ITEM:		PRESENTATIONS
10.A.	DISCUSSION OF POTENTIAL INCENTIVES FOR REGIONAL URBAN WATER AUGMENTATION PROJECT, INCLUDING WATER USE CREDITS
Meeting Date:			September 17, 2007	Budgeted:	N/A
From:			David A. Berger,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Same	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: At the request of the Board’s Water Demand Committee, this agenda item follows an oral presentation at this evening’s meeting by Keith Israel, General Manager, Monterey Regional Water Pollution Control Agency (MRWPCA) regarding that agency’s proposed Regional Urban Water Augmentation Project (Project). A key feature of this Project proposes to deliver and make available approximately 300 acre-feet per year of recycled water for parks, golf courses, athletic fields and other large landscaped areas in the California American Water (CAW) service area, to use as a substitute for potable water currently irrigating those facilities. The purpose of this agenda item is for the Board to initially discuss, provide policy direction and process guidance concerning future consideration of potential incentives to public and private owners of outdoor facilities that MRWPCA has identified as potential customers for the recycled water. Included among such incentives is a Sub-potable Water Use Credit draft concept ordinance (formerly known as No. 130) that the Water Demand Committee initially reviewed at its August 14, 2007 meeting, but deferred pending the outcome of Board discussion this evening.

RECOMMENDATION: It is recommended that the Board provide policy direction and process guidance to the Water Demand Committee and staff regarding further consideration of the Sub-potable Water Use Credit draft concept ordinance, as well as any other desired incentives for Monterey Peninsula potential recycled water customers.

BACKGROUND: A brief summary of the MRWPCA Regional Urban Water Supply Project is shown on page 149 of this agenda packet, and a more detailed description from the MPWMD Comparative Matrix of Water Supply Alternatives can be found on pp. 157. (These page references are to the Final Report of the District’s Community Advisory Committee, which also is an item on the September 17 Board agenda.)

At its May 9, 2007 meeting, the Water Demand Committee members Markey and Pendergrass with Director Lehman substituting for Committee Chair Foy, discussed a staff report and recommendation that the Board initiate an amendment to District rules to allow public agencies and private property owners a Water Use Credit for converting their parks, golf courses, landscaped street medians and other irrigated facilities from CAW’s limited potable supply to recycled water. Current District rules do not allow such a credit. Staff’s rationale for this proposed Board policy change is to create an incentive for these water users to participate in the MRWPCA Project and other future recycled water opportunities. Committee members discussed the importance of reducing potable irrigation as an important part of the District’s overall water conservation effort; that other possible incentives for property owner participation be explored, including a transfer provision and/or methods to reduce the Project’s cost such as federal/state grants and subsidies; and unanimously supported staff’s recommendation to proceed with drafting an ordinance (without transfer provision) and CEQA analysis for Committee review and subsequent Board consideration. Attached are the staff report reviewed at the May 9 Water Demand Committee meeting (Exhibit 10.A.-A), and approved action minutes from that meeting (Exhibit 10.A.-B).

At the August 14, 2007 Water Demand Committee meeting, Chair Foy, Directors Markey and Pendergrass received a staff report transmitting the Sub-potable Water Use Credit draft concept ordinance, along with a CEQA initial study and proposed negative declaration (Exhibit 10.A.-C). Stephanie Pintar provided an oral overview of the policy purpose and key provisions of the draft concept ordinance. She noted that although the draft ordinance was scheduled for first reading at the September 17, 2007 Board meeting, at the Technical Advisory Committee (TAC) meeting held the morning of August 14 several members expressed concern about that the lack of a transfer provision in the draft ordinance would not provide sufficient incentive to cities and other property owners to purchase recycled water. The TAC requested consideration of the draft ordinance be delayed for further discussion at its next meeting. Committee members Foy and Pendergrass expressed a similar concern, and the members discussed this and various other aspects of the draft ordinance, including its derivation. Director Markey expressed a desire that the Board consider other types of incentives beside Water Use Credits for converting irrigation of parks, golf courses and other large open space to recycled water. The committee consensus was that a) first reading of the draft ordinance not be scheduled for the September 17 Board meeting; b) Keith Israel be asked to make a presentation at that Board meeting regarding the recycled water component of his agency’s Regional Urban Water Augmentation Project (RUWAP); and c) the Board should discuss other potential options to create RUWAP incentives for Monterey Peninsula potential end-users to participate in the project such as grants or subsidies to reduce its cost, in addition to the proposed Water Use Credits ordinance.

Since the August 14 Water Demand Committee meeting, District staff has learned from Keith Israel that in recent meetings potential Monterey Peninsula end-users of Project recycled water expressed concern about 1) its relatively high capitalized cost (estimated in excess of $2,000 acre-feet/year), compared to potable or sub-potable sources they currently use; and 2) lack of an incentive to purchase this more expensive resource, given that current District policy would not enable potable water saved to be used to intensify water demand on other properties they own. Also, he indicated that MRWPCA’s efforts to identify federal and/or state grant funding to reduce Project cost to end-users have been unsuccessful to date; except as part of the $52 million in the Prop. 84 Bond earmarked to fund Central Coast projects identified in adopted Integrated Regional Water Management Plans. Mr. Israel will cover these points in his presentation to the Board.

Finally, District staff has received two written communications regarding the Sub-potable Water Use Credit draft concept ordinance. The first is a letter from Michael Stamp expressing concern about the CEQA process District staff followed, which is attached along with a memo from MPWMD General Counsel Dave Laredo regarding issues raised in the letter (Exhibits 10.A.-D and 10.A.-E). The second communication is a Seaside Basin Watermaster September 5, 2007 agenda report from Watermaster CEO Dewey Evans (Exhibit 10.A.-F). Seaside’s special legal counsel, Russ McGlothlin stated at the September 5 Watermaster meeting that he authored Mr. Evans’ report, and noted his satisfied with the opportunity for input provided by MPWMD legal counsel. District counsel and staff advised the Watermaster that the concept ordinance would provide an incentive for CAW and Seaside Municipal water users to switch to recycled water for open space irrigation; clarified that it would have no legal effect on adjudicated water rights and obligations of those two Seaside Basin producers. City of Seaside representatives; and committed to notify Watermaster entities not already on the District TAC of any future meetings where the draft concept ordinance will be discussed. Mr. McGlothlin also noted that the Watermaster may want to consider Seaside Basin Replenishment Assessment funds as a possible incentive for CAW and Seaside Municipal Water to conduct “in-lieu recharge” directly resulting from a decrease in potable demand caused by MRWPCA Project recycled water use.

EXHIBITS

10.A.-A MPWMD Staff Report Submitted to Water Demand Committee, dated May 9, 2007

10.A.-B May 9, 2007 Water Demand Committee Adopted Meeting Minutes

10.A.-C MPWMD Staff Report to Water Demand Committee, dated August 14, 2007

10.A.-D Letter from Michael Stamp, dated August 20, 2007

10.A.-E David C. Laredo memo, dated September 10, 2007

10.A.-F Watermaster CEO Agenda Memo dated September 5, 2007

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