STRATEGIC PLANNING WORKSHOP

4.	UPDATE COMPARATIVE MATRIX OF WATER SUPPLY PROJECTS

Meeting Date:		September 8, 2005

From:		David A. Berger,
		General Manager

Prepared By:		Henrietta Stern

SUMMARY: The Monterey Peninsula Water Management District (MPWMD) Board will receive a staff presentation on an updated matrix (Exhibits 4-A and 4-B) that compares information provided by the sponsors of six water supply projects. The purpose of the matrix is to:

Ø summarize and consolidate 2005 information provided by proponents about current water supply project proposals in a single format; and

Ø facilitate Board discussion of next steps regarding water project implementation as it relates to use of MPWMD resources (staff, consultants, budget) in the coming year.

The matrix was first presented in September 2004 at the MPWMD Strategic Planning Session. Refer to: http://www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040929/07/item07.htm for the 2004 matrix as well as detailed supporting information.

Based on the presentations made at the August 25, 2005 Town Hall Meeting, as well as detailed input data provided by the sponsors, the September 8, 2005 updated matrix serves as a “snapshot in time” to help track progress on the various water supply projects. The discussion below highlights what is new or different in 2005 as compared to 2004. Importantly, all matrix information was submitted by the project sponsors; no independent analysis by MPWMD was performed to assess the completeness or accuracy of the information. Exhibit 4-C lists the supplemental information materials provided by the proponents.

In 2005, the matrix is divided into two parts. Part I (Exhibit 4-A) summarizes three relatively large desalination projects that would, at a minimum, comply with State Water Resources Control Board (SWRCB) Order 95-10 with existing water demand on the Monterey Peninsula; two projects could potentially meet future needs of the Peninsula and other coastal areas in northern Monterey County. Part II (Exhibit 4-B) summarizes three primarily non-desalination projects that feature aquifer storage and recovery (ASR) and reclaimed water technology. These projects alone could not fully comply with SWRCB Order 95-10, but could be combined with each other or with any of the desalination projects to meet community water yield goals, serve as back-up supply or help reduce costs. A new project that was not included in the 2004 matrix is the Groundwater Replenishment Project.

The six projects in the 2005 matrix include:

1. Coastal Water Project (CWP) sponsored by California American Water (Cal-Am).

2. North Monterey County Desalination Project (NMCDP) sponsored by the Pajaro/Sunny Mesa Community Services District (P/SM).

3. Long-Term Water Supply Project/Desalination (WSP) sponsored by MPWMD.

4. Aquifer Storage and Recovery in Seaside Basin (ASR) sponsored by MPWMD.

5. Regional Urban Water Augmentation Project (RUWAP) sponsored by Marina Coast Water District (MCWD) and Monterey Regional Water Pollution Control Agency (MRWPCA). This was referred to as the “Regional Urban Recycled Water Project” in the September 2004 materials.

6. Groundwater Replenishment Project (GRP) sponsored by MRWPCA.

Please refer to the “Discussion” section below for an overview of each project, with an emphasis on new or updated information. Exhibits provided by the sponsors are attached to provide more detailed information. The discussion will also reiterate important similarities and differences between projects from 2004 as well as uncertainties and unknown information. It is notable that all projects would require upgrades to the existing Cal-Am distribution system in order to receive the water.

Notably, the Monterey County Water Resources Agency (MCWRA), as directed by the Monterey County Board of Supervisors, has lead an interagency effort involving city managers and general managers of water and wastewater agencies, including MPWMD. This effort has resulted in concept proposals for forming an inter-agency governance structure to evaluate water supply alternatives and create an integrated strategy for implementing a publicly-owned Regional Urban Water Supply Project (RUWS) that could serve regional needs on the Monterey Peninsula and the rest of northern Monterey County. A specific project has not been defined, and is thus not included in the matrix. The interagency governance structure could potentially apply to any water project on the matrix, including a large-scale desalination plant in Moss Landing. The Board received an update by MCWRA General Manager Curtis Weeks on this continuing effort as part of the August 25, 2005 Town Hall Meeting. He stated that a draft agreement to form a RUWS Policy Board is anticipated to be available for review by the County Board of Supervisors, city councils and water and wastewater district boards of directors later this month. Curtis Week’s presentation is available at the MPWMD website for the August 25, 2005 meeting at:

www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050825/0825ag_notice.htm (Item 3-G).

The City of Sand City is pursuing a 300 acre-foot per year (AFY) desalination project designed solely to meet the City needs. A July 14, 2005 letter (Exhibit 4-D) explained that the project could not be expanded to meet broader community water needs without jeopardizing the “benign by design” criteria; a larger project would result in brine salinity levels above ambient seawater levels. Thus, the Sand City project is not included on the 2005 matrix.

RECOMMENDATION: The Board should receive the updated 2005 matrix information, ask questions, indicate whether follow-up work is needed by staff, and indicate whether a specific agenda item should be prepared for future consideration. No formal Board action will take place on September 8, 2005; however, the matrix discussion should serve as a springboard for future Board direction on water augmentation issues.

BACKGROUND: At its July 19 and 29, 2004 meetings, the Board heard presentations by and posed questions to project proponents, with emphasis on water production capacity, cost, timeline and opportunities for MPWMD participation. The Board directed staff to prepare a matrix summarizing information provided by project proponents related to these questions, and obtain and summarize regulatory process information for discussion on September 29, 2004. Please refer to the September 29, 2004 information packet for details on the history and methods used to prepare the matrix.

On March 21, 2005, project update presentations were made by Cal-Am, MCWRA, MPWMD, MRWPCA and P/SM. At a special meeting on June 16, 2005, the Board determined that it would host an August 25, 2005 Town Hall Meeting with emphasis on public education about different water supply options. The well attended August 25, 2005 event featured four displays staffed by project sponsors, eight presentations to an audience of over 100 people, and a lively question/answer session. Sponsor presentation materials maybe found on the District website at:

www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050825/0825ag_notice.htm.

Matrix Organization

Throughout the matrix, numbered rows provide the information requested for the matrix. The following lettered columns are used in 2005:

Part I: Column A -- Decision Element (topic)

Column B -- Coastal Water Project (Cal-Am)

Column C -- North Monterey County Desalination Project (P/SM)

Column D -- Long-Term Water Supply Project/Desalination at Sand City (MPWMD)

Part II: Column A -- Decision Element (topic)

Column B -- Aquifer Storage and Recovery in Seaside Basin (MPWMD)

Column C -- Regional Urban Water Augmentation Project (MCWD and MRWPCA)

Column D -- Groundwater Replenishment Project (MRWPCA)

The primary matrix topics (“Decision Elements”) remain:

Ø Project description,

Ø Water yield, including recipients and phasing,

Ø Project cost to customers, including detailed cost breakout,

Ø Financing and assumptions,

Ø Timeline and key milestones,

Ø Permits needed and regulatory agencies involved,

Ø Site control,

Ø Project operations and proponent capabilities,

Ø Project participants including MPWMD opportunities,

Ø Public involvement,

Ø List of acronyms found in the matrix.

Numbered line items refer to specific subtopics. By necessity, the matrix information is abbreviated. The supporting information provided by each proponent is listed as Exhibit 4-C. Due to space constraints, not all information materials listed in Exhibit 4-C are provided herein. All documents are available at the District office for review by the public. Representative materials attached to this staff note as exhibits are shown in Table 1 below.

Table 1: List of Exhibits Supporting Matrix

EXHIBIT	CONTENT

Exhibit 4-A	2005 Matrix update of water supply alternatives, Part 1, Desalination
Exhibit 4-B	2005 Matrix update of water supply alternatives, Part II, Other Projects
Exhibit 4-C	List of references and information sources for matrix.
Exhibit 4-D	Letter dated July 14, 2005 from Sand City regarding plans for City desalination project.
Exhibit 4-E-1	Cal-Am flier on Coastal Water Project (CWP) submitted August 2005.
Exhibit 4-E-2	Cal-Am flier on Proponent’s Environmental Assessment (PEA) submitted August 2005.
Exhibit 4-E-3	Cal-Am PEA Executive Summary on CWP, modified by RBF for August 25, 2005 Town Hall Meeting
Exhibit 4-E-4	Cal-Am Capital Cost Estimate Basis Summary submitted by RBF, August 2005 (Note: does not include 38 pages of detailed cost tables available under separate cover)
Exhibit 4-E-5 Exhibit 4-E-5 (page 2)	Cal-Am O&M cost tables
Exhibit 4-F-1	Pajaro/Sunny Mesa lease agreement with HMBY Limited Partnership for North Monterey County Desalination Project, March 2004.
Exhibit 4-F-2	Pajaro/Sunny Mesa Development and Management Agreement with Poseidon Resources Corporation, August 2005.
Exhibit 4-F-3	Letter from Duke Energy to Pajaro/Sunny Mesa re: use of Duke cooling facilities, June 2005.
Exhibit 4-G	MPWMD handout on 8,400 AFY desalination project in Sand City area, August 25, 2005 Town Hall Meeting (see website for presentation)
Exhibit 4-H	MPWMD handout on Phase 1 ASR project in Seaside Basin, August 25, 2005 Town Hall Meeting (see website for presentation)
Exhibit 4-I-1	MCWD Overview of Regional Urban Water Augmentation Project (RUWAP), August 2005.
Exhibit 4-I-2	Letter dated July 19, 2005 from Marina Coast Water District regarding potential to expand desalination component of RUWAP.
Exhibit 4-J	MRWPCA information on Groundwater Replenishment Project (excerpt from Proposition 50 Grant Application, without attachments), June 2005

DISCUSSION: The following paragraphs describe the six projects included in the matrix with emphasis on new information in 2005. Subsequent paragraphs highlight similarities and differences and note uncertainties for future investigation.

Coastal Water Project (Sponsor: Cal-Am)

As of August 2005, the major components of the proposed Coastal Water Project (CWP) include a seawater desalination plant in Moss Landing at the “Duke East” site on Dolan Road about one-half mile east of Highway 1; use of Duke Energy’s Moss Landing Power Plant (MLPP) intake and outfall; a desalinated water conveyance system to the Monterey Peninsula, including a transmission pipeline, terminal reservoir and pumping stations; and an ASR project in the Seaside Basin. Cal-Am plans to use a Duke Energy site for a one-year pilot project, but does not yet have a long-term lease agreement for the proposed CWP facilities; Duke has yet to commit to any entity at this time. The yield goal is now defined as 11,730 AFY to: (a) provide 10,730 AFY to replace Cal-Am’s Carmel River withdrawals to comply with SWRCB Order WR 95-10, and (b) 1,000 AFY to help alleviate over-pumping in the Seaside Basin. Cal-Am materials prepared in July-August 2005 describing the CWP and the PEA are shown in Exhibits 4-E-1, 2 and 3.

New and Changed Information in 2005: Beginning in January 2005, Cal-Am and its consultants held consultation meetings with regulatory agencies and hosted many public meetings throughout the year to describe progress on the CWP. Cal-Am provided an update on the project at MPWMD’s March 21, 2005 meeting. On July 14, 2005, Cal-Am announced completion of the 1,700-page Proponent’s Environmental Assessment (PEA), a comprehensive environmental review document required by the California Public Utilities Commission (CPUC) before the CPUC will consider Cal-Am’s application for a Certificate of Public Convenience and Necessity (CPCN) to allow rate increases to fund the CWP. The September 2004 CPCN application was also updated in July 2005 to reflect the 11,730 AFY Proposed Project.

An important change from 2004 to 2005 is the proposed yield from the CWP. The project focus has shifted from a regional project with a total yield goal of 20,272 AFY to a smaller project with a total yield goal of 11,730 AFY as described above. The project purposes no longer include the goal to meet existing and future water needs on the Monterey Peninsula and coastal communities of northern Monterey County, which total more than 8,000 AFY.

The PEA also analyzed five alternatives in detail, four of which could potentially be approved by the CPUC as a new water project. The five alternatives include:

Ø Alternative 1 (Regional Alternative) -- would provide 20,272 AFY of water for both Cal-Am and the neighboring communities. The exact ownership, governance, and size of the Regional Alternative would be determined by the participants. The roles and responsibilities of public and private entities in the financing, design, construction, and operation of the Regional Alternative have not yet been defined, but could entail Cal-Am partnering with Monterey County or other participating public agencies. The Proposed Project and Regional Alternative require essentially the same facilities, with slightly larger sizes and capacities for the Regional Alternative, depending on its ultimate configuration. The primary differences between potential impacts of the Regional Alternative and the proposed CWP relate to brine disposal and an increased water supply (growth impacts).

Ø Alternative 2 (Over-sized Pipeline Alternative) – would include the same features as the proposed CWP, except that the raw source water, product water, and brine return pipelines would be larger (36-inch transmission pipe instead of 30-inch). In addition, the source water pipeline from MLPP would be increased from 54 inches to 72 inches. This alternative would facilitate incremental expansion of the desalination project to meet future needs without the need to replace initial pipelines that would be too small for an expanded plant.

Ø Alternative 3 (MLPP HDD Intake Alternative) -- would utilize Horizontal Directional Drilling (HDD) intake wells as feedwater supply for the desalination project located at Moss Landing. HDD wells would be located south of Moss Landing Harbor at the Salinas River State Beach parking lot facilities, and the seawater would be transported to the Moss Landing desalination facility via a pipeline.

Ø Alternative 4 (North Marina Site Alternative) – would locate the seawater desalination facility in the City of Marina Sphere of Influence at Armstrong Ranch. The project could be sized to provide the necessary water supply to meet either the CWP or Regional Alternative water demands. The PEA includes a detailed evaluation of the North Marina Alternative Site, which includes HDD wells for source water intake and a brine disposal line to the MLPP outfall for brine discharge. This alternative also includes four power supply alternatives: (1) the existing power grid, (2) gas-fueled reciprocating engine generators, (3) gas-fired turbine generators, and (4) gas-fueled direct engine drives.

Ø Alternative 5 (No Project Alternative) – would entail existing programs to conserve and recycle water. The PEA evaluates the potential effects, beneficial and adverse, associated with not implementing the CWP, including effects on water supply, coastal communities, and the environment. The No Project Alternative does not meet Cal-Am’s basic project objective of satisfying the requirements of SWRCB Order 95-10, and it does not meet Cal-Am’s goal for a reliable drought-proof water supply.

Cal-Am consultants have performed extensive engineering analyses to prepare updated cost estimates in 2005 for the proposed CWP. Exhibit 4-E-4 provides a basis-of-cost summary for capital costs; additional detailed cost tables referenced in the summary were also submitted to MPWMD, and are available for review at the District office; they have been provided to Board members at Cal-Am’s request. Exhibit 4-E-5 and Exhibit 4-E-5 page 2 provides updated O&M cost tables.

With the submittal of the PEA, the CPUC staff begins its formal environmental review as lead agency under the California Environmental Quality Act (CEQA). The CPUC issued a July 23, 2005 Request for Qualifications (RFQ) to consulting firms to help the CPUC prepare an EIR on the CWP and assist with related CPUC procedures. The RFQ listed a 3-year contract in the range of $1,000,000 to $2,999,999. In an e-mail to MPWMD dated August 10, 2005, CPUC Project Manager, Andrew Barnsdale, explained that contract limits are set conservatively high to enable adequate funding for unforeseen circumstances and to avoid multiple requests for funding as an application is processed. His earlier July 20, 2005 e-mail indicated the initial CPUC timeline goals as:

Fall 2005: Retain consultant

Late 2005: CEQA scoping

2^nd Qtr 2006: Draft EIR (earliest timeframe)

3^rd Qtr 2006: CEQA comments; prepare response and Final EIR

Late 06/early 07: Decision by Administrative Law Judge

The State Department of Health Services (DHS) requires a pilot project for a desalination facility to demonstrate reliable water quality and quantity. Cal-Am has submitted an application to the California Coastal Commission (CCC) for a waiver of a Coastal Development Permit to construct a 200,000 gallon-per-day (gpd) pilot project at the MLPP. A May 12, 2005 letter from the CCC staff indicated that the application was incomplete, and required Cal-Am to provide information about proof of interest by Duke Energy, compliance with Monterey County requirements (including public ownership of desalination facilities), project operation and schedule, water use, and alternatives. Cal-Am anticipates permits for the pilot project to be issued in September 2005 by the CCC, Regional Water Quality Control Board (RWQCB) and Monterey County. Cal-Am anticipates pilot project installation in late 2005, with a one-year test period beginning January 2006.

Cal-Am representatives have publicly stated a willingness to consider public ownership of the CWP, but have emphasized the need to move forward in order to show progress complying with Order 95-10. Cal-Am has questioned whether the current Monterey County ordinance requiring public ownership of a desalination project is sustainable as written (Herald, June 19, 2005).

North Monterey County Desalination Project (Sponsor: P/SM)

Information about the North Monterey County Desalination Project (NMCDP) is very similar to that provided in 2004. Project components include a seawater desalination plant in Moss Landing, transmission pipeline to the Monterey Peninsula, and a potential 30-acre solar energy power production facility to reduce energy costs. The proposed site is the former National Refractories mineral plant, with planned use of existing intake/outfall pipelines, with possible use of Duke Energy pipelines, if needed. A lease agreement with the property owner has been in effect since March 2004 (Exhibit 4-F-1). The yield goal is 20,000 to 23,000 AFY or more, depending on purveyor demand; a 20,000 AFY project was used for cost estimates provided in 2004. The project is intended as a regional project, including meeting the needs of the expanding P/SM service area in northern Monterey County. According to the North Monterey County Comprehensive Water Resources Management Plan (January 2002) an overdraft of over 11,200 AFY was identified in areas now in the P/SM service area. The NMCDP can be sized to comply with Order 95-10 (10,730 AFY) and make up the 2,700 AFY difference between current pumping in the Seaside Basin and MPWMD’s current estimate of sustainable yield. The project could be sized larger to meet the future needs of the Monterey Peninsula (roughly 3,600 AF) and other coastal communities. In 2004, the P/SM Board authorized creation of a Joint Powers Authority (JPA) with MPWMD, but the MPWMD Board felt it was premature to formally align with any proponent at that time. P/SM has explored partnerships with other entities, and recently entered into a management agreement (Exhibit 4-F-2) with a private corporation experienced in desalination technology (see below).

New and Changed Information in 2005: Pajaro/Sunny Mesa representative Marc Del Piero and P/SM engineering consultants provided clarification and refined project description, cost and timeline information for the 2005 matrix update. The detailed capital and O&M cost estimates have not changed from the 2004 Kennedy/Jenks information in the 2004 matrix. The 2005 matrix includes a similar cost per acre-foot estimate (range) developed in 2005 by Poseidon Resources, Inc. Mr. Del Piero indicated that P/SM is developing updated technical information, but it will not be ready until later in the year. Exhibits 4-F-1, 2 and 3 provide recent information about ownership, operations and management provided by P/SM in August 2005. They include, respectively:

Ø Lease Agreement with HMBY Limited Partnership (owner of former National Refractories site), March 2004. This agreement secures the project site and directs that payment to the property owner will be based on the quantity of desalinated water produced.

Ø Development and Management Agreement with Poseidon Resources Corporation, August 2005. This agreement names Poseidon, a Delaware-based corporation involved in desalination projects nationally and worldwide, as the “exclusive management agent” to secure all entitlements, governmental approvals, construction management and operation of a 20 to 25 million gallon per day (MGD) desalination project. P/SM will be the formal owner/operator in accordance with the Monterey County ordinance requiring public ownership of desalination projects. The agreement requires the two parties to negotiate the terms of a long-term Management and services Agreement(s) that specifies the initial “price of water shall range from $1,100 to $1,200 per acre-foot (2005 dollars),” to be adjusted in the future, and assignment or sub-lease of the National Refractories site lease to Poseidon. The District’s understanding is that this price range is based on Poseidon’s experience designing the Encina desalination project in Carlsbad (San Diego County), with consideration of the Moss Landing setting and P/SM lease agreement.

Ø Letter from Duke Energy to Pajaro/Sunny Mesa re: use of Duke cooling facilities, June 2005. This letter notes that Duke is willing to discuss with P/SM facilitating a desalination project with “broad community support,” but will not “assume a position that advantages one developer’s desalination project over another’s.” Duke notes that use of its MLPP facilities may not impact Duke’s power generating operations.

P/SM has pursued grant funding for its desalination pilot project through the Proposition 50 process administered by the California Department of Water Resources (DWR). The $1.35 million pilot project was listed as an “Eligible Proposal – 2004/2005 Funding Cycle,” but was not awarded a grant.

P/SM intends to be the lead agency for CEQA review of its desalination project, and has coordinated with Moss Landing Marine Laboratory regarding marine-related environmental studies. P/SM has not yet formally initiated the CEQA process; P/SM anticipates the CEQA process to be completed by December 2006.

Long-Term Water Supply Project/Desalination in Sand City (Sponsor: MPWMD)

The MPWMD Water Supply Project (WSP) is comprised of a seawater desalination plant in the Sand City area with new seawater intake/brine discharge facilities at Seaside State Beach, Sand City and/or former Fort Ord. The project design envisioned HDD wells for intake/discharge, but the geology of the former Fort Ord coastal area requires use of the existing MRWPCA outfall for large volumes of brine discharge. The basic yield goal set in 2003 is 8,400 AFY to legalize existing community demand. Specifically, the project goal is to meet local, near-term needs, including compliance with Order 95-10, assuming Cal-Am diversions from the Carmel River do not exceed 11,285 AFY and total Cal-Am production remains under 15,285 AFY. Production up to 11,000 AFY may be possible, depending on the outcome of hydrogeologic and engineering investigations that must first be performed.

An administrative “Board Review Draft EIR” for the MPWMD Water Supply Project was received at the December 15, 2003 meeting. To date, it has not been authorized to be refined to a formal Draft EIR to be circulated to the public pursuant to CEQA. In December 2003, the Board delayed action on the EIR until hydrogeologic studies of critical coastal and offshore areas was finalized in March 2004. The Board received a detailed technical overview on HDD viability and potential production capacity on March 31, 2004. Action was deferred until more information on Moss Landing desalination options was obtained. Given changing conditions, the Board again deferred action on completing the EIR at its June 21 and July 29, 2004 meetings, and concurred that direction should be provided at or soon after the September 29, 2004 Strategic Planning Workshop. At the October 18, 2004 meeting, the Board adopted the Strategic Plan, which included tabling the MPWMD desalination project. Instead, staff was directed to amend consultant contracts to focus on ASR (see next topic, below). The Strategic Plan also called for the Board and staff to explore partnering opportunities with public and private entities on a regional solution to the Monterey Peninsula’s long-term water supply deficiency.

Exhibit 4-G summarizes the desalination project. Extensive information about the WSP was provided at Board meetings in December 2003 through October 2004. Please refer to the hard copy Board packets or visit the MPWMD website for the following meeting dates:

Oct. 18, 2004: www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20041018/19/item19.htm

Sept. 29, 2004: www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040929/07/item07.htm

July 29, 2004: www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040729/final0729.htm (select Item 4 for desalination project)

June 21, 2004: www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040621/22/item22.htm

Mar. 31, 2004: www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040331/04/item04.htm

Dec. 15, 2003: http://www.mpwmd.dst.ca.us/boardpacket/20031215/18/item18.htm

New and Changed Information in 2005: There has been no Board action on the WSP since it was tabled in October 2004. District efforts have focused on ASR and participation in interagency discussions about governance structure for regional water supply projects.

At the May 16, 2005 Board meeting, based on a question during public comment, the Board asked staff to confirm the cost and timeline to complete a Final EIR on the 8,400 AFY desalination project. A June 6, 2005 memorandum explained that consultants in 2004 had provided several cost estimates, ranging from $30,000 to $390,000, and three to 18 months to complete a Draft EIR, depending on the project options, level of additional engineering analysis, and project-level assessment of alternatives that was desired. Costs for a Draft EIR on a 8,400 to 9,400 AFY desalination-based project ranged from $30,000 to $180,000, and three to seven months. Actual costs and timelines to perform this work in 2005 would need to be increased for inflation and for the consultants to re-acquaint themselves with the material and ramp up to full EIR production mode. Importantly, in order to complete the CEQA process, additional time and money would be needed to (a) consolidate and evaluate public comments on the Draft EIR, once one is circulated; (b) prepare a Responses to Comments document; and (c) prepare a Final EIR, including a comprehensive Mitigation and Monitoring Plan, for certification by the Board. The time to complete the Final EIR is highly dependent on the volume and substance of agency and public comments on the Draft EIR. The cost is difficult to predict until the comments are received, but could be at least an additional $100,000 and a minimum of six months.

Aquifer Storage and Recovery in Seaside Basin (Sponsor: MPWMD)

The MPWMD Aquifer Storage and Recovery Project would divert “excess” flow from the Carmel River in wet periods, as defined by state and federal resource agencies, which would then be treated and transmitted via the Cal-Am distribution system to special injection/recovery wells in the Seaside Groundwater Basin on the former Fort Ord. Available storage capacity in the Seaside Basin Coastal Subareas serves as an underground reservoir for the diverted water for use during dry periods. ASR potentially can help improve environmental conditions in the Carmel River and Seaside Basins by reducing Carmel River diversions in dry periods, when the river environment is most vulnerable, and helping to replenish the Seaside Basin in wet periods. MPWMD already owns and operates one successful full-scale test well at the proposed site. The proposed Phase 1 ASR Project would add a second well immediately adjacent to the current site, along with some additional transmission pipeline and other improvements. The Phase 1 project envisions a maximum annual Carmel River diversion and injection of up to 2,400 AFY into the Seaside Basin. The maximum extraction from the Seaside Basin would be 2,000 AFY. Average values would be lower and depend on long-term weather conditions. Initial computer modeling performed in August 2005 indicates that the average project yield would be 1,050 AFY. The MPWMD ASR project could relatively easily combine with any other project described above.

The Phase 1 ASR Project assumes use of a primarily above-ground, near-term Cal-Am pipeline to more efficiently deliver water to the Santa Margarita injection well site than the existing temporary pipeline. The pipeline was approved by the City of Seaside in June 2005, and is anticipated to be constructed by Cal-Am in 2005. Once the final location of the new General Jim Moore Boulevard road alignment is approved and funded, a meaningful plan for a permanent below-ground pipeline to the injection well can be formulated.

The MPWMD Phase 1 ASR is similar to, but not the same ASR project described for Cal-Am’s CWP proposal. The District and Cal-Am have been working to craft a management and operations agreement regarding near-term and long-term ASR projects. The California Department of Health Services has required such an agreement before Cal-Am may use injected ASR water in its system for water supply. The value of the District’s existing ASR well was demonstrated in late 2004, when it served as an important emergency source for the Cal-Am system when a primary Cal-Am Seaside well suffered an extended outage.

Exhibit 4-H summarizes the Phase 1 ASR project. For additional information on the MPWMD ASR project, please refer to the hard copy Board packets or visit the MPWMD website for the following meeting dates:

July 18, 2005: www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050718/26/item26.htm

Mar 21, 2005: www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050321/20050321_agenda.htm (click on Item 7-E and Item 16 presentations)

Mar 21, 2005: www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050321/16/item16.htm

New and Changed Information in 2005: As noted in the above section, the MPWMD Board, at its October 18, 2004 meeting, directed staff to focus its efforts on ASR, including amending consultant contract scopes. In December 2004, the District issued a Notice of Preparation (NOP) of an EIR on a three-phase ASR project, including water rights associated with maximum potential diversion of 7,300 AFY. Based on comments received in January 2005 and interagency meetings with Cal-Am, local, state and federal agencies, the scope was amended in March 2005 to prepare a combined EIR and Environmental Assessment (EA) to comply with the National Environmental Policy Act implemented by the U.S. Army at Fort Ord. The scope of the EIR/EA now focuses solely on project-level review of the Phase 1 ASR project as described above. Alternative site locations are also evaluated as well as alternative means to reduce impacts to the Carmel River and Seaside Basin. The project purpose is solely geared toward improved operations and environmental protection. There is no water supply increment for new construction or remodels identified as part of this project. Future EIRs will address Phases 2 and 3, once more information is known about regional land use plans and infrastructure.

The current MPWMD test well has operated under annual temporary water rights permits issued by the SWRCB. The Phase 1 ASR Project EIR will also be used by the District to support its long-term water rights application (Petitions for Change) originally submitted by the District in October 2001 and revised in September 2003. The SWRCB noticed the District’s Petitions on April 15, 2005 with a 30-day response period. Seven protests were received; only two were accepted by the SWRCB. The District prepared a formal response to the National Marine Fisheries Service protest in mid-June 2005 and a response to the California Department of Fish & Game in mid-July 2005. The District will meet with these agencies in Fall 2005 to confirm how the ASR Project operations will protect the steelhead resource.

The importance of ASR in the management and stewardship of the Seaside Basin is gaining importance in light of the April 2005 report, Seaside Groundwater Basin – Update on Water Resource Conditions, prepared for the District as part of its ongoing Seaside Groundwater Basin Management Plan effort. The peer-reviewed report evaluated new information developed since the District’s last comprehensive report was prepared in 1997, and made important new findings and conclusions about the status of the Seaside Basin and sustainable water yield for the community. The analysis shows consistently declining water levels and deficit water budgets over an 8-year period, indicating that the Basin is in a state of overdraft as groundwater extractions exceed the sustainable yield. The report outlines a range of potential corrective actions, with ASR identified as an important tool to help address the overdraft condition. Concurrently, the District has been involved in litigation filed by Cal-Am regarding rights to water in the seaside Basin. Despite different perspectives on legal issues, all entities agree that ASR projects are a physical solution that could help reduce the impacts of over-pumping and help restore depleted portions of the Basin.

Regional Urban Water Augmentation Project (Sponsors: MCWD and MRWPCA)

The Regional Urban Water Augmentation Project (RUWAP) involves two major water augmentation supply projects: seawater desalination and recycled water. In the 2004 matrix, a previous variation was referred to as the Regional Urban Recycled Water Project, and focused solely on the use of reclaimed water. Only 300 AFY was designated for use within the Cal-Am service area by non-potable customers such as golf courses, cemeteries, parks and other landscape open space. The RUWAP could be combined with ASR or the desalination projects described in the matrix.

New and Changed Information in 2005: The RUWAP project goal is to provide 2,400 AFY of water to the former Fort Ord area to meet redevelopment requirements described in the Fort Ord Reuse Plan. In addition, 300 AFY of is being considered to supply the Monterey Peninsula (defined as California-American Water Company’s Monterey Division service area) and 300 AFY of water is being considered to supply MCWD’s other service areas. The EIR for the project was certified in October 2004; the “Hybrid Alternative” was endorsed by the MCWD and FORA boards of directors in 2005. The EIR identified evaluated several alternatives, including:

Ø “Seawater Desalination Alternative” -- a new 3,000 AFY desalination facility in the area currently occupied by the MCWD’s existing desalination plant. The proposed replacement desalination project meets the project objective of 2,400 AFY, replaces the District’s existing 300 AFY desalination plant, and also provides 300 AFY for use within or outside of the District service areas, e.g., on the Monterey Peninsula.

Ø “Recycled Water Alternative” -- provides 3,000 AFY of recycled water, which meets the project objective of 2,400 AFY, but would also provide 300 AFY of recycled water to the Monterey Peninsula and an additional 300 AFY for use within or outside District service areas.

Ø “Hybrid Alternative” -- includes a water supply of up to 1,500 AFY from an expansion of MCWD’s seawater desalination plant (including replacement of the existing 300 AFY capacity plant) and the production and distribution of up to 1,500 AFY of recycled water for landscape irrigation. The EIR concluded that depending upon the recycled water needs at the former Fort Ord, the remainder would be used for MCWD’s other service areas and potentially, the Monterey Peninsula, via a new recycled water distribution system.

According to MCWD, project-level scoping for the “Hybrid Alternative” project and its two components (desalination and recycled water) will begin August 2005. The ultimate size and design of the desalination component project and the recycled water component project will depend on the many factors. Scoping will help determine how much potable and non-potable water from these two projects may be designated to the Monterey Peninsula. Exhibit 4-I-1 (prepared by MCWD) summarizes the RUWAP project. Exhibit 4-I-2 is a July 19, 2005 letter from MCWD noting that a limited amount of water (300 AFY) is available from the currently designed RUWAP for uses on the Monterey Peninsula. In his presentation on August 25, 2005, General Manager Mike Armstrong indicated that perhaps an undefined additional amount could be made available from the desalination component of the project. Mr. Armstrong’s presentation is available at the MPWMD website for the August 25, 2005 meeting at:

www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050825/0825ag_notice.htm (Item 3-E).

Groundwater Replenishment Project (Sponsor: MRWPCA)

A second, related concept known as the Groundwater Replenishment Project (GRP) is currently being evaluated by MRWPCA. The GRP concept was not included in the 2004 matrix because little information was available, and MRWPCA was determining if the concept has merit to warrant further study. The concept envisions treatment of recycled water to near-potable condition for groundwater percolation or injection into the Seaside Basin. Similar to the ASR project described above, the purified, recycled water source would be available in winter, when it is not used by food crops such as artichokes, and could be put to a beneficial use rather than be discharged into the ocean. After meeting State DHS treatment and migration standards, this supplemental source of water could be made available for recovery and potable reuse. Similar technology has been very successful in Orange County in Southern California for many years by operation of the Water Factory 21 plant, which creates recycled water for injection as a seawater intrusion barrier. Expanding on that success, the Orange County Water District is implementing an 80 MGD purified, recycled water project that will substantially augment their long-term potable water supply.

New and Changed Information in 2005: The MRWPCA has retained an expert consultant from the Water Factory 21 facility to help the agency assess and pursue the GRP locally. Based on the consultant assessment to date, the GRP would initially produce 2,800 AFY, with possible expansion in the future. A pilot project is envisioned in 2006. The agency is also pursuing Proposition 50 and other grants. The agency has coordinated with MPWMD, DHS and other regulatory agencies regarding hydrogeology, health issues and engineering. Exhibit 4-J is an excerpt from a June 2005 joint agency Proposition 50 Grant Application (without attachments) describing the GRP project. MRWPCA General Manager Keith Israel’s presentation is available at the MPWMD website for the August 25, 2005 meeting at:

www.mpwmd.dst.ca.us/asd/board/boardpacket/2005/20050825/0825ag_notice.htm (Item 3-F).

Year 2005 Comparison of Projects

The following paragraphs review the matrix topics and compare pertinent information about the water supply projects. The comparison will focus on the desalination projects because it is unlikely that more than one major desalination project would actually be built. In contrast, the other projects lend themselves to combining with or augmenting a larger, primary project. The ASR and reclaimed water projects could potentially proceed on an independent path from the desalination projects. The following discussion will not repeat year 2004 information, though key points may be re-emphasized. Rather, the year 2005 discussion will highlight aspects that are new or different. The year 2004 discussion is at:

http://www.mpwmd.dst.ca.us/asd/board/boardpacket/2004/20040929/07/item07.htm.

This discussion will focus on the major Decision Element topics. If a matrix line number is referenced, it refers to the numbered row in the matrix in either Exhibit 4-A or 4-B. Again, it must be emphasized that the information was provided by the project sponsors and has not been independently verified for accuracy or completeness by the District or any other third party.

Incomplete Cost Information

As noted in 2004, varying levels of effort have been expended by proponents to estimate the respective project capital and operating costs. Though the Cal-Am project has the most extensive cost documentation as of August 2005, District staff believes that cost estimates for all projects in the matrix are incomplete and potentially inaccurate. For example, no project has an estimate for capital or O&M costs for environmental mitigation measures that may be imposed by regulatory agencies at the end of the permit process.

Pilot Project (line 7)

Both Moss Landing desalination projects have planned pilot projects beginning in 2006, and are teamed with private firms that have expertise based on desalination projects elsewhere in California. The MCWD has operated a 300 AFY pilot desalination project since 1997. The MPWMD ASR project has successfully operated pilot and full-scale ASR projects since 1998, and has a proven track record. Similarly, use of reclaimed water produced by MRWPCA has been successfully demonstrated in Monterey County. The GRP plans a pilot project in 2006.

Project Yield (lines 8-13)

The two Moss Landing desalination plants are similar in their potential to be regional projects producing more than 20,000 AFY; actual project size and yield depends on the alternative approved and purveyor commitments. Both could fully comply with SWRCB Order 95-10 (defined as 10,730 AFY) and help reduce impacts in the Seaside Basin. A notable change is that the Cal-Am CWP yield goal is 11,730 AFY in 2005 rather than 20,272 AFY in 2004. This change has resulted in reduced cost estimates for the smaller CWP project. The yield from the other projects range from 300 AFY to possibly 2,800 AFY. The GRP yield would need to be confirmed via computer modeling. The MPWMD ASR project yield was uncertain in 2004; computer modeling supported by hydrogeologic and engineering work in 2005 indicates the injection and extraction maximums would be over 2,000 AFY, and the average yield would be 1,050 AFY.

Project Cost (lines 15-21 and lines 77-112 cost detail)

Each of the three desalination proposals remains a major capital project costing at least $176 million. The P/SM and MPWMD project cost breakouts were not changed from 2004. As noted above, the CWP project cost dropped from nearly $261 million to $191 million due to the smaller size of the desalination component; O&M dropped from roughly $10 million to $6 million. Other cost refinements were also made to the Cal-Am figures based on more detailed engineering studies performed in 2005. It is notable that the $6.37 million O&M cost for the CWP (line 18) is a net amount. As shown in the Exhibit 4-E-5 and Exhibit 4-E-5 (page 2) cost tables, the $6.37 million O&M used in the matrix is derived from the total O&M of $9.06 million for the CWP minus the $2.69 million O&M savings that would result in the remaining Cal-Am distribution system with the CWP in place.

In contrast to 2004, when the projects were of similar size, but differed significantly in capital cost, the situation in 2005 has reversed – subtracting out the $15.6 million ASR component (line 90), the two Moss Landing desalination projects are now of similar capital cost (roughly $176 million) but are significantly different in size. Similar to last year, Cal-Am estimates are notably higher for the desalination plant itself and the transmission pipeline to the Peninsula. District staff has not independently evaluated or critiqued the cost estimates, and is simply identifying major differences at this time.

The $15 million price tag for the CWP ASR component indicates a more complex project than the MPWMD Phase 1 ASR project ($3.2 million). The reclaimed water projects range from $19 million to $33 million; the RUWAP desalination component has not been estimated at this time, nor has the O&M for the GRP. Only a portion of the RUWAP reclaimed water project cost would be applied to the Peninsula (300 AFY), and only direct recipients of the reclaimed water would pay for it.

Cost of Water to Peninsula (lines 23-27)

In general, estimates of the cost of water per acre-foot ($/AF) are very dependent on yield and a variety of other assumptions, and are not clearly defined for some projects. Also, similar terms used by the proponents mean different things and reflect different calculations. Thus, an accurate “apples-to-apples” comparison is not possible without detailed basis-of-cost tables being available for all the projects in question. Similar to last year, the cost of water production at Moss Landing for the two desalination projects is in the $1,000 - $1,200/AF range (line 23). The cost of “delivered water” to the Peninsula ranges from $1,240 for the NMCDP to $1,725 for the CWP, and jumps to $2,730/AF for the MPWMD desalination project. However, as an example of the same term applied to two calculations, the Cal-Am “delivered water” costs include $550/AF for O&M, while the NMCDP “delivered water” data does not break out this line item. Thus, it is unclear whether the two numbers can be directly compared. Both the O&M costs for Cal-Am and P/SM include leasing the desalination site rather than buying it as a capital cost. In contrast the MPWMD assumes desalination site acquisition as a capital cost.

The MPWMD ASR project cost estimate is $534/AF, which includes a minimal capital cost associated with obtaining an easement to federal property. The GRP goal is $1,200/AF but an estimated cost has yet to be determined. The RUWAP sponsors do not expect a change in Cal-Am rates from purchasing up to 300 AFY from the project.

Generally speaking, these numbers represent the cost to the sponsor to produce the water. The actual retail cost of water to the end customer is expected to be higher than the numbers shown above, based on additional treatment and delivery costs, profit (Cal-Am only), etc.

Only Cal-Am has developed a written estimate of the impact of its CWP on the residential water bill. These values are expressed as an initial $2.20 per 100 cubic feet of water (ccf) in 2007 followed by $5.73/ccf in 2011. If 8 ccf are consumed in a billing period, these rates would reflect increases of $17.60 and $45.84 per billing period. The CPUC is responsible for evaluation of Cal-Am’s CPCN and the rates Cal-Am will be allowed to charge for the CWP. Notably, the MPWMD ASR project will soon affect the Cal-Am bill. Ordinance No. 123, approved by the MPWMD Board in August 2005, authorizes a 1.2% surcharge on the Cal-Am bill for 15 years to pay for the Phase 1 ASR project, assuming project payment of a future pooled debt issuance.

Project Financing (lines 29-33)

Assumptions for financing range from 3% to 7% for interest rates, and 20-30 years for the term of financing. The same assumptions should be applied if comparing two similar projects, unless one proponent is able to demonstrate the ability to obtain a lower rate due to tax-exempt status, grant/loan award etc. State Revolving Fund loans or Proposition 50 grants are assumed for the RUWAP and GRP projects.

MPWMD’s enabling legislation requires a public vote for certain types of financing, and no vote for others. For all public entities, state law requires a public vote for certain types of bond funding (e.g., general obligation bonds.) Cal-Am is not required to have a public vote for company-funded projects. Monterey Peninsula voters would not vote on P/SM, MCWD or MRWPCA projects unless required by state law.

Timeline (lines 35-43)

The two Moss Landing desalination projects anticipate four years to water delivery. Both envision completion of an EIR in the latter half of 2006. The MPWMD project is on hold, and would take at least 4-5 years from the date authorized to move forward. The MPWMD ASR project is anticipated to be delivering water in two years. The reclaimed projects range from three to more than five years. Each has unique challenges in the pathway from concept to functioning project. Key steps include completion of an EIR (and a possible NEPA document), permits, financing, secure sites for all facilities, and construction.

Permits/Regulatory Agencies (lines 45-56)

All projects must comply with a host of federal, state, regional and local regulations. Each project faces a similar gauntlet, some more than others. The federal permits needed and level of documentation required by the federal agencies could greatly affect project time line and cost. Projects such as ASR that divert water from the Carmel River require a water rights permit from the SWRCB. Only Cal-Am must obtain CPUC approval for its project to enable rate increases to fund the project.

Site Control (lines 58-60)

Each of the three desalination project sponsors has identified preferred locations for desalination plant facilities and pipeline alignments on property owned by an entity other than the sponsor. Thus, the cooperation of the property owners (or authority of the sponsor to carry out eminent domain) is essential for the project to go forward. Otherwise, an alternative site must be found. Cal-Am materials state that Duke Energy has allowed Cal-Am to build and operate the CWP pilot desalination project on its property, but has not committed to the long-term project (desal plant, intake and outfall lines). Cal-Am has also identified alternative sites in Moss Landing and Marina. Duke has advised both Cal-Am and P/SM of Duke’s criteria of (a) no adverse effect to their current discharge permits and energy operations, and (2) public support for the project. Pajaro/Sunny Mesa has signed a lease agreement with a cooperative landowner, who owns the former National Refractories (NR) site, including a plant site, intake and outfall. Though P/SM has access to an intake pipe, it wishes to use Duke’s waste stream as the first choice source of intake water, with the NR intake pipeline as a backup. P/SM would use the NR outfall for brine discharge. All projects entail pipeline alignments that will require cooperation of several landowners, including private and public entities.

The ASR and reclaimed water projects include existing facilities with functioning easements or ownership in place. The MPWMD has a 50-year easement with the US Army; MRWPCA owns the treatment plant site and existing facilities, but would need access to recharge sites as well as pipeline and pump station right-of-ways. MCWD owns its desalination facility and is the water purveyor for the former Fort Ord.

Operations Issues (lines 63-64)

Two major issues are reflected herein: (1) identify the technical, managerial and financial capability (TMF), as defined by the State Department of Health Services (DHS) of the sponsor to implement a major water supply project, and (2) how interruptions to power or source water flow are addressed.

TMF Capability: Cal-Am is an investor-owned public utility that is a division of a multi-national water services corporation, and is TMF certified by DHS. Cal-Am currently operates a 39,000-customer water system in Monterey County. It also has teamed with Pridesa, a company experienced in desalination projects worldwide. Cal-Am has requested CPUC approval of a rate increase to fund the CWP.

Pajaro/Sunny Mesa is a small but expanding community services district that presently provides multiple governmental services, including wastewater and retail water services in northern Monterey County, including pending expansion approvals. The agency has two current TMF certifications from DHS for relatively small systems as compared to Cal-Am. As a small agency, P/SM recognizes the need to expand its Board and staff, and has signed an initial agreement with Poseidon Resources Corporation, which also has worldwide desalination experience, as the “exclusive management agent” for the desal project. The engineering firm currently retained by P/SM has desalination experience and was awarded a contract to implement a desalination pilot project for the Marin Municipal Water District. More information is available in 2005 regarding the possible sources and timing of funding for the P/SM project, but questions remain.

MPWMD staff and consultants have extensive expertise in water supply planning, hydrology and engineering; the agency has obtained permits for a major reservoir project and smaller desalination and ASR projects in the past. MPWMD is not a water purveyor, though it has successfully designed, constructed and operated an ASR facility. Water from MPWMD facilities would be integrated into the Cal-Am system, which is the local water purveyor. MPWMD would likely outsource for design, construction and operation of the desalination plant. As a public agency, MPWMD financial resources are limited by its various sources of revenue. A public vote is required for certain types of bond funding.

MRWPCA and MCWD are public agencies with established certified water operators with extensive experience with water and wastewater systems. As public agencies, their financial resources are limited by their various sources of revenue.

September 8, 2005