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ITEM: |
GENERAL
MANAGER’S REPORT |
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6. |
UPDATE ON WATER SUPPLY
PROJECTS |
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Meeting
Date: |
December 11, 2023 |
Budgeted: |
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From: |
David J.
Stoldt |
Program/ |
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General
Manager |
Line Item No.: |
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Prepared
By: |
David J.
Stoldt |
Cost Estimate: |
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General Counsel Review: N/A |
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Committee
Recommendation: N/A |
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CEQA Compliance: This action does not constitute a project
as defined by the California Environmental Quality Act Guidelines Section
15378. |
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SUMMARY:
Pure Water Monterey Expansion:
PWM X construction status: The AWPF Expansion contractor (Overaa & Co.) is proceeding with all long-lead equipment procurement and construction activities. Injection Wells Phase 4, the other PWM X construction project, is also now under construction. Specialty Construction Inc. (SCI) had their construction Notice to Proceed (NTP) issued on October 5th.
The EPA Water Infrastructure and Innovation Act (WIFIA) loan agreement for PWM X is active with initial reimbursement requests prepared by M1W Staff having already been paid by EPA.
M1W and MPWMD Staff are finalizing paperwork for the awarded PWM X grants which total approximately $42 million from these state and federal sources:
$10.32 million from US Bureau of Reclamation Title XVI
$15 million from California State Revolving Fund
$11.94 million from California DWR Urban Community Drought Relief
$4.8 million from California Budget Act of 2022 (Governor’s earmark)
The attached PWM X schedule illustrates that all the new PWM X facilities will be operational by the end of 2025.
Monterey Peninsula Water Supply Project
(Desalination):
On November 15, 2023 at a CoHABLE (Coalition of Housing, Ag, Business, Labor, & Education) meeting, Cal-Am representatives went over the Coastal Commission list of permit requirements. They indicated Cal-Am expects to get all permits completed by December 2025 and have a 4.8 MGD desalination plant completed by the end of 2028. Cal-Am made similar statements at a recent luncheon of the Monterey County Hospitality Association.
However:
Coastal Commission approval of the MPWSP is not final.
A lawsuit (Marina Coast Water District, et al. v. California Coastal Commission, et al., Monterey Superior Court Case No. 22CV004063) has been filed that challenges the issuance of the Consolidated Coastal Development Permit for the Cal-Am’s proposed MPWSP desalination facility.
Four plaintiffs, including Marina Coast Water District, City of Marina, Monterey Peninsula Water Management District, and Marina Coast Water District Groundwater Sustainability Agency collectively claim that in approving the Coastal Development Permits (CDPs) for the MPWSP, the Coastal Commission abused its discretion, exceeded its jurisdiction, failed to proceed in the manner required by law and failed to support its findings with substantial evidence in violation of the California Coastal Act (“Coastal Act”) (Pub. Resources Code, §§ 30000, et seq.), CEQA, and other applicable laws. Among its many errors, it is alleged that the Coastal Commission:
a. Unilaterally and illegally segmented and phased the Project in violation of determinations of the CPUC and other responsible agencies;
b. Abandoned its duty to protect the disadvantaged communities harmed by the Project in direct contravention of the Coastal Commission’s Environmental Justice Policy and associated Coastal Act regulations and other statutory requirements;
c. Failed to meet the rigorous “override” standards imposed by the Legislature for approving a project that the Coastal Commission acknowledges violates the Coastal Act and the City’s Local Coastal Program (“LCP”) (Pub. Resources Code, § 30260);
d. Failed to comply with the Coastal Act’s mandate to protect Environmentally Sensitive Habitat Areas (“ESHA”), coastal public access, and vernal pond/wetlands areas, failed to protect the community from coastal hazard dangers, failed to prevent groundwater depletion, and failed to recognize or implement its public trust responsibilities;
e. Failed to adequately address concurrent court and agency proceedings on critical issues (including water supply and demand, alternative water sources, and water rights), all of which directly relate to whether the Project is feasible, or necessary;
f. Failed to comply with its CEQA obligations; and
g. Noticed and conducted its hearing in an unfair manner in violation of due process principles, the Coastal Act, and other applicable standards.
The plaintiffs contend that the decision process and the ensuing Coastal Commission decisions are substantively and procedurally deficient and must be set aside. Further, the plaintiffs contend the Coastal Commission also violated CEQA notice and comment requirements, and thereby undermined the public participation requirements that are the heart of CEQA.
Coastal Commission approval of the MPWSP is
heavily conditioned; approval and implementation of the CDP remains uncertain.
The Final Adopted Findings in the De Novo Appeal Hearing and Consolidated Coastal Development for the MPWSP desalination facility include 20 “Special Conditions”, many of which are difficult to be completed in a timely manner.
For example, Special Condition No. 1 “Other Permits and Approvals” requires both a Monterey One Water (M1W) coastal permit to be issued that approves modifications to the ocean outfall and a NPDES permit to be issued that approves discharge of desalination effluent through the outfall. M1W has indicated that the process needed to achieve governmental approval will entail detailed discharge modeling to ensure compliance with The Ocean Plan, extensive negotiations leading to a negotiated agreement, with potential delays related to regulatory/permitting processes, entitlements/landowner agreements, and legal challenges to include lawsuits and related appeals. A realistic schedule to complete these prerequisite requirements is several years. The outcome is uncertain.
Condition No.1 also requires completion of the CPUC’s pending proceeding (A.21-11-024) addressing water supply and water demand estimates for the MPWSP. This must include a conclusion by the CPUC that future projected demand will require, by or before 2050, additional water supply beyond that which will be provided by the Pure Water Project Expansion (i.e., the project that would increase the capacity of the previously CPUC-approved Pure Water project from 3,500 AFY to 5,750 AFY). Cal-Am will need to show it has authorization from the CPUC to proceed with the Project, in light of the most recent data regarding reduced customer demand. The outcome of this proceeding should occur in mid- to late-2024.
Condition No. 1 also requires local encroachment permits and rights of way (ROW) from Monterey County, Marina, Seaside, Sand City, and the Transportation Agency of Monterey County (TAMC). The Coastal Commission overlooked ROW that is required through the Seaside lands owned by the Presidio of Monterey (U.S. Army). At this time, the status of those permits and ROW remains as uncertain as it was in November of 2020. MPWMD is aware that such permits and ROW have not been issued in Marina, the County, TAMC, nor by the Presidio of Monterey. It is unclear if the failure of the National Marine Sanctuary to issue a Record of Decision (ROD) on the Environmental Impact Statement (EIS) will hold up the Presidio ROW. The ROD appears to await a new NPDES permit which may not occur until 2026.
Special Condition No. 2 “Project Phasing” may require separate CPUC approval of a 4.8 million gallon per day (MGD) alternative, which the CPUC did not review under CEQA and specifically declined to approve in 2018. While Cal-Am has stated in a data request in CPUC proceeding 21-11-024[1] in response to the question “Does CalAm agree that a 4.8 mgd desalination facility would be a reduction in the size of the facility for which CalAm was granted a CPCN by the CPUC in D.18-09-017?” that “No. California American Water is proposing a multi-phase plan with the first phase of the desalination facility producing 4.8 MGD.” However, the Coastal Commission specifically requires the facility to be built and operated as a 4.8 MGD plant for a minimum of 2 years. This seems counter to the CPUC approval of a 6.4 MGD plant and specific CPUC disapproval of a 4.8 MGD plant. Hence, it is likely the issue will need resolution in front of the CPUC.
Special Condition No 16 imposes a “Low-income ratepayer relief” element that will require subsequent approval of programs by the CPUC. These proposals are likely to be evaluated in a “Rulemaking” proceeding that can require three years, or more, to complete, and cannot provide a guaranteed outcome.
The foregoing are just a few examples of the conditions imposed on the Coastal Commission approval of the MPWSP that are unlikely to be met in a timely manner.
The California Public Utilities Commission (CPUC)
must revisit its 2018 approval of the MPWSP project. This carries no guarantee of success.
The Coastal Commission CDP was conditioned on a project sized at 4.8 MGD. As stated above the CPUC considered, but explicitly rejected this project size in its 2018 CPUC decision. Any effort to implement this option should require revision of the 2018 CPUC decision to reconcile its approval with the CDP.
The 2018 CPUC decision specifically provided that if a desal project and PWM Expansion were both to be done, Cal-Am would first need to identify its operational strategy to specify ratepayer v. shareholder impacts under the decision.
The Coastal Commission secured agreement by Cal-Am to implement low-income ratepayer protections from desalination plant costs. Neither Cal-Am nor the Coastal Commission have the authority to implement any such utility rate treatment without CPUC approval. Approval of utility rates fall within the exclusive purview of the CPUC and may be implemented only following public rate-making procedures and a full CPUC hearing. This process may take 3 or more years.
The CPUC directed in 2018 that a “cost cap” be imposed on the project; the cap was expressed in 2017 dollars. It appears that costs have escalated by at least 40% based on the California Construction Cost Index for the interim period. Any effort to modify this cost cap will require a “petition for modification” of the CPUC decision. Such an effort ordinarily would require a process taking 18-30 months. Efforts to fast-track such a modification are likely to be opposed.
The CPUC Decision directed that public debt in the form of a “securitization” be pursued to reduce financing costs. The District waived the plan for a securitization when the State Revolving Fund agreed to finance all of the debt component. However, on October 3, 2022 the State Water Resources Control Board removed Cal-Am’s MPWSP from the State’s Intended Use Plan for state revolving loan funding of $279.2 million due to a “lack of progress.” Cal-Am must either regain State Revolving Fund funding or re-enter discussions with the District over a securitization financing.
It may be that a new environmental document may be required. In statements made by Cal-Am the slant wells will be lengthened under the alternative proposed to the Coastal Commission and the wellhead configuration will be changed. At 4.8 MGD and occasionally operating at a lesser capacity the brine discharge may require batching and redesign of facilities from those certified in the EIR. And the groundwater modeling used in the certified EIR appears to have been supplanted by the modeling used by the Hearing Officer at the State Water Board (see below). All of these changes appear to necessitate a supplemental or amended EIR to be certified by the CPUC – a potentially lengthy process.
Other uncertainties.
The City of Marina and Marina Coast Water District contend Cal-Am lacks any right to export water from the CEMEX site in Marina. Water extractions on that site are limited by an agreement with CEMEX’s predecessor Lonestar Cement. The referenced lawsuit is currently pending before the Monterey County Superior Court. The water rights and ground water modeling were referred to the State Water Board office of the Hearing Officer. A Hearing Officer directive is expected in the next few months and could have an impact on the project.
The State Lands Commission has not yet agreed to lease land for the MPWSP project intake wells.
Cal-Am requires a Water Distribution Permit amendment for its Water Distribution System from the Monterey Peninsula Water Management District to import and wheel water from the MPWSP. Cal-Am has yet to apply for such a permit amendment.
EXHIBIT
6-A Pure Water Monterey Expansion Schedule
U:\staff\Boardpacket\2023\20231211\GM
Reports\06\Item-6.docx