ITEM:		ACTION ITEMS
12.	CONSIDER APPROVAL OF AGREEMENTS RELATED TO THE CARMEL AREA WASTEWATER DISTRICT (CAWD)/PEBBLE BEACH COMMUNITY SERVICES DISTRICT (PBCSD) RECYLED WATER PROJECT EXPANSION: (1) Supplemental Financing Agreement (between MPWMD and Pebble Beach Company) (2) Agreements for Sale of Recycled Water (five agreements, each between MPWMD and one of the five recycled water users) (3) Amended and Restated Construction and Operation Agreement (among MPWMD, CAWD, PBCSD, and Pebble Beach Company) (4) First Amendment to Water Purchase Agreement (among MPWMD, CAWD, and PBCSD) (5) First Amendment to Financing Implementation Agreement (between MPWMD and Pebble Beach Company) (6) First Amendment to Trust Agreement (between MPWMD and U.S. Bank National Association)
Meeting Date:			November 15, 2004	Budgeted:	N/A
From:			David A. Berger,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Andrew M. Bell and David C. Laredo	Cost Estimate:	N/A
General Counsel Approval: Yes
Committee Recommendation: N/A
CEQA Compliance: Ordinance No. 109 was enacted in reliance on prior Certified EIR and CEQA materials – CEQA Guidelines §15162. Approval of the six agreements implements the policy directive as set forth in that Ordinance.

SUMMARY: On May 27, 2004, the Board adopted Ordinance No. 109 (attached under separate cover as Exhibit 12-A), which amended Monterey Peninsula Water Management District (MPWMD) Rule 23.5 to enable upgrades to the Carmel Area Wastewater District (CAWD)/Pebble Beach Community Services District (PBCSD) Recycled Water Project (formerly titled the CAWD/PBCSD Wastewater Reclamation Project).  Under Ordinance No. 109, the Water Entitlement held by the Pebble Beach Company in accordance with MPWMD Ordinance No. 39 were made available to properties throughout Del Monte Forest, rather than only to properties owned by the Pebble Beach Company (PBC), in order to finance the upgrades to the existing recycled water treatment, storage, and distribution system (“Project Expansion”). 

The Project Expansion addressed in Ordinance No. 109 consists of (1) the addition of advanced treatment facilities at the CAWD wastewater treatment plant, and (2) the addition of storage, treatment, and distribution facilities at Forest Lake Reservoir. The Board will consider approval of six agreements (attached under separate cover as Exhibits 12-B through 12-G) to enable the financing, construction, and operation of the CAWC/PBCSD Recycled Water Project Expansion.

Once the six agreements are in place and PBC, CAWD, and PBCSD have executed documents committing to proceed with the Project Expansion, construction of the facilities can proceed. The earliest the Forest Lake Reservoir facilities are anticipated to be in place is November 2005. Filling of the reservoir would then begin with the current tertiary-treated water from the CAWD wastewater treatment plant. Construction of the advanced treatment facilities at the CAWD treatment plant is anticipated to be completed by the end of calendar year 2006. Recycled water from the Project Expansion could be delivered to the recycled water users by the start of the 2007 irrigation season.

Additional ancillary documents may be needed to effectuate, transmit, and fully implement the six agreements and the transactions they authorize. Examples of these documents might include letters of instruction or notices to the parties. These ancillary documents are intended to be executed by the General Manager, subject to prior approval as to form of the General Counsel, and shall be consistent with the provisions of the six agreements as authorized by the Board.

RECOMMENDATION: Staff recommends that the Board take the following actions:

1. Consider approval of the following six draft agreements:

a. Supplemental Financing Agreement (between MPWMD and PBC) (Exhibit 12-B)

b. Agreements for Sale of Recycled Water (five agreements, each between MPWMD and one of the five recycled water users) (Exhibit 12-C)

c. Amended and Restated Construction and Operation Agreement (among MPWMD, CAWD, PBCSD, and PBC) (Exhibit 12-D)

d. First Amendment to Water Purchase Agreement (among MPWMD, CAWD, and PBCSD) (Exhibit 12-E)

e. First Amendment to Financing Implementation Agreement (between MPWMD and PBC) (Exhibit 12-F)

f. First Amendment to Trust Agreement (between MPWMD and U.S. Bank National Association) (Exhibit 12-G)

2. Direct staff to finalize the agreements, incorporating those edits and changes directed by the Board, and any non-substantive changes the General Counsel determines to be necessary for form and for consistency among the agreements, and authorize the General Manager to execute the six final agreements, as approved to form by the General Counsel.

3. Authorize the General Manager to execute any and all ancillary documents that he deems necessary or advisable, as approved by the General Counsel as to form, in order to effectuate the purposes of these six agreements and the transactions contemplated thereby.

BACKGROUND: The CAWD/PBCSD Wastewater Reclamation Project began operation in August 1994. Since operation began, the recycled water users have experienced damage to some of their turf areas, primarily the golf course tees and greens, due to the combination of high levels of sodium in the recycled water with low-salt-tolerant grass species used in those portions of the golf courses. As a result, significant quantities of potable water have been needed to meet the recycled water users’ water quality needs. In addition, potable water has been required to provide sufficient quantity of irrigation water during periods when demand for irrigation water exceeded the available supply of recycled water.

To address the problems of recycled water quality and quantity, all parties involved in the project have been working since 1995 to develop solutions. The parties now all agree that the best, most cost-effective solution is to (1) add additional treatment facilities at the CAWD treatment plant to produce final treated water quality that meets the recycled water users’ needs, and (2) retrofit Forest Lake Reservoir in Del Monte Forest, formerly owned by California-American Water Co. but taken out of service several years ago, to provide the additional recycled water storage capacity needed to meet the water quantity requirements.

In order to fund these improvements, the Pebble Beach Company proposed a financing plan whereby the Water Entitlement held by the Pebble Beach Company in accordance with MPWMD Ordinance No. 39 and current project agreements would be made available to residential properties throughout Del Monte Forest, rather than only to properties owned by the Pebble Beach Company. Ordinance No. 109 amended MPWMD Rule 23.5 to re-define benefited properties and provide a framework for the agreements for financing, construction and operation, and sale of recycled water.

A listing and brief description of these agreements are as follows:

Supplemental Financing Agreement (between MPWMD and PBC) (Exhibit 12-B). This agreement sets forth the detailed financing plan that will fund both the existing project and physical improvements to that project. This document confirms the Financial Commitment of PBC and provides details by which water from the PBC Water Entitlement can be used.

Agreements for Sale of Recycled Water (five agreements, each between MPWMD and one of the five recycled water users) (Exhibit 12-C). This is a set of five agreements, each between MWPMD and the owner of a property that uses recycled water to irrigate their lands. The five parties are as follows:

(1) Pebble Beach Company, a general partnership

(2) Monterey Peninsula Country Club, a California corporation

(3) Cypress Point Club, a California corporation

(4) Poppy Holding, Inc., a California corporation

(5) Robert Louis Stevenson School, a California nonprofit corporation

The Agreements for Sale of Recycled Water require that recycled water be used for irrigation, and define the limited circumstances and consequences under which potable water may be used for irrigation. Section 2.8 of the agreement addresses the conditions and method for determining whether surplus recycled water is available, and how surplus recycled water will be sold and used.

Amended and Restated Construction and Operation Agreement (among MPWMD, CAWD, PBCSD, and PBC) (Exhibit 12-D). This agreement defines the respective roles of the project participants and sets forth details relating to production, ownership, and use of the Recycled Water. The agreement describes how construction, operation, and maintenance of the Project Expansion shall be funded and recognizes the related project agreements, including the five other agreements being considered as part of this item. A primary feature of this agreement is that whereas under the current agreements, MPWMD is responsible for water quality, under the new agreement CAWD and PBCSD are given responsibility for providing water of suitable quality to meet quality standards. The agreement also sets quality standards for Recycled Water and specifies how Surplus Recycled Water shall be determined, sold, and used. In addition, a significant change to the definition and use of the Operation and Maintenance Reserve Fund has been made, based on experience with the use of this fund since inception of the original project.

First Amendment to Water Purchase Agreement (among MPWMD, CAWD, and PBCSD) (Exhibit 12-E). This agreement sets forth the provisions by which MPWMD purchases recycled water from CAWD and PBCSD. It also specifies how the various capital and operating funds shall be funded and used. In concert with the Amended and Restated Construction and Operation Agreement, the definition and use of the Operation and Maintenance Reserve Fund has been amended.

First Amendment to Financing Implementation Agreement (between MPWMD and PBC) (Exhibit 12-F). This agreement makes minor changes to the original Financing Implementation Agreement so as to be consistent with the other amended agreements.

First Amendment to Trust Agreement (between MPWMD and U.S. Bank National Association) (Exhibit 12-G). This agreement changes definitions in the existing Trust Agreement so as to be consistent with the other amended agreements.

IMPACT ON STAFF/RESOURCES: MPWMD has no obligation for financial contributions to the existing CAWD/PBCSD Wastewater Reclamation Project or the Recycled Water Project Expansion. However, the District will continue to collect recycled water sales revenues and disperse the funds for project operation and maintenance expenses and for interest payments on the Certificates of Participation for the existing project. MPWMD's legal and other expenses associated with development of these agreements and related activities are eligible for reimbursement from the existing project and the Project Expansion.

EXHIBITS

12-A MPWMD Ordinance No. 109

12-B Supplemental Financing Agreement (between MPWMD and PBC)

12-C Agreements for Sale of Recycled Water (five agreements, each between MPWMD and one of the five recycled water users)

12-D Amended and Restated Construction and Operation Agreement (among MPWMD, CAWD, PBCSD, and PBC)

12-E First Amendment to Water Purchase Agreement (among MPWMD, CAWD, and PBCSD)

12-F First Amendment to Financing Implementation Agreement (between MPWMD and PBC)

12-G First Amendment to Trust Agreement (between MPWMD and U.S. Bank National Association)

Note: Exhibits 12-A through 12-G are provided under separate cover. The Exhibits are available for review at the District office; the Carmel, Carmel Valley, Monterey, Pacific Grove and Seaside libraries; and on the District’s web site at

http://www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20041115/12/item12.htm.

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