ITEM:		ACTION ITEM
12.	CONSIDER APPROVAL OF COST SHARING AGREEMENT FOR ALTERNATIVE DESALINATION PROJECT
Meeting Date:			August 19, 2013	Budgeted:	Yes
From:			David J. Stoldt	Program/
			General Manager	Line Item No.:	1-11-1
Prepared By:			David J. Stoldt	Cost Estimate:	Not to Exceed $400,000 per year / 2 years
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: At its March 18, 2013 meeting the Board directed staff to enter into further negotiations with DeepWater Desal to establish a cost-sharing relationship for the environmental and permitting work necessary to advance that project as an alternative to the Cal-Am proposal.

The key features of the agreement include:

· Sharing of costs 50%/50% from May 1, 2013

· District share capped at not to exceed $800,000

· District option on public ownership of desalination facilities

· Performance milestones by DeepWater Desal to provide assurances of project progress; Termination option if milestones not met.

· Limited obligation of District’s Water Supply Charge.

RECOMMENDATION: The General Manager recommends that the Administrative Committee recommend that the Board should approve and adopt the cost-sharing agreement for the environmental and permitting work necessary to advance the DeepWater Desal project as a viable back-up alternative to the Cal-Am proposal.

BACKGROUND: 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 9.6 mgd or 6.4 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 August 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.

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.

At its December 10, 2012 meeting the Board approved 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 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.

The RFQ was distributed January 25, 2013 to the Peoples Moss Landing proponents, DeepWater Desal, Marina Coast Water District, JDL Development, one of the Banks holding a mortgage on the Moss Landing Commercial Park, and to an advisor to one of the banks. A third-party developer originally interested in the RFQ declined. A copy was also forwarded to California American Water.

Responses from Peoples Moss Landing and DeepWater Desal were received February 15, 2013. The statements of qualifications were reviewed by the District Engineer and the General Manager, in conjunction with review of the SPI consultants report(s) executed for the Monterey Peninsula Regional Water Authority. The statements of qualification were also distributed to the members of the Water Supply Planning Committee and made available to the public. Follow-up questions were asked and the proponents filed additional information. Staff visited the sites. The District Engineer and General Manager used an objective scoring system to evaluate the statements. The results of the evaluation indicate that both projects have great uncertainty, but the DeepWater Desal project can move more quickly and may offer advantages.

EXHIBIT

12-A Proposed Cost Sharing Agreement

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