January 9, 2007 EXHIBIT 4-A

Project No. 06-0022

Monterey Peninsula Water Management District

Post Office Box 85

Monterey, California 93942

Attention: Mr. Joe Oliver, Water Resources Manager

Subject: Proposal for Professional Services; Phase 1 ASR Project, Water Year 2007 Testing Program

Dear Joe:

In accordance with your request, Pueblo Water Resources, Inc. (Pueblo) is pleased to present this proposal for additional hydrogeologic and engineering services associated with development and implementation of the Water Year 2007 injection program for the Monterey Peninsula Water Management District’s (District) Phase 1 Aquifer Storage and Recovery Project.

BACKGROUND

The Phase 1 Aquifer Storage and Recovery (ASR) Project consists of expanding the successful Santa Margarita Test Injection Well No.1 (SMTIW No. 1) project to include the addition of a second well (SMTIW No. 2) and associated facilities in an expanded site area contiguous to the existing SMTIW No.1 site. The overall objective of the Phase 1 ASR Project is to facilitate the conjunctive use of water supplies in the Carmel River System and Seaside Groundwater Basin (SGB) that will benefit the natural resources of the Carmel River and the groundwater resources of the SGB.

As part of the District’s overall water supply augmentation strategy, the District is implementing the Phase 1 ASR Project on a fast-track basis with the goal to have SMTIW No. 2 ready for injection operations in Water Year 2007 (WY2007). As was presented in our earlier proposal to the District, dated September 5, 2006, the Phase 1 ASR Project consists of three basic project components that must be implemented on a sequential basis to achieve the District’s goals:

1. Drilling and construction of the SMTIW No. 2 and associated monitoring well.

2. Development and implementation of the WY2007 injection program for operation of both ASR wells.

3. Design, engineering, and construction of the on-site ancillary facilities (e.g., the chemical/electrical building, permanent piping, instrumentation, etc,).

As you are aware, the first component (drilling and construction of SMTIW No. 2) is currently underway, and is anticipated to be completed sometime in February 2007. We understand that the District anticipates that it will be able to obtain water for injection testing through the Cal-Am distribution system this winter, beginning as early as January, 2007. The District therefore desires to amend Pueblo’s existing contract to implement the second project component - the development and implementation of a test program for WY2007 to demonstrate and quantify the capabilities and limitations of injection and extraction at the dual-well ASR site.

Following the acquisition of preliminary testing and well performance data for SMTIW No. 2, a design basis and detailed scope of services for the remaining third component of the Phase 1 ASR Project will be developed, and a separate proposal will be submitted for these final work items. It is anticipated that discussions between Pueblo and District staff will take place over the coming weeks, with Pueblo’s submittal of a supplemental scope of services for the third component in late February/early March 2007, based on the current SMTIW No. 2 construction schedule.

PURPOSE AND SCOPE

Testing conducted by the District at SMTIW No.1 over the past five years has demonstrated that injection, storage, and recovery of treated Carmel River system water in the Santa Margarita Sandstone aquifer of the SGB is feasible. The primary purpose of the testing during WY2007, therefore, is to evaluate the capabilities and limitations of the new SMTIW No. 2, operating both by itself as well as during simultaneous dual-well operation with the SMTIW No. 1. The purpose of the testing can be further categorized into issues generally associated with: 1) injection well hydraulics and performance; 2) groundwater basin response to dual-well injection; and 3) water quality issues associated with geochemical interaction and mixing of injected and native ground waters.

Issues associated with the hydraulics and performance of the injection well deal primarily with determining the optimal operational and maintenance characteristics of SMTIW No. 2 itself. Primary issues to be investigated include:

Determination of injection well efficiency and specific capacity;
Evaluation of injection well plugging rates;
Determination of optimal rates, frequency, and duration of backflushing in order to maintain long-term injection capacity,
Determination of long-term sustainable injection rates, and;
Determination of mutual well interference effects between the two ASR wells at the Phase 1 site.

Issues to be investigated which are associated with the response of the aquifer system to injection are of importance for evaluating the feasibility of expanding the ASR program with additional well facilities in the SGB. While testing of SMTIW No. 1 over the past 5 years has included investigation of the aquifer response to injection, it is important to quantify the response to the increase in overall injection capacity (up to 150 percent greater) at the site gained through the installation of SMTIW No. 2. In order to evaluate the impacts of dual-well injection and develop data required to evaluate the feasibility of expanding the ASR system in the SGB, continued data collection regarding the following is important:

Aquifer parameters and localized aquifer response that will affect injection well interference. This information is important for determining the necessary spacing and maximum injection rates of additional ASR wells in the SGB without creating undesirable results, and;
Regional aquifer response that may affect or limit the expansion of the ASR system. For example, there is some concern that large expansion of the ASR system may have undesirable results (i.e., groundwater “daylighting” at the ground surface). In particular, the response of the aquifer system near the coast to increased injection needs to be observed. These data will also assist in future refinement of the understanding of the boundary condition between the Santa Margarita Sandstone aquifer and the Pacific Ocean in the offshore continental shelf region of the aquifer system.

Issues related to water quality are important because both intermixing with native groundwater and geochemical interaction with aquifer minerals can affect the potability of the recovered water and the plugging rate of the injection well(s). Important water quality data needs include the following:

Monitor injectate water quality versus plugging rates;
Identify water quality changes during subsurface storage associated with mixing and geochemical interactions, and;
Track water quality improvement over successive injection/storage/recovery (ISR) cycles.

Scope of Services

Based on our understanding of the District’s needs, and our experience with SMTIW No. 1 and similar projects, we have prepared a scope of services to assist the District with the development and implementation of a test program for WY2007. The test program will develop data and conclusions that specifically evaluate issues associated with the hydraulics and performance of the new SMTIW No. 2 well itself as well as dual-well operation with SMTIW No. 1. The test program will also continue the development of aquifer response and water quality data that will assist in future evaluations of the feasibility of expanding the ASR system in the SGB.

Task 1 - Develop WY2007 Test Program. Pueblo will review existing conditions at the site and meet with District staff to discuss test program goals and scheduling. Pueblo will provide the following services associated with program development:

Project kickoff meeting(s) with District and Cal-Am.
Develop hydrogeologic and water quality test program and data needs for a complete ISR cycle during WY2007.
Develop analytic laboratory testing schedule.

Task 2 - Test Program Equipment Mobilization. Necessary instrumentation and equipment for testing will be provided and installed by Pueblo, as outlined below:

Provide and install water level transducers at both the SMTIW No. 2 as well as the new on-site monitoring well (MW), both of which will be coupled to the existing Hermit data logger at the site.
Provide and install a dedicated sampling pump in the new MW.

The purchased instruments will become District property, providing residual benefit to the District for ongoing monitoring work at the Phase 1 ASR Project site, or at other sites.

Task 3 - Test Program Implementation and Assistance. Pueblo will assist District staff with the implementation of the test program. Pueblo assistance is envisioned to include the following:

Supervision of each ISR test phase initiation.
Periodic field observation of critical phases of the test.
Training of District staff in operation of test facilities.
Provision of test logs and procedures to District staff.

This task assumes that Pueblo will be supported by District staff in the ongoing operation, data collection, and water sampling for the test program. In addition to the above specific subtasks, we have included in our budget estimate the provision of on-going assistance to be provided at a similar level as was provided during WY2006, on an as-needed/requested basis to address critical project needs as they arise and depending on District staffing and project needs.

Task 4 - Water Quality Assessment. Pueblo will also assist the District with implementation of the on-going water quality data collection program, which is to include the addition of the new SMTIW No. 2 and associated MW, as well as the existing SMTIW No. 1. Specific water quality testing and analyses to be performed in this task include the following:

Assistance with monitoring and tracking of field water quality parameters during various phases of injectate, storage, and recovery, as well as periodic grab sampling and analysis for characterization and assessment of injectate and recovered waters to supplement field water quality data.
Sampling and analysis of disinfection by-products (DBPs, e.g., TTHMs and HAAs), iron-dissimilatory bacteria, and chloride ion to assess DBP formation/degradation and mixing of the injectate and native groundwater in the subsurface.

Water quality testing will occur at regular intervals during all phases of the ISR cycle (it is assumed that WY2007 recovery water will be able to be pumped into the Cal-Am distribution system). It is anticipated that Pueblo will retain laboratory services for DBPs and chloride ion with Monterey Bay Analytical Services, located near the District’s office in Ryan Ranch. It is assumed that District staff will perform most of the grab sampling at the wells and delivery/shipping of samples to the laboratories. It is also assumed that the District will provide lab services for certain additional analyses (e.g., general mineral and general physical parameters) provided through the District’s agreement with the Monterey County Consolidated Laboratory, as has been practiced in previous years.

Task 5 - Engineering Assistance for Interim Facilities. In order to put SMTIW No. 2 into “early” operational service prior to construction of permanent chemical / electrical / mechanical facilities (i.e., aboveground facilities), interim or temporary facilities will need to be engineered and constructed to intertie the new well to existing SMTIW facilities. In addition, final well performance data will require analysis and incorporation into various “pre-design” elements of the permanent site facilities, such as sizing of PG&E electrical service upgrades and permanent well pump / piping / electrical sizing. (This information is needed to define the scope and costs of the full scale permanent facilities design work.) Specific items of work in this task include the following:

Engineering

a. Assess electrical loads for the interim test pump and specify materials for extension of power to new well.

b. Analyze well performance tests, develop electrical load requirements for the permanent well pump for SMTIW No. 2.

c. Assess total permanent electrical loads and coordinate with PG&E for upgrading of existing electrical service to site. (Note: District is responsible for PG&E fees.)

d. Develop plan for temporary extension of injection supply piping from existing well to new well.

e. Establish interim operational procedures for injection, backflush, production, startup, and shutdown operations at new well.

f. Coordinate and provide engineering assistance as needed for the new injection water supply source from the Cal-Am system (i.e., Hilby pipeline), and/or potential delivery of recovered water from SMTIW No. 2 back into the Cal-Am system. (A total of 32 hours of Principal Engineer’s time is assumed for this task.)

Construction

g. Install electrical conduits and conductors to extend electrical power from existing SMTIW No. 1 to new well site. (Note: Final connection to new well test pump is by others. Budget includes cost of two electrical “changeovers” from SMTIW No.1 to No. 2 during the WY2007 period.)

h. Install intertie and extension of injection supply line from existing well to new well, using available 8-inch HDPE piping at site, if possible. Includes up to 250 feet (depending on the route) of additional 8-inch HDPE line, fittings, flange and valving for aboveground line.

Deliverables for this task include the following items:

· Specifications and informal construction sketches for electrical and piping interties.

· Submittal package for electrical service upgrade to PG&E.

· Installation of electrical and HDPE injection line extensions (approximately 400 feet each) to the new well site area. (Note: Final intertie, and connecting piping / electrical to the new well is covered within the well drillers existing contract.)

· Operations instruction manual for interim use of SMTIW No. 1 and No. 2 for WY2007.

Task 6 - Data Analysis and Reporting. A summary of operations report (SOR) will be prepared documenting the test program, procedures, and results. Specifically, preliminary conclusions and recommendations will be made regarding the operation and maintenance of SMTIW No. 2 (i.e., long-term injection rates, backflushing frequency, etc). Aquifer response data collected will be analyzed for aquifer parameters. Conclusions regarding the relative success of the testing and recommendations for further analysis, modeling, or subsequent test phases will be provided. Much of the data and information developed in this task will be directly applicable to large-scale ASR programs in the SGB.

Services Not Included

Completion of the WY2007 test program may require the services of other entities as well as additional costs or fees, which are not included in our scope of services. These items are assumed to be provided by District staff, contractors retained by the District, or others. Work items that are not a part of our services include the following:

· Hermit data-logger and transducers for the SMTIW No. 1 and other existing SGB monitoring wells (assumed District provided).

· Analytic laboratory fees for analyses that can be performed by Monterey County Consolidated Laboratory.

· PG&E application or processing fees for initiation of upgraded electrical service for SMTIW No. 2.

· Permit fees (if any).

· Cost of water, electricity, or other utilities.

· Any others items not specifically included in Pueblo’s scope of services.

Schedule

The general schedule anticipated for the WY2007 program is presented below:

· Injection Operations – January through May 2007 (depending on the SWRCB permit timing and conditions, and flow conditions in the Carmel River).

· Storage Period - June through August 2007.

· Recovery Operations – September through October 2007.

· Summary of Operations Report (draft) – Submitted in early December 2007.

ESTIMATE OF COSTS

Pueblo’s estimated costs for services related to the WY2007 testing program were developed based on the proposed scope of work, our experience with similar projects, and our 2007 fee schedule (attached). The estimated labor costs for the major tasks, and the costs for the equipment, outside services, and other direct costs that will be required for completion of the project are fully itemized in the attached spreadsheet, with overall task budget subtotals summarized in the table below:

Water Year 2007 Testing Program
Estimated Costs

Task No./Description	Estimated Cost
1 – Develop WY2007 Test Program	$6,740
2 – Test Program Equipment Mobilization	$3,420
3 – Test Program Implementation and Assistance	$21,250
4 – Water Quality Assessment	$10,200
5 – Engineering Assistance for Interim Facilities	$20,900
6 – Data Analysis and Reporting	$14,050
Other Direct Costs	$4,575
Equipment and Instrumentation	$6,900
Outside Services	$70,553
Project Contingency (10%)	$15,859
Total Estimated Cost	$174,447

The total cost estimate for Pueblo’s services shown in the table above also includes a ten percent contingency in accordance with previous District projects; we recommend that the project contingency be held for authorization by District staff upon written notice and justification by Pueblo.

SPECIAL NOTE: Costs for the temporary electrical power to the new well (totaling $35,750) are significant, partly due to the high cost of materials (there is over 2,400 feet of 350kcmil copper wire needed). As part of our work, Pueblo will assess the feasibility and comparative cost of utilizing a temporary generator instead of hard-wiring the temporary well pump.

A detailed breakdown of Pueblo’s estimated costs showing the various labor rates and assumed hours for the services proposed, outside services, and other direct costs is provided on the attached spreadsheet.

We understand that in order to authorize this work, your Board must first approve a formal contract amendment. Based on our current workload, we believe that we can commence work within 7 days of your authorization. We appreciate the opportunity to provide continued assist the District on this important project, and look forward to a timely and successful completion of the work. As always, please do not hesitate to contact us if you have any questions or require any additional information.

Sincerely,

Pueblo Water Resources, Inc.

Robert C. Marks, P.G., C.Hg.

Principal Hydrogeologist

Stephen P. Tanner, P.E.
Principal Engineer

RCM.SPT

Attachments: 2007 Fee Schedule
Cost Estimation Spreadsheet