mprwa agenda packet 01-31-13

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AgendaMonterey Peninsula Regional Water Authority (MPRWA)

Special Meeting

7:00 PM, Thursday, January 31, 2013

Few Memorial Hall of Records580 Pacific Street

Monterey, California

ROLL CALL

PLEDGE OF ALLEGIANCE

PUBLIC COMMENTSPUBLIC COMMENTS allows you, the public, to speak for a maximum of three minutes on anysubject which is within the jurisdiction of the MPRWA and which is not on the agenda. Any personor group desiring to bring an item to the attention of the Authority may do so by addressing theAuthority during Public Comments or by addressing a letter of explanation to: MPRWA, Attn:Monterey City Clerk, 580 Pacific St, Monterey, CA 93940. The appropriate staff person will contactthe sender concerning the details.

AGENDA ITEMS

1. Approve Budget Adjustment Necessary to Fund Separation Processes Inc. and Kris HelmConsulting to Prepare Testimony To Be Submitted To the California Public UtilitiesCommission on February 22, 2013 and Appear at Subsequent Hearings in April.(CPUC A 12-04-019)

2. Discuss Status of Desalination Project Proposals and Provide Direction to Staff forSubmission of Testimony to the California Public Utilities Commission onFebruary 22, 2013 (CPUC A 12-04-019)

ADJOURNMENT

The Monterey Peninsula Regional Water Authority is committed to include the disabled in all ofits services, programs and activities. For disabled access, dial 711 to use the California Relay

Service (CRS) to speak to staff at the Monterey City Clerks Office, the Principal Office of theAuthority. CRS offers free text-to-speech, speech-to-speech, and Spanish-language services24 hours a day, 7 days a week. If you require a hearing amplification device to attend ameeting, dial 711 to use CRS to talk to staff at the Monterey City Clerks Office at(831) 646-3935 to coordinate use of a device or for information on an agenda.

Agenda related writings or documents provided to the MPRWA are available for publicinspection during the meeting or may be requested from the Monterey City Clerks Office at 580Pacific St, Room 6, Monterey, CA 93940. This agenda is posted in compliance with CaliforniaGovernment Code Section 54954.2(a) or Section 54956.


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Monterey Peninsula Regional Water Authority

Amended Agenda Report

Date: January 31, 2013

Item No: 1.

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FROM: Prepared By: Clerk to the Authority

SUBJECT: Approve Budget Adjustment Necessary to Fund Separation Processes Inc. and

Kris Helm Consulting to Prepare Testimony To Be Submitted To the California

Public Utilities Commission on February 22, 2013 and Appear at Subsequent

Hearings in April. (CPUC A 12-04-019)

RECCOMENDATION:

That the Authority amends the adopted FY 2012-13 budget by reallocating a maximum of

$15,440 from the contingency line item to pay for consultants from Separation Processes Inc.

(SPI) and Kris Helm to prepare testimony to be submitted to the California Public UtilitiesCommission on February 22, 2013 and appear at subsequent hearings in April.

DISCUSSION:

The California Public Utilities Commission deadline to submit intervenor testimony regardingCPUC Application 12-04-019 concerning the Cal Am Monterey Peninsula Water Supply Projectis February 22, 2013. The Authority has directed staff to work with consultants SeparationProcesses Inc and Kris Helm Consulting to prepare testimony relating to the finalized report,Evaluation of Seawater Desalination Facilities. Staff further anticipates requesting that theseconsultants appear at the evidentiary hearing in CPUC A.12-04-019 scheduled for April.

Funding necessary to facilitate this request is listed below. It has been estimated that theconsultants will expend between 30 and 40 hours each at a rate of $193 per hour. The budgetreflects the maximum cost that will be incurred in this, but the actual cost will likely besignificantly less. This expense was not included in the Fiscal year 2012-13 budget adopted onJanuary 10, 2013.

MPRWA Budget Adjustment

Description

Total Consultant Hrs to Attend CPUC Hearing 40 hrs each

Cost Per hour $193

Total Costs $15,440

Contingency Budget $22,295

Consultant Costs of Attendance $15,440

Contingency Ending Balance $6,855

Staff recommends approving the amendment to the budget to allocate funds from thecontingency fund to pay for these services. This will not exhaust the contingency line item.


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Monterey Peninsula Regional Water Authority

Amended Agenda Report

Date: January 31, 2013

Item No: 2.

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FROM: Prepared By: W. M. Reichmuth, Executive Director

SUBJECT: Discuss Status of Desalination Project Proposals and Provide Direction to Staff

for February 22, 2013 California Public Utilities Commission Testimony (CPUC

A12-04-019)

DISCUSSION:

Staff requests that the Board provide substantive guidance regarding present understandingsconcerning the proposed desalination project proposals for the Monterey Peninsula for the

purpose of developing testimony to be submitted in CPUC A. 12-04-019.

The sole desalination project pending before the CPUC is the project proposed in Cal-Ams

application (A.12-04-019) to serve its Monterey District customers. Two additional projects have

been proposed, Deep Water Desal (DWD) and Peoples Moss Landing (PML), but are not

before the CPUC for approval.

Staff recommends that the Board provide staff with guidance as to the direction of testimony to

be submitted to the CPUC. Enclosed is a deliberative document that explains staffs view as to:

(1) the conditions that would be necessary to garner the Authoritys support for the proposed

Cal Am project; and (2) if those conditions were accepted by Cal-Am, why the proposed Cal-Am

project appears to be preferable to the DWD and PML alternatives projects, under the current

state of knowledge. Should the Board concur; the deliberative document will serve as guidance

in the preparation of testimony to be submitted to the CPUC. The Board is, of course, free to

revise the enclosed document or to direct another course of action.

ATTACHMENTS:

1. Proposed Position Statement2. Cost Sensitivity, Power and Financing

3. Decision Matrix Completed by the TAC4. Decision Matrix Completed by SPI and Kris Helm Consultants


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Deliberative Document

The following draft position statement is provided to stimulate discussion. TheWater Authority is considering this position statement as potential direction to ourstaff and consultants in preparing PUC testimony due February 22nd, 2013. Thisposition is being proposed now, in advance of a completed EIR and in recognitionthat more information will be forthcoming, because the PUC decision process is

underway and the Water Authority seeks to have a voice in that process.

Proposed Position Statement:

Any project must meet four basic criteria:

1. Project economics must be competitive.2. Project must have suitable public governance, public accountability and

public transparency.3. Project must have clear path to permitting and constructing the facility as

near to the CDO deadline as feasible.4. Project must have contingency plans to address significant technical,

permitting and legal risks.

None of the three projects (Cal-Am, Deepwater Desal or DWD, or Peoples MossLanding or PML) as proposed meet these criteria. Therefore, none of the threeprojects as proposed warrant Water Authority support. However, at this time Cal-Ams proposed project appears to be closest to meeting these four criteria. Cal-AmsProject would earn our support if Cal-Am makes certain modifications.Consequently, the Authoritys support for the Cal-Am Project is subject to thefollowing conditions:

1. Cal-Am must accept a significant contribution of public funds. Without theinterest rate advantages afforded by such approach, the costs of water fromthe Cal-Am Project will be materially higher, and likely substantially in excessof the cost of water from the alternative projects. A significant contribution ofpublic funds will avoid such an unwarranted expense to Cal-Ams ratepayers;

2. Cal-Am must agree, upon mutually-acceptable terms, to form a GovernanceCommittee to provide publicly-accountable oversight of the project;

3. Cal-Am must diligently seek to secure lower electricity rates for the project(e.g., $0.08-$0.09 cents/kWh as most recently estimated by Cal-Am)including agreement to purchasing power through a municipal electricalutility or generation of on-site power if necessary;

4. Cal-Am must agree to limit the use of revenue from Cal-Ams Surcharge 2 toreduce risk to Cal-Am ratepayers in the event the Cal-Am project does notmove forward. For example, Cal-Am could agree to only fund lower risk partsand phases of the project (such as only the construction phase after theissuance of a Coastal Development Permit from the Coastal Commission) orcould provide other mechanisms of reducing the risk to Cal-Am ratepayers.

5. To promptly address concerns pertaining to Cal-Ams proposed intake wells,Cal-Am must:


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Address or cause to be address all issues raised in the December 2012Tim Durbin testimony;

proceed with the planned test wells and any other advancedgeotechnical work to support the proposed intake wells as soon aspractically feasible;

collaborate with local public agencies to advance permitting effortswith other responsible agencies, including the California CoastalCommission;

seek to clarify whether the installation of Cal-Ams intake wells willrequire approval from any federal agency, which would, in turn,require NEPA compliance; and

continue to explore and advance alternative intake strategies as acontingency if Cal-Am's proposed intake wells prove legally ortechnically infeasible.

Cal-Am must fully develop a contingency plan or plans for sourcewater that do not involve wells in the Salinas Basin. This must be done

concurrently along with Cal-Am planning and testing of slant wells.6. Cal-Am must show something in writing from the State demonstrating its

ability to secure SRF financing. Absent such a document, the Water Authoritywill work with the Water Management District to secure SRF financing aspublic agencies. Cal-Am must accept a public agency partner for SRFpurposes if necessary, even if doing so results in a reduction in Cal-Amsequity position.

7. Cal-Am must address questions about sea level rise and coastal erosion withrespect to the placement and longevity of their proposed slant wells. Coastalsands are also prone to liquefaction in seismic events and coastal facilitiesare susceptible to damage from tsunami events as well.

If Cal-Am meets the above conditions, the Authority conditionally supports the Cal-Am Project because:

1. Cal-Ams desal project size appears to be consistent with the WaterAuthoritys position of focusing on water for replacement andreplenishment and accommodates the policy desire to pursue a portfolio ofprojects to meet the needs of our communities, thereby reducing the riskassociated with any project failing or being delayed. The Coastal Commissionidentifies proposed projects with a defined service area with a known levelof build-out as involving an easier review while projects with an

unknown or extensive service area as involving a more difficult review.Cal-Ams project would involve this easier review while DWD wouldinvolve a more difficult review.

2. Cal-Ams project, DWD project and PML project are all in the planning stagealthough Cal-Ams project is the most advanced according to both SPI andthe TAC.

3. permitting agencies will require the least environmentally harmful feasiblealternative for source water intake. The Coastal Commission states that a


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subsurface intake (such as Cal-Ams proposed slant wells) involve an easierreview while an open-water intake involves a more difficult review. StateWater Board staff likely will recommend that subsurface is preferred. Ifsubsurface is not feasible, consider Track 2 (infiltration galleries or openwater intake). It is unlikely that open water intake will be permitted unless

test slant wells have shown subsurface intake to be infeasible. Any projectmust therefore include a test slant well. Only Cal-Ams project proposes to doso.

4. only Cal-Am has demonstrated ability to finance a project. Their financingplan is comprised of four different sources of capital; short-term constructionfinancing, Surcharge 2, SRF, and equity. Neither of the other two projectshave a detailed financing plan and neither would likely have access to short-term construction financing, Surcharge 2 or SRF, all advantageous forms offinancing (Cal-Am offers the short-term construction financing but only fortheir project. Surcharge 2 is only permitted for a Cal-Am facility. SRF isunlikely to be available for open water intake.) We propose to include a

significant public contribution as a fifth source of capital. Doing so wouldsignificantly lower the Net Present Value (NPV) cost of the project.

5. Cal-Am has the capital necessary to complete the permitting of its project.Neither of the other projects have demonstrated this ability.

6. Cal-Am has indicated the potential for securing electricity at $0.087 per kwhand could possibly purchase electricity at a lower rate through a municipalelectrical utility formed by a local public agency. DWDs proposed municipalelectrical utility involves the City of Salinas and its success is thereforeoutside of the direct control of the Water Authority.

7. the ultimate unit cost of water from the Cal-Am Project in comparison to thecost of water from the DWD and PML projects are close in amount presuming

a significant public contribution is made to lower the financing costs of theCal-Am Project and that Cal-Am secures electricity in the $0.08-0.09 per kwhrange.

a. SPI estimates that Cal-Ams production cost would be $2,310/$3,015per acre foot for the larger/smaller desal projects respectively if thecost of financing is brought down to 4% and the cost of electricity isreduced to $0.087 per kwh. This is within about 10% of the unitproduction costs of DWD ($2,100/$2,670) and is largely due to theincreased cost of slant wells.

b. The range of these estimates is minus 30% to plus 50%. The TACrecommends the Water Authority focus its attention on the ranges.

c. For the larger plant, the range of the cost per acre foot of Cal-Amsproject with Water Authority conditions is $1617 to $3465. Thecorresponding range for DWD is $1470 to $3150.

d. For the smaller plant, the range of the cost per acre foot of Cal-Amsproject with Water Authority conditions is $2110 to $4522. Thecorresponding range for DWD is $1870 to $4005.

8. The DWD project involves a complex relationship of various entities,including a municipal electrical utility, a data center, the formation of a


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regional JPA, a water purchase agreement with Cal-Am. The Water Authorityis not aware that any of these relationships have been established. Thisunresolved complexity leaves more room for possible delay or failure. Incontrast, Cal-Ams organization structure is described as good by SPI.

9. Both DWD and PML will likely face questions from permitting agenciesregarding the placement of the desalination plant in relationship to the 100year flood plain and sea level rise. It is unclear how either project willrespond to such questions.

10.The CEQA review for Cal-Ams project is well underway and is being handledby the Public Utility Commission as the lead agency. Any court challenge tothe CPUCs EIR must be made by a petition directly to the State SupremeCourt (very few petition are granted), reducing the legal risk of a challengeand also reducing the likelihood of project delay in comparison to a CEQAchallenge to a project involving a local lead agency. Moreover, the Authorityhas requested that both alternatives be reviewed at a project level such thatno further environmental review would be required if the Cal-Am project

fails in whole or part.11.The Governance Committee agreement strikes the right balance of ensuring

that the most important decisions are either made by public agencies or arefully informed by recommendations from public agencies. The GovernanceCommittee agreement avoids inserting the public agencies into decisions thatare judged to be better made by a private entity.


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Summary of Cal-Am Cost Sensitivity Evaluation

Energy $5.38 $3.26 $3.68 $2.24

Chemicals $0.32 $0.19 $0.32 $0.19

Expendables $0.69 $0.45 $0.69 $0.45

OtherO & M LaborEquipment Replacement

$2.69$1.50

$2.36$1.23

$2.69$1.50

$2.36$1.23

Capital Recovery3 $19.1 $16.2 $11.9 $10.1

Total Annual Cost $29.7 $23.7 $20.8 $16.6

1All costs are presented in millions of 2012 dollars.

2 Energy costs computed based on an annual average rate of $0.087/kW-hr. Alternative financing described in Note 4 below.

3Annual capital recovery extracted directly from Table 5-2 for Base Case; for the alternative, based on Total capital cost figuresfrom Table 5-2 and financing at an interest rate of 4.0% and term of 30 years..


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SPI Consultants/Kris Helm Consulting

Desalination Project Matrix

Detailed Proposal Yes Yes; but partial No

The availability of technical information is summarized in Sectiosupplied very detailed information for this stage of project deve

good; but details of it's integratioin with the planned data cente

information it has developed, but it is still preliminary pending th

Organizational capacity Good Complex Unkown

Cal-Am is a large, proficient organization. DWD's team is com

Dynegy, its data center partner, and Salinas is still developing;

facility.

Deliverability

SPI Consultants/Kris Helm Consulting


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mprwa agenda packet 01-31-13

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