Item-8

ITEM:		ACTION ITEM

8.	CONSIDER AUTHORIZATION OF EXPENITURE OF FUNDS FOR SERVICES RELATED TO THE ACQUISITION OF THE MONTEREY WATER SYSTEM (MEASURE J)

Meeting Date:			August 15, 2022	Budgeted:	No

From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item:

Prepared By:			David J. Stoldt	Cost Estimate:	$315,000

General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

SUMMARY: The November 12, 2019 public workshop related to the feasibility of acquisition of the Cal-Am Monterey Water System (Measure J) concluded that an acquisition is economically feasible. Seven different consultants or law firms worked on that phase of the analysis.

The very lengthy review of the District’s application to the Monterey County Local Agency Formation Commission (LAFCO) has resulted in earlier data and analysis to become stale and in need of updating. Further, the General Manager and District Counsel have determined that it is necessary to develop a formal appraisal as the basis for a bona fide offer to acquire the system and best position the Board to vote on a Resolution of Public Necessity sometime early next year. The scope of appraisal services has a preliminary budget totaling $315,000.

RECOMMENDATION: The General Manager recommends the Board approve entering into new agreements with an overall business enterprise appraiser, a real estate appraiser, and a water rights appraiser, all as described below, and authorize a total budget of $315,000.

DISCUSSION: It is appropriate to update and formalize the financial analysis of the water system to make a formal appraisal/offer. Based on additional information to be gathered and reviewed, an appraisal of the system will be prepared as of an updated specified date. The analysis will include completing refinements to the prior valuation analysis.

Separately, the District will also secure an updated appraisal of real estate associated with the Monterey Water System which the business appraiser will incorporate into its analysis.

In a similar fashion, the District will have the water rights separately appraised and incorporated into the overall analysis.

The prime consultant will prepare an appraisal report consistent with the Uniform Standards of Professional Appraisal Practice (USPAP) and other industry guidelines.

The District’s legal and appraisal team will collectively have to discuss what regulatory assets and/or other add-ons would go into the final bona fide offer to purchase.

We are not presently asking the Board for authorization of funds for two aspects regarding rates: (i) Looking at what Prop 218 might allow, what would rates need to look like upon acquisition? How does that compare to Cal-Am’s structure if they leave their steep tiers in place or if by then they have a more traditional block rate structure? and (ii) Look at the District’s proposal for a low-income rate subsidy, check the math and Prop 218 assumptions. Such scope of work and a budget will be brought forward if the Board elects to move forward with a condemnation proceeding.

Legal work related to this next phase of the Measure J process was already authorized by the Board in December 2019. We would have Rutan & Tucker work directly with District Counsel to develop findings to support a resolution of public necessity. This will involve reading testimony from recent General Rate Cases, CPUC decisions in those GRCs and other applications of Cal-Am, and other research to support findings that an acquisition is in the public interest. It would be the intention to put into the record of the Resolution of Necessity hearing all of the evidence needed to fend off any challenges Cal-Am is likely to make on the “more necessary public use” issue during the “right-to-take” phase of the eminent domain case to follow (assuming, of course, the District Board adopts the resolution). This entails evidence on 3 basic issues: (1) relative cost of service (District vs. Cal Am); (2) relative quality and reliability of service (District vs. Cal Am); and (3) governance issues (District vs. Cal Am).

The attorneys will also weigh in on the formal appraisal/offer analysis prepared by the appraisal team. They will also prepare proper notices and filings (e.g. Notice of intent to appraise, Writ to gain entry if needed, etc) and other duties as necessary.

Additional costs will be incurred by DeLay & Laredo performing contract management, meeting expenses, document preparation, research, and potential small third-party contracts as needed.

A budget summary is shown below:

Budget Summary

Item	Budget
Overall Business Enterprise Appraisal	$160,000
Real Estate Appraisal	$80,000
Water Rights Appraisal	$75,000
TOTAL	$315,000

The expected timeline is shown on the next page:

Cost Estimate:

$315,000