ADMINISTRATIVE COMMITTEE
10.	AUTHORIZE CONTRACT FOR CONSULTANT TO ASSESS EXTERNALITIES FOR GROUNDWATER REPLENISHMENT PROJECT
Meeting Date:		September 9, 2013	Budgeted:	Yes
From:		David J. Stoldt	Program/	TBA
		General Manager	Line Item No.:	TBA
Prepared By:		David J. Stoldt	Cost Estimate:	Not to exceed $80,000
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: The District has stated that it believes that the role of Groundwater Replenishment (GWR) in the water supply solution needs to be evaluated in terms of benefits that extend beyond simply cost to the ratepayer, but also include other factors that affect environmental and social policy goals, regionally and state-wide. Such benefits are often referred to as “externalities” and are often difficult to quantify. The concept of “social ROI” (return on investment) has been introduced in the past decade and is becoming a more important decision-making criterion. It is often difficult for the California Public Utilities Commission in to incorporate factors beyond cost and reliability in their proceedings and the concept of valuing externalities is challenging, despite being specifically called upon by other state agencies to support water recycling (see “BACKGROUND”, below). The parties to the July 31, 2013 Settlement Agreements have agreed that these externalities should be quantified and considered in the decision to include or exclude GWR from the water supply mix.

Areas to be examined by the consultant include:

· Timely construction and implementation

· Security of supply due to diversification of resources (reliability)

· Statewide Recycled Water Policy objectives

· Statewide Ocean Plan objectives

· Statewide AB-32 carbon objectives

· Regional and National Marine Sanctuary objectives

· Other

In order to facilitate these goals, the District recommends that an outside consultant be retained to evaluate such externalities for the GWR project. With Board approval, staff will issue a limited request for qualifications and negotiate a fee structure, preferably substantially below the authorized amount.

RECOMMENDATION: The General Manager recommends that the Committee recommend that Board of Directors authorize contracting for consulting services related to externalities for GWR and the expenditure of up to $80,000. It is expected that this will become a budgeted item under the GWR project budget, subject to 75% reimbursement by the District.

BACKGROUND: The July 31, 2013 “Large” Settlement Agreement states the following:

“The parties agree that a revenue requirement premium for the combination of the GWR Project and a smaller MPWSP desalination project may be determined just and reasonable, for some, but not necessarily all of the following reasons, if the combined GWR/smaller desalination project affords significant net benefits in comparison to a larger desalination project alone upon a consideration of all positive and negative externalities associated with the GWR Project. Significant positive benefits that could support the Commission’s approval of such a premium, include, but are not limited to, the following: (i) a material schedule advantage in that the GWR Project is anticipated to be operable sooner than the desalination plant; (ii) water supply resilience and reliability (benefit of the portfolio approach); and (iii) other positive externalities of the GWR Project, including, but not limited to reduced atmospheric carbon emissions, reduced brine discharge, and the implementation and encouragement of State policies regarding water recycling through early adoption of a water reuse project. The Parties anticipate that the evidentiary hearings in the separate phase will support findings by the Commission of an upper range of reasonableness for the price of GWR Project water for inclusion in the WPA based upon consideration of all positive and negative externalities associated with the GWR Project.”

In addition to timing and resource security (reliability) there are four State-wide goals upon which GWR can provide important progress, as described below:

1) The State Water Resources Control Board (SWRCB) strongly supports the use of reclaimed water. Order WQ 84-7 requires dischargers in water-short areas who propose to release treated wastewater to the ocean to evaluate the potential for water reclamation. This was specifically recognized within the SWRCB Cease and Desist Order (“CDO”) imposed on Cal-Am with respect to the Pebble Beach Company water reclamation project, but should now be viewed in the broader context of the CDO and pending State Recycled Water Policy discussed below.

2) The SWRCB released its Recycled Water Policy in 2009 and amendments on January 8, 2013. In its introduction, the SWRCB states: “We strongly encourage local and regional water agencies to move toward clean, abundant, local water for California by emphasizing appropriate water recycling” and “Included in these goals is the substitution of as much recycled water for potable water as possible by 2030.” The policy also states: “Groundwater recharge with recycled water for later extraction and use in accordance with this Policy and state and federal water quality law is to the benefit of the people of the state of California.” and “The State Water Board and Regional Water Boards will exercise the authority granted to them by the Legislature to the fullest extent possible to encourage the use of recycled water, consistent with state and federal water quality laws.” Further, “. . . pursuant to Water Code sections 13550, it is a waste and unreasonable use of water for water agencies not to use recycled water when recycled water of adequate quality is available and is not being put to beneficial use, …” The GWR project satisfies this State-wide goal.

3) In 2006, Governor Schwarzenegger signed AB 32, the Global Warming Solutions Act of 2006, which set the 2020 greenhouse gas emissions reduction goal into law. It directed the California Air Resources Board to begin developing discrete early actions to reduce greenhouse gases while also preparing a scoping plan to identify how best to reach the 2020 limit. GWR requires 1/6th to 1/8th the electric energy that desalination requires for the same throughput of processed product water. GWR is the most preferable project to help meet this State-wide goal.

4) In furtherance of legislative policy set forth in Section 13000 of Division 7 of the California Water Code (CWC) (Stats. 1969, Chap. 482) pursuant to the authority contained in Section 13170 and 13170.2 (Stats. 1971, Chap. 1288) the State Water Resources Control Board finds and declares that protection of the quality of the ocean waters for use and enjoyment by the people of the State requires control of the discharge of waste to ocean waters in accordance with the provisions contained in the Board’s “Ocean Plan.” The Ocean Plan specifically seeks to limit point discharges to the ocean. GWR has the dual benefit of reducing wastewater discharge and, by decreasing the size of the desalination plant required, reducing the discharge of brine waste to the National Marine Sanctuary.

Three of these policy objectives are from the State Water Resources Control Board (SWRCB), the entity also responsible for the CDO. Hence, it is in their interest to foster a water supply solution which includes GWR.

Further, the SWRCB’s Recycled Water Policy specifically requests other State agencies to promote such solutions, including the CPUC:

“4. Mandate for the Use of Recycled Water

d. The State Water Board requests the California Department of Public Health (CDPH), the California Public Utilities Commission (CPUC) (emphasis added), and the California Department of Water Resources (CDWR) to use their respective authorities to the fullest extent practicable to assist the State Water Board and the Regional Water Boards in increasing the use of recycled water in California.

As modified by

State Water Board Resolution 2013-0003

(January 22, 2013)”

In order to facilitate these goals, the District recommends that an outside consultant be retained to evaluate such externalities for the GWR project.

EXHIBITS

None

U:\staff\Board_Committees\Admin\2013\20130909\10\item10.docx