequent Fiscal Sponsor shall have been given notice and a reasonable opportunity to cure any such default so long as such opportunity to cure shall not result in any payment default to the any bondholders of the Certificates of Participation.

All Water Use Permits issued to evidence the Water Entitlement conveyed by PBC pursuant to Subsections C and D of Section Three of Ordinance No. 109 shall not be Revoked (as defined in Rule 11) or Terminated as defined herein with respect to the entire Water Entitlement so transferred except as set forth in the following sentences.

In addition, nNotwithstanding the preceding sentences of this Subsection D any other provision of this Ordinance, the actual use on each of the properties to which a portion of the Water Entitlement is dedicated (after conveyance by PBC pursuant to Subsections C and D of Section Three of Ordinance No. 109) shall at all times remain subject to the limitations and restrictions referenced in Subsections A through C of this Rule 23.5, which shall be enforced, as determined by MPWMD to be necessary, through the deed restriction against the Benefited Property to which the conveyed Water Entitlement is dedicated as specified in Subsection F of Section Three of Ordinance 109. In order to facilitate enforcement of this limitation, MPWMD shall have access to water use records of the Benefited Property in perpetuity. Should MPWMD determine it to be necessary to enforce this deed restriction to limit water use to the amount set forth in the Water Use Permit, all costs of enforcement including reasonable attorneys fees shall be assessed to the prevailing party.

Moreover, each Water Use Permit which on or after January 1, 2075, embodies an annual Water Entitlement in excess of requirements for planned land uses on a Benefitted Property or which purports to authorize usage in excess of the constitutional limitation to reasonable and beneficial use shall be subject to modification, revocation, or and termination in the sole discretion of the District MPWMD, such that the water usage authorized thereby shall not exceed such requirements and limitations.

Prior to any termination and revocation or modification, termination, or revocation pursuant to this subparagraph D, the holder of the Water Use Permit, Fiscal Sponsor, shall be entitled to notice and a hearing, and any termination, revocation, or modification shall be subject to appeal to the Board pursuant to Rule 70 of the District MPWMD Rules and Regulations.

The revocation, and termination, or modification of any Water Use Permit shall not diminish or otherwise adversely affect present actual use of water by reason of prior expansion or extension of the Cal-Am water distribution system through any connection previously made pursuant to such Water Use Permit, provided that each Water Use Permit holder shall be subject to applicable laws, ordinances, and regulations, and nothing herein is intended to or shall affect the ability to curtail or eliminate the actual use of water through any connection previously made pursuant to a Water Use Permit to the extent such curtailment or elimination is authorized by such laws, ordinances, or regulations.

For example, persons using water from the Cal-Am water distribution system are required to reduce their water usage in the various stages in MPWMD’s Expanded Water Conservation and Standby Rationing Plan, and may be penalized or their water service may terminated for failing to reduce water usage as required. Similarly, such persons must pay the rates and charges imposed for such water service, or their water service may be terminated.

E. CAL-AM SYSTEM EXPANSION/EXTENSION AND ISSUANCE OF PURSUANT TO WATER USE PERMITS.

So long as the Reclamation Project has commenced operation so long as all assurances or guarantees required for both payment of Capital Costs and payment of Net Operating Deficiencies for the Reclamation Project continue to be met (or expire by their terms)Subject to the other provisions of this Rule, Eeach Water Use Permit shall entitle the owner of a Benefitted Property to potable water service to be provided by the Cal-Am water distribution system for such Benefitted Properties, including the installation of water meters and mains as necessary without regard to the existence of a moratorium or a temporary delay on new connections, upon payment of the fees required by subparagraph E.2. and presentation to MPWMD by the Fiscal Sponsor Owner of the applicable Benefited Property for which the following information has not previously been provided:

(1.)

(a) A Water Release Request from the person whose Water Entitlement will be utilized (rather than from the Jurisdiction as discussed in Rule 23) and a statement by the Fiscal Sponsor Owner setting forth the annual capacity of water use that the Fiscal Sponsor Owner intends to use through such expansion/extension of the Cal-Am water distribution system, and the nature of the uses to which such water is intended to be applied; and

(b) a valid municipal or county building permit which will allow construction upon the Benefitted Property; or

(c) a complete set of architectural contract drawings; or

(d) other documentation sufficient for MPWMD the District to determine quantity and the capacity for annual water use of the Benefitted Property in the manner set forth in Subsections C.4 and C.5 of MPWMD Rule 23 and the number and type of each requested connection.

(2.) The payment of any customary fees and connection charges required by both Cal-Am and the District MPWMD of water users within the Cal-Am service area, calculated upon the basis of the estimated annual water usage capacity for the Benefitted Property determined as set forth in the preceding subsection E.1(d)set forth in the Fiscal Sponsor’s statement, including but not limited to fees and charges due by reason of Rule 24 of the District’s MPWMD’s Rules and Regulations.

Upon the filing of the information and payment of the fees required above, the General Manager shall issue make a notation on the new Water Use Permit pursuant to those provisions of Rule 23 authorizing the expansion/extension of the Cal-Am water distribution system consistent with this Rule 23.5, which Water Use Permit shall indicateing the location, estimated usage measured as capacity, and nature of each connection requiring a present expansion/extension of the Cal-Am water distribution system. Estimated usage shall be based upon the water use capacity for proposed or planned development upon Benefitted Properties and calculated in the manner described in Subsections C.4 and C.5 of Rule 23. The water use represented by such expansions/extensions of the Cal-Am water distribution system, shall not exceed the Water Entitlement evidenced by such Water Use Permit. In the event that an Owner of any Benefited Property Fiscal Sponsor requests an expansion/extension of the Cal-Am water distribution system with respect to less than all of the Water Entitlement evidenced by such Water Use Permit, the General Manager shall make a record of the respective amounts deducted from and remaining under the pertinent notation on such Water Use Permit indicating the remaining Water Entitlement (as evidenced in the Water Use Permit) in the manner described in Subsection C.6 of Rule 23.

The Owner of any Benefited Property to which the Owner has previously applied a portion of the Water Entitlement through prior expansions/extensions of the Cal-Am water distribution system Fiscal Sponsor shall be entitled to increase the annual water use for any on such Benefited Property to which the Fiscal Sponsor has previously applied a portion of the Water Entitlement through prior expansions/extensions of the Cal-Am water distribution system upon presentation of the information and payment of the fees set forth in this subparagraph (E), provided that such increase does not cause the any such increases in water use for on the Benefitted Property (or, in the case of PBC, PBC’s Benefited Properties) to shall not exceed in the aggregate the total Water Entitlement of all Benefitted Properties owned by such Owner, or the total Water Entitlement of the Benefited Properties as a whole.

Cal-Am shall be authorized to execute a contract with the Fiscal Sponsor to enable the provision of water service pursuant to subsections C and D of Section Three of Ordinance No. 109 consistent with the Water Entitlement evidenced by the Water Use Permit issued under this provision. Such agreement with Cal-Am shall at the Fiscal Sponsor’s option be a condition precedent to the providing of financing pursuant to Section Three of Ordinance No. 109 Fiscal Commitment by the Fiscal Sponsor that is to pay for the Capital Costs of the Project Expansion. The actions required to be taken by the General Manager pursuant to this paragraph shall be ministerial, non-discretionary acts which shall not be affected by any water moratorium, water emergency, allocation decision or other curtailment on the setting of new water meters for the Cal-Am water distribution system and shall be enforceable by mandamus. Nothing in the foregoing is intended to or shall affect the ability of MPWMD to curtail or eliminate the actual use of water through any connection previously made pursuant to a Water Use Permit, nor is it intended to provide or imply that any Water Use Permit holder shall not be subject to applicable laws, ordinances, and regulations.

For example, notwithstanding the provisions of the preceding subparagraph, persons using water from the Cal-Am water distribution system are required to reduce their water usage in the various stages in MPWMD’s Expanded Water Conservation and Standby Rationing Plan, and may be penalized or their water service may terminated for failing to reduce water usage as required. Similarly, such persons must pay the rates and charges imposed for such water service, or their water service may be terminated.

F. PROCEDURE IN CASE OF INTERRUPTION OF RECYCLED WATER DELIVERIES

1. If there is an Interruption in Recycled Water deliveries to any Recycled Water Irrigation Area, the temporary use of potable water for irrigating each such Recycled Water Irrigation Area is authorized in the manner described in this Subsection F. Following written notice to MPWMD from an owner of the affected area, CAWD, PBCSD and/or Cal-Am, CAWD, PBCSD and/or Cal-Am are authorized to turn on the connection by which potable water enters the distribution system serving the Recycled Water Irrigation Areas. Reports of the quantities of potable water introduced into the Project through this connection on a daily basis shall be submitted to MPWMD each week throughout the Water Year.

2. Under normal circumstances, the use of potable water for irrigation of a Recycled Water Irrigation Area shall not extend for any longer than the period of time reasonably required to promptly and diligently complete repair or replacement activities necessary to restore Recycled Water service, provided that potable water shall be made available for irrigating tees and greens without any limitation on the duration.

3. If potable water usage continues for longer than 14 days within a 30-day period, MPWMD may hold a hearing to determine what quantities of potable water shall continue to be supplied for irrigation of the affected Recycled Water Irrigation Area. MPWMD shall give the owners of each affected Recycled Water Irrigation Area not less than 14 days written notice for such hearing. Upon rendering its determination of what quantities of potable water shall continue to be supplied for irrigation of the affected Recycled Water Irrigation Area, MPWMD shall give the owners of the affected Recycled Water Irrigation Area not less than 10 days written notice of any hearing determination, and the determination shall take effect on the 11th day following service of the notice by personal delivery or by facsimile, or the 16th days following service of the notice by mail.

4. If MPWMD has adopted an ordinance in response to any emergency caused by drought, or other threatened or existing water shortage pursuant to section 332 of the Monterey Peninsula Water Management Law, said ordinance shall prevail over contrary provisions of this Subsection F.

5. If (1) an emergency or major disaster is declared by the President of the United States, or (2) a “state of war emergency,” state of emergency,” or “local emergency,” as those terms are respectively defined in Government Code section 8558, has been duly proclaimed pursuant to the California Emergency Services Act, with respect to all or any portion of the territory of MPWMD, the provisions of this Subsection F shall yield as necessary to respond to the conditions giving rise to the declaraton or proclamation.

G. DEFINITIONS.

For the purpose of this Ordinance No. 109 and Rule 23.5, the following words shall have the meanings set forth below. Other words which are defined in Rule 11 to the Rules and Regulations, when used in Rule 23.5 or thise ordinance shall have the meanings set forth therein, unless the context otherwise indicates.

“Ancillary Project Costs” means net revenues (gross revenues less allocable operation and maintenance costs and administrative and general costs as such terms are defined in accord with generally accepted utility practices) which Cal-Am shall not receive by reason of operation of the Reclamation Project. Ancillary Costs shall not include any return on assets of Cal-Am which have been removed from the water distribution system rate base by reason of the Reclamation Project. Ancillary Costs shall be reduced over time by net revenues received by Cal-Am by reason of sales of Cal-Am water (with respect to the bBenefited pProperties) following the first date of Reclamation Project operation.

“Benefitted Properties” means those properties described on Exhibit “A” hereto within the Cal-Am service area which have been identified within the application of the selected Fiscal Sponsor/Sponsors and upon which a portion of the Water Entitlement may be utilized. For any public agency Fiscal Sponsor, the term “Benefitted Properties” shall be defined as those properties owned entirely by the public agency and dedicated for public use. All Benefited Properties are located in the unincorporated portion of the Del Monte Forest (the area shown on Exhibit “B”) except as otherwise noted in Exhibit “A.”

“Cal-Am” means the California American Water Company, a California corporation, its successors and assigns.

“Capital Costs” as applied to the Reclamation Project or any portion thereof means all or any part of:

(a) the cost of acquisition by CAWD or by PBCSD of all lands, structures, real or personal property rights, rights-of-way, franchises, easements, and interests acquired or used for, the Reclamation Project, inclusive of fees and commissions for acquisition;

(b) the cost of construction related to of the Reclamation Project, including but not without limitedation, to demolition, repair, modification, replacement or renovation of existing structures, facilities, fixtures or equipment essential to the construction and operation of the Project; cost of improvements and materials; direct and indirect Public Participation construction and administration expenses properly allocable to the Reclamation Project in accordance with generally accepted accounting principles; costs of painting, decorating, furnishing and landscaping; contractor and subcontractor profit; and costs related, by reason of the Reclamation Project, to plumbing, mains, tanks, or pipes which are modified, repaired, replaced, or renovated, whether owned by Public Participants or others.

(c) the cost of demolishing or removing any buildings, fixtures, equipment, or structures on land so acquired, including, without limitation, the cost of acquiring any lands to which such buildings or structures may be moved;

(d) the cost of all new machinery, piping, equipment and furnishings, including but not limited to the cost lesser of (i) the fair market value, or (ii) depreciated value for purposes of the applicable rate base, of machinery, piping, equipment and furnishings made obsolete or unusable to Cal-Am, or any of the Public Participants, or others by reason of the Reclamation Project to the extent not replaced by the Project;

(e) costs of selling and issuing the Certificates of Participation, including, without limitation, the underwriter’s discount and any other applicable fFinancing charges;

(f) Interest on any funds advanced to permit payment of any of the Capital Costs prior to, during, and for a period after completion of the acquisition and construction of the Reclamation Project as determined by the Monterey Peninsula Water Management District, including, without limitation, capitalized interest on the Certificates of Participation;

(g) provisions for working capital;

(h) the Operating Reserve and other similar reserves for routine or extraordinary repairs and replacements necessary to the Reclamation Project;

(i) the cost of architectural, engineering, planning, environmental analysis, financial, accounting, auditing and legal services, plans, specifications, estimates, administrative expenses, permits, fees, adverse claims, personnel and overhead costs (both direct and indirect, to the extent properly allocable to the Reclamation Project in accordance with generally accepted accounting principles), and other expenses necessary or incident to determining the feasibility of construction the Reclamation Project or incident to the planning, construction, acquisition, or financing of any portion of theat Project, including, without limitation:

1. Payment during the construction period of the premiums for all title and other insurance, bonds, or undertakings required to be taken out and maintained with respect to any part of. the Reclamation Project to the extent such amounts are not paid by any contractor who constructs or installs any portion of the Reclamation Project;

2. Payment of the taxes, assessments and other fees or charges, if any, that may become payable during the construction period with respect to any portion of the Reclamation Project, or reimbursements thereof; and

3. Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor in respect of any default under a contract relating to the acquisition, construction or installation of any portion of the Reclamation Project.

4. Payment of expenses incurred concerning asserted deficiencies in the Project and related matters beginning on January 1, 1995, and continuing through the drafting, negotiation, and execution of any and all agreements necessary or desirable to implement the design, construction, operation, and maintenance of the Project Expansion and any modifications thereof or thereto, to the extent that corresponding expenses concerning the implementation of the Original Project were treated as reimbursable.

5. Payment of any expenses incurred by MPWMD to track and record changes in the Water Entitlements following issuance of new Water Use Permits, to verify water use capacity pursuant to Subsection E of Rule 23, to otherwise monitor compliance with or to enforce actual water usage pursuant to applicable laws, ordinances, and regulations, and to make such determinations concerning adjustments, and to implement and enforce the adjustments, to Water Use Permits that may be required in 2075.

“CAWD” means the Carmel Area Wastewater District (formerly known as the Carmel Sanitary District), a public agency.

“CAWD/PBCSD” means both the Carmel Area Wastewater District and the Pebble Beach Community Services District, in reference to the Project.

“Certificates of Participation” means the Certificates of Participation issued by MPWMD in 1992 in the amount of $33.9 million to finance the Capital Costs of the Original Project.

“Completed” with respect to the Project Expansion shall mean that (1) all required permits or other approvals have been obtained, and (2) all construction activities for the advanced treatment components (being added to the tertiary treatment plant facilities of the Original Project), Forest Lake Reservoir, and all treatment, and distribution facilities associated therewith, have been completed and tested in accordance with their respective approved plans, permits and other approvals, and (3) Forest Lake Reservoir has been filled to capacity with “Recycled Water” suitable for irrigation of all portions of the Recycled Water Irrigation Areas without the addition of any potable water thereto and otherwise meeting all regulatory and health standards for such usage, and (4) all portions of the distribution system are capable of delivering such Recycled Water to the Recycled Water Irrigation Areas.

“Del Monte Forest” means the area of unincorporated Monterey County described and/or depicted on Exhibit “B”

“Financial Commitment” means the commitment of PBC, as the Fiscal Sponsor, or any subsequent Fiscal Sponsor, to assume and guarantee payment of (1) the Capital Costs of the Reclamation Project (including the payment of the principal of and interest on the Certificates of Participation or any bonds or other obligations issued by any Public Participant to finance such costs), and (2) the Net Operating Deficiencies of the Reclamation Project for the entire period ending twenty years following the estimated completion date of the project until the Certificates of Participation (and any bonds or other obligations issued by any Public Participant to finance such costs) have been paid in full (or for any shorter periods as permitted by the District MPWMD), and (3) payment of all Ancillary Project Costs.

“Fiscal Sponsor or Fiscal Sponsors” means PBC and any person or persons (including partnerships, corporations, municipal corporations, or other public entities) selected to act that may succeed PBC and assume, as the Fiscal Sponsor/Spponsors, all of PBC’s obligations pursuant to Part II of Ordinance No. 39, Ordinance No. 109, the Fiscal Sponsorship Agreement, and any amendments thereof, which person or persons shall will be obligated, and liable for, and capable of paying the Capital Costs and Net Operating Deficiencies of the Reclamation Project.

“Fiscal Sponsorship Agreement” means the Wastewater Reclamation Project Fiscal Sponsorship Agreement between the Monterey Peninsula Water Management District and Pebble Beach Company, dated as of October 3, 1989, as amended.

“Franchise Freed-Up Water” means potable water which has been freed for new use by reason of subpotable Recycled Wwater deliveries from the Reclamation Project. Freed-Up Water has the same meaning as “Franchise Water” in Ordinance No. 39.

“General Manager” means the General Manager of MPWMD.

“Interruption,” for the purposes of Rule 23.5 and Ordinance No. 109, means an interruption for longer than 24 hours in the supply of Recycled Water to a Recycled Water Irrigation Area.

“MPWMD” means the Monterey Peninsula Water Management District, a public agency.

“Net Operating Deficiency” as applied to the Reclamation Project means, for any fiscal year or portion thereof, the difference between the Operating Revenues and the Operation and Maintenance Expenses for such period.

“Operation and Maintenance Expenses” as applied to the Reclamation Project means all expenses and costs of management, operation, maintenance and repair of the Reclamation Project, including payments to be made by the Public Participants under agreements with Cal-Am for the purchase of subpotable water, debt service payments on bonds or other obligations issued to finance the cost of the Reclamation Project, and all incidental costs, fees and expenses properly chargeable to the Reclamation Project in accordance with generally accepted accounting principles, including reasonable depreciation and obsolescence charges or reserves therefore assuming straight line depreciation upon a useful life assumed to be thirty (30) years, amortization of intangibles and other bookkeeping entries of a similar nature.

“Operating Reserve” means a reserve maintained for the purpose of paying for operations, providing working capital, and paying for routine and extraordinary repairs and replacements.

“Operating Revenues” as applied to the Reclamation Project means all income, rents, rates, fees, charges and other moneys derived by the Public Participants from the ownership or operation of the Reclamation Project, including, without limiting the generality of the foregoing: (i) all income, rents, rates, fees, charges or other moneys derived from the sale, furnishing and supplying of the reclaimed, subpotable Recycled wWater (or from potable water supplied in lieu thereof (but only to the extent the use of potable water is permitted hereunder); (ii) Interest earnings on all revenues mentioned in (i) above, and on the Operating Rreserve or on any other fund or account relating to the Reclamation Project, and (iii) insurance and condemnation proceeds resulting from damage to or destruction of the Reclamation Project facilities, or from the condemnation of the Reclamation Project; provided, that the term “Operating Revenues” shall not include customers’ deposits or any other deposits subject to refund until such deposits have become the property of one of the Public Participants.

“Original Project” means and consists of (1) a tertiary treatment facility at the present CAWD wastewater treatment plant site, designed to produce at least 800 acre feet per year of disinfected recycled water, (2) a distribution system which is capable of distributing the recycled water from the facility to a point of distribution in the Del Monte Forest for further distribution to the Recycled Water Irrigation Areas, and (3) recycled water irrigation systems on each of the Recycled Water Irrigation Areas.

“Owner” means the holder (of record) of fee title to any Benefited Property.

“PBCSD” means the Pebble Beach Community Services District, a public agency.

“Project” or “Reclamation Project” means the CSD/PBCSD wastewater treatment plant (including lands, facilities, equipment, furniture and fixtures) Original Project (used since 1994 to create, distribute, and store Recycled Water) and the Project Expansion.

“Project Expansion” means and consists of the addition of advanced treatment components to the treatment facilities of the Original Project to produce “Recycled Water,” and the addition of storage, treatment, and distribution facilities at or associated with the Forest Lake Reservoir located within the Del Monte Forest and owned by PBCSD.

“Public Participant” means any one or more of the following: the Monterey Peninsula Water Management District, the Carmel Area Wastewater District, formerly the Carmel Sanitary District, the Pebble Beach Community Services District, or any successor public agency including but not limited to any joint powers agency formed by one or more of the above agencies.

The meaning of the term “Recycled Water” depends upon whether or not the Project Expansion is Completed:

(a) Before the Project Expansion is Completed, “Recycled Water” shall mean water originating from the tertiary treatment facilities of the CAWD wastewater treatment plant.

(b) After the Project Expansion is Completed, “Recycled Water” shall refer to water originating from said tertiary treatment facilities and thereafter receiving further treatment so as to be suitable for irrigation of the Recycled Water Irrigation Areas without the addition of any potable water thereto (except during an Interruption as defined herein) and otherwise meeting all regulatory and health standards for such usage. “Recycled Water” has the same meaning as “Reclaimed Water.”

“Recycled Water Irrigation Areas” means the golf courses and other vegetated areas located within the Del Monte Forest that are currently being irrigated with Recycled Water supplied by the Project or such golf courses and other vegetated areas wherever located that in the future may be irrigated with Recycled Water supplied by the Project.

“Supplemental Financial Commitment” means all of the following:

(1) the funds that PBC has raised through the sale of such portions of its Water Entitlement pursuant to Subsection C of Section Three of Ordinance 109 (combined with any funds which may be independently committed by PBC, IRWUG, CAWD, PBCSD, or any other entity willing to commit funds to the Capital Costs of the Project Expansion) are

(a) sufficient to pay for the Capital Costs of the Project Expansion (estimated to be $22 million as of the date that this Ordinance is adopted), and

(b) are irrevocably committed to the use of CAWD and/or PBCSD for the Project Expansion; and

(2) CAWD and PBCSD each concur in writing:

(a) that the above-described funds are irrevocably committed to and available for their use for the Project Expansion, and

(b) that each is prepared and intends forthwith to commence construction of the Project Expansion and to proceed diligently therewith until the Project Expansion is Completed.

“Terminate” means the withdrawal, without formal MPWMD action, of authority to act as previously provided by a valid permit or water service connection, whichever is applicable.

“Water Entitlement” means an aggregate of 400 380 acre feet per year (or less) of potable water, and in no event more than fifty (50%) percent of the total amount of Franchise Water, which shall be the maximum portion of the Franchise Water has been dedicated (as evidenced by Water Use Permits issued pursuant to Ordinance No. 39, the Resolution, and the Fiscal Sponsorship Agreement) or which may be dedicated to land within the jurisdiction of the District MPWMD for the purpose of providing for the payment of the Capital Cost, Ancillary Project Cost, and Net Operating Deficiencies of the Reclamation Project. Ordinance No. 109 provides a process by which a portion of the Water Entitlement held by PBC may be separately sold and conveyed and thereby be dedicated to other land within the jurisdiction of MPWMD with the proceeds therefrom to be applied to the costs of the Project Expansion and the Original Project as more specifically described therein.

“Water Use Permit” means a writing from the District MPWMD which evidences the irrevocable dedication of the Water Entitlement as a present vested property right enuring to the use and benefit of one or more of the Benefitted Parcels Properties. A Water Use Permit shall by non-discretionary ministerial action, cause the present Expansion/Extension of the Cal-Am water distribution for Benefitted Properties upon designation of the location of use, and upon payment of applicable connection fees and charges. A Water Use Permit shall take the place of and be used instead of any Expansion/Extension Permit upon any Benefitted Parcel Property as relates to the use of any portion of the Water Entitlement.

Added by Ordinance No. 39 (2/13/89); amended by Ordinance No. 71 (12/20/93)

Section Five: Agreements to Provide for Water Entitlement and to Guarantee the Payment of Project Capital Costs and Net Operating Deficiencies

The General Manager is authorized to negotiate and, subject to the prior approval by the Board, to execute a Supplemental Financing Agreement with PBC, and such further agreements with Cal-Am and PBC as are necessary or desirable,

(a) to provide the terms and conditions upon which portions of the Water Entitlement will be conveyed by PBC to, and used on, Benefited Properties not owned by PBC as of the date that this ordinance is adopted in the manner provided in this ordinance;

(b) to provide the terms and conditions upon which PBC shall attempt to raise the Supplemental Financial Commitment from which all Capital Costs of the Project Expansion shall be paid (primarily from the proceeds received by PBC from any separate conveyance of a portion of PBC’s Water Entitlement as described in Subsections C or D of Section Three of this ordinance); and

(c) to provide the terms and conditions upon which PBC shall assure and guarantee, with minimal fiscal risk to MPWMD or any other Public Participant, payment of the Net Operating Deficiencies of the Project as a whole.

MPWMD will cooperate with PBC and Cal-Am in securing any approval required from the California Public Utilities Commission that may be necessary or desirable in connection with the Supplemental Financing Agreement or any such further agreements.

The Supplemental Financing Agreement shall provide reasonable controls over expenditures and accounting of expenditures and shall not require the Fiscal Sponsor to incur any cost or liability for changes which expand the scope of the Project beyond the Project Expansion.

The Supplemental Financing Agreement shall not affect the Water Entitlement evidenced by the issuance of Water Use Permits issued by MPWMD for a portion thereof as of the date that this ordinance is adopted, or the Financial Commitment made by PBC (concerning the Original Project) in the Fiscal Sponsorship Agreement, or the acknowledgement thereof by MPWMD. MPWMD shall agree not to amend the provisions of this ordinance in any manner which would impair the interest of such Fiscal Sponsor or any successor or assign.

The failure to enter into the Supplemental Financing Agreement or a further agreement with PBC and/or Cal-Am with respect to undertaking the Project Expansion shall in no way diminish or affect PBC’s or any Owner’s rights or obligations under Ordinance No. 39, any Water Use Permit issued thereunder, or any agreement entered into pursuant thereto.

Section Six: Agreements with Public Participants

The General Manager is authorized to negotiate and, subject to the prior approval by the Board, to execute a Supplemental Construction and Operation Agreement, and such agreements as are necessary or desirable, to provide for the respective construction, equipping and operation of the Project Expansion by CAWD and PBCSD in conjunction with the continuing operation and maintenance of the Original Project by CAWD and PBCSD, respectively. Such agreement(s) shall clearly identify understandable performance standards and a timeline for performance of the Project Expansion, and clarify the obligation of the appropriate parties to Complete the Project Expansion in accordance with the objective of the Project Expansion to provide sufficient quantities of Recycled Water of a quality suitable for irrigation of even the most water quality-sensitive plants on the Recycled Water Irrigation Areas, and thereby to completely eliminate the use of potable water for such irrigation (except during an Interruption as defined in this ordinance). Such agreement(s) shall also specify that all entities participating in the Project Expansion shall use their best efforts, both individually and collectively, so that the Project Expansion shall be Completed within two calendar years after Pebble Beach Company furnishes the Supplemental Financial Commitment. This two year period shall be included in, and provide the framework for, the timeline to be set forth in the agreement(s).

Such agreements shall provide that, except for the funds available in an Operating Reserve for the Project to be established under the Supplemental Construction and Operation Agreement, the only funds of MPWMD to be used to pay for the construction, equipping and operation of the Project Expansion by CAWD and PBCSD, respectively, or the operation and maintenance of the Original Project by CAWD and PBCSD, respectively, shall be the revenues received by MPWMD from the sales of Recycled Water from the Project.

All financial commitments under the Fiscal Sponsorship Agreement for the continuing operation and maintenance of the Original Project by CAWD and PBCSD, respectively, shall be unaffected by this ordinance. In the event that the Fiscal Sponsor or Public Participants request to issue refunding bonds or other obligations in order to refinance any portion of the Capital Cost of the Project, MPWMD shall work with such Fiscal Sponsor or Public Participants in providing for the issuance of such obligations providing they are financially beneficial to MPWMD.

Section Seven: Purchase of Recycled Water from the Project

The General Manager is authorized to negotiate and, subject to the prior approval by the Board, to execute an Agreement for Sale of Recycled Water with each owner of one or more Recycled Water Irrigation Area(s) providing for the purchase and sale of Recycled Water from the Project. Each such Agreement for Sale of Recycled Water shall:

(1) require the Recycled Water users to purchase such Recycled Water for a term not less than thirty (30) years; and

(2) provide for a guarantee by CAWD and/or PBCSD, as the Project operators of the Project Expansion, of the delivery of Recycled Water from the Project to such Recycled Water users to meet all of their irrigation requirements except during an Interruption as defined herein; and

(3) prohibit such Recycled Water users, after completion of the Project Expansion, from using any potable water to irrigate any portion of the Recycled Water Irrigation Areas except during an Interruption as defined herein, provided, however, that the use of potable water during any such Interruption shall be further limited as may be required by the Board in response to water shortage emergency declared by the Board pursuant to Section 332 of the Monterey Peninsula Water Management District Law throughout the duration of such water shortage emergency; and

(4) provide for the timely payment and collection of revenues for Recycled Water; and

(5) after the expiration of the Financial Commitment of the Fiscal Sponsor, require MPWMD to impose rates and charges for Recycled Water sufficient to maximize payment for Operation and Maintenance Expenses and Capital Costs of the Reclamation Project, subject to the limitation set forth in Water Code section 13550 that the price for Recycled Water shall be comparable to the cost of supplying potable domestic water except as the parties to the Related Agreements may agree in writing otherwise.

Section Eight: Severability and Effective Date

If any subdivision, paragraph, sentence, clause or phrase of this ordinance is, for any reason, held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability, shall not affect the validity or enforcement of the remaining portions of this ordinance, or of any other provisions of the Monterey Peninsula Water Management District Rules and Regulations. It is MPWMD’s express intent that each remaining portion would have been adopted irrespective of the fact that one or more subdivisions, paragraphs, sentences, clauses, or phrases be declared invalid or unenforceable.

Notwithstanding the preceding subparagraph of this Section Eight, it is MPWMD’s express intent that Ordinance No. 109, the Supplemental Financing Agreement, the Supplemental Construction and Operation Agreement, and the Agreements for Sale of Recycled Water, together comprise a single indivisible transaction, and therefore, they should all become effective together or none of them shall have any effect. Accordingly, this Ordinance shall not become effective unless and until each of the agreements referenced in the preceding sentence is fully executed by each signatory thereof.

On motion by Director ________________________, and second by Director _____________________, the foregoing ordinance is adopted upon this _____ day of _______________, 2003, by the following vote:

AYES:

NAYS:

ABSENT:

I, Fran Farina, Secretary to the Board of Directors of the Monterey Peninsula Water Managemnet District, hereby certify the foregoing is a full, true and correct copy of an ordinance duly adopted on the _______ day of ________________, 2003.

Witness my hand and seal of the Board of Directors this ____ day of ________________, 2003.

_____________________________________

Fran Farina, Secretary to the Board

EXHIBIT A

WATER USE PERMITS ISSUED FOR PORTIONS OF WATER ENTITLEMENTS

OWNER	ORIGINAL WATER ENTITLEMENT (af/yr)	QUANTITY OF WATER ENTITLEMENTFOR WHICH WATER USE PERMITS HAVE BEEN ISSUED ^[1] (af/yr)	QUANTITY OF WATER ENTITLEMENT FOR WHICH WATER USE PERMITS HAVE NOT BEEN ISSUED ^1 (af/yr)
Pebble Beach Company	365.000	9.882	355.118
Macomber Estates/Lohr	10.000	7.857	2.143
Griffin Trust	5.000	3.716	1.284

BENEFITED PROPERTIES

All real property within the boundaries of the unincorporated portions of the Del Monte Forest as defined in Exhibit ”B” and such additional real property as has been designated and included as Benefited Properties under the Fiscal Sponsorship Agreement pursuant to amendments thereto as approved by the MPWMD Board before the date that this ordinance is adopted and Rule 23.5 is amended thereby.

EXHIBIT B

DEL MONTE FOREST

A Map of the unincorporated portion of the Del Monte Forest is attached hereto

U:\staff\word\boardpacket\2003\2003boardpacket\20031117\PublicHearings\7\item7_exh7a1.doc

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[1]. All quantities are listed in acre feet per year (af/yr) as of October 31, 2003.