9A. CONSIDER DENIAL OF APPLICATION TO AMEND THE CALIFORNIA-AMERICAN WATER COMPANY (CAL-AM) WATER DISTRIBUTION SYSTEM TO CONSTRUCT CARMEL RIVER DAM AND RESERVOIR PROJECT (CRD&R);
9B. AUTHORIZE ACTION TO COLLECT DISTRICT COSTS RELATING TO CRD&R ANALYSIS FROM CAL-AM
Meeting Date: August 18, 2003 Budgeted: 0
Program/Line Item No.: 1-3-1
Staff Contact: Henrietta Stern Cost Estimate: indirect effects on budget
General Counsel Approval: Staff note and Findings reviewed
Committee Recommendation: Administrative Committee addressed Cal-Am payment issue at its August 12, 2003 meeting, and recommended immediate enforcement action; directed Counsel to prepare a memorandum on enforcement options, including any action available to the District.
CEQA Compliance: EIR in progress; EIR not needed to deny application
SUMMARY: The Board will consider whether or not to deny an application by California-American Water Company (Cal-Am) to amend the Cal-Am water distribution system by constructing the 24,000 acre-foot (AF) Carmel River Dam and Reservoir Project (CRD&R or “Reservoir Project”). This public hearing to consider denial of the Cal-Am application was directed by the Board at its April 2, 2003 meeting. The Board will also consider means to address lack of payment by Cal-Am to MPWMD for reimbursement of Environmental Impact Report (EIR) costs. The proposed Reservoir Project and alternatives have been the subject of extensive environmental review for many years, as described in the “Background” section below.
RECOMMENDATION FOR ITEM 9A: The Board should consider the following four options, and direct staff on the action to be taken regarding the denial of the Cal-Am application. Each option is described in more detail in the “Discussion” section below.
(1) Deny Cal-Am application without prejudice, similar to recent proposed action by the California Public Utilities Commission (CPUC); direct staff and/or legal counsel to take measures to obtain payment from Cal-Am for the $329,397 unpaid reimbursement of EIR costs owed to MPWMD to date. Option 1 would stop the MPWMD permit processing activities, but would enable Cal-Am to submit an application for the Reservoir Project at some future point in time, for example, if pursuit of the Coastal Water Project is not successful. Cal-Am would not be required to pay for further activities under the 1997 Reimbursement Agreement after August 18, 2003 for any portion of the water supply project Environmental Impact Report (EIR) that is currently in preparation.
(2) Declare intent to take final action to deny the Cal-Am application; direct staff and/or legal counsel to take measures to obtain payment from Cal-Am for the $329,397 unpaid reimbursement of EIR costs owed to MPWMD to date. This option entails directing staff to prepare detailed Findings of Denial for consideration at the September 15, 2003 Board meeting. The formal action to deny the application would occur at the September 15 meeting. Cal-Am would not be required to pay for further activities under the 1997 Reimbursement Agreement after August 18, 2003 for any portion of the water supply project EIR.
(3) Continue processing Cal-Am application for the Reservoir Project, which means that the Board does not wish to deny the Cal-Am application at this time, and will continue environmental review of the Reservoir Project in the water supply project EIR. To maintain an active permit, require Cal-Am to pay the $329,397 reimbursement of EIR costs owed to MPWMD to date, and sign a revised Reimbursement Agreement to help fund the environmental review of the Reservoir Project and alternatives as required by CEQA Section 15045(a).
(4) Defer action until CPUC makes a formal determination on the Cal-Am application for the Reservoir Project. This option was recommended by the Cal-Am General Manager at an August 11, 2003 meeting with District staff.
RECOMMENDATION FOR ITEM 9B: The Board should direct staff and Counsel regarding reimbursement by Cal-Am to MPWMD of outstanding invoices for EIR-related work carried out by the District.
BACKGROUND: In November 1996, Cal-Am submitted an application to MPWMD to amend its water distribution system by constructing the 24,000 AF Carmel River Dam and Reservoir (excerpts provided in Exhibit 9-A). The application was deemed complete by MPWMD in March 1997. Concurrently, Cal-Am submitted Application 97-03-052 to the CPUC for a Certificate of Public Convenience and Necessity (CPCN), which also was deemed to be complete by the CPUC in March 1997. The Cal-Am dam and reservoir proposal is the same physical structure as MPWMD’s proposed New Los Padres Dam and Reservoir Project (NLP). MPWMD had obtained key federal and state permits for the NLP project in mid-1995, but funding/construction by the District was not approved by voters in November 1995. Cal-Am characterized its project as a “no growth dam” because water production would not be made available for new construction and remodels; the project focus was compliance with State Water Resources Control Board (SWRCB) Order WR 95-10. Operationally, the Cal-Am proposal would have resulted in more carryover storage, thereby improving drought protection and streamflow enhancement as compared to the NLP project.
The Cal-Am Reservoir Project was most recently evaluated in MPWMD’s November 1998 Draft Supplemental EIR on the Carmel River Dam and Reservoir Project. There is also detailed analysis in previous EIR/EIS documents prepared by MPWMD in 1991-1995, as well as the administrative record supporting U.S. Army Corps of Engineers 404 Permit #20364S09 (June 1995) and SWRCB Water Rights Permit #20808 (October 1995, based on Decision No. 1632 issued in July 1995). The Reservoir Project is being reviewed at the program level of detail in the water supply project EIR under preparation by MPWMD in year 2003-2004.
The NLP/Cal-Am Reservoir Project has been controversial in the regulatory context and has also been the subject of intense public debate in the political context. In recent years, the most outspoken regulatory agency expressing concern about the Reservoir Project has been the National Marine Fisheries Service, now known as NOAA Fisheries. For example, at a May 30, 2000 public workshop hosted by SWRCB, NOAA Fisheries expressed concern about the potential impacts of the Reservoir Project to the steelhead resource, and endorsed the non-dam “Plan B” concept. In a letter to the District dated May 24, 2001, NOAA Fisheries expressed opposition to a mainstem reservoir project, raised serious questions about its regulatory feasibility, and urged MPWMD to focus its efforts on Plan B and/or offstream storage projects rather than the Cal-Am proposal. NOAA Fisheries wrote a similar letter to Cal-Am urging Cal-Am to abandon its application for a new reservoir.
On September 7, 2001, Cal‑Am representatives confirmed to the MPWMD Project Manager, General Manager, and General Counsel that Cal‑Am did not wish to proceed with the cultural resources Historic Property Management Plan and the California red-legged frog Biological Assessment due to uncertainties related to the future of the reservoir project proposal. Pursuant to the Reimbursement Agreement with MPWMD, Cal‑Am instructed that the existing setting and impact sections of the two studies be completed to the degree practicable in a manner that would facilitate a renewed effort at an undetermined future point in time. Cal-Am understood that such action would delay and compromise a project-level evaluation of the Reservoir Project. MPWMD provided written direction to its consultants to finish their work, and prepare Interim Draft Reports on the cultural resources and red-legged frog efforts. Since December 2001-January 2002, no work has been performed on other extensive studies required for project-level analysis of the reservoir project.
Based on the above actions, the MPWMD Board directed at its January 16, 2002 strategic planning session that a letter be written to Cal-Am requesting Cal-Am to voluntarily withdraw the Reservoir Project application and replace it with a mutually agreeable non-dam project. In a letter dated March 8, 2002, Cal-Am declined to withdraw the Reservoir Project application, but pledged cooperation in developing a viable non-dam alternative, pending the outcome of the Plan B report. Cal-Am also expressed concern that the District’s EIR scope of work did not include detailed evaluation of the Reservoir Project, even though Cal-Am had requested that detailed study be stopped in September 2001.
In February 2003, Cal-Am announced its intent to pursue the Coastal Water Project (CWP), a large desalination project located in Moss Landing in combination with aquifer storage and recovery (ASR) in the Seaside Basin. The CWP is the same project recommended by the CPUC in its July 2002 Plan B Final Report, in compliance with Assembly Bill 1182 (Keeley). On February 11, 2003, Cal-Am filed two motions and an amendment to its March 1997 application to the CPUC asking the CPUC to make the CWP the preferred project in substitution for the Reservoir Project, but not withdrawing the Reservoir Project. Cal-Am also formally requested that the CPUC serve as the California Environmental Quality Act (CEQA) lead agency for the CWP. To date, the CPUC, MPWMD and Monterey County have expressed interest in serving as the CEQA lead agency for the CWP.
In light of Cal-Am’s pursuit of the CWP, the MPWMD Board at its April 2, 2003 meeting directed District staff to: (1) formally ask Cal-Am to rescind its application for the Reservoir Project; and (2) if an affirmative response is not received within 90 days, schedule a hearing to consider denial of Cal-Am’s application. The MPWMD letter to Cal-Am was mailed on April 7, 2003 (Exhibit 9-B); a response from Cal-Am was received on April 17, 2003 (Exhibit 9-C). Cal-Am indicated that it did not wish to modify its MPWMD application until a determination was made regarding lead agency for the CWP. As of this writing (August 13, 2003), a determination has yet to be made.
In Spring 2003, the CPUC received written and oral testimony for evidentiary hearings conducted on May 14, 2003 regarding rate-making issues associated with the Reservoir Project and the CWP, among other issues. The CPUC Administrative Law Judge (ALJ), Michelle Cooke, issued a ruling entitled, Proposed Decision Resolving Motions by California-American Water Company Regarding Designation of Lead Agency and Ratemaking Issues, dated July 16, 2003 (Exhibit 9-D). The Proposed Decision is scheduled for consideration and action by the Commission in the near future. Pertinent elements of the Proposed Decision include:
Ø Cal-Am’s Application 97-03-052 for a CPCN for the Reservoir Project is dismissed without prejudice for reasons of administrative efficiency;
Ø Cal-Am is expressly directed to file a new application to seek CPUC authorization to pursue the CWP;
Ø The CPUC believes it should be the CEQA lead agency for the CWP;
Ø A variety of rate-making directives are issued.
DISCUSSION: The following paragraphs discuss the four options on the Cal-Am application in more detail.
The Board would deny the Cal-Am application to construct the Reservoir Project without prejudice. The Draft Findings of Denial are provided as item9_exh9e.htmExhibit 9-E. Primary reasons for denial include:
(1) Cal-Am has essentially abandoned pursuit of the Reservoir Project and instead has focused on the CWP.
(2) The CPUC Administrative Law Judge’s July 2003 Proposed Decision includes denial of Application 97-03-052 for the Reservoir Project without prejudice. Cal-Am’s response to the CPUC, dated August 5, 2003, does not contest the proposal to deny the dam permit without prejudice.
(3) The regulatory feasibility of the project is questionable, based on letters submitted by NOAA Fisheries, California Department of Fish & Game, and other entities.
(4) The project would result in extensive adverse impacts, some which of could not be mitigated to a less than significant level. The 1998 Draft Supplemental EIR identified four non-dam options that would meet the Cal-Am project purpose with less environmental impact, including “Option 2” that eventually was identified as the Final Plan B recommendation by the CPUC.
(5) In August-September 2001, Cal-Am requested that the District stop work on detailed cultural and biological studies needed for a project-level analysis of the Reservoir Project.
(6) Cal-Am has failed to reimburse the District for costs associated with environmental review of the Reservoir Project and alternatives to the dam, as required by CEQA. It is notable that the July 16, 2003 CPUC Proposed Decision sets aside a May 14, 2003 cut-off date proposed by Cal-Am for expenditures associated with the Reservoir Project “because it is possible that there will be additional costs associated with the ongoing review of the Carmel River Dam project or winding down of that review in light of Cal-Am’s new project proposal.”
Option 1 enables a clear break to be made regarding agency time and effort in the environmental review of the Reservoir Project, but also enables a new look at the project in the future if other options do not prove to be feasible. The Findings of Denial need not be as extensive and definitive as for Option 2, and the potential for litigation is greatly reduced due to the “without prejudice” clause. The District could no longer submit reimbursement invoices for additional work after August 18, 2003 if the application is denied. The fiscal year 2003-2004 budget does not assume any reimbursement by Cal-Am for the water project EIR.
The Board on August 18, 2003 would declare its intent to deny the Cal-Am application, and would direct staff to prepare detailed Findings of Denial for consideration at the September 15, 2003 Board meeting. At that time, a final action would be taken to deny the permit application for the Carmel River Dam and Reservoir Project. The rationale is similar to that described above for Option 1. Because the denial would be final, the Findings of Denial must be more extensive and incorporate the many environmental determinations contained in previous EIR documents. The potential for litigation is higher, though a certified EIR is not required to deny an application. (Note: A certified EIR is typically required to approve a project of this magnitude). The fiscal impact and billing issues are similar those in Option 1.
The Board would determine that it does not wish to deny the Cal-Am application at this time, and will continue environmental review of the Reservoir Project in the water supply project EIR. Due to unpaid bills, the Board should condition the continuation of “active permit” status on action by Cal-Am to pay the outstanding reimbursement it owes (see Option 1) and sign a revised Reimbursement Agreement that specifies the obligation of Cal-Am to help fund the environmental review of the Reservoir Project and alternatives as required by CEQA. Practically speaking, this would include continued funding of program-level review of non-dam alternatives in the current EIR, roughly 40% of the project-level costs. It is recommended that a goal of September 1, 2003 be set for preparation of a Reimbursement Agreement ready for signature by upper management. This option would require a more comprehensive level of discussion of the Reservoir Project in the water supply project EIR than for Options 1 or 2. Some Board members and members of the public have asserted that the Reservoir Project should be evaluated at the project level in the EIR.
Option 4 was recommended by Cal-Am General Manager, Steve Leonard, on August 11, 2003. The MPWMD Board would defer a decision on this issue until after the CPUC makes a ruling on Cal-Am’s Application 97-03-052, including whether the Reservoir Project application is denied without prejudice; whether rates associated with evaluation of the CWP are approved; and whether the CPUC will strive to serve as lead agency for the CWP. Various parties have commented on the July 16, 2003 Proposed Decision, and the CPUC Commission is expected to make a determination in the near future (date uncertain). Delayed action would extend the period that the Cal-Am application to MPWMD is considered to be active, and monthly billing for Cal-Am would continue. The issue of Cal-Am payment of invoices has not been resolved.
In July 1997, MPWMD and Cal-Am signed an agreement titled “Reimbursement of Expenses for Review and Processing of California-American Water Company’s Application to Amend Its Water Distribution System Permit to Add the Carmel River Dam Project” (Exhibit 9-F). The original agreement has been subject to nine Task Orders, with the most recent signed in May 2001. The Agreement obligates Cal-Am to reimburse MPWMD for necessary and reasonably incurred expenses associated with compliance with California Environmental Quality Act (CEQA), National Environmental Policy Act (NEPA), federal Clean Water Act (Section 404, Permit #20364S09), Endangered Species Act (ESA), National Historic Preservation Act (Section 106), State Water Resources Control Board (SWRCB) Permit 20808 and 7130B, and MPWMD Law.
CEQA enables the lead agency to require Cal-Am as the applicant to pay for reasonable costs associated with the EIR preparation. CEQA Section 15045(a) states, “…. the lead agency may charge and collect a reasonable fee from the [entity] proposing the project in order to recover the estimated costs incurred in preparing environmental documents and for procedures necessary to comply with CEQA on the project.” CEQA (as well as NEPA and the Clean Water Act) require an analysis of a reasonable range of alternatives to the proposed Reservoir Project. Alternatives include desalination, aquifer storage and recovery (ASR), offstream storage, reclamation and others.
Since late 2001, District efforts have focused on non-dam alternatives, due primarily to Cal-Am’s specific direction in August-September 2001 to terminate detailed cultural resources and red-legged frog studies for the Reservoir Project due to uncertainty about the Project’s future. Forward progress on the Reservoir Project EIR was also stymied by the CPUC Plan B process, as the District needed to await the identification of the CPUC’s preferred non-dam alternative. With renewed efforts on the water supply project EIR in early 2002, Cal-Am has been billed only for the proportion of costs that reflect a program-level evaluation of non-dam alternatives rather than the full project-level costs paid to the consultants by MPWMD. Each MPWMD invoice provides extensive documentation on the tasks performed and what proportion of consultant and other costs are being charged to Cal-Am.
In January 2002, the District provided Cal-Am the opportunity to voluntarily withdraw the Reservoir Project application and replace it with a mutually agreeable non-dam project. In a letter dated March 8, 2002, Cal-Am declined to withdraw the Reservoir Project application, thereby keeping the permit active. Cal-Am expressed concern that the District’s EIR scope of work in 2002 did not include detailed evaluation of the Reservoir Project, even though Cal-Am specifically instructed in August-September 2001 that detailed project-level studies not be completed.
Cal-Am currently owes the District $329,397 in unpaid invoices through June 30, 2003 as shown in the summary of invoices provided as Exhibit 9-G. A June 10, 2003 letter from the District to Cal-Am (Exhibit 9-H) requested prompt payment for an unreimbursed total of $252,860 for the September 2002 through April 2003 period (invoices submitted in February-June 2003). Note that a $180 correction to the November 2002 invoice was made in August 2003, resulting in a corrected total of $252,680 for the September 2002-April 2003 period. In addition, Cal-Am was invoiced on August 8, 2003 for a total of $76,717 for May and June 2003.
MPWMD staff met with Cal-Am General Manager Steve Leonard on August 11, 2003 to provide the history, process and status of the EIR reimbursement issue. Mr. Leonard indicated that he will review the situation with Cal-Am management, now that he has a more concrete understanding, and will provide a response to the District’s requests for payment in the near future.
The Administrative Committee expressed “deep concern” about the lack of payment at its August 12, 2003 meeting, and recommended that the Board take prompt enforcement action, including any action available to the District. The Committee requested that General Counsel prepare a memorandum on available enforcement options, which is provided as Exhibit 9-I.
IMPACT ON RESOURCES: As noted in the discussion above, denial of the permit application (Options 1 or 2) results in no opportunity of reimbursement for evaluation on non-dam alternatives in the current EIR. Option 3 should include a requirement for reimbursement for program-level environmental studies for the permit application to be considered active. All options should include direction to staff and/or legal counsel to obtain the $329,397 back-payments owed to the District by Cal-Am, as well as ongoing invoices in FY 2003-2004.
9-A: November 1996 Cal-Am application for Reservoir Project
9-B: April 7, 2003 letter to Cal-Am from MPWMD requesting withdrawal of project
9-C: April 17, 2003 response letter to MPWMD from Cal-Am
9-D: CPUC Proposed Decision dated July 16, 2003
9-E: Draft Findings of Denial of Cal-Am application
9-F: 1997 Reimbursement Agreement between MPWMD and Cal-Am
9-G: Summary of MPWMD invoices to Cal-Am
9-H: June 10, 2003 letter from MPWMD to Cal-Am requesting reimbursement
9-I: Memorandum from Counsel on reimbursement enforcement