ITEM:		ACTION ITEMS
2.	CONSIDER ADOPTION OF RESOLUTION NO. 2011-09 DIRECTING CALIFORNIA AMERICAN WATER TO CONTINUE COLLECTION AND REMITTANCE OF THE DISTRICT WATER DISTRIBUTION SYSTEM USER FEE IN ACCORD WITH DISTRICT ORDINANCE 123
Meeting Date:			May 26, 2011	Budgeted:	N/A
From:			Darby Fuerst,	Program/
			General Manager	Line Item No.:
				Cost Estimate:	N/A
General Counsel Review: Yes
Committee Recommendation: N/A
CEQA Compliance: The resolution does not constitute a project as defined by CEQA.

SUMMARY: Since October 14, 2005, California American Water (Cal-Am) has reimbursed the Water Management District for costs of the District’s Mitigation and Aquifer Storage Recovery (ASR) Programs. Pursuant to District Ordinance 123, Cal-Am first collected funds for this effort from its water users based upon actual water use and variable as to the amount of water consumed. Cal-Am later reimbursed the District’s costs by agreement. Cal-Am has now given notice to terminate that agreement, effective May 23, 2011. The draft Resolution presented here orders Cal-Am to collect and remit to the District the Water Distribution System User Fee as required by District Ordinance 123.

RECOMMENDATION: Adopt Resolution No. 2011-09 requiring Cal-Am to collect and remit to the District the Water Distribution System User Fee as required by District Ordinance 123, in order to defray the full costs of the District’s Mitigation and ASR Programs.

BACKGROUND: Since 1985, Cal-Am has been required to collect and remit a user fee to MPWMD. See District Rule 64, enacted by Ordinance No. 10 (7/26/83) and amended by Ordinances No. 12 (4/9/84), and No. 22 (3/11/85). More recently, the Cal-Am user fee has been set by District Ordinance 123 (8/15/2005).

On June 20, 2005, the MPWMD Board approved the District’s 2005-06 budget and set the Cal-Am User Fee at 8.325%. The Cal-Am User Fee of 8.325% went into effect on the Cal-Am water bill on October 14, 2005. By District Rule, Cal-Am may elect to remit the User fee to the District in quarterly installments during the fiscal year, provided full payment is tendered during that fiscal year.

The WDS User Fee provides funds for the Mitigation Program legally required to address the environmental impacts of Cal-Am operations on both the Carmel River and Seaside Groundwater Basins in accord with California Environmental Quality Act (CEQA), Public Resources Code §§21000 – 21178. These impacts have been determined to significantly affect the Carmel River populations of steelhead and red-legged frog, which are listed as threatened species under the federal Endangered Species Act. State Water Resources Control Board (SWRCB) Order 95-10 (Order 95-10) and Order WR 2009-0060 recognize the Mitigation Program. Specifically, Ordering Paragraph 11 of Order 95-10 provides that Cal-Am is to implement all measures in the Mitigation Program for the MPWMD Water Allocation Program if those measures are “not implemented by MPWMD.”[1] Similarly, Ordering Paragraph 9 of Order 2011-09 requires Cal-Am to comply with all requirements of Order 95-10, except as provided therein. Order 2009-0060 does not modify Cal-Am’s obligations under Condition 11 of Order 95-10.

Prior to July 9, 2009, the California Public Utilities Commission (CPUC) acknowledged the propriety of Cal-Am’s collection of the User Fee through its action on Application 08-01-027. CPUC Decision 90-08-055 recognized assessment of the fee as set by the MPWMD Board and deferred to MPWMD any question regarding application of the fee to vacant lots.

On July 9, 2009, the CPUC in Decision 09-07-021 further examined the Cal-Am WDS User Fee and directed Cal-Am to file an application to address collection of funds to support MPWMD programs. The Commission stated, “We would also like to better understand the growing role of the Monterey Peninsula Water Management District in allocating costs to Cal-Am’s customers….”

In September, 2009, following issuance of Decision 09-07-021, Cal-Am entered into an agreement with MPWMD to continue funding of this Program and filed Advice Letter No 785-A to establish a User Fee Memorandum Account. Cal-Am continued to make payments to MPWMD to fund the Mitigation Program and ASR Program so that those projects could receive the same funding as these programs would have received, had the User Fee continued. Payments to MPWMD were recorded in the User Fee Memorandum Account.

Following CPUC issuance of Decision 09-07-021, MPWMD continued to receive the funds necessary for its Mitigation Program and ASR Program. Both Cal-Am and the District pursued the course set by Decision 09-07-021 to address concerns expressed by the CPUC while receiving funds through payments recorded by Cal-Am in the User Fee Memorandum Account. On January 5, 2010, Cal-Am filed Application 10-01-012 with the CPUC seeking authorization to continue to collect MPWMD’s User Fee and remit it to MPWMD. As directed by the CPUC in Decision 09-07-021, Cal-Am met and conferred with MPWMD to discuss funding for, and implementation of, both the Mitigation Program and the ASR Project. Based on these meetings, Cal-Am, MPWMD and the CPUC Division of Ratepayer Advocates (DRA), agreed to a comprehensive All-Party Settlement that embraced the following points:

1. The Mitigation Program is non-duplicative, reasonable, and prudent,

2. The ASR Program is non-duplicative, reasonable, and prudent, and

3. Cal-Am should be authorized to collect MPWMD’s user fee (at a rate

set by MPWMD) and remit it to MPWMD.

Although the Parties filed a motion seeking approval of the All-Party Settlement, the Commission instead issued Decision 11-03-035 on March 25, 2011, directing Cal-Am to amend its application to either (1) propose a joint program by which Cal-Am would fund MPWMD performance of its Mitigation measures program and MPWMD’s portion of the ASR program, or (2) offer an implementation plan for Cal-Am to assume direct responsibility for the MPWMD mitigation program. Cal-Am was also allowed to recover the balance in its MPWMD User Fee Memorandum Account over a 12-month period.

MPWMD has since timely filed with the CPUC an Application for Rehearing of Decision 11-03-035.

During the pendency of these proceedings, Cal-Am and MPWMD, on September 24, 2009, entered into a Reimbursement Agreement that called for Cal-Am to reimburse MPWMD for costs of its Mitigation and ASR Programs. On March 30, 2011, however, Cal-Am provided notice that it intended to terminate the Reimbursement Agreement, effective May 23, 2011.

As an alternative, and to ensure minimal funding of the Mitigation Program pending further decision of the CPUC, Cal-Am entered into a further funding Agreement to comply with SWRCB Order 95-10 and SWRCB Order 2009-0060. Cal-Am also expressed intent to seek CPUC approval of its amended application to fund additional components of the MPWMD Mitigation and ASR programs.

It is apparent, however, that Cal-Am does not intend to continue its past practice of collecting and remitting to MPWMD the full user fee, in the amount set by District Ordinance 123. The failure to remit the 8.325% User Fee shall compromise efforts of the District to achieve the purposes required by the MPWMD Mitigation and ASR programs. Cal-Am’s failure to remit the full user fee to MPWMD interferes with mitigations required by CEQA, and significantly and adversely affects Carmel River populations of steelhead and red-legged frog, in contravention of Order 95-10 and Order WR 2009-0060.

EXHIBITS

2-A Draft Resolution 2011-09

U:\staff\word\boardpacket\2011\20110526\02\item2.docx

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[1] See, generally: (a) Mitigation Program for Water Allocation Program EIR (Final EIR: MPWMD, Water Allocation Program Final Environmental Impact Report, certified by MPWMD Board November 5, 1990); (b) MPWMD, Five Year Mitigation Program for Option V – 16,700 AF Cal-Am Production, adopted by MPWMD Board November 1990; (c) MPWMD, Annual Mitigation Program Reports; (d) MPWMD Carmel River Riparian Corridor Irrigation Program; (e) Monterey County Use Permits issued by the Monterey County Planning Commission to California-American Water Company, December 1980: PC-3794 for Cypress Well, PC-3795 for San Carlos Well, PC-3796 for Rancho Canada Well, and PC-3797 for Pearce Well; (f) January 14, 1981 Agreement between MPWMD and California-American Water Company for management of riparian vegetation in the area of the four Cal-Am wells (Cypress, San Carlos, Rancho Canada, and Pearce Wells); (f) Carmel River Management Program; MPWMD, Carmel River Management Plan, March 1984; and (g) MPWMD, Final EIR, Carmel River Management Plan and Boronda Erosion Control Project, certified October 29, 1984