ITEM:		ACTION ITEM
21.	CONSIDER APPROVAL OF RETURN WATER SETTLEMENT AGREEMENT UNDER A.12-04-019
Meeting Date:			June 20, 2016	Budgeted:	N/A
From:			David J. Stoldt	Program/
			General Manager	Line Item No.: N/A
Prepared By:			David J. Stoldt	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation:
CEQA Compliance: N/A

SUMMARY: During the proceeding A.12-04-019 at the California Public Utilities Commission (CPUC), a controversy arose regarding the planned production of source water for the Monterey Peninsula Water Supply Project’s (MPWSP) desalination plant, and the relationship of such production to the anti-export provisions of the Monterey County Water Resources Agency Act (Agency Act), Salinas Valley Groundwater Basin (SVGB) conditions, and groundwater rights of the agricultural land owners. Initially, Cal-Am had suggested that return of SVGB water to the Basin would be satisfied through either delivery to the Castroville Seawater Intrusion Project (CSIP) pond at the Regional Treatment Plant in North Marina or reinjection into the ground.

On January 22, 2016 supplemental testimony to the CPUC in Application 12-04-019 included a draft term sheet in which Cal Am would sell "return water" to the Castroville Community Services District (CCSD.) In addition any additional "excess return water" is to be sold to the CSIP. Though return water and excess return water will be sold at different rates, both are below that charged for water delivery to Peninsula ratepayers. In the case of "return water" to the CCSD, the price is based on their "avoided costs of pumping" and for "excess water" it is the "marginal cost of production" at the desalination facility.

This situation is less than desirable from a Peninsula ratepayer perspective, but the MPWSP is required to return that portion of the water to the Salinas River Basin, and if it cannot be sold at some price to an eligible buyer, it would have to be returned for free. Since January, the involved parties have negotiated a draft settlement agreement, and draft water purchase agreements (WPAs) with the CCSD and CSIP. A complicating issue was how to assist the CCSD bridge the gap between the funding available to build a pipeline for the return water (or construct a new well) versus the estimated cost of construction.

A motion to the California Public Utilities Commission to approve a Return Water Settlement Agreement (Exhibit 21-A) is attached and the proposed Return Water Settlement Agreement is attached as Exhibit 21-B.

The proposed Return Water Settlement Agreement does not have any impact on District operations or the District’s interests in the MPWSP. District support of the agreement is primarily to demonstrate joint support with the other settling parties in the CPUC proceeding. Approval of the Agreement does not constitute an endorsement of the pricing terms, rather it is a recognition that the Agency Act requires return of SVGB water and delivery to CCSD as a high beneficial use.

RECOMMENDATION: The General Manager recommends the Board authorize its General Counsel to sign the Return Water Settlement Agreement on behalf of the District and to join in the motion to the CPUC to approve the Return Water Settlement Agreement, in both cases subject to non-substantive changes prior to filing.

DISCUSSION: The Settlement Agreement addresses the “return water” that will be produced at the company’s proposed desalination plant. The project will draw seawater from beneath the ocean floor, pulling in a small percentage of groundwater in the process. The project proponents have committed to “return” the amount of groundwater drawn from the project to the Salinas Valley Groundwater Basin to meet applicable requirements of the Monterey County Water Resources Agency Act. Under the terms of the settlement, the return water will be delivered to the CCSD, whose current groundwater supplies have been impacted due to seawater intrusion.

By delivering the return water to the CCSD, the MPWSP will help to address broader regional water supply concerns, improve operational efficiency in the existing CSIP which provides recycled water for crop irrigation, and provide a source of supply to an economically disadvantaged community.

EXHIBITS

21-A Settling Parties’ Motion To Approve Return Water Settlement Agreement

21-B Proposed Return Water Settlement Agreement

21-C Appendix A to Return Water Settlement Agreement

21-D Appendix C-1 to Return Water Settlement Agreement

21-E Appendix C-2 to Return Water Settlement Agreement

21-F Appendix E to Return Water Settlement Agreement

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