MPWMD BOARD MEETING--MAR 26, 2009--EXHIBIT 14A--DRAFT FINDINGS OF DENIAL FOR APPLICATION #20080915MBS TO AMEND THE CAW WDS TO SERVE MBSE

EXHIBIT 14-A

MONTEREY PENINSULA WATER MANAGEMENT DISTRICT

DRAFT

FINDINGS of DENIAL

CONSIDER APPLICATION TO AMEND

CALIFORNIA AMERICAN WATER DISTRIBUTION SYSTEM TO SERVE MONTEREY BAY SHORES ECORESORT

Service area: APN 011-501-014

Application #20080915MBS

Adopted by MPWMD Board of Directors on March ___, 2009

Unless noted otherwise, all cited documents and materials are available for review at the MPWMD Office, 5 Harris Court, Building G, Monterey (Ryan Ranch).

WHEREAS: On February 26, 2009, following a public hearing, the Monterey Peninsula Water Management District Board of Directors voted to (a) deny Application #20080915MBS [without prejudice]; (b) directed MPWMD staff to prepare Findings of Denial for consideration on March 26, 2009; and (c) determined that, if the applicant wishes to proceed, MPWMD shall prepare a Subsequent Environmental Impact Report focused on water issues prior to reconsideration of the application. The term “deny without prejudice” means that the application may be submitted again for a de novo consideration by the Board.

IT IS HEREBY FOUND AND DETERMINED AS FOLLOWS:

1. FINDING: Security National Guaranty, Inc., (SNG) is identified as the co-applicant and owner of the 39.04-acre parcel in Sand City identified as APN 011-501-014 (referred to herein as the “subject parcel”), on which a multi-use resort known as the Monterey Bay Shores Ecoresort (MBSE) is planned. The proposed water purveyor to the subject parcel is co-applicant California American Water (CAW), an investor-owned regulated public utility. For simplicity, this application may be referred to herein as the “MBSE application.” The Monterey Peninsula Water Management District (MPWMD or District) and California Public Utilities Commission (CPUC) previously approved annexation of the subject parcel into the CAW service area, but CAW service to the subject parcel is restricted by MPWMD Rule 23.6, which was created by Ordinance No. 132. SNG holds water rights totaling 149 acre-feet per year (AFY) for on-site use on the subject parcel from the Seaside Groundwater Basin as directed by the Monterey County Superior Court in the Seaside Basin Adjudication. The MPWMD recognizes SNG’s water rights as authorized by the Monterey County Superior Court.

EVIDENCE: Application #20080915MBS, site map and associated materials submitted September 15, 2008; additional application materials submitted in October 2008. MPWMD Permit #M07-03-L4 to CAW approved on October 15, 2007. CAW Advice Letter #712 to the CPUC and map dated October 23, 2008. MPWMD Ordinance No. 132 adopted January 24, 2008. Seaside Groundwater Basin Judgment (Final Decision) dated March 27, 2006, as amended on February 9, 2007, Monterey Superior Court Case #M66343, California American Water vs. City of Seaside et al. MPWMD agenda packet for February 29, 2009, Item 15; Board discussion as summarized in meeting minutes for February 26, 2009, and as viewed on the DVD of the meeting proceedings.

2. FINDING: An onsite well owned by SNG currently exists on the subject parcel, but use has been irregular and minimal as the subject parcel has been vacant for many years. Two groundwater monitoring wells owned by MPWMD also exist on the subject parcel, and are regularly monitored by MPWMD staff in cooperation with the property owner.

EVIDENCE: Permit application and other materials as specified in Finding #1. MPWMD well production and monitoring records.

3. FINDING: No new wells or related water supply facilities regulated by MPWMD are proposed in Application #20080915MBS. Use of an existing onsite well, to be operated by CAW, was described as an “alternative and secondary option” if service from CAW’s wells is not feasible. The application did not provide information on the ability of the existing well in its current condition to meet the full water needs of the MBSE project, nor the ability of the current onsite water system to meet the technical, managerial and financial standards of the Monterey County Health Department.

EVIDENCE: Permit application (Attachment 4) and other materials as specified in Finding #1. Monterey County Code available at offices of Monterey County Health Department.

4. FINDING: The applicants have applied for a permit to amend the CAW Water Distribution System (WDS) to enable up to 90 AFY of CAW water production from the Seaside Basin to serve the subject parcel. In a January 29, 2009 letter, CAW stated that it “will deliver up to 90 acre-feet of the Monterey Bay Shores Ecoresort (MBSE) Seaside Basin entitled water rights to Assessor’s Parcel Number (APN) 011-501-014. CAW will insure Seaside Wells will be operated year round to deliver MBSE water to the above parcel.”

EVIDENCE: Permit application materials as specified in Finding #1. Letter dated January 29, 2009, from Craig Anthony, CAW General Manager, to Ed Ghandour, President of SNG.

5. FINDING: The State Water Resources Control Board (SWRCB), via a February 5, 2009 letter from its Chief Enforcement Officer and Assistant Deputy Director for the Division of Water Rights, determined that the one-for-one replacement requirement found in Condition #2 of SWRCB Order WR 95-10 would not apply to the MBSE application because CAW water supply to the subject parcel will be derived from the Seaside Basin, as stated in CAW’s letter of January 29, 2009. The SWRCB letter also stated, “However, Cal-Am should not in any case [italics added] supply the project with Carmel River water. This would only exacerbate Cal-Am’s illegal diversion of water from the Carmel River.” The SWRCB letter also stated, “If the District decides to approve this application, I recommend that the District require Cal-Am to institute strict water accounting methods to ensure that any use of Carmel River water does not serve this project [italics added]” The District interprets the quoted statements in italics to mean that use of Carmel River to serve MBSE shall be expressly prohibited at all times.

EVIDENCE: Letter dated February 5, 2009, from James W. Kassel, Chief Enforcement Officer and Assistant Deputy Director for the SWRCB Division of Water Rights, to Laurens H. Silver, attorney for California Environmental Law Project/Sierra Club. CAW letter dated January 29, 2009, as described more fully in Finding #4. MPWMD Draft Conditions of Approval submitted for February 26, 2009 Board meeting, with emphasis on Conditions #3, #4, #29, #30 and #31.

6. FINDING: The MPWMD staff analysis for the February 26, 2009 public hearing on the MBSE application (prepared February 18, 2009), was based in great part on the CAW letter of January 29, 2009, and the SWRCB letter of February 5, 2009, described in Findings #4 and #5 above. The February 2009 staff Findings and recommendation to approve the project with 33 proposed Conditions of Approval were predicated on two key assumptions: (1) CAW would use only Seaside Basin sources to serve the MBSE project, and (2) Carmel River sources would not be used at any time to serve the subject parcel. Proposed MPWMD Condition #4, last sentence, stated: “Use of Carmel River sources to serve the MBSE parcel identified in Condition #1 is expressly prohibited, consistent with the State Water Resources Control Board, Division of Water Rights, letter of February 5, 2009 regarding the MBSE project.”

EVIDENCE: CAW and SWRCB letters of January 29 and February 5, 2009, respectively, described in Findings #4 and #5 above. MPWMD Rule 22-B, C and D. MPWMD agenda materials package for February 26, 2009, Item 15, pages 63 through 169, including staff summary, Exhibit 15-E (Draft Findings) and Exhibit 15-F (Draft Conditions). MPWMD staff Powerpoint presentation for February 26, 2009, Item 15.

7. FINDING: Written comments submitted by CAW General Manager, Craig Anthony, in a letter dated February 26, 2009, and oral testimony by Mr. Anthony at the February 26, 2009 public hearing raised substantive questions about CAW’s intent and ability to “insure Seaside Wells will be operated year round to deliver MBSE water” (ref: CAW letter dated January 29, 2009), and not from the Carmel River. Mr. Anthony described operational concerns related to SWRCB Order 98-04, the difference between CAW well production capacity and MBSE demand, and the difficulty of tracking intermixed water sources in CAW storage tanks in Seaside. His letter challenges the SWRCB’s contentions in its February 5, 2009 letter referenced in Finding #5 above; and requests that the then-proposed MPWMD Conditions of Approval be changed to delete text prohibiting use of Carmel River to serve the MBSE project, and to delete text requiring strict accounting methods to ensure that Carmel River water is not used to supply MBSE. These four related issues are described in Findings #8, #9, #10 and #11 below.

EVIDENCE: Letter dated February 26, 2009, from Craig Anthony, CAW General Manager, to Kristi Markey, MPWMD Chair re: Draft Conditions of Approval for MBSE application; oral testimony of Craig Anthony as shown on DVD of February 26, 2009 meeting provided by Access Monterey Peninsula Cable Television; February 26, 2009 meeting minutes adopted by the Board at its March 26, 2009 meeting.

8. FINDING: Since 1998, during the November through April “high flow season,” defined as periods when Carmel River flow exceeds 40 cubic feet per second (cfs) at the Highway 1 Bridge gaging station, CAW’s Seaside wells have been turned off in compliance with SWRCB Order 98-04, which directs CAW to minimize use of Seaside wells in the high flow season in order to maximize Seaside production in the summer low flow season, thereby reducing extractions from the Carmel River Basin when the river habitat is most vulnerable.

EVIDENCE: Oral testimony of Craig Anthony as shown on DVD of February 26, 2009 meeting, and February 26, 2009 meeting minutes as described in Finding #7. SWRCB Order 98-04 dated February 19, 1998. CAW and MPWMD well production records.

9. FINDING: The CAW General Manager advised the MPWMD Board on February 26, 2009, that the physical ability of CAW to supply water to one Seaside area customer (MBSE) from the smallest CAW Seaside well is problematic because the smallest CAW well produces about 250 gallons per minute (gpm), while MBSE water demand would be roughly 50 gpm. CAW management is concerned about needlessly producing water from the Seaside Basin to serve one customer given the annual Seaside Basin production limit imposed by the Superior Court, and in light of the 10% triennial reductions scheduled in the Court’s March 2006 Final Decision.

EVIDENCE: Oral testimony of Craig Anthony as shown on DVD of February 26, 2009 meeting, and February 26, 2009 meeting minutes as described in Finding #7. Seaside Groundwater Basin Judgment (Final Decision) dated March 27, 2006, Monterey Superior Court Case #M66343, California American Water vs. City of Seaside et al.

10. FINDING: The CAW General Manager advised the MPWMD Board on February 26, 2009, that water produced from CAW Seaside wells is pumped to the Hilby storage tank, where it is mixed with Carmel River water. Due to the interconnected nature of the CAW system, CAW is unable to accurately track the source of supply to MBSE on a daily or weekly basis, although monthly measurements could be taken to indirectly demonstrate that water for MBSE was coming from the Seaside Basin.

EVIDENCE: Oral testimony of Craig Anthony as shown on DVD of February 26, 2009 meeting, and February 26, 2009 meeting minutes described in Finding #7.

11. FINDING: In its letter of February 26, 2009, CAW disagrees with the SWRCB letter of February 5, 2009 and states that “Order 95-10 is silent on what parcels of land [CAW] can serve from the Carmel River, and does not prohibit [CAW] from serving new development, provided that the Company otherwise complies with the volume limits set by that Order.” The letter asserts that the text in the then-proposed MPWMD Condition #4 which “expressly prohibits” use of Carmel River sources to serve the MBSE parcel be stricken. The CAW letter also suggests simplified water production tracking rather than the “strict water accounting methods” to ensure that “any use of Carmel River water does not serve” the MBSE project in then-proposed MPWMD Condition #29.

EVIDENCE: Letter dated February 26, 2009, from Craig Anthony, CAW General Manager, to Kristi Markey, MPWMD Chair re: Draft Conditions of Approval for MBSE application.

12. FINDING: At the February 26, 2009 hearing, MPWMD staff advised the Board that CAW’s ability to ensure that Carmel River water will not be used at any time to serve MBSE is an important foundation of the staff analysis, particularly staff conclusions about the need for an Subsequent Environmental Impact Report (EIR) in light of California Environmental Quality Act (CEQA) Guidelines Section 15162.

EVIDENCE: MPWMD agenda materials for February 26, 2009, Item 15. Powerpoint presentation and oral comments made by Henrietta Stern, MPWMD Project Manager on February 26, 2009. DVD of staff presentation and Board comments as described in Finding #7 above. CEQA Guidelines Section 15162.

13. FINDING: In the context of the SWRCB February 5, 2009 letter described in Finding #5, it is reasonable to assume that the one-for-one replacement requirement in Order WR 95-10, Condition #2, could possibly be imposed by the SWRCB for the MBSE application if CAW cannot ensure that only Seaside Basin water will be used to serve the MBSE project, and that water from the Carmel River will not be used to serve the project.

EVIDENCE: MPWMD agenda materials for February 26, 2009, Item 15. Powerpoint presentation and oral comments made by Henrietta Stern, MPWMD Project Manager on February 26, 2009. DVD of staff presentation as described in Finding #7. SWRCB letter dated February 5, 2009, as described in Finding #5. SWRCB Order WR 95-10 dated July 1995.

14. FINDING: The possible imposition of the one-for-one offset by SWRCB could have potential direct and indirect environmental effects to community water supply, and cumulative effects in light of the SWRCB January 2008 Draft Cease and Desist Order (proceedings underway), reduced CAW production allowed over time as specified in the Seaside Basin adjudication, and/or a natural drought or other water supply emergency.

EVIDENCE: MPWMD agenda materials for February 26, 2009, Item 15. DVD of staff presentation, public and Board comments as described in Finding #7 above. SWRCB letter dated February 5, 2009, as described in Finding #5 above. SWRCB Order WR 95-10 dated July 1995. SWRCB Draft Cease and Desist Order dated January 15, 2008. Seaside Groundwater Basin Final Decision dated March 27, 2006, as described in Finding #1 above.

15. FINDING: The concerns identified in Findings #12, #13 and #14 above were not evaluated in the MBSE EIR Addendum considered by the City of Sand City on January 20, 2009, and could meet CEQA Guidelines Section 15162(a) criteria on new potentially significant impacts or changed circumstances. Thus, the MPWMD Board, exercising its independent judgment as a Responsible Agency, has determined that a Subsequent EIR is needed to address water supply issues prior to MPWMD consideration of approval of CAW service to the MBSE project.

EVIDENCE: MPWMD agenda materials for February 26, 2009, Item 15. DVD of staff presentation, public and Board comments as described in Finding #7 above. CEQA Guidelines Section 15162. Monterey Bay Shores Resort Final EIR (SCH#97091005) certified by City of Sand City via resolutions adopted on December 4, 1998; Addendum to the Environmental Impact Report for the Monterey Bay Shores Resort, prepared for City of Sand City (December 2008), and considered by the City on January 20, 2009.

16. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, has determined that, due to the interconnected nature of the CAW system, and the current difficulty to track sources of water supply (except on a monthly basis), the cumulative effects of approval of the MBSE application could potentially result in significant adverse impacts to the Carmel River, and/or the species and habitat dependent on that supply, which have not been evaluated in environmental documents to date. The Board has determined that a Subsequent EIR is needed to address this issue prior to MPWMD consideration of project approval based on the criteria in CEQA Guidelines Section 15162(a).

EVIDENCE: MPWMD Board comments at February 26, 2009 meeting, as provided in the meeting DVD and minutes described in Finding #7 above. CEQA Guidelines Section 15162(a). Monterey Bay Shores Resort Final EIR (SCH#97091005) and Addendum (December 2008) as described in Finding #16 above.

17. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, has determined that it is unknown whether or not approval of the application could result in potential near-term adverse impacts to the Seaside Groundwater Basin, and that a Subsequent EIR is needed to address this issue prior to MPWMD consideration of project approval. A related issue is the timing and implementation of 10% triennial reductions in production for Standard Producers in order to attain the Court-ordered “natural safe yield,” and the cumulative effect of CAW service to MBSE in light of these other actions.

EVIDENCE: MPWMD Board comments at February 26, 2009 meeting, as provided in the meeting DVD and minutes described in Finding #7 above; written materials and public comments at January and February 2009 hearings on MBSE application.

18. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, has determined that alternative sources of Seaside Basin water could possibly be available to enable SNG to exercise its water rights in a less environmentally damaging manner, and such alternatives should be evaluated in a Subsequent EIR prior to MPWMD consideration of project approval.

19. FINDING: In the review of this application, MPWMD has followed those guidelines adopted by the State of California and published in the California Administrative Code, Title 14, Section 15000, et seq. Specifically, the MPWMD, as a Responsible Agency under CEQA for this action, has complied with Guidelines Sections 15096(f) and 15162. Based on public hearings held on November 17, 2008, January 29, 2009, and February 26, 2009, and all written materials associated with those public hearings, the MPWMD Board of Directors, exercising its independent judgment, determined that a Subsequent EIR is needed in order to make an informed decision on the environmental effects of the proposed project as it relates to water supply. The Board has further determined that an important aspect of making an informed decision is to consolidate environmental information into one comprehensive document and to enable public comment on that document prior to the decision. In making these determinations, the MPWMD Board considered environmental documents provided by the City of Sand City (CEQA Lead Agency) including the December 1998 certified Final EIR for the project, and the December 2008 Addendum considered by the City on January 20, 2009.

EVIDENCE: Monterey Bay Shores Resort Final EIR (SCH#97091005) certified by City of Sand City via resolutions adopted on December 4, 1998; Addendum to the Environmental Impact Report for the Monterey Bay Shores Resort, prepared for City of Sand City (December 2008). Public hearing record for MBSE application November 17, 2008, January 29, 2009, and February 26, 2009.

20. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, pursuant to CEQA Guidelines Section 15162(a)(1), has determined that, on the basis of substantial evidence in light of the whole record, approval of the MBSE application could involve new significant environmental effects or a substantial increase in the severity of previously identified significant effects due to a change in the project from an on-site well supply to the CAW system as the source of supply, especially when the potential effects described in Findings #7 through #18 above are considered.

21. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, pursuant to CEQA Guidelines Section 15162(a)(2), has determined that, on the basis of substantial evidence in light of the whole record, approval of the MBSE application could involve new significant environmental effects or a substantial increase in the severity of previously identified significant effects due to a change in the circumstances (setting) under which the project is undertaken, such as the triennial 10% CAW reduction of CAW supply specified in the March 2006 Seaside Basin Adjudication Final Decision, SWRCB Order 98-04, January 2008 SWRCB Draft Cease and Desist Order, and February 2009 SWRCB letter regarding one-for-one replacement for the MBSE application. Please also refer to Findings #7 through #18 above.

EVIDENCE: MPWMD Board comments at February 26, 2009 meeting as provided in the meeting DVD and minutes described in Finding #7 above; all written materials and public comments at January and February 2009 hearings on MBSE application.

22. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, pursuant to CEQA Guidelines Section 15162(a)(3), has determined that, on the basis of substantial evidence in light of the whole record, approval of the MBSE application could involve new information of substantial importance, which was not known or could not have been known with the exercise of reasonable diligence at the time the 1998 EIR was certified, shows that one or more of the following outcomes are possible: (A) the project will have one or more significant environmental effects not previously discussed; (B) significant effects previously examined will be substantially more severe than previously described; (C) mitigation measures or alternatives previously found to be infeasible would in fact be feasible and would substantially reduce one or more significant effects of the project, but the project proponents decline to adopt the measure or alternative; and (D) mitigation measures or alternatives considerably different than those analyzed in the previous EIR would substantially reduce one or more significant effects of the project, but the project proponents decline to adopt the measure or alternative. Please also refer to Findings #7 through #18 above.

EVIDENCE: MPWMD Board comments at February 26, 2009 meeting, as provided in the meeting DVD and minutes described in Finding #7 above; public hearing record for MBSE application November 17, 2008, January 29, 2009, and February 26, 2009. Monterey Bay Shores Resort Final EIR (SCH#97091005) certified by City of Sand City via resolutions adopted on December 4, 1998; Addendum to the Environmental Impact Report for the Monterey Bay Shores Resort, prepared for City of Sand City (December 2008).

23. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, pursuant to CEQA Guidelines Section 15163(a), has determined that the criteria for a Supplement to an EIR do not apply. Given the complexity and interrelated nature of water supply on the Monterey Peninsula, more than “minor additions or changes would be necessary to make the previous EIR adequately apply to the project in the changed situation.” The Lead Agency chose to prepare an Addendum to the Final EIR, which was certified in 1998. Substantive comments from the public were critical of the use of an Addendum, which denied the public the opportunity to comment on the environmental document. Also, the California Coastal Commission relies, in part, on MPWMD for water system information through the District’s Water Distribution System permit process. For these reasons, the MPWMD Board has directed that a Subsequent EIR (not a Supplement) be prepared, focused solely on water issues that are the within the regulatory authority of MPWMD, before the MPWMD Board will consider approval of the MBSE application.

EVIDENCE: MPWMD Board comments and discussion at February 26, 2009 meeting as provided in the meeting DVD and minutes described in Finding #7.

24. FINDING: The MPWMD Board, exercising its independent judgment as a Responsible Agency, concurs with the State of California’s policies described in CEQA Guidelines Section 15003, and has determined that these policies are relevant to the MBSE application. The Board finds that a Subsequent EIR is appropriate because the SEIR [identified by Guidelines 15003 subsection letters in italics]: (b) serves not only to protect the environment, but also to demonstrate to the public that it is being protected; (c) informs other governmental agencies (e.g., California Coastal Commission) and the public generally about environmental effects; (d) demonstrates to an apprehensive citizenry that MPWMD has, in fact, analyzed and considered ecological implications of its actions; (e) the process enables the public to determine the environmental and economic values of their elected officials; (f) CEQA is intended to be interpreted in a manner to afford the fullest protection for the environment; and (g) CEQA compels government to make decisions with environmental consequences in mind.

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