EXHIBIT 20-B

Quarterly Water Supply Strategy and Budget Report

California-American Water, Water Distribution System: July – September 2006

June 22, 2006

1. Management Objectives

The District desires to maximize the long-term production potential and protect the environmental quality of the Carmel River and Seaside Ground Water Basins. In addition, the District desires to maximize the amount of water that can be diverted from the Carmel River Basin and injected into the Seaside Ground Water Basin while complying with the instream flow requirements recommended by the National Marine Fisheries Service (NOAA Fisheries) to protect the Carmel River steelhead population. To accomplish these goals, a water supply strategy and budget for production within the California American Water (Cal-Am) water distribution system is reviewed quarterly to determine the optimal strategy for operations, given the current hydrologic and system conditions.

2. Quarterly Water Supply Strategy: April - June 2006

On June 6, 2006, staff from the District, Cal-Am, and NOAA Fisheries discussed the proposed water supply strategy and related topics for the remainder of June 2006 and the July-September 2006 period. Currently, Los Padres Reservoir is full and spilling, Carmel River flow is approximately 50 cubic feet per second (cfs) at the MPWMD gaging station at Don Juan Bridge in Garland Park, and there is approximately 40 cfs flow in the Carmel River below river mile 5.5.

Given these “above normal” hydrologic conditions, it was agreed that for the remainder of June, Cal-Am's diversions from the upper Carmel Valley would be up to 1.5 cubic feet per second (cfs), including combined production from the Russell Wells Nos. 2 and 4 and other sources upstream of and including Scarlett Well No. 8. If feasible, Cal-Am could divert water from its San Clemente Reservoir during this period. However, the feasibility of diverting water at San Clemente Dam is constrained by water quality and operations related to the San Clemente Reservoir Drawdown Project mandated by the Department of Water Resources (DWR). The proposed budget limits Cal-Am diversions to 0.5 cfs upstream of and including Scarlett Well No. 8, when the streamflow recedes to 20 cfs for five consecutive days at the MPWMD gaging station at Don Juan Bridge in Garland Park.^[1] During July-September 2006, the proposed budget allows Cal-Am a net diversion of no more than 31 AF per month from the Russell Wells Nos. 2 and 4. With the exception of the Upper Carmel Valley, Cal-Am will operate its wells in the Lower Carmel Valley in a downstream to upstream sequence, as needed to meet demand.

For the Seaside Basin, it was agreed that in the July-September 2006 quarter, Cal-Am will nearly maximize production from the Seaside Basin wells with a goal of 518 AF per month. This level f production is specified to help conserve aquatic habitats in the Carmel River and result in an annual withdrawal of no more than 3,504 AF for Water Year 2006. The annual goal conforms to Cal-Am’s annual allocation for adjudicated water rights from the Seaside Coastal Basin under Judge Randall’s Decision in Cal-Am vs. City of Seaside, etal. (Case No. M66343, Superior Court of the State of California in and for the County of Monterey). Further, it is assumed that no water will be diverted from the Carmel River Basin and injected into the Seaside Coastal Basin during the June – September 2006 period.

Based on the rainfall and runoff that occurred during the October-May 2006 period, it was agreed that the projections for the upcoming quarter should be based on the assumption that inflows will range into “wet and extremely-wet year” levels during the budgeted June through September 2006 period. Specifically, the projected daily flows for this period were based on the reconstructed record of unimpaired flows at San Clemente Dam during WY 1982, adjusted for differences in timing of the actual recession in WY 2006. Building on similar forecasts made for the 2006 Memorandum of Agreement, District staff projected monthly unimpaired inflows at San Clemente Dam of 3,382, 1,520, 651 and 315 AF for the months of June, July, August, and September 2006, respectively. These monthly inflows are approximately equal to the 12-25% exceedance levels for these months, based on the 1902-2004 period of record. Table 1 shows a monthly breakdown of the recommended diversion and release schedule under the projected inflow conditions. Table 1 also shows expected inflows, outflows, and storage volumes at Los Padres and San Clemente Reservoirs for the July-September 2006 period.

It should be noted that there is some uncertainty regarding the runoff that will occur during the upcoming quarter and this uncertainty is compounded by the situation at San Clemente Dam and Reservoir, where Cal-Am is required to draw down San Clemente Dam. Based on the 2006 Biological Opinion for the Interim San Clemente Reservoir Drawdown Project by the NMFS and staff’s most recent projection of the daily flow recession, Cal-Am is likely to operate San Clemente Dam as follows:

1) With fish trapping scheduled to begin on June 28, 2006, the reservoir will remain full at the spillway elevation of 525 feet through July 2, 2006.

2) Drawdown of the reservoir from elevation 525 to 515 feet will commence on July 3, 2006.

3) During the drawdown period from July 3 to approximately August 4, 2006, the reservoir releases may be modified, depending on the physical ability to release water while minimizing the turbidity of water released through the ports or any other passage.

U:\staff\word\boardpacket\2006\2006boardpackets\20060622\PubHrgs\20\item20_exh20b.doc

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[1] Limiting diversions to 0.5 cfs upstream of Scarlett Well No. 8 is consistent with SWRCB Water Rights Order WR 2002-0002 and the 2002 Conservation Agreement between Cal-Am and the National Marine Fisheries Service.