ITEM:		CONSENT CALENDAR
6.	CONSIDER ADOPTION OF AMENDMENT 2 TO COST SHARING AGREEMENT WITH MONTEREY ONE WATER FOR THE PURE WATER MONTEREY PROJECT
Meeting Date:			November 13, 2017	Budgeted:	N/A
From:			David J. Stoldt	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			David J. Stoldt	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: Water Supply Planning Committee approved Amendment 2 to the Cost Sharing Agreement at its October 17^th meeting with a 3-0 vote.
CEQA Compliance: Action does not constitute a project as defined by the California Environmental Quality Act Guidelines section 15378.

SUMMARY:  In May 2013, the Monterey Peninsula Water Management District (District) entered into a Cost Sharing Agreement (Agreement) with Monterey One Water (M1W), at the time Monterey Regional Water Pollution Control Agency) to fund the Groundwater Replenishment (GWR) Project planning and development costs, also referred to as pre-construction costs. 

In April of 2017, M1W’s State Revolving Fund Loan was approved to support the payment of GWR/Pure Water Monterey (PWM) project costs, providing the opportunity to reimburse pre-construction costs from the State Revolving Fund loan.

To formalize this action, as well as incorporate additional terms to support the continued relationship between the parties, a Second Amendment to the Cost Sharing Agreement is needed.

M1W’s Board approved this Amendment 2 to the Cost Sharing Agreement at its October 30, 2017 meeting.

Proposed Revised Amendment 2: After having met to discuss the matter, the parties propose the attached revised Amendment 2 to the Cost Sharing Agreement (Exhibit 6-A.) This form was approved by the District’s Water Supply Planning Committee on October 17, 2017.

Key provisions are listed below:

Planning and Development Costs Definition

Amends the existing planning and development costs definition.

Add Reimbursement of Planning and Development Costs

Adds a new section to address the planning and development costs reimbursed through the State Revolving Fund (SRF) Loan. This section provides for a 50%-50% initial reimbursement share for each agency and addresses how subsequent reimbursements would be shared between the two agencies, targeting a goal of bringing both parties back in line with proportional reimbursement after subsequent reimbursements.

Add Unreimbursed Construction Period Costs

Adds a new section to address project-related costs that are not allowed to be paid through the SRF loan between March 1, 2017 to June 30, 2019. The State is disallowing certain costs that are not associated with the project design and construction. Such costs include public outreach, regulatory proceedings, groundwater modeling, geochemical monitoring, and regulatory proceedings. This section would provide a mechanism of continued cost sharing on unreimbursed costs.

Add Financing of GWR Unreimbursed Construction Period Costs

Adds a section to state that the District shall pay seventy-five percent (75%) of the Unreimbursed Construction Period costs and M1W shall pay twenty-five percent (25%) of such costs.

Add Debt Service Reserve Fund

Adds a section to address funding the debt service reserve fund. Unlike earlier proposals, there is no shared funding agreement at this time and M1W retains the right to address alternative approaches for the funding of the reserve at the in-service date in the future.

Amending Term

Amends the existing term of the Agreement to remain in effect until June 30, 2019. An extension could occur at the agreement of the parties.

RECOMMENDATION:  The General Manager recommends the Board approve Amendment 2 to the Cost Sharing Agreement with M1W for the Pure Water Monterey Project.

BACKGROUND:  Under the Cost Sharing Agreement adopted in May 2013, beginning with Fiscal Year 2013-14, M1W agreed to fund 25% of all costs listed in Section II (A)(1,2) of the Agreement, while the District agreed to pay for 75% of the specified costs. In July 2016, the parties entered into Amendment 1 to the Cost Sharing Agreement to increase the number of fully-funded M1W positions covered and support the costs associated with the line of credit.

After approval of M1W’s State Revolving Fund Loan in April of this year, project costs through February 28, 2017 concluded the pre-construction costs covered by the Cost Sharing Agreement. All eligible costs incurred after that period were paid by M1W and subject to reimbursement by the State.

Staff of M1W and the District agreed to apply for $8.2 million in initial reimbursements from the State Revolving Fund loan, in concept with the reimbursement shared equally between the organizations. The Agency’s $4.1 million share of the reimbursements was earmarked to replenish and increase reserve balances.

At the September 8, 2017 M1W BPC meeting, there were still on-going discussions between both parties. Staff was initially considering a recommendation for an equal distribution of the $8.2 million initial reimbursement, an equivalent contribution to establish the PWM debt service fund, and that any future distributions be based on the proportional share of costs or a true-up to that level. As stated above, at the BPC meeting, M1W staff was directed to pursue reimbursement of M1W funds, and to suggest that the District give consideration to waiving reimbursement of their costs.

At the District’s Administrative Committee September 11, 2017 meeting, the Committee approved the proposed form of amendment, as well as an alternate version, where the District would not participate in funding the debt service reserve fund and the initial reimbursement proportions would be different.

The District’s full board approved either of both versions on consent at its September 18, 2017 meeting.

At M1W’s September 25, 2017 full board meeting, the reimbursement proposals were discussed and staff was directed to develop a series of talking points to be conveyed to the District by the M1W board Chair, in support of the District giving consideration to waiving reimbursement of their costs.

Both parties’ board Chairs and general managers met on October 4, 2017, at which time the District strongly expressed that it does not agree to waive its reimbursement. The District also provided its own talking points in response to M1W.

As a result of the discussion between the parties on October 4^th, the board Chairs and general managers agree that the revised proposal attached as Exhibit 6-A hereto represents a compromise which (i) is fair to both parties, (ii) provides for potential future reimbursement of pre-construction costs in a manner that bring both parties closer to proportional reimbursement, and (iii) leave the door open for a future contribution by the District to help reduce the wholesale cost of product water.

EXHIBITS

6-A Proposed Amendment 2 to MRWPCA-MPWMD Groundwater Replenishment Project Cost Sharing Agreement

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