# ITEM:ACTION ITEMS

21.       DISCUSS WATER CREDIT TRANSFER PROGRAM AND PROVIDE DIRECTION TO STAFF

Meeting Date:           March 15, 2004                                  Budgeted: N/A

Staff Contact:             Stephanie Pintar                                 Program/Line Item No.: N/A

Cost Estimate:  N/A

General Counsel Approval: N/A

Committee Recommendation: The Water Demand Committee reviewed this item on March 9, 2004 and recommended that the TAC recommendation, along with minor modifications, be pursued.

CEQA Compliance: N/A

At the January 28, 2004 joint PAC/TAC meeting, the group asked the Board to delay moving forward immediately on an EIR for a water credit transfer program as defined by Ordinance No. 101. Such action was to be considered on January 29, 2004 at the regular Board meeting.  Committee members suggested there might be other water credit transfer concepts the TAC should review and possibly recommend for consideration by the Board.  The District’s Board agreed to give the TAC thirty days to consider and recommend an alternative transfer program.

1.      TAC Recommendation.

The TAC met on February 25, 2004 to discuss an alternative transfer concept submitted by the City of Monterey.  Although the TAC did not recommend using Monterey’s proposal, the committee recommended changing water credit transfers (Rule 28, Transfer) from discretionary approval to ministerial approval.  The TAC unanimously supported this recommendation, and staff prepared a draft ordinance incorporating the TAC recommendation for review by the Water Demand Committee on March 9, 2004.

2.      Water Demand Committee Recommendation.

The Water Demand Committee considered both the TAC recommendation and the Board’s original concept of moving forward with an EIR on the water credit transfer program as proposed in Ordinance No. 101 (Exhibit 21-A).  It was agreed that the District needs additional information on the cost and time for preparing a Water Credit Transfer Program EIR and that staff should request this information from Resource Design Technology (RDT), the firm who submitted the original EIR proposal on the Water Credit Transfer Program.

The Water Demand Committee unanimously recommends that the Board direct staff to modify the preliminary draft ordinance that represents the TAC recommendation by incorporating safeguards from Ordinance No. 101 and other standard Conditions of Approval.  The Water Demand Committee can consider this amended preliminary draft ordinance on April 13, 2004.  The Water Demand Committee would review the proposed CEQA process for the draft ordinance on April 13, 2004.

3.      EIR Option.

It is staff’s understanding that the current Board wished to move forward on an EIR for a water credit transfer program as defined by Ordinance No. 101.  Action on this issue was delayed at the request of the TAC.  Should the Board wish to move forward with this option, policy direction by the full Board on water credit transfer issues is required to: (1) define proposed project and alternatives, and (2) determine the means to select a consultant (sole-source or new RFP).  Staff has requested an updated time/cost estimate for completion of an EIR.  Staff’s most recent conversation with the consultant indicated that the cost could be reduced by roughly one-half to about $130,000, although completion of an EIR is still likely to take nine months. RECOMMENDATION: As requested by the Board at its January 29, 2004 meeting, District Counsel reviewed the TAC proposal to determine CEQA compliance and enforcement. A copy of Counsel’s Confidential Memorandum is provided under separate cover. To facilitate Counsel’s review, staff prepared a draft ordinance (No. 117) with the TAC recommendation (Exhibit 21-B). Staff recommends the Board concur with the Water Demand Committee recommendation to direct staff to modify Preliminary Draft Ordinance No. 117 (representing the TAC recommendation) to include safeguards from Ordinance No. 101 and other standard Conditions of Approval. The Water Demand Committee will consider this amended preliminary draft ordinance on April 13, 2004. Consideration of the ordinance by the full Board would be calendared for a future meeting. BACKGROUND: # History of Ordinance No. 101 At the January 27, 2000 meeting, the Monterey Peninsula Water Management District Board of Directors (Board) considered modifying the water credit transfer program to include residential uses. At the time, the key issue was whether current District rules, which allow the transfer of commercial water credits to another commercial site but prohibit the transfer of residential water credits to another residential site, should be amended. The Board did not take action at the January meeting other than to direct staff to set a public hearing for review of the water credit transfer ordinance at the February 24, 2000 board meeting. At the February 24, 2000, Board meeting, District staff was directed to prepare a report on whether or not water demand has been reduced as a result of the existing water credit programs. A preliminary report presented to the Board on March 20, 2000, indicated that the anticipated water savings from the program were not occurring. District staff was directed at the March 20, 2000 meeting to continue researching the water savings associated with Water Use Credits and transfers and report back to the Board in 90 days. District staff began an extensive data collection process following the March 20, 2000 Board meeting. Cal-Am customer-specific data related to individual water consumption is proprietary and confidential information owned by Cal-Am. For the District to access this information, a non-disclosure agreement was necessary. Both parties signed the non-disclosure agreement on June 7, 2000. This agreement allows the District access to Cal-Am’s confidential customer consumption records for limited purposes on the condition that the District maintains confidentiality and agrees that information obtained from Cal-Am is the property of Cal-Am and will not be distributed to third parties. Transfers of commercial water credits from an existing commercial use to an expanding commercial use in the same jurisdiction were allowed starting December 1993. In September 1995, Ordinance No. 79 modified the transfer rule to allow commercial credits to transfer into a jurisdiction’s allocation. Once the water use credit is assigned to the jurisdiction’s allocation, the water becomes available for use at the jurisdiction’s discretion and can be used for residential and nonresidential uses, new connections, and remodels. All transfers require the authorization of the jurisdiction and the District, and the property owner must agree to transfer the water use credit and must agree to a deed restriction on the property. District Ordinance No. 95 was adopted on June 19, 2000 to allow only commercial-to-commercial water credit transfers of like kind to occur during a 90-day moratorium on water credit transfers. During the 90-day period, the effectiveness of the water credit program was to be reviewed. The proposed ordinance was effective for 90 days and was extended for a second 90-day period on September 18, 2000 to give staff time to have a third party review the findings from its credit analysis. The ordinance expired on December 18, 2000, after consideration of a third extension of the ordinance was continued by lack of a quorum at the December 11, 2000 Board meeting. Ordinance No. 100, a 90-day ordinance suspending the authority of the Water Management District to receive any water credit transfer applications under District Rule 28 B that are not for “like to like” (identical) commercial-to-commercial or industrial-to-industrial expansions of an existing use, was adopted on March 19, 2001. The ordinance expired on June 18, 2001. The third party analysis of the water savings on commercial sites and sites receiving water from credit transfers was completed on June 1, 2001 and provided to the Board. On June 18, 2001, the District’s Board of Directors suspended receipt of water credit transfer applications for 60 days (through August 17, 2001). District staff was directed to consider modifications to the water credit transfer process that would incorporate additional safeguards to prevent an increase of water use beyond the original projection at the receiving site, and safeguards that would ensure that accurate estimates of historical water use at the donor site are developed. At the August 20, 2001 meeting, District staff presented a number of policy questions to the Board and asked for their feedback. Members of the Board provided individual thoughts on the various issues, and the proposed draft ordinance reflected the consensus of the feedback. The District’s Technical Advisory Committee (TAC) and Policy Advisory Committee (PAC) reviewed Draft Ordinance No. 101 on July 20, 2001 and again on August 29, 2001. The TAC and PAC members agreed with the concept, but objected to the set-aside of a total of 50 percent of the available water credit. The Board’s consensus was that 35 percent of the savings should be set aside as permanent savings. The TAC and PAC members maintained that true equity would only be achieved by allotting 25 percent of the established water credit to the District. The TAC/PAC reasoned that the 35 percent conservation savings figure is based on the assumption that the commercial water use factors are not accurate and may underestimate historic water use at the transferring site, so that more than 25 percent must be saved in order to compensate for the underestimation of the water credit. Proposed amendments to Rule 28 that have been incorporated in the proposed ordinance would base the water credit calculation on both commercial water use factors and actual historic water use at the transferring site. Combining both calculation methods is the District’s way of correcting for the inaccuracy of the commercial water use factors. Therefore, there is no need to increase the District’s conservation savings to 35 percent, and a 25 percent conservation savings figure is adequate and also fair to the property owner. The TAC/PAC was united in its request that no restrictions be placed on use of the 15 percent that would be transferred to the jurisdiction. According to the committee, the jurisdiction should decide whether to allot that water for commercial, residential or affordable housing projects. There were no objections to providing the District with information about the recipients of water originating from a transfer. Ordinance No. 101 was adopted November 19, 2001. At the following Board meeting, Director Henson submitted a request for reconsideration. Ordinance No. 101 was rejected on December 17, 2001. The Board of Directors deleted District Rule 28-B in its entirety on March 26, 2002 by adoption of Ordinance 102, after determining that the water transfer program had not resulted in the anticipated savings of water that originally motivated the program and, in some cases, may have resulted in an increase in water usage. On March 27, 2003, as part of a settlement agreement between the District and the Cities of Seaside, Carmel, Del Rey Oaks, Monterey, Pacific Grove and Sand City, the Board of Directors completed first reading of Ordinance No.107, repealing Ordinance No. 102, thereby effectively reinstating District Rule 28-B. Rule 28-B was immediately modified by the adoption of Ordinance No. 108 on the same evening. Ordinance No. 108 clarified that the Board of Directors will make the decisions concerning water credit transfers after taking into account whether an application would have an adverse impact on the area’s water supply. CEQA Review of Proposed Transfer Program(s) Despite extensive successful conservation efforts, water supply for new construction and remodeling projects on the Monterey Peninsula is extremely limited for a variety of environmental, regulatory and technical reasons. The Water Credit Transfer Program (WCTP) began in 1993 as a means to facilitate commercial expansion within the community while also supporting the District’s conservation goal. Environmental review on the WCTP ordinance was not carried out at that time. MPWMD Ordinance No. 102, adopted in February 2002, rescinded Rule 28-B and the WCTP as a whole after the Board determined that the program had not resulted in the anticipated water savings that originally motivated the program. Six cities filed suit against the District in May 2002 challenging the rescission of the program on CEQA grounds. On March 17, 2003, the MPWMD Board approved the first reading of Ordinance No. 107, which rescinds Ordinance No. 102, thereby restoring the WCTP as defined in Rule 28-B prior to Ordinance No. 101. On April 2, 2003, the Board approved the first reading of Ordinance No. 108, which clarifies that approval of a water credit transfer application is a discretionary act by the Board, and such action requires CEQA review. On May 19, 2003, the MPWMD Board adopted on second reading both Ordinances No. 107 and 108; both become effective on June 18, 2003. Finding No. 5 of Ordinance No. 107 states that it is the Board’s intention to prepare an EIR to address concerns that have been raised about the program. The Board had earlier directed at its February 27, 2003 meeting that applications for water credit transfer approval will not be considered by the Board until after the EIR is certified. At its February 27, 2003 meeting, the Board directed staff to work with a sole source consultant to develop a scope of work for a focused EIR on the environmental impacts of having or not having a water credit transfer program. The stated goal at that time was completion of the Final EIR no later than September 30, 2003. The Board also directed that all applications for water credit transfer approval shall not be considered by the Board until after the EIR is certified. At its March 17, 2003 meeting, the Board determined that Turnstone Consultants of San Francisco should be retained to prepare an EIR that evaluates the environmental effects associated with a water credit transfer program. The Board further directed that Directors Henson and Lindstrom should negotiate with Turnstone to refine the scope of work, and address Board concerns about the high cost and extensive reliance on staff work products. A revised Turnstone scope of work was prepared for the April 21, 2003 Board meeting, but this item was continued until the May 19, 2003 meeting. A significant addition was to include an economic analysis in the scope to address certain concerns raised by litigants. Considerable information also remained to be provided by staff. The cost estimate for Turnstone to produce only a Draft EIR was$155,400; this amount included an estimated $42,200 for a specialist to perform an economic analysis. Negotiations between MPWMD and Turnstone representatives continued in mid-April, but it became evident that a mutually satisfactory result was not forthcoming. District staff was directed in late April 2003 to prepare an RFP to be transmitted to a variety of environmental consulting firms for an EIR that would focus on termination of the existing WCTP. The overall goals of the EIR were to assess environmental effects associated with terminating the WCTP, and respond to assertions by litigants who challenged Ordinance No. 102 rescinding the WCTP. The emphasis on terminating the WCTP was at the direction of District Special Counsel, Clement Shute. Mr. Shute directed that the EIR should respond to litigant assertions that terminating the WCTP would result in direct and indirect adverse physical effects. District adoption of Ordinance Nos. 107 and 108 in May 2003 also affected the proposed EIR. Ordinance No. 107 reinstated the water credit transfer program (Rule 28-B). Ordinance No. 108 clarified some of the processes and vague terminology contained in Rule 28-B. Specifically, decisions about water credit transfers will be made by the MPWMD Board of Directors and will be considered to be discretionary decisions subject to CEQA. On May 19, 2003, the Board approved the RFP drafted by staff with review by the Water Demand Committee, and directed that it be transmitted to a list of 18 non-local consulting firms. The RFP was transmitted electronically on May 21 with a deadline of July 1, 2003. The intent was for staff to review proposals and make a recommendation for consideration by the Administrative Committee on July 15 and the full Board on July 21, 2003. No proposals were submitted by July 1, and the deadline was extended to August 6, 2003. The Board considered retaining the firm of Resource Design Technology, Inc. (RDT) of Folsom, California, to prepare an Environmental Impact Report (EIR) on the termination of the Water Credit Transfer Program (WCTP). RDT was the only firm to submit a proposal to prepare an EIR in response to the District’s RFP. The full RDT Proposal was reviewed by the District’s Administrative and Water Demand Committees at their respective August 12 and August 21, 2003 meetings, and was also reviewed by Special Counsel. Significant portions of the RDT Proposal were provided to all Board members as part of the Administrative Committee packet. The bound complete proposal is available at the District office for public review. The RDT proposal originally estimated a total cost of$261,820, which was reduced to an estimate of $255,500 upon further discussion. The proposed EIR costs were more than double the estimated MPWMD budget of$125,000.  RDT emphasized that they “do not feel [they] can produce a robust, legally defensible document in the [District] price range due to the unusual nature of the proposed action as well as the legal issues involved.”  It is notable that several firms who declined to propose indicated that the District’s budget estimate was too low.

The RDT proposal estimated a total of 36 weeks (roughly nine months) from the Notice of Preparation to completion of the Final EIR, preparation of CEQA Findings and hearings.  This time frame was within the estimated schedule in the RFP.

The proposed EIR included project level evaluation of the proposed project to terminate the WCTP, and evaluation of two alternatives at a lesser level of detail.  The alternatives include: (1) Rule 28-B is reinstated (No Project alternative pursuant to Ordinances No. 107 and 108); and (2) enact amended water credit transfer program as described in Ordinance 101.

The Board voted on August 28, 2003 not to proceed with the EIR.

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