By Marge Ann Jameson

Two state officials have issued proposed decisions, viewed as very important steps on the road to completion of the Regional Water Project. The decision could modify the proposed Settlement Agreement among the parties and hopefully result in approval of the Regional Water Project. Both officials recommend approval of the desalination project agreement as the most feasible way to provide water for customers of California American Water, the utility most of the Monterey Peninsula; but there are some differences in how they suggest that project go forward.

After a series of public meetings and input by Cal Am, Marina Coast Water District and the Monterey County Water Resources Agency — the three “partners” to the project — PUC Commissioner John Bohn and Administrative Law Judge Angela Minkin issued the rulings last week. Judge Minkin is the presiding officer in the proceeding while Bohn is a commissioner on the Public Utilities Commission.

Lowering cost caps and limiting cost recovery from customers in the event of cost overruns are two of the proposed changes. In fact, Minkin suggests that Cal Am be prohibited from charging customers for cost overruns for the Cal Am-only facilities. She suggests a capital cost cap of $95 million (which was the most probably estimated cost of construction) with an absolute cost cap of $106.875 million. Costs over that absolute cost cap could not be charged back to ratepayers according to Minkin’s proposal.

Bohn leaves that door open a bit by suggesting the company be allowed to charge customers for cost overruns if “exceptional circumstances” can be proven in a “rigorous reasonableness review.”

Minkin proposed a $275.5 million cost cap and Bohn proposed $272.5 million. The current proposed cost is $297.5 million. A cap could, historically, have a negative effect on financing. Marina Coast and MCWRA are considering Private Activity Bonds through the California Pollution Finance authority to find the construct debt, the interest accrued on the debt through the construction period, and the reserve funds that would be needed in order to sell the bonds. The Public agencies, too, are considering bonds as well as the potential use of grant funding.

Judge Minkin’s proposed decision suggests that any fees charged by Marina Coast Water for new connections on the former Ft. Ord be used to reduce the debt of the Regional Water Project and thus reduce costs to Cal Am ratepayers. She “removed the idea” of a fees limit, while Bohn looks to set Marina Coast’s contribution at $25 million — $22 million in new connection fees plus $3 million for “intangible benefits” the utility would receive from participating.

Minkin stated that, even with capital cost caps in place, the project will be costly for ratepayers.She said, “. . .we cannot agree that the proposed cost-per-acre-foot of $2,200 is a viable amount that will allow this project to go forward. We are faced with a difficult choice, but we are persuaded that even the revenue requirement implied by the worst case scenario is likely preferable to the severe water rationing and restrictions that would be imposed by the Cease and Desist Order.” She said she could not ignore the duty to balance the need for additional water and the fiscal impact on ratepayers.

She thus requires Cal Am to file and serve a financing plan for intensive review.

“The approach we adopt today should balance the needs of the Settling Parties to have certainty with regard to cost recovery, allow the Settling Parties some flexibility in obtaining financing, and still protect Cal-Am’s ratepayers,” she said, adding that shareholders’ needs must also be considered.

Along with the Settling Parties, which include Cal Am, Marina Coast Water District, Monterey County Water Resources Agency, Monterey Water Regional Pollution Control Agency, Surfrider Foundation, the Public Trust Alliance and Citizens for Public Water, Minkin wants to see a “Municipal Advisor” added to the Advisory Committee. The Water Purchase Agreement defines the Municipal Advisor as “two representatives appointed from time to time by the Cities of Carmel-by-the-Sea, Monterey, Pacific Grove, Sand City and Seaside.” Such a position would likely be held by Peninsula mayors.

”The mayors collectively took the stand that they would accept non-voting category on the Advisory Committee,” said Pacific Grove Mayor Carmelita Garcia. “We agreed that we would not do anything that would delay the process,” she added, saying that giving the Municipal Advisor full voting status it could jeopardize financing by allowing the Municipal Advisor to call for arbitration under section 6.6 of the Water Purchase Agreement.

Bohn does not feel full voting status is warranted for the “Municipal Advisor, even though Minkin said that having full Party status under the Water Purchase Agreement would guarantee that differing areas of technical and managerial expertise would give varying political perspectives.

The proposed decisions are not set in stone as yet. Only when the Public Utilities Commission acts will those decisions become binding; the PUC may choose to accept, amend, modify or even set the decisions aside and prepare its own. The Public Utilities Commission may act as soon as 30 days from the mailing date of the proposed decision, or it may elect to postpone action until later.

But time is of the essence in this issue: the Settling Parties intend to analyze the final financing package at the end of 2010, and there’s the Cease and Desist Order hanging over everyone’s head as well, not to mention construction time.

Sidebar

The Settlement Agreement proposes a public-private partnership. Under the Agreement reached by the Settling Parties, Monterey County Water Resources Agency would “own, construct, operate and maintain the source water wells and raw water conveyance facilities to the desalination plant.” The desalination plant would be owned, constructed, operated and maintained by Marina Coast Water which would also own water conveyance facilities to a delivery point, That delivery point becomes California American Water’s intake point. Cal Am would then “own, construct, operate and maintain the pipeline, conveyance and pumping facilities necessary to deliver the water to its customers.” That would include the transfer pipeline, the Seaside pipeline, the Monterey pipeline, the Valley Greens pump station, the Terminal Reservoirs and the Aquifer Storage and Recovery facilities. The Monterey Regional Water Pollution Control Authority would “own, operate and maintain the outfall” for the returning waste brine to the ocean.

Order WR 95-10

In 1995, the State Water Resources Control Board issued Order WR 95-10 requiring Cal-Am to cease diverting “water to which it has no legal rights” from the Carmel River and to undertake additional Measures to reduce its allowed diversions. By December 31, 2016 Cal Am must terminate all such diversions.