ITEM:		ACTION ITEMS
15.	CONSIDER REQUEST OF PEBBLE BEACH COMPANY TO INITIATE AN ORDINANCE TO EXPAND THE GEOGRAPIC AREA FOR UTLIZATION OF THE COMPANY’S WATER ENTITLEMENT
Meeting Date:			August 20, 2007	Budgeted:	N/A
From:			David A. Berger,	Program/	N/A
			General Manager/	Line Item No.:
			David C. Laredo,
			General Counsel
Prepared By:			Same	Cost Estimate:	N/A
General Counsel Approval: Yes
Committee Recommendation: N/A
CEQA Review: None required at this time; see comments below. Ordinance No. 109 was enacted in reliance on prior Certified EIR and CEQA materials – CEQA Guidelines §15162.

SUMMARY: This agenda item seeks policy direction regarding a request of the Pebble Beach Company (PBC or Company) for the District Board to initiate an ordinance that, if approved, would expand use of PBC’s existing water entitlement to be utilized within the entire California American Water (CAW) service area. Currently, District Ordinance No. 109 (codified as Rule 23.5) limits use of up to 175 acre-feet of the PBC water entitlement to only residential properties in the Del Monte Forest. PBC indicates that water entitlement sales within the Del Monte Forest, proceeds from which are committed as the source for underwriting the capital cost of the Pebble Beach Expanded Recycled Water Project currently under construction, are not expected to generate sufficient revenue to cover the Project’s $12 million greater cost than was estimated in Ordinance No. 109. PBC requests that all other provisions of Ordinance No. 109 remain intact. Details of the PBC request, and its supporting rationale are contained in a July 27, 2007 letter from Mark Stilwell, Executive Vice President/General Counsel (Exhibit 15-A).

District staff and legal counsel believe that there are a series of important legal and public policy issues that the PBC request raises. This belief is supported by the fact that new CAW residential use hook-ups generally are unavailable outside of the Pebble Beach area. As shown in the Monthly Allocation Report also on this Board agenda, the cities, county and airport district have relatively small amounts of their Jurisdictional Allocations and Public Credits remaining. District staff understands that these limited amounts generally have been prioritized and reserved for pending and planned economic development and affordable housing projects. Thus, in the event the Board wishes to move forward on the PBC request, this report recommends several process steps to directly involve the land use Jurisdictions within the District, interested citizens and the Board’s Water Demand Committee in developing the requested ordinance. Staff and counsel also recommend that, as an important pre-requisite to this process, the District and PBC enter into an agreement that commits the latter to pay for all legal and other out-of-pocket expenses associated with development of the requested ordinance, and which would indemnify the District if such an ordinance is adopted and challenged.

RECOMMENDATION: Staff and legal counsel recommend that the Board consider the following actions:

1. Decide if it desires to respond favorably to the Pebble Beach Company request at this time; or if the item should be deferred to a future meeting, or be tabled.

2. If the Board decides to proceed, direct legal counsel and staff to develop an initial draft ordinance in consultation with PBC, which would also include District counsel analysis of California Environmental Quality Act requirements related to consideration of such an ordinance.

3. Refer the initial draft ordinance to the Water Demand Committee, Policy Advisory Committee and Technical Advisory Committees. In referring the draft ordinance to the latter two committees, particular input should be requested from their elected officials and staff members on the ways and means by which expanded use of PBC entitlement water in their jurisdictions should be decided or prioritized, and if its utilization should be limited to residential land uses, only.

4. Finally, as a pre-requisite to initiating step 1, above, the Board should direct legal counsel and staff to negotiate, and authorize execution of, a reimbursement and indemnification agreement with the Pebble Beach Company, which would cover a) the District’s legal and other actual out-of-pocket expenses incurred in drafting the requested ordinance and preparing the necessary environmental analysis; and b) any and all District liability associated with potential adoption of the requested ordinance.

BACKGROUND: Construction of the Pebble Beach Wastewater Reclamation Project was capitalized, and its operation is funded, pursuant to the MPWMD Board’s adoption of Ordinance No. 39 in 1988. This ordinance directed the District create and enter into implementing agreements with the two public entities that own and operate Project facilities, the Carmel Area Wastewater District (CAWD) and Pebble Beach Community Services District (PBCSD), as well as with the Pebble Beach Company, as its primary fiscal sponsor and other recycled water users in the Del Monte Forest. Since the original Project operation began in 1994, 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.

In order to resolve problems of recycled water quality and quantity, MPWMD and all other parties involved in the Project, over several subsequent years, developed a proposed Project expansion consisting of 1) additional treatment facilities at the CAWD wastewater plant to produce final treated water quality that meets the recycled water users’ needs; and 2) retrofitting Forest Lake Reservoir in the Del Monte Forest, a surface water storage facility that CAW took out of service many years ago, and was subsequently acquired by PBCSD, to provide an adequate amount of high-quality water throughout each irrigation season. The combination of these two facility improvements is expected to obviate the need for periodic potable water flushing of greens and tees, when the CAWD portion of the Project expansion is complete in mid-2008.

In order to fund these improvements, the PBC proposed a financing plan, in which the water entitlement held by the Company, in accordance with 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 PBC. The Board adopted Ordinance No. 109 in May, 2004 that amended MPWMD Rule 23.5 to re-define benefited properties and provide a framework for the various agreements required to finance, construct, operate, and sell recycled water from the expanded CAWD/PBCSD Project. The Board approved those implementing agreements in November 2004.

IMPACT ON STAFF/RESOURCES: MPWMD has no obligation for financial contributions to the original CAWD/PBCSD Wastewater Reclamation Project, or the Expanded Recycled Water Project. The District collects recycled water sales revenues, and disperses the funds to CAWD and PBCSD for project operation and maintenance expenses, and for interest payments on the Certificates of Participation the District issued to capitalize the original Project. MPWMD's financial and other costs associated with this fiscal agent function are paid for out of water sales revenues. The District’s legal and other costs associated with development of Ordinances 39 and 109, their implementing agreements and related activities were reimbursed by revenues that paid for the existing Project and the Project Expansion, pursuant to the terms of the 1989 Fiscal Sponsorship Agreement, and its 2004 Supplemental Financing Agreement, entered into by the District and PBC. District expenses related to preparing the PBC’s current requested ordinance would be reimbursed, and liability covered, by the agreement recommended above. Finally, there would be significant but unknown impact on District staff workload associated with supporting this effort.

EXHIBITS

15-A July 27, 2007 letter from Mark Stilwell, Pebble Beach Company

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