ITEM:		PUBLIC HEARING
4.	CONSIDER SECOND READING AND ADOPTION OF ORDINANCE NO. 152 – ESTABLISHMENT OF ANNUAL WATER USE FEE
Meeting Date:			June 12, 2012	Budgeted:
From:			David J. Stoldt,	Program/
			General Manager	Line Item No.:
Prepared By:			David J. Stoldt	Cost Estimate:
General Counsel Approval: N/A
Committee Recommendation:
CEQA Compliance: A Notice of Exemption will be filed at the County upon approval

SUMMARY: At its February 23, 2012 meeting, the Board directed staff to implement a Proposition 218 process for the development of water fees and charges, including the hiring of a rate consultant and the development of the necessary ordinances, resolutions, and notices for implementation thereof. At its April 16, 2012 meeting the Board unanimously approved the first reading of this Ordinance 152.

This item seeks approval of a second reading and adoption of Ordinance No. 152 (Exhibit 4-A) and filing of a Notice of Exemption (Exhibit 4-B) for CEQA purposes.

RECOMMENDATION:

The General Manager recommends the Board approve the second reading of, and adopt, Ordinance No. 152 and direct staff to file a Notice of Exemption for CEQA purposes.

BACKGROUND:

This ordinance (Exhibit 4-A) will determine the allocation of fees and charges (annual water use fee) to properties within the District based on water usage by parcel type and meter equivalent.

The Ordinance authorizes an annual water use fee to be collected from properties in the District that are also Cal-Am customers. The fee varies by type of parcel use and by meter size. The Ordinance does not state the aggregate amount to be collected. Nor does it authorize a collection method, which, if approved, will be done via Board resolution under item 5.

The Monterey Peninsula Water Resource System is at a deficit and replacement water sources must be developed. State Water Resources Control Board (SWRCB) Order 95-10, the Cease and Desist Order (SWRCB Order 2009-0060), and the Seaside Groundwater Basin Adjudication decision all document the legally mandated requirement to reduce water taken from current supplies. New replacement water supply must be developed for the benefit of existing customers.

The District’s enabling legislation specifically tasks the District with “the collection, conservation, storage, reclamation, treatment, disposal, distribution, and delivery of water and sewage within the agency.” The District’s enabling legislation also found that “there is need for conserving and augmenting the supplies of water by integrated management of ground and surface water supplies, for control and conservation of storm and wastewater, and for promotion of the reuse and reclamation of water. In this region of primarily scenic, cultural, and recreational resources, which are particularly sensitive to the threat of environmental degradation, such need cannot be effectively met on a piecemeal basis.”

Although California America Water Company (Cal-Am) serves the retail customer within the Water Management District, the District has traditionally had a role in the development and management of water supply within the District. In the late 1980s, the District executed the research and preliminary development work for the Peralta Well expansion that allowed Cal-Am to add 900 acre-feet of supply; in 1992 the District financed the Reclamation Project replacing 800 acre-feet of potable irrigation water with reclaimed wastewater, and creating a permanent new supply of 380 acre-feet; in the early 2000s, the District developed Aquifer Storage and Recovery, the first phase of which has delivered 4500 acre-feet of new supply since its inception. Voters have rejected two District projects: 3400 acre-feet from a desalination project in 1993 and 24,000 acre-feet from a dam in 1995. However, by the late 1990s, two state mandates began to make the provision of new water supply on the Peninsula the joint responsibility of Cal-Am – Order 95-10 and the Keeley bill (AB 1182) in 1998. Hence, Cal-Am has endeavored on its own to develop new water supply, but has not yet in its 46 years on the Peninsula added any new supply without the District’s assistance.

The proposed Peninsula replacement water supply has components that involve public ownership and/or financing. The April 23^rd Cal-Am application to the California Public Utilities Commission (A.12-04019) is comprised of three projects: desalination, groundwater replenishment (GWR), and aquifer storage and recovery (ASR.) The GWR and ASR components will have public ownership and financing.

The development of replacement water supply projects will require funds the District does not currently have. Even preliminary scoping, conceptual design, environmental review and other activities that must occur before a project is determined to be viable requires financial resources the District currently does not have. For example, the District’s identified funding needs for water supply is $4.0 million in 2013 and $4.2 million in 2014, both which exceed the District’s 2012 revenues.

Under its enabling legislation, the District shall have the power to fix and collect rates and charges for the providing or the availability of any service it is authorized to provide or make available or for the sale, lease, or other disposition of water (section 308.) The legislation also, at section 326, provides that the District has the power to fix, revise, and collect rates and charges for the services, facilities, or water furnished by it. The District also has authority to levy rates and charges under Health and Safety Code (sections 5471-5473.) The District recognizes that no new legal authority to collect rates or fees is conferred by the Proposition 218 process, rather the District is simply exerting authority it already has. Hence, the District is proposing the new annual water use fee under existing authority.

Although the District can levy groundwater charges under its enabling legislation, such charges are not appropriate for the proposed projects. The desalination project uses a seawater source that is outside the District’s boundary. Groundwater replenishment is surface water, much from outside the District boundary, which is treated and temporarily stored in a groundwater basin. The District’s ASR project uses surface water and temporarily stores it in a groundwater basin. None of these projects are traditional groundwater resources.

The water supply projects envisioned to be supported by this annual fee will provide present beneficial water use only to customers connected to the main system. This fee is to be assessed only against Cal-Am main system users and exempts the Hidden Hills and Bishop sub-units because they are not connected to the main system, and exempts the Ambler and Toro Cal-Am sub-units because they are not connected to the main system and are outside the District boundaries. Cal-Am has not traditionally collected the prior User Fee from those sub-units. However, the District reserves the right to do so in the future.

The fees are being raised solely for water supply activities. The Ordinance specifically limits the purposes to the GWR and ASR projects and purposes that confer benefit and/or service to existing main Cal-Am water users to ensure sufficient water is available for present beneficial use or uses, including water supply management, water demand management, water augmentation program expenses such as planning for, acquiring and/or reserving augmented water supply capacity, including engineering, hydrologic, legal, geologic, financial, and property acquisition.

The fees will be subject to annual review and will sunset. So long as this annual water use fee is collected, the Board shall hold a public hearing each calendar year in connection with review of the annual District budget. The District shall require the annual water use fee to sunset in full or in part unless the Board determines that the purpose of the fee is still required, and the amount of the fee is still appropriate.  If the purpose expires, the fee shall be required to sunset. If the purpose for the fee is determined to continue, but amounts needed to fund that purpose are permanently decreased, the fee shall be reduced to that lesser amount.

The proposed fee is incident to property ownership, hence the fee is being assessed on properties based on type of use. Richmond v. Shasta Community Services District (2004) 32 Cal. 4^th 409, 427 determined “A fee for ongoing water service through an existing connection is imposed as an incident of property ownership.” A rate study has been executed and fees calculated for each parcel related to its type of use. The methodology used to calculate the fees in the rate study has been determined to be fair and equitable. Section 5 of the Ordinance details the proposed fees by type of parcel use and by meter size.

Each record owner has been noticed and given the opportunity to protest consistent with Proposition 218. The District mailed notices of public hearing for the implementation of the fees more than 45 days prior to the hearing. The notice conformed to the requirements of Article XIII D of the California Constitution and the requirements of District Resolution 2012-03 adopted by the Board April 16, 2012.

An appeal process has been created for property owners who believe they have been billed in error. Examples might include, but are not limited to a meter that is not active, a meter for fire suppression, no Cal-Am connection, wrong meter size, meter located on property provides service to another property, and so forth. The claim process starts with the General Manager, but does allow for an administrative appeal to the Board to be heard within 90 days of the receipt of the appeal.

The Ordinance allows the District to assess penalties for non-payment, as well as a lien on the property for unpaid balances plus penalties.

An environmental impact report is not required for the rate Ordinance. A notice of Exemption will be filed with the County. The ordinance falls under a CEQA statutory exemption under the Guidelines Sec.15273, Rates, Tolls, Fares and Charges - specifically sections (a) (4) and (a) (1). The projects funded by the fee will individually undergo the environmental review process as required by CEQA.

A District “Project Vote” is not required. Environmental work and preliminary design and other preliminary work is a service related to the provision of water supply, irrespective if the project becomes viable and moves forward. Any determination of whether a project vote is required would occur in the future. However, the District is authorized to institute works or projects of three types: (i) common benefit to the District as a whole, (ii) benefit to participating zones, or (iii) benefit to a single zone. Only the last two types require a project vote under the District’s legislation, consistent with improvement zone formation and approval. There is scant detail in the legislation related to projects affording common benefit to the District, but certainly no specific election requirement.

EXHIBITS

4-A Ordinance No. 152

4-B Notice of Exemption

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