ITEM:		PUBLIC HEARINGS
18.	CONSIDER APPROVAL OF APPLICATION #WDS-20150922 DBO TO Amend California American Water Distribution System – TRANSFER OF D.B.O. DEVELOPMENT WATER RIGHTS IN SEASIDE BASIN, APN 011-011-051 (donor parcel), sand City
Meeting Date:			November 16, 2015	Budgeted:	N/A
From:			David J. Stoldt	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Henrietta Stern	Cost Estimate:	N/A
General Counsel Review: Reviewed and approved October 29, 2015
Committee Recommendation: N/A
CEQA Compliance: Ministerial Exemption (Guidelines Sec. 15268). The Superior Court and Appellate Court determined that MPWMD cannot interfere with the Seaside Basin Adjudication Orders and cannot address environmental impacts to the Seaside Groundwater Basin, or co-mingling of Carmel River and Seaside Basin sources.

SUMMARY: The Board will consider Application #WDS-20150922DBO (Exhibit 18-A, without attachments) submitted on September 22, 2015 by Co-Applicants California-American Water Company, a California Corporation (CAW) and D.B.O. Development No. 30, a California Limited Liability Company (DBO). The application requests amending the CAW Water Distribution System (WDS) via a transfer of 15.0 Acre-Feet per Year (AFY) of DBO water rights to CAW to enable future water service to unspecified recipient parcels designated by DBO in the Seaside Groundwater Basin, as allowed by the Monterey County Superior Court (Case #M66343) and the Seaside Basin Watermaster. The “Donor Parcel” is identified by DBO as Assessor’s Parcel Number (APN) 011-011-051 at the corner of Playa and California Avenue, Sand City (Exhibit 18-B). DBO will not physically extract and deliver water to the CAW system. Instead, CAW will “wheel” (deliver) DBO’s water rights to the recipient parcels through CAWs inland wells in the Seaside Basin Coastal Subareas. Moving production away from the coast is an environmental benefit and part of the “physical solution” enacted by the Superior Court. This action is referred to as the “CAW/DBO Amendment” herein and in various permit documents. It is similar to the “CAW/Cypress Amendment” in the Seaside Basin approved by the District Board in September 2014.

The requested 15.0 AFY is annual water production at the wellhead The actual metered sales recognized by MPWMD in its Water Permit tracking would be 13.95 AFY, based on an assumed 7% system loss rate in the CAW system. The applicant is aware of and accepts this reduction. The DBO water rights transfer to CAW was approved by the Seaside Basin Watermaster in a letter dated October 19, 2015 (Exhibit 18-C).

Similar to MPWMD Ordinance No. 165 for the Malpaso Water Company approved by the Board in August 2015, the first reading of a new MPWMD Ordinance No. 166 will be separately considered by the Board for the CAW/DBO Amendment at the November 16, 2015 meeting (Agenda Item 17).

As explained below, the Court has determined that MPWMD has limited authority to conduct California Environmental Quality Act (CEQA) review for WDS in the Seaside Groundwater Basin. Thus, CEQA compliance will be via a Notice of Exemption for a ministerial action.

MPWMD files associated with this application are available for review at the District office; adjudication materials are available electronically from the Watermaster website. This public hearing has been noticed via postings at the District office, website, agenda mailing list, CAW office, Watermaster office, and offices of jurisdictions within the Seaside Basin.

RECOMMENDATIONS: District staff recommends that the Board take the following actions:

1. Adopt the MPWMD Findings of Approval for Application #WDS-20150922DBO for the CAW/DBO Amendment (Exhibit 18-D).

2. Approve Application #WDS-20150922DBO; authorize issuance of MPWMD Permit #M15-07-L3 for the CAW/DBO Amendment with the Conditions of Approval specified in Exhibit 18-E. The Conditions of Approval include all the required conditions specified in MPWMD Rule 22-D as well as several special conditions for this project, as described in the “Discussion” section below.

3. Direct staff to file a Notice of Exemption with the County Clerk; this would be a Statutory Exemption for a ministerial action pursuant to CEQA Guidelines section 15268.

BACKGROUND: DBO was a party to the Seaside Groundwater Basin Adjudication and was included in the Adjudication Judgment of March 27, 2006, as amended (“Adjudication Decision”). Though DBO met the criteria to be viewed as having overlying rights (“Alternative Production Allocation”), DBO exercised its option to be treated as having appropriative rights (“Standard Production Allocation”), subject to the triennial 10% reductions through year 2021 in the Adjudication Decision. As explained in the cover letter to the application (Exhibit 18-A), DBO believes its transferable water rights exceed 15.0 AFY, even with these reductions.

In brief, the Adjudication Decision allows parties to combine pumping facilities and delivery for maximum benefit and management of the Basin, with Watermaster approval. Thus, water rights associated with DBO are not confined to one specific parcel, and may be produced from another Seaside Basin well owned by another entity (such as CAW’s inland wells) and delivered to recipient parcels within the Seaside Basin.

The DBO water rights are based on the historical production from a well that is located within the Edgewater Shopping Center complex on a parcel currently identified as APN 011-011-043. The well is a Monitor Well used by MPWMD and the Watermaster to track water depth and quality, and has not produced water for several years. The well parcel is owned by Dayton Hudson Corporation (Target), but the deeds to all parcels within the shopping center specify that water rights shall be retained by DBO. Because DBO owns parcel APN 011-011-051, it was designated as the Donor Parcel for simplicity. Importantly, DBO may exercise its water rights anywhere in the Seaside Basin and is not limited to the location of historical use. This element of the Adjudication Decision enables the water rights transfers to occur.

The State Water Resources Control Board (SWRCB) previously determined that the one-for-one replacement for new CAW supplies in Order No. WR 95-10 does not apply to transferred water rights within the Seaside Basin.

DISCUSSION: The following paragraphs describe MPWMD’s CEQA review, the Front-Loading Agreement, and the proposed Findings and Conditions of Approval as required by MPWMD Rule 22.

MPWMD CEQA Review

A Monterey County Superior Court Order dated May 11, 2009, as confirmed by the Appellate Court (Cal-Am v. Seaside, and Sierra Club v. MPWMD; 6^th Appellate District, H037286, April 1, 2010), determined that MPWMD can require a WDS Permit for water rights transfers in the Seaside Basin, but cannot require environmental review under CEQA. District Counsel has confirmed that the MPWMD Board’s decision on the CAW/DBO Amendment is viewed as a CEQA ministerial action (CEQA Guidelines section 15268) due to the above Court Orders.

Front-Loading Agreement

In his July 30, 2010 Order After Ex Parte Hearing, Case #M66343), Judge Roger Randall determined that MPWMD has the authority to require an accounting of water production to satisfy itself that no Carmel River water is being used, but cannot make environmental decisions based on mere co-mingling of Seaside and Carmel Basin waters in CAW storage tanks. Thus, the application materials include an “Agreement Regarding Front-Loading Delivery of Water” (“Front-Loading Agreement” or “Agreement”) executed on September 24, 2015 (Exhibit 18-F). The Front-Loading Agreement states that its intent is to: (1) show compliance with the terms of the Superior Court Order; (2) ensure operationally that only Seaside Basin Coastal Subarea water is produced and stored for the benefit of the recipient parcels in advance of water use on those parcels; and (3) provide assurance (in addition to accounting and reporting requirements) that there will be no temporal or other impact to Carmel River water sources. The Findings and Conditions of Approval specify data collection protocol associated with the Front-Loading Agreement to ensure that only CAW wells in the Coastal Subareas of the Seaside Basin are used to serve the recipient parcels (called “D.B.O. Properties” in the Agreement), which also must be located in the Coastal Subareas of the Seaside Basin.

Key components of the Front-Loading Agreement include:

1. CAW will lease up to 15.0 AFY of adjudicated water from DBO for delivery to DBO-designated properties. The lease commences only after local agency permits, including those required by MPWMD, have been obtained. [Note: the 15.0 AFY production amount is reduced to 13.95 AFY metered sales recognized by MPWMD for Water Permits for the DBO recipient parcels.]

2. DBO must provide advance notice about the properties to be served.

3. At least one month before setting the first water meter for a recipient parcel (or intensifying service to an existing customer), CAW will pump water from its inland Seaside Coastal Subarea wells to an existing storage facility. CAW shall “as frequently as necessary” produce the Leased Water in an amount that exceeds the amount of water actually delivered for the recipient parcels.

4. The Agreement intent is to always comply with the Adjudication Decision; the Agreement does not prohibit “mixing of molecules” from different sources (such as the Carmel River) in a tank, consistent with the May 11, 2009 Court decision.

5. CAW will account for and report the water use in accordance with Section 11 of the Watermaster Rules and Regulations.

6. The Agreement is conditional on: (a) written approval of a moratorium exception by the California Public Utilities Commission (CPUC) or an official of the SWRCB; (b) Watermaster approval; (c) a WDS Permit from MPWMD; (d) a Water Permit from MPWMD for the affected properties; and (e) total delivery to the DBO properties shall not exceed 15.0 AFY production.

Other components of the Agreement address cooperation, termination, cost allocation, indemnification and other standard legal issues.

Determination of Metered Sales Amount

The Front-Loading Agreement (pages 1 and 2) documents DBO’s water rights and determines that a lease of 15.0 AFY Standard Production Allocation is available to CAW; this amount already accounts for the triennial 10% reductions through year 2021 as well as other components of the Adjudication Decision. MPWMD issues Water Permits based on estimated metered sales (customer consumption) and must account for 7% CAW system losses. Thus, the 15.0 AFY production becomes 13.95 AFY metered sales that would be permitted for construction projects on the recipient parcels. The MPWMD Water Demand Division will track the 13.95 AFY amount as a separate “account” and issue Water Permits using the standard District methodology to estimate demand until the total is used up. MPWMD Ordinance No. 166 creates new Rule 23.8 that specifies this tracking process.

Findings of Approval

Findings of Approval for Application #WDS-20150922DBO (Exhibit 18-D) are based on evidence provided in the Application materials, including supporting documents received through November 10, 2015, on file at the District office. With the Conditions of Approval and Front-Loading Agreement, and previous action by the Monterey County Superior Court and Seaside Basin Watermaster, District staff believes a Finding can be made that the Application meets the criteria and minimum standards for approval set by District Rules 22-B and C. Specifically, this action should “not create an Overdraft or increase an existing Overdraft….” (Rule 22-C-4).

Conditions of Approval

The Conditions of Approval (Exhibit 18-E) proposed for Permit #M15-07-L3 are consistent with MPWMD Rule 22-D governing approval of Water Distribution Systems. Conditions #1 through #4 define the Permitted System, including CAW production of 15.0 AFY (equivalent to 13.95 AFY metered sales) to serve unspecified future recipient parcels which must be located in the Seaside Groundwater Basin, based on DBO’s Standard Production Allocation water rights. The Conditions are similar to those approved for the CAW/Cypress Amendment in September 2014, and reflect differences between the two projects. The CAW system will continue to change in the context of the Regional Water Project, so some flexibility is needed in the accounting methodology. District staff will need to track Water Permits associated with the CAW/DBO Amendment, similar to current tracking for the Sand City desalination project. The conditions refer to Ordinance No. 166 which addresses the specific process by which the recipient parcels will obtain Water Use Permits.

Conditions #5 through #24 are mandatory, including a variety of subjects such as water quality, metering and annual reporting, conservation, required Indemnification Agreement, fee payments, timely notice of pending or actual changes to the system, staff access, and other elements. Condition #24 states that the WDS Permit is subject to revocation if CAW or DBO does not fully comply with each and every Condition of Approval for Permit #M15-07-L3. Conditions #25 and #26 address basic water rights and the Endangered Species Act; these conditions are not required by District rules, but are included in all MPWMD WDS Permits.

Special Condition #27 requires DBO and its successors to give notice to the District and copies of any correspondence with the Watermaster regarding future transfers of water rights.

Special Condition #28 requires that CAW provide the District a copy of any quarterly report to the SWRCB that includes information about service to the recipient parcels; a link to the CAW website to view the information is acceptable.

Special Condition #29 provides notice that a current standard condition of approval for all Water Permits is a Deed Restriction that entails release of consumption information upon request by the District. This information may be accessed by the general public. CAW would release information designated in recorded Notice and Deed Restriction signed by the property owner.

Special Condition #30 directs CAW to implement water accounting methods to track CAW production sources to ensure that only wells in the Coastal Subareas of the Seaside Basin serve the recipient parcels, and no Carmel River Basin water is produced to serve the parcels, consistent with the 2009 Court Order and the Front-Loading Agreement. The MPWMD General Manager retains the right to review and approve the CAW methodology.

The Front-Loading Agreement calls for CAW to pump water from Seaside Basin and store the water prior to actual use by customers on the recipient parcels. It is noted that careful accounting is needed most in the November through April “high flow” period (i.e., when Carmel River flow is greater than 40 cfs) as defined by SWRCB Order 98-04. This period is when Seaside Basin pumping is minimized. In contrast, the May through October period is when pumping from the Seaside Basin is maximized, so front-loading will easily occur.

Special Condition #31 requires DBO to ensure that the well on APN 011-011-043 remains an inactive Monitor Well used by the District and Watermaster. In the context of cumulative beneficial changes, implementation of proposed regional water projects would further improve conditions in the Seaside and Carmel River Basins.

The proposed conditions were submitted to the Applicant on October 29, 2015. DBO representatives requested some minor corrections and clarifications on October 30 and November 3, 2015, which have been incorporated, in part, into the Conditions of Approval. The applicant representatives are satisfied with the Conditions as finalized.

EXHIBITS

18-A Application #WDS-20150922DBO dated September 22, 2015 (without attachments)

18-B Location of Donor Parcel, APN 011-011-051

18-C Watermaster approval letter dated October 19, 2015

18-D MPWMD Draft Findings of Approval dated November 2015

18-E MPWMD Draft Conditions of Approval dated November 2015

18-F CAW/DBO Draft Front-Loading Agreement signed September 24, 2015

U:\staff\Boardpacket\2015\20151116\PublicHrngs\18\Item18.docx