ITEM:		DISCUSSION ITEM
35.	DISCUSS REPLACEMENT INTAKE WELLS FOR THE SAND CITY DESALINATION PLANT
Meeting Date:			June 21, 2021	Budgeted:	No
From:			David J. Stoldt	Program/
			General Manager	Line Item No.:	N/A
Prepared By:			David J. Stoldt	Cost Estimate:
General Counsel Approval: N/A
Committee Recommendation: None
CEQA Compliance: Action does not constitute a project as defined by CEQA

SUMMARY:  The City of Sand City would like our agreement that the District will not take the position that Sand City’s water entitlement will in any way be affected or undermined by California American Water Company’s (“Cal-Am”) ownership of one or more intake wells serving the Sand City Desalination Facility (“Facility”). Cal-Am operates the plant under a lease from the City. Sand City may find it cost prohibitive to fund the replacement of the intake wells.

While District Rule 23.6 does require that Sand City own the Facility, it would be reasonable that the District does not and will not interpret that requirement to include a requirement that Sand City own all the intake wells serving the Facility. Cal-Am may own one or more of the intake wells that are planned to be constructed without affecting or in any way undermining Sand City’s water entitlement. However, certain District Directors have raised a concern that, if an acquisition of Cal-Am’s Monterey Water System proceeds, that the ratepayers should not pay for the wells twice or even a cost premium.

District Counsel has suggested that the MOU between Sand City and Cal-Am contain a buy-back agreement which would allow Sand City to buy back the wells in the event of a public takeover of Cal-Am's assets. The purpose of such a term would be to avoid Cal-Am's ownership of the wells driving up the price of Cal-Am. The District General Manager has raised concerns that Sand City would not be in a financial position to buy-back the wells and they could be acquired as part of the broader Cal-Am acquisition. A provision for a fixed value in event of District acquisition, such as simple undepreciated book value, might provide the needed protection.

RECOMMENDATION: The District Board should discuss and provide general guidance to District Counsel for continued discussion with the City of Sand City.

EXHIBIT

None

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