Meeting Date:

November 19, 2007





David A. Berger,




General Manager

Line Item No.:     N/A


Prepared By:


Cost Estimate:



General Counsel Review:  Yes 

CEQA Compliance:  MPWMD is a Responsible Agency relying on FEIR certified by City of Sand City Council on January 18, 2005, and Addendum to FEIR adopted by City Council on September 18, 2007, for purposes of considering this draft Concept Ordinance.


SUMMARY:   The purpose of this agenda item is for the District Board of Directors to consider first reading of Ordinance No. 132 (Exhibit 14-B).  If adopted, this ordinance would grant the City of Sand City a legal entitlement to 206 acre-fee/year (AFY) of the water produced by its proposed, 300 AFY capacity desalination plant, officially called the Sand City Water Supply Project.  The ordinance also would create a District water use permitting process to authorize new California American Water connections for parcels within the City to be served by its desalinated entitlement water.  Although a separate legislative action, potential adoption of this ordinance is contemplated and referenced in a Water Distribution System (WDS) permit for the desalination plant that the Board approved at its October 15, 2007 meeting; as well as in an amendment approved at the same meeting to the California American Water WDS permit to allow its acceptance of this desalinated water resource.


At its November 8, 2007 meeting, the District’s Rules and Regulations Review Committee, which is chaired by Director Lehman and also includes Directors Foy and Pendergrass, reviewed a concept draft version of this ordinance.  The Committee discussed several policy issues previously raised by the District counsel related to the concept ordinance, which were subsequently analyzed by District staff.  Following discussion, which included a review of written and oral comments regarding the policy issues submitted by Sand City and CAW representatives, the Committee recommended that the Board consider approval of a revised version of the concept ordinance, which District Counsel has prepared in the form of Ordinance 132.  This proposed ordinance incorporates several of the policy issues that are described in the Background section of this staff report, and one new issue raised by the City.  Attached as Exhibit 14-A, is a memo from District Counsel that summarizes the changes incorporated into Draft Ordinance No. 132.  Attached as Exhibit 14-C, is a red-lined version of Draft Ordinance No. 132 that highlights those changes.


RECOMMENDATION:  District staff recommends that the Board approve for first reading Ordinance No. 132 (Exhibit 14-B), and to set consideration of its second reading and adoption for December 10, 2007.   


BACKGROUND:  On October 15, 2007 the Board considered and approved a Water Distribution System (WDS) permit to allow the City of Sand City (City) to convey water from its proposed 300 acre-feet/year (AFY) brackish water desalination plant to the California American Water (CAW) water distribution system.  The permit allows CAW to deliver this desalinated water to existing customers within its Monterey Peninsula service area and, subject to certain special conditions, to serve future CAW customer connections within the City limits.  The Board also approved a separate-but-related amendment to the CAW WDS permit, which allows the company to use this desalinated water as a new source of supply, and adds a parcel in the City to its authorized service area.  A separate 15-year lease agreement for CAW to operate and maintain the plant has been entered into between CAW and the City.


As described in the City’s WDS permit application attached to the October 15, 2007 Board meeting staff report, within the next 10 to 20 years, the entire 300 AFY is projected to be used by parcels within the City in accordance with its General Plan.  In the meantime, CAW will have access to the desalinated water to help reduce pumping from the Carmel River Basin and comply with State Water Resources Control Board (SWRCB) Order WR 95-10, as well as to serve as a replenishment source to offset Seaside Groundwater Basin pumping reductions scheduled to begin in 13 months under the 2006 Superior Court adjudication decision.  The MPWMD served as a Responsible Agency in acting on these WDS permits, which also covers District consideration of the entitlement Concept Ordinance, in compliance with the California Environmental Quality Act (CEQA), and relied on environmental documents certified by the City.   While too lengthy to attach, a copy of the staff report submitted for the October 15 Board meeting is available from the District office upon request, and can be found on the District’s website at:   


At its October 15, 2007 meeting the Board received, but did not directly address or consider, a MPWMD concept ordinance prepared by District counsel, which was largely based on a draft ordinance submitted by the City’s legal counsel.  The draft concept ordinance proposed to grant the City a legal entitlement to 206 AFY of the water produced by its desalination plant, and would create a District water use permitting process to authorize new CAW connections for parcels within the City to be served by its desalinated entitlement water.   Special conditions in both the approved City and CAW WDS permits, anticipate District adoption of such an ordinance.  Specifically, the City’s permit authorizes a single connection to the CAW system; and approval of future CAW connections serving parcels located within the City limits is contingent upon creation by the ordinance of a 206 AFY “Desalination Water Entitlement,” provided the plant is completed, properly maintained and reliably able to produce 300 AFY of potable water under the CAW WDS permit.  At the October 15 meeting, the Board referred the water entitlement concept ordinance to the Rules and Regulations Review Committee without policy guidance, and directed that the Committee study and submit its recommendation regarding the ordinance to the Board for consideration.         


MPWMD General Counsel Laredo’s memo of May 29, 2007 (Exhibit 14-D) suggested that a water entitlement ordinance be considered in connection with District Board action on the City and CAW WDS permits.  The ordinance proposes to create a new MPWMD Rule 23.6, and would amend Rules 11, 21 and 23.1 to authorize issuance of District water use permits from the City’s 206 AFY entitlement of potable CAW water to Sand City parcels for new and intensified uses, based on 300 AFY of production from the City’s desalination plant. (The remaining 94 AFY represents existing CAW use in Sand City.) The ordinance is generally modeled after District Ordinance No. 109, which substantially amended Ordinance 39.  Among other substantive changes, Ordinance 109 authorized a portion of the Pebble Beach Company’s legal water entitlement, created by Ordinance 39 in connection with its enabling of the original recycled water project, to be sold to Del Monte Forest residential property owners as a funding source for expansion of the recycled water project. 


The major sections of Ordinance No. 132 include:


A.      Findings, Short Title and Purpose

B.       Create new Rule 23.6 for Sand City Water Entitlement

C.      Amend Rule 21-E re: “Benefited Properties”

D.      Amend Rule 23.1 re: Water Use Permit for a “Benefited Property”

E.       Amend Rule 11 (Definitions) to be consistent with entitlement, and add new definition for Sand City Desalination Facility


A summary of the key aspects of the ordinance include:

A.      A Sand City Water Entitlement of 206 AFY is created as a vested property right to the City as long as CAW takes delivery of 300 AFY of potable water from the Desalination Facility.  The City may then transfer the vested right to individual properties within the City.  MPWMD will track how the 206 AFY “account” is “drawn down” over time.

B.       The entitlement begins via a Water Use Permit to the City when the Desalination Facility is fully operational; the entitlement continues through December 2082.

C.      The Entitlement is separate and distinct from any other water allocation (Rule 30).

D.      Properties within the City must abide by all conservation and water rationing rules.

E.       All standard fees associated with MPWMD permits must be paid, as well as all charges imposed by the California Public Utilities Commission (CPUC), CAW or other entities with authority.

F.       MPWMD water factors apply to the properties and MPWMD may track water use on these properties. 


Concept Ordinance Policy Issues


In an October 1, 2007 memo Mr. Laredo identified several policy considerations not addressed in the draft concept ordinance submitted by the City Attorney (Exhibit 14-E).   Since the Board provided no policy guidance to the Committee on the draft concept ordinance, and because they are not legal matters, District staff subsequently analyzed these policy issues in the staff report for the November 8, 2007 Rules and Regulations Review Committee meeting.  The purpose of this staff analysis, which is repeated here, was to determine differences and similarities between the policy purposes imbedded in Ordinances 39 and 109, and the physical and financial conditions inherent in the Sand City Water Supply Project, in order to suggest which of these policy issues are relevant and appropriate to address in any revision of the draft concept ordinance.  This staff analysis was based on a thorough review of Ordinances 39 and 109 that authorized the original Carmel Area Wastewater District/Pebble Beach Community Services District (CAWD/PBCSD) Wastewater Reclamation and Expanded Recycled Water projects, respectively.  


Staff found that neither Ordinances 39 nor 109 contain a recital or operative provision stating that their terms and conditions were intended as MPWMD policy precedent for other future water supply projects proposing an entitlement.  To the contrary, these two ordinances very narrowly describe the terms and conditions related to the “fiscal sponsors” of the two sub-potable water supply projects, as well as the potable “water entitlement” granted to the Pebble Beach Company and two other Del Monte Forest property owners as a consequence of the projects’ effect in reducing potable water demand.    Ordinances 39 and 109 were specifically tailored to the unique financial and physical conditions required to secure fiscal sponsorship of the two projects, and the water entitlement they created constituted the financial incentive needed to attract such fiscal sponsorship.  These financial conditions do not exist in connection with the Sand City Water Supply Project, nor is there a need for the District to attract a financial sponsor for that project. 


Specifically, Ordinance 39 was adopted to create a legal mechanism for fiscal sponsorship, and a financial guarantee of sufficient revenue required for repayment of District-issued debt financing, for the original reclamation project tertiary treatment and distribution system facilities constructed by CAWD and PBCSD, respectively.  The 50 percent potable water entitlement limit in Ordinance 39 was intended to provide an adequate incentive to attract a guaranteed financial resource required for project capital cost debt amortization, and to cover any operations and maintenance (O&M) deficiencies resulting from inadequate revenues of recycled water sales.  The primary purposes of Ordinance 109 were to: (1) amend Ordinance 39 to facilitate financing, construction and operation of the expanded reclamation (now called recycled water) project; and (2) allow a portion of Pebble Beach Company’s water entitlement to be sold to third parties within the Del Monte Forest in order to finance the expanded project, given its acknowledgment of the limited availability of public funds for such a purpose.  District staff understands that the state awarded the City of Sand City a $2.9 million Prop. 50 grant for its desalination project, and the remainder of funds required to complete the design and construct the facility are available from financial resources controlled by the City and its redevelopment agency.  MPWMD has no role in financing or attracting fiscal sponsorship of the project.      


Based on the foregoing analysis, staff found that there are substantial factual dissimilarities between the specific legislative purposes of Ordinances 39 and 109, and the District’s more limited legislative interest in the Sand City Water Supply Project concept ordinance.   Thus, staff concluded that the rationale for incorporating any of the policy issues raised by Mr. Laredo should be based on the adequacy and clarity of the concept ordinance in meeting physical conditions directly related to the District’s role in regulating the Sand City desalination project, and the latter’s effect on the CAW distribution system.   (To avoid redundancy, the balance of the staff report for the November 8 Rules and Regulations Review Committee is not attached, but is available in the District office or at the following web link       

At the Rules and Regulations Review Committee meeting, City representatives submitted a memo dated November 8, 2007 (Exhibit 14-F).  The City memo restates the simplified, summary of the 12 policy issues described in Mr. Laredo’s October 1, 2007 memo, as well as District staff’s conclusions, both of which were set out in the Committee report.  The November 8 City memo also provides the City staff’s response, along with text they proposed be added to the concept ordinance.  (The City representatives also distributed a redline revision to the concept ordinance showing its proposed text changes, which is not attached to this staff report.)  Committee members discussed each of the 12 policy issues, and they concurred in District staff’s conclusions, as well as City staff’s responses, for all policy items except those noted below (number references identical to those in (Exhibit 14-F):


Policy item 4:  The Committee proposed that Sand City desalination plant service “interruption” notification language, similar to that contained in Ordinance 109, should be included in the Sand City Water Entitlement ordinance. 


Policy item 7:   The Committee proposed that a clause be added to the Sand City ordinance reciting the expectation that CAW’s expense under operating lease with the City will be passed on to its ratepayers.


Finally, although not described in the City’s November 8 memo, the City’s attorney called to the Committee’s attention a new policy issue reflected in Section Three (3) D. of his redline revision of the concept ordinance.  Specifically, this language proposes to add to Rule 23.6 a prohibition against District enactment of a moratorium on issuance of water use permits for Sand City desalinated entitlement water, in the event the District were to impose rationing or declare some other water emergency that would affect approval of new connections to the CAW system.   He asserted that this language is similar to provisions in Ordinance 109, and was inadvertently omitted in earlier concept ordinance drafts exchanged with District counsel.  The Committee concurred in the addition of language similar to the Ordinance 109 provision, subject to Mr. Laredo’s confirmation of same and drafting of text as he deems appropriate for this purpose.               



14-A    November 13, 2007 Memo from General Counsel Laredo that summarizes modifications made to the previous Concept Draft Ordinance

14-B    MPWMD Draft Ordinance No. 132

14-C    Red-lined version of Draft Ordinance No. 132 that highlights differences between the Concept Draft Ordinance and the draft presented for first reading

14-D    General Counsel Laredo memo dated May 29, 2007   

14-E    General Counsel Laredo memo of October 1, 2007

14-F     City of Sand City memo dated November 8, 2007