WATER SUPPLY PLANNING COMMITTEE

ITEM:		DISCUSSION ITEM
9.	UPDATE ON PURE WATER MONTEREY PROJECT
Meeting Date:			April 5, 2016	Budgeted:	N/A
From:			David J. Stoldt	Program/
			General Manager	Line Item No.: N/A
Prepared By:			David J. Stoldt	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation:
CEQA Compliance: N/A

SUMMARY:

California Public Utilities Commission (CPUC) proceeding – Rebuttal testimony was filed March 22, 2016. The CPUC Office of Ratepayer Advocates (ORA) provides the following findings regarding the GWR Determination:

A. Supplemental testimony demonstrates that GWR has met the first eight findings detailed in the Settlement Agreement.

B. Supplemental testimony demonstrates that GWR coupled with a 6.4 MGD desalination plant provides numerous positive benefits in comparison to a 9.6 MGD desalination plant.

C. The GWR Project and the Desalination Project currently have differing levels of certainty.

D. There is no projected debt equivalence associated with Cal Am entering into the WPA for GWR Project water.

E. There are inconsistencies in MPWMD and Cal Am cost analyses.

F. Cost analyses submitted in Supplemental Testimony indicate that, compared to the 9.6 MGD Desalination Plant, the 6.4 MGD Desalination Plant with GWR project would likely result in: 1) a small first year revenue requirement premium; and 2) either a small net present value (NPV) premium or small NPV benefit.

G. The ninth finding required by the Settlement Agreement has not been met. The ninth finding is that the revenue requirement for the combination of the GWR Project and the smaller desalination project is just and reasonable when compared to the revenue requirement for a larger desalination project alone. ORA stated “given the existing terms of the WPA, the revenue requirement for the GWR/Small Desal Option is currently undefined, and unbounded.”

H. The terms set forth in the Settlement Agreement as prerequisites for Cal Am entering into a Water Purchase Agreement (WPA) for GWR water have not yet been met, but could be met by modifying the WPA.

Based on these findings, ORA recommends that: The Commission should authorize Cal Am to enter into the WPA for GWR if and only if the WPA is modified such that: 1) the language deeming all costs just and reasonable is removed, and 2) a reasonable and prudent cost cap on the price of GWR purchased water is including in the WPA. The District believes that these two conditions can be met, and in fact included a proposed cost cap in its rebuttal testimony filed the same day. ORA testimony is attached as Exhibit 9-A.

The District’s testimony included updated cost analyses shown below and proposed a cost cap of water equal to $1720 in the first year of operations.

Cost of Water Alternatives for Pure Water Monterey (GWR)

Variable	Scenario A	Scenario B	Scenario C	Scenario D
Cal-Am Revenue Requirement^1	Updated	Updated	Updated	Updated
Outfall Rental	Same as Jan	Same as Jan	Same as Jan	Same as Jan
Replacement Costs	Same as Jan	Same as Jan	Same as Jan	Same as Jan
Energy Escalation	4.80%	4.80%@72%	4.80%@72%	4.80%@72%
Non-Labor Escalation	1.90%	1.90%	1.90%	1.90%
Labor Escalation	1.74%	1.74%	1.74%	1.74%
Project Cost (excl. Pipeline)	$57.53 mil	$57.53 mil	$57.53 mil	$57.53 mil
Project Cost General Contingency	29%	29%	20%	20%
SRF Loan Rate & Term	1.0% / 30 yr	1.0% / 30 yr	1.0% / 30 yr	1.0% / 30 yr
SRF Grants to Project	$0	$0	$0	$7.50 mil
Reimbursement of Pre- Costs	$5.00 mil	$5.00 mil	$5.00 mil	$5.00 mil
MCWRA Contribution	$3.90 mil	$3.90 mil	$3.90 mil	$3.90 mil
Pipeline Cost	$26.97 mil	$26.97 mil	$26.97 mil	$26.97 mil
Pipeline Cost Contingency	30%	30%	30%	30%
SRF Loan Rate & Term	1.8% / 30 yr	1.8% / 30 yr	1.8% / 30 yr	1.8% / 30 yr
SRF Grants to Pipeline	$0	$0	$0	$2.50 mil
FORA Grants to Pipeline	$4.62 mil	$4.62 mil	$4.62 mil	$4.62 mil
GWR NPV Advantage/(Disadvantage)	($7.77) mil	$1.14 mil	$3.02 mil	$8.69 mil
GWR Overall Advantage/(Disadvantage)	$2.14 mil	$22.72 mil	$26.39 mil	$37.4 mil
GWR Cost of Water – Yr 1	$1,802	$1,710	$1,675	$1,569
6.4 MGD Cost of Water^2 – Yr 1	$6,318	$6,318	$6,318	$6,318
9.6 MGD Cost of Water – Yr 1	$4,532	$4,532	$4,532	$4,532
6.4 MGD + GWR Cost of Water – Yr 1	$4,697	$4,664	$4,652	$4,614

Monterey Regional Water Pollution Control Agency (MRWPCA) submitted testimony (Exhibit 9-C and Exhibit 9-D) with new information on Pure Water Monterey Project costs, possible savings in the cost of the desalination alternatives, and water quality issues, as well as included letters of support from the following:

· Senator Diane Feinstein

· Congressman Sam Farr

· State Senator William Monning

· Assemblymember Mark Stone

· County Supervisor Dave Potter

· County Supervisor John Phillips

· State Water Resources Control Board Felicia Marcus, Chair

· Fort Ord Reuse Authority

Water Rights – Six letters were received from National Marine Fisheries Service (NMFS) and California Department of Fish and Wildlife (CDFW) (dated February 16, 2016) that were protests to water rights applications A032263A (Blanco Drain Diversion), A032263B (Reclamation Ditch Diversion), and A032263C (Tembladero Slough Diversion). MRWPCA, MCWRA, and MPWMD staff and engineering consultants are working with Denise Duffy and Associates (DD&A) to review the letters submitted, determine assignments and technical studies and expertise needed to respond, and to make assignments to the technical team, agency/district staff, and various attorneys. DD&A will focus the technical consultants on key information and analyses needed, and coordinate with the team toward successful completion of the protest responses.

Response letters were prepared and delivered March 18, 2016. A technical team meeting has been scheduled on April 5^th in Salinas. It is hoped that the parties can negotiate a resolution to the protests.

Energy Agreement – On March 28^th, the MRWPCA Board approved an agreement for the purchase of energy to run Pure Water Monterey with the Monterey Regional Waste Management District (MRWMD.) MRWMD utilizes biogas produced by the decomposition of waste material in the landfill to produce electrical energy. MRWMD’s biogas power generation facility contains four internal combustion engine-generators. MRWMD is currently in the process of replacing/repairing two of the four units. When this work is complete, MRWMD will have the capability to produce approximately 5,000 kilowatthours (kWh) of electrical energy. The estimated future electrical demand for MRWMD is approximately 3,000 kWh. Therefore, MRWMD will have approximately 2,000 kWh of surplus electrical energy available for export and sale.

MRWPCA is currently in the process of designing the Advanced Water Treatment Facility (AWTF) for the Pure Water Monterey project to be located at the Regional Treatment Plant (RTP), which is adjacent to the landfill and power generation facility operated by MRWMD. The projected electrical demand of the AWTF is approximately 2,000 kWh, which is similar to the amount of excess power that could be generated by MRWMD. Staff from MRWPCA and MRWMD has determined that it is to the benefit of both agencies for MRWMD to make the surplus energy generated by their power generation facility available for sale to and use by MRWPCA to meet the increased electrical demand produced by the AWTF. Staff from both agencies met and drafted the electric power purchase agreement between MRWPCA and MRWMD.

The highlights of the agreement are as follows:

· MRWMD will produce for export and sale to MRWPCA a minimum of 1,800 kWh of electrical power with an availability rate of 90%.

· MRWPCA will take or pay for a minimum of 1,800 kWh of electricity to power the AWTF.

· MRWPCA will pay MRWMD a rate equal to Pacific Gas and Electric’s Industrial Rate Schedule, E-20 Primary Firm, Winter Off-peak Energy Charge, to be adjusted each July 1. (This equates to $0.08053 per kWh at the current rate).

· The term of the agreement shall be for an initial term of 20 years to be extended for an agreed upon period or periods on the same terms.

· MRWMD will be responsible for the cost of the installation, operation, maintenance, and repair of all equipment and facilities up to, and including, the electrical usage meter used for billing MRWPCA.

· MRWPCA will be responsible for the cost of installation, operation, maintenance, and repair of all equipment after the electrical usage meter.

· MRWMD will provide MRWPCA an easement from the electrical usage meter to the fence line of the two agencies for the installation and maintenance of the conductors necessary to transport the power between the two agencies.

· The agreement will be terminated should the AWTF not be constructed.

Fort Ord Reuse Authority – Authorized Executive Officer to negotiate a Memorandum of Understanding with MCWD to designate up to $6M of the Capital Improvement Program's (CIP's) water augmentation budget ($24M) to the Regional Urban Water Augmentation Project's (RUWAP's) direct construction costs of the recycled water pipeline, dependent on Pure Water Monterey's project approval by the California Public Utilities Commission (CPUC) and the completion of milestones approved by the three agency boards.

Rec Ditch/Blanco Drain Project – The kickoff meeting with E2 was held on February 25,

2016. MRWPCA staff has initiated contact with property owners regarding access and Rights-of-Way. Regulatory activity includes follow-up on the water rights applications and applying for a

Stream Bed Alteration agreement for work in the riparian corridor.

Advanced Water Treatment Facilities - The kickoff meeting with Kennedy Jenks (KJ) was held on February 4, 2016. KJ is well underway with the design work. Assumptions about the initial sizing of the plant have been agreed upon and we anticipate receiving the 30% design submittal for the end of April.

Injection Facilities –A pre-proposal meeting on the GWR Injection Well project took place on February 17. Several firms attended the mandatory meeting. On March 11th, two proposals were received from E2 Consulting Engineers, Inc. (E2) and Kennedy/Jenks Consultants (KJ) for the GWR Injection Well Facilities Project.

The GWR Injection Well Facilities design has already been developed to the 10% design level by E2 Consulting Engineers. This contract will be performed in two phases with the successful Consultant expected to complete the Phase 1 Final Bid plans and specifications package, performing Phase 1 Bid Phase Services, and then continue on to provide Engineering Services During Construction for Phase 1 before repeating the same tasks for Phase 2, and finally As-Built Drawings. The initial phase of work will include the installation of one deep injection well and one monitoring well for testing to reduce the hydro geologic uncertainty associated with the GWR injection wells and to collect data needed for successful implementation of Phase 2. Phase 2 will include the installation of an additional deep injection well, a vadose zone well, and three monitoring well clusters. The results of the Phase 1 field testing will be used to modify the Technical Specifications for the Phase 2 wells. The Consultant will be required to request and obtain a Notice-to-Proceed for each task prior to proceeding with additional work.

A committee of five met on Monday, March 14, 2016 to select a firm to do the project. The committee unanimously selected Kennedy/Jenks for the depth of information included in their proposal, including several options for value engineering that will benefit the Agency and bring down overall cost. On March 28^th, the MRWPCA board approved hiring KJ.

Water Conveyance Pipeline – The Recycled Water Committee and Board are well aware of the ongoing discussions with Marina Coast Water District on the pipeline agreement. Both entities are working through comments on the agreement. Substantial progress has been made on key issues. Upon finalization, an agreement will be brought before the Board pending MCWD approval. MRWPCA staff has been in contact with US Army real estate department to initiate the process of gaining approvals for rights-of-way through Fort Ord.

EXHIBITS

9-A Office of Ratepayer Advocates Rebuttal Testimony

9-B David Stoldt (MPWMD) Rebuttal Testimony

9-C Paul Sciuto (MRWPCA) Rebuttal Testimony

9-D Margaret Nellor (MRWPCA) Rebuttal Testimony

U:\staff\Board_Committees\WSP\2016\20160405\09\Item-9.docx