ITEM:		ACTION ITEM
12.	CONSIDER ACTION PLAN FOR INVESTIGATION INTO DESALINATION CONTINGENCY PROJECT AND APPROVE EXPENDITURE NOT-TO-EXCEED $500,000 PER FISCAL YEAR TO FUND ENVIRONMENTAL REVIEW
Meeting Date:			December 10, 2012	Budgeted:	Yes
From:			David J. Stoldt	Program/
			General Manager	Line Item No.: 1-8-1, 1-5-1 adjusted
Prepared By:			David J. Stoldt	Cost Estimate:	Not to Exceed $500,000 per year / 2 years
General Counsel Approval: N/A
Committee Recommendation: The Water Supply Planning Committee considered this matter on December 4, 2012 and voted 3 to 0 to recommend approval.
CEQA Compliance: N/A

SUMMARY: Cal-Am (Cal-Am) proposes that its Monterey Peninsula Water Supply Project will consist of slant intake wells, brackish water pipelines, the desalination plant, product water pipelines, brine disposal facilities, and related appurtenant facilities. Depending on the availability of water from the Groundwater Replenishment Project, the desalination plant is proposed to be sized at either 9.0 mgd or 5.4 mgd located just to the northwest of the Monterey Peninsula Water Pollution Control Agency (MRWPCA) wastewater treatment plant. The Project as proposed is to be owned and operated solely by Cal-Am.

Salinas Valley agricultural water users claim that they are at risk of slant wells within the boundaries of the Salinas Valley Groundwater Basin (SVGB) and that Cal-Am’s plan will cause a protracted water rights dispute and possibly trigger an adjudication of the water basin. The Farm Bureau has stated it does “not support any water project that places a straw in the Salinas Valley aquifer.”

Claims that have been raised in opposition to Cal-Am’s plan include (i) whether the project would cause harm to others’ groundwater rights and should be addressed through an independent hydrological assessment as soon as possible, (ii) that the SVGB is in overdraft – even though that fact has not been judicially determined – thus it appears there is no surplus water for the project to appropriate, (iii) by leaving the groundwater component in the Salinas Valley, Cal-Am may avoid violation of the Monterey County Water Resource Agency (MCWRA) Agency Act ban on export of groundwater – however, this does not mean that Cal-Am is not appropriating groundwater at the expense of other groundwater users who may be injured by any additional pumping.

Hence, the risk of litigation over Salinas Valley Groundwater rights is very high.

Final Commission action on a Proposed Decision is scheduled for January 2014. It is unclear if a decision can be rendered without resolution of the water rights issues discussed above, but we can assume that, just as in the case of the Regional Project previously, the Commission is able to issue a Certificate of Public Convenience and Necessity (CPCN) to Cal-Am before any data is obtained from the test wells, and without resolution of the water rights issues.

However, completion and operation of test wells may be a critical path to forestall litigation over SVGB water rights. One of the proposed methods to address the concerns of the agricultural interests is to develop the supply source from the shallow Sand Dunes Aquifer. The Growers have indicated that such a solution would be satisfactory. Cal-Am has indicated that it will gather the necessary data on the shallow aquifer from its test well.

However, construction of a test slant well is time constrained, as well. Cal-Am recently reported that it did not secure permits necessary to begin construction of the test well in the current November to February 2012-13 Snowy Plover season and will have to wait until 2013-14. This places data-gathering over a year away.

Further, according to Coastal Commission sources, gathering data from the test well may take as many as two years. Hence, data to support a shallow Sand Dune Aquifer approach will not become available until early 2015, and possibly as late as the beginning of 2016.

Therefore, a single linear path that relies on test well data to resolve potential litigation creates significant risk that the Cal-Am project proposal to use slant wells may not work or become significantly delayed. Indeed, even if data are available, it may not yield a solution that will avoid litigation. It may be in the Monterey Peninsula community’s interest to develop a parallel process to advance or qualify an alternative project as a safety contingency. The District could continue to support steady advancement of the Cal-Am application at the CPUC, while at the same time work to advance environmental review and permitting of an alternative water source. This alternative project would be a back-stop to Cal-Am’s proposal.

The recent draft report “Evaluation of Seawater Desalination Projects” performed by Separation Processes Incorporated (SPI) indicates proposed projects utilizing open water intakes and located at Moss Landing could provide water of equal quality to Cal-Am’s proposal, at that these alternatives may be realized at comparable or lower costs. To determine if an open water intake alternative can be approved, it is necessary to undertake the CEQA/NEPA environmental review, as well as begin the permitting process with the Coastal Commission. The District could seek to partner with one of the project proponents, or develop an alternative with a new/undetermined partner.

RECOMMENDATION: The General Manager recommends that the Board discuss these concepts and that it approve a plan that includes the following:

· Develop a Request for Qualifications (RFQ) to be distributed to any and all potential ocean desalination project developers to utilize water sources that are not within the Salinas Valley Groundwater Basin. Such an RFQ would define specific project parameters that the District would determine represents the best qualified viable project for which a detailed description could be developed for environmental review.

· The District would partner with the developer to fund CEQA and NEPA review processes in an amount not to exceed $500,000 per year; the expenditure would be made over two fiscal years. The District could undertake this effort as the sole Lead Agency for CEQA, or could act as co-Lead Agency for CEQA with a locally relevant agency.

· The RFQ should provide that the District hold the option, upon certification of the EIR/EIS, for one year to become the owner of the project or, in the alternative, to negotiate with a third-party for ownership, and enter into the design and permitting phase. However, as a condition to a partnership with a developer, the District should retain the option to terminate at any time, if the CPUC issues a CPCN to Cal-Am for another project designed to timely meet the potable water needs of the Peninsula.

· Engage County representatives and Mayors of the six jurisdictions to discuss the merits of this parallel plan as a safety “backstop” to the Cal-Am application and seek their support.

BACKGROUND:

The Proposed Cal-Am Desalination Project

In its application before the CPUC (A.12-04-019) Cal-Am has proposed a three-pronged approach to replace the water supply reductions ordered by the SWRCB. The three prongs consist of: (1) desalination, (2) groundwater replenishment (GWR), and (3) aquifer storage and recovery (ASR). The desalination prong is the Monterey Peninsula Water Supply Project.

The Monterey Peninsula Water Supply Project is proposed to consist of slant intake wells, brackish water pipelines, the desalination plant, product water pipelines, brine disposal facilities, and related appurtenant facilities. Depending on the availability of water from the Groundwater Replenishment Project, the desalination plant is proposed to be sized at either 9.0 mgd or 5.4 mgd. Cal-Am is in the process of securing an approximately 46-acre parcel of land located just to the northwest of the MRWPCA’s wastewater treatment plant as the site for the proposed desalination plant. Cal-Am is also working to secure permanent easements on an approximately 376-acre parcel of land located due west of its proposed desalination plant site for the slant intake wells. Cal-Am proposes to use a series of slant wells located west of the sand dunes to draw ocean water and potentially a small amount of groundwater from the ground. The slant wells will be approximately 700 to 800 feet in length and will feature several hundred feet of screen below the ocean floor and seaward of the mean high tide mark. The final layout and configuration will be based on the results of additional groundwater modeling that will be completed as part of the Commission’s environmental review and as may be required by the California Coastal Commission or for final design.

The Monterey Peninsula Water Supply Project also incorporates the Cal-Am-only facilities that the Commission previously approved in D.10-12-016.15 The Cal-Am-only facilities consist of the Transfer Pipeline, the Seaside Pipeline, the Monterey Pipeline, the Terminal Reservoir, the ASR Pipeline, the ASR Recirculation and Backflush Pipelines, the ASR Pump Station and the Valley Greens Pump Station. In a significant departure from historic operation, supply from the desalination plant portion of the Monterey Peninsula Water Supply Project will enter the Cal-Am distribution system at the metering station from the north through the Transfer Pipeline. The current configuration of the distribution system does not allow water to be conveyed from the north, to customers on the southern portion of the Peninsula. The Cal-Am-only facilities will convey water between the northern and southern portions of the Monterey County District. The source of the flow from the north to the south will be either the desalination plant portion of the Monterey Peninsula Water Supply Project, and/or the extraction of flows from the ASR system located in Seaside Basin.

The Monterey Peninsula Water Supply Project will be owned and operated by Cal-Am. (The GWR Project will be publicly owned.) Cal-Am expects to utilize a design/build process for the desalination plant, and a design/bid/build process for the brackish water pipelines, the product water pipeline and the related pipelines. For the slant intake wells, the Cal-Am will determine whether a design/build or design/bid/build process is appropriate once the environmental review of the affected area has been completed.

Litigation Risk Over Salinas Valley Groundwater Rights

Intervenors to the CPUC proceeding A.12-04-019 that is considering Cal-Am’s proposed project include agricultural interests represented by the Salinas Valley Water Coalition, the Monterey County Farm Bureau, LandWatch, and to some extent the MCWRA. A key conclusion one can make from their filings to date is that litigation presents a significant risk.

In its June 2012 filing (Exhibit 12-A) the Salinas Valley Water Coalition raised concerns that the proposed project’s source of water will include an amount of groundwater from the SVGB and questioned how the wells will be operated in the short-term and in the long-term, so as not to impact the SVGB, existing seawater intrusion and/or the overall hydrological balance of the basin, how the project will be monitored, and what triggers will be put into place to assure the Salinas Valley residents, businesses and agricultural landowners that no freshwater over that which is analyzed and permitted will be pumped. They stated that “the needs of the Peninsula cannot be met at the expense of degradation to the Salinas Valley Groundwater Basin and those who steward it because of our reliance upon it.”

The Coalition also asserted that water rights and legal uses of water within the SVGB and any impact to these rights and use, must be considered within the context of the proposed project and the proceeding. They claim that Cal-Am must identify valid appropriative water rights that can be utilized in the manner they are proposing. The Coalition seeks assurances that its members’ Salinas Valley water rights are not adversely impacted; that there are valid water rights identified to operate the project in the manner proposed; that the water rights are utilized in a manner that do not harm prior right holders; that the project will not harm the SVGB, impact its aquifers, exacerbate seawater intrusion and/or the basin’s water balance; and finally, the project will not export groundwater out of the Salinas Valley Basin.

The Coalition specifically states (Exhibit 12-C) “Use of the groundwater in any other manner would be an illegal appropriation of groundwater from the overdrafted Basin, and would result in an illegal taking of groundwater from overlying landowners.

The Farm Bureau has also filed statements (Exhibit 12-B) with the CPUC that express strong concern over water rights. They assert Cal-Am has not identified any water rights that allow withdrawal of freshwater from the SVGB using the proposed slant well system and warned “should Cal-Am pursue an appropriative right for freshwater withdrawals from the Salinas Valley Groundwater Basin, a costly adjudication for total water rights would be required basin-wide. This would present a lengthy and expensive process for Salinas Valley landowners, who have no potential benefit from the Cal-Am project.”

The Farm Bureau is concerned that placing the well sites potentially infringes on the water rights of Salinas Valley landowners and has challenged Cal-Am to locate an alternative site along the coast that does not have the same issue with SVGB rights and would alleviate the issue of appropriative water rights. The state, “Without the proper identification of water rights for the specific project site, the project is flawed and should not move forward.”

In its letter of support for the County to join the Monterey Peninsula Regional Water Authority (MPRWA) (Exhibit 12-D), the Farm Bureau stated Salinas Valley water users are at risk as the current Cal-Am project proposal places their slant wells within the boundaries of the Salinas Valley aquifer area; this would cause a protracted water rights dispute and possibly trigger an adjudication of the water basin and that the Farm Bureau does “not support any water project that places a straw in the Salinas Valley aquifer.”

LandWatch also makes several claims (Exhibit 12-G), including (i) whether the project would cause harm to others’ groundwater rights should be addressed through an independent hydrological assessment as soon as possible, (ii) it is clear that the SVGB is in overdraft – even if that fact has not been judicially determined, hence there is no surplus water for the project to appropriate, (iii) providing the groundwater to CSIP, Cal-Am may avoid violation of the MCWRA Agency Act’s ban on export of groundwater. However, this does not mean that Cal-Am is not appropriating groundwater at the expense of other groundwater users who may be injured by any additional pumping.

Cal-Am’s Position

Cal-Am’s response (Exhibit 12-E and Exhibit 12-F) is that its proposed Project likely does not require water rights because Cal-Am proposes to use ocean water as its source water supply and will return to the SVGB all water that originates therefrom. Moreover, even if water rights were required, such rights would be appropriative in nature and may be acquired, developed and perfected consistent with well-established principals of California water law. Additionally, despite allegations to the contrary, the water development for the Project is consistent with the MCWRA Agency Act. Therefore, although multiple parties have raised water rights issues related to the Project none of the claims affect the feasibility of the Project.

The Commission asked Cal-Am to discuss, in its “Contingency Plan” compliance filing dated November 1, 2012, if there is an “availability of alternative well or intake locations in event slant wells fail or do not reliably supply sufficient rate or volumes.” This may also be viewed as a proxy for alternatives to pumping SVGB water from the 180-foot aquifer. Cal-Am indicates (Exhibit 12-I) that it has the following contingencies in the event that a new brackish water source is needed: 1) install a shallow slant well at the Cemex property that extracts from the Sand Dunes Aquifer; or 2) install a Ranney Well at the Cemex property that extracts from the Sand Dunes Aquifer; or 3) install an open ocean intake at the Cemex property; or 4) install the slant well intake system at Portrero Road with feedwater pumped to the proposed desalination plant at the Charles Benson Road site, and brine discharge to MRWPCA outfall; or 5) install direct intake of ocean water and pump feedwater to the proposed desalination plant at the Charles Benson Road site, and brine discharge to MRWPCA outfall.

The fifth option can be accomplished by either: (i) Diverting water from Moss Landing Harbor by using existing Marine Refractories intake infrastructure with modifications, or tapping into the Moss Landing Power Plant’s (MLPP) spent cooling water system; (ii) A Ranney Well comprised of a vertical caisson that extends vertically down 50 to 100 feet, from which horizontal wells would be launched radially outward towards the ocean. The maximum length per horizontal well is approximately 200 to 400 feet; (iii) Tapping into MLPP’s cooling water intake system; (iv) Diverting water from the ocean by converting existing Marine Refractories outfall into an open ocean intake, or constructing a new ocean intake at or near Moss Landing. However, Cal-Am is clear to state that due to concerns about feasibility, cost and other variables associated with these contingencies, the Commission should not simply substitute these contingencies for the proposed project’s brackish water source component unless the situation calls for it. Hence, Cal-Am will continue to develop its proposal project as planned, until determined infeasible.

Schedule Risk

The schedule in CPUC proceeding A.12-04-019 calls for a final Environmental Impact Report (EIR) in November 2013 with a CPUC Proposed Decision to follow shortly thereafter. Final Commission action on the Proposed Decision is planned for January 2014. It is unclear if a decision can be rendered without resolution of the water rights issues discussed above, but we can assume that, just as in the case of the Regional Project previously, the Commission may issue a CPCN before any data is obtained from the test wells. A prehearing conference planned for December 13, 2012 may further revise the schedule.

However, the test wells may be a critical path in forestalling litigation over SVGB water rights. One of the proposed methods to address the concerns of the agricultural interests is to develop the supply source from shallow Sand Dunes Aquifer. The growers have indicated that such a solution would be satisfactory. Cal-Am has indicated that it will gather the necessary data on the shallow aquifer from its test well. However, the construction of a test slant well is time constrained, as well.

Based on the recently completed biological survey of the slant intake well site, several important species were identified. Most notably, the survey indicated the presence of the Snowy Plover, a bird with nesting habitat, which most likely cannot be disturbed between February and October of each calendar year. In order to meet this small construction window of November to January, Cal-Am worked quickly to attempt to obtain all necessary permitting so they could begin the installation of the test well in the 2012-13 window. At the November 6, 2012 Technical Advisory Committee meeting of the MPRWA, Cal-Am reported that it did not secure the necessary permits and will have to wait until the 2013-14 Snowy Plover window. This places data gathering over a year away.

Further, gathering data from the test well may take one to two years. In the case of the prior Regional Project, one of the proposed conditions of the Coastal Development permit from the Coast Commission was a potential two-year testing period, as shown in the August 2011 Addendum to Staff Report E-11-019 – Test Slant Well, Page 9, last paragraph, Section 4.1 Project Purpose and Description and Page 10, third paragraph, Section 4.1 Project Purpose and Description (Exhibit 12-H). The permit was never issued, so there is no way to tell if the conditions would have been enacted.

Hence, data to support a shallow Sand Dune Aquifer approach will not become available until early 2015, and possibly as late as the beginning of 2016.

EXHIBITS

12-A Pre-Hearing Conference Statement of Salinas Valley Water Coalition

12-B Opening Brief on Various Legal Issues of Monterey County Farm Bureau

12-C Opening Brief on Selected Legal Issues of Salinas Valley Water Coalition

12-D Monterey County Farm Bureau Letter

12-E Cal-Am Opening Brief on Legal Issues for Early Resolution

12-F Cal-Am Reply Brief on Legal Issues for Early Resolution

12-G Reply Brief of LandWatch Monterey County Regarding Groundwater Rights

12-H Coastal Commission Addendum to Staff Report E-11-019

12-I Cal-Am Contingency Plan Compliance Filing

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