ITEM:		PUBLIC HEARING
11.	CONSIDER APPROVAL OF APPLICATION TO Amend California American Water Distribution System – TRANSFER OF CYPRESS PACIFIC WATER RIGHTS IN SEASIDE BASIN, APN 011-011-020, 715 Tioga Avenue, sand City (donor parcel)
Meeting Date:			September 15, 2014	Budgeted:	N/A
From:			David J. Stoldt	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Henrietta Stern	Cost Estimate:	N/A
General Counsel Review: Reviewed and approved 9/5/2014
Committee Recommendation: N/A
CEQA Compliance: N/A. The Superior Court and Appellate Court determined that MPWMD cannot interfere with the Seaside Basin Adjudication Orders and cannot address environmental impacts to the Seaside Groundwater Basin, or co-mingling of Carmel River and Seaside Basin sources.

SUMMARY: The Board will consider Application #20140206CYP (Exhibit 11-A, without attachments) submitted on February 6, 2014 (revised February 13, 2014) by co-applicants California American Water (CAW) and Cypress Pacific Investors LLC (Cypress). The application requests amending the CAW Water Distribution System (WDS) via a transfer of a portion of the designated water rights from the Cypress “Donor Parcel” (APN 011-011-020 at 715 Tioga Avenue, Sand City) to CAW to enable future water service to unspecified recipient parcels designated by Cypress in the Seaside Groundwater Basin, as allowed by the Monterey County Superior Court (Case #M66343) and the Seaside Basin Watermaster. Wells on the coastal Donor Parcel will not physically extract or deliver water to the CAW system. Instead, CAW will “wheel” (deliver) the Cypress water rights to the recipient parcels through CAWs inland wells in the Seaside Basin Coastal Subareas. Moving production away from the coast is an environmental benefit and part of the “physical solution” enacted by the Superior Court. The location of the Donor Parcel is shown as Exhibit 11-B. This action is referred to as the “CAW/Cypress Amendment” in various permit documents.

The Donor Parcel (previously designated as “Calabrese”) was allotted an “Alternative Production Allocation” of 14.0 acre-feet per year (AFY) in the Seaside Groundwater Basin Adjudication Judgment of March 27, 2006, as amended (“Adjudication Decision”). The application request is to divide the 14.0 AFY as follows:

Ø 6.0 AFY will remain on-site as an “Alternative Production Allocation” (overlying right) to be pumped by onsite well(s) at some future point in time; and

Ø 8.0 AFY will be transferred to CAW, where it becomes a “Standard Production Allocation” (appropriative right) subject to the triennial 10% reductions through year 2021 in the Adjudication Decision, resulting in a final allowed production of 3.41 AFY. The actual metered sales recognized by MPWMD in its Water Permit tracking would be 3.17 AFY, based on an assumed 7% system loss rate in the CAW system. The applicant is aware of and accepts these reductions.

The Cypress water rights transfer from an Alternative Production to a Standard Production designation was approved by the Seaside Basin Watermaster in a letter dated January 27, 2014 (Exhibit 11-C).

A Monterey County Superior Court Order dated May 11, 2009, as confirmed by the Appellate Court (Cal-Am v. Seaside, and Sierra Club v. MPWMD; 6^th Appellate District, H037286, April 1, 2010), determined that MPWMD can require a WDS Permit for water rights transfers in the Seaside Basin, but cannot require environmental review under the California Environmental Quality Act (CEQA). District Counsel has confirmed that the MPWMD Board’s decision on the CAW/Cypress Amendment is viewed as a CEQA ministerial action (CEQA Guidelines section 15268) due to the above Court Orders.

In his July 30, 2010 Order After Ex Parte Hearing, Case #M66343), Judge Roger Randall determined that MPWMD has the authority to require an accounting of water production to satisfy itself that no Carmel River water is being used, but cannot make environmental decisions based on mere co-mingling of Seaside and Carmel Basin waters in CAW storage tanks. Thus, the application materials include a draft “Agreement Regarding Front-Loading Delivery of Water” (“Front-Loading Agreement”) shown as Exhibit 11-D. The Findings and Conditions of Approval specify data collection protocol associated with the Front-Loading Agreement to ensure that only CAW wells in the Coastal Subareas of the Seaside Basin are used to serve the recipient parcels (called “Cypress Properties” in the Agreement), which also must be located in the Coastal Subareas of the Seaside Basin. This agreement is described in more detail below.

MPWMD files associated with this application are available for review at the District office; adjudication materials are available electronically from the Watermaster website. This public hearing has been noticed via postings at the District office, website, agenda mailing list, CAW office, Watermaster office, and offices of jurisdictions with the CAW service area.

RECOMMENDATIONS: District staff recommends that the Board take the following actions:

1. Adopt the MPWMD Findings of Approval for Application #20140206CYP for the CAW/Cypress Amendment (Exhibit 11-E).

2. Approve Application #20140206CYP; authorize issuance of MPWMD Permit #M14-05-L4 for the CAW/Cypress Amendment with the Conditions of Approval specified in Exhibit 11-F. The Conditions of Approval include all the required conditions specified in MPWMD Rule 22-D as well as several special conditions for this project, as described in the “Discussion” section below.

3. Direct staff to file a Notice of Exemption with the County Clerk; this would be a statutory exemption for a ministerial action pursuant to CEQA Guidelines section 15268.

BACKGROUND: The extensive history and litigation associated with the District’s approval of a WDS Permit for the Monterey Bay Shores Ecoresort is relevant to this action. Please refer to the July 19, 2010 (Item 21) and August 16, 2010 (Item 18) MPWMD agenda materials on the District website for a detailed review of Court Orders that affect the Findings, Conditions and CEQA compliance for all similar water rights transfers in the Seaside Basin.

In brief, the Adjudication Decision allows parties to combine pumping facilities and delivery for maximum benefit and management of the Basin, with Watermaster approval. Thus, water rights associated with the Cypress Donor Parcel may be produced from another Seaside Basin well owned by another entity (such as CAW’s inland wells) and delivered to recipient parcels within the Seaside Basin.

The SWRCB previously determined for Monterey Bay Shores that the one-for-one replacement for new CAW supplies in Order WR 95-10 does not apply to transferred water rights within the Seaside Basin.

Two wells exist on the donor site -- one active and one inactive.  The active well produces a nominal amount of water (0.11 AF in year 2013) to supply the statuary business on the parcel. The onsite well(s) may produce up to 6 AFY under the Front-Loading Agreement.

DISCUSSION: The following paragraphs describe the Front-Loading Agreement, and the proposed Findings and Conditions of Approval as required by MPWMD Rule 22.

Front-Loading Agreement

An initial draft of the Front-Loading Agreement was submitted with the February 2014 application materials. The Agreement was revised several times based on consultations with the District; the most recent version, dated September 2014, is provided as Exhibit 11-D. Assuming approval by the Board, an executed agreement will be provided within 60 days. The Agreement states that its intent is to: (1) show compliance with the terms of the Superior Court Order; (2) ensure operationally that only Seaside Basin Coastal Subarea water is produced and stored for the benefit of the recipient parcels in advance of water use on those parcels; and (3) provide assurance (in addition to accounting and reporting requirements) that there will be no temporal or other impact to Carmel River water sources.

Key components of the Front-Loading Agreement include:

1. CAW will lease up to 8 AFY of adjudicated water from Cypress for delivery to Cypress-designated properties “subject to reduction per the formulas in the [Adjudication] Decision.” The lease commences only after local agency permits, including the MPWMD Water Permit, have been obtained. Importantly, the reduction formulas result in a total of 3.41 AFY production. This equates to a total of 3.17 AFY metered sales recognized by MPWMD for Water Permits for the recipient parcels.

2. Cypress must provide advance notice about the properties to be served.

3. At least one month before setting the first water meter for a recipient parcel (or intensifying service to an existing customer), CAW will pump water from its inland Seaside Coastal Subarea wells to an existing storage facility. CAW shall “as frequently as necessary” produce the Leased Water in an amount that exceeds the amount of water actually delivered for the recipient parcels.

4. The Agreement intent is to always comply with the Adjudication Decision; the Agreement does not prohibit “mixing of molecules” from different sources (such as the Carmel River) in a tank, consistent with the May 11, 2009 Court decision.

5. CAW will account for and report the water use in accordance with Section 11 of the Watermaster Rules and Regulations.

6. The Agreement is conditional on: (a) written approval of a moratorium exception by the California Public Utilities Commission (CPUC) or an official of the State Water Resources Control Board (SWRCB); (b) Watermaster approval; (c) a WDS Permit from MPWMD; (d) a Water Permit from MPWMD for the affected properties; and (e) total delivery to the Cypress properties shall not exceed 8 AFY production [as reduced by the Adjudication Decision to a long-term production of 3.41 AFY].

Other components of the Agreement address cooperation, termination, cost allocation, indemnification and other standard legal issues.

Determination of Final Production and Metered Sales Amounts

The Front-Loading Agreement (page 1) calls for a starting amount of “8.0 AFY Standard Production allocation which is subject to reduction per the formulas in the Amended Decision.” The Decision (page 18) calls for a triennial reduction of 10% with the start year of 2006.  Specifically, the text states, “Commencing with the fourth Water Year [2009], and triennially thereafter the Operating Yield for both Subareas will be decreased by ten percent (10%) until the Operating Yield is the equivalent of the Natural Safe Yield…..”  The Watermaster and its associated Technical Advisory Committee has determined that the 10% reduction is based on the original number in 2006, and that original number is applied every three years.  The overall goal to reduce Seaside Basin production from 5,600 AFY to the safe yield of 3,000 AFY.

Tables of annual allowed CAW production in the Seaside Coastal Subarea from years 2006 through 2021 show that year 2021 production (and beyond) is 42.63% of the year 2006 starting amount. The District applied this same percentage reduction to the Cypress water rights transfer. Thus, the 8.0 AFY Standard Production amount becomes an allowed long-term production of 3.41 AFY. MPWMD issues Water Permits based on estimated metered sales (customer consumption) and must account for 7% CAW system losses. Thus, the 3.41 AFY production becomes 3.17 AFY metered sales that would be permitted for construction projects on the recipient parcels. The MPWMD Water Demand Division would track the 3.17 AFY amount as a separate “account” and issue Water Permits using the standard District methodology to estimate demand until the total is used up.

Findings of Approval

Findings of Approval for Application 201400206CYP (Exhibit 11-E) are based on evidence provided in the Application materials, including supporting documents received through September 4, 2014, on file at the District office. With the Conditions of Approval and Front-Loading Agreement, and previous action by the Monterey County Superior Court and Seaside Basin Watermaster, District staff believes a Finding can be made that the Application meets the criteria and minimum standards for Approval set by District Rules 22-B and C. Specifically, this action should “not create an Overdraft or increase an existing Overdraft….” (Rule 22-C-4).

Conditions of Approval

The Conditions of Approval (Exhibit 11-F) proposed for Permit #M14-05-L4 are consistent with MPWMD Rule 22-D governing approval of Water Distribution Systems. Conditions #1 through #4 define the Permitted System, including CAW production of 8.0 AFY reduced to 3.41 AFY production consistent with the Adjudication Decision (equivalent to 3.17 AFY metered sales) to serve unspecified future recipient parcels which must be located in the Seaside Groundwater Basin, based on Cypress’ legal right to 14.0 AFY of Alternative Production Allocation water. The Conditions are similar to, but not identical to, those approved for the Monterey Bay Shores project as there are substantive differences between the two projects. Also, the CAW system has physically changed in the past few years, and will continue to change in the context of the Regional Water Project, so some flexibility is needed in the accounting methodology. District staff will need to track Water Permits associated with the CAW/Cypress Amendment, similar to current tracking for CAW’s Water West subunit or the Sand City desalination project.

Conditions #5 through #24 are mandatory, including a variety of subjects such as water quality, metering and annual reporting, conservation, required Indemnification Agreement, fee payments, timely notice of pending or actual changes to the system, staff access, and other elements. Condition #24 states that the WDS Permit is subject to revocation if CAW or Cypress does not fully comply with each and every Condition of Approval for Permit #M14-05-L4. Conditions #25 and #26 address basic water rights and the Endangered Species Act; these conditions are not required by District rules, but are included in all MPWMD WDS Permits.

Special Condition #27 requires Cypress and its successors to give notice to the District and copies of any correspondence with the Watermaster regarding transferring additional Alternative Production Allocation rights to Standard Production Allocation rights.

Special Condition #28 requires that CAW provide the District a copy of any quarterly report to the SWRCB that includes information about service to the recipient parcels; a link to the CAW website to view the information is acceptable.

Special Condition #29 provides notice that a current standard condition of approval for all Water Permits is a Deed Restriction that entails release of consumption information upon request by the District. This information may be accessed by the general public. CAW would release information designated in recorded Notice and Deed Restriction signed by the Recipient Parcel Owner.

Special Condition #30 directs CAW to implement water accounting methods to track CAW production sources to ensure that only wells in the Coastal Subareas of the Seaside Basin serve the recipient parcels, and no Carmel River Basin water is produced to serve the parcels, consistent with the 2009 Court Order and the Front-Loading Agreement. The MPWMD General Manager retains the right to review and approve the CAW methodology.

The Front-Loading Agreement calls for CAW to pump water from Seaside Basin and store the water prior to actual use by customers on the recipient parcels. It is noted that careful accounting is needed most in the November through April “high flow” period (i.e., when Carmel River flow is greater than 40 cfs) as defined by SWRCB Order 98-04. This period is when Seaside Basin pumping is minimized. In contrast, the May through October period is when pumping from the Seaside Basin is maximized, so front-loading will easily occur.

Special Condition #31 requires Cypress to ensure that extractions from its on-site well(s) never exceed 6.0 AFY production. District rules already require annual reporting of metered production. Total production associated with the Cypress (Calabrese) water right should never exceed 14.0 AFY. This is unlikely in that the 8.0 AFY component for CAW is reduced to 3.41 AFY. Thus, the CAW/Cypress Amendment can be viewed as an environmental benefit. In the context of cumulative beneficial changes, implementation of proposed regional water projects would further improve conditions in the Seaside and Carmel River Basins.

The proposed conditions were submitted to the applicant on September 4, 2014. Cypress indicated via e-mail on September 8, 2014 that they have reviewed the permit materials and have no comment. CAW requested some text changes to draft Conditions #27, #28 and #29, which were acceptable to the District General Manager.

EXHIBITS

11-A Application #20140206CYP (revised) dated February 13, 2014 (without attachments)

11–B Location of donor parcel, APN 011-011-020

11–C Watermaster approval letter dated January 27, 2014

11–D CAW/Cypress Draft Front-Loading Agreement dated September 2014

11-E MPWMD Draft Findings of Approval dated September 2014

11–F MPWMD Draft Conditions of Approval dated September 2014

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