ITEM:		CONSENT CALENDAR
2.	CONSIDER APPROVAL OF CALIFORNIA AMERICAN WATER INTERIM REIMBURSEMENT AGREEMENT FOR THE DISTRICT MITIGATION PROGRAM
Meeting Date:			May 16, 2011	Budgeted:
From:			Darby Fuerst,	Program/	Mitigation
			General Manager	Line Item No.:
Prepared By:			Darby Fuerst	Cost Estimate:
General Counsel Review: Reviewed and approved.
Committee Recommendation: The Administrative Committee reviewed the agreement on May 10, 2011, and recommended that the Board approve the agreement by a 2 - 0 vote.
CEQA Compliance: N/A

SUMMARY: District staff and counsel have worked with California American Water (Cal-Am) staff and counsel to develop an interim reimbursement agreement to provide Cal-Am funding to continue the District’s Mitigation Program between May 24, 2011, when the current funding arrangement ends, and the effective date of final action by the California Public Utilities Commission (CPUC) on Cal-Am’s amended application to reinstate the District’s User Fee. Cal-Am has been directed to file its amended application by May 23, 2011. It is uncertain when the CPUC will act on the amended application. A copy of the draft Interim Implementation Agreement for 2011 - 2012 Carmel River Mitigation Program (Interim Reimbursement Agreement) is included as Exhibit 2-A.

RECOMMENDATION: District staff recommends that the Board authorize the General Manager to execute the Interim Implementation Agreement between Cal-Am and the District for the 2011 – 2012 Mitigation Program.

BACKGROUND: Since 1990, the District has implemented a comprehensive Mitigation Program to lessen the environmental impacts resulting from community water use and Cal-Am diversions from the Carmel River and Seaside Groundwater Basins. The Mitigation Program has been funded primarily by a user fee that Cal-Am collected and remitted to the District. In July 2009, the CPUC ordered Cal-Am to discontinue collection and remittance of the District’s user fee and directed Cal-Am to file an application addressing the manner in which the Mitigation Program was funded. In January 2010, Cal-Am filed the requested application, which included an all-party all-issue settlement agreement. In March 2011, the CPUC rejected the settlement agreement and directed Cal-Am to file an amended application. To ensure that the Mitigation Program continues pending a decision by the CPUC on Cal-Am’s amended application, Cal-Am and the District have developed an interim reimbursement agreement that will provide approximately $1,560,000 per year to continue the Mitigation Program in Fiscal Year 2012. Condition 11 of State Water Resources Control Board (SWRCB) Order No. 95-10 specifies that Cal-Am shall be responsible for implementing all measures in the “Mitigation Report for the District’s Water Allocation Program Environmental Impact Report” not implemented by the District. Condition 9 of SWRCB Order No. 2009-0060 (2009 Cease and Desist Order) also requires Cal-Am to comply with all requirements of Order 95-10, including Condition 11. The activities that will be funded under the Interim Reimbursement Agreement are summarized in the exhibits to the agreement.

IMPACT ON STAFF/RESOURCES: The proposed interim reimbursement agreement will provide funding to continue the core activities of the Mitigation Program. As proposed, no funding will be provided for additional work at the Water Project 1 site (Phase 1 Aquifer Storage and Recovery [ASR] site) or for water conservation activities. All capital asset purchases will be deferred and project expenditures will be minimized.

Under the current reimbursement agreement, Cal-Am provides funding to the District based a set percentage of Cal-Am’s revenues from water and meter charges. This percentage was last modified by the District Board in 2005 and equals 8.325% of Cal-Am’s revenues. Based on projected Cal-Am revenues of $36 million in Water Year 2011, the 8.325% user fee would generate approximately $3 million. Assuming similar revenues in Water Year 2012, the agreed-upon $1.56 million in interim reimbursement is equivalent to a 4.333% user fee.

Lastly, it should be noted that the District has filed an application for rehearing of the CPUC’s decision (D.11-03-035) denying the settlement agreement that was reached among Cal-Am, the District, and CPUC’s Division of Ratepayers Advocates (DRA) and disapproving Cal-Am’s request to reinstate the District User Fee, at the rate established by the District Board. As stated in the District’s application, the CPUC decision interferes with the District’s authority to impose and collect a lawfully set user fee and also is inconsistent with the Commission’s guidelines regarding collection of utility user fees.

EXHIBIT

2-A Interim Implementation Agreement for 2011-2012 Carmel River Mitigation Program

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