Item-18

ITEM:		ACTION ITEM

18.	CONSIDER ADOPTION OF RESOLUTION NO. 2016-18 DIRECTING CALIFORNIA AMERICAN WATER TO CONTINUE COLLECTION AND REMITTANCE OF THE DISTRICT WATER DISTRIBUTION SYSTEM USER FEE

Meeting Date:			October 17, 2016	Budgeted:	N/A

From:			Dave Stoldt,	Program/
			General Manager	Line Item No.:

				Cost Estimate:	N/A

General Counsel Review: Yes
Committee Recommendation: N/A
CEQA Compliance: The resolution does not constitute a project as defined by CEQA.

SUMMARY: During California American Water’s 2008 General Rate Case, the California Public Utilities Commission (CPUC or Commission) issued Decision 09-07-021 declining to permit California American Water to continue collecting the District’s User Fee. In 2010, California American Water submitted Application 10-01-012 wherein the active parties to the proceeding, the District, Office of Ratepayer Advocates (ORA), and California American Water, moved for approval of an All-Party Settlement pursuant to which California American Water would resume collecting the User Fee. The Commission rejected the settlement on March 25, 2011 in Decision 11-03-035, denied the District’s application for rehearing in Decision 13-01-040, and closed the proceeding in 13-05-001.

On June 26, 2013, the California Supreme Court (Supreme Court) granted the District’s Petition for review of Commission Decision 11-03-035 and on January 25, 2016, in a unanimous opinion, the Supreme Court vacated Commission Decision 11-03-035 (Monterey Peninsula Water Management District v. Public Utilities Commission (2016) 62 Cal.4^th 693).

The Supreme Court held that since the User Fee originated with the District, the Commission had no authority to regulate local fees of public agencies (like the District) collected through a public utility’s customer bills and remitted to the government entity. The Supreme Court set aside Commission Decisions 11-03-035 and 13-01-040 and remanded the matter back to the Commission.

This resolution republishes as though fully set forth herein Resolution 2011-09 and orders California American Water to collect and remit the 8.325% User Fee as required by Ordinance No. 123 and authorizes District Counsel to act to remove the Stay Order in Monterey Superior Court Case No. M113336 and either dismiss the case or proceed with the litigation.

RECOMMENDATION: Adopt Resolution No. 2016-18 requiring Cal-Am to collect and remit to the District the Water Distribution System User Fee.

BACKGROUND: Since 1983, Cal-Am has been required to collect and remit a user fee to MPWMD. See District Rule 64, enacted by Ordinance No. 10 (7/26/83) and amended by Ordinances No. 12 (4/9/84), and No. 22 (3/11/85). Ordinance 67 defines the purposes for which the fee may be used quite broadly and “allow[s]” the Board “discretion” to allocate the fee as it sees fit, as long as there is a “benefit and/or service to existing water users.” Finding 4 states Ordinance 67 was required “to permit continuation of mandated and essential District programs.”

It bears noting that Ordinance 78, enacted in 1995 to finance the New Los Padres Dam, states the user fee was “established to fund costs of water conservation, and programs to ameliorate environmental impacts caused by water production.” Ordinance 78 was repealed by 1996’s Ordinance 82 when the voters rejected the dam proposal, but Ordinance 82’s findings state that the user fees in place on the date of Ordinance 78’s approval “shall remain in force and be unaffected” because the measure failed. More recently, the Cal-Am user fee has been set by District Ordinance 123 (8/15/2005) with 1.2% dedicated to ASR and related water supply activities. The District may use revenues from the 7.125 percent component of the fee to provide any benefit or service to water users due to the very broad language of Ordinance 67 which was restated and reinforced in Ordinance 123.

On June 20, 2005, the MPWMD Board approved the District’s 2005-06 budget and set the Cal-Am User Fee at 8.325%. The Cal-Am User Fee of 8.325% went into effect on the Cal-Am water bill on October 14, 2005.

The WDS User Fee provides funds for the Mitigation Program legally required to address the environmental impacts of Cal-Am operations on both the Carmel River and Seaside Groundwater Basins in accord with California Environmental Quality Act (CEQA), Public Resources Code §§21000 – 21178. These impacts have been determined to significantly affect the Carmel River populations of steelhead and red-legged frog, which are listed as threatened species under the federal Endangered Species Act. State Water Resources Control Board (SWRCB) Order 95-10 (Order 95-10) and Order WR 2009-0060 recognize the Mitigation Program.[1]

Prior to July 9, 2009, the California Public Utilities Commission (CPUC) acknowledged the propriety of Cal-Am’s collection of the User Fee through its action on Application 08-01-027. CPUC Decision 90-08-055 recognized assessment of the fee as set by the MPWMD Board and deferred to MPWMD any question regarding application of the fee to vacant lots.

On July 9, 2009, the CPUC in Decision 09-07-021 further examined the Cal-Am WDS User Fee and directed Cal-Am to file an application to address collection of funds to support MPWMD programs. The Commission stated, “We would also like to better understand the growing role of the Monterey Peninsula Water Management District in allocating costs to Cal-Am’s customers….”

In September, 2009, following issuance of Decision 09-07-021, Cal-Am entered into an agreement with MPWMD to continue funding of this Program and filed Advice Letter No 785-A to establish a User Fee Memorandum Account. Cal-Am continued to make payments to MPWMD to fund the Mitigation Program and ASR Program so that those projects could receive the same funding as these programs would have received, had the User Fee continued. Payments to MPWMD were recorded in the User Fee Memorandum Account.

It should be noted that during the interruption of the collection of the User Fee on the Cal-Am system, the District continued to collect the User Fee on other non-Cal-Am Water Distribution Systems unabated.

Following CPUC issuance of Decision 09-07-021, MPWMD continued to receive the funds necessary for its Mitigation Program and ASR Program. Both Cal-Am and the District pursued the course set by Decision 09-07-021 to address concerns expressed by the CPUC while receiving funds through payments recorded by Cal-Am in the User Fee Memorandum Account. On January 5, 2010, Cal-Am filed Application 10-01-012 with the CPUC seeking authorization to continue to collect MPWMD’s User Fee and remit it to MPWMD. As directed by the CPUC in Decision 09-07-021, Cal-Am met and conferred with MPWMD to discuss funding for, and implementation of, both the Mitigation Program and the ASR Project. Based on these meetings, Cal-Am, MPWMD and the CPUC Division (now Office) of Ratepayer Advocates (ORA), agreed to a comprehensive All-Party Settlement that embraced the following points:

1. The Mitigation Program is non-duplicative, reasonable, and prudent,

2. The ASR Program is non-duplicative, reasonable, and prudent, and

3. Cal-Am should be authorized to collect MPWMD’s user fee (at a rate

set by MPWMD) and remit it to MPWMD.

Although the Parties filed a motion seeking approval of the All-Party Settlement, the Commission instead issued Decision 11-03-035 on March 25, 2011, directing Cal-Am to amend its application to either (1) propose a joint program by which Cal-Am would fund MPWMD performance of its Mitigation measures program and MPWMD’s portion of the ASR program, or (2) offer an implementation plan for Cal-Am to assume direct responsibility for the MPWMD mitigation program. Cal-Am was also allowed to recover the balance in its MPWMD User Fee Memorandum Account over a 12-month period.

During the pendency of those proceedings, Cal-Am and MPWMD, on September 24, 2009, entered into a Reimbursement Agreement that called for Cal-Am to reimburse MPWMD for costs of its Mitigation and ASR Programs. On March 30, 2011, however, Cal-Am provided notice that it intended to terminate the Reimbursement Agreement, effective May 23, 2011.

As an alternative, and to ensure minimal funding of the Mitigation Program pending further decision of the CPUC, Cal-Am entered into a further funding Agreement to comply with SWRCB Order 95-10 and SWRCB Order 2009-0060.

The District Board enacted Resolution 2011-09 on May 27, 2011 ordering California American Water to collect and remit the 8.325% User Fee as required by Ordinance 123 in installments during the fiscal year, provided full payment was tendered during that fiscal year, but on July 21, 2011, California American Water filed a Petition for Writ of Mandate and Complaint for Declaratory and Injunctive Relief against the District in Monterey Superior Court, Case No. M113336, challenging the approval of Resolution 2011-09. The relief sought by California American Water included vacating the Resolution and having the Court declare the Resolution invalid through a Reverse Validation action. However, in October 2011, the District and California American Water stipulated to a stay of the Superior Court case while various matters were pending at the Commission.

In order to fund ongoing water supply related activities during the loss of the User Fee, the District adopted Ordinance No. 152 on June 27, 2012, imposing an annual water supply services, facilities and activities charge (the Water Supply Charge) on parcels served by the main California American Water distribution system to replace and augment a portion of the User Fee formerly collected by California American Water. The District Board adopted Resolution 2012-10 to certify the Water Supply Charge complied with Proposition 218 requirements to assess property related fees and charges.

EXHIBIT

18-A Draft Resolution 2016-18

18-B Resolution 2011-09

U:\staff\Boardpacket\2016\20161017\ActionItems\18\Item-18.docx

[1] See, generally: (a) Mitigation Program for Water Allocation Program EIR (Final EIR: MPWMD, Water Allocation Program Final Environmental Impact Report, certified by MPWMD Board November 5, 1990); (b) MPWMD, Five Year Mitigation Program for Option V – 16,700 AF Cal-Am Production, adopted by MPWMD Board November 1990; (c) MPWMD, Annual Mitigation Program Reports; (d) MPWMD Carmel River Riparian Corridor Irrigation Program; (e) Monterey County Use Permits issued by the Monterey County Planning Commission to California-American Water Company, December 1980: PC-3794 for Cypress Well, PC-3795 for San Carlos Well, PC-3796 for Rancho Canada Well, and PC-3797 for Pearce Well; (f) January 14, 1981 Agreement between MPWMD and California-American Water Company for management of riparian vegetation in the area of the four Cal-Am wells (Cypress, San Carlos, Rancho Canada, and Pearce Wells); (f) Carmel River Management Program; MPWMD, Carmel River Management Plan, March 1984; and (g) MPWMD, Final EIR, Carmel River Management Plan and Boronda Erosion Control Project, certified October 29, 1984

October 17, 2016

Budgeted:

N/A

General Counsel Review: Yes

Committee Recommendation: N/A